Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
Final Exam: Chapters 1-13 Name __________________________
Accounting Instructor _______________________
Kimmel, Weygandt, & Kieso Section # _______ Date _________
Part
I
II
III
IV
V
VI
VII
VIII
Total
Points
76
20
8
18
15
12
21
30
200
Score
PART I — MULTIPLE CHOICE (76 points)
Instructions: Designate the best answer for each of the following questions.
____ 1. Randace Enterprises incurred several costs related to the acquisition of plant assets.
Purchase price of land and dilapidated building $260,000
Real estate broker's commission 17,000
Demolition costs of dilapidated building 22,000
Architect's fees and building permits 24,000
Payments to contract for building construction 870,000
Purchase of new furniture and equipment 74,000
Actual interest costs during building construction 135,000
Actual interest cost after completion of building construction 120,000
Costs of walks, driveways, and parking lot 55,000
At what amount should the land be recorded in Randace’s accounting records?
a. $299,000
b. $277,000
c. $354,000
d. $282,000
____ 2. Randace Enterprises incurred several costs related to the acquisition of plant assets.
Purchase price of land and dilapidated building $260,000
Real estate broker's commission 17,000
Demolition costs of dilapidated building 22,000
Architect's fees and building permits 24,000
Payments to contract for building construction 870,000
Purchase of new furniture and equipment 74,000
Actual interest costs during building construction 135,000
Actual interest cost after completion of building construction 120,000
Costs of walks, driveways, and parking lot 55,000
At what amount should the building be recorded in Randace’s accounting records?
a. $1,051,000
b. $1,029,000
c. $870,000
d. $894,000
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
FE - 2
____ 3. The market rate of interest is higher than the stated rate of interest on bonds issued
by Dax, Inc. At what amount will the bonds be issued?
a. At a premium
b. More information is needed to determine the answer. c. At an
amount lower than face value
d. At an amount higher than face value
____ 4. Which statement is true concerning the accrual basis of accounting?
a. Revenues are recognized when earned and expenses are recognized when paid.
b. Revenues are recognized when earned and expenses are recognized when
incurred.
c. Revenues are recognized when received from customers and expenses are
recognized when incurred.
d. Revenues are recognized when received from customers and expenses are
recognized when paid.
____ 5. Why are adjusting entries necessary?
a. To update amounts in retained earnings for activity that occurred during the
period
b. To correct errors due to erroneous recording of journal entries
c. To update accounts due to resources used, amounts expired due to the passage
of time, or amounts that may need to be recorded
d. To remove the balances of temporary accounts so that financial statements can
be prepared
____ 6. How should the cost of intangible assets with indefinite lives be accounted for?
a. They should be amortized over the assets' estimated useful lives, or their legal
lives, whichever is shorter.
b. They should be amortized over the assets' estimated useful lives, or their legal
lives, whichever is longer.
c. They should be capitalized as an asset and checked for impairment periodically.
d. They should be expensed at acquisition.
____ 7. In a period of rising prices, which inventory method will result in the largest amount of
net income?
a. LIFO
b. FIFO
c. Average cost
d. Specific identification
____ 8. On October 31, 2014, Williams Company issued a $5,000, 8%, 6-month note to First
National Bank. Williams accrued interest at December 31, 2014. How much will
Williams credit to Cash to record the payment of the note at maturity?
a. $5,000
b. $7,400
c. $5,200
d. $5,133
Final Exam
FE - 3
____ 9. Wilson Company uses FIFO for inventory costing. During 2014, price levels
increased. Which statement is true concerning the amounts reported on Wilson’s
balance sheet and income statement?
a. The costs allocated to inventory on Wilson’s balance sheet reflect inventories
that approximate current costs.
b. The costs allocated to inventory on Wilson’s balance sheet may be significantly
understated in terms of current cost.
c. The costs allocated to cost of goods sold on Wilson’s income statement may be
significantly overstated in terms of current cost.
d. The costs allocated to cost of goods sold on Wilson’s income statement will
reflect the costs that most closely approximate current costs.
____ 10. The following information is available for Houser Produce Market:
Sales $225,000 Freight-in $11,000
Ending merchandise inventory 27,000 Purchase returns and allowances 4,000
Sales discounts 3,000 Depreciation expense 8,000
Purchases 143,000 Beginning merchandise inventory 23,000
How much is Houser’s cost of goods sold?
a. $173,000
b. $146,000
c. $143,000
d. None of these answer choices are correct.
