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    Acc 280 final exam Acc 280 final exam Document Transcript

    • ACC 280 FINAL EXAM / UNIVERSITY OF PHOENIX/ LATESTVERSION/ ALL CORRECT ANSWERS1. Communication of economic events is the part of the accounting process that involvesA) identifying economic events.B) quantifying transactions into dollars and cents.C) preparing accounting reports.D) recording and classifying information.2. The SEC and FASB are two organizations that are primarily responsible for establishing generally acceptedaccounting principles. It is true thatA) they are both governmental agencies.B) the SEC is a private organization of accountants.C) the SEC often mandates guidelines when no accounting principles exist.D) the SEC and FASB rarely cooperate in developing accounting standards.3. Revenues would not result fromA) sale of merchandise.B) issuance of common stock.C) performance of services.D) rental of property.4. The accounting equation for Goodboys Enterprises is as follows:Assets Liabilities Stockholders Equity$120,000 = $60,000 + $60,000If Goodboys purchases office equipment on account for $12,000, the accounting equation will change to Assets Liabilities Stockholders Equitya. $120,000 = $60,000 + $60,000b. $132,000 = $60,000 + $72,000c. $132,000 = $66,000 + $66,000d. $132,000 = $72,000 + $60,0005. The usual sequence of steps in the transaction recording process is:
    • A) journal ? analyze ? ledger.B) analyze ? journal ? ledger.C) journal ? ledger ? analyze.D) ledger ? journal ? analyze.6. At September 1, 2008, Foli Co. reported retained earnings of $136,000. During the month, Foligenerated revenues of $20,000, incurred expenses of $12,000, purchased equipment for $5,000 and paiddividends of $2,000. What is the amount of retained earnings at September 30, 2008?A) $136,000B) $8,000C) $137,000D) $142,0007. Which of the following statements is false?A) Revenues increase stockholders equity.B) Revenues have normal credit balances.C) Revenues are a positive factor in the computation of net income.D) Revenues are increased by debits.8. Under accrual-basis accountingA) cash must be received before revenue is recognized.B) net income is calculated by matching cash outflows against cash inflows.C) events that change a companys financial statements are recognized in the period they occur rather than inthe period in which cash is paid or received.D) the ledger accounts must be adjusted to reflect a cash basis of accounting before financial statements areprepared under generally accepted accounting principles.9. The matching principle states that expenses should be matched with revenues. Another way of stating theprinciple is to say thatA) assets should be matched with liabilities.B) efforts should be matched with accomplishments.C) dividends to stockholders should be matched with stockholders investments.D) cash payments should be matched with cash receipts.10. Which statement is correct?A) As long as a company consistently uses the cash basis of accounting, generally accepted accounting principles
    • allow its use.B) The use of the cash basis of accounting violates both the revenue recognition and matching principles.C) The cash basis of accounting is objective because no one can be certain of the amount of revenue until thecash is received.D) As long as management is ethical, there are no problems with using the cash basis of accounting.11. An adjusting entryA) affects two balance sheet accounts.B) affects two income statement accounts.C) affects a balance sheet account and an income statement account.D) is always a compound entry.12. Expenses incurred but not yet paid or recorded are calledA) prepaid expenses.B) accrued expenses.C) interim expenses.D) unearned expenses.13. Unearned revenues areA) received and recorded as liabilities before they are earned.B) earned and recorded as liabilities before they are received.C) earned but not yet received or recorded.D) earned and already received and recorded.14. Younger Corporation purchased a one-year insurance policy in January 2008 for $48,000. Theinsurance policy is in effect from May 2008 through April 2009. If the company neglects to make the properyear-end adjustment for the expired insuranceA) Net income and assets will be understated by $32,000.B) Net income and assets will be overstated by $32,000.C) Net income and assets will be understated by $16,000.D) Net income and assets will be overstated by $16,000.Use the following to answer questions 15-19:The following items are taken from the financial statements of Cerner Company for the year ending December31, 2008:
    • Accounts payable $ 18,000Accounts receivable 11,000Accumulated depreciation – equipment 28,000Advertising expense 21,000Cash 15,000Retained Earnings (1/1/08) 80,000Common Stock 22,000Dividends 14,000Depreciation expense 12,000Insurance expense 3,000Note payable, due 6/30/10 70,000Prepaid insurance (12-month policy) 6,000Rent expense 17,000Salaries expense 32,000Service revenue 133,000Supplies 4,000Supplies expense 6,000Equipment 210,00015. What is the companys net income for the year ending December 31, 2008?A) $133,000B) $42,000C) $28,000D) $12,00016. What is the total that would be reported for stockholders equity at December 31, 2008?A) $102,000B) $130,000C) $144,000D) $158,00017. What are total current assets at December 31, 2008?A) $26,000B) $32,000C) $36,000D) $218,000
    • 18. What are total current liabilities at December 31, 2008?A) $18,000B) $70,000C) $88,000D) $019. What is total liabilities and stockholders equity at December 31, 2008?A) $176,000B) $190,000C) $218,000D) $232,00020. Which of the following steps in the accounting cycle may be performed more frequently than annually?A) Prepare a post-closing trial balanceB) Journalize closing entriesC) Post closing entriesD) Prepare a trial balance21. If the total debit column exceeds the total credit column of the income statement columns on a worksheet,then the company hasA) earned net income for the period.B) an error because debits do not equal credits.C) suffered a net loss for the period.D) to make an adjusting entry.22. Closing entries are necessary forA) permanent accounts only.B) temporary accounts only.C) both permanent and temporary accounts.D) permanent or real accounts only.23. The principle that requires circumstances and events that make a difference to financial statement users bereported is theA) cost principle.B) full disclosure principle.C) matching principle.
