Old Exam Packet Keys
Exams from Spring 2005 - Clem
Question / Exam 1 / Exam 2 / Exam 3` / Final Exam1 / A / C / C / A
2 / C / C / C / C
3 / D / A / A / A
4 / D / C / C / D
5 / A / C / B / A
6 / D / B / C / C
7 / C / D / B / A
8 / C / D / C / D
9 / B / A / A / B
10 / A / D / C / B
11 / B / C / D / D
12 / A / D / B / A
13 / C / C / D / B
14 / D / B / B / A
15 / B / A / D / C
16 / A / A / B / C
17 / D / D / D / B
18 / C / B / D / A
19 / B / C / A / C
20 / B / A / D / D
21 / D
22 / C
23 / A
24 / B
25 / A
26 / B
27 / B
28 / B
29 / A
30 / A
31 / A
32 / B
33 / D
34 / C
35 / A
36 / D
37 / B
38 / B
39 / B
40 / C
41 / C
42 / A
43 / C
44 / C
45 / B
46 / D
47 / C
48 / A
49 / B
50 / B
Exam 1 – Clem – Spring 2005
1. Which financial statement shows the financial position of a business as of a given date?
A) balance sheet.
B) income statement.
C) statement of cash flows.
D) statement of retained earnings.
2. The accounts payable account has a beginning balance of $1,000 and we purchased $3,000 of inventory on credit during the month. The ending balance was $800. How much did we pay our creditors during the month?
A) $2,800
B) $3,000
C) $3,200
D) $3,800
3. The usefulness of the financial leverage ratio (Financial Leverage = Total Assets ÷ Total Stockholders’ Equity) is that it allows interested parties to assess
A) how the company finances its assets
B) the relative risk assumed by the company caused by the use of debt financing
C) whether the company should expand its use of debt to finance assets
D) all of the above are uses of the ratio
4. Anna Inc. had the following items reported on its most recent financial statements
Total revenues…………………..$500,000
Dividends……………………….$ 10,000
Total assets………………………$425,000
Total liabilities…………………..$125,000
Total contributed capital………...$100,000
Beginning retained earnings…….$140,000
What total expenses were reported by Anna for the year?
A) $155,000
B) $275,000
C) $310,000
D) $430,000
5. Increases in assets or decreases in liabilities resulting from peripheral transactions are defined as:
A) gains
B) losses
C) revenues
D) expenses
6. Which of the following accounts is increased by credit entries and decreased by debit entries
A) Cash
B) Advertising expense
C) Equipment
D) Accounts payable
7. The primary objective of financial information is to
A) provide information to detect fraud in the preparation of financial statements.
B) provide information about the taxable income of the company.
C) provide useful economic information about a business to help external parties make sound financial decisions.
D) provide managers with information about the efficiency and effectiveness of the production process.
8. The advantages of incorporation include all of the following EXCEPT:
A) Ability to raise capital
B) Ease of transfer of ownership
C) Tax deductibility of dividends
D) Limited liability of owners
9. Morrow Corp. makes a credit sale to a customer. The effect of this transaction on the accounting equation is that
A) assets increase and liabilities increase
B) assets increase and stockholders’ equity increases
C) liabilities increase and stockholders’ equity decreases
D) liabilities decrease and stockholders’ equity increases
10. Which of the following is most often included in current assets?
A) prepaid expenses
B) property, plant, and equipment
C) intangible assets
D) unearned revenue
11. Which of the following is not a category presented on the statement of cash flows?
A) operating activities
B) producing activities
C) financing activities
D) investing activities
12. When a company pays back an amount due to a supplier for a prior purchase,
A) assets decrease and liabilities decrease
B) assets increase and stockholders’ equity increases
C) liabilities increase and stockholders’ equity decreases
D) assets increase and liabilities decrease
13. Under the revenue principle, revenues are recognized when three conditions have been met. Which of the following is NOT one of those3 conditions?
A) collection is reasonable assured
B) earnings process is complete
C) cash has been collected
D) an exchange has taken place
14. An owner of Hartford Corporation purchases a computer for personal use. The assumption which requires that this computer not be recorded as an asset on the books of Hartford is the
A) time period assumption.
