Principles of Financial Accounting - Review Assessment
1.
When a company records the earned portion of unearned revenue at year end, what accounting concept are they
following?
a. Matching
b. Going Concern
c. Revenue Recognition
d. Conservatism
2.
Delta Company purchased a delivery truck for a total cost of $15,000. Delta paid $2,000 in cash and signed a note
payable for the remainder. The total effect of this transaction on the accounting equation was to:
a. increase assets by $15,000, increase liabilities by $13,000 and increase equity by $2,000.
b. increase assets by $15,000, increase liabilities by $15,000 and have no effect on equity.
c. increase assets by $13,000, increase liabilities by $15,000 and decrease equity by $2,000.
d. increase assets by $13,000, increase liabilities by $13,000 and have no effect on equity.
3.
Sparky Company experienced the following transactions during 2015:
A. Issued Common Stock to investors in exchange for $5,000 cash.
B. Provided $1,200 of services on account.
C. Received $1,000 cash from customer for services to be performed over the next 3 months.
D. Purchased $500 of supplies on account.
E. Collected $900 of cash from accounts receivable.
F. Paid $350 cash on accounts payable.
G. Supplies of $200 were used during 2015.
H. Completed 75% of the work for customer from transaction "C" above.
I. Paid monthly wages of $400 and utilities of $300.
The amount of Net Income recognized on Sparky Company's 2015 Income Statement is:
a. $ 350
b. $1,050
c. $1,600
d. $1,950
4. A company has been in business for five years. As of December 31, 2014, the company had assets of $475,000
and liabilities of $200,000. After a successful year of business in 2015, the company’s assets had increased by
$95,000, and liabilities had increased by $40,000. While no new investments were made into the company
during 2015, a dividend of $12,000 was paid to owners. Based on this information, determine the company’s
net income for the year 2015.
a. $55,000
b. $43,000
c. $47,000
d. $67,000
5.
On August 1, 2014, a magazine publisher receives $24 cash for a year’s subscription ending July 31, 2015. This
transaction was originally recorded with a credit to Subscription Revenue. The adjusting entry on December 31,
2014, would be:
a. Debit to Subscription Revenue, credit to Unearned Revenue for $10.
b. Debit to Subscription Revenue, credit to Unearned Revenue for $14.
c. Debit to Unearned Revenue, credit to Subscription Revenue for $10.
d. Debit to Unearned Revenue, credit to Subscription Revenue for $14.
e. None of the above.
6.
USE THE FOLLOWING INFORMATION FOR
THE NEXT (2) QUESTIONS
The trial balance after adjustment had the following
balances on December 31, 2015:
Cash $ 6,000 Accounts Receivable
Interest Expense 14,000
Land 7,000
Accounts Payable 18,000
Building 304,000
Unearned Revenues 9,000
Dividends 3,000
Accumulated Depreciation - Bldg 104,000
Accrued Expenses Payable 11,000
Inventory 67,000
6. What are the company's total (net) assets?
a. $303,000
b. $307,000
c. $411,000
d. $624,000
7.
Using the information presented in #6 above, what is Total Stockholder's Equity after closing?
a. $235,000
b. $238,000
c. $239,000
d. $242,000
8.
A company uses the periodic inventory system. The
following balances were drawn from the accounts of the
Company prior to the closing process:
Sales Revenue $ 3,500 Beginning Inventory
Purchases 2,000 Freight-In
Purchase Returns 50 Ending Inventory
Operating Expenses 500 Sales Returns & Allowances
The amount of gross profit appearing on the income
statement would be:
a. $ 550
b. $1,050
c. $1,150
d. $1,950
9.
During periods of rising prices, which cost flow method of inventory valuation will create inventory profits
(higher net income) on the Income Statement?
a. FIFO
b. LIFO
c. Weighted Average
d. They all have the same effect on income
10.