    • D) revenue recognition principle.24. Constraints in accounting include each of the following exceptA) conservatism.B) matching.C) materiality.D) All of these are constraints.25. Which one of the following is not an objective of financial reporting according to the conceptualframework?A) To provide information that will increase the value of the companyB) To provide information in assessing future cash flowsC) To provide information that is useful for making investment and credit decisionsD) To provide information that identifies economic resources, the claims to those resources, and the changes inthose resources and claims26. The time period assumption recognizes thatA) revenue should be recognized in the accounting period in which it is earned.B) the economic life of a business can be divided into artificial time periods.C) expenses should be recognized in the period of their association with earned revenue.D) economic events can be identified with a particular unit of accountability.27. Profit margin is a measure ofA) liquidity.B) profitability.C) solvency.D) risk.28. Zendejas Company purchased a ruler for $2.00. The ruler is expected to last for ten years. Tony, theaccountant, expensed the cost of the ruler in the year of the purchase. Which constraint has Tony taken intoaccount when making his accounting decision?A) ConservatismB) Faithful RepresentationC) NeutralityD) Materiality
    • 29. Allowing only designated personnel to handle cash receipts is an example ofA) establishment of responsibility.B) segregation of duties.C) documentation procedures.D) independent internal verification.30. Internal control is defined, in part, as a plan that safeguardsA) all balance sheet accounts.B) assets.C) liabilities.D) capital stock.31. An application of good internal control over cash disbursements isA) following payment, the approved invoice should be stamped PAID.B) blank checks should be stored in the treasurers desk.C) each check should be compared with the approved invoice after the check is issued.D) check signers should record the cash disbursements.32. Horizontal analysis evaluates a series of financial statement data over a period of timeA) that has been arranged from the highest number to the lowest number.B) that has been arranged from the lowest number to the highest number.C) to determine which items are in error.D) to determine the amount and/or percentage increase or decrease that has taken place.Use the following to answer questions 33-39:The following information pertains to Soho Company. Assume that all balance sheet amounts represent bothaverage and ending balance figures. Assume that all sales were on credit.I can email you the information (please advise)33. What is the current ratio for this company?A) 1.42B) .80
    • C) 1.16D) .6034. What is the receivables turnover for this company?A) 2.8 timesB) 2 timesC) 3.4 timesD) 3 times35. What is the inventory turnover for this company?A) 2 timesB) 2.25 timesC) 1 timeD) .44 times36. What is the return on assets for this company?A) 6.8%B) 10.5%C) 11.7%D) 26.7%37. What is the profit margin for this company?A) 42.86%B) 18.75%C) 23.5%D) 15.0%38. What is the return on common stockholders equity for this company?A) 13.3%B) 5%C) 23.3%D) 53.3%39. What is the price-earnings ratio for this company?A) 6 times
    • B) 2.5 timesC) 8 timesD) 4 times40. Which one of the following is primarily interested in the liquidity of a company?A) Federal governmentB) StockholdersC) Long-term creditorsD) Short-term creditors41. Stockholders are most interested in evaluatingA) liquidity and solvency.B) profitability and solvency.C) liquidity and profitability.D) marketability and solvency.42. Vertical analysis is also known asA) perpendicular analysis.B) common size analysis.C) trend analysis.D) straight-line analysis.43. A general rule to use in assessing the average collection period is thatA) it should not exceed 30 days.B) it can be any length as long as the customer continues to buy merchandise.C) it should not greatly exceed the discount period.D) it should not greatly exceed the credit term periodBONUS QUESTIONS1. Generally accepted accounting principles require that certain lease agreements be accounted for as purchases.The theoretical basis for this treatment is that a lease of this typeA. effectively conveys all of the benefits and risks incident to the ownership of property.B. is an example of form over substance.C. provides the use of the leased asset to the lessee for a limited period of time.D. must be recorded in accordance with the concept of cause and effect.2. On February 1, Shoemaker Corporation entered into a firm commitment to purchase specialized equipmentfrom the Okazaki Trading Company for ¥80,000,000 on April 1. Shoemaker would like to reduce the
