Fundamentals of Financial Accounting

Fall 2014 ACC 311 Exam 15Fundamentals of Financial AccountingACC 311, Fall 2014Exam 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.Instructions1. 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___/___/_______

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.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. $140,000B. $130,000C. $190,000D. $80,000E. None of the above

2.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.

3.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

4.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. $630,000B. $700,000C. $ 70,000D. $570,000E. None of the above

5.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. $35,800B. $71,800C. $79,500D. $43,500E. None of the above

6.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.

7.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. $6,000B. $3,500C. $3,000D. $2,500E. $0

8.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 payableE. Adjustment of the prepaid rent account for rent which was used during the period.

9.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.

10.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.

11.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

12.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.

13.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.

14.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. $ 125,000B. $ 175,000C. $ 300,000D. $1,100,000E. None of the above

15.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 cashE. Two of the above are from financing activities.

16.Roberts Company sold equipment for $250,000, purchased a building for $6,500,000, sold short-term 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 outflowB. $8,320,000 outflowC. $8,270,000 outflowD. $5,970,000 outflowE. None of the above

17.Which of the following statements is True?A. Current assets = Current liabilities Current Shareholders EquityB. Accumulated Depreciation increases on the Debit Side.C. Current assets are always greater than Current LiabilitiesD. Straight line depreciation = (Salvage Value Current Asset Value) / Useful LifeE. None of the above are True

18.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.

19.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. $6,000B. $2,000C. $3,000D. $4,000E. $0

20.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.

21.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.

22.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

23.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.

24.A Prepaid Expense would be reported within which of the following financial statements? A. Statement of cash flowsB. Income statementC. Balance sheetD. Statement of retained earnings

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 1Issue common stock in exchange for cash of $3,000 (no Par Value).March 2Stockholder Sam Smith paid $10,000 cash for land (for his personal use).March 3Purchase sewing equipment by signing a note with the local bank, $2,700.March 5The 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.March 7Martha, 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.March 12Purchase 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.March 15Ute delivers the altered dresses Martha dropped off on March 7th. Ute receives $800.March 19Ute agrees to alter 10 business suits for Bob. Utes receives $700 from Bob and promises the suits to be completed by March 25.March 25Ute delivers 10 altered business suits to Bob (as promised on March 19th).March 30Pay utilities of $95 for March.March 31Pay 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 AccountsDebitCredit

March 2nd AccountsDebitCredit

March 3rd AccountsDebitCredit

PROBLEM 1 CONTINUED:March 5th AccountsDebitCredit

March 7th AccountsDebitCredit

March 12th AccountsDebitCredit

March 15th AccountsDebitCredit

March 19th AccountsDebitCredit

March 25th AccountsDebitCredit

March 30th AccountsDebitCredit

March 31st AccountsDebitCredit

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

Highland Consulting Company Comparative Balance SheetDecember 31

Assets20102009Cash$ 96,300$ 48,400Accounts receivable95,80033,000Supplies112,500102,850Prepaid expenses18,4006,000Investments113,00094,000Plant assets327,500242,500Accumulated depreciationTotal$665,000$474,750

Liabilities and Stockholders EquityAccounts payable$102,000$ 67,300Salaries payable16,50017,000Notes payable Long Term85,000110,000Common stock220,000175,000Retained earnings241,500105,450Total$665,000$474,750

Highland Consulting Company Income StatementFor the Year Ended December 31, 2010

Sales$392,780

Less:Operating expenses (excluding depreciation)147,870Depreciation expense46,500Interest expense4,730Income taxes7,280Net income$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.

RequiredUse 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: .

PROBLEM 2 CONTINUED:

Highland Consulting CompanyStatement of Cash FlowsFor 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$

- DO NOT COMPLETE THE OPERATING SECTION Net cash provided by Financing activities$ < 30,350>

Net increase in cash $ 47,900Beginning cash balance $ 48,400Ending cash balance$ 96,300

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.

Unadjusted Trial BalanceAdjusted Trial Balance

ACCOUNTSDEBITSCREDITSDEBITSCREDITS

Cash13,00013,000

Accounts receivable15,00020,000

Inventory55,00055,000

Prepaid insurance6,0003,000

Equipment400,000400,000

Accumulated depreciation55,000105,000

Accounts payable12,00012,000

Unearned revenue35,00015,000

Wages payable016,000

Income tax payable013,400

Contributed capital100,000100,000

Retained earnings154,000154,000

Sales revenues825,000850,000

Cost of goods sold505,000505,000

Depreciation expense050,000

Wages expense150,000166,000

Insurance expense03,000

Income tax expense37,00050,400

Totals1,181,0001,181,0001,265,4001,265,400

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

A.AccountsDebitCredit

AccountsDebitCredit

AccountsDebitCredit

AccountsDebitCredit

AccountsDebitCredit

AccountsDebitCredit

AccountsDebitCredit

B.AccountsDebitCredit

*** BLANK ***