Practice Exam 1 PDF

Preview

Summary

Practice Exam 1...

Description

BUS1 121A Intermediate Accounting I: Practice Examination 1 Instructor: Benjamin Anderson

Multiple Choice (100 points total, 5 points each) 1. Davis Hardware Company uses a perpetual inventory system. How should Davis record the sale of merchandise, costing $620, and sold on account for $960? a.

b.

c.

d.

2.

620

Accounts receivable Sales revenue Cost of goods sold Inventory

960

Inventory Gain on sale Sales revenue

620 340

Accounts receivable Sales revenues Gain on sale

960

620 960 960

960 620 620

960

620 340

Cal Farms reported supplies expense of $2,000,000 this year. The supplies account decreased by $200,000 during the year to an ending balance of $400,000. What was the cost of supplies the Cal Farms purchased during the year? a. b. c. d.

3.

Inventory Accounts receivable Sales Revenue from sales

$1,600,000 $1,800,000 $2,200,000 $2,400,000

The distinction between operating and nonoperating income relates to: a. b. c. d.

Continuity of income. Primary activities of the reporting entity. Consistency of income stream. Reliability of measurements.

4.

Kohler Company owns the following investments: Trading securities (fair value) $120,000 Available-for-sale securities (fair value) 80,000 Held-to-maturity securities (amortized cost) 94,000 Kohler will report securities in its long-term investments section of a. exactly $200,000. b. exactly $214,000. c. exactly $294,000. d. $174,000 or an amount less than $174,000, depending on the circumstances.

5.

A general journal a. chronologically lists transactions and other events, expressed in terms of debits and credits. b. contains one record for each of the asset, liability, stockholders’ equity, revenue, and expense accounts. c. lists all the increases and decreases in each account in one place. d. contains only adjusting entries.

6.

The Akerlof (1970) ‘lemons’ problem states that: a. Managers with high powered incentives will focus entirely on the tasks associated with those incentives. b. When life gives you lemons, make lemonade. c. When information asymmetry exists in a market, the market has inefficient allocation of resources or fails entirely. d. The market is efficient when the current price correctly accounts for all past and current information.

7.

Financial accounting standard-setting in the United States a. can be described as a socio-political process which reflects political actions of various interested user groups as well as a product of research and logic. b. is based solely on research and empirical findings. c. is a legalistic process based on rules promulgated by governmental agencies. d. is democratic in the sense that a majority of accountants must agree with a standard before it becomes enforceable.

8.

Which basic element of financial statements arises from peripheral or incidental transactions? a. Assets. b. Loyalty. c. Gains. d. Expenses.

9.

Madsen Company reported the following information for 2014: Sales revenue $1,530,000 Cost of goods sold 1,050,000 Operating expenses 165,000 Unrealized holding gain on available-for-sale securities 90,000 Cash dividends received on the securities 6,000 For 2014, Madsen would report other comprehensive income of a. $321,000. b. $315,000. c. $96,000. d. $90,000.

10.

In November and December 2014, Lane Co., a newly organized magazine publisher, received $60,000 for 1,000 three-year subscriptions at $20 per year, starting with the January 2015 issue. Lane included the entire $60,000 in its 2014 income tax return. What amount should Lane report in its 2014 income statement for subscriptions revenue? a. $0. b. $3,333. c. $20,000. d. $60,000.

11.

According to Statement of Financial Accounting Concepts No. 2, predictive value is an ingredient of the fundamental quality of Relevance Faithful Representation a. Yes No b. Yes Yes c. No No d. No Yes

12.

Which of the following is not one of the five steps for recognizing revenue? a. b. c. d.

13.

Identify the contract with a customer. Recognize revenue after all the performance obligations have been satisfied. Identify the separate performance obligation(s) in the contract. Allocate the transaction price to the separate performance obligations.

What is the objective of financial reporting? a. Provide information that is useful to management in making decisions. b. Provide information that clearly portrays nonfinancial transactions. c. Provide information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors. d. Provide information that excludes claims to the resources.

14.

The following partial balance sheet ($ in thousands) for Paisano Seafood Inc. is shown below:

Current assets: Cash Accounts receivable (net) Notes receivable Inventories Total current assets Plant assets (net)

Total assets

Current liabilities: $ 60

Accounts payable

170

Other liabilities

50 200

Total current liabilities Long-term liabilities

320 110

Total liabilities Shareholders' equity: Capital stock Retained earnings Total shareholders' equity Total liabilities and equity

430

480 255

$735

$240 80

150 180 305 $735

The quick ratio for Paisano Seafood Inc. is: a. b. c. d.

0.8750 1.5781 2.0000 1.5000

15.

What is a purpose of having a conceptual framework? a. To enable the profession to more quickly solve emerging practical problems. b. To provide a foundation from which to build more useful standards. c. Neither a nor b. d. To enable the profession to more quickly solve emerging practical problems and to provide a foundation from which to build more useful standards.

16.

According to the FASB's conceptual framework, the calculation of comprehensive income includes which of the following? Income from Distributions Continuing Operations to Owners a. No No b. Yes No c. Yes Yes d. No Yes

17.

