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NAME: ,

SSN:

BMGT220
ACCOITNTTNG PRINCIPLES I
HARDY
FINAL EXAM
SPRING 199.5

Instrucrions:

1. Please fill in your name and social security number on your answer sheet and
darken the spaces beneath.

2. Please take a moment and be sure that you haveo numbered pages containing a
total of forty (40) multiple-choice questions.

3. Your answer sheet will computer read and you must use a #2 pencil only. Do not
fold or bend your answer sheet.

4. The proctor will NOT answer any questions.

5. You should assume a calendar year end : December 31) unless the question states
otherwise.

6. This is a multiple choice exam. Please answer each question with the BEST choice
among the alternatives.

7. You have one hour and 55 minutes to complete the exam.

3. Small silent battery operated calculators ire permitted.

•x You must present i phctr identification when cumin a in your exam.

'.0. Both this first page - c o v e r sheet, ir.d irrsv/er sheet are to be handed :n. Please
indicate the color cf vcur exam en vour answer shee:.
 n
A customer paid a portion of the account he/she owed the company. The
company1 s entry to record this transaction would:
A. increase the Cash and the Accounts Payable accounts.
B. leave a debit balance in the Accounts Receivable account.
C. increase the Cash and the Accounts Receivables accounts.
D. do none of the other answers.

If the accountant were to attempt to arrive at an absolutely

l^, correct figure for net income, which of the following would be most
useful?
A. Comparability
3. Hatching
C. Materiality
D. Disclosure

Which of the following accounts should be closed to the Income

J> Summary account at the end of the fiscal year?
A. Accounts Payable
B. Depreciation Expense-Machinery
C. Accounts Receivable
D. Cash

Which of the following items must be deducted from the balance per
bank in preparing a bank reconciliation?
A. Bank service charges
B . Outs tanding checks
C. Checks returned marked "not sufficient funds "
D. Deposits in transit

The beginning inventory of an alarm ci

?5 each. Purchases consisted of 4 unic
and 11 units were sold for $15 each " U"iCS aC
weighted-average method of inventory
procedure is: inventory
A. $31.57
B. $35.00
C. $33.75
D. $74.25

The cost incurred to acquire a franchise is subject to:

A. depreciation.
B. amortization.
C. depletion.
D. The other answers are all incorrect.
 Given the following information:

Beginning inventory $56,700

Ending inventory « 53,300
Purchases 54 , 300
Purchase discounts 4,800
Purchase returns and allowances 2,300
Sales 139,000
Sales discounts 2,500
Sales returns and allowances 9,500
Transportation-in 1' 40°

Which of the following statement£s) is (are) correct?

A. Cost of goods available for sale is $103,400.
B. Cost of goods sold is $51,500.
C. Net cost of purchases is $46,700.
D. All of the other answers are correct.

The Prepaid Insurance account shows a balance of $1,800,

representing the payment on July 1 of a three-year insurance
premium of $1,800 providing coverage from July 1. The correct
adjusting entry on December 31, the close of the annual accounting
period in which the policy was purchased, is:
A. Insurance Expense 300
Prepaid Insurance 300
3. Insurance Expense 600
Prepaid Insurance 600
C. Prepaid Insurance 300
Insurance Expense 300
D. Prepaid Insurance 50
Insurance Expense 50

Which of the following statements is CORRECT?

A. The purchase of equipment on account increases assets and
reduces stockholders' equity.
3. The payment of accounts payable decreases both cash and retained
earnings.
C. The collection of accounts receivable increases both cash and
retained earnings.
D. Revenues increase retained earnings, while expenses decrease
retained earnings.

Which of the following statements is true?

IV A. Goodwill is recorded only when purchased
3. The goodwill of a business can be purchased separately from the
rest or its assets.
C. Goodwill, once recorded, should not be amortised
D. The existence of goodwill can be determined without reference to
trie earnings of a business.
 J-
On January 1, 1998, Suit Company purchased a machine with a list
price of $18,000, which was invoiced at $15,000 (terms 3/15, n/60,
FOB destination). The invoice was paid within the discount period.
The freight company charged the seller $500 to ship the machine, and
Suit Company incurred $350 in installation costs. The cost of the
machine is:
A. $18,350
B. $15,350
C. $14,900
D. $16,300

Logan Co. paid $310,000 for a tract of land containing an orchard.

