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Name: PENN ID: _________________________ ACCOUNTING 101 - 620, EXAM #1 Spring Semester, 2010 Instructions: 1. 2. 3. 4. 5. 6. 7. 8. Detach this page from the booklet as this will be the only page you will hand in. Make sure you have a booklet containing 30 questions. Please print your name and student number at the top of this page. This exam has 150 total points. You have 75 minutes to complete the exam so please budget your time accordingly. Keep in mind all questions are worth the same! If you choose to use additional time on top of the 75 minutes (up to 10 minutes), we will multiply your final grade with a 0.65 coefficient. After the 85 th minute, we will assume you have withdrawn from the test. Fill in the table on this page to answer the questions. Mark with an x the box you select. Nothing outside that table will be graded by us. In the interest of fairness to all students, NO questions will be answered during the exam. The exam is closed book and the use of a laptop computer is prohibited. You are permitted to use ONE doublesided 8 x 11 inch reference sheet. You are also permitted to use a calculator. You can choose to withdraw from the midterm. If we do not have your test at the end of the scheduled exam time, then we will assume that you have withdrawn. a 1 2 3 4 5 6 7 8 9 10 1 b c d a 11 12 13 14 15 16 17 18 19 20 b c d a 21 22 23 24 25 26 27 28 29 30 b c d [This page is intentionally left blank.] 2 ACCT101 & ACCT620 Fall2010 1st MIDTERM Question Booklet 1. A calendar year reporting company preparing its annual financial statements should use the phrase "At December 31, 2009" in the heading of: a. All of the required financial statements it prepares. b. None of the required financial statements it prepares. c. The income statement and balance sheet, but not the statement of cash flows. d. The balance sheet only. e. None of the above reflects the financial statements on which the phrase mentioned should be used. 2. Consider the following statements referring to the accounting qualities as described by the FASB: I. Decision-usefulness of accounting information primarily requires relevance and reliability. II. For information to be reliable it should be accurate, unbiased, and verifiable. III. For information to be relevant it should be material, with benefits exceeding costs, and understandable. a. Only Statement I is true. b. Only Statement II is true. c. Only Statement III is true. d. Statements I and II are true. e. None of the above is accurate concerning the veracity of Statements I to III. 3. Consider the following statements referring to the accounting qualities as described by the FASB: I. The conservatism constraint means that assets and revenues should not be overstated and that liabilities and expenses should not be understated. II. Timeliness means that the rules will not change from one year to the next. III. Comparability implies that the rules cannot change from one year to the next. a. Only Statement I is true. b. Only Statement II is true. c. Only Statement III is true. d. Statements I and II are true. e. None of the above is accurate concerning the veracity of Statements I to III. 4. Which definition applies better to the context used in the accounting principles? The following is taken from Merriam-Webster online definitions of the word MATERIAL(ITY). a. Relating to, derived from, or consisting of matter; especially : physical b. Apparatus necessary for doing or making something c. Having real importance or great consequences d. More than one of the above. e. None of the above. 3 ACCT101 & ACCT620 Fall2010 1st MIDTERM Question Booklet 5. Consider the following 3 statements: I. Gross profit is an important profit measure for companies that sell inventory because it shows the profit left from net sales after all operating expenses have been deducted. II. Intangible assets have no physical existence and a short life. III. Goodwill is the difference between the accounting value of an acquired firm and the price paid by the acquiring firm. a. Only Statement I is true. b. Only Statement II is true. c. Only Statement III is true. d. Statements I and II are true. e. None of the above is accurate concerning the veracity of Statements I to III. 6. Suppose a firm declared dividends, but has yet to pay them to shareholders: a. This leaves equity unchanged, until the dividends are paid. b. This leaves assets unchanged, until the dividends are paid. c. This leaves liabilities unchanged. d. More than one of the above is true. e. None of the above options is true. 7. During this year, firm A's contributed capital changed from $4,500,000 to $6,500,000. If you are told that the par value of the common stock (the only type of stock this company has) is $1, then, just with this information: a. You can tell the exact number of shares issued during this year. b. Then you know the stock price at which the stock was issued. c. Then you can calculate the APIC amount change. d. More than one of the above is true. e. None of the above is true. 8. Which of the following is true: a. APIC is a permanent account, since it is an equity account. b. APIC is a temporary account as it depends on the stock market of issued and acquired stock. c. APIC is a flow, since it shows up on the statement of retained earnings. d. More than one of the above is true. e. None of the above is true. 4 ACCT101 & ACCT620 Fall2010 1st MIDTERM Question Booklet 9. On January 1st, Firm A was constituted and issued 500,000 shares of $1 par value for $3,500,000 cash. On January 5th, the firm repurchased 32,000 of those shares paying $5.5 per share. On January 10th, the firm reissued 30,000 of the same shares receiving $180,000. How much is in APIC at the end of the day on January 10th? a. There is not enough information to calculate APIC on January 10th. b. $3,504,000. c. $3,500,000. d. $3,006,000. e. None of the above is true. The following information concerns questions 10 to 12. On February 1st, Firm A purchased inventory for $5,000 cash (100 units of product). On February 2nd, Firm A sold 45 units of product for $3,900 on account. On February 4th Firm A sold the remaining 55 units for $4,100 cash. These were the only active entries occurring during that week and on February 5th Firm A is calculating a few accounting numbers: 10. The gross profit for that week is: a. -900. b. Impossible to calculate. c. 1350. d. 3000. e. None of the above. 