ACC 280/Principles of Accounting
BOOK: Weygandt, KIMMEL, KIESO--- Financial Accounting 6 edition
1. An income statement
a. summarizes the changes in stockholders' equity for a specific period of time.
b. reports the changes in assets, liabilities, and stockholders' equity over a period of time.
c. reports the assets, liabilities, and stockholders' equity at a specific date.
d. presents the revenues and expenses for a specific period of time.
Use the following information for questions 2-3.
Sheepskin Company had the following transactions during 2008.
Sales of $4,500 on account
Collected $2,000 for services to be performed in 2009
Paid $625 cash in salaries
Purchased airline tickets for $250 in December for a trip to take place in 2009
2. What is Sheepskin's 2008 net income using accrual accounting?
a. $3,875
b. $5,875
c. $5,625
d. $3,625
Net income = sales – salaries expenses – airline ticket expenses = $4,500 - $625 - $250 = $3,625
3. What is Sheepskin's 2008 net income using cash basis accounting?
a. $5,875
b. $1,375
c. $5,625
d. $1,125
Net Income = Cash Revenues – Cash Expenses
= $2,000 – ($625 + $250)
= $1,125
4. The matching principle states that
a. expenses become costs when they expire.
b. liabilities should be matched against assets on the balance sheet.
c. expenses should be matched against the revenues they help generate.
d. costs should be expensed when paid.
5. The balance in the income summary account before it is closed will be equal to
a. the net income or loss on the income statement.
b. the beginning balance in the retained earnings account.
c. the ending balance in the retained earnings account.
d. zero.
6. Fall Clothing Store had a balance in the Accounts Receivable account of $820,000 at the beginning of the year and a balance of $880,000 at the end of the year. Net credit sales during the year amounted to $6,120,000. The receivables turnover ratio was
a. 7.2 times.
b. 7 times.
c. 6.9 times.
d. 6.8 times
=
= 7.2 times
7. On October 3, Carter Company, received a cash payment for services previously billed to a client. The Company paid his telephone bill, and bought equipment on credit. For the three transactions, at least one of the entries will include a
a. credit to Retained Earnings.
b. credit to Notes Payable.
c. debit to Accounts Receivable.
d. credit to Accounts Payable.
8. Checks received through the mail should
a. immediately be endorsed "For Deposit Only."
b. be sent to the accounts receivable subsidiary ledger clerk for immediate posting to the customer's account.
c. be cashed at the bank as soon as possible.
d. be "rung up" on a cash register immediately.
9. Which of the following journal entries is recorded correctly and in the standard format?
a. Wages Expense ...... 600
Cash ...... 1,500
Advertising Expense ...... 900
b. Wages Expense ...... 600
Advertising Expense ...... 900
Cash ...... 1,500
c. Cash ...... 1,500
Wages Expense ...... 600
Advertising Expense ...... 900
d. Wages Expense ...... 600
Advertising Expense ...... 900
Cash ...... 1,500
10. At April 30, Beckett Company has the following bank information: cash balance per bank $4,600; outstanding checks $280; deposits in transit $550; credit memo for interest $10; bank service charge $20. What is Beckett's adjusted cash balance on April 30?
a. $4,860
b. $4,880
c. $4,330
d. $4,870
Cash Balance per Bank$4,600
Add: Deposits in Transit$550
Add: Interest$10
Less: Outstanding Checks($280)
Less: Bank Service Charge($20)
Adjusted Cash Balance$4,860
11. The basic accounting equation cannot be restated as
a. Assets - Liabilities = Stockholders' Equity.
b. Assets - Stockholders' Equity = Liabilities.
c. Stockholders' Equity + Liabilities = Assets.
d. Assets + Liabilities = Stockholders' Equity.
Use the following information for questions 12-13.
The following items are taken from the financial statements of Cerner Company for the year ending December 31, 2008:
Accounts payable $ 18,000
Accounts receivable 11,000
Accumulated depreciation - equipment 28,000
Advertising expense 21,000
Cash 15,000
Retained Earnings (1/1/08) 80,000
Common Stock 22,000
Dividends 14,000
Depreciation expense 12,000
Insurance expense 3,000
Note payable, due 6/30/09 70,000
Prepaid insurance (12-month policy) 6,000
Rent expense 17,000
Salaries expense 32,000
Service revenue 133,000
Supplies 4,000
Supplies expense 6,000
Equipment 210,000
12. What is the company's net income for the year ending December 31, 2008?
a. $133,000
b. $42,000
c. $28,000
d. $12,000
13. What is the total that would be reported for stockholders' equity at December 31, 2008?
a. $102,000
b. $130,000
c. $144,000
d. $158,000
Calculations are on the attached excel sheet
14. The formula for horizontal analysis of changes since the base period is the current year amount
a. divided by the base year amount.
b. minus the base year amount divided by the base year amount.
c. minus the base year amount divided by the current year amount.
d. plus the base year amount divided by the base year amount.
15. Zendejas Company purchased a ruler for $2.00. The ruler is expected to last for ten years. Tony, the accountant, expensed the cost of the ruler in the year of the purchase. Which constraint has Tony taken into account when making his accounting decision?
a. Conservatism
b. Faithful Representation
c. Neutrality
d. Materiality
16. Demaet Cruise Lines purchased a five-year insurance policy for its ships on April 1, 2008 for $100,000. Assuming that April 1 is the effective date of the policy, the adjusting entry on December 31, 2008 is
a. Prepaid Insurance...... 15,000
Insurance Expense...... 15,000
b. Insurance Expense...... 15,000
Prepaid Insurance...... 15,000
c. Insurance Expense...... 20,000
Prepaid Insurance...... 20,000
d. Insurance Expense...... 5,000
Prepaid Insurance...... 5,000
= ($100,000 / 60 months) × 9 months = $15,000
17. If a check correctly written and paid by the bank for $428 is incorrectly recorded on the company's books for $482, the appropriate treatment on the bank reconciliation would be to
a. add $54 to the bank's balance.
b. add $54 to the book's balance.
c. deduct $54 from the bank's balance.
d. deduct $428 from the book's balance.
