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1. Multiple Choice (2points each, 20points total)
1. Communication of economic events is the part of the accounting process that involves
a. identifying economic events.
b. quantifying transactions into dollars and cents.
c. preparing accounting reports.
d. recording and classifying information.
2. The usual ordering of accounts in the general ledger is
a. assets, liabilities, common stock, retained earnings, dividends, revenues, and expenses.
b. assets, liabilities, dividendss, common stock, retained earnings, expenses, and revenues.
c. liabilities, assets, common stock, retained earnings, revenues, expenses, and dividendss.
d. common stock, retained earnings assets, liabilities, dividends, expenses, and revenues.
3. The matching principle states that expenses should be matched with revenues. Another way of stating the
principle is to say that
a. assets should be matched with liabilities.
b. efforts should be matched with accomplishments.
c. dividends to stockholders should be matchedwith stockholders' investments.
d. cash payments should be matched with cash receipts.
4. When constructing a worksheet, accounts are often needed that are not listed in the trial balance already entered
on the worksheet from the ledger. Where should these additional accounts be shown on the worksheet?
a. They should be inserted in alphabetical order into the trial balance accounts already given.
b. They should be inserted in chart of account order into the trial balance already given.
c. They should be inserted on the lines immediately below the trial balance totals.
d. They should not be inserted on the trial balance until the next accounting period.
5. Hale Company sells merchandise on account for $1,500 to Kear Company with credit terms of 2/10, n/30. Kear
Company returns $300 of merchandise that was damaged, along with a checkto settle the account within the
discount period. What is the amount of the check?
a. $1,470 b.
$1,476 c.
$1,200 d.
$1,176
6. Rudolf Diesel Company's inventory records show the following data:
Inventory, January 1
Purchases: June 18
November 8
Units
5,000
4,500
3,000
Unit Cost
$9.00
8.00
7.00
A physical inventory on December 31 shows 3,000 units on hand. Under the FIFO method, the December 31
inventory is
a. $21,000. b. $21,750. c. $24,000. d. $27,000.
7. Vight Company's account balances at December 31 for Accounts Receivable and Allowance for Doubtful
Accounts were $2,100,000 and $105,000 (Cr.), respectively. An aging of accounts receivable indicated that
$192,000 are expected to become uncollectible. The amount of the adjusting entry for bad debts at
December 31 is
a. $192,000. b. $87,000. c. $297,000. d. $105,000.
8. A company purchased land for $90,000 cash. Real estate brokers' commission was $5,000 and $7,000 was spent
for demolishing an old building on the land before construction of a new building could start. Under the cost
principle, the costof land would be recorded at
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a. $97,000. b. $90,000. c.
$95,000. d.
$102,000.
9. The statement that "Bond prices vary inversely with changes in the market interest rate" means that if the
a.
b.
c.
d.
market interest rate increases, the contractual interest rate will decrease.
contractual interest rate increases, then bond prices will go down.
market interest rate decreases, then bond prices will go up.
contractual interest rate increases, the market interest rate will decrease.
10. A technique for evaluating financial statements that expresses the relationship among selected items of financial
statement data is
ratio analysis.
d.
vertical analysis.
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a. common size analysis. b. horizontal analysis. c.
II. (20%)
Please explain why the "last in first out" (LIFO) method of cost flow assumption is excluded by the IFRS
(International Financial Reporting Standards)?
m. (20%)
Data relating to the balances of various accounts affected by adjusting entries appear below. (The entries which
caused the changes in the balances are not given.) You are asked to supply the missing journal entries which would
logically account for the changes in the account balances.
1). Interest receivable at 1/1/09 was $1,000. During 2009 cash received from debtors for interest on outstanding
notes receivable amounted to $5,000. The 2009 income statement showed interest revenue in the amount of
$5,200. You are to provide the missing adjusting entry that must have been made, assuming reversing entries
are not made.
2). Unearned rent at 1/1/09 was $5,300 and at 12/31/09 was $6,000. The records indicate cash receipts from rental
sources during 2009 amounted to $45,000, all of which was credited to the Unearned Rent Account. You are to
prepare themissing adjusting entry.
3). Allowance for doubtful accounts on 1/1/09 was $50,000. The balance in the allowance account on 12/31/09 after
making the annual adjusting entry was $65,000 and during 2009 bad debts written off amounted to $30,000.
You areto provide the missing adjusting entry.
4). Prepaid rent at 1/1/09 was $9,000. During 2009 rent payments of $110,000 were made and charged to "rent
expense." The 2009 income statement shows as a general expense the item "rent expense" in the amount of
$116,000. You are to prepare the missing adjusting entry that must have been made, assuming reversing entries
are not made.
IV. (20%)
Condensed financial data of Stinger Company appear below:
STINGER COMPANY
Comparative Balance Sheet
December 31
Cash
2008
2007
$ 71,000
$ 35,000
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Accounts receivable
Inventories
Prepaid expenses
Investments
Plant assets
Accumulated depreciation
Total
85,000
120,000
19,000
90,000
315,000
(65,000)
~35,000
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53,000
132,000
25,000
75,000
250,000
(60,000)
$510,000
Liabilities and Stockholders' Equity
$ 75,000
24,000
160,000
170,000
81,000
$510,000
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$ 93,000
29,000
130,000
245,000
138,000
$635,000
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Accounts payable
Accrued expenses payable
Bonds payable
Common stock
Retained earnings
Total
STINGER COMPANY
Income Statement
For the Year Ended December 31, 2008
Sales
Less:
Cost of goods sold
Operating expenses (excluding depreciation)
Depreciation expense
Income taxes
Interest expense
Loss on sale of plant assets
Net income
$470,000
$280,000
60,000
17,000
16,000
17,000
2,000
392,000
$ 78,000
Additional information:
1. New plant assets costing $90,000 were purchased for cash in 2008.
2. Old plant assets costing $25,000 were sold for $11,000 cash when book value was $13,000.
3. Bonds with a face value of $30,000 were converted into $30,000 of common stock.
4. A cash dividend of $21,000 was declared and paid during the year.
5. Accounts payable pertain to merchandise purchases.
Instructions
Prepare a Statement of Cash Flows for the year using the direct method.
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v.
(20%)
On January 3, 2008, NCHU Company purchased the following stock securities as a long-term investment:
200 shares March Corporation common stock for $3,200.
400 shares Wilson Corporation common stock for $10,000.
500 shares Cashi Corporation common stock for $20,000.
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Assume that NCHU Company cannot exercise significant influence over the activities of the investee companies and
that thecost method is used to account for the investments.
On June 30, 2008, NCHU Company received the following cash dividends:
.
..
..
$1.00 per share
$2.00 per share
$2.50 per share
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March Corporation
Wilson Corporation
Cashi Corporation
On November 20,2008, NCHU Company sold 100 shares of Cashi Corporation common stock for $4,600.
The fair values of the securities held by NCHU Company on December 31, 2008 and December 31, 2009 are as
follows::
12/31/2008
March Corporation common stock
Wilson Corporation common stock
Cashi Corporation common stock
per share
$12
20
36
12/31/2009
per share
$ 14
19
37
Instructions
Prepare the appropriate journal entries that NCHU Company should make on the following dates:
June 30, 2008
November 20, 2008
December 31, 2008
December 31, 2009