Financial AccountingFinal Exam

SampleName: __________________________ Date: _____________

1. The current carrying value of Kennett's $800,000 face value bonds is $797,000. If the bonds are retired at 102, what would be the amount Kennett would pay its bondholders?A) $797,000B) $800,000C) $804,000D) $816,000

2. Cey, Inc. issued 5,000 shares of stock at a stated value of $10/share. The total issue of stock sold for $15/share. The journal entry to record this transaction would include aA) debit to Cash for $50,000.B) credit to Common Stock for $50,000.C) credit to Paid-in Capital in Excess of Par Value for $25,000.D) credit to Common Stock for $75,000.

3. The discontinued operations section of the income statement refers toA) dismissal of an employee.B) the income or loss on products that have been completed and sold.C) obsolete equipment and discontinued inventory items.D) the disposal of a significant segment of a business.

4. Are advanced receipts from customers treated as revenue at the time of receipt? Why or why not?A) Yes, they are treated as revenue at the time of receipt because the company has

access to the cashB) No, the amount of revenue cannot be adequately determined until the company

completes the work.C) Yes, The intent of the company is to perform the work and the customer is

confident that the services will be completed.D) No, revenue cannot be recognized until the work is performed.

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5. Jack and Jill form a partnership. Jack runs the business in New York, while Jill vacations in Hawaii. During the time Jill is away from the business, Jack increases the debts of the business by $20,000. Which of the following statements is true regarding this debt?A) Only Jack is personally liable for the debt, since he has been the managing partner

during that time.B) Only Jill is personally liable for the debt of the business, since Jack has been

working and she has not.C) Both Jack and Jill are personally liable for the business debt.D) Neither Jack nor Jill is personally liable for the business debt, since the partnership

is a separate legal entity.

6. Dobler Company uses a periodic inventory system. Details for the inventory account for the month of January 2012 are as follows:

Units Per unit price TotalBalance, 1/1/2012 200 $5.00 $1,000Purchase, 1/15/2012 100 5.30 530Purchase, 1/28/2012 100 5.50 550

An end of the month (1/31/2012) inventory showed that 140 units were on hand. If the company uses FIFO and sells the units for $10 each, what is the gross profit for the month?A) $1,282B) $1,318C) $2,600D) $1,400

7. The retailer considers Visa and MasterCard sales asA) cash sales.B) promissory sales.C) credit sales.D) contingent sales.

8. Management could determine the amounts due from customers by examining which ledger account?A) Service RevenueB) Accounts PayableC) Accounts ReceivableD) Supplies

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9. In performing a vertical analysis, the base for sales revenues on the income statement isA) net sales.B) inventoryC) net income.D) cost of goods available for sale.

10. An item is considered material ifA) it doesn't costs a lot of money.B) it is of a tangible good.C) it is likely to influence the decision of an investor or creditor.D) the cost of reporting the item is greater than its benefits.

11. Comprehensive income would not includeA) dividends declared.B) unrealized gains on available-for-sale securities.C) discontinued operations.D) extraordinary gains and losses.

12. What is the total stockholders' equity based on the following account balances?Common Stock $1,500,000Paid-In Capital in Excess of Par 120,000Retained Earnings 570,000Treasury Stock 60,000A) $1,890,000.B) $2,130,000.C) $2,250,000.D) $1,380,000.

13. Karlin Company gathered the following reconciling information in preparing its April bank reconciliation:Cash balance per books, 4/30 $8,800Deposits in transit 1,200Notes receivable and interest collected by bank 2,960Bank charge for check printing 100Outstanding checks 6,000NSF check from customer 560The adjusted cash balance per books on April 30 isA) $12,300.B) $11,760.C) $11,100.D) $12,220.

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14. Use the following data to determine the total dollar amount of assets to be classified as current assets.

Koonce Office SuppliesBalance Sheet

December 31, 2012

Cash $ 130,000 Accounts Payable $ 140,000Prepaid Insurance 60,000 Salaries Payable 20,000Accounts Receivable 100,000 Mortgage Payable 160,000Inventory 140,000 Total Liabilities $320,000Land held for Investment 150,000

Land 180,000Buildings $200,000 Common Stock $240,000 Less Accumulated Retained Earnings 500,000 Depreciation (40,000) 160,000 Total Stockholders' Equity $740,000Trademarks 140,000 Total Liabilities and

Total Assets $1,060,000 Stockholders' Equity $1,060,000A) $580,000.B) $430,000.C) $360,000.D) $290,000.