11. The cash flow from operation for that week is: a. Smaller than the gross margin. b. The same as the gross margin. c. Larger than the gross margin. d. Impossible to calculate or compare to gross margin, with the information at hand. e. None of the above is correct. 12. The operating profit for that week is: a. -900. b. Impossible to calculate. c. 1350. d. 3000. e. None of the above. 5 ACCT101 & ACCT620 Fall2010 1st MIDTERM Question Booklet 13. Which of the following groups of accounts, with normal balances, would appear in the credit column of an unadjusted trial balance a. Accounts Payable, Revenues, Cost of Sales, and Investment Income. b. Revenues, Accumulated Depreciation, and Prepaid Expenses. c. Accounts Payable, Revenues, and Accumulated Depreciation. d. Contributed Capital, Retained Earnings, and Cost of Sales. e. None of the above is group of accounts with credit column in an unadjusted trial balance. 14. Which of the following is TRUE about every adjusting entry a. They affect only income statement accounts. b. They affect a balance sheet account and an expense account. c. They affect a balance sheet account and an income statement account. d. More than one of the above is true. e. None of the above is true. 15. Consider the following statements about the set of all the closing entries a firm with a positive net income needs to do at the end of the year: I. It affects all existing income statement accounts. II. It affects one balance sheet account. III. It does not affect the gross PP&E account. a. I is the only false statement. b. II is the only false statement. c. III is the only false statement. d. More than one of the statements I, II or III are false. e. None of the above is accurate with respect to the falsity of statements I, II or III. 6 ACCT101 & ACCT620 Fall2010 1st MIDTERM Question Booklet 16. The following are the ending balances on the ledger for Firm A. Whoever put together the list sorted the accounts alphabetically and forgot to write down whether these were debit or credit balances. Accounts payable Accounts receivable Accumulated depreciation Cash Contributed capital Depreciation expense Equipment 2400 2000 15000 1500 3700 3000 31000 Insurance expense Prepaid insurance Retained earnings Sales revenue Utilities expense Utilities payable Wages expense 750 1500 2000 37000 250 3900 19000 If you were told one of the following accounts is missing from the list, which one would you pick? a. b. c. d. e. \"Other revenues $5,000\" \"Rent expense $5,000\" \"Accumulated other comprehensive income $5,000\" No account is necessary for the above list to be a complete ledger. None of the above is a true statement. 17. When delivery of goods and services for $25,000 results in a cash receipt of $15,000 and the balance of $10,000 on account, the reported revenues for the time period are a. $15,000 b. $25,000 c. $10,000 d. No revenue should be reported as one of the 4 conditions of revenue recognition is not met. e. None of the above is true. 18. Consider the following items: I. Cash collected from sales. II. Interest expense. III. Principal of bank loan paid. Relate them to the cash flow from operations in the cash flow statements under US GAAP and choose the most appropriate option: a. Item I will be represented by a negative cash-flow from operations. b. Item II will be represented by a negative cash-flow from operations. c. Item III will be represented by a negative cash-flow from operations. d. More than one of the above is true. e. None of the above is true. 7 ACCT101 & ACCT620 Fall2010 1st MIDTERM Question Booklet 19. For a merchandising company, such as Best Buy, the largest operating cash outflow would result from: a. Payments to suppliers for inventory. b. Payment of benefits to employees. c. Payment of taxes to the various government entities. d. Payment of interest on notes payable. e. None of the above represents operating cash outflows. 20. The following is taken from a firm's adjusted trial balance: Cash Accounts receivable Prepaid Insurance Notes Receivable Equipment Accumulated Depreciation Accounts Payable Utilities Payable Income Taxes Payable Rent Payable Contributed Capital (800 shares) Retained Earnings Sales Revenue Wages expense Depreciation expense Utilities expense Insurance expense Rent Expense Income Tax Expense Total Debit 1500 2000 1600 2800 15000 19000 1800 320 700 9000 2700 56520 Credit 3000 2400 4670 2700 500 3700 2000 37450 56520 Which of the following would NOT be a plausible adjusting entry that the firm just recorded: a. Dr. Depreciation Expense 1800 Cr. Accumulated Depreciation 1800 b. Dr. Rent Expense 1000 Cr. Prepaid Rent 500 Cr. Rent Payable 500 c. Dr. Wages Expense 19000 Cr. Cash 19000 d. Dr. Income Tax Expense 2700 Cr. Income Tax Payable 2700 e. More than one of the above represents journal entries that constitute implausible adjusting entries. 8 ACCT101 & ACCT620 Fall2010 1st MIDTERM Question Booklet 21. Which account would be listed on a post-closing balance? a. A revenue account. b. The depreciation expense account. c. The retained earnings account. d. More than one of the above would be listed on a post-closing balance. e. None of the above would be listed on a post-closing balance. 22. For an airline company, such as Continental, which of the following would result in the largest operating cash outflow: a. Depreciation expense on the airplanes. b. Payment of taxes to the various government entities. c. Payment of interest on bank loans. d. Collection of ticket sales. e. None of the above represents operating cash outflows. 