Sanjeev enters into a contract offering variable consideration. The contract pays him $1,000 / month for six months of continuous consulting services. In addition, the contract will pay him an additional $2,000 bonus at the end of the contract period. However, if Sanjeev’s activities bring in more than $400,000 of additional work, then Sanjeev will receive a bonus of $3,000 instead of the $2,000 bonus. Assume Sanjeev estimates variable consideration as its expected value. Sanjeev estimates that there is a 40% chance he will bring in the $400,000 of additional work. What is the amount of revenue Sanjeev should recognize for the first month of the contract? a. b. c. d.

$1,000 $1,333 $1,400 $1,200

18.

Which of the following is a current asset? a. Cash surrender value of a life insurance policy of which the company is the beneficiary. b. Investment in equity securities for the purpose of controlling the issuing company. c. Cash designated for the purchase of tangible fixed assets. d. Trade installment receivables normally collectible in 12 months.

19.

Houghton Company has the following items: common stock, $800,000; treasury stock, $105,000; deferred income taxes, $125,000 and retained earnings, $390,000. What total amount should Houghton Company report as stockholders’ equity? a. $960,000. b. $1,085,000. c. $1,210,000. d. $1,295,000.

20.

Minarski Electronics sells computers and provides hardware maintenance services. On April 1st, Minarski sold a package deal containing a computer and a one-year unlimited maintenance/repair service for the computer at a bundle price of $1,000. If sold separately, the computer costs $840 and the one-year unlimited maintenance/repair service costs $360. How much revenue does Minarski Electronics recognize for the month ended April 30th, assuming that revenue is accrued monthly? a. b. c. d.

$1,000 $870 $725 $30

This page is intentionally left blank. Test continues on next page.

Short Answer (50 points total) Question 1 (20 points): Selected financial statement information and additional data for Johnston Enterprises is presented below. Prepare the portion of the statement of cash flows beginning with ‘net income’ and ending at ‘net cash provided by operating activities’ for 2014.

Current Assets: Cash Accounts Receivable Inventory Total Current Assets Property, Plant, and Equipment Less: Accumulated Depreciation Total Assets Current Liabilities: Accounts Payable Notes Payable Income Taxes Payable Total Current Liabilities Bonds Payable Total Liabilities Stockholders' Equity: Common Stock Retained Earnings Total Stockholders' Equity Total Liabilities & Stockholders' Equity Sales Revenue Less Cost of Goods Sold Gross Profit Expenses: Depreciation Expense Salaries and Wages Expense Interest Expense Loss on Sale of Equipment Income Before Taxes Less Income Tax Expense Net Income

December 31, 2014

December 31, 2013___

$143,000 228,000 391,000 762,000

$119,000 306,000 340,000 765,000

1,261,000 (476,000) $1,547,000

1,122,000 (442,000) $1,445,000

$187,000 51,000 85,000 323,000

$102,000 68,000 76,500 246,500

350,000 673,000

391,000 637,500

510,000 364,000 874,000 $1,547,000

467,500 340,000 807,500 $1,445,000

1,615,000 781,000 834,000

$1,513,000 731,000 782,000

153,000 391,000 34,000 12,000 244,000 98,000 $146,000

136,000 357,000 34,000 0 255,000 102,000 $153,000

Johnston Enterprises Partial Statement of Cash Flows For the Year Ended December 31, 2014 Net Income Cash Flows from Operating Activities:

Net cash provided by operating activities

$ 146,000

Question 2 (20 points): Wilcox Corporation had income from continuing operations of $771,000 (after taxes) in 2014. The company had the following information. Assume the calculation of income from continuing operations is correct. Include presentation of earnings per share. 1. In 2014, Wilcox experienced an uninsured earthquake loss in the amount of $290,000. This event is both unusual and infrequent in nature and has an applicable tax benefit of $78,000. 2. A machine was sold for $140,000 cash during the year at a time when its book value was $110,000. (Depreciation has been properly recorded.) The company regularly sells machinery of this type. 3. Wilcox decided to discontinue its stereo division in 2014. During the current year, the loss on the disposal of this component of the business was $180,000. The expected tax rate is 35%. Present in good form the income statement of Wilcox Corporation for 2014 starting from "income from continuing operations." Assume 200,000 shares of common stock were outstanding during the year. Round EPS information to two decimal places. Income from operating activities

Net income

$771,000

Question 3 (10 points): The following trial balance was taken from the books of Fisk Corporation as of the end of December 31, 2014. Account Cash Accounts Receivable Notes Receivable Allowance for Doubtful Accounts Inventory Prepaid Insurance Equipment Accumulated Depreciation--Equip. Accounts Payable Common Stock Retained Earnings Sales Revenue Cost of Goods Sold Salaries and Wages Expense Rent Expense Totals

Debit $ 9,000 40,000 10,000

Credit

$ 1,800 44,000 4,800 110,000 15,000 10,800 44,000 55,000 280,000 126,000 50,000 12,800 $406,600

$406,600

At year end, the following items have not yet been recorded. a. The prepaid insurance was purchased on August 1, 2014 and is for one calendar year. b. Management estimates bad debts to be 1% of gross sales. c. Depreciation on equipment is $11,000 for the year. d. The note receivable was received on March 1, 2014 and carries 12% interest per annum, which has yet to be paid. f. Workers work five days per week (Monday through Friday) and paychecks are distributed every Friday. December 31, 2014 is a Wednesday. Weekly payroll is $14,500.

Prepare all necessary adjusting entries:

ANSWER KEY: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20.

B B B D A C A C D A A B C A D B C D B C...