15. Tony's Market recorded the following events involving a recent purchase of inventory:Received goods for $30,000, terms 2/10, n/30.Returned $600 of the shipment for credit.Paid $150 freight on the shipment.Paid the invoice within the discount period.

As a result of these events, the company's inventoryA) increased by $28,812.B) increased by $29,550.C) increased by $28,959.D) increased by $28,962.

16. Equipment with a cost of $150,000 has an estimated salvage value of $10,000 and an estimated life of 4 years or 10,000 hours. It is to be depreciated by the units-of-activity method. What is the amount of depreciation for the first full year, during which the equipment was used 2,700 hours?A) $37,500.B) $35,000.C) $37,800.D) $36,250.

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17. Current assets divided by current liabilities is known as theA) working capital.B) current ratio.C) profit margin.D) capital structure.

18. If the market interest rate for a bond is higher than the stated interest rate, the bond will sell at:A) A premium.B) A discount.C) Par.D) Both a and b correct.

19. An extraordinary item must meet which of the following two criteria?A) Foreseeable and material.B) Infrequent and unusual.C) Substantial and measurable.D) Unusual and measurable.

20. Snelling Tables paid employee wages on and through Friday, January 26, and the next payroll will be paid in February. There are three more working days in January (29–31). Employees work 5 days a week and the company pays $800 a day in wages. What will be the adjusting entry to accrue wages expense at the end of January?A) Wages Expense 800

Wages Payable 800B) Wages Expense 4,000

Wages Payable 4,000C) Wages Expense 2,400

Wages Payable 2,400D) No adjusting entry is required.

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21. Sampson Company's accounting records show the following at the year ending on December 31, 2012.

Purchase Discounts $ 5,600Freight-in 7,800Purchases 300,010Beginning Inventory 23,500Ending Inventory 28,800Purchase Returns 6,400

Using the periodic system, the cost of goods sold isA) $301,110B) $298,910C) $290,510D) $309,510

22. An aging of a company's accounts receivable indicates that $4,000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $1,200 credit balance, the adjustment to record bad debts for the period will require aA) debit to Bad Debts Expense for $4,000.B) debit to Allowance for Doubtful Accounts for $2,800.C) debit to Bad Debts Expense for $2,800.D) credit to Allowance for Doubtful Accounts for $4,000.

23. Danner Corporation earns 12% on an investment that will return $900,000, 7 years from now. Below is some of the time value of money information that Danner has compiled that might help in planning compounded interest decisions.Present value of 1 for 7 periods at 12% 0.45235Future value of 1 for 7 periods at 12% 2.21068Present value of an annuity of 1 for 7 periods at 12% 4.56376Future value of an annuity of 1 for 7 periods at 12% 10.08901To the closest dollar, what is the amount Danner should invest now to earn this rate of return?A) $198,961.B) $407,115.C) $756,000.D) $410,738.

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24. Under a perpetual inventory systemA) accounting records continuously disclose the amount of inventory.B) increases in inventory resulting from purchases are debited to purchases.C) there is no need for a year-end physical count.D) the account purchase returns and allowances is credited when goods are returned to

vendors.

25. Having one person responsible for the related activities of ordering merchandise, receiving goods, and paying for themA) increases the potential for errors and fraud.B) decreases the potential for errors and fraud.C) is an example of good internal control.D) is a good example of safeguarding the company's assets.

26. Harden Corporation engaged in the following transaction. Indicate where, if at all, land purchased for cash would be classified on the statement of cash flows.A) Operating activities section.B) Investing activities section.C) Financing activities section.D) Does not represent a cash flow.

27. Horizontal analysis is also known asA) linear analysis.B) vertical analysis.C) trend analysis.D) common size analysis.

28. The revenue recognition principle dictates that revenue should be recognized in the accounting records:A) when cash is received.B) when it is earned.C) at the end of the month.D) in the period that income taxes are paid.

29. Issuing new shares of common stock willA) increase retained earnings.B) decrease retained earnings.C) increase common stock.D) decrease common stock.

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30. The primary purpose of the statement of cash flows is toA) provide information about the investing and financing activities during a period.B) prove that revenues exceed expenses if there is a net income.C) provide information about the cash receipts and cash payments during a period.D) facilitate banking relationships.

