ACCOUNTING

FE - 7

Final Exam

Instructions: Designate the best answer for each of the following questions.

Questions 1 and 2 are based on the following information:

Poin Company recently incurred the following costs:

(1) Purchase price of land and dilapidated building $330,000

(2) Real estate broker's commission 14,000

(3) Net demolition costs of dilapidated building 42,000

(4) Excavation costs for new building 44,000

(5) Architect's fees and building permits 35,000

(6) Costs associated with new building construction 1,130,000

(7) Costs associated with new furniture and equipment 250,000

(8) Actual interest costs during building construction 135,000

(9) Actual interest cost after completion of building construction 120,000

(10) Costs of walks, driveways, and parking lot 55,000

____ 1. The building should be recorded on Poin's books at:

a. $1,344,000.

b. $1,519,000.

c. $1,130,000.

d. $1,464,000.

____ 2. Land should be recorded on Poin's books at:

a. $330,000.

b. $386,000.

c. $372,000.

d. $430,000.

____ 3. Benson Supply bought equipment at a cost of $72,000 on January 2, 2008. It originally had an estimated life of ten years and a salvage value of $12,000. Benson uses the straight-line depreciation method. On December 31, 2012, Benson decided the useful life likely would end on December 31, 2013, with a salvage value of $6,000. The depreciation expense recorded on December 31, 2012, should be:

a. $6,000.

b. $21,000.

c. $12,000.

d. $10,500.

____ 4. In order to be relevant, accounting information must:

a. be neutral.

b. be verifiable.

c. help predict future events.

d. be a faithful representation.

____ 5. Gordan Company sold old equipment for $40,000. The equipment had a cost of $100,000 and accumulated depreciation of $50,000. The entry to record the sale of the equipment would include a:

a. loss on disposal of $40,000.

b. gain on disposal of $40,000.

c. loss on disposal of $10,000.

d. gain on disposal of $10,000.

____ 6. The cost of intangible assets should be:

a. amortized over the assets' estimated useful life, or its legal life, whichever is shorter.

b. amortized over a period not exceeding 5 years.

c. amortized over the assets' estimated useful life.

d. charged to an expense account at acquisition.

____ 7. In a period of rising prices, the inventory method that results in the lowest income tax payment is:

a. LIFO.

b. FIFO.

c. average cost.

d. specific identification.

____ 8. On November 30, Thatcher Company issued a $12,000, 6%, 6-month note to the National Bank. The entry on Thatcher's books to record the payment of the note at maturity will include a credit to Cash for:

a. $12,000.

b. $12,720.

c. $12,180.

d. $12,360.

____ 9. The inventory methods that result in the most current costs in the income statement and balance sheet are:

Income Statement Balance Sheet

a. FIFO FIFO

b. LIFO FIFO

c. LIFO LIFO

d. FIFO LIFO

____ 10. The following information is available for Brighten Company:

Sales $130,000 Freight-in $10,000

Ending Merchandise Inventory 15,000 Purchase Returns and Allowances 5,000

Purchases 110,000 Beginning Merchandise Inventory 12,000

Brighten’s cost of goods sold is:

a. $132,000.

b. $127,000.

c. $118,000.

d. $112,000.

____ 11. If ending inventory is overstated, net income and assets will be:

Net Income Assets

a. Understated Understated

b. Overstated Overstated

c. Understated Overstated

d. Overstated Understated

____ 12. One of the two constraints in accounting is:

a. comparability.

b. materiality.

c. faithful representation.

d. relevance.

____ 13. The assumption that assumes a company will continue in operation long enough to carry out its existing objectives is the:

a. economic entity assumption.

b. going concern assumption.

c. monetary unit assumption.

d. periodicity assumption.

____ 14. All of the following are intangible assets except:

a. patents.

b. land improvements.

c. goodwill.

d. franchises.

____ 15. A daily cash count of register receipts made by a cashier department supervisor demonstrates an application of which of the following internal control principles?

a. Documentation procedures.

b. Segregation of duties.

c. Establishment of responsibility.

d. Independent internal verification.

____ 16. When the allowance method is used for bad debts, the entry to write off an individual account known to be uncollectible involves a:

a. debit to an expense account.

b. credit to an expense account.

c. credit to the Allowance account.

d. debit to the Allowance account.