23. On January 1, 2010, Denmark Inc., started the year with a $200,000 credit balance in its retained earnings account. During 2010, the company earned net income of $70,000 and declared and paid dividends of $10,000. Also, the company received cash of $15,000 as an additional investment by its owners. Therefore, the balance in retained earnings on December 31, 2010, would be: a. $200,000. b. $270,000. c. $245,000. d. $260,000. e. None of the above is correct. 24. On December 31, 2009, Avery Corporation signed a contract with Permanent Assurance for next year's insurance policy. The policy costs $10,000 and payment has not occurred yet. However, payment must be done until January 31st, 2010, or else the contract will be void. On December 31st, this transaction should be recorded as follows by Avery: a. Dr. Insurance Expense $10,000 Cr. Insurance Payable $10,000 b. Dr. Prepaid Insurance $10,000 Cr. Insurance Payable $10,000 c. Dr. Prepaid Insurance $10,000 Cr. Cash $10,000 d. This transaction will not be recorded on Avery's 2009 accounts. e. None of the above is true. 9 ACCT101 & ACCT620 Fall2010 1st MIDTERM Question Booklet 25. Still referring to the previous situation, on Permanent Assurance's accounts, this transaction would lead to no recording of revenue, because: a. Permanent Assurance has not yet delivered any service. b. Permanent Assurance has not yet collected any cash, even though the collection is reasonably assured. c. The price is not yet been fixed or determined. d. More than one of the above is true. e. None of the above is true. 26. Which is the correct order of the steps in the accounting cycle at the end of the accounting period? a. Prepare financial statements, journalize and post adjusting entries, journalize and post the closing entries, and prepare a post-closing trial balance. b. Prepare an unadjusted trial balance, journalize and post adjusting entries, journalize and post the closing entries, and prepare financial statements. c. Journalize and post adjusting entries, journalize and post the closing entries, prepare financial statements, and prepare an adjusted trial balance. d. Prepare an unadjusted trial balance, journalize and post adjusting entries prepare financial statements, and journalize and post the closing entries. e. None of the above is an appropriate sequence of events that characterizes the accounting cycle at the end of the accounting period. 27. On January 1, 2007, the ledger of Global Corporation correctly showed merchandise inventory of $1,000. During 2007, merchandise purchases amounted to $5,000, and the income statement for 2007 showed sales revenues of $5,500 and cost of goods sold of $3,500. From this information, you can expect merchandise inventory to have an ending balance of: a. $500 credit b. $500 debit c. $1,000 debit d. $2,500 debit e. None of the above 28. Which of the following accounts is NOT closed at the end of the year? a. Interest receivable. b. Cost of goods sold. c. Depreciation expense. d. Sales revenue. e. None of the above. 10 ACCT101 & ACCT620 Fall2010 1st MIDTERM Question Booklet 29. Union Company collected $500,000 from customers and paid employees and suppliers $380,000 during 2009. In addition, the company borrowed $50,000 from the bank and purchased equipment for $90,000. The company's 2009 statement of cash flows would show which of the following? a. Increase in cash of $160,000. b. Increase in cash of $80,000. c. Decrease in cash of $180,000. d. Increase in cash of $120,000. e. None of the above is correct. 30. Still referring to the situation described in the previous question. Which of the following is true? a. The accrual accounting net income cannot be determined from the information provided. b. The income recorded under cash accounting would be the same as your answer to the previous question. c. The accrual accounting net income can be determined from the information provided. d. More than one of the above is true. e. None of the above is true. 11 Practice Exam Name: PENN ID: __________________________ Recitation Section: __________________________ ACCOUNTING 101, PRACTICE EXAM #1 Instructions: 1. There are 11 numbered pages in this booklet. Make sure you have all the pages before you begin. 2. Please print your name and student number at the top of this page AND on all subsequent pages. 3. This exam has 100 total points. You have 120 minutes to complete the exam so please budget your time accordingly. 4. Allocate time wisely and do not spend too much time on one question. 5. In the interest of fairness to all students, NO questions will be answered during the exam. If you think a question cannot be answered with the information provided, you can choose \"none of the above\". 6. The exam is closed book and the use of a laptop computer is prohibited. You are permitted to use ONE double-sided 8 x 11 inch reference sheet. You are also permitted to use a calculator. 7. Exams written in pencil will not be considered for a regrade. Use a pen if you think you might submit your exam for a regrade request. Question Points Allocated 1 20 2 20 3 10 4 50 1 Points Earned Practice Exam Question 1 - Multiple Choice (20 points) each question is worth 2 points. 1. The \"accounting equation\" can be rephrased as: a. b. c. d. e. Net Assets = Operating Assets + Financial Assets Net Assets = Common Stock + Addt'l Paid in Capital + Net Income - Dividends Net Assets = Liabilities + Shareholder's Equity Net Assets = Assets - Liabilities None of the above 2. According to the articulation of financial statements, the balance sheet and the statement of cash flows are linked by: a. b. c. d. e. Cash balance Retained earnings Total shareholder equity Net income None of the above 3. Which of the following is an assets? a. b. c. d. e. Prepaid rent Taxes payable Unearned revenue Common stock None of the above 4. Which of the following assets on the balance sheet of a company are possibly undervalued? a. b. c. d. e. Land Inventories Equipment All of the Above None of the above 2 Practice Exam 5. Which of the following accounts is usually not satisfied by payment of cash? a. Accounts payable b. Unearned revenue c. Taxes