____ 11. At what value are inventory items reported on the balance sheet?
a. At the lower of selling price or replacement cost
b. At the lower of selling price or original cost c. At the original cost to
acquire
d. At the lower of original cost or replacement cost
____ 12. What occurs when a company factors its receivables?
a. An estimate for bad debts is made
b. Accounts are written off
c. Receivables are sold
d. An aging analysis is performed
____ 13. Where can an investor find operating activities in a company’s financial statements?
a. On the statement of cash flows
b. On the income statement
c. On the statement of cash flows and the income statement
d. On all four financial statements
____ 14. Mattress King determined its return on assets was 1.5%. Which statement is true?
a. Mattress King earned profit equal to 1.5% of its total revenue for the period.
b. Mattress King earned profit equal to 1.5 times the amount of its assets.
c. Mattress King generated $1.50 of net income for each dollar of sales earned by
the company.
d. Mattress King generated $.015 of net income for each dollar of assets held by
the company.
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
FE - 4
____ 15. Which internal control is demonstrated by assigning different individuals to be
responsible for related activities?
a. Documentation procedures
b. Segregation of duties
c. Establishment of responsibility
d. Independent internal verification
____ 16. At what point in time does a company recognize an expense when it uses the
allowance method of accounting for uncollectible accounts?
a. When a customer’s account is identified as being uncollectible
b. In the same period as the revenue is earned
c. At the time expenses related to the collection activities are incurred
d. At the time the account is written off
____ 17. Which of the following describes shipping terms of FOB shipping point?
a. The purchaser is responsible for the shipping charges.
b. The shipping charges are debited to Delivery Expense by the buyer.
c. At the end of the year, any items in transit should be included as part of the
seller’s inventory. d. The seller must absorb the cost of shipping the
items.
____ 18. Respondo Company has a $145,000 balance in Accounts Receivable and a $420
debit balance in Allowance for Doubtful Accounts at yearend just prior to recording
adjusting entries. Credit sales for the period totaled $960,000. How much is the
amount of the bad debt adjusting entry if Respondo estimates that 1.5% of its
receivables will be uncollectible?
a. $2,595
b. $2,175
c. $14,400
d. $1,755
____ 19. What does the full disclosure principle require?
a. Companies must allow investors and creditors to examine their accounting
records.
b. Companies must disclose all circumstances and events that may affect decisions
made by investors and other users.
c. Companies must disclose the true value of all resources owned by the company
and all amounts owed to creditors.
d. Companies must disclose all transactions as part of their complete set of
financial statements.
____ 20. KB Retail sold merchandise for $800 subject to credit terms of 3/10, n/30. Which one
of the following is part of the journal entry made by KB Retail to record the collection
in full within the discount period in a perpetual inventory system?
a. Debit to Sales Discounts for $24
b. Debit to Cash for $824
c. Credit to Accounts Receivable for $824
d. Credit to Inventory for $24
Final Exam
FE - 5
____ 21. Haxen Company's records show the following for the month of January:
Total retained earnings at January 1 ......................................... $432,000
Total retained earnings at January 31 ....................................... 450,000
Total revenues ........................................................................... 2,160,000
Total dividends declared ........................................................... 140,000
How much are total expenses for January?
a. $2,002,000
b. $2,318,000
c. $1,984,000
d. None of the answer choices are correct.
____ 22. Stetson Company's financial information is presented below.
Purchase returns and allowances $ 16,000 Purchases $275,000
Sales returns and allowances 11,000 Ending inventory 32,000
Net sales 480,000 Cost of goods sold 290,000
How much is gross profit?
a. $190,000
b. $147,000
c. $195,000
d. $179,000
____ 23. Which statement is true concerning the preparation of closing entries?
a. They can be prepared before or after adjusting entries.
b. They cause the balances of all accounts at the end of the period to be adjusted
to zero.
c. They are necessary before financial statements can be prepared.
d. They result in updating the balance in Retained Earnings for the period.
____ 24. Navarro, Inc. reported the following item in its balance sheet at December 31, 2014:
Accounts receivable, net of $940 allowance……………………………..$56,300
Which statement is true?
a. Navarro’s customers owe $57,240.
b. During the year, customers charged $56,300 on account.
c. The balance owed by customers is $56,300.
d. Navarro expects its customers to pay $55,360.