B) continuity (going-concern) assumption
C) accrual assumption
D) separate-entity assumption
15. The asset turnover ratio is equal to net sales divided by average total assets. Dacey Company has total assets of $500,000 at the beginning of the year and $600,000 at the end of the year. In addition, Dacey reported a gross profit of $450,000 and cost of sales of $500,000. What is Dacey’s asset turnover for the year and what does it mean? (Hint: ATO = Net Sales ÷ Average Total Assets
A) 1.7; for every $1 of sales, Dacey purchased $1.70 in assets.
B) 1.7; for every $1 of assets, Dacey generated $1.70 in sales.
C) 0.1; for every $1 of sales, Dacey purchased $0.10 in assets.
D) 0.1; for every $1 of assets, Dacey generated $0.10 in sales.
16. Calculate the effective tax rate for a company that reports an income tax expense of $2.0 million and net income of $8.0 million.
A) 20%
B) 25%
C) 30%
D) 35%
17. The two categories of stockholders' equity usually found on the balance sheet of a corporation are
A) contributed capital and long-term liabilities.
B) contributed capital and property, plant, and equipment.
C) retained earnings and notes payable.
D) contributed capital and retained earnings.
18. If you wanted to know what accounting rules a company follows related to its inventory, where would you look?
A) the balance sheet.
B) the income statement.
C) the notes to the financial statements.
D) the headings to the financial statements.
19. An examination of the financial statements of a business to ensure that they conform with generally accepted accounting principles is called
A) a certification.
B) an audit.
C) a verification.
D) a validation.
20. Surf Inc. reported pretax income of $90,000 and operating expenses of $110,000 during a recent reporting period. If Net Sales totaled $500,000 for that period, what amount of cost of goods sold did Surf report?
A) $200,000
B) $300,000
C) $410,000
D) $700,000
Exam 2 – Clem – Spring 2005
1. A company’s bank statement showed an ending balance for the period of $12,500. During the reconciliation of the bank statement, the following items were noted:
NSF Check $1,000
Bank service charges $50
Credit memo noting collection of a note
by the bank for the company $750
Deposits in Transit $400
Outstanding checks $650
The correct cash balance at the end of the period should be reported as:
a. $10,560
b. $11,950
c. $12,250
d. $13,740
2. Sunny Corporation reports a gross profit of $3,500,000 and a gross profit percentage of 35%. What amount of cost of goods sold did Sunny report for the period? (Hint: Gross Profit Percentage = Gross Profit ÷ Net Sales
a. $ 1,225,000
b. $ 3,750,000
c. $ 6,500,000
d. $10,000,000
3. Failure to make an adjusting entry to recognize accrued utilities payable would cause an:
a. understatement of expenses and liabilities and an overstatement of stockholders’ equity.
b. overstatement of expenses and liabilities and an understatement of stockholders’ equity.
c. understatement of expenses, liabilities, and stockholders’ equity.
d. overstatement of assets, expenses, and stockholders’ equity.
4. Surfing Magazine receives $50,000 from customers on April 1, 2004 for one-year magazine subscriptions. On December 31, 2004, Surfing Magazine should:
a. report unearned revenue of $50,000
b. report sales revenue of $50,000
c. report sales revenue of $37,500
d. report unearned revenue of $37,500
5. Convertible Motors Corp. estimates that its annual bad debts approximate 2% of their credit sales. At the end of the current year, Convertible Motors reported the following amounts on its financial statements
Ending accounts receivable balance…. $75,000
Ending allowance for doubtful accounts … $5,000
Bad debt expense $100,000
What amount of total credit sales did Convertible Motors report for the year?
a. $2,000,000
b. $3,500,000
c. $5,000,000
d. $7,500,000
6. SunnyDays Inc. overstated its ending inventory in 2004 by $50,000. What would be the effect of this error on the following items?
2004 2005 2005
Cost of Goods Sold Cost of Goods Sold Ending Retained Earnings
a. understated no effect understated
b. understated overstated no effect
c. overstated no effect understated
d. overstated overstated no effect
7. Which of the following items would NOT be presented BELOW income taxes on the income statement?
a. cumulative effect of a change in accounting principle
b. extraordinary loss resulting from a fire
c. loss from discontinued operations
d. interest expense
8. When a company writes off an uncollectible account, bad debt expense
a. increases.
b. decreases.
c. is equal to the amount in the allowance for doubtful accounts.
d. is unaffected.
