Acct 284Old Exams – Spring 2004Page 1
Old Exam Packet – Spring 2004
Answer Keys
Question # / Exam 1 / Exam 2 / Final Exam1 / C / C / A
2 / D / C / C
3 / D / D / A
4 / B / B / A
5 / D / B / C
6 / A / A / A
7 / B / D / D
8 / D / D / C
9 / C / D / B
10 / C / A / B
11 / A / C / D
12 / A / C / A
13 / C / D / A
14 / B / C / C
15 / C / D / C
16 / C / A / B
17 / D / D / D
18 / B / B / B
19 / D / D / B
20 / B / B / A
21 / D / B / B
22 / D / B / D
23 / A / C / B
24 / C / C / A
25 / B / A / B
26 / C / C / B
27 / A / A / A
28 / C / A / C
29 / A / C / C
30 / C / A / B
31 / B
32 / D
33 / D
34 / C
35 / A
36 / B
37 / B
38 / C
39 / D
40 / A
41 / B
42 / D
43 / C
44 / D
45 / A
46 / D
47 / A
48 / C
49 / B
50 / D
Exam 1
1.On a balance sheet, assets are listed in the order of
a.dollar amount (largest first).
b.date of acquisition (earliest first).
c.ease of conversion to cash.
d.importance to the operation of the business.
2.The separate entity assumption states that
a.assets should be recorded at their initial acquisition cost.
b.each business is considered to be part of its owners.
c.The monetary unit should be U.S. dollars.
d.for measurement purposes, the resources, debts, and activities of a business should be kept separate from those of the owners.
3.On the statement of cash flows, a company would report the purchase of machinery as cash used in
a.operating activities.
b.financing activities.
c.purchasing activities.
d.investing activities.
4.a. business's balance sheet cannot be used to accurately predict what the business might be sold for because
a.it identifies all the revenues and expenses of the business.
b.assets are generally listed on the balance sheet at their historical cost, not their current value.
c.it gives the results of operations for the current period.
d.some of the assets and liabilities on the balance sheet may actually be those of another entity.
5.The two categories of stockholders' equity usually found on the balance sheet of a corporation are
a.contributed capital and long-term liabilities.
b.contributed capital and property, plant, and equipment.
c.retained earnings and notes payable.
d.contributed capital and retained earnings.
6.The primary difference between revenues and gains is
a.gains are increases in net assets from peripheral activities while revenues are increases from ongoing activities
b.generally accepted accounting principles makes no distinction between them since they both increase income
c.revenues cause increases in net assets as a result of peripheral activities and gains cause increases through ongoing activities
d. both revenues and gains cause a decrease in net assets from ongoing and peripheral transactions respectively
7.Most businesses earn revenues
a.when they collect accounts receivable.
b.through sales of goods or services to customers.
c.by borrowing money from a bank.
d.by selling shares of stock to shareholders.
8.What are the categories of cash flows that appear on a statement of cash flows?
a.cash flows from investing, financing, and service activities.
b.cash flows from operating, production, and internal activities.
c.cash flows from financing, production, and growth activities.
d.cash flows from operating, investing, and financing activities.
9.The amount of rent expense reported on the income statement is
a.the amount of cash paid for rent in the current period.
b.the amount of cash paid for rent in the current period less any unpaid rent at the end of the period.
c.the amount of rent used up (incurred) in the current period to help generate revenue.
d.an increase in net income.
10.If you wanted to know what accounting rules a company follows related to its inventory, where would you look?
a.the balance sheet.
b.the income statement.
c.the notes to the financial statements.
d.the headings to the financial statements.
11.What financial statement would you look at to determine the total expenses of a business?
a.income statement.
b.statement of retained earnings.
c.statement of cash flows.
d.balance sheet.
12.Abrahams Corporation reported the following amounts at the end of the first year of operations, December 31, 2003: contributed capital $50,000; sales revenue $200,000; total assets $150,000; $10,000 dividends; and total liabilities $80,000. Retained earnings and total expenses would be
a.retained earnings $20,000 and expenses $170,000
b.retained earnings $30,000 and expenses $160,000.
c.retained earnings $70,000 and expenses $120,000.
d.retained earnings $80,000 and expenses $110,000
13.The government regulatory agency that has the legal authority to prescribe financial reporting requirements for corporations that sell their securities in interstate commerce is the
a.FASB.
b.FTC.
c.SEC.
d.APB.
14.An examination of the financial statements of a business to ensure that they conform with generally accepted accounting principles is called
a.a certification.
b.an audit.
c.a verification.
d.a validation.
