Financial Accounting I Acc/362 Final Exam
Multiple Choice-2 points each
1. A private organization which establishes broad accounting principles as well as specific accounting rules is the
a. Securities and Exchange Commission.
b. Internal Revenue Service.
c. Financial Accounting Standards Board.
d. Corporate Board of Directors.
2. A petty cash fund is generally established in order to
a. pay for all merchandise purchased on account.
b. pay employees’ wages.
c. make loans internally to employees.
d. pay relatively small expenditures.
3. The Income Summary account is an important account that is used
a. during interim periods.
b. in preparing adjusting entries.
c. annually in preparing closing entries.
d. annually in preparing correcting entries.
4. A petty cash fund of $100 is replenished when the fund contains $4 in cash and receipts for $93. The entry to replenish the fund would
a. credit Cash Over and Short for $3.
b. credit Miscellaneous Revenue for $3.
c. debit Cash Over and Short for $3.
d. debit Miscellaneous Expense for $3.
5. Posting is the process of
a. preparing a chart of accounts.
b. adding a column of figures.
c. transferring journal entries to ledger accounts.
d. recording entries in a journal.
6. Logan Company debited Prepaid Insurance for $960 on July 1, 2005 for a one-year fire insurance policy. If the company prepares monthly financial statements, failure to make an adjusting entry on July 31 for the amount of insurance that has expired would cause
a. assets to be overstated by $960 and expenses to be understated by $960.
b. expenses to be overstated by $80 and assets to be understated by $80.
c. assets to be overstated by $80 and expenses to be understated by $80.
d. expenses to be overstated by $960 and assets to be understated by $960.
7. Which one of the following accounts is not closed at the end of an accounting period?
a. Common Stock
c. Service Revenue
d. Insurance Expense
8. The second set of debit and credit columns on a work sheet is generally used for
a. closing entries.
b. the trial balance.
c. the balance sheet figures.
d. the adjustments.
9. Geronimo Company had net sales of $400,000, cost of goods sold of $225,000 and other operating expenses of $100,000. The company’s gross profit is
10. Inventoriable costs include all of the following except the
a. cost of the goods purchased.
b. freight out.
c. cost of the beginning inventory.
d. freight in.
11. Abaco Enterprises had beginning inventory of $15,000 at March 1, 2006. During the month, the company made purchases of $120,000. The inventory at the end of the month is $17,000. What is cost of goods available for sale for the month of March?
12. A check correctly written and paid by the bank for $361 is incorrectly recorded on the company's books for $316. The appropriate adjustment on a bank reconciliation would be to
a. deduct $361 from the book's balance.
b. deduct $45 from the book's balance.
c. deduct $45 from the bank's balance.
d. add $45 to the bank's balance.
13. The Petty Cash account should be debited
a. whenever an expense is paid from the fund.
b. when the fund is established.
c. whenever the fund is replenished.
d. when the fund is liquidated.
14. An adjusted trial balance
a. is prepared after the financial statements have been prepared.
b. proves the equality of the debits and the credits of the ledger accounts.
c. is required by GAAP.
d. is prepared after the post-closing trial balance.
15. A company just starting business purchased three merchandise inventory items at the following prices: first purchase $880; second purchase $840; third purchase $810. If two items were sold during the period and the company used the LIFO costing method, the gross profit for the period would be how much greater or less than if the FIFO costing method had been used?
a. Gross profit would be $70 greater.
b. Gross profit would be $70 less.
c. Gross profit would be the same.
d. Gross profit would be $40 greater.
16. An error in the physical count of goods on hand at the end of the current period resulted in a $3,000 understatement of the ending inventory. The effect of this error in the current period is to
a. overstate cost of goods sold.
b. understate cost of goods available for sale.
c. overstate gross profit.
d. overstate net income.
17. In a period of rising prices, the inventory method that will show the highest net income is
a. Average Cost.
d. Moving Average.
18. The financial statements of a business entity:
a Include the balance sheet, income statement, and income tax return.
b Provide information about the profitability and financial position of the company.
c Are the first step in the accounting process.
d Are prepared for a fee by the Financial Accounting Standards Board.