payable d. All of these are satisfied by paying cash e. None of the above 6. If you wanted to know what accounting rules a company follows related to its revenue recognition, where would you look? a. b. c. d. e. the balance sheet the auditor opinion the notes to the financial statements the management certification None of the above 7. The amount of revenue recognized in the income statement by a company that sells goods to customers would be a. b. c. d. e. the cash collected from customers during the current period. total sales, both cash and credit sales, for the period. total sales minus beginning amount of accounts receivable. the amount of cash collected plus the beginning amount of accounts receivable. None of the above 8. TRUE/FALSE: In addition to purchased assets like inventories and PPE, companies also report on their balance sheets internally created assets such as the value of a successful marketing campaign and design innovations. 9. TRUE/FALSE: Under the Matching Principle, the cost of inventory should be reported as an expense in the income statement when it is purchased, even if it is purchased on credit and will not be paid until the next reporting period. 10. TRUE/FALSE: If stockholders' equity was $20,000 on January 1, 2010, and decreased to $18,000 on December 31, 2010, this could only be due to a net loss of $2,000. 3 Practice Exam Question 2 - Erroneous Journal Entries (20 points) Indicate the effect of the error (overstate/understateo effect and amount) on the various financial statement items. [Hint: Consider the difference between the entry(s) that the company actually made and the entry(s) that it should have made to record the transaction(s) if the company made an erroneous entry.] 1) At the end of the fiscal year, Pete's Auto Sales improperly accrued Sales Revenue of $100,000 and Cost of Goods Sold of $75,000 related to the sale of a custom sports car that it had not yet delivered to its customer. In particular, the company made the following journal entry: Accounts Receivable Cost of Goods Sold Sales Revenue Inventory $100,000 $75,000 $100,000 $75,000 a. Overstate assets by $25,000, no effect on liabilities, overstate shareholder's equity by $25,000 and overstate net income by $25,000. b. Understate assets by $25,000, no effect on liabilities, understate shareholder's equity by $25,000 and overstate net income by $25,000. c. Overstate assets by $100,000, no effect on liabilities, overstate shareholder's equity by $100,000 and overstate net income by $100,000. d. No effect on assets, no effect on liabilities, overstate shareholder's equity by $25,000 and overstate net income by $25,000. e. None of the above 2) At the end of the fiscal year, XYZ Corp. failed to accrue income tax expense of $350,000 related to its net income of $1,000,000. a. Overstate assets by $1,000,000, no effect on liabilities, overstate shareholder's equity by $1,000,000 and overstate net income by $1,000,000. b. Overstate assets by $350,000, no effect on liabilities, overstate shareholder's equity by $350,000 and overstate net income by $350,000. c. No effect on assets, understate liabilities by $1,000,000, overstate shareholder's equity by $1,000,000 and overstate net income by $1,000,000. f. No effect on assets, understate liabilities by $350,000, overstate shareholder's equity by $350,000 and overstate net income by $350,000. d. None of the above. 4 Practice Exam 3) In making the adjusting entries at year-end, Creative Accounting Inc. failed to record the adjusting entry for wages earned by employees, but not yet paid, amounting to $5,000 for the last four days of the year. a. No effect on assets, understate liabilities by $5,000, overstate shareholder's equity by $5,000 and overstate net income by $5,000. b. Understate assets by 5,000, no effect on liabilities, understate shareholder's equity by $5,000 and understate net income by $5,000. c. Understate assets by 10,000, no effect on liabilities, understate shareholder's equity by $10,000 and understate net income by $10,000. d. Overstate assets by 5,000, no effect on liabilities, overstate shareholder's equity by $5,000 and overstate net income by $5,000. e. None of the above. 4) On April 1, 2009, Utley Inc. purchased land for $400,000 by issuing a note payable. The terms of the note require that it be repaid in full in one year (i.e., on March 31, 2010) along with (simple) interest at an annual rate of 10%. Utley Inc. recorded the following entry to accrue interest related to the note on December 31, 2009. Interest Expense Interest Payable $40,000 $40,000 a. No effect on assets, overstate liabilities by $10,000, understate shareholder's equity by $10,000 and understate net income by $10,000. b. Understate assets by 10,000, no effect on liabilities, understate shareholder's equity by $10,000 and understate net income by $10,000. c. No effect on assets, understate liabilities by $360,000, overstate shareholder's equity by $360,000 and overstate net income by $360,000. d. Overstate assets by 360,000, no effect on liabilities, overstate shareholder's equity by $360,000 and overstate net income by $360,000. e. None of the above. Question 3 - Revenue recognition for a long-term contract (10 points) 5 Practice Exam On September 29, 2009 Granite Construction Inc. (NYSE:GVA) received a $640 million contract from New York's Metropolitan Transportation Authority (MTA). The contract, from MTA, is to build the Queens Bored Tunnels and Structures for Long Island Rail Road's East Side Access project in New York. The companies will excavate and concrete line four bored tunnels beneath an active rail storage yard. Work on the project will begin January 1, 2011 and is estimated to take 48 months to complete. The estimated total project cost is $480 million. The company uses the percentage of completion accounting method for construction contracts wherein revenue and earnings on construction contracts, including construction joint ventures, are recognized using the percentage of completion method in the ratio of costs incurred to estimated final costs. The company has a December 31 fiscal year end. Ignore the effect of taxes while answering these questions. 