Fundamentals of Financial Accounting

ACC 311, Fall 2014

Exam 1, FORM A
Name/UT ID:__________________________________________________Instructor:____________
(last name, first name

UT ID)

Section Meeting Time:____________

DO NOT OPEN until given instructions to do so.

Instructions
1. You must be sitting in your assigned seat for this examination and have your UT student ID on the
desk to be checked against the seating chart. If you need to borrow a pencil or a calculator or need
an additional scratch page, speak to the proctor only. You may not speak to other students during
the exam.
2. Cell phones and PDA's are NOT allowed and must be turned off and put away in a closed bag
during the exam. If you do not have a bag, check your cell phone or PDA with the proctor and
retrieve it after the exam.
3. Calculators capable of storing text (programs) are not allowed. You may use a basic or financial
calculator with numerical memory functions only.
4. If you need to leave the examination room for a restroom break, you must leave all your
possessions in the examination room.
You are reminded of the Universitys honor policy which requires you do your own work and not
give or receive assistance on this exam. If you violate any of the above rules, you will be
subjected to disciplinary action and your instructor will not accept your examination for
credit in the course.
5. Confirm that you have 12 numbered pages.
6. On your Scantron answer sheet, write and bubble in your name, section number, and the Test Form
letter noted above.
7. Use a #2 pencil only to mark your responses on your Scantron answer sheet. Mark clearly and
erase completely as needed. You should also mark your answers on your exam. However, only
multiple-choice answers marked on your Scantron answer sheet will be graded.
8. Multiple-choice questions are 2.5 points each; all other questions have their point value noted with
the problem.
9. Bring your entire exam (including all scratch sheets), Scantron answer sheet and student ID to the
front of the room when you have finished.
I have read and will conform with all of the above instructions.
signed _______________________________ date___/___/_______

Fall 2014 ACC 311 Exam 1

SECTION I - MULTIPLE CHOICE (60 points 2.5 points each) - Please choose the BEST answer
for each question and record your answer on the Scantron answer sheet. Assume that each question
supplies all the information that you need to determine the correct answer (unless otherwise stated)
Assume that the accrual basis of accounting applies to all questions, unless a question specifically
instructs otherwise.
1.

2.

3.

4.

5.

At the beginning of 2010, a corporation had assets of $270,000 and liabilities of $160,000.
During 2010, assets increased $25,000 and liabilities increased $5,000. What was stockholders'
equity on December 31, 2010?
A. $140,000
B. $130,000
C. $190,000
D. $80,000
E. None of the above
Which of the following describes the primary objective of the balance sheet?
A. To measure the net income of a business up to a particular point in time.
B. To report the difference between cash inflows and cash outflows for the period.
C. To report the financial position of the reporting entity at a particular point in time.
D. To report the market value of assets, liabilities and stockholders' equity at a particular point in
time.
E. To measure the net income of a business during a period of time.
Which of the following statements about stockholders' equity is false?
A. Stockholders' equity is the shareholders' residual interest in the company resulting from the
difference in assets and liabilities.
B. Stockholders' equity accounts are increased with credits.
C. Stockholders' equity results only from contributions of the owners.
D. The purchase of land for cash has no effect on stockholders' equity.
E. None of the above are false
During 2010, Sigma Company earned service revenues amounting to $700,000, of which
$630,000 was collected in cash; the balance will be collected in January 2011. What amount of
revenue from this transaction should the January 2011 income statement report for service
revenues?
A. $630,000
B. $700,000
C. $ 70,000
D. $570,000
E. None of the above
Hill Corporation has provided the following information:
Operating revenues were $199,700.
Operating expenses were $120,200.
Dividend payments to Hills stockholders were $7,700.
Income tax expense was $36,000.
How much was Hill Corporations net income?
A. $35,800
B. $71,800
C. $79,500
D. $43,500
E. None of the above

Fall 2014 ACC 311 Exam 1

6.

7.

8.

9.

10.

11.

12.

