Exam for Accounting

Final Exam 1: Chapters 1-12 Name ___________________________Accounting Principles, 10e Instructor ________________________Weygandt, Kieso, & Kimmel Section # _________ Date __________

Part I II III IV V VI VII Total

Points 72 20 13 15 12 18 20 170

Score

PART I — MULTIPLE CHOICE (72 points)

Instructions: Designate the best answer for each of the following questions.

____ 1. Which of the following events cannot be quantified into dollars and cents and recorded as an accounting transaction?a. The sale of store equipment.b. The purchase of a new computer.c. The appointment of a new CPA firm to perform an audit.d. Payment of income taxes.

____ 2. Anderson Company purchased equipment for $2,400 cash. As a result of this event:a. owner’s equity decreased by $2,400.b. total assets remained unchanged.c. total assets increased by $2,400.d. Both a and b.

____ 3. Which of the following statements related to the adjusted trial balance is incorrect?a. It is prepared before adjusting entries have been made.b. It shows the balances of all accounts at the end of the accounting period.c. It proves the equality of the total debit balances and the total credit balances in the

ledger.d. Financial statements can be prepared directly from the adjusted trial balance.

____ 4. Carson Supply bought equipment at a cost of $115,000 on January 1, 2010. It originally had an estimated life of five years and a salvage value of $12,000. Carson uses the straight-line depreciation method. On January 1, 2014, Carson decided the useful life likely would end on December 31, 2017, with a salvage value of $8,000. The depreciation expense recorded in 2014 should be:a. $11,300.b. $8,150.c. $10,866.d. $6,150.

Test Bank for Accounting Principles, Tenth Edition

____ 5. Dawson Company bought furniture on account. Their accountant debited Furniture and credited Accounts Receivable. An appropriate correcting entry is:a. debit Accounts Receivable and credit Accounts Payable.b. debit Furniture and credit Accounts Payable.c. debit Miscellaneous Expense and credit Accounts Payable.d. No correcting entry is needed.

____ 6. Income Summary has a credit balance of $29,000 for K. Eagle Co. after closing revenues and expenses. The entry to close Income Summary is:a. credit Income Summary $29,000, debit Owner’s Capital $29,000.b. credit Income Summary $29,000, debit Owner’s Drawing $29,000.c. debit Income Summary $29,000, credit Owner’s Capital $29,000.d. debit Income Summary $29,000, credit Owner’s Drawing $29,000.

____ a7. Bloom Company exchanged old equipment for new equipment. The old equipment had a cost of $80,000, accumulated depreciation of $46,000, and a fair market value of $30,000. The exchange had commercial substance. Bloom paid an additional $16,000 in cash. The new equipment should be recorded at:a. $64,000.b. $46,000.c. $30,000.d. $50,000.

____ 8. If the entry to record the purchase of inventory is inadvertently omitted, but the item is correctly included in ending inventory, the effect when using the periodic inventory method is

Net Income Assets a. Overstated Overstatedb. Overstated Understatedc. Overstated No effect d. No effect No effect

____ 9. Cunningham Company's records indicate the following information for the year:

Merchandise inventory, 1/1 $ 300,000Purchases 1,700,000Net Sales 2,400,000

On December 31, a physical inventory determined that ending inventory of $400,000 was in the warehouse. Cunningham's gross profit on sales has remained constant at 40%. Cunningham suspects some of the inventory may have been taken by some new employees. At December 31, what is the estimated cost of missing inventory?a. $600,000b. $360,000c. $560,000d. $160,000

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Final Exam 1

____ 10. Left Company purchased Right Company on September 1, 2010, for $22,000,000. On that date the book value of Right's net assets was $13,000,000; the fair market value of the net assets was $19,000,000. The entry to record the purchase of Right Company should include Goodwill of:a. $0.b. $9,000,000.c. $3,000,000.d. $22,000,000.

