ANSWER ALL MULTIPLE CHOICE ON YOUR SCANTRON AND WRITE YOUR TEST COLOR ON THE SCANTRON.

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1 Name: Perm # TEST VERSION: A Class: Date: ANSWER ALL MULTIPLE CHOICE ON YOUR SCANTRON AND WRITE YOUR TEST COLOR ON THE SCANTRON. THERE IS ONLY ONE PROBLEM-- ANSWER IT IN THE SPACE PROVIDED ON THIS EXAM. PUT AWAY ANY BLUE-BOOKS! 3a S05 mt2 Multiple Choice Identify the letter of the choice that best completes the statement or answers the question. PLEASE ANSWER ALL MULTIPLE CHOICE ON A GREEN SCANTRON. 1. The payment of employee salaries has what effect on the accounting equation? a. Assets decrease and owners' equity decrease b. Liabilities decrease and owners' equity decreases c. Assets decrease and liabilities increase d. Assets increase and liabilities decrease 2. Which of the following statements regarding the activities of St. Jean Corp. is true? a. Revenues decrease St. Jean's owners' equity. b. Expenses increase St. Jean's owners' equity. c. Expenses decrease St. Jean's owners' equity. d. Dividends distributed by St. Jean increase its owners' equity. 3. The Kelly Company purchased a building for $75,000 in cash. What is the effect on current assets? a. Increase in current assets b. Decrease in current assets c. No effect on current assets d. Unable to determine 4. A credit means a. the event is favorable. b. the event is unfavorable. c. always increase the account. d. always decrease the account. e. the right hand side of an account. 5. A list of all accounts, including their assigned account numbers, used by a company is called a a. general journal. b. trial balance. c. chart of accounts. d. general ledger. 6. An abbreviated version of an account which is useful for analyzing the effects of business transactions is the a. T account. b. trial balance. c. chart of accounts. d. double-entry system. 7. Debit entries are used to a. increase asset accounts. b. decrease expense accounts. c. increase liability accounts. d. increase revenue accounts. 1

2 8. Credit entries are used to a. increase asset accounts. b. increase liability accounts. c. decrease revenue accounts. d. decrease liability accounts. 9. All of the following accounts have normal debit balances except a. Dividends. b. Sales. c. Office supplies expense. d. Accounts receivable. 10. All of the following accounts have normal credit balances except a. Investments. b. Service revenue. c. Accounts payable. d. Common stock (capital stock). Exhibit 3-5 Use the five transactions for Narada & Associates, Inc. described below to answer the questions that follow. Transactions: May 1 Bills are sent to clients for services provided in April in the amount of $ City Office Inc. delivers furniture ($1,060) and office supplies ($160) to Narada leaving an invoice for $1, Payment is made to City Office Inc. for the furniture and office supplies delivered on May A $430 bill for electricity for the month of April is received and will be paid on its due date in June. 31 Salaries are paid to employees, $ Refer to Exhibit 3-5. The journal entry to record the May 1 transaction will include a debit of $800 to a. sales revenue. b. accounts receivable. c. cash. d. retained earnings. 12. Refer to Exhibit 3-5. The journal entry to record the May 9 transaction will include a credit of $1,220 to a. furniture and supplies. b. cash. c. accounts payable. d. administrative expenses. 13. Refer to Exhibit 3-5. The journal entry to record the May 15 transaction will include a debit of $1,220 to a. furniture and supplies. b. cash. c. accounts payable. d. administrative expenses. 2

3 14. Refer to Exhibit 3-5. The journal entry to record the May 23 transaction will include a credit of $430 to a. utilities expense. b. cash. c. prepaid expenses. d. accounts payable. 15. Refer to Exhibit 3-5. Based only on the above transactions, what is the total amount of expenses that should appear on the income statement? a. $430 b. $850 c. $1,280 d. $1, The attribute used to measure many assets that are recognized on a balance sheet, because it is more objective and verifiable, is a. market value. b. historical cost. c. current replacement cost. d. liquidation value. 17. Lizzie s Lunches operates a catering service. Conceptually, Lizzie should recognize revenue from its catering service at the date the a. customer places the order. b. meal is served. c. invoice is mailed to the customer. d. customer's payment is received. 18. Each of the following statements presents financial information based on the accrual basis of accounting except for the a. balance sheet. b. income statement. c. statement of cash flows. d. statement of retained earnings. 19. Assets a. represent future economic sacrifices. b. are expired costs. c. become expenses at the time they are paid in cash. d. become expenses when their economic benefits expire. 20. Abishot Computer Company received advance payments from customers during 2004 of $14,800. At December 31, 2004, $1,800 of the advance payments still had not been earned. After the adjustments are recorded and posted at December 31, 2004, the balances in the Customer Payment Received in Advance and Service Revenue accounts will be: a. Customer Payment Received in Advance, $1,800; Service Revenue, $13,000. b. Customer Payment Received in Advance, $1,800; Service Revenue, $16,600. c. Customer Payment Received in Advance, $13,000; Service Revenue, $1,800. d. Customer Payment Received in Advance, $1,800; Service Revenue, $14, The accrual basis of accounting recognizes revenues when a. cash is received, and expenses when cash is paid. b. cash is received, and expenses when the costs are incurred. c. earned, and expenses when the costs are incurred. d. earned, and expenses when cash is paid. 3

