ANSWER FORM: Financial Accounting

Your name:

Signature:

Instructions:
• The exam consists of 18 multiple choice questions.
• The exam is closed book-closed notes. Use of calculator is permitted.
• For each question, one and only one answer is correct. If you choose the correct
answer you get one point. In all other cases, you get zero points.

Please write down your answers in a clear way (a / b / c / d)

1 d
2 d
3 b
4 c
5 c
6 a
7 a
8 b
9 a
10 b
11 c
12 a
13 c
14 d
15 b
16 a
17 b
18 a
Q1) Wilson Company owns land which cost $100,000. If a "quick sale" of the land was
necessary to generate cash, the company feels it would receive only $80,000. The company
continues to report the asset on the balance sheet at $100,000. This is justified under
which of the following concepts?

a. The historical-cost principle.

b. The value is tied to objective and verifiable past transactions.
c. Neither of the above.
d. Both "a" and "b".

Q2) Which of these items would be accounted for as an expense?

a. Repayment of a bank loan.

b. Dividends to stockholders.
c. The purchase of land.
d. Payment of the current period's rent.

Q3) Gerald had beginning total stockholders' equity of $160,000. During the year, total
assets increased by $240,000 and total liabilities increased by $120,000. Gerald's net
income was $180,000. No additional investments were made; however, dividends did
occur during the year. How much were the dividends?

a. $20,000.
b. $60,000.
c. $140,000.
d. $220,000.

Q4) Of the following account types, which would be increased by a debit?

a. Liabilities and expenses.

b. Assets and equity.
c. Assets and expenses.
d. Equity and revenues.

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Q5) The proper journal entry to record Ransom Company's billing of clients for $500 of
services rendered is:

a. Cash 500
Accounts Receivable 500

b. Accounts Receivable 500

Capital Stock 500

c. Accounts Receivable 500

Service Revenue 500

d. Cash 500
Service Revenue 500

Q6) The proper journal entry to record $1,000 of Dividends paid by Myer's Corporation
is:

a. Dividends 1,000
Cash 1,000

b. Accounts Payable 1,000

Cash 1,000

c. Dividends Expense 1,000

Cash 1,000

d. Dividends Expense 1,000

Service Revenue 1,000

Q7) Financial statement ratio analysis may be undertaken to study liquidity, turnover,
profitability, and other indicators. To which does the current ratio most relate?

a. Liquidity
b. Turnover
c. Profitability
d. Other indicator

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Q8) Simmons Company received and recorded a $5,000 payment for services to be
rendered in the future. If the income statement approach to adjusting entries is used, the
appropriate adjusting entry at the end of the accounting period for $3,000 of revenue not
yet earned would be:

a. Service Revenue 3,000

Unearned Service Revenue 3,000

b. Service Revenue 2,000

Unearned Service Revenue 2,000

c. Accounts Receivable 3,000

Unearned Service Revenue 3,000

d. No entry would be needed.

Q9) During its first year of operation, Lenton Company acquired three investments in
trading securities. Investment A cost $50,000 and had a year-end market value of $60,000.
Investment B cost $35,000 and had a year-end market value of $17,000. Investment C
cost $26,000 and had a year-end market value of $24,000. The journal entry to record the
decline in market value would include:

a. a debit to Unrealized Loss on Trading Securities.

b. a credit to Unrealized Gain on Trading Securities.
c. a debit to Trading Securities.
d. At least two of the above.

Q10) On January 1, 20X2, Miller Corporation purchased $100,000 of 5%, 10-year bonds
dated January 1, 20X2, at 98. Interest is paid on June 30 and December 31 of each year.
Assuming use of the straight-line amortization method, the proper amount to report for
Investment in Bonds at December 31, 20X3 is:

a. $98,000
b. $98,400
c. $100,000
d. $101,600

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Q11) Mega Corporation owns 100% of Wolf Corporation's stock. Mega paid $1,000,000
for its investment. At the time of the initial investment, Wolf had total stockholders'
equity of $600,000. All of Wolf's assets and liabilities were carried at amounts that
equaled their fair value, except for a building that was undervalued by $100,000. How
much goodwill would you anticipate finding in the consolidated balance sheet?

a. $0
b. $100,000
c. $300,000
d. $400,000

Q12) The appropriate journal entry to record machinery depreciation of $1,000 is:

a. Depreciation Expense 1,000

Accumulated Depreciation 1,000

b. Depreciation Expense 1,000

Machine 1,000

c. Accumulated Depreciation 1,000

Depreciation Expense 1,000

d. Accumulated Depreciation 1,000

Machine 1,000

Q13) Realistic Company purchased a new truck on January 1, 20X1. The truck cost
$20,000, has a four-year life, and a $4,000 residual value. The company has a December 31
year-end. If Realistic Company depreciates the truck by the straight-line method, how
much should Realistic report as the book value of the truck at the end of 20X3?

a. $1,600
b. $4,000
c. $8,000
d. $16,000

Q14) The sale of a depreciable asset resulting in a loss indicates that the proceeds from
the sale were:

a. Less than current market value.

b. Greater than cost.
c. Greater than book value.
d. Less than book value.

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Q15) The appropriate journal entry to record the issue of 1,000 shares of $1 par-value
common stock, which is issued for $4 per share would be:

a. Cash 4,000
Common Stock 4,000

b. Cash 4,000
Common Stock 1,000
Paid-in Capital in Excess of Par 3,000

c. Cash 4,000
Common Stock 1,000
Retained Earnings 3,000

d. Cash 1,000
Paid-in Capital in Excess of Par 3,000
Common Stock 4,000

Q16) Which of the following activities would generally be regarded as a financing activity
in preparing a statement of cash flows?

a. Dividend distribution
b. Proceeds from the sale of stocks of other firms
c. Loans made by the entity to other businesses
d. Employees' salaries and wages paid

Q17) For purposes of calculating cash receipts from customers, which of the following
adjustments should be made to convert accrual basis sales to cash basis sales?

a. Add an increase in accounts receivable to accrual basis sales

b. Subtract an increase in accounts receivable from accrual basis sales
c. Add cash in bank to accrual basis sales
d. Add the change in cash to the accrual basis sales

Q18) Wilkin Corporation reported accrual basis sales of $200,000, cost of goods sold of
$80,000, and operating expenses, taxes, and interest summing to $30,000. In evaluating
Wilkin's comparative balance sheets, it is determined that accounts receivable increased
$10,000, inventory increased $5,000, and accounts payable decreased $7,000. There were
no changes in prepaid expenses nor were there any interest or taxes payable at the
beginning or end of the year. How much was cash basis income for Wilkin Corporation
for the year?

a. $68,000
b. $82,000
c. $105,000
d. $112,000