Loyola Marymount University
Acct 211 Practice
Final Examination
Instructions:
This exam is worth 300 points and consists of 25 multiple choice questions and
8 problems. The multiple choice questions are worth 4 points each; the problems
are worth 25 points each. Answer the multiple choice questions on a Scantron.
Put the answer to each problem on a separate sheet of paper. Partial
credit will be given on Problems ONLY if your solution is clear!
Multiple
choice - 4 points each. Answer questions on Scantron.
1. Goods that will be used in
production are considered to be
a. raw materials.
b. work in progress.
c. finished goods.
d. merchandise inventory.
2. Which one of the following
is not a qualitative characteristic of
useful accounting
information?
a. Relevance
b. Reliability
c. Conservatism
d. Comparability
3. Internal controls are
concerned with
a. only manual systems of
accounting.
b. the extent of government
regulations.
c. safeguarding assets.
d. preparing income tax
returns.
4. A business organized as a
corporation
a. is not a separate legal
entity in most states.
b. requires that
stockholders be personally liable for the debts of the business
c. is owned by its stockholders.
d. has tax advantages over a proprietorship or partnership.
5. In a manufacturing business, inventory that is ready for sale is called
a. raw materials.
b. work in process.
c. finished goods.
d. store supplies.
6. In order for accounting
information to be relevant, it must
a. have very little cost.
b. help predict future
events or confirm prior expectations.
c. not be reported to the
public.
d. be used by a lot of
different firms.
7. Cole Company buys land for
$50,000 on 12/31/98. As of 3/31/99, the
land has appreciated in
value to $50,500. On 12/31/99, the land has
an appraised value of
$51,800. By what amount should the Land
account be increased in 1999?
a. $0.
b. $500.
c. $1,300.
d. $1,800.
8. 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.
9. The matching principle
matches
a. customers with
businesses.
b. expenses with revenues.
c. assets with liabilities.
d. creditors with businesses.
10. Under the allowance method,
writing off an uncollectible account
a. affects only balance
sheet accounts.
b. affects both balance
sheet and income statement accounts.
c. affects only income statement accounts.
d. is not acceptable practice.
11. External users want answers
to all of the following questions except
a. Is the company earning
satisfactory income?
b. Will the company be able
to pay its debts as they come due?
c. Will the company be able
to afford employee pay raises this year?
d. How does the company compare in profitability with
competitors?
12. If goods in transit are
shipped FOB destination
a. the seller has legal
title to the goods until they are delivered.
b. the buyer has legal
title to the goods until they are delivered.
c. the transportation company has legal title to the goods while the goods
are in transit.
d. no one has legal title to the goods until they are delivered.
13. Jim's Tune-up Shop follows
the revenue recognition principle. Jim
services a car on July
31. The customer picks up the vehicle
on
August 1 and mails the
payment to Jim on August 5. Jim
receives the
check in the mail on August
6. When should Jim show that the
revenue was earned?
a. July 31
b. August 1
c. August 5
d. August 6
14. A company spends $10
million dollars for an office building.
Over
what period should the cost
be written off?
a. When the $10 million is
expended in cash
b. All in the first year
c. Over the useful life of
the building
d. After $10 million in
revenue is earned
15. A T-account is
a. a way of depicting the
basic form of an account.
b. a special account used
instead of a journal.
c. a special account used instead
of a trial balance.
d. used for accounts that
have both a debit and credit balance.
16. An item is considered
material if
a. it costs a lot of money.
b. it is of a tangible
nature.
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.
17. The collection of an
account that had been previously written off
under the allowance method
of accounting for uncollectibles
a. will increase income in
the period it is collected.
b. will decrease income in
the period it is collected.
c. requires a correcting
entry for the period in which the account
was written off.
d. does not affect income
in the period it is collected.
18. The balance in the
Accumulated Depreciation account represents the
a. cash fund to be used to
replace plant assets.
b. amount to be deducted
from the cost of the plant asset to arrive
at its fair market
value.
c. amount charged to
expense in the current period.
d. amount charged to
expense since the acquisition of the plant
asset.
19. Depreciation is the process
of allocating the cost of a plant asset
over its useful life in
a(n)
a. equal and equitable
manner.
b. accelerated and accurate
manner.
c. systematic and rational
manner.
d. conservative
market-based manner.
20. Barone Shoe Store had a
beginning merchandise inventory of $15,000.
During the period,
purchases were $70,000; purchase returns, $2,000;
and freight-in $5,000. A
physical count of inventory at the end of
the period revealed that
$10,000 was still on hand. The cost of
goods available for sale
was
a. $82,000.
b. $78,000.
c. $88,000.
d. $92,000.
21. Kingman's Car Repair Shop
started the year with total assets of
$60,000 and total
liabilities of $40,000. During the year
the
business recorded $100,000
in car repair revenues, $55,000 in
expenses, and dividends of
$10,000.
Stockholders' equity at the
end of the year was
a. $55,000.
b. $35,000.
c. $65,000.
d. $45,000.
22. For the basic accounting
equation to stay in balance, each
transaction recorded must
a. affect two or less
accounts.
b. affect two or more
accounts.
c. always affect exactly
two accounts.
d. affect the same number
of asset and liability accounts.
23. When calculating interest
on a promissory note with the maturity
date stated in terms of
days, the
a. maker pays more interest
if 365 days are used instead of 360.
b. maker pays the same
interest regardless if 365 or 360 days are used.
c. payee receives more
interest if 360 days are used instead of 365.
d. payee receives less
interest if 360 days are used instead of 365.