15.One of the disadvantages of a corporation when compared to a partnership is that
a.the stockholders have limited liability.
b.the stockholders are treated as a separate legal entity from the corporation.
c.the corporation and its stockholders are subject to double taxation.
d.the corporation must account for the business's transactions separate and apart from those of the owners.
16.Failure to make an adjusting entry to recognize accrued income taxes payable would cause an
a.understatement of expenses, liabilities and stockholders' equity.
b.overstatement of expenses and liabilities.
c.understatement of expenses and liabilities and an overstatement of stockholders' equity.
d.understatement of assets and stockholders' equity.
17.In the text, the financial leverage ratio for Papa John's was 1.67 in 2000 while its competitor Uno Restaurant's ratio was 1.96 for the same year. The lower ratio for Papa John's indicates (HINT: the financial leverage ratio is equal to average total assets divided by average total stockholders’ equity)
a.Papa John's uses less debt than equity financing to acquire its assets.
b.Uno Restaurant finances its assets using more debt relative to equity than does Papa John’s.
c.Papa John's has a lower level of financial risk than Uno Restaurant.
d. all of the above are correct.
18.Which of the following is not a liability?
a.accounts payable.
b.Retained earnings.
c.Notes payable.
d.Unearned revenue.
19.adjusting entries
a.are primarily used to change account balances because of accounting errors that have been made.
b.usually are recorded as of the last day of the accounting period.
c.always change at least one income statement account balance and one balance sheet account balance.
d.only B and C are correct.
20.Which of the following direct effects on the fundamental accounting model is not possible as a result of transaction analysis?
a.Increase a liability and increase an asset.
b.Decrease stockholders' equity and increase an asset.
c.Increase an asset and decrease an asset.
d.Decrease stockholders' equity and decrease an asset.
21.The principle which holds that all of the expenses incurred in earning revenue should be identified with the revenue recognized and reported for the same period is the
a.revenue principle.
b.liability principle.
c.timing principle.
d.matching principle.
22.When a company buys equipment for $60,000 and pays for one third in cash and the other two thirds is financed by a note payable, the following are the effects on the equation
a.equipment increases by $60,000
b.liabilities increase by $40,000
c.total assets increase by $40,000
d.all of the above effects occur on the equation
23.The accounts payable account has a beginning balance of $2,000 and we purchased $5,000 of inventory on credit during the month. The ending balance was $1,200. How much did we pay our creditors during the month?
a.$5,800
b.$3,800
c.$800
d.None of the above amounts is correct.
24.Calculate the effective tax rate for a company that reports income tax expense of $5.0 million, net income of $15.0 million, and income before taxes of $20 million.
a.33.3%
b.28.5%
c.25.0%
d.22.1%
25.Payment of a liability would
a.Decrease stockholders' equity.
b.Decrease assets.
c.Not affect assets.
d.Increase stockholders' equity.
26.The asset turnover ratio is used to assess (HINT: the asset turnover ratio is equal to net sales revenue divided by average total assets)
a.whether the company can pay their bills currently due with their existing cash and receivables
b.whether the company can borrow money from the bank
c.whether the company is using its assets effectively in generating sales revenue
d.all of the above can be assessed by the asset turnover ratio
27.If Gilden Company paid $500 for the telephone bill, this would
a.decrease assets.
b.increase assets.
c.decrease expenses.
d.increase liabilities.
28.For each transaction recorded in an accounting system, the two basic equalities that must be maintained at all times are
a.(1) Assets = Liabilities + Stockholders' Equity. (2) Net Income = Revenues + Expenses.
b.(1) Cash Increase = Cash Inflows - Cash Outflows. (2) Net income = Revenues + Expenses.
c.(1) Assets = Liabilities + Stockholders' Equity. (2) Debits = Credits.
d.(1) Net Income = Revenues + Expenses. (2) Debits = Credits.
29.On April 1, 2003, the premium on a one-year insurance policy on equipment was paid amounting to $1,800. at the end of 2003 (end of the accounting period), the financial statements for 2003, would report
a.Insurance expense, $1,350; Prepaid insurance $450.
b.Insurance expense, $1,800; Prepaid insurance $0.
c.Insurance expense, $0; Prepaid insurance $1,800.
d.Insurance expense, $450; Prepaid insurance $1,350.
30.Which group of accounts contains only those that normally have a debit balance?
a.Accounts receivable; Accumulated depreciation; Fees earned.
b.Bond investment; Cash; Contributed capital.
c.Cash; Inventory; Cost of Goods Sold.
d.Notes receivable; Wages payable; Operating expenses.
