INTERMEDIATE ACCOUNTING

FIRST EXAMINATION

A SAMPLE EXAM (This sample exam is ONLY intended to help you

gain familiarity with the exam format)

Multiple Choice. Read each question carefully and indicate

the best answer by circling the appropriate letter.

1. The FASB issues

a. Statements of Financial Accounting Standards.
b. Opinions.
c. Statements of Position.
d. Accounting Research Bulletins.

2. The Securities and Exchange Commission

a. Protects investors from losses.
b. Issues Accounting Research Bulletins.
c. Has legal authority to establish accounting standards.
d. Has no impact on the setting of accounting standards by
the FASB.

3. Which of the following statements about the FASB is FALSE?

a. The FASB consists of seven board members.
b. FASB members serve full time.
c. FASB members are required to be CPAs.
d. The FASB is not part of the AICPA.

4. Information would be considered relevant if it had the

characteristics of
a. Predictive value.
b. Feedback value.
c. Timeliness.
d. All of the above.

5. The essence of an asset to an enterprise is the existence of

a. Ownership of the asset by the enterprise.
b. Probable future economic benefits to the enterprise.
c. The ability of the enterprise to sell the asset, either
alone or with other assets.
d. A historical cost for the asset incurred by the
enterprise.

6. Revenue is ordinarily recognized when

a. Inventory has been produced.
b. The earning process is virtually complete.
c. The amount and timing of revenue are reasonably
determinable.
d. Both b and c have taken place.

7. Which one of the following items is reported separately in

a multiple-step, but not in a single-step, income statement?
 a. Extraordinary gains and losses.
b. Gross margin.
c. Cost of goods sold.
d. Both a and b are correct.

8. Which one of the following adjusting entries should

definitely not be reversed?
a. Rent Receivable 100
Rent Revenue 100

b. Insurance Expense 100

Prepaid Insurance 100

c. Advertising Revenue 100

Unearned Advertising Revenue 100

d. Interest Expense 100

Interest Payable 100

9. Assumptions, broad principles, and modifying conventions

(10 PTS)

For each of the following statements, indicate which

assumption, broad principle, or modifying convention best justifies the
practice described in the statement. Give a different answer for
each statement.

(1) A company issues financial statements at regular,

predetermined time intervals.

(2) A company records the acquisition of an asset at cost

even though the appraised value of the asset is higher than the
cost.

(3) Many companies report certain leases as assets even

though the companies do not own the property that they are
leasing.
(Answer: substance over form. Not discussed in class)

(4) Financial statements typically ignore the effects of

inflation.

(5) Rent received in advance by a landlord is recorded as

a liability until it is earned.

10. Adjusting and reversing entries (34 pts)

An unadjusted trial balance of Nika Company on December

31, 1994, appears below:
 $ 17,600 Cash
18,000 Accounts receivable
$ 60 Allowance for doubtful accounts
38,000 Merchandise inventory, Jan. 1, 1994
30,000 Investment in Babeson Co. bonds
33,000 Land
144,000 Building
16,200 Accumulated depreciation, building
58,000 Equipment
13,920 Accumulated depreciation, equipment
13,600 Accounts payable
36,000 Note payable
72,000 Common stock
133,470 Retained earnings, Jan. 1, 1994
325,000 Sales
1,500 Interest revenue
6,000 Rent revenue
202,000 Purchases
8,050 Purchase returns and allowances
7,200 Transportation-in
62,000 Salaries expense
10,500 Rent expense
5,500 Utilities expense

$625,800 $625,800
======== ========

Additional information

(1) Ninety percent of sales for 1994 were made on credit.

The company estimates that 2% of credit sales will be
uncollectible.

(2) Merchandise costing $46,000 is on hand at December 31,

1994, as indicated by a physical count.

(3) On May 1, 1994, the company purchased 20-year, 10%

bonds of Babeson Company at par value. The bonds pay interest
semiannually on April 30 and October 31.