18. Luthor Corporation had net income of $160,000 and paid dividends to common stockholders of $40,000 in 2008. The weighted average number of shares outstanding in 2008 was 50,000 shares. Luthor Corporation's common stock is selling for $50 per share on the New York Stock Exchange.
Luthor Corporation's price-earnings ratio is
a. 3.2 times.
b. 15.6 times.
c. 10 times.
d. 5 times.
Earnings per Share = $160,000 / 50,000
= $3.2
Price-Earnings Ratio = $50 / $3.2
= 15.6
19. A trial balance will not balance if
a. a journal entry is posted twice.
b. a wrong amount is used in journalizing.
c. incorrect account titles are used in journalizing.
d. a journal entry is only partially posted
20 . The going concern assumption assumes that the business
a. will be liquidated in the near future.
b. will be purchased by another business.
c. is in a growth industry.
d. will continue in operation long enough to carry out its existing objectives and commitments.
21. At September 1, 2008, Foli Co. reported retained earnings of $136,000. During the month, Foli generated revenues of $20,000, incurred expenses of $12,000, purchased equipment for $5,000 and paid dividends of $2,000. What is the amount of retained earnings at September 30, 2008?
a. $136,000
b. $8,000
c. $137,000
d. $142,000
Net Income = $20,000 - $12,000
= $8,000
Less: Dividends
$8,000 - $2,000
= $6,000
Beginning Retained Earnings$136,000
Add: $6,000
Ending Retained Earnings$142,000
22. The accounting equation for Goodboys Enterprises is as follows:
Assets = Liabilities + Stockholders' Equity
$120,000 = $60,000 + $60,000
If Goodboys purchases office equipment on account for $12,000, the accounting equation will change to
Assets Liabilities Stockholders' Equity
a. $120,000 = $60,000 + $60,000
b. $132,000 = $60,000 + $72,000
c. $132,000 = $66,000 + $66,000
d. $132,000 = $72,000 + $60,000
Assets = $120,000 + $12,000 = $132,000
Liabilities = $60,000 + $12,000 = $72,000
23. Having one person post entries to accounts receivable subsidiary ledger and a different person post to the Accounts Receivable Control account in the general ledger is an example of
a. inadequate internal control.
b. duplication of effort.
c. external verification.
d. segregation of duties.
Use the following information for questions 24:
Moon Beam, Inc. has the following income statement (in millions):
MOON BEAM, INC.
Income Statement
For the Year Ended December 31, 2008
Net Sales $180
Cost of Goods Sold 120
Gross Profit 60
Operating Expenses 33
Net Income $ 27
24. Using vertical analysis, what percentage is assigned to Cost of Goods Sold?
a. 67%
b. 33%
c. 100%
d. None of the above
= $120 / $180
= 66.7%
25. Each of the following is an example of an unexpired cost except
a. merchandise inventory.
b. plant assets.
c. prepaid expenses.
d. repairs.
26. The net income (or loss) for the period
a. is found by computing the difference between the income statement credit column and the balance sheet credit column on the worksheet.
b. cannot be found on the worksheet.
c. is found by computing the difference between the income statement columns of the worksheet.
d. is found by computing the difference between the trial balance totals and the adjusted trial balance totals.
27. The accounting process is correctly sequenced as
a. identification, communication, recording.
b. recording, communication, identification.
c. identification, recording, communication.
d. communication, recording, identification.
28. Sue Smiley has performed $500 of CPA services for a client but has not billed the client as of the end of the accounting period. What adjusting entry must Sue make?
a. Debit Cash and credit Unearned Revenue
b. Debit Accounts Receivable and credit Unearned Revenue
c. Debit Accounts Receivable and credit Service Revenue
d. Debit Unearned Revenue and credit Service Revenue
29. Generally accepted accounting principles are
a. income tax regulations of the Internal Revenue Service.
b. standards that indicate how to report economic events.
c. theories that are based on physical laws of the universe.
d. principles that have been proven correct by academic researchers.
30. James Company purchases $600 of equipment from Mundelein Inc. for cash. The effect on the components of the basic accounting equation of James Company is
a. an increase in assets and liabilities.
b. a decrease in assets and liabilities.
c. no change in total assets.
d. an increase in assets and a decrease in liabilities.
Extra Credit:
Problem # 1.
The adjusted trial balance of Pool Financial Planners appears below. Using the information from the adjusted trial balance, you are to prepare for the month ending December 31:
1. an income statement.
2. a retained earnings statement.
3. a balance sheet.
POOL FINANCIAL PLANNERS
Adjusted Trial Balance
December 31, 2008
------
Debit Credit
Cash...... $ 5,400
Accounts Receivable...... 2,200
Office Supplies...... 1,800
Office Equipment...... 15,000
Accumulated Depreciation-Office Equipment...... $ 4,000
Accounts Payable...... 3,300
Unearned Revenue...... 6,000
Common Stock ...... 10,000
Retained Earnings (Jan. 1)...... 4,400
Dividends...... 2,500
Service Revenue...... 4,200
Office Supplies Expense...... 600
Depreciation Expense...... 2,500
Rent Expense...... 1,900
$31,900 $31,900
Please see the attached excel sheet