4 22. Adjustments are necessary only if a. the cash basis of accounting is used for the current accounting period. b. cash receipts and payments occur before or after the point in time when revenues and expenses should be recognized under the accrual basis of accounting. c. management reports them on the statement of cash flows. d. the company has a cash balance in the bank. 23. Which of the following is an example of an accrued liability? a. Wages have been earned by employees, but have not been paid at the end of the period. b. Equipment which will benefit several periods has been purchased. c. An insurance policy which expires in a future period has been acquired. d. Supplies are purchased and used over several months. 24. Closing entries result in net income being transferred to the a. Revenue account. b. Common Stock account. c. Dividends account. d. Retained Earnings account. 25. Diamond Company takes out a two-year, 10%, $150,000 note on May 1, 2004, with interest and principal to be paid at maturity. How much interest will be reported on the income statement for the year ended December 31, 2004? a. $10,000 b. $15,000 c. $5,000 d. $30,000 4

5 Problem: ANSWER IN THE SPACE PROVIDED ON THIS EXAM. 26. UCSB3A, Inc. has the following trial balance at the beginning of 2004: Account Title DR/ <CR> Cash 425,000 Accounts receivable 75,000 Inventory 225,000 Prepaid rent - Accounts payable (60,000) Accrued interest - Unearned revenue - Debt (500,000) Retained earnings (65,000) Common stock (100,000) Net debit/ <Credit> - During the year ended December 31, 2004, the following activity occurred: 1) Purchased, on credit (no cash purchases) $800,000 of inventory. 2) Sold goods for $1,000,000 all of which were sold to customers on credit (no cash sales). The cost of the inventory sold was $770,000. 3) Collected $975,000 from customers on outstanding accounts receivable. 4) Paid $800,000 of open accounts payable. 5) Paid $12,000 cash to their landlord for all rent due for the period from July 1, 2004 through June 30, ) Received $25,000 cash from customers for services to be provided during ) Sold common stock for $75,000 cash. Starting on the next page of this exam: Record the journal entry the company should record when each transaction above took place. Descriptions under each journal entry are NOT required.: To make it easier on you and avoid any confusion on what account titles to use- please use only the following account titles in your journal entries: Cash Accounts Receivable Inventory Prepaid rent Accounts payable Accrued interest Unearned revenue Debt Common Stock Sales Cost of sales Interest expense 5

6 1) Account Title DEBIT CREDIT 2) 3) 4) 5) 6) 7) OKAY- PART TWO: Some of the journal entries recorded when they took place per above require adjustment at the end of the year (December 31, 2004). Also, the debt carries an interest rate of 10% per year and no payments of principle or interest has been made. Please list below any of these adjusting entries (NOTE: descriptions under the journal entries are NOT required for this exercise): FINALLY: Use whatever tool you like to track all of this activity (i.e T-accounts) present the ending trial balance in the following space (HELP- Don t forget that retained earnings has been impacted by each journal entry which effects the income statement): Account Title Cash Accounts receivable Inventory Prepaid rent Fixed assets Accumulated depreciation Accounts payable Unearned revenue Debt Retained earnings Common stock Net debit/ <Credit> DR/ <CR> 6 HINT: What should this number be?