31. For which of the following errors should the appropriate amount be added to the balance per bank on a bank reconciliation?A) Check for $43 recorded as $34.B) Deposit of $500 recorded by bank as $50.C) A returned $200 check recorded by bank as $20.D) Check for $35 recorded as $53.

32. The following information is related to December 31, 2011 balances.• Accounts receivable $1,575,000• Allowance for doubtful accounts (credit) (135,000)• Cash realizable value $1,440,000

During 2012 sales on account were $435,000 and collections on account were $258,000. Also during 2012 the company wrote off $24,000 in uncollectible accounts. An analysis of outstanding receivable accounts at year end indicated that bad debts should be estimated at $162,000. The change in the cash realizable value from the balance at 12/31/11 to 12/31/12 was aA) $150,000 increase.B) $177,000 increase.C) $126,000 increase.D) $153,000 increase.

33. Moss County Bank agrees to lend the Sadowski Brick Company $400,000 on January 1. Sadowski Brick Company signs a $400,000, 6%, 9-month note. What is the adjusting entry required if Sadowski Brick Company prepares financial statements on June 30?A) Interest Expense 12,000

Interest Payable 12,000B) Interest Expense 12,000

Cash 12,000C) Interest Payable 12,000

Cash 12,000D) Interest Payable 12,000

Interest Expense 12,000

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34. Which accounts normally have credit balances?A) Revenues, liabilities, and dividends.B) Revenues, liabilities, and assets.C) Revenues, liabilities, and retained earnings.D) Revenues, liabilities, and expenses.

35. Harden Corporation engaged in the following transaction. Assume that the Harden Corporation uses the indirect method to depict cash flows. Indicate where, if at all, interest paid on note would be classified on the statement of cash flows.A) Operating activities section.B) Investing activities section.C) Financing activities section.D) Does not represent a cash flow.

36. Equipment was purchased for $51,000 on January 1, 2011. Freight charges amounted to $2,100 and there was a cost of $6,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $9,000 salvage value at the end of its 5-year useful life. What is the amount of accumulated depreciation at December 31, 2012, if the straight-line method of depreciation is used?A) $20,040.B) $10,020.C) $8,580.D) $17,160.

37. A company sells a plant asset that originally cost $300,000 for $100,000 on December 31, 2012. The accumulated depreciation account had a balance of $120,000 after the current year's depreciation of $30,000 had been recorded. The company should recognize aA) $200,000 loss on disposal.B) $80,000 gain on disposal.C) $80,000 loss on disposal.D) $50,000 loss on disposal.

38. The Vintage Laundry Company purchased $6,500 worth of laundry supplies on June 2 and recorded the purchase as an asset. On June 30, an inventory of the laundry supplies indicated only $2,000 on hand. The adjusting entry that should be made by the company on June 30 is:A) debit Laundry Supplies Expense, $2,000; credit Laundry Supplies, $2,000.B) debit Laundry Supplies, $4,500; credit Laundry Supplies Expense, $4,500.C) debit Laundry Supplies, $2,000; credit Laundry Supplies Expense, $2,000.D) debit Laundry Supplies Expense, $4,500; credit Laundry Supplies, $4,500.

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39. On July 1 the Fisher Shoe Store paid $15,000 to Acme Realty for 6 months rent beginning July 1. Prepaid Rent was debited for the full amount. If financial statements are prepared on July 31, the adjusting entry to be made by the Fisher Shoe Store is:A) debit Rent Expense, $15,000; credit Prepaid Rent, $2,500.B) debit Prepaid Rent, $2,500; credit Rent Expense, $2,500.C) debit Rent Expense, $2,500; credit Prepaid Rent, $2,500.D) debit Rent Expense, $15,000; credit Prepaid Rent, $12,500.

40. Given equal circumstances, which inventory method would probably be the most time consuming?A) FIFOB) LIFOC) Average costD) Specific identification.

41. The date on which a cash dividend becomes a binding legal obligation is on theA) declaration date.B) date of record.C) payment date.D) last day of the fiscal year end.

42. Wilma's Vegetable Market had the following transactions during 2012:1. Issued $25,000 of par value common stock for cash.2. Recorded and paid wages expense of $10,000.3. Acquired land by issuing common stock of par value $50,000.4. Declared and paid a cash dividend of $1,000.5. Sold a long-term investment (cost $3,000) for cash of $3,000.6. Recorded cash sales of $20,000.7. Bought inventory for cash of $2,000.8. Acquired an investment in IBM stock for cash of $6,000.9. Converted bonds payable to common stock in the amount of $10,000.10. Repaid a 6 year note payable in the amount of $11,000.What is the net cash provided by investing activities?A) $6,000.B) $16,000C) ($3,000).D) $3,000.