    • exchange rate risk that could increase the cost of the equipment in U.S. dollars by April 1, but Shoemakerisn’t sure which direction the exchange rate may move. What type of contract would protect Shoemaker froman unfavorable movement in the exchange rate while allowing them to benefit from a favorable movement inthe exchange rate?A. Interest rate swapB. Forward contractC. Call optionD. Put option3. Which of the following temporary differences ordinarily creates a deferred tax asset?A. Accrued warranty costsB. DepreciationC. Installment salesD. Amortization of goodwill4. The vested benefits of an employee in a pension plan represent benefitsA. to be paid to the retired employee in the current year.B. to be paid to the retired employee in subsequent years.C. to be paid from funds currently in the hands of an independent trustee.D. that aren’t contingent on the employee’s continuing in the service of the employer.5. For a capital lease, the amount recorded initially by the lessee as a liability shouldA. exceed the present value at the beginning of the lease term of minimum lease payments during the leaseterm.B. exceed the total of the minimum lease payments during the lease term.C. not exceed the fair value of the leased property at the inception of the lease.D. equal the total of the minimum lease payments during the lease term.6. Piston Corporation has the following pension information for the year ended December 31, 2006:Service cost $ 225,000Contributions to the plan 240,000Actual return on plan assets 210,000Projected benefit obligation(beginning of year) 2,700,000Market-related and fair value ofplan assets (beginning of year) 1,800,000Assuming the expected return on plan assets and the settlement rate are both 10 percent,what amount should Piston report for pension expense for 2006?A. $225,000B. $285,000
    • C. $315,000D. $495,000957. The Gayle Corporation reported a $66,000 operating loss in 2006. In the preceding three years, Gaylereported the following income before taxes and paid the indicated income taxes:Year Income Taxes Tax Rate2003 $36,000 $10,800 30 percent2004 24,000 8,400 35 percent2005 48,000 16,800 35 percentThe amount of tax benefit to be reported in 2006 arising from the tax carryback provisionsof the current tax code would beA. $23,100.B. $22,500.C. $21,300.D. $19,200.8. Washington Corporation provides an incentive compensation plan under which itspresident is to receive a bonus equal to 10 percent of Washington’s income in excess of$100,000 before deducting income tax but after deducting bonus. If income before incometax and bonus is $320,000 and the effective tax rate is 40 percent, the amount of thebonus should beA. $20,000.B. $22,000.C. $32,000.D. $44,000.9. Uncertainty that the party on the other side of an agreement will abide by the terms of the agreement isreferred to as _______ risk.A. priceB. creditC. interest rateD. exchange rate10. During the first week of January, Sam Jones earned $200. Assume that FICA taxes are 7.65 percentof wages up to $50,000, state unemployment tax is 5.0 percent of wages up to $13,000, and federalunemployment tax is 0.8 percent of wages up to $13,000. Assume that Sam has voluntary withholdings of$10 (in addition to taxes) and that federal and state income tax withholdings are $18 and $6, respectively.What amount is the check, net of all deductions, that Sam received for the week’s pay?A. $140.10
    • B. $141.70C. $150.70D. $155.20311. Begal Corporation paid $20,000 in January of 2006 for premiums on a two-year life insurancepolicy that names the company as the beneficiary. Additionally, Begal Corporation’s financial statements for theyear ended December 31, 2006, revealed the company paid $105,000 in taxes during the year and alsoaccrued estimated losses on disposal of unused plant facilities of $200,000. Assuming these facilities were soldin February of 2007 (at which time a $200,000 loss was recognized for tax purposes) and that Begal’stax rate is 30 percent for both 2006 and 2007, what amount should Begal report as asset for net deferredincome taxes on its 2006 balance sheet?A. $54,000B. $57,000C. $60,000D. $66,00012. Lease Y doesn’t contain a bargain purchase option, but the lease term is equal to 90 percent of theestimated economic life of the leased property. Lease Z doesn’t transfer ownership of the property to the lesseeby the