ACC 281 FINAL EXAM
PART I — MULTIPLE CHOICE (90 points)
Instructions
Designate the best answer for each of the following questions.
Questions 1 and 2 are based on the following information:
Bono Company recently incurred the following costs:
AND SO ON
1. The building should be recorded on Bono's books at
2. Land should be recorded on Bono's books at
3. Carson Supply bought equipment at a cost of $72,000 on January 2, 2005. It originally had an estimated life of ten years and a salvage value of $12,000. Carson uses the straight-line depreciation method. On December 31, 2008, Carson decided the useful life likely would end on December 31, 2012, with a salvage value of $6,000. The depreciation expense recorded on December 31, 2008, should be
4. In order to be relevant, accounting information must
5. Riodan Company sold old equipment for $35,000. The equipment had a cost of $70,000 and accumulated depreciation of $42,000. The entry to record the sale of the equipment would include a
6. The cost of intangible assets should be
7. In a period of rising prices, the inventory method that results in the lowest income tax payment is
8. On November 30, Thatcher Company issued a $6,000, 6%, 4-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
9. The inventory methods that result in the most current costs in the income statement and balance sheet are
10. The following information is available for Lighten Company:
11. If ending inventory is understated, net income and assets will be
12. One of the two constraints in accounting is
13. The assumption that assumes a company will continue in operation long enough to carry out its existing objectives is the
14. All of the following are intangible assets except
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?
16. When the allowance method is used for bad debts, the entry to write off an individual account known to be uncollectible involves a
17. Shipping terms of FOB destination mean that the
18. Bates Company has a $300,000 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 Bates uses a percentage of receivables basis (at 10%)?
19. The constraint of conservatism is best expressed as
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
21. Barker Company's records show the following for the month of January:
22. Jetson Company's financial information is presented below.
23. The necessity of making adjusting entries relates mostly to the
24. The preparation of closing entries
25. Allowance for Doubtful Accounts is reported in the
26. Current liabilities are obligations that are reasonably expected to be paid from
27. Which of the following errors will cause a trial balance to be out of balance? The entry to record a payment on account was
28. The primary accounting standard-setting body in the United States is the
29. Lawford Company's equipment account increased $600,000 during the period; the related accumulated depreciation increased $45,000. New equipment was purchased at a cost of $1,050,000 and used equipment was sold at a loss of $30,000. Depreciation expense was $150,000. Proceeds from the sale of the used equipment were
30. Which of the following would not be included in the operating activities section of a statement of cash flows?
31. Which of the following combinations presents correct examples of liquidity, profitability, and solvency ratios, respectively?
32. Nadine 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 $12 per share when the dividend was declared. The entry to record this dividend declaration includes a credit to
33. Which of the following pairs of terms in the area of financial statement analysis are synonymous?
34. Which of the following statements is true?
35. Dividends received are credited to what account under the equity method and cost method, respectively?
36. In accounting for available-for-sale securities, the Unrealized Loss—Equity account should be classified as a
37. Carr Corporation has the following stock outstanding:
38. The statement of cash flows is a(n)
39. The directors of Chandler Corp. are trying to decide whether they should issue par or no par stock. They are considering two alternatives for their new stock, which they are assuming will be issued at $8 per share. The alternatives are: (A) $5 par value and (B) no par, no stated value. If 100,000 shares are issued, what amount will be credited to the common stock account in each of these cases?
40. Fison Corp. purchased 20,000 shares of its $2 par common stock at a cost of $13 per share on April 30, 2008. The stock was originally issued at $11 per share. The entry to record the purchase of the stock should include a debit to
41. What is the effect on total paid-in capital of a stock dividend and a stock split, respectively?
Stock Dividend Stock Split
42. Which of the following should be classified as an extraordinary item?
43. A Discount on Bonds Payable account
44. In order to be considered extraordinary, an item must be
45. If the market rate of interest is lower than the stated rate, bonds will sell at an amount
PART II — MATCHING (50 points)
Instructions
Designate the terminology that best represents the definition or statement given below by placing the identifying letter(s) in the space provided. No letter should be used more than once.
1. The periodic write-off of an intangible asset.
2. The total amount subject to depreciation.
3. The principle that efforts be matched with accomplishments.
4. An expenditure charged against revenues as an expense when incurred.
5. The inventory costing method that assumes that the costs of the earliest goods purchased are the first to be recognized as cost of goods sold.
6. Use of the same accounting principles and methods from period to period by the same business enterprise.
Consistency
7. A measure of solvency calculated as cash provided by operating activities divided by average total liabilities.
8. An inventory costing method that assumes that the latest units purchased are the first to be allocated to cost of goods sold.
9. An assumption that economic events can be identified with a particular unit of accountability.
10. A characteristic of information that means it is capable of making a difference in a decision.
11. An assumption that the economic life of a business can be divided into artificial time periods.
12. This method of accounting for uncollectible accounts is required when bad debts are significant in size.
13. An accounting method in which cash dividends received are credited to Dividend Revenue.
14. Used by a bank when a previously deposited customer’s check “bounces” because of insufficient funds.
15. The assumption that the enterprise will continue in operation long enough to carry out its existing objectives and commitments.
16. A system in which detailed records are not maintained and cost of goods sold is determined only at the end of an accounting period.
17. The difference between inventory reported using LIFO and inventory reported using FIFO.
18. The methods and measures adopted within a business to safeguard its assets and enhance the accuracy and reliability of its accounting records.
19. Revenue, expense, and dividends accounts whose balances are transferred to retained earnings at the end of an accounting period.
20. A technique for evaluating financial statements that expresses the relationship among selected financial statement data.
21. A depreciation method that applies a constant rate to the declining balance book value of the asset and produces a decreasing annual depreciation expense over the useful life of the asset.
22. A pro rata distribution of a corporation’s own stock to its stockholders.
23. Events and transactions that are unusual in nature and infrequent in occurrence.
24. The disposal of a significant segment of a business.
25. The net income earned by each share of outstanding common stock.
PART III — INVENTORY (5 points)
Elston Company had a beginning inventory of 200 units at a cost of $12 per unit on August 1. During the month, the following purchases and sales were made.
Purchases Sales
August 4 250 units at $13 August 7 150 units
August 15 350 units at $15 August 11 100 units
August 28 200 units at $14 August 17 250 units
August 24 200 units
Elston uses a periodic inventory system.
Instructions
Determine ending inventory and cost of goods sold under (a) average cost, (b) FIFO, and (c) LIFO.
PART IV — DEPRECIATION (5 points)
Thomas Company purchased equipment for $640,000 cash on January 1, 2007. The estimated life is 5 years or 1,000,000 units; salvage value is estimated at $40,000. Actual activity was 180,000 units in 2007, and 200,000 units in 2008.
Instructions: Compute the annual depreciation expense for 2007 and 2008, and book value at December 31, 2008, under the following depreciation methods: (a) units-of-activity, (b) straight-line, and (c) double-declining-balance.
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