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43. A cash register tape shows cash sales of $2,000 and sales taxes of $160. The journal entry to record this information isA) Cash 2,160

Sales 2,160B) Cash 2,160

Sales Tax Payable 160 Sales 2,000

C) Cash 2,000Sales Tax Expense 160 Sales 2,160

D) Cash 2,160 Sales 2,000 Sales Taxes Revenue 160

44. Which of the following is not an advantage of the corporate form of business organization?A) No personal stockholder liabilityB) Easy to transfer ownershipC) Favorable tax treatmentD) Easy to raise funds

45. Under the concept of establishment of responsibility, how many people should have the ultimate responsibility?A) Everyone in the organization.B) An individual and his/her supervisor.C) Only one individual.D) The CEO.

46. An annual report includes all of the following exceptA) management discussion and analysis section.B) notes to the financial statements.C) an auditor's report.D) salary information for all the executives.

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47. The following totals for the month of March were taken from the payroll register of Kern Company.Salaries $36,000FICA taxes withheld 2,232Income taxes withheld 7,920Medical insurance deductions 522Federal unemployment taxes 288State unemployment taxes 1,800The entry to record accrual of employer's payroll taxes would include aA) debit to Payroll Tax Expense for $4,320B) debit to Payroll Tax Expense for $12,240C) credit to FICA Taxes Payable for $2,232.D) credit to Payroll Tax Expense for $4,320.

48. Financial information is presented below:Operating Expenses $ 35,000Sales Returns and Allowances 12,000Sales Discounts 3,000Sales Revenue 140,000Cost of Goods Sold 80,000

The gross profit rate would beA) .64.B) .43.C) .36.D) .32.

49. Wilma's Vegetable Market had the following transactions during 2012:1. Issued $25,000 of par value common stock for cash.2. Recorded and paid wages expense of $10,000.3. Acquired land by issuing common stock of par value $50,000.4. Declared and paid a cash dividend of $1,000.5. Sold a long-term investment (cost $3,000) for cash of $3,000.6. Recorded cash sales of $20,000.7. Bought inventory for cash of $2,000.8. Acquired an investment in IBM stock for cash of $6,000.9. Converted bonds payable to common stock in the amount of $10,000.10. Repaid a 6 year note payable in the amount of $11,000.What is the net cash provided by financing activities?A) $13,000.B) $25,000.C) $14,000.D) $9,000.

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50. Adjusting entries are made to ensure that:A) expense are recognized in the period in which they are incurred.B) revenues are recorded in the period in which they are earned.C) balance sheet and income statement accounts have correct balances at the end of an

accounting period.D) All of the above.

51. Charlene Cosmetics Company just began business and made the following four inventory purchases in June:

June 1 150 units $ 780June 10 200 units 1,170June 15 200 units 1,260June 28 150 units 990

$4,200

A physical count of merchandise inventory on June 30 reveals that there are 250 units on hand. Using the average cost method, the amount allocated to the ending inventory on June 30 isA) $1,463.B) $1,620.C) $1,575.D) $1,500.

52. The interest on a $9,000, 6%, 60-day note receivable isA) $45.B) $540C) $270.D) $90.

53. A check returned by the bank marked "NSF" meansA) no service fee.B) no signature found.C) not satisfactorily filled out.D) not sufficient funds.

54. Treasury Stock is a(n)A) contra asset account.B) retained earnings account.C) asset account.D) contra stockholders' equity account.

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55. Which of the following statements is not true regarding the Sarbanes-Oxley Act (SOX) of 2002?A) The Act calls for increased of CPA firms.B) The Act has resulted in increased penalties for financial fraud by top management.C) The Act calls for a decreased role for outside auditors when reviewing corporate

financial statements.D) The Act is meant to decrease the likelihood of unethical corporate behavior.

56. Cost allocation of an intangible asset is referred to asA) amortization.B) depreciation.C) accretion.D) capitalization.

57. When an account is written off using the allowance method, theA) cash realizable value of total accounts receivable will increase.B) net accounts receivable will decrease.C) allowance account will increase.D) net accounts receivable will stay the same.