1) Suppose, Granite Construction recognizes $40 million in revenue in fiscal year ending December 31, 2011. How much profit did the company report for fiscal year ending December 31, 2011? (2 points) a. $ 10 million b. $40 million c. $20 million d. Enough information is not available to compute profit. e. None of the above 2) Further suppose that in the fiscal year ending December 31, 2012, the company recognizes $100 million in profits. How much revenue did the company report for fiscal year ending December 31, 2012 (4 points) a. $ 400 million b. $300 million c. $600 million d. Enough information is not available to compute revenue. e. None of the above 3) Further suppose, at the end of 2012, before recording revenues for the year, Granite Construction realizes that the total estimated costs have to revise upwards to $550 million. How much revenue should they recognize in 2012? (2 points) a. $ 400 million b. $384 million c. $600 million d. Enough information is not available to compute revenue. e. None of the above 6 Practice Exam 4) If Granite Construction believes that the estimated project costs cannot be determined accurately, then how much revenue should the company recognize in the fiscal year ending December 31, 2011? (1 point) a. $40 million b. $ 0 million c. $640 million d. Enough information is not available to compute revenue. e. None of the above 5) If Granite Construction believes that the estimated project costs cannot be determined accurately, then how much revenue should the company recognize in the fiscal year ending December 31, 2013? Assume that the project gets completed by December 31, 2013 (1 point) a. $40 million b. $ 0 million c. $640 million d. Enough information is not available to compute revenue. e. None of the above 7 Practice Exam Question 4 - Comprehensive Accounting Problem (50 points) Part A: Self Smart Corp. was founded on January 1, 2009. It had the following transactions during the fiscal year ending December, 2009. Select the appropriate journal entry that Self Smart would make at the time of each transaction. (30 points - 3 points each) 1) January 1: Investors purchased 1,000 shares of $1 par value common stock for $200,000. a. Debit cash 200,000, credit common stock 1,000, credit additional paid in capital 199,000. b. Credit cash 200,000, debit common stock 1,000, debit additional paid in capital 199,000. c. Debit cash 200,000, credit additional paid in capital 200,000. d. This transaction does not trigger any journal entries. e. None of the above 2) January 1: Prepaid 24 months of rent on a warehouse for $48,000. a. b. c. d. e. Debit Rent expense 48,000, credit cash 48,000. Debit cash 48,000, credit rent payable 48,000 Debit prepaid rent 48,000, credit cash 48,000 This transaction does not trigger any journal entries. None of the above 3) January 1: Purchased 10,000 units of inventory at a cost of $5 per unit on account. a. Debit Cost of goods sold 50,000, credit accounts payable 50,000. b. Debit inventory 50,000, credit accounts payable 50,000. c. Debit plant, property and equipment (PP&E) 50,000, credit accounts payable 50,000. d. This transaction does not trigger any journal entries. e. None of the above 4) January 1: Purchased a forklift for $60,000 which will be used in the warehouse. The estimated useful life of the forklift is 5 years and Self Smart will depreciate the forklift using the straight line method with salvage value of $0. . a. b. c. d. e. Debit forklift 60,000, credit cash 60,000 Debit depreciation expense 60,000, credit cash 60,000 Debit depreciation expense 12,000, credit forklift 12,000 This transaction does not trigger any journal entries. None of the above. 8 Practice Exam 5) April 15: Spent $5,000 to run television ads on the same day. a. b. c. d. e. Debit advertising expense 5,000, credit cash 5,000 Debit cash 5,000, credit advertising revenue 5,000 Debit advertising expense 5,000, Credit prepaid advertising expense 5,000. This transaction does not trigger any journal entries. None of the above. 6) June 30: Sold 2,000 units of inventory for $40,000. The customer paid for half of the inventory with and purchased the remainder on credit in the form of a note that is due in one year with an annual interest rate of 10%. a. Debit cash 20,000, debit notes receivable 20,000, credit sales revenue 40,000. b. Debit cost of goods sold 10,000, credit inventory 10,000 c. Journal entries mentioned above in both choice (a.) and choice (b.) should be made. d. This transaction does not trigger any journal entries. e. None of the above. 7) August 10: Purchased Office Supplies for $16,000. a. b. c. d. e. Debit office supplies expense 12,000, credit cash 12,000 Debit office supplies (asset) 16,000, credit cash 16,000 Debit office supplies (asset) 4,000, credit cash 4,000 This transaction does not trigger any journal entries. None of the above. 8) October 1: Rented out part of the warehouse to XYZ Corp. under a one year lease. XYZ Corp. paid Self Smart Corp. $12,000 for the first six months rent. a. b. c. d. e. Debit cash 12,000, credit rent revenue 12,000 Debit cash 12,000, credit deferred rent revenue 12,000 Debit rent expense 12,000, credit cash 12,000 This transaction does not trigger any journal entries. None of the above. 9 Practice Exam 9) December 1: Hired a warehouse manager whose $5,000 monthly salary is payable the second day after the end of the month. a. b. c. d. e. Debit salary expense 5,000, credit salary payable 5,000 Debit prepaid salary expense 5,000, credit cash 5,000 Debit salary expense 5,000, credit cash 5,000 This transaction does not trigger any journal entries. None of the above. 