____ 25. Current liabilities are obligations that are reasonably expected to be paid from
Existing Creation of Other
Current Assets Current Liabilities
a. No No
b. Yes Yes
c. Yes No
d. No Yes
____ 26. Which of the following errors will cause a trial balance to be out of balance?
a. Posting the issuance of stock as a debit to Cash and a credit to Common stock
b. Recording the payment of prepaid rent as rent expense
c. Posting a debit amount as a credit in the ledger
d. Posting a journal entry twice
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
FE - 6
____ 27. Which entity(ies) is/are responsible for establishing accounting standards?
a. Securities and Exchange Commission
b. International Accounting Standards Board
c. Financial Accounting Standards Board
d. Financial Accounting Standards Board and the International Accounting
Standards Board
____ 28. What does the balance in the Discount on Bonds Payable account represent?
a. Additional interest cost associated with the issuance of debt
b. A reduction of interest cost associated with the issuance of debt
c. A reduction of the maturity value of the bonds
d. An increase of the maturity value of the bonds
____ 29. Which of the following is not an operating activity?
a. Cash paid for interest on loans
b. Cash received from customers on account
c. Cash paid to suppliers for purchases made during prior months
d. Cash paid for dividends
____ 30. Which of the following combinations presents correct examples of liquidity,
profitability, and solvency ratios, respectively?
Liquidity Profitability Solvency
a. Days in inventory Price-earnings ratio Earnings per share
b. Current ratio Free cash flow Debt to assets ratio
c. Times interest earned Return on assets Free cash flow
d. Average collection period Payout ratio Cash debt coverage
____ 31. Which one of the following is an advantage of the corporate form of entity?
a. Limited life
b. Government regulation
c. Ownership rights are restricted to the same shareholders
d. Ability to acquire capital
____ 32. Which of the following pairs of terms in the area of financial statement analysis both
express each item in a financial statement as a percent of a base amount?
a. Vertical — Trend
b. Horizontal — Trend
c. Vertical — Common Size
d. Horizontal — Common Size
____ 33. At the beginning of June, assets totaled $45,600 and liabilities totaled $16,500.
During the year, the company earned net income of $15,000, and its assets
increased by $7,000. Stockholders’ equity increased by $3,200. How much are total
liabilities at the end of June?
a. $20,300
b. $29,100
c. $5,300
d. None of the answer choices are correct.
Final Exam
FE - 7
____ 34. Which of the following items is an item considered to be part of comprehensive
income, but is not reported as part of net income?
a. A gain from the disposal of plant assets
b. A realized loss from the sale of a trading security
c. An unrealized gain on an available-for-sale security
d. An extraordinary loss
____ 35. Mason Transport has the following stock outstanding at December 31, 2014:
5% Cumulative preferred stock, $12 Par $39,600
Common stock, $0.10 Par 12,000
Mason paid no dividends during 2013. During 2014, it declares $13,000 of dividends.
How much of the $13,000 will preferred stockholders receive?
a. $1,980
b. $3,960
c. $1,083
d. None of the answer choices are correct.
____ 36. Storage Products purchased 11,000 shares of its own $0.75 par value common
stock at a cost of $8 per share on April 30, 2014. The stock was originally issued at
$7 per share. Which of the following is part of the journal entry to record the
purchase?
a. Credit Common Stock for $88,000
b. Debit Treasury Stock for $88,000
c. Credit Common Stock for $8,250
d. Debit Treasury Stock for $8,250
____ 37. What is the effect on total stockholders’ equity of a stock dividend and a stock split,
respectively?
Stock Dividend Stock Split
a. Increase No effect
b. No effect No effect
c. Decrease No effect
d. Decrease Decrease
____ 38. Which of the following should be classified as an extraordinary item?
a. Effects of rare, major flooding
b. Write-off of a significant amount of receivables
c. Loss from the expropriation of facilities by a foreign government
d. Loss from disposal of the service division
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
FE - 8
PART II — MATCHING (20 points)
Instructions
Designate the terminology that best represents the definition or statement given below by
placing the identifying letter(s) in the space provided. No letter should be used more than once.