58. A credit sale of $1,600 is made on April 25, terms 2/10, net/30, on which a return of $100 is granted on April 28. What amount is received as payment in full on May 4?A) $1,470B) $1,568C) $1,600D) $1,500

59. Joan Crawford borrowed $130,000 on June 1, 2011. This amount plus accrued interest at 8% compounded annually is to be repaid on June 1, 2024. Joan has obtained the following values related to the time value of money to help her with her financing process and compounded interest decisions.Present value of 1 for 13 periods at 8% 0.36770Future value of 1 for 13 periods at 8% 2.71962Present value of an annuity of 1 for 13 periods at 8% 7.90378Future value of an annuity of 1 for 13 periods at 8% 21.49530To the closest dollar, how much will Joan have to repay on June 1, 2024?A) $265,200.B) $621,414.C) $232,750.D) $353,550.

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60. Rodgers Company purchased equipment and these costs were incurred:Cash price $22,500Sales taxes 1,800Insurance during transit 320Installation and testing 430Total costs $25,050Rodgers will record the acquisition cost of the equipment asA) $22,500.B) $24,300.C) $24,620.D) $25,050.

61. Which of the following statements concerning users of accounting information is incorrect?A) Management is considered an internal user.B) Present creditors are considered external users.C) Regulatory authorities are considered internal users.D) Taxing authorities are considered external users.

62. A measure of profitability is theA) current ratio.B) debt to total assets ratio.C) earnings per share.D) working capital.

63. Crawford Company started the year with $30,000 in its Common Stock account and a credit balance in Retained Earnings of $12,000. During the year, the company earned net income of $24,000 and declared and paid $10,000 of dividends. In addition, the company sold additional common stock amounting to $14,000. As a result, the amount of its retained earnings at the end of the year would be:A) $70,000B) $26,000C) $56,000D) $40,000

64. Which one of the following is not an ownership right of a stockholder in a corporation?A) To vote in the election of directors.B) To declare dividends on the common stock.C) To share in assets upon liquidation.D) To share in corporate earnings.

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65. A trial balance will not balance ifA) a correcting journal entry is posted twice.B) a $50 cash dividend is debited to dividends for $500 and credit to cash for $50.C) a $300 payment on accounts payable is debited to accounts payable for $30 and

credited to cash for $30.D) a transaction is not posted at all.

66. Apple-A-Day Company has the following inventory data:July 1 Beginning inventory 20 units at $20 $ 400

7 Purchases 70 units at $21 1,47022 Purchases 10 units at $22 220

$2,090A physical count of merchandise inventory on July 30 reveals that there are 30 units on hand. Using the LIFO inventory method, the amount allocated to cost of goods sold for July isA) $1,480B) $1,470C) $1,450.D) $1,430.

67. In a period of increasing prices, which inventory flow assumption will result in the lowest amount of income tax expense?A) FIFOB) LIFOC) Average Cost MethodD) Income tax expense for the period will be the same under all assumptions.

68. Summers Company is having financial difficulties. It has noted its profitability has decreased over the past several years. Which of the situations listed below, detected by Summers, should be followed up on to understand the cause of the profitability problem.

a. A decrease in net income on the income statement.b. A decrease in accounts payable on the balance sheet.c. An increase in cash flows from financing activities on cash flow statement.d. An increase in the number of outstanding shares of stock.

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69. Summers Company fired their accountant at the end of the 2011 accounting period. On her desk, the company found the following items written down.

Maintenance expense $50,000Cash flows from operating activities $25,000Sales Revenue $150,000Notes Payable $15,000Cost of Goods Sold $30,000Accounts receivable $5,000

Assuming the balances are correct, what is Summer Net Income for 2011?a. $25,000b. $70,000c. $130,000d. $65,000

70. Summers Company also found the following financial information for 2010.Maintenance expense $60,000Cash flows from operating activities $40,000Sales Revenue $150,000Notes Payable $35,000Cost of Goods Sold $10,000Accounts receivable $25,000Using this information from 2010 and the information from question #69 above for 2011, which of the following could be a cause in the decrease in Summers Company profitability?

a. Summers experienced an unexpected spike in maintenance costs in 2011 due to aging machinery.

b. The bank decreased the interest rate it was charging Summers Company in 2011.c. Summers’ supplier increased what it charged Summers for merchandise in 2011.

Because of the recession, Summers was not able to raise its prices to pass on the additional cost to its customers.

d. Sales tax rates charged by Summers to its customers increased by .25% in 2010.

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