Legal and title transfer fees amounted to $2,000. The company also
agreed to assume responsibility for unpaid taxes of $5,000. The
crop of apples from the trees was sold for $1,000 and the trees
were sold to a lumber yard for $2,500. The amount to be recorded
as the cost of the land is:
A. $313,500
B. $316,000
C. $314,500
D. $311,500

Revenue expenditures are debited to a (ri) :

A. revenue account.
B. expense account.
C. asset account.
D. accumulated depreciation account.

In March 1999, after trying unsuccessfully to collect for nearly

cwo years, Kirby Co. wrote the $250 account of Poole off as
uncollectible. In August 1999, Poole sent a check for $100 "on
account." Assuming Kirby Co. uses the allowance method, which of
the following entries should it make upon receipt of the $100
check? No further checks are expected from Poole.
A. Cash 100
Accounts Receivable (Poole) 100
3. Cash 100
Allowance for Uncollectible Accounts.,.. 100
C. Accounts Receivable (Poole) 100
Allowance for Uncollectible Accounts.... 100
Cash 100
Accounts Receivable (Poole) 100
D. Accounts Receivable (Poole) 250
Allowance for Uncollectible Accounts.... 250
Cash 100
Accounts Receivable (Poole) 100
r y / Land purchased for speculation should be reported in the balance
I -* sheet as: -^ ,
A. an intangible asset. -1 i
B. property, plant, and equipment.
C. a current asset.
D. a long-term investment. j

A machine with a cost of $100,000 and an estimated useful life of

200,000 units with no salvage value, was used to produce 20,000 ;
units the first year and 30,000 units the second year.-Using the •
units'-of-production method, depreciation for the first and second
years would be:
A. Cannot be determined from the data given. i
3. $10,000 and $15,000 j
C. $20,000 and $30,000 j
D. $40,000 and $60,000 j
i
On January 1, 1998, office equipment was purchased and placed into
service. The equipment cost $200,000, has an estimated useful life
of 10 years, and has an estimated-salvage value of $24,000. The
depreciation expense under the sum~of-the-years'-digits method for
1999 {the second year) is:
A. $36,364
3. $32,000
C. $18,000
D. $28,800

On January 1, 1998, office equipment was purchased and placed into

tt service. The equipment cost $200,000, has an estimated useful life
of 10 years, and has an estimated salvage value of $24,000. The
depreciation expense under the double-declining balance method in
1998 is:
A. $32,000
B. $40,000
C. $36,000
D. Cannot be computed with the above data.

Which of the following statements is true regarding partial-year

depreciation?
A. The only year that will be affected by partial-year depreciation
under the straight-line method is the last year.
B. The calculation for partial-year depreciation under sum-of-the
years-digits involves the use of a fraction only in the first
and last years of life asset.
C. Partial-year depreciation under the units-of-production method
involves no fractional year computations.
D. The computation for pairnial-year- depreciation under double-
declining-balance depreciation involves assignment of the same
amount of expense for each month of asset life, re.gardless of the
portion of the year the asset was purchased.
 ~l
A truck of Borden Company that cost $18,000 and had $10,500
accumulated depreciation was traded in for a newer model. The new
truck had a cash price of $21,000. The dealer allowed Borden Company
a trade-in allowance of $10,500, with the remainder to be paid in cash.*
The journal entry to record the exchange, would include a:
A. debit to Trucks (for the new truck) of $18,000.
B. credit to Cash of $3,000.
C. credit to Trade-in Allowance of $10,500-.
D. credit to Gain on Exchange of Assets of $3,000."

When a plant asset is exchanged for a similar one and cash is oaid in
addition, recording the exchange requires recognition of:
A. both gains and losses.
B. neither gains nor losses.
C . gains but: not losses .
D. losses but not gains.

When a plant asset is exchanged for a similar one, with or without

additional cash being paid:
A. a gain always results if the fair market value of the asset
received is more than the recorded cost of the asset given up.
B. a gain always results if the fair market value of the asset
received is more than the book value of the asset given up.
C. the journal entry will always credit the account of the asset
given up for its cost and debit its accumulated depreciation
for its final balance on the exchange date.
D. the new asset will always be recorded at the book value of the
asset given up plus any additional cash paid.

A company extracted 250,000 tons of ore from a deposit of 2,000,000

tons for which it paid $3,000,000 for the mineral rights. Mining
labor costs amounted to $3,500,000 and other mining costs were
$6,500,000. A total of 175,000 tons of ore were sold- during the year.
The total amount of expense to be recorded from the above data for the
year is:
A. $10,875,000
3. $10,762,500
C. $15,375,000
D. $15,262,500

Expenditures for research and development are generally recorded as:

A. assets and amortized over 40 years.
B. assets and amortized over their estimated useful life.
C. prepaid expenses.
D. current: operating expenses.

> Equipment with a cost of $180,000 and $144,000 of accumulated

^i depreciation is sold for $24,000. Removal costs of $6,000 were
incurred to dismantle and remove the machine prior to sale The loss
recorded on the disposal of this equipment is:
A. $35,000
B. $42,000
C. $12,000
D. $18,000
Gains or losses from the following would be extraordinary items on
the income statement except:
A. voluntary early extinguishment of debt.
B. confiscation of property by a foreign government.
C. a prohibition under a newly enacted law.
D. rapid obsolescence of a patented manufacturing process.