Which of the following would not be a cash flow (inflow or outflow) from investing activities?
A. Purchase of long-term investments.
B. Sale of Land.
C. Sale of short-term investment.
D. Collection of interest revenue on a long-term note receivable.
On June 1, 2011, Allen Company borrowed $100,000 by signing a one-year, 6 percent note
payable. The principal and interest will be paid on June 1, 2012. How much interest expense
should be reported on the income statement for the year ended December 31, 2012?
A. $6,000
B. $3,500
C. $3,000
D. $2,500
E. $0
Which of the following transactions results in a decrease in both total assets and net income?
A. The accrual of salaries expense at year-end.
B. Collecting cash from an account receivable.
C. Recognizing revenue which was previously recorded as unearned revenue.
D. Paying cash to satisfy an accounts payable
E. Adjustment of the prepaid rent account for rent which was used during the period.
Which of the following statements does not correctly describe an adjustment to net income
when determining cash flows from operating activities when using the indirect method?
A. An increase in wages payable will be added to net income.
B. Depreciation expense will be added back to net income.
C. An increase in income taxes payable will be deducted from net income.
D. An increase in prepaid expenses will be deducted from net income.
Which of the following is not a criteria pertaining to the revenue principle?
A. The goods or services have been delivered.
B. The cash payment has been received.
C. The selling price is fixed or determinable.
D. Collection is reasonably assured.
E. All of the above are criteria pertaining to the revenue principle.
Which of the following would result when a company borrows cash and signs a note payable due
in two years?
A. A noncurrent liability and an investing cash flow are created.
B. A noncurrent liability and a financing cash flow are created.
C. A current liability and an investing cash flow are created.
D. A current liability and a financing cash flow are created.
E. None of the above
The Accurate Consulting Service performed consulting services during December 2010, but had
not collected any cash from its customers as of December 31, 2010. What impact did performing
these services have on the accounting equation?
A. The service increased assets and increased liabilities.
B. The service increased assets and increased stockholders' equity.
C. The service increased assets and decreased stockholders' equity.
D. The service decreased liabilities and decreased stockholders' equity.

Fall 2014 ACC 311 Exam 1

13.

14.

15.

16.

17.

18.

The Longhorn Corporation purchased $20,000 of inventory during February and will pay for it
during March. Which of the following statements is false assuming the inventory was sold and
delivered, by Longhorn, during March?
A. The company's accounts payable will include the $20,000 on the February month-end balance
sheet.
B. The income statement will report cost of goods sold of $50,000 during March.
C. The income statement will report cost of goods sold of $20,000 during February.
D. The company's inventory will include the $20,000 on the February month-end balance sheet.
E. None of the above statements are false.
Use the following to determine the total Gross Profit for this company during the year 2012:
Beginning Inventory $ 125,000.
Ending Inventory
$ 250,000.
2012 Total Revenue $1,400,000.
Inventory Purchases $1,225,000.
The Accounts Receivable balance increased $800,000 from 1/1/2012 to 12/31/2012.
A. $ 125,000
B. $ 175,000
C. $ 300,000
D. $1,100,000
E. None of the above
Which of the following transactions would be reported as a cash flow (inflow or outflow) from
financing activities?
A. The cash payment of interest expense.
B. Acquiring land by paying cash.
C. Paying cash to stockholders for dividends.
D. Purchasing shares of stock of another company using cash
E. Two of the above are from financing activities.
Roberts Company sold equipment for $250,000, purchased a building for $6,500,000, sold shortterm investments for $280,000, repaid principal on a note payable for $2,300,000 plus $230,000
of interest, and paid cash dividends of $20,000. How much was the net cash flow from investing
activities?
A. $6,250,000 outflow
B. $8,320,000 outflow
C. $8,270,000 outflow
D. $5,970,000 outflow
E. None of the above
Which of the following statements is True?
A. Current assets = Current liabilities Current Shareholders Equity
B. Accumulated Depreciation increases on the Debit Side.
C. Current assets are always greater than Current Liabilities
D. Straight line depreciation = (Salvage Value Current Asset Value) / Useful Life
E. None of the above are True
What is the effect on the financial statements when a company fails to record depreciation expense at
year-end?
A. Net income is overstated and stockholders' equity is understated.
B. Expenses are understated and stockholders' equity is understated.
C. Expenses are understated and liabilities are overstated.
D. Net income is overstated and assets are overstated.
E. The net book value of a non-current asset is understated.