Exam 2
1.The 2003 records of Thomasville Company showed beginning inventory, $50,000; cost of goods sold, $100,000; and ending inventory, $60,000. The purchases for 2003 equal
a.$100,000
b.$90,000
c.$110,000
d.$120,000
2.Which of the following is an example of a typical institutional investor.
a.The officers of Callaway Golf who own shares of stock in the company
b.Employees who participate in a stock option plan and own shares of Callaway Golf
c.The mutual funds managed by Fidelity Management and Research
d.All of the above are institutional investors
3.On December 31, 2003, the end of the accounting period, Dunn Company has on hand 5,000 units of a resale item which cost $21 per unit when purchased on June 15, 2003. The selling price is $35 per unit. On December 30, 2003, the cost had dropped to $20 per unit. In view of the large quantity of units on hand, no purchases are anticipated in the next six to nine months. At what inventory amount should the 5,000 units be reported?
a.$175,000.
b.$110,000.
c.$105,000.
d.$100,000
4.The Securities and Exchange Commission's (SEC report that is required to be filed if any special event occurs that is material in amount is the
a.Form 10K
b.Form 8K
c.Form 10Q
d.Prospectus
5.On March 1, Chapine Company purchased a new stamping machine for $5,000. Chapine paid cash for the machine. Other costs associated with the machine were: transportation costs, $300; sales tax paid $200; and installation cost, $100. The cost recorded for the machine was
a.$5,200.
b.$5,600.
c.$5,500.
d.$5,000.
6.Johnstone Co. uses the periodic inventory system. The following information about their inventory of Model ZZ Mountain Bicycles is available:
Date
/ Transaction / Number of Units / Cost per Unit1/1 / Beginning Inventory / 50 / $800
4/12 / Purchase / 80 / $820
7/8 / Purchase / 75 / $840
9/22 / Purchase / 90 / $850
During the year, 235 bicycles were sold at a price of $1,500 each. Round final answers to the nearest dollar. What was ending inventory and cost of goods sold on 12/31 under the FIFO cost flow assumption? Round final answers to the nearest dollar.
a.$51,000 and $194,100
b.$48,200 and $196,900
c.$49,851 and $195,249
d.None of the above.
7.The primary qualities of accounting information that increase the usefulness to decision makers are
a.relevance and cost-benefit.
b.reliability and comparability.
c.materiality and relevance.
d. reliability and relevance.
8.Which of the following condition(s) must be met for an item to be disclosed as extraordinary on the income statement?
a.It must be unusual in nature.
b.Extraordinarily large in comparison to other items on the income statement.
c.Infrequent in occurrence.
d.Both A and C.
9.Which of the following statements is true?
a.Depreciation expense is added to net income in the operating activities section of the statement of cash flows because it had no cash effect on net income under the indirect method.
b.Depreciation is a non-cash expense that reduces net income but involves no outflow of cash.
c.The only cash effect for depreciation is the tax savings provided by its deduction to derive taxable income.
d.All of the above are true.
10.Which of the following describes the conservatism constraint?
a.Avoid overstating assets and revenues and avoid understating expenses and liabilities.
b.The benefits of accounting for and reporting information should outweigh the costs.
c.Amounts that are large enough to influence a user's decisions.
d.Differences due to long-standing and accepted accounting and reporting in a particular industry.
11.In 1998, Delta Air Lines had a fixed asset turnover of 1.63 compared to Southwest Airlines of 1.10. What is the most likely cause of Delta's higher ratio? (FATO = Sales / Average Net Fixed Assets)
a.Delta is less efficient in generating net sales from its operational assets.
b.Delta is more efficient at generating net income from employing its operational assets.
c.Delta is able to generate greater sales from its operational assets.
d.Delta is able to generate less net income from its operational assets.
12.Under the FIFO cost flow assumption during a period of inflation, which of the following is false?
a.Income tax expense will be higher than under LIFO.
b.Gross margin will be higher than under LIFO.
c.Ending inventory will be lower than under LIFO.
d.Cost of goods sold will be lower than under LIFO.
13.Waves Inc. issues 100,000 shares of its $.10 par stock for $20 per share. Which of the following would NOT be an effect of that sale?
a.Cash would increase by $2,000,000
b.Total stockholders’ equity would increase by $2,000,000
c.Common stock would increase by $10,000
d.Capital paid in excess of par (Paid in Capital) would increase by $2,000,000
14.Bethany Company plans to depreciate a new building using declining-balance depreciation with 200 percent acceleration rate. The building cost $400,000. The estimated residual value of the building is $50,000 and it has an expected useful life of 25 years. Assuming the first year's depreciation expense was recorded properly, what would be the amount of depreciation expense for the second year?
a.$15,360.
b.$16,000.
c.$29,440.
d.$32,000.