A
Allowance method
W
Historical cost method
B
Amortization
X
Impairment
C
Average cost method
Y
Internal control
D
Book value
Z
Last-in, first-out method
E
Capital expenditure
AA
LIFO reserve
F
Cash debt coverage ratio
BB
Maker
G
Consistency
CC
Monetary unit assumption
H
Contra asset account
DD
Net purchases
I
Credit memorandum
EE
Payee
J
Debit memorandum
FF
Periodic inventory system
K
Declining-balance method
GG
Periodicity assumption
L
Depreciable cost
HH
Permanent accounts
M
Depreciation
II
Perpetual inventory system
N
Direct write-off method
JJ
Ratio analysis
O
Discontinued operations
KK
Relevance
P
Earnings per share
LL
Return on assets
Q
Economic entity assumption
MM
Revenue expenditure
R
Extraordinary items
NN
Revenue recognition principle
S
Factor
OO
Stock dividend
T
First-in, first-out method
PP
Stock split
U
Full disclosure principle
QQ
Temporary accounts
V
Going concern assumption
RR
Units-of-activity method
___ 1. A characteristic of information that means it is capable of making a difference in a
decision
___ 2. An assumption that the economic life of a business can be divided into artificial time
periods
___ 3. This method of accounting for uncollectible accounts is required when bad debts are
significant in size
___ 4. Used by a bank when a previously deposited customer’s check “bounces” because of
insufficient funds
___ 5. The assumption that the enterprise will continue in operation long enough to carry out
its existing objectives and commitments
___ 6. The periodic write-off of an intangible asset
___ 7. The total amount subject to depreciation
___ 8. Use of the same accounting principles and methods from period to period by the same
business enterprise
___ 9. A permanent decline in the fair value of an asset
PART II — MATCHING (cont.)
Final Exam
FE - 9
___ 10. The party in a promissory note who is making the promise to pay
___ 11. An expenditure charged as an expense when incurred
___ 12. The inventory costing method that assumes that the costs of the earliest goods
purchased are the first to be recognized as cost of goods sold
___ 13. A system in which detailed records are not maintained and cost of goods sold is
determined only at the end of an accounting period
___ 14. The methods and measures adopted within a business to safeguard its assets and
enhance the accuracy and reliability of its accounting records
___ 15. Accounts whose balances are transferred to retained earnings at the end of an
accounting period
___ 16. A technique for evaluating financial statements that expresses the relationship among
selected financial statement data
___ 17. A measure of solvency that compares cash provided by operating activities and
liabilities
___ 18. An inventory costing method that assumes that the latest units purchased are the first
to be allocated to cost of goods sold
___ 19. A pro rata distribution of a corporation’s own stock to its stockholders
___ 20. The net income earned by each share of outstanding common stock
PART III — DEPRECIATION (8 points)
Anslaw Electronics purchased packaging equipment for $600,000 cash on July 1, 2014.
Management estimates the equipment can package 800,000 inventory units and will be
productive for 5 years. Its salvage value is estimated at $50,000. During 2014, the equipment
packaged 130,000 units, with another 140,000 units in 2014.
Instructions: Compute the annual depreciation expense for 2014 and 2015, and book value at
December 31, 2015, under the straight-line method.
2014 depreciation = $_______________
2015 depreciation = $_______________
December 31, 2015 book value = $_______________.
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
FE - 10
PART IV — ADJUSTING ENTRIES (18 points)
The trial balance of Active Fitness shows the following balances for selected accounts on
November 30, 2014:
Prepaid Insurance $10,000 Unearned Fitness Revenue $ 22,800
Equipment 68,400 Note Payable 32,000
Accumulated Depreciation 11,700 Rent Receivable 500
Instructions: Using the additional information given below, prepare the appropriate monthly
adjusting entries at November 30. Show computations.
1. Revenue earned for fitness center fees, but not yet billed, totaled $2,700 on November 30.
2. The note payable is a 9%, 1-year note issued October 1, 2014.
3. The equipment was purchased on January 2, 2012. It has an estimated life of 8 years and
an estimated salvage value of $6,000. Active Fitness uses the straight-line depreciation
method.
4. An insurance policy was acquired on June 30, 2014; the premium paid for 1 year had a
cost of $15,000.
5. Active Fitness received $22,800 in advance on November 1, 2014, from customers who
paid for 3 months of prepaid fitness fees.
Final Exam
FE - 11
PART V — BANK RECONCILIATION (15 points)
A review of the March 30 bank statement and other data of Sangster Aviation revealed a
$16,220 balance at March 31 on the bank statement and $15,940 as the balance in the cash
account in the company’s ledger. In addition, the following information was determined:
1. NSF Check from J. Beiber in payment of account .............................................. $ 180
2. Collection of a customer electronic payment by the bank .................................... 2,200
3. Deposits in transit at March 31 ............................................................................ 2,920
4. Outstanding checks at March 31 ......................................................................... 1,740
5. A check written by Sangster to Copytronics for a copy machine repair on March 13 was
recorded at $1,320 but correctly cleared the bank at $1,230.
6. A check drawn on the account of Halen Electronics for $650 was mistakenly charged
against Sangster’s account by the bank.