____ 17. Shipping terms of FOB destination mean that the:

a. purchaser is responsible for the shipping charges.

b. shipping charges are debited to Freight-Out.

c. items should be in the purchaser's inventory account at year-end if the items are in transit.

d. Both (a) and (c) above.

____ 18. Helix Company has a $280,000 balance in Accounts Receivable and a $2,000 debit balance in Allowance for Doubtful Accounts. Credit sales for the period totaled $1,800,000. What is the amount of the bad debt adjusting entry if Helix uses a percentage-of-receivables basis (at 10%)?

a. $30,000.

b. $28,000.

c. $32,000.

d. $30,400.

____ 19. The constraint of conservatism is best expressed as:

a. the cost of applying an accounting principle should not exceed its benefit.

b. only material items should be recorded and reported.

c. when in doubt, choose the method that will least likely overstate assets and net income.

d. the lower-of-cost-or-market method should be used for inventories.

____ 20. If merchandise is sold for $2,000 subject to credit terms of 2/10, n/30, the entry to record collection in full within the discount period would include a:

a. debit to Sales Discounts for $40.

b. credit to Cash for $1,960.

c. credit to Accounts Receivable for $40.

d. None of the above.

____ 21. Barken Company's records show the following for the month of January:

Total Retained Earnings at January 1 $600,000

Total Retained Earnings at January 31 750,000

Total Revenues 1,005,000

Total Dividends Declared 60,000

Total expenses for January were:

a. $1,110,000.

b. $1,155,000.

c. $855,000.

d. $795,000.

22. Stetson Company's financial information is presented below.

Sales $ ???? Purchase Returns and Allowances $ 30,000

Sales Returns and Allowances 60,000 Ending Merchandise Inventory 70,000

Net Sales 500,000 Cost of Goods Sold 360,000

Beginning Merchandise Inventory ???? Gross Profit ????

Purchases 340,000

The missing amounts above are:

Sales Beginning Inventory Gross Profit

a. $560,000 $90,000 $140,000

b. $440,000 $90,000 $200,000

c. $560,000 $120,000 $140,000

d. $440,000 $120,000 $200,000

____ 23. The preparation of closing entries:

a. is an optional step in the accounting cycle.

b. results in zero balances in all accounts at the end of the period so that they are ready for the following period's transactions.

c. is necessary before financial statements can be prepared.

d. results in transferring the balances in all temporary accounts to Retained Earnings.

____ 24. Allowance for Doubtful Accounts is reported in the:

a. balance sheet as a contra asset.

b. balance sheet as a contra liability account.

c. income statement under other expenses and losses.

d. income statement under other revenues and gains.

____ 25. Current liabilities are obligations that are reasonably expected to be paid from:

Existing Creation of Other

Current Assets Current Liabilities

a. No No

b. Yes Yes

c. Yes No

d. No Yes

____ 26. Which of the following errors will cause a trial balance to be out of balance? The entry to record a payment on account was:

a. not posted at all.

b. posted as a debit to Cash and a credit to Accounts Payable.

c. posted as a debit to Cash and a debit to Accounts Payable.

d. posted as a debit to Accounts Receivable and a credit to Cash.

____ 27. The primary accounting standard-setting body in the United States is the:

a. Securities and Exchange Commission.

b. Accounting Principles Board.

c. Financial Accounting Standards Board.

d. Internal Revenue Service.

____ 28. Starting with net income and adjusting it for items that affected reported net income but which did not affect cash is called the:

a. direct method.

b. indirect method.

c. working capital method.

d. cost-benefit method.

____ 29. Which of the following would not be included in the operating activities section of a statement of cash flows?

a. Cash inflows from returns on loans (i.e., interest).

b. Cash inflows from returns on equity securities (i.e., dividends).

c. Cash outflows to governments for taxes.

d. Cash outflows to reacquire treasury stock.

____ 30. Which of the following combinations presents correct examples of liquidity, profitability, and solvency ratios, respectively?

Liquidity Profitability Solvency

a. Inventory turnover Inventory turnover Times interest earned

b. Current ratio Inventory turnover Debt to total assets

c. Receivable turnover Return on assets Times interest earned

d. Average days collection Payout ratio Return on assets

____ 31. Carne Manufacturing declared a 10% stock dividend when it had 200,000 shares of $5 par value common stock outstanding. The market price per common share was $15 per share when the dividend was declared. The entry to record this dividend declaration includes a credit to:

a. Stock Dividends of $300,000.