15.If a company increases their inventory turnover ratio from last year to the current year, which of the following would cause that increase? (ITO= COGS/ Average Inventory)
a.Reduction of inventory levels
b.Speedier production processes
c.Increasing sales at a faster rate than the growth in inventory while maintaining a constant gross profit percentage
d.All of the above
16.When preparing the monthly bank reconciliation, the accountant for Tiffany Toys noted that a check received from a customer last month for $89 was marked NSF and returned along with the bank statement. In reconciling the bank balance with the company's cash account, the $89 should be
a.deducted from the company's cash balance.
b.added to the bank balance.
c.deducted from the bank balance.
d.added to the company's cash balance.
17.Intangible assets include
a.Natural resources, patents, and trademarks.
b.Accounts receivable, franchises, and trademarks.
c.Copyrights, licenses, and land.
d.Leaseholds, patents and copyrights.
18.Bangor Industries purchased a car for $35,000 on January 1, 2003. The car had an estimated useful life of 80,000 miles and an estimated residual value of $8,000. In the second year of ownership (2004), the car was driven 25,000 miles. Using the units of production method, the amount of depreciation expense for 2004 was
a.$10,938.
b.$ 8,438.
c.$ 9,538.
d.$11,238.
19.When goods are sold to a customer with credit terms of 2/15, n/30, the customer will
a.receive a 15% discount if they pay within 2 days.
b.receive a 2% discount if they pay 15% of the amount due within 30 days.
c.receive a 15% discount if they pay within 30 days.
d.receive a 2% discount if they pay within 15 days.
20.In 2001, Toys “ R” Us had an accounts payable turnover ratio of 5.65; in 2000, 5.49 and 6.08 in 1999. Which statement is true about what the ratios indicate? (PTO = COGS / Average Accounts Payable)
a.Toys “R” Us is taking longer to pay its vendors in 2001 versus 2000.
b.Toys “R” Us is taking more time to pay vendors in 2001 than in 1999.
c.Toys “R” Us appears to be paying off their accounts payable in about 30 days on average.
d.Both B and C are true.
21.Amgen and Genentech are competitors in the biotechnology market. In 2000, Amgen reported a gross profit percentage of 87.2% while Genentech's percentage was 71.5%. What is the most likely cause of Amgen's higher gross profit percentage? (GP% = Gross Profit/ Net Sales)
a.Lower product selling prices for Amgen.
b.Lower product costs for Amgen.
c.Genentech's inability to control selling and administrative expenses.
d.Both B and C led to a higher gross profit percentage for Amgen
22.A company recorded net purchases of $20.3 billion for 2004. In 2003, ending accounts payable was $1.2 billion and in 2004, it was $1.6 billion. How much cash was paid to suppliers in 2004?
a.$18.7 billion
b.$19.9 billion
c.$21.9 billion
d.$20.7 billion
23.On January 31, 2004, Low Company wrote off an uncollectible account of $2,000. The allowance method is used. The write-off would cause bad debt expense to
a.decrease $2,000.
b.increase $2,000.
c.be unchanged.
d.None of the above is correct.
24.A contingent liability that is “reasonably possible” but “cannot reasonably be estimated”
a.must be recorded and reported as a liability.
b.does not need to be recorded or reported as a liability.
c.must only be disclosed as a note to the financial statements.
d.must be reported as a liability, but not recorded.
25.On September 30, 2003, Mixx Inc. sold a used industrial crane for $800,000 cash. The original cost of the crane was $5.0 million and its accumulated depreciation equaled $3.8 million on December 31, 2002; they had been using the straight-line depreciation method. The estimated residual value was zero and its useful life was 25 years. What is the gain or loss on the equipment on September 30, 2003? (Hint: remember to depreciate up to the date of sale)
a.$250,000 loss
b.$400,000 gain
c.$200,000 loss
d.$200,000 gain
26.A company had credit sales of $5.0 million for the year and estimates their bad debts to be 1% of net credit sales. Accounts receivable has a $450,000 balance and the allowance for doubtful accounts has a credit balance of $3,000 prior to adjustment. The transaction analysis entry to adjust the books when the net credit sales method is used to account for bad debts will be:
a.An increase to the bad debts expense account for $50,000 and an increase to accounts receivable for $50,000.
b.An increase to bad debts expense for $47,000 and a decrease to the allowance for doubtful accounts for $47,000.