____ 11. A contingent liability should be recorded in the accounts if it is:a. remote.b. reasonably possible.c. probable and reasonably estimable.d. Both (a) and (b) above.

____ 12. In a period of rising prices, the inventory method that results in the lowest income tax payment is:a. FIFO.b. LIFO.c. average cost.d. specific identification.

____ 13. On June 30, Gaston Company issued a $9,000, 8%, 6-month note to National Bank. The entry on Gaston's books to record the payment of the note at maturity will include a credit to Cash for:a. $9,360.b. $9,720.c. $9,000.d. $9,180.

____ 14. The following information is available for McDaniel Company:

Beginning Inventory $ 80,000Cost of Goods Sold 360,000Ending Inventory 60,000Net Sales 600,000

Inventory turnover for the year is:a. 4.5 times.b. 5.1 times.c. 10.0 times.d. 6.0 times.

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____ 15. Sister Sue Corporation’s unadjusted trial balance includes the following balances (assume normal balances):

Accounts Receivable $247,000Allowance for Doubtful Accounts 4,400

Bad debts are estimated to be 4% of outstanding receivables. What amount of bad debts expense will the company record?a. $9,880b. $10,056c. $5,304d. $5,480

____ 16. The following information is available for Aikman Company:

Sales $210,000 Freight-in $7,000Ending Inventory 18,000 Purchase Returns and Allowances 3,000Purchases 120,000 Beginning Inventory 22,000

Aikman’s cost of goods sold is:a. $188,000.b. $185,000.c. $124,000.d. $128,000.

____ 17. If ending inventory is understated, net income and assets will be:

Net Income Assets a. Overstated Overstatedb. Understated Understatedc. Understated Unaffectedd. None of the above.

____a18. Ryan has agreed to pay $50,000 each to McCoy and Alexander for one-fourth of their interest in their partnership. At the time of the admission, McCoy and Alexander had balances of $80,000 each in their capital accounts. The entry to record the admission of Ryan includes a credit to his capital account for:a. $40,000.b. $80,000.c. $50,000.d. $100,000.

____ 19. A company purchased land for $60,000 cash. Real estate brokers' commission was$6,500 and $10,000 was spent for demolishing an old building on the land before construction of a new building could start. Under the cost principle, the cost of land would be recorded at:a. $70,000.b. $60,000.c. $76,500.d. $66,500.

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Final Exam 1

____ 20. Which of the following errors will cause a trial balance to be out of balance? The entry to record a payment on account was:a. posted as a debit to Cash and a debit to Accounts Payable.b. posted as a debit to Cash and a credit to Accounts Payable.c. posted as a debit to Accounts Receivable and a credit to Cash.d. not posted at all.

____ 21. The assumption that assumes a company will continue in operation long enough to carry out its existing objectives is the:a. economic entity assumption.b. monetary unit assumption.c. going concern assumption.d. time period assumption.

____ 22. All of the following are intangible assets except:a. patents.b. franchises.c. goodwill.d. oil deposits.

____a23. Capital balances in the UFO partnership are U $300,000, F $180,000, and O $90,000, and income ratios are 5:3:2, respectively. The UFOB partnership is formed by admitting B to the firm with a cash investment of $100,000 for a 10% capital interest. The bonus to be credited to O Capital in admitting B is:a. $6,600.b. $8,600.c. $13,400.d. $9,000.

____ 24. A daily cash count of register receipts made by a cashier department supervisor demonstrates an application of which of the following internal control principles?a. Documentation procedures.b. Independent internal verification.c. Establishment of responsibility.d. Segregation of duties.

____ 25. When the allowance method is used for bad debts, the entry to write off an individual account known to be uncollectible involves a:a. debit to an expense account.b. credit to an expense account.c. debit to the allowance account.d. credit to the allowance account.

____ 26. Shipping terms of FOB destination mean that the:a. shipping charges are debited to Freight-Out.b. purchaser is responsible for the shipping charges.c. items should be in the purchaser's inventory account at year-end if the items are in

transit.d. Both (a) and (b) above.