Fall 2014 ACC 311 Exam 1

19.

20.

21.

22.

23.

24.

On January 1, 2011, Ryan Company paid the premium on a three-year insurance policy in the
amount of $6,000. At that time, the full amount paid was recorded as prepaid insurance. After
recording the adjusting entry for the insurance policy on December 31, 2012, Ryan Company's
records would reflect what balance in the prepaid insurance account?
A. $6,000
B. $2,000
C. $3,000
D. $4,000
E. $0
Failure to make an adjusting entry to recognize rent revenue receivable would cause which of the
following?
A. An understatement of assets, net income, and stockholders' equity.
B. An overstatement of assets and stockholders' equity and an understatement of net income.
C. No effect on assets, liabilities, net income, or stockholders' equity.
D. An overstatement of assets, net income, and stockholders' equity.
E. An understatement of net income and an overstatement of stockholders' equity.
Which of the following best describes operating revenues?
A. They are increases in net assets as a result of peripheral transactions.
B. They are decreases in net assets as a result of ongoing operations.
C. They are increases in net assets as a result of ongoing operations.
D. They are decreases in net assets as a result of peripheral transactions.
E. They are gains from the sale of non-current investments.
Which of the following transactions will cause both the left and right side of the accounting
equation to decrease?
A. Collecting cash from a customer who owed us money.
B. Paying a supplier for inventory we previously purchased on account.
C. Borrowing money from a bank.
D. Purchasing equipment using cash.
E. None of the above
A corporation purchased factory equipment using cash. Which of the following statements
regarding this purchase is false?
A. The current year's net income will be reduced by the cost of the factory equipment.
B. The total assets will not change.
C. The total liabilities will not change.
D. The current stockholders' equity will not change.
E. Non-current assets will increase.
A Prepaid Expense would be reported within which of the following financial statements?
A. Statement of cash flows
B. Income statement
C. Balance sheet
D. Statement of retained earnings

Fall 2014 ACC 311 Exam 1

SECTION II (40 points). Where calculations are necessary, you MUST show your work to receive
credit for your answers and to receive partial credit. Please try to be as neat and organized as possible.
Assume that the accrual basis of accounting applies to all questions, unless a question specifically
instructs otherwise.
PROBLEM 1: (11 pts.) BALANCE SHEET AND INCOME STATEMENT TRANSACTIONS
Following are the transactions for Ute Sewing Shop for its first month of operations:
March 1
March 2
March 3
March 5
March 7
March 12
March 15
March 19
March 25
March 30
March 31

Issue common stock in exchange for cash of $3,000 (no Par Value).
Stockholder Sam Smith paid $10,000 cash for land (for his personal use).
Purchase sewing equipment by signing a note with the local bank, $2,700.
The Ute Board of Directors declares a cash dividend. The total amount of the dividend is
$5,000. The Date of Record is set as April 15th. The Date of Payment is set as April 25th.
Martha, a customer, places an order for alterations for several dresses. She is told that the
alterations will cost $800 and will be payable when she picks up the order.
Purchase sewing supplies for $ 1,300 on account. This material was not immediately used.
It will be used to provide services to customers through the end of the year.
Ute delivers the altered dresses Martha dropped off on March 7th. Ute receives $800.
Ute agrees to alter 10 business suits for Bob. Utes receives $700 from Bob and promises
the suits to be completed by March 25.
Ute delivers 10 altered business suits to Bob (as promised on March 19th).
Pay utilities of $95 for March.
Pay rent of $600 for April.