9. On January 1, 2005, Thomas Company paid $1,000 for a two-year insurance policy on the plant. The accounting period ends December 31. At the end of 2005, the financial statements should report:
Prepaid insurance Insurance expense
a. $500 $500
b. $0 $1,000
c. $1,000 $0
d. $250 $250
10. The following item would be considered part of comprehensive income
a. Foreign currency translation adjustment
b. Unrealized gains or losses on securities investments
c. Minimum pension liability adjustment
d. All of the above
11. Kelley’s TV Corporation had the following information in its inventory records for the month of March 2005.
3/1/05 Beginning Inventory 5000 units @ $200 per unit
3/4/05 Sale 4000 units @ $500 per unit
3/10/05 Purchase 3500 units @ $210 per unit
3/20/05 Sale 3000 units @ $500 per unit
3/29/05 Purchase 2500 units @ $220 per unit
Assuming Kelley’s uses the LIFO method, what amount of cost of goods sold and ending inventory should Kelley’s report in its financial statements for the month ended March 31, 2005?
Cost of goods sold Ending inventory
a. $1,420,000 $865,000
b. $1,470,000 $815,000
c. $1,485,000 $800,000
d. $2,285,000 $545,000
12. Which of the following statements is not true?
a. If a company uses LIFO for tax purposes, they must also use LIFO for financial reporting purposes.
b. LIFO provides a tax benefit in periods of rising prices.
c. LIFO will result in lower net income than FIFO in periods of rising prices.
d. FIFO will result in lower inventory valuations on the balance sheet than LIFO in periods of rising prices.
13. Return on equity (ROE) primarily measures (Hint: Return on Equity = Net Income ÷ Average Total Stockholders’ Equity)
a. the ability to generate revenue while holding assets steady
b. the ability to generate sufficient profit on total assets
c. the ability to earn income for the common stockholders
d. None of the above
14. At the end of December, the owner of an apartment complex realized that the December rent had not been collected from one of the tenants amounting to $500. On December 31, the owner would show which of the following on its financial statements.
a. unearned rent revenue of $500
b. rent receivable of $500
c. rent payable of $500
d. rent expense of $500
15. Harris Company issued 10,000 shares of its $1 par common stock for $25 per share. When Harris records this transaction,
a. paid in capital will increase by $240,000
b. common stock will increase by $250,000
c. total stockholders equity will increase by $10,000
d. cash will increase by $10,000
16. The 2005 records of Tom Company showed beginning inventory of $6,000; purchases of $16,000; and cost of goods sold of $14,000. What amount of ending inventory was reported for 2005?
a. $8,000
b. $10,000
c. $12,000
d. $14,000
17. Which of the following would NOT be considered an element of good internal control?
a. Require monthly reconciliation of bank accounts with the cash account.
b. Require that all cash receipts be deposited on a daily basis.
c. Require that approval for cash payments and the signing of checks be assigned to different individuals.
d. Require that the individual who handles cash receipts be responsible for the accounting function related to those funds.
18. In 2000, Timberland reported a receivables turnover ratio of 11.8 and their competitor, Wolverine World Wide, reported a ratio of 4.2. Which of the following is false? (Hint: Receivables turnover ratio = Net credit sales ÷ Average net trade receivables)
a. Wolverine needs to increase their ratio in order to improve collection time.
b. Wolverine has done a better job of collecting their receivables than Timberland.
c. Wolverine needs to focus on improving their credit and collection process.
d. All of the above are true.
19. On April 1, 2005, Allen Company signed a $12,000, one-year, 10% note payable. All interest will be paid at the end of the note’s life. Interest expense should be reported on the income statement for the year ended December 31, 2005 in the amount of:
a. $0
b. $300
c. $900
d. $1,200
20. In 2001, Coca-Cola had an inventory turnover ratio of 5.07 while PepsiCo had a ratio of 8.81. Which of the following might most accurately explain the difference in their ratios? (Hint: Inventory turnover ratio = Cost of good sold ÷ Average inventory)