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____ 27. Troy Company has a $500,000 balance in Accounts Receivable and a $12,000 debit balance in Allowance for Doubtful Accounts. Credit sales for the period totaled $1,400,000. What is the amount of the bad debt adjusting entry if Troy uses a percentage of credit sales basis (at 3%) or a percentage of receivables basis (at 8%)?

% Credit Sales % Receivablesa. $42,000 $40,000b. $30,000 $28,000c. $30,000 $28,000d. $42,000 $52,000

____ 28. FICA taxes do not provide workers with:a. supplemental retirement.b. life insurance.c. employment disability.d. medical benefits.

____ 29. A petty cash fund:a. results in expense accounts being charged when cash is disbursed.b. should be replenished when the fund is low and at the end of the period.c. results in expense accounts being charged when the fund is replenished.d. Both (b) and (c) above.

____ 30. If merchandise is sold for $14,000 subject to credit terms of 1/15, n/30, the entry to record collection in full within the discount period would include a:a. credit to Sales Discounts for $140.b. credit to Accounts Receivable for $13,860.c. credit to Accounts Receivable for $140.d. None of the above.

____ 31. Barley Company's records show the following for the month of March:Total Owner's Equity at March 1................................................. $140,000Total Owner's Equity at March 31............................................... 210,000Total Revenues........................................................................... 530,000Total Withdrawals by Owner....................................................... 25,000

There were no investments made during March. Total expenses for March were:a. $505,000.b. $530,000.c. $435,000.d. $460,000.

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Final Exam 1

____ 32. Fordham Company's financial information is presented below.

Sales $ ???? Purchase Returns and Allowances $ 20,000Sales Returns and Allowances 30,000 Ending Inventory 60,000Net Sales 1,010,000 Cost of Goods Sold 410,000Beginning Inventory ???? Gross Profit ????Purchases 450,000

The missing amounts above are: Sales Beginning Inventory Gross Profit

a. $1,040,000 $40,000 $600,000b. $980,000 $20,000 $630,000c. $1,040,000 $20,000 $600,000d. $980,000 $40,000 $630,000

____ 33. A partner invests into a partnership a building with an original cost of $110,000 and accumulated depreciation of $55,000. This building has a $60,000 fair market value. As a result of the investment, the partner’s capital account will be credited for:a. $115,000.b. $110,000.c. $55,000.d. $60,000.

____ 34. The preparation of closing entries:a. is an optional step in the accounting cycle.b. results in zero balances in all accounts at the end of the period so that they are

ready for the following period's transactions.c. results in transferring the balances in all nominal accounts to owner's capital.d. is necessary before financial statements can be prepared.

____ 35. Allowance for Doubtful Accounts is reported in the:a. balance sheet as a contra liability account.b. balance sheet as a contra asset.c. income statement under other expenses and losses.d. income statement under other revenues and gains.

____ 36. Two categories of expenses for merchandising companies are:a. cost of goods sold and operating expenses.b. operating expenses and financing expenses.c. cost of goods sold and financing expenses.d. sales and cost of goods sold.

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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. Additions and improvements N. DebitB. Natural resources O. Declining-balance methodC. Allowance method P. DepletionD. Amortization Q. Depreciable costE. Periodic inventory system R. Direct write-off methodF. Book value S. Economic entity assumptionG. Nominal accounts T. First-in, first-out methodH. Closing entries U. Inventoriable costsI. Comparability V. Going-concern assumptionJ. Permanent accounts W. Internal controlK. Consistency X. Time period assumptionL. Contra asset Y. Last-in, first out methodM. Cost principle Z. Retail inventory method

___ 1. Use of the same accounting principles and methods from period to period by the same business enterprise.

___ 2. The total amount subject to depreciation.

___ 3. An assumption that the economic life of a business can be divided into artificial time periods.

___ 4. The cost of an asset less its accumulated depreciation.

___ 5. The left side of an account.

___ 6. The periodic write-off of an intangible asset.

___ 7. A depreciation method that produces decreasing periodic depreciation by applying a constant rate to the book value of the asset.