The following information relates to a company's
inventory records for their 2015 fiscal year. This
company uses a periodic system.
# Units $ Cost/Unit
Beg. Invt. Jan 1, '15 400
Purchases:
Feb. 1 1,000
May 30 900
Oct. 15 800
Dec. 15 900
A physical count of inventory at year-end determined
there were 500 units on hand. During the year, all sales
were recorded at $5 per unit.
If the company uses FIFO, gross profit would be:
a. $1,150
b. $7,850
c. $9,000
d. $9,650
11.
The unadjusted cash account balance for a company at December 31, 2015 is $15,926. The bank statement
showed a balance of $20,700 on this same date. The following information is available:
Bank Service Charge $ 6
NSF check from customer $ 324
Deposit in transit $ 1,576
In addition, two other items were discovered:
• Check #433 for the purchase of inventory was written correctly and paid by the bank correctly for $463, but was
recorded on the books at $643.
• Outstanding checks at the end of November were $3,500; checks written by the company during December were
$60,000; checks cleared by the bank during December were $57,000.
What is the true cash balance at December 31, 2015?
a. $14,200
b. $15,416
c. $15,776
d. $16,100
12.
Which of the following is not an accurate description of Allowance for Doubtful Accounts?
a. contra-account
b. balance sheet account
c. income statement account
d. All of the above correctly describe Allowance for Doubtful Accounts.
13.
Which generally accepted accounting principle best supports the establishment of the account, Allowance for
Doubtful Accounts?
a. Matching Principle
b. Continuity Principle
c. Exception Principle
d. Revenue Principle
e. Historical Cost Principle
14.
On January 1, 2015 the accounts receivable and the allowance for doubtful accounts carried balances of $20,000
(debit) and $500 (credit), respectively. During the year, the company reported revenues of $100,000; 30% of
which were cash sales. There were $550 of receivables written-off as uncollectible during the year. Cash
collections of receivables amounted to $74,550.
If the company estimates bad debts expense to be 1% of credit sales, determine the net realizable value of
receivables appearing on the 2015 balance sheet:
a. $14,150
b. $14,250
c. $14,700
d. $14,900
15.
USE THE FOLLOWING INFORMATION TO ANSWER THE NEXT (2) QUESTIONS:
The following are selected transactions affecting the Campbell Company’s long-term assets during the 2015
fiscal year. Campbell’s year-end is December 31.
Jan 1 Renovated an office building and expanded its capacity at a cost of $200,000. This building was
purchased on January 1, 2010 for $530,000 with an estimated useful life of 20 years, a salvage of $30,000 and
being depreciated on a straight-line basis. The renovations increased the salvage value of the building to $50,000.
Jun 30 Sold a piece of equipment that was purchased on January 1, 2013. The equipment cost $60,000, and
had a useful life of 8 years with a $6,000 salvage value and was being depreciated using the double-declining
balance method. The equipment was sold for $36,000.
15. In regards to the January 1 transaction, this event should be accounted for as a(n):
a. Revenue Expenditure
b. Capital Expenditure
c. Operating Expenditure
d. Financial Expenditure
16.
Referring to the information presented above in #15, record the June 30 journal entry to recognize the sale of the
equipment.
a. Debit Cash 36,000; debit Accumulated Depreciation 30,469; credit Equipment 60,000; credit Gain on Sale
6,469
b. Debit Cash 36,000; debit Accumulated Depreciation 26,250; credit Equipment 60,000; credit Gain on Sale
2,250
c. Debit Equipment 60,000; debit Loss on Sale 2,250; credit Accumulated Depreciation 26,250, credit cash 36,000
d. Debit Cash 36,000; debit Accumulated Depreciation 24,000; credit Equipment 60,000
17.