24. The maturity value of a
$20,000, 12%, 3-month note receivable is
a. $20,600.
b. $20,240.
c. $22,400.
d. $20,200.
25. The calculation of
depreciation using the declining-balance method,
a. ignores salvage value in
determining the amount to which a
constant rate is
applied.
b. multiplies a constant
percentage times the previous year's
depreciation expense.
c. yields an increasing
depreciation expense each period.
d. multiplies a declining
percentage times a constant book value.
Problems
- 25 points each. Answer each question on a separate piece of paper.
Partial credit
will be given ONLY if your solution is clear!
26. The corporate charter of Hunter Corporation allows the issuance of
a maximum of 2,000,000
shares of $1 par value common stock. During
its first three years of
operation, Hunter issued 1,200,000 shares
at $15 per share. It later
acquired 25,000 of these shares as
treasury stock for $25 per
share.
INSTRUCTIONS
Based on the above
information, answer the following questions:
(a) How many shares were
authorized?
(b) How many shares were
issued?
(c) How many shares are
outstanding?
(d) What is the balance of
the Common Stock account?
(e) What is the balance of
the Treasury Stock account?
27. Trumpy Company has the
following selected accounts after posting
adjusting entries:
Accounts Payable $ 74,000
Notes Payable, 3-month 90,000
Accumulated Depreciation -
Equipment 14,000
Notes Payable, 5-year,
8% 30,000
Payroll Tax Expense 6,000
Interest Payable 3,000
Mortgage Payable 150,000
Sales Tax Payable 38,000
INSTRUCTIONS
(a) Prepare
the current liability section of Trumpy Company's balance sheet,
assuming $25,000 of the
mortgage is payable next year.
(b) Comment on Trumpy's
liquidity, assuming total current assets are $400,000.
28. The Prince Company reported
net income of $250,000 for the current
year. Depreciation recorded
on buildings and equipment amounted to
$80,000 for the year. Balances of the current asset and current
liability accounts at the
beginning and end of the year are as
follows:
End of Beginning
of
Year
Year
Cash $20,000 $15,000
Accounts receivable 19,000
32,000
Inventories 50,000
65,000
Prepaid expenses 7,500
5,000
Accounts payable 12,000
18,000
Income taxes payable 1,600
1,200
INSTRUCTIONS
Prepare the cash flows from
the operating activities section of the
statement of cash flows
using the indirect method.
29. The following items were taken from the financial statements of
Smalley, Inc., over a
four-year period:
Item 1999 1998 1997 1996
Cost of Goods Sold 640,000 480,000 420,000 400,000
INSTRUCTIONS
Using
horizontal analysis and 1996 as the base year, compute the trend percentages
for net sales, cost of goods sold, and gross profit. Explain whether the trends are favorable or unfavorable for each
item.
30. The board of directors of
Finley Corporation are considering two
plans for financing the
purchase of new plant equipment. Plan #1
would require the issuance
of $4,000,000, 9%, 20-year bonds at face
value. Plan #2 would
require the issuance of 200,000 shares of $5
par value common stock that
is selling for $20 per share on the
open market. Finley
Corporation currently has 100,000 shares of
common stock outstanding
and the income tax rate is expected to be
30%. Assume that income before interest and
income taxes is
expected to be $800,000 if
the new factory equipment is purchased.
INSTRUCTIONS
Prepare a schedule that
shows the expected net income after taxes
and the earnings per share
on common stock under each of the plans
that the board of directors
is considering.
31. The stockholders' equity
section of the O'Rear Corporation's balance
sheet at December 31, 1998,
appears below:
Stockholders' equity
Paid-in capital
Common stock, $10 par
value, 400,000 shares
authorized; 250,000
issued and outstanding $2,500,000
Paid-in capital in
excess of par 1,200,000
—————
Total paid-in
capital 3,700,000
Retained earnings 600,000
—————
Total stockholders'
equity $4,300,000
During 1999, the following
stock transactions occurred:
Jan. 18 Issued 40,000 shares of common stock at $25
per share.
Aug. 20 Purchased 15,000 shares of O'Rear
Corporation's common
stock at $22
per share to be held in the treasury.
INSTRUCTIONS
(a) Prepare the journal
entries to record the above stock
transactions.
(b) Prepare the
stockholders' equity section of the balance sheet
for O'Rear Corporation
at December 31, 1999. Assume that net
income for the year was
$150,000 and that no dividends were
declared.
32. The income statement of Rice Inc. for the year ended December 31,
1999, reported the
following condensed information:
Revenue from fees $600,000
Operating expenses 360,000
Income tax expense 60,000
Net income $180,000
Rice's balance sheet
contained the following comparative data at
December 31:
1999
1998
Accounts payable 35,000 41,000
Income taxes payable 6,000 3,000
Rice has no depreciable
assets. Accounts payable pertains to operating expenses.
INSTRUCTIONS
Prepare the operating
activities section of the statement of cash
flows using the direct
method.
33. The income statement for
the Powell Company for the year ended
December 31, 1999 appears
below.
Sales $610,000
Cost of goods
sold 380,000
————
Gross profit 230,000
Expenses 180,000*
————
Net income $
50,000
*Includes $30,000 of
interest expense and $16,000 of income tax
expense.
Additional information:
1. Common stock outstanding
on January 1, 1999 was 50,000 shares.
On July 1, 1999, 10,000
more shares were issued.
2. The market price of
Powell's stock was $12 at the end of 1999.
3. Cash dividends of
$30,000 were paid, $6,000 of which were paid to
preferred stockholders.
INSTRUCTIONS
Compute the following
ratios for 1999:
(a) earnings per share.
(b) price-earnings.
(c) times interest earned.