financial accounting final exam PDF

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FOREIGN TRADE UNIVERSITY ADVANCED PROGRAM IN INTERNATIONAL ECONOMICS

PRINCIPLE OF ACCOUNTING

Final Examination Time Allowed – 1 hour and 30 minutes

NAME __________________________________________ CLASS __________________________________________

Instructions to candidates: o o o o o

Answer all questions in this booklet If more space is required, use the back of the page to show your workings Use of an English language dictionary is allowed Use of a non-programmable calculator is permitted This paper is not to be removed from the exam room

Exam structure: This examination consists of three sections.

SECTION A

QUESTION TYPE MULTIPLE CHOICE

TOTAL POSSIBLE MARKS 20

B

SHORT ANSWER

30

C

EXTENDED ANSWERS AND CASE STUDIES

50

TOTAL

100

Part A - Multiple Choice Choose the best answer for each multiple choice question and write the answer in the space below

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ANSWER SPACE for MULTIPLE CHOICE QUESTIONS 6 11 16 7 12 17 8 13 18 9 14 19 10 15 20 Which is not one of three primary business activities? a. Financing. b. Advertising. c. Investing. d. Operating. What section of a cash flow statement indicates the cash spent on new equipment during the past accounting period? a. The investing section. b. The operating section. c. The financing section. d. The cash flow statement does not give this information. Which of these measures is an evaluation of a company’s ability to pay current liabilities? a. Earnings per share. b. Current ratio c. Both (a) and (b) d. None of the above. What accounting constraint refers to the tendency of accountants to resolve uncertainty in a way least likely to overstate assets and net income? a. Comparability. b. Conservatism. c. Materiality. d. Consistency. What is the primary criterion by which accounting information can be judged? a. Consistency. b. Usefulness for decision making. c. Comparability. d. Predictive value. A trial balance will not balance if: a. A correct journal entry is posted twice. b. The purchase of supplies on account is debited to Supplies and credited to Cash. c. A $450 payment on account is debited to Accounts Payable for $45 and credited to Cash for $45. d. A $100 cash dividend is debited to Dividends for $1,000 and credited to Cash for $100. Which is not part of the recording process? a. Analyzing transactions. b. Entering transactions in a journal. c. Preparing a trial balance. d. Posting transactions. Curve Company buys a $1000 machine on credit. This transaction will affect the: a. Income statement only. b. Income statement and retained earnings statement only. c. Balance sheet only. d. Income statement, retained earnings statement and balance sheet. Adjustment for accrued revenues:

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a. Increase liabilities and increase revenues. b. Decrease liabilities and increase revenues. c. Increase assets and increase revenues. d. Decrease revenues and decrease assets. Which account will have a zero balance after a company has journalized and posted closing entries? a. Advertising Supplies. b. Prepaid Insurance. c. Accumulated Depreciation. d. Service Revenue. Which of the following items does not result in an adjustment in the merchandise inventory account under a perpetual system? a. A purchase of merchandise. b. A return of merchandise inventory to the supplier. c. Payment of freight cost for goods received from a supplier. d. Payment of freight costs for goods shipped to a customer. The income statement for a merchandising company shows each of these features except: a. Gross profit. b. Cost of goods sold. c. A sales revenue section. d. All of these are present. Which of the following should not be included in the physical inventory of a company? a. Goods shipped on consignment to another company. b. Goods shipped on consignment from another company. c. Goods in transit from another company shipped FOB shipping point. d. All of the above should be included. Internal control is used in a business to enhance the accuracy and reliability of its accounting records and to: a. Safeguard its assets. b. Produce correct financial statements. c. Deter employee dishonesty. d. Prevent fraud. Which of the following is not one of the sections of a cash budget? a. Cash receipts section. b. Cash disbursements section. c. Cash from operations section. d. Financing section. Considerations that affect the selection of an inventory costing method do not include: a. Tax effects. b. Balance sheet effects. c. Income statement effects. d. Perpetual versus periodic inventory system. Cali Corporation sells its goods on terms of 2/10, n/30. It has receivables turnover ratio of 7. What is its average collection period (days)? a. 2,555 b. 30 c. 52 d. 210 A company would minimize its depreciation expenses in the first year of owning an asset if it used: a. a high estimated life, a high salvage value, and declining-balance depreciation. b. A low estimated life, a high salvage value, and straight-line depreciation. c. A high estimated life, a high salvage value, and straight-line depreciation. d. A low estimated life, a low salvage value, and declining-balance depreciation. Additions to plant assets:

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a. Are revenue expenditures. b. Increase a repair expense account. c. Are capital expenditures. d. Increase a purchase account. Which of the following is not a measure of liquidity? a. Debt to total assets ratio. b. Working capital. c. Current ratio. d. Current cash debt coverage.

PART B – Short answer questions 1. An item of information is capable of being produced or discovered. It is relevant to a particular decision, it is also reliable, comparable and can be understood by the decision maker concerned. Can you think of reason why, in practice, you might choose not to produce or discover it? 2. How does journalizing differ from posting? 3. How does a merchandising company measure net income differently from a service enterprise? 4. What factors should management consider in selecting an inventory cost flow method?

Part C – Extended Response Questions Question 1: Josh Stein started his own consulting firm, Astromech Consulting, on June 1, 2010. The trial balance at June 30 is as follows. ASTROMECH CONSULTING Trial balance June 30, 2010 Debit Cash

Credit $6,850

Accounts Receivable

7,000

Prepaid Insurance

2,640

Supplies

2,000

Office Equipment

15,000

Account Payable

$ 4,540

Unearned Service Revenue

5,200

Common Stock

21,750

Service Revenue

8,000

Salaries Expense

4,000

Rent Expense

2,000 $39,490

$39,490

In addition to those accounts listed on the trial balance, the chart of accounts for Astromech also contains the following accounts: Accumulated Depreciation – Office Equipment, Utilities Payable, Salaries Payable, Depreciation, Insurance Expense, Utilities Expense, and Supplies Expense.

Other data: 1. 2. 3. 4. 5. 6.

Supplies on hand at June 30 total $980. A utility bill for $180 has not been recorded and will not be paid until next month. The insurance policy is for a year. $2,900 of unearned service revenue has been earned at the end of the month. Salaries of $1,250 are accrued at June 30. The office equipment has a 5-year life with no salvage value and is being depreciated at $250 per month for 60 months. 7. Invoices representing $3,000 of services performed during the month have not been recorded as of June 30. Instructions: a. Prepare the adjusting entries for the month of June. b. Post the adjusting entries to the ledger accounts. Enter the totals from the trial balance as beginning account balances. Use T accounts. c. Prepare an adjusted trial balance at June 30, 2010.

Question 2: On March 1, 2010, Geoff Company acquired real estate, on which it planned to construct a small office building, by paying $100,000 in cash. An old warehouse on the property was demolished at a cost of $8,000; the salvaged materials were sold for $1,700. Additional expenditures before construction began included $1,500 attorney’s fee for work concerning the land purchase, $5,000 real estate broker’s fee, $9,100 architect’s fee, and $14,000 to put in driveways and a parking lot. a. Determine the amount to be reported as the cost of the land. b. For each cost not used in part (a), indicate the account to be debited....