___ 8. An inventory method that records the earliest goods purchased as cost of goods sold.

___ 9. This method of accounting for uncollectible accounts is required when bad debts are significant in size.

___ 10. Accumulated depreciation is an example of this term.

___ 11. An assumption that requires that the activities of a company be kept separate and distinct from the activities of its owner.

___ 12. All accounts appearing on the post-closing trial balance.

___ 13. An inventory costing method which assumes that the latest units purchased are the first to be allocated to cost of goods sold.

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Final Exam 1

___ 14. An accounting principle that requires assets be recorded at their historical cost.

___ 15. Revenue, expense, and drawing accounts whose balances are transferred to owner's capital at the end of an accounting period.

___ 16. A system in which detailed records are not maintained and cost of goods sold is determined only at the end of an accounting period.

___ 17. Assets such as timber, oil, coal, and mineral deposits.

___ 18. Entries at the end of an accounting period to transfer the balances of temporary accounts to permanent owner's equity accounts.

___ 19. The pool of costs that consist of the cost of the beginning inventory and the cost of goods purchased.

___ 20. The methods and measures adopted within a business to safeguard its assets and enhance the accuracy and reliability of its accounting records.

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PART III — ADJUSTING ENTRIES (13 points)

The trial balance of Steemer Corporation reported the following balances for selected accounts on July 31, 2012:

Prepaid Insurance $12,000 Unearned Service Revenue $ 4,800Equipment 60,000 Notes Payable 30,000Accumulated Depreciation 9,000 Interest Payable 700

Instructions: Using the additional information given below, prepare the appropriate monthly adjusting entries at July 31. Show computations.

1. Revenue for services rendered to customers, but not yet billed, totaled $8,000 on July 31._________________________________________________________________________

_________________________________________________________________________

_________________________________________________________________________

2. The note payable is a 7%, 1 year note issued March 1, 2012._________________________________________________________________________

_________________________________________________________________________

_________________________________________________________________________

3. The equipment was purchased on January 1, 2012, for $60,000. It has an estimated life of 8 years and an estimated salvage value of $12,000. Steemer uses the straight-line depreciation method.

_________________________________________________________________________

_________________________________________________________________________

_________________________________________________________________________

4. An insurance policy was acquired on June 30, 2012; the premium paid for 2 years was $5,760.

_________________________________________________________________________

_________________________________________________________________________

_________________________________________________________________________

5. Steemer received $4,800 fees in advance from a customer on January 1, 2012. Two-thirds of this amount was earned in July.

_________________________________________________________________________

_________________________________________________________________________

_________________________________________________________________________

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Final Exam 1

PART IV — BANK RECONCILIATION (15 points)

A review of the September 30 bank statement and other data of Lutz Company reveals the following:

1. Balance per bank statement on September 30..................................................... $16,9122. Balance per books on September 30.................................................................... $17,4213. NSF Check from R. Angel in payment of account................................................. $2124. Collection of $1,000, 4-month, 6% note with a $15 collection fee. No interest

had been accrued.................................................................................................. 1,0055. Deposits in transit at September 30...................................................................... 3,1206. Outstanding checks at September 30................................................................... 3,4607. A check written by Lutz to McMahon for salary on September 10 was

recorded at $560 but correctly cleared the bank at $650.8. A check drawn on the account of Marley Company for $1,552 was mistakenly

charged against Lutz' account by the bank.

Instructions: Prepare the September 30 (a) bank reconciliation (omit heading) and (b) related journal entries.