7 ID: A 3a S05 mt2 Answer Section MULTIPLE CHOICE 1. ANS: A DIF: 2 REF: p. 107 OBJ: 3 2. ANS: C DIF: 2 REF: p OBJ: 3 3. ANS: B DIF: 3 REF: p OBJ: 3 4. ANS: E DIF: 1 REF: p OBJ: 5 5. ANS: C DIF: 1 REF: p. 111 OBJ: 3 6. ANS: A DIF: 1 REF: p. 113 OBJ: 4 7. ANS: A DIF: 1 REF: p OBJ: 5 8. ANS: B DIF: 1 REF: p OBJ: 5 9. ANS: B DIF: 1 REF: p OBJ: ANS: A DIF: 1 REF: p OBJ: ANS: B DIF: 2 REF: p OBJ: ANS: C DIF: 2 REF: p OBJ: ANS: C DIF: 2 REF: p OBJ: ANS: D DIF: 2 REF: p OBJ: ANS: C DIF: 3 REF: p OBJ: 3, ANS: B DIF: 1 REF: p OBJ: ANS: B DIF: 2 REF: p. 156 OBJ: ANS: C DIF: 1 REF: p OBJ: ANS: D DIF: 2 REF: p OBJ: ANS: A DIF: 2 REF: p OBJ: ANS: C DIF: 1 REF: p OBJ: ANS: B DIF: 1 REF: p OBJ: ANS: A DIF: 3 REF: p OBJ: ANS: D DIF: 1 REF: p OBJ: ANS: A DIF: 2 REF: p OBJ: 5 1

8 ID: A PROBLEM 26. ANS: Account Title DEBIT CREDIT 1) Inventory 800,000 Accounts payable 800,000 2) Accounts receivable 1,000,000 Sales 1,000,000 Cost of sales 770,000 Inventory 770,000 3) Cash 975,000 Accounts receivable 975,000 4) Accounts payable 800,000 Cash 800,000 5) Prepaid rent 12,000 Cash 12,000 6) Cash 25,000 Unearned revenue 25,000 7) Cash 75,000 Common Stock 75,000 PART II- ADJUSTING ENTRIES: ADJUST PREPAID RENT FOR 6 MONTHS PASSING: Rent expense 6,000 Prepaid expenses 6,000 ACCRUE INTEREST EXPENSE: Interest expense 50,000 Accrued interest ENDING TRIAL BALANCE: In place of T-Accounts: Account Title DR/ <CR> (in 000 s) Cash 688,000 = Accounts receivable 100,000 =75+1, Inventory 255,000 = Prepaid rent 6,000 = Accounts payable (60,000) = Accrued interest (50,000) =0+50 Unearned revenue (25,000) =0+25,000 Debt (500,000) =500,000 Retained earnings (239,000) =65+1, Common stock (175,000) =100,000+75,000 2

9 ID: A Net debit/ <Credit> 0! HINT: What should this number be? 3

10 Name: Perm # TEST VERSION: B Class: Date: ANSWER ALL MULTIPLE CHOICE ON YOUR SCANTRON AND WRITE YOUR TEST COLOR ON THE SCANTRON. THERE IS ONLY ONE PROBLEM-- ANSWER IT IN THE SPACE PROVIDED ON THIS EXAM. PUT AWAY ANY BLUE-BOOKS! 3a S05 mt2 Multiple Choice Identify the letter of the choice that best completes the statement or answers the question. PLEASE ANSWER ALL MULTIPLE CHOICE ON A GREEN SCANTRON. 1. Lizzie s Lunches operates a catering service. Conceptually, Lizzie should recognize revenue from its catering service at the date the a. meal is served. b. invoice is mailed to the customer. c. customer's payment is received. d. customer places the order. 2. Adjustments are necessary only if a. the cash basis of accounting is used for the current accounting period. b. management reports them on the statement of cash flows. c. cash receipts and payments occur before or after the point in time when revenues and expenses should be recognized under the accrual basis of accounting. d. the company has a cash balance in the bank. Exhibit 3-5 Use the five transactions for Narada & Associates, Inc. described below to answer the questions that follow. Transactions: May 1 Bills are sent to clients for services provided in April in the amount of $ City Office Inc. delivers furniture ($1,060) and office supplies ($160) to Narada leaving an invoice for $1, Payment is made to City Office Inc. for the furniture and office supplies delivered on May A $430 bill for electricity for the month of April is received and will be paid on its due date in June. 31 Salaries are paid to employees, $ Refer to Exhibit 3-5. The journal entry to record the May 9 transaction will include a credit of $1,220 to a. administrative expenses. b. accounts payable. c. furniture and supplies. d. cash. 1