ABC Company issued a ten-month, $18,000, 4% interest-bearing note to XYZ Corporation on April 1, 2015 to
replace an account payable. Assuming all necessary adjusting entries were made at year end December 31, 2015,
the entry ABC makes on the maturity date at February 1, 2016 would include a:
a. debit to interest revenue for $60
b. debit to interest payable for $540
c. debit to interest expense for $600
d. credit to note receivable for $18,000
e. debit to note payable for $18,600
18.
On January 1, 2015, Simmons Company acquired a truck for a total cost of $20,000. The seller agreed to allow
Simmons to pay for the truck over a two-year period at 10% interest with equal payments of $11,524 due at the
end of 2015 and 2016 on December 31st of each year. Determine the Carrying Value of the note on Simmons’
balance sheet as of December 31, 2015 after the first payment has been made:
a. $20,000
b. $ 9,524
c. $10,476
d. $18,000
e. $ 8,476
19.
Use the following abbreviated tables to answer the next
(2) questions:
Periods (n)
Present
Value of
$1
Present Value of Ordinary Annuity of $1
5% 6% 10% 12% 5%
1 .952 .943 .909 .893 .952
3 .864 .840 .751 .712 2.723
5 .784 .747 .621 .567 4.330
6 .746 .705 .564 .507 5.076
10 .614 .558 .386 .322 7.722
12 .557 .497 .319 .257 8.863
A firm is issuing $300,000 face value, 6-year, 10% bonds
payable at an effective interest rate of 12%. Interest is
payable semi-annually. The selling price of the bonds
should be:
a. more than $300,000 as the bond sold at a premium
b. less than $300,000 as the bond sold at a discount
c. exactly $300,000 as the bond sold at par value
d. not enough information to determine the bond’s selling
price
20.
Use the tables presented above to solve:
A company purchased a new machine for a total cost of $300,000. They gave a cash down payment of $50,000
and signed a five year note requiring semi-annual payments for the balance. The payments are to be made on each
June 30 and December 31. The interest rate on the note is 10% APR. Compute the amount of each individual
payment.
a. $25,000
b. $32,375
c. $40,683
d. $38,850
21.
Depreciation is a means of cost allocation, not a matter of valuation.
TrueFalse
22.
Solar Products purchased a computer for $13,000 on July 1, 2015. The company intends to depreciate it over 4
years using the double-declining balance method. Salvage value is $1,000. Depreciation expense for 2015 is
a. $6,500
b. $3,250
c. $4,875
d. $3,000
23.
During the year 2015 a company paid cash for salaries amounting to $90,000. The year-end balances in the wages
payable account were $22,000 at December 31, 2014 and $20,000 at December 31, 2015. Determine the amount
of wage expense the company would report on its 2015 Income Statement:
a. $92,000
b. $110,000
c. $88,000
d. $90,000
24.
Below is the income statement for Lopes Company for the year ending December 31, 2015:
Sales (net) $500,000
Cost of Goods Sold:
Beginning Inventory $ 50,000
Purchases 300,000
Goods Available for Sale350,000
Ending Inventory 40,000
Cost of Goods Sold 310,000
Gross Margin $ 190,000
Expenses:
Wages $35,000
Depreciation 30,000
Advertising 15,000
Administrative 5,000 $85,000
Income from Operations $105,000
Gain on Sale of Equipment 50,000
Net Income $155,000
The following balances were derived from the balance sheet:
December 31
2015 2014
Accounts Receivable $100,000 $90,000
Accounts Payable 30,000 50,000
Prepaid Advertising Expense 5,000 3,000
Wages Payable 5,000 4,000
Determine Cash Flows from Operating Activities using the Indirect method:
a. $164,000
b. $104,000
c. $114,000
d. $ 94,000
25.
Which of the following transactions does not affect cash during a period?
A. Write-off of an uncollectible account
B. Collection of an accounts receivable
C. Sale of treasury stock at a price in excess of cost
D. Recording depreciation for the year
a. "A" only.
b. A, B and D
c. B and C only
d. A and D only
e. All of the above affect cash
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