1. BANK RECONCILIATION:Amount Amount

Balance per bank statement $ Balance per books $

Adjusted balance per bank $ Adjusted balance per books $ 2. ENTRIES:

Account Titles Debit Credit

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PART V — INVENTORY (12 points)

Ethridge Company had a beginning inventory of 300 units at a cost of $16 per unit on May 1. During the month, the following purchases and sales were made.

Purchases Sales May 4 200 units at $18 May 7 200 unitsMay 15 400 units at $15 May 11 250 unitsMay 20 100 units at $17 May 17 300 units

May 24 150 units

Ethridge uses a periodic inventory system.

Instructions: Determine ending inventory and cost of goods sold under 1, average cost, 2, FIFO, and 3, LIFO.

1. Average cost:

Ending inventory = $____________; cost of goods sold = $_____________.

2. FIFO:

Ending inventory = $_____________; cost of goods sold = $____________.

3. LIFO:

Ending inventory = $_____________; cost of goods sold = $____________.

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Final Exam 1

PART VI — DEPRECIATION (18 points)

Grisham Company purchased equipment for $500,000 cash on January 1, 2011. The estimated life is 4 years or 600,000 units; salvage value is estimated at $20,000. Actual activity was 105,000 units in 2011 and 135,000 units in 2012.

Instructions: Compute the annual depreciation expense for 2011 and 2012, and book value at December 31, 2012, under the following depreciation methods: 1, units-of-activity, 2, straight-line, and 3, double-declining-balance.

1. Units-of-activity

2011 depreciation = $_______________.

2012 depreciation = $_______________.

12/31/12 book value = $_______________.

2. Straight-line

2011 depreciation = $_______________.

2012 depreciation = $_______________.

12/31/12 book value = $_______________.

3. Double-declining-balance

2011 depreciation = $_______________.

2012 depreciation = $_______________.

12/31/12 book value = $_______________.

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PART VII — DIVISION OF PARTNERSHIP NET INCOME (LOSS) (20 points)

Mark and Chris have formed a partnership and are interested in seeing the results of various income and loss sharing arrangements before they finalize their partnership agreement. Mark and Chris will have beginning capital balances of $200,000 and $250,000, respectively.

Instructions: Prepare a schedule indicating the amounts to be debited or credited to the capital accounts in each of the following independent situations. (Be sure to designate debit or credit!)

1. Net income is $120,000. Chris receives a salary allowance of $58,000 with any remainder divided equally.

Mark Chris Total

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

2. Net income is $150,000. Each partner is allowed 20% interest on beginning capital balances with any remainder divided equally.

Mark Chris Total

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

3. Net income is $170,000. Mark receives a salary allowance of $85,000; each partner is allowed a 12% interest on beginning capital balances with any remainder divided equally.

Mark Chris Total

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

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Final Exam 1

4. Net income is $70,000. Use the sharing arrangement described in 3, above.

Mark Chris Total

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

5. Prepare the journal entry to record the distribution of income computed in 4, above.

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Solutions — Final Exam 1: Chapters 1–12

PART I — MULTIPLE CHOICE (72 points)

1. c 9. d 17. b 25. c 33. d2. b 10. c a18. a 26. a 34. c3. a 11. c 19. c 27. d 35. b4. d 12. b 20. a 28. b 36. a5. a 13. a 21. c 29. d6. c 14. b 22. d 30. d7. b 15. d a23. a 31. c8. c 16. d 24. b 32. a

PART II — MATCHING (20 points)

1. K 6. D 11. S 16. E2. Q 7. O 12. J 17. B3. X 8. T 13. Y 18. H4. F 9. C 14. M 19. U5. N 10. L 15. G 20. W

PART III — ADJUSTING ENTRIES (13 points)

1. Accounts Receivable..................................................................... 8,000Service Revenue.................................................................. 8,000

2. Interest Expense ($30,000 × 0.07 × 1/12)..................................... 175Interest Payable.................................................................... 175

3. Depreciation Expense [($60,000 – $12,000) ÷ 96]........................ 500Accumulated Depreciation.................................................... 500