Changes in accounting principle are shown in the financial

statements .-
A. on the income statement immediately before income from
continuing operations.
B. on the income statement immediately following income from
continuing operations.
C. on the income statement immediately following income after
extraordinary items.
D. as a prior period adjustment, by an adjustment to the beginning
retained earnings balance on the retained earnings statement:'

The Georgie Corporation acquired 300 shares of its own $40 par value
common stock, all of which had been previously issued at par. The
corporation paid $13,200 ($44 per share). Three weeks later it
reissued all 300 of these treasury shares, at $42 per share. The
entry to record the reissuance of these shares, assuming no previous
transactions in treasury stock is:
A. Cash 12, 600
Treasury Stock-Common 12 , 600
B. Cash 12,600
Treasury Stock-Common 12, 000
Paid-in Capital-Treasury Stock Transactions.. '600
C. Cash 12,600
Paid-in Capital-Treasury Stock Transactions 600
Treasury Stock-Common 13 , 200
D. Cash 12,600
Retained Earnings 600
Treasury Stock-Common 13 , 200

Eagle Corporation has authorized and has outstanding 40,000 shares of

$5 par value common stock. On March 1, 1998, the board of directors
declared a cash dividend of $8.75 per share, payable on March 31,
1998. What entry is necessary on March 31?
A. Retained Earnings 350,000
Cash 350,000
B. Dividends Payable 350,000
Cash 350,000
C. Retained Earnings 350,000
Dividends Payable 350,000
D. Dividends 350,000
Dividends Payable 350 , 000
 . f ,- - - -..£__
Which of the following statements regarding a stock dividend payable
to common stockholders is true?
A. A stock dividend reduces total corporate capital.
B. A stock dividend alters the individual stockholder's percentage of
ownership in the corporation.
C. A stock dividend has the effect of decreasing the book value per
share of that class of stock.
D. Stock Dividends Payable is a current liability account.

Davis Corporation has outstanding 12,000 shares of common stock, par

31 value $100 per share. The board of directors declared a five percent
stock dividend on the common stock. The market price of the stock on
the date the dividend is declared is $110 per share. The entry to j
record the declaration of the stock dividend is:
A. Retained Earnings 66,000 I
Stock Dividends Distributable-Common.... 66,000
B. Retained Earnings 60, 000
Stock Dividends Distributable-Common.... 60,000
C. Retained Earnings 66,000
Stock Dividends Distributable-Common.... 60,000
Paid-in Capital-Stock Dividend 6, 000
D. Retained Earnings 60,000
Cash 60,000

Paid-in capital does not include:

A. capital contributed to the extent of par or stated value of the
shares outstanding.
B. paid-in capital in excess of par or stated value on common and
preferred stock.
C. preferred stock.
D. capital accumulated by the retention of income.

An appropriation of retained earnings to a retained earnings

appropriation account:
A. is used to limit the amount of retained earnings available for
dividends.
B. indicates amounts that will be needed to meet contingencies, but
has no limiting effect on dividends.
C. may be used only when a legal restriction on retained earnings is
imposed by creditors.
D. results in the building of a fund of assets to meet specific
needs.

The stockholders' equity section of clay Corporation's balance

sheet consists of the following amounts:

Common stock (5,000 shares) S50 Q00

Paid-in capital in excess of par value-common lo'ooo
Preferred stock (1,000 shares) 20'000
Paid-in capital in excess of par value-preferred.... 5,000
Retained earnings 15 000

Preferred sto.sk is entitled to par value of $20 per share in

liquidation, and all dividends have been paid to date including
the current year's dividend. what is the book value per share
for preferred and common respectively?
A. $25 and $15
3. $20 and $16
C. $25 and $12
D. $20 and $12
 The Kane Corporation issued 240 shares of common stock {par value
$.00 per share} for land having a fair market value of $54,000 at the
dace 'of transfer. Which of the" following is the required entry.
.and
43, 000
... 43; 000
48, 000
54, 000
48, 000
Common Stock. •
Paid-in Capital in Excess of Par Value
. 54,000
D. Land
Common Stock
Paid-in Capital in Excess of Stated Value. £

If 4,000 shares of 7%, $100 par value, convertible preferred stock

It, were issued for cash at $110 per share, the Cash account and
Preferred Stock account would have been increased by what respective
amounts?
A. $440,000; 440,000
3. $440,000; 400,000
C. $400,000; 400,000
D. $400,000; 440,000

Convertible preferred stock usually is convertible into:

A. other types of preferred stock of the corporation.
B. common stock of the corporation.
C. bonds of the corporation.
D. either common stock or bonds of the corporation.

A company has 10,000 shares oft 6 percent, $50 par value preferred
stock and 20,000 shares of common stock without par value
outstanding. The preferred stock is cumulative. P-etained earnings
total $200,000. If one year's dividends on the preferred stock are in
arrears in addition to the current year, what portion of a total of
$95,000 in dividends to be declared by the board of directors would go
to each class of stock?
A. Preferred $30,000, common $66,000
3. Preferred $32,000, common $64,000
C. Preferred $33,000, common $63,000
D. Preferred $60,000, common $36,000

The preemptive right refers to the right of stockholders to:

A. preempt any decision made by the board of directors if they do
not agree with the decision.
B. elect the board of directors.
C. buy additional shares of stock on a proportional basis as they
are issued.
D. turn in their preferred stock for common stock.

All the following are advantages of the corporate form of

organization except:
A. unlimited liability.
B. continuous existence.
C. easy transfer of ownership.
D. professional manacrement.