10) December 28: Chief executive officer of Self Smart Corp. bought a house worth $1,000,000 using his personal funds. a. b. c. d. e. Debit property 1,000,000, credit cash 1,000,000 Debit property 1,000,000, credit accounts payable 1,000,000 Debit inventory 1,000,000, credit cash 1,000,000 This transaction does not trigger any journal entries. None of the above. Part B: Record the six adjusting entries related to transactions in Part A. (20 points - 3 1/3 points each) 1) Beginning balance of office supplies for the period was $0, after purchasing office supplies on Aug 10, and after taking inventory of the remaining office supplies on December 31, 2009, there was $4,000 worth of supplies on hand. Deferred Expense for Office Supplies. a. b. c. d. e. Debit supplies expense 16,000, credit office supplies 16,000 Debit supplies expense 12,000, credit office supplies 12,000 Debit supplies expense 4,000, credit office supplies 4,000 No journal entries need to be recorded None of the above 2) Depreciation Expense for the Forklift. a. b. c. d. e. Debit depreciation expense 12,000, credit accumulated depreciation 12,000. Debit depreciation expense 12,000, credit Forklift (Asset) 12,000. Debit depreciation expense 60,000, credit accumulated depreciation 60,000. No journal entries need to be recorded None of the above 10 Practice Exam 3) Deferred Expense for Prepaid Rent. a. b. c. d. e. Debit rent expense 24,000, credit prepaid rent 24,000 Debit rent expense 48,000, credit prepaid rent 48,000 Debit cash 24,000, credit prepaid rent 24,000 No journal entries need to be recorded None of the above 4) Accrued interest revenue on the note related to the June 30th sale of inventory. a. b. c. d. e. Debit interest receivable 2,000, credit interest revenue 2,000 Debit interest expense 1,000, credit cash 1,000 Debit interest receivable 1,000, credit interest revenue 1,000 No journal entries need to be recorded None of the above 5) Recognized revenue related to the warehouse sublease to XYZ Corp. a. b. c. d. e. Debit deferred rent revenue 6,000, credit rent revenue 6,000 Debit deferred rent revenue 12,000, credit rent revenue 12,000 Debit cash 6,000, credit rent revenue 6,000 No journal entries need to be recorded None of the above 6) Accrued expense for warehouse manager's salary. a. b. c. d. e. Debit salary expense 5,000, credit prepaid salary 5,000 Debit salary expense 5,000, credit cash 5,000 Debit salary expense 5,000, credit salary payable 5,000 No journal entries need to be recorded None of the above 11 Name: PENN ID: _________________________ ACCOUNTING 101 - 620, EXAM #1 Spring Semester, 2010 Instructions: 1. 2. 3. 4. 5. 6. 7. 8. Detach this page from the booklet as this will be the only page you will hand in. Make sure you have a booklet containing 30 questions. Please print your name and student number at the top of this page. This exam has 150 total points. You have 75 minutes to complete the exam so please budget your time accordingly. Keep in mind all questions are worth the same! If you choose to use additional time on top of the 75 minutes (up to 10 minutes), we will multiply your final grade with a 0.65 coefficient. After the 85 th minute, we will assume you have withdrawn from the test. Fill in the table on this page to answer the questions. Mark with an x the box you select. Nothing outside that table will be graded by us. In the interest of fairness to all students, NO questions will be answered during the exam. The exam is closed book and the use of a laptop computer is prohibited. You are permitted to use ONE doublesided 8 x 11 inch reference sheet. You are also permitted to use a calculator. You can choose to withdraw from the midterm. If we do not have your test at the end of the scheduled exam time, then we will assume that you have withdrawn. a 1 2 3 4 5 6 7 8 9 10 1 b c d a 11 12 13 14 15 16 17 18 19 20 b c d a 21 22 23 24 25 26 27 28 29 30 b c d [This page is intentionally left blank.] 2 ACCT101 & ACCT620 Fall2010 1st MIDTERM Question Booklet 1. A calendar year reporting company preparing its annual financial statements should use the phrase "At December 31, 2009" in the heading of: a. All of the required financial statements it prepares. b. None of the required financial statements it prepares. c. The income statement and balance sheet, but not the statement of cash flows. d. The balance sheet only. e. None of the above reflects the financial statements on which the phrase mentioned should be used. 2. Consider the following statements referring to the accounting qualities as described by the FASB: I. Decision-usefulness of accounting information primarily requires relevance and reliability. II. For information to be reliable it should be accurate, unbiased, and verifiable. III. For information to be relevant it should be material, with benefits exceeding costs, and understandable. a. Only Statement I is true. b. Only Statement II is true. c. Only Statement III is true. d. Statements I and II are true. e. None of the above is accurate concerning the veracity of Statements I to III. 3. Consider the following statements referring to the accounting qualities as described by the FASB: I. The conservatism constraint means that assets and revenues should not be overstated and that liabilities and expenses should not be understated. II. Timeliness means that the rules will not change from one year to the next. III. Comparability implies that the rules cannot change from one year to the next. a. Only Statement I is true. b. Only Statement II is true. c. Only Statement III is true. d. Statements I and II are true. e. None of the above is accurate concerning the veracity of Statements I to III. 4. Which definition applies better to the context used in the accounting principles? The following is taken from Merriam-Webster online definitions of the word MATERIAL(ITY). a. Relating to, derived from, or consisting of matter; especially : physical b. Apparatus necessary for doing or making something c. Having real importance or great consequences d. More than one of the above. e. None of the above. 