4. Insurance Expense ($5,760 ÷ 24)................................................. 240Prepaid Insurance................................................................. 240

5. Unearned Service Revenue ($4,800 × 2/3)................................... 3,200Service Revenue.................................................................. 3,200

PART IV — BANK RECONCILIATION (15 points)

1. BANK RECONCILIATION:Amount Amount

Balance per bank statement $16,912 Balance per books $17,421Add: Deposits in transit 3,120 Add:

Bank error 1,552 Note collection 1,005$21,584 $18,426

Less: Outstanding checks (3,460) Less: NSF check (212)Adjusted balance per bank $18,124 Error in recording check (90) (302)

Adjusted balance per books $18,124

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Final Exam 1

2. ENTRIES:

Account Titles Debit Credit Cash.............................................................................................. 1,005Miscellaneous Expense................................................................. 15

Notes Receivable.................................................................. 1,000Interest Revenue.................................................................. 20

Accounts Receivable..................................................................... 212Cash...................................................................................... 212

Salaries and wages expense......................................................... 90Cash...................................................................................... 90

PART V — INVENTORY (12 points)

1. Average cost ending inventory: Average cost of goods sold:100 × $16.10 = $1,610 Cost of goods available for sale $16,100

Less: Ending inventory 1,610$16,100 Cost of goods sold $ 14,490

Average cost = ————- = $16.101,000

2. FIFO ending inventory: FIFO cost of goods sold:100 × $17 =$1,700 Cost of goods available for sale $16,100

Less: Ending inventory 1,700Cost of goods sold $ 14,400

3. LIFO ending inventory: LIFO cost of goods sold:100 × $16 =$1,600 Cost of goods available for sale $16,100

Less: Ending inventory 1,600Cost of goods sold $14,500

PART VI — DEPRECIATION (18 points)

Depreciable cost: $500,000 – $20,000 = $480,000.

1. Units-of-activity2011 depreciation [105,000 × ($480,000 ÷ 600,000)]............................... $84,0002012 depreciation (135,000 × ($480,000 ÷ 600,000)]............................... $108,00012/31/12 book value [$500,000 – ($84,000 + $108,000)]......................... $308,000

2. Straight-line2011 depreciation [($500,000 – $20,000) ÷ 4].......................................... $120,0002012 depreciation [($500,000 – $20,000) ÷ 4].......................................... $120,00012/31/12 book value [$500,000 – ($120,000 + $120,000)]....................... $260,000

3. Double-declining-balance2011 depreciation ($500,000 × .5)............................................................ $250,0002012 depreciation [($500,000 – $250,000) × .5]....................................... $125,00012/31/12 book value [$500,000 – ($250,000 + $125,000)]....................... $125,000

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PART VII — DIVISION OF PARTNERSHIP NET INCOME (LOSS) (20 points)

Mark Chris Total 1. Salary allowance........................................ $ 58,000 $ 58,000

Remainder.................................................. $31,000 31,000 62,000Total........................................................... $31,000 Cr. $ 89,000 Cr. $120,000

2. Interest allowances..................................... $40,000 $50,000 $ 90,000Remainder.................................................. 30,000 30,000 60,000Total........................................................... $70,000 Cr. $80,000 Cr. $150,000

3. Salary allowance........................................ $85,000 $ 85,000Interest allowances..................................... $24,000 30,000 54,000Remainder.................................................. 15,500 15,500 31,000Total........................................................... $124,500 Cr. $45,500 Cr. $170,000

4. Salary allowance........................................ $85,000 $85,000Interest allowances..................................... $24,000 30,000 54,000Remainder.................................................. (34,500 ) (34,500 ) (69,000 ) Total........................................................... $74,500 Cr. $(4,500 ) Dr. $70,000

5. Income Summary........................................................................... 70,000Chris, Capital................................................................................. 4,500

Mark, Capital......................................................................... 74,500

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Exam for Accounting