(4) Employee salaries accrued as of December 31, 1994,

amount to $3,120.

(5) For several years, the company has rented storage

space from Karot Company for $6,000 annually. Nika is required to pay
the annual rent in advance each October 1.
 Instructions

(1) Journalize the necessary adjustments for Nika Company on

December 31, 1994. Round your answers to the nearest dollar. (24 PTS)

(2) Prepare appropriate reversing entries that should be dated

Jan.1, 1995. (10 PTS)

11. Closing entries (20 pts)

The following list of accounts was obtained from the

adjusted trial balance of Kudzu Company on December 31, 1994.

Each account has a normal balance.

$15,400 Accounts payable
11,460 Accounts receivable
8,000 Accumulated depreciation--equipment
6,800 Advertising expense
600 Allowance for doubtful accounts
720 Bad debts expense
42,240 Cash
16,000 Common stock
38,640 Cost of goods sold
2,000 Depreciation expense--equipment
16,400 Dividends
8,000 Dividends payable
28,000 Equipment
6,264 Income tax expense
6,264 Income tax payable
1,400 Interest revenue
7,600 Merchandise inventory, December 31, 1994
4,800 Prepaid rent
5,200 Rent expense
16,040 Retained earnings
7,600 Salaries expense
91,200 Sales
 2,000 Telephone and telegraph expense
900 Unearned rent revenue
3,200 Utilities expense

Instructions: Journalize the closing entries required on

December 31, 1994.

12. Income statement and balance sheet classification

Listed below are several categories that may appear in a

multiple-step income statement and a balance sheet:

A. Net sales
B. Cost of goods sold
C. Operating expenses
D. Other revenues
E. Other expenses
F. Extraordinary items
G. Current assets
H. Investments and funds
I. Property, plant, and equipment
J. Intangible assets
K. Other assets
L. Current liabilities
M. Long-term liabilities
N. Capital stock
O. Additional paid-in capital
P. Retained earnings

Instructions
 Use the letters above (A-P) to indicate where each of the
following items should usually be classified.

_____ 1. Transportation-in

_____ 2. Loss due to inventory obsolescence

_____ 3. Interest expense

_____ 4. Goodwill

_____ 5. Notes payable (mature in 10 years)

_____ 6. Purchase discounts

_____ 7. Hurricane loss in Montana

_____ 8. Mineral deposit

_____ 9. Land held for future plant site

_____10. Bond issue costs

16. (1) Periodicity

(2) Consistency

(3) Substance over form

(4) Monetary unit

(5) Revenue realization

ANSWER KEY****

1) a
2) c
3) c
4) d
5) b
6) d
7) b
8) b
9) (1) periodicity
(2) cost/historical cost/assets liability measurement
(3) substance over form
 (4) monetary unit
(5) revenue recognition

10) (1)

Bad debts expense 5850

Allowances 5850

Merchandise inventory (ending) 46000

Purchase returns & allowances 8050
CGS 193150
Merch. Inv.(Beg.) 38000
Purchases 202000
Transportation-in 7200

Interest Receivable 500

Interest Revenue 500

Salaries Expense 3120

Salaries Payable 3120

Prepaid Rent 4500

Rent Expense 4500

10)(2)

Int. Revenue 500

Int Receivable 500

Salaries Payable 3120

Salaries Exp. 3120

Rent Expense 4500

Prepaid Rent 4500

11)

Interest Revenue 1400

Sales 91200
Income Summary 92600

Income Summary 72424

Adv. Exp 6800
Bad Debts Exp 720
COGS 38640
Depr. Exp - Eq 2000
Income Tax Exp 6242
Rent Expense 5200
Salaries Expense 7600
Telephone & Telegr. Exp. 2000
Utilities Exp. 3200

Income Summary 20176

Retained Earnings 20176
 Retained Earnings 16400
Dividends 16400

12) 1) B
2) E
3) E
4) J
5) M
6) B
7) F
8) I/K
9) H
10) K