3 ACCT101 & ACCT620 Fall2010 1st MIDTERM Question Booklet 5. Consider the following 3 statements: I. Gross profit is an important profit measure for companies that sell inventory because it shows the profit left from net sales after all operating expenses have been deducted. II. Intangible assets have no physical existence and a short life. III. Goodwill is the difference between the accounting value of an acquired firm and the price paid by the acquiring firm. a. Only Statement I is true. b. Only Statement II is true. c. Only Statement III is true. d. Statements I and II are true. e. None of the above is accurate concerning the veracity of Statements I to III. 6. Suppose a firm declared dividends, but has yet to pay them to shareholders: a. This leaves equity unchanged, until the dividends are paid. b. This leaves assets unchanged, until the dividends are paid. c. This leaves liabilities unchanged. d. More than one of the above is true. e. None of the above options is true. 7. During this year, firm A's contributed capital changed from $4,500,000 to $6,500,000. If you are told that the par value of the common stock (the only type of stock this company has) is $1, then, just with this information: a. You can tell the exact number of shares issued during this year. b. Then you know the stock price at which the stock was issued. c. Then you can calculate the APIC amount change. d. More than one of the above is true. e. None of the above is true. 8. Which of the following is true: a. APIC is a permanent account, since it is an equity account. b. APIC is a temporary account as it depends on the stock market of issued and acquired stock. c. APIC is a flow, since it shows up on the statement of retained earnings. d. More than one of the above is true. e. None of the above is true. 4 ACCT101 & ACCT620 Fall2010 1st MIDTERM Question Booklet 9. On January 1st, Firm A was constituted and issued 500,000 shares of $1 par value for $3,500,000 cash. On January 5th, the firm repurchased 32,000 of those shares paying $5.5 per share. On January 10th, the firm reissued 30,000 of the same shares receiving $180,000. How much is in APIC at the end of the day on January 10th? a. There is not enough information to calculate APIC on January 10th. b. $3,504,000. c. $3,500,000. d. $3,006,000. e. None of the above is true. The following information concerns questions 10 to 12. On February 1st, Firm A purchased inventory for $5,000 cash (100 units of product). On February 2nd, Firm A sold 45 units of product for $3,900 on account. On February 4th Firm A sold the remaining 55 units for $4,100 cash. These were the only active entries occurring during that week and on February 5th Firm A is calculating a few accounting numbers: 10. The gross profit for that week is: a. -900. b. Impossible to calculate. c. 1350. d. 3000. e. None of the above. 11. The cash flow from operation for that week is: a. Smaller than the gross margin. b. The same as the gross margin. c. Larger than the gross margin. d. Impossible to calculate or compare to gross margin, with the information at hand. e. None of the above is correct. 12. The operating profit for that week is: a. -900. b. Impossible to calculate. c. 1350. d. 3000. e. None of the above. 5 ACCT101 & ACCT620 Fall2010 1st MIDTERM Question Booklet 13. Which of the following groups of accounts, with normal balances, would appear in the credit column of an unadjusted trial balance a. Accounts Payable, Revenues, Cost of Sales, and Investment Income. b. Revenues, Accumulated Depreciation, and Prepaid Expenses. c. Accounts Payable, Revenues, and Accumulated Depreciation. d. Contributed Capital, Retained Earnings, and Cost of Sales. e. None of the above is group of accounts with credit column in an unadjusted trial balance. 14. Which of the following is TRUE about every adjusting entry a. They affect only income statement accounts. b. They affect a balance sheet account and an expense account. c. They affect a balance sheet account and an income statement account. d. More than one of the above is true. e. None of the above is true. 15. Consider the following statements about the set of all the closing entries a firm with a positive net income needs to do at the end of the year: I. It affects all existing income statement accounts. II. It affects one balance sheet account. III. It does not affect the gross PP&E account. a. I is the only false statement. b. II is the only false statement. c. III is the only false statement. d. More than one of the statements I, II or III are false. e. None of the above is accurate with respect to the falsity of statements I, II or III. 6 ACCT101 & ACCT620 Fall2010 1st MIDTERM Question Booklet 16. The following are the ending balances on the ledger for Firm A. Whoever put together the list sorted the accounts alphabetically and forgot to write down whether these were debit or credit balances. Accounts payable Accounts receivable Accumulated depreciation Cash Contributed capital Depreciation expense Equipment 2400 2000 15000 1500 3700 3000 31000 Insurance expense Prepaid insurance Retained earnings Sales revenue Utilities expense Utilities payable Wages expense 750 1500 2000 37000 250 3900 19000 If you were told one of the following accounts is missing from the list, which one would you pick? a. b. c. d. e. \"Other revenues $5,000\" \"Rent expense $5,000\" \"Accumulated other comprehensive income $5,000\" No account is necessary for the above list to be a complete ledger. None of the above is a true statement. 17. When delivery of goods and services for $25,000 results in a cash receipt of $15,000 and the balance of $10,000 on account, the reported revenues for the time period are a. $15,000 b. $25,000 c. $10,000 d. No revenue should be reported as one of the 4 conditions of revenue recognition is not met. e. None of the above is true. 18. Consider the following items: I. Cash collected from sales. II. Interest expense. III. Principal of bank loan paid. Relate them to the cash flow from operations in the cash flow statements under US GAAP and choose the most appropriate option: a. Item I will be represented by a negative cash-flow from operations. b. Item II will be represented by a negative cash-flow from operations. c. Item III will be represented by a negative cash-flow from operations. d. More than one of the above is true. e. None of the above is true. 7 ACCT101 & ACCT620 Fall2010 1st MIDTERM Question Booklet 19. For a merchandising company, such as Best Buy, the largest operating cash outflow would result from: a. Payments to suppliers for inventory. b. Payment of benefits to employees. c. Payment of taxes to the various government entities. d. Payment of interest on notes payable. e. None of the above represents operating cash outflows. 