Required: Record journal entries for each of the transactions above. Do not record any adjusting entries
for the above unless specifically requested in the question. No cost of goods sold is recorded
for this type of service business.
IF NO ENTRY IS REQUIRED WRITE, NO ENTRY NEEDED.
March 1st

Accounts

Debit

Credit

March 2nd

Accounts

Debit

Credit

March 3rd

Accounts

Debit

Credit

Fall 2014 ACC 311 Exam 1

PROBLEM 1 CONTINUED:
March 5th

Accounts

Debit

Credit

March 7th

Accounts

Debit

Credit

March 12th

Accounts

Debit

Credit

March 15th

Accounts

Debit

Credit

March 19th

Accounts

Debit

Credit

March 25th

Accounts

Debit

Credit

March 30th

Accounts

Debit

Credit

March 31st

Accounts

Debit

Credit

Fall 2014 ACC 311 Exam 1

PROBLEM 2: (14 pts.) STATEMENT OF CASH FLOWS OPERATING SECTION

Highland Consulting Company

Comparative Balance Sheet
December 31
Assets
Cash
Accounts receivable
Supplies
Prepaid expenses
Investments
Plant assets
Accumulated depreciation
Total

2010
$ 96,300
95,800
112,500
18,400
113,000
327,500
<98,500>
$665,000

2009
$ 48,400
33,000
102,850
6,000
94,000
242,500
<52,000>
$474,750

Liabilities and Stockholders Equity

Accounts payable
Salaries payable
Notes payable Long Term
Common stock
Retained earnings
Total

$102,000
16,500
85,000
220,000
241,500
$665,000

$ 67,300
17,000
110,000
175,000
105,450
$474,750

Highland Consulting Company

Income Statement
For the Year Ended December 31, 2010
Sales
Less:
Operating expenses (excluding depreciation)
Depreciation expense
Interest expense
Income taxes
Net income

$392,780

147,870
46,500
4,730
7,280

<206,380>
$186,400

Additional information:
A cash dividend was declared and paid during the year. There were no sales of plant assets or
investments, no new borrowing and no re-purchases of common stock.
Required
Use the information from above. Prepare ONLY the OPERATING SECTION of the statement of cash
flows using the indirect method for Highland Consulting Company. Space is available on the next page.
NOTE: ENCLOSE ALL NEGATVE NUMBERS (outflows) IN BRACKETS, For Example: <206,380>.

Fall 2014 ACC 311 Exam 1

PROBLEM 2 CONTINUED:

Highland Consulting Company

Statement of Cash Flows
For the Year Ended December 31, 2010
Cash flows from operations:

Net cash provided by operating activities

- DO NOT COMPLETE THE INVESTING SECTION

Net cash provided by Investing activities

$ <104,000>

- DO NOT COMPLETE THE OPERATING SECTION

Net cash provided by Financing activities

$ < 30,350>

Net increase in cash

Beginning cash balance
Ending cash balance

$ 47,900
$ 48,400
$ 96,300

Fall 2014 ACC 311 Exam 1

10

PROBLEM 3: (15 pts.) ADJUSTING ENTRIES

Blanco Corporation is completing the accounting information processing cycle at the end of the fiscal
year, June 30, 2014. The following trial balances are on Blanco's worksheet at June 30, 2014.

ACCOUNTS
Cash
Accounts receivable
Inventory
Prepaid insurance
Equipment
Accumulated depreciation
Accounts payable
Unearned revenue
Wages payable
Income tax payable
Contributed capital
Retained earnings
Sales revenues
Cost of goods sold
Depreciation expense
Wages expense
Insurance expense
Income tax expense
Totals

Unadjusted
Trial Balance
DEBITS CREDITS
13,000
15,000
55,000
6,000
400,000
55,000
12,000
35,000
0
0
100,000
154,000
825,000
505,000
0
150,000
0
37,000
1,181,000 1,181,000

Adjusted
Trial Balance
DEBITS CREDITS
13,000
20,000
55,000
3,000
400,000
105,000
12,000
15,000
16,000
13,400
100,000
154,000
850,000
505,000
50,000
166,000
3,000
50,400
1,265,400 1,265,400

REQUIRED
A. Reconstruct the adjusting entries below.
B. Write an appropriate closing entry.
A.
Accounts

Debit

Credit

Accounts

Debit

Credit

Accounts

Debit

Credit

Fall 2014 ACC 311 Exam 1

11
Accounts

Debit

Credit

Accounts

Debit

Credit

Accounts

Debit

Credit

Accounts

Debit

Credit

Accounts

Debit

Credit

B.

Fall 2014 ACC 311 Exam 1

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