19. A balance sheet is designed to show the financial position of an entity:
a At a single point in time.
b Over a period of time such as a year or quarter.
c At December 31 of the current year.
d At January 1 of the coming year.
20. The CPA firm auditing Atlantic Company found that net income had been overstated. Which of the following errors could be the cause?
a Failure to record depreciation expense for the period.
b No entry made to record purchase of land for cash on the last day of the year.
c Failure to record payment of an account payable on the last day of the year.
d Failure to make an adjusting entry to record revenue which had been earned but not yet billed to customers.
21. Cash equivalents:
a Include amounts of cash available through an unused line of credit.
b Are investments in the publicly traded stocks and bonds of large corporations.
c Are usually included in the term “cash” in the balance sheet and the statement’
of cash flows.
d Is another term for financial assets.
22. A work sheet can be thought of as a(n)
a. permanent accounting record.
b. optional device used by accountants.
c. part of the general ledger.
d. part of the journal.
23. Closing entries are made for all accounts except
d. Common Stock
24. The use of computers in recording business events
a. has made the recording process more efficient.
b. does not use the same principles as manual accounting systems.
c. has greatly impacted the identification stage of the accounting process.
d. is economical only for large businesses.
25. The accounting process involves all of the following except
a. identifying economic transactions that are relevant to the business.
b. communicating financial information to users by preparing financial reports.
c. recording nonquantifiable economic events.
d. analyzing and interpreting financial reports.
Problem 1 (10 Points)
Surepar Miniature Golf and Driving Range was opened on March 1 by Bill Affleck. The following selected events and transactions occurred during March:
Mar. 1 Invested $60,000 cash in the business in exchange for common stock.
Mar 3 Purchased Lee’s Golf Land for $38,000 cash. The price consists of land $23,000, building $9,000, and equipment $6,000. (Make one compound entry.)
Mar 5 Advertised the opening of the driving range and miniature golf course, paying advertising expenses of $1,600.
Mar 6 Paid cash $1,480 for a one-year insurance policy.
Mar 10 Purchased golf clubs and other equipment for $2,600 from Parton Company payable in 30 days.
Mar 18 Received $800 in cash for golf fees earned.
Mar 19 Sold 100 coupon books for $15 each. Each book contains 10 coupons that enable the holder to play one round of miniature golf or to hit one bucket of golf balls.
Mar 25 Declared and paid $1,000 cash dividend.
Mar 30 Paid salaries of $600.
Mar 30 Paid Parton Company in full.
Mar 31 Received $500 cash for fees earned.
Bill Affleck uses the following accounts: Cash; Prepaid Insurance; Land; Buildings; Equipment; Accounts Payable; Unearned Revenue; Common Stock; Dividends; Golf Revenue; Advertising Expense; and Salaries Expense.
Journalize the March transactions.
Problem 2. Use the information below to:
A. Prepare the adjusting entries for the month of August. (10 Points)
In addition to those accounts listed on the trial balance, the chart of accounts for Spring River Resort also contains the following accounts and account numbers: No. 112 Accounts Receivable, No. 144 Accumulated Depreciation—Cottages, No. 150 Accumulated Depreciation—Furniture, No. 212 Salaries Payable, No. 230 Interest Payable, No. 620 Depreciation Expense—Cottages, No. 621 Depreciation Expense—Furniture, No. 631 Supplies Expense, No. 718 Interest Expense, and No. 722 Insurance Expense.
1. Insurance expires at the rate of $400 per month.
2. A count on August 31 shows $900 of supplies on hand.
3. Annual depreciation is $3,600 on cottages and $2,400 on furniture.
4. Unearned rent of $4,100 was earned prior to August 31.
5. Salaries of $400 were unpaid at August 31.
6. Rentals of $800 were due from tenants at August 31. (Use Accounts Receivable.)
7. The mortgage interest rate is 9% per year. (The mortgage was taken out on August 1.)
Problem 3-Use the information below to:
1. Prepare an income statement (10 points)
2. Prepare a retained earnings statement (10 points)
3. Prepare a classified balance sheet (10 points)
NOTE: $10,000 of the notes payable become due in 2007. No additional issuance of stock occurred during 2006.
Financial Accounting I Acc/362 Final Exam