20. The following is taken from a firm's adjusted trial balance: Cash Accounts receivable Prepaid Insurance Notes Receivable Equipment Accumulated Depreciation Accounts Payable Utilities Payable Income Taxes Payable Rent Payable Contributed Capital (800 shares) Retained Earnings Sales Revenue Wages expense Depreciation expense Utilities expense Insurance expense Rent Expense Income Tax Expense Total Debit 1500 2000 1600 2800 15000 19000 1800 320 700 9000 2700 56520 Credit 3000 2400 4670 2700 500 3700 2000 37450 56520 Which of the following would NOT be a plausible adjusting entry that the firm just recorded: a. Dr. Depreciation Expense 1800 Cr. Accumulated Depreciation 1800 b. Dr. Rent Expense 1000 Cr. Prepaid Rent 500 Cr. Rent Payable 500 c. Dr. Wages Expense 19000 Cr. Cash 19000 d. Dr. Income Tax Expense 2700 Cr. Income Tax Payable 2700 e. More than one of the above represents journal entries that constitute implausible adjusting entries. 8 ACCT101 & ACCT620 Fall2010 1st MIDTERM Question Booklet 21. Which account would be listed on a post-closing balance? a. A revenue account. b. The depreciation expense account. c. The retained earnings account. d. More than one of the above would be listed on a post-closing balance. e. None of the above would be listed on a post-closing balance. 22. For an airline company, such as Continental, which of the following would result in the largest operating cash outflow: a. Depreciation expense on the airplanes. b. Payment of taxes to the various government entities. c. Payment of interest on bank loans. d. Collection of ticket sales. e. None of the above represents operating cash outflows. 23. On January 1, 2010, Denmark Inc., started the year with a $200,000 credit balance in its retained earnings account. During 2010, the company earned net income of $70,000 and declared and paid dividends of $10,000. Also, the company received cash of $15,000 as an additional investment by its owners. Therefore, the balance in retained earnings on December 31, 2010, would be: a. $200,000. b. $270,000. c. $245,000. d. $260,000. e. None of the above is correct. 24. On December 31, 2009, Avery Corporation signed a contract with Permanent Assurance for next year's insurance policy. The policy costs $10,000 and payment has not occurred yet. However, payment must be done until January 31st, 2010, or else the contract will be void. On December 31st, this transaction should be recorded as follows by Avery: a. Dr. Insurance Expense $10,000 Cr. Insurance Payable $10,000 b. Dr. Prepaid Insurance $10,000 Cr. Insurance Payable $10,000 c. Dr. Prepaid Insurance $10,000 Cr. Cash $10,000 d. This transaction will not be recorded on Avery's 2009 accounts. e. None of the above is true. 9 ACCT101 & ACCT620 Fall2010 1st MIDTERM Question Booklet 25. Still referring to the previous situation, on Permanent Assurance's accounts, this transaction would lead to no recording of revenue, because: a. Permanent Assurance has not yet delivered any service. b. Permanent Assurance has not yet collected any cash, even though the collection is reasonably assured. c. The price is not yet been fixed or determined. d. More than one of the above is true. e. None of the above is true. 26. Which is the correct order of the steps in the accounting cycle at the end of the accounting period? a. Prepare financial statements, journalize and post adjusting entries, journalize and post the closing entries, and prepare a post-closing trial balance. b. Prepare an unadjusted trial balance, journalize and post adjusting entries, journalize and post the closing entries, and prepare financial statements. c. Journalize and post adjusting entries, journalize and post the closing entries, prepare financial statements, and prepare an adjusted trial balance. d. Prepare an unadjusted trial balance, journalize and post adjusting entries prepare financial statements, and journalize and post the closing entries. e. None of the above is an appropriate sequence of events that characterizes the accounting cycle at the end of the accounting period. 27. On January 1, 2007, the ledger of Global Corporation correctly showed merchandise inventory of $1,000. During 2007, merchandise purchases amounted to $5,000, and the income statement for 2007 showed sales revenues of $5,500 and cost of goods sold of $3,500. From this information, you can expect merchandise inventory to have an ending balance of: a. $500 credit b. $500 debit c. $1,000 debit d. $2,500 debit e. None of the above 28. Which of the following accounts is NOT closed at the end of the year? a. Interest receivable. b. Cost of goods sold. c. Depreciation expense. d. Sales revenue. e. None of the above. 10 ACCT101 & ACCT620 Fall2010 1st MIDTERM Question Booklet 29. Union Company collected $500,000 from customers and paid employees and suppliers $380,000 during 2009. In addition, the company borrowed $50,000 from the bank and purchased equipment for $90,000. The company's 2009 statement of cash flows would show which of the following? a. Increase in cash of $160,000. b. Increase in cash of $80,000. c. Decrease in cash of $180,000. d. Increase in cash of $120,000. e. None of the above is correct. 30. Still referring to the situation described in the previous question. Which of the following is true? a. The accrual accounting net income cannot be determined from the information provided. b. The income recorded under cash accounting would be the same as your answer to the previous question. c. The accrual accounting net income can be determined from the information provided. d. More than one of the above is true. e. None of the above is true. 11