end of the lease term, but the lease term is equal to 75 percent of the estimated economic life of theleased property. How should the lessee classify these leases?Lease Y Lease ZA. Capital lease Operating leaseB. Capital lease Capital leaseC. Operating lease Capital leaseD. Operating lease Operating lease13. Chester Company has a defined benefit plan. The fair value of plan assets on January 1, 2006, was$1,500,000. No unrecognized net loss or gain existed. On December 31, 2006, the fair value of the planassets was $1,860,000. Benefits paid to retirees equaled $300,000. Company contributions to the plantotaled $360,000. The settlement rate was 8 percent, and the expected long-term rate of return on planassets was 10 percent. The actual return on plan assets wasA. $150,000.B. $180,000.C. $224,000.D. $300,000.14. On January 1, 2006, Shak, Inc. signed a noncancellable lease for a sneaker-shiningmachine. The machine has an estimated useful life of nine years. The term of the lease isa six-year term with title passing to Shak at the end of the lease. The agreement called forannual payments of $40,000 starting at the end of the first year. Assume aggregate lease
    • payments were determined to have a present value of $200,000, based on implicit interestof 12 percent. What amount of interest expense should Shak report in its 2006 incomestatement from this lease transaction?A. $0B. $16,000C. $24,000D. $33,3339715. In 2005, The Worf Company reported pretax financial income of $500,000. Included in that pretaxfinancial income was $90,000 of nontaxable life insurance proceeds received as a result of the death of anofficer; $120,000 of warranty expenses accrued but unpaid as of December 31, 2005; and $20,000 ofgoodwill amortization. Assuming no income taxes were previously paid during the year and an income tax rateof 40 percent, the amount of income taxes payable on December 31, 2005, would beA. $180,000.B. $200,000.C. $212,000.D. $220,000.16. Viking Corporation reported depreciation of $250,000 on its 2005 tax return. However, inits 2005 income statement, Viking reported depreciation of $100,000. The difference indepreciation is a temporary difference that will reverse over time. Assuming Viking’s taxrate is constant at 30 percent, what amount should be added to the deferred income taxliability in Viking’s December 31, 2005, balance sheet?A. $30,000B. $37,500C. $45,000D. $75,00017. On December 31, 2005, Gephardt Enterprises leased equipment from B & B Equipment Rental.Pertinent lease transaction data are as follows:¦ The estimated seven-year useful equipment life coincides with the lease term.¦ The first of the seven equal annual $200,000 lease payments was paid on December 31, 2005.¦ B & B’s implicit interest rate of 12 percent is known to Gephardt.¦ Gephardt’s incremental borrowing rate is 14 percent.¦ Present values of an annuity of 1 in advance for seven periods are 5.11 at12 percent and 4.89 at 14%.Gephardt should record the equipment on the books atA. $1,400,000.B. $1,022,000.C. $978,000.
    • D. $0.18. Hazard Inc. manufactures equipment that’s sold or leased. On December 31, 2005, Hazard leasedequipment to Robards for a five-year period expiring December 31, 2010, at which date ownership of theleased asset will be transferred to Robards. Equal $40,000 payments under the lease are due on December31 of each year. The first payment was made on December 31, 2005. Collectibility of the remaining leasepayments is reasonably assured, and Hazard has no material cost uncertainties. The normal sales price of theequipment is $154,000 and cost is $120,000. For the year ended December 31, 2005, how much incomeshould Hazard recognize from the lease transaction?A. $46,000B. $40,000C. $34,000D. $28,0009819. Each full-time employee of Sunshine Greenhouse is entitled to 10 paid sick days each year. The sick payisn’t vested, but any unused sick days can be carried over to subsequent years. Under FASB Statement No.43, Sunshine Greenhouse shouldA. recognize sick pay as an expense when actually paid.B. recognize an estimated current liability for unused sick pay at the end of each period.C. recognize an estimated noncurrent liability for unused sick pay at the end of each period.D. accrue or not accrue sick pay based on historical rates of absenteeism.20. Which of the following creates a permanent difference between financial income and taxable income?A. Interest received on municipal bondsB. Completed contract method of recognizing construction revenueC. Unearned rent revenueD. Accelerated cost recovery on plant and equipment