Instructions: As of March 31, prepare:
1. The bank reconciliation for the month of March (omit heading)
2. Related journal entries
1. BANK RECONCILIATION:
Amount Amount
Balance per bank statement $16,220 Balance per books $15,940
Adjusted balance per bank $ Adjusted balance per books $
2. ENTRIES:
Account Titles
Debit
Credit
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
FE - 12
PART VI — INVENTORY (12 points)
Hanover Lighting had a beginning inventory of 15 units at a cost of $7 per unit on August 1.
During the month, the following purchases and sales were made.
Purchases Sales
August 5 20 units at $8 August 2 10 units
August 11 30 units at $9 August 10 15 units
August 23 25 units at $10 August 19 40 units
August 21 15 units
Hanover uses a periodic inventory system.
Instructions: Determine ending inventory and cost of goods sold under:
1. FIFO
2. LIFO
1. FIFO:
Ending inventory = $_____________; cost of goods sold = $____________.
2. LIFO:
Ending inventory = $_____________; cost of goods sold = $____________.
Final Exam
FE - 13
PART VII — RATIO ANALYSIS (21 points)
The condensed financial statements of Source Electronics for 2014 are presented below.
Source Electronics Source Electronics
Balance Sheet Income Statement
December 31, 2014 For the Year Ended December 31, 2014
Assets Revenues $650,000
Current assets Expenses
Cash and short-term Cost of goods sold 360,000
investments $ 25,000 Selling and admin expenses 150,000
Accounts receivable 32,000 Interest expense 30,000
Inventories 43,000 Total expenses 540,000
Total current assets 100,000 Income before income taxes 110,000
Property, plant, and Income tax expense 33,000
equipment (net) 320,000 Net income $ 77,000
Total assets $420,000
Liabilities and Stockholders' Equity
Current liabilities $ 60,000
Long-term liabilities 220,000
Common stockholders' equity 140,000
Total liabilities and
stockholders' equity $420,000
Additional data as of December 31, 2013: Inventory = $47,000; Total assets = $390,000;
Common stockholders' equity = $110,000
Instructions: Compute the following listed ratios for 2014 showing supporting calculations.
Display answers to two decimal places.
1. Current ratio = _________________________________________________________ .
2. Debt to assets ratio = ____________________________________________________ .
3. Times interest earned = __________________________________________________ .
4. Inventory turnover = _____________________________________________________ .
5. Profit margin = _________________________________________________________ .
6. Return on common stockholders' equity = ____________________________________ .
7. Return on assets = _____________________________________________________ .
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
FE - 14
PART VIII — STATEMENT OF CASH FLOWS (30 points)
Presented below is information for 2014 and 2013 related to the operations of Zyr Electronics.
December 31
2014
2013
2014
Cash
$ 32,400
$ 26,500
Sales
$298,000
Accounts receivable
26,800
23,200
Cost of goods sold
145,000
Inventory
23,500
34,000
Gross profit
153,000
Prepaid expenses
2,100
2,900
Depreciation expense
8,600
Land
45,000
45,000
Other operating expenses
114,000
Equipment
124,000
98,100
Income from operations
30,400
Accumulated depreciation
15,800
19,900
Loss on equipment disposal
1,400
Total
$238,000
$209,800
Income before income taxes
29,000
Income tax expense
9,800
Accounts payable
$ 32,400
$ 46,500
Net income
$ 19,200
Wages payable
11,000
9,700
Bonds payable
35,000
0
Common stock
109,000
105,000
Retained earnings
50,600
48,600
Total
$238,000
$209,800
Additional information:
a. In 2014, Zyr declared and paid a cash dividend of $17,200.
b. The company issued $35,000 of bonds at a discount for cash.
c. Equipment with a cost of $17,000 and a book value of $4,300 was sold for cash. New
equipment was acquired for cash.
d. The company issued stock for cash.
e. Prepaid expenses pertain to operating expenses; accounts payable is only used for
merchandise purchases.
Final Exam
FE - 15
Instructions:
Prepare a statement of cash flows in proper form for 2014, using the indirect method.
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
FE - 16
Solutions — Final Exam: Chapters 1-13
PART I — MULTIPLE CHOICE (76 points)
PART II — MATCHING (20 points)
PART III — DEPRECIATION (8 points)
PART IV — ADJUSTING ENTRIES (18 points)
Final Exam
FE - 17
PART V — BANK RECONCILIATION (15 points)
PART VI — INVENTORY (12 points)
PART VII — RATIO ANALYSIS (21 points)
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
FE - 18
PART VIII — STATEMENT OF CASH FLOWS (30 points)