11 4. Refer to Exhibit 3-5. The journal entry to record the May 15 transaction will include a debit of $1,220 to a. accounts payable. b. cash. c. administrative expenses. d. furniture and supplies. 5. Refer to Exhibit 3-5. The journal entry to record the May 1 transaction will include a debit of $800 to a. accounts receivable. b. sales revenue. c. retained earnings. d. cash. 6. Refer to Exhibit 3-5. Based only on the above transactions, what is the total amount of expenses that should appear on the income statement? a. $430 b. $1,440 c. $1,280 d. $ Refer to Exhibit 3-5. The journal entry to record the May 23 transaction will include a credit of $430 to a. utilities expense. b. accounts payable. c. prepaid expenses. d. cash. 8. Closing entries result in net income being transferred to the a. Retained Earnings account. b. Common Stock account. c. Revenue account. d. Dividends account. 9. Debit entries are used to a. increase asset accounts. b. decrease expense accounts. c. increase liability accounts. d. increase revenue accounts. 10. Each of the following statements presents financial information based on the accrual basis of accounting except for the a. income statement. b. statement of retained earnings. c. balance sheet. d. statement of cash flows. 11. The attribute used to measure many assets that are recognized on a balance sheet, because it is more objective and verifiable, is a. current replacement cost. b. historical cost. c. liquidation value. d. market value. 12. An abbreviated version of an account which is useful for analyzing the effects of business transactions is the a. trial balance. b. chart of accounts. c. double-entry system. d. T account. 2

12 13. All of the following accounts have normal credit balances except a. Investments. b. Common stock (capital stock). c. Accounts payable. d. Service revenue. 14. The accrual basis of accounting recognizes revenues when a. cash is received, and expenses when the costs are incurred. b. earned, and expenses when cash is paid. c. earned, and expenses when the costs are incurred. d. cash is received, and expenses when cash is paid. 15. The payment of employee salaries has what effect on the accounting equation? a. Assets decrease and liabilities increase b. Liabilities decrease and owners' equity decreases c. Assets decrease and owners' equity decrease d. Assets increase and liabilities decrease 16. Assets a. represent future economic sacrifices. b. become expenses when their economic benefits expire. c. are expired costs. d. become expenses at the time they are paid in cash. 17. Credit entries are used to a. increase asset accounts. b. increase liability accounts. c. decrease revenue accounts. d. decrease liability accounts. 18. Abishot Computer Company received advance payments from customers during 2004 of $14,800. At December 31, 2004, $1,800 of the advance payments still had not been earned. After the adjustments are recorded and posted at December 31, 2004, the balances in the Customer Payment Received in Advance and Service Revenue accounts will be: a. Customer Payment Received in Advance, $1,800; Service Revenue, $16,600. b. Customer Payment Received in Advance, $13,000; Service Revenue, $1,800. c. Customer Payment Received in Advance, $1,800; Service Revenue, $14,800. d. Customer Payment Received in Advance, $1,800; Service Revenue, $13, A list of all accounts, including their assigned account numbers, used by a company is called a a. chart of accounts. b. general ledger. c. general journal. d. trial balance. 20. Which of the following is an example of an accrued liability? a. Supplies are purchased and used over several months. b. Equipment which will benefit several periods has been purchased. c. Wages have been earned by employees, but have not been paid at the end of the period. d. An insurance policy which expires in a future period has been acquired. 3

13 21. A credit means a. always decrease the account. b. the right hand side of an account. c. the event is favorable. d. the event is unfavorable. e. always increase the account. 22. All of the following accounts have normal debit balances except a. Dividends. b. Sales. c. Office supplies expense. d. Accounts receivable. 23. Which of the following statements regarding the activities of St. Jean Corp. is true? a. Expenses increase St. Jean's owners' equity. b. Dividends distributed by St. Jean increase its owners' equity. c. Expenses decrease St. Jean's owners' equity. d. Revenues decrease St. Jean's owners' equity. 24. The Kelly Company purchased a building for $75,000 in cash. What is the effect on current assets? a. Decrease in current assets b. No effect on current assets c. Increase in current assets d. Unable to determine 25. Diamond Company takes out a two-year, 10%, $150,000 note on May 1, 2004, with interest and principal to be paid at maturity. How much interest will be reported on the income statement for the year ended December 31, 2004? a. $15,000 b. $10,000 c. $30,000 d. $5,000 4

14 Problem: ANSWER IN THE SPACE PROVIDED ON THIS EXAM. 26. UCSB3A, Inc. has the following trial balance at the beginning of 2004: Account Title DR/ <CR> Cash 425,000 Accounts receivable 75,000 Inventory 225,000 Prepaid rent - Accounts payable (60,000) Accrued interest - Unearned revenue - Debt (500,000) Retained earnings (65,000) Common stock (100,000) Net debit/ <Credit> - During the year ended December 31, 2004, the following activity occurred: 1) Purchased, on credit (no cash purchases) $800,000 of inventory. 2) Sold goods for $1,000,000 all of which were sold to customers on credit (no cash sales). The cost of the inventory sold was $770,000. 3) Collected $975,000 from customers on outstanding accounts receivable. 4) Paid $800,000 of open accounts payable. 5) Paid $12,000 cash to their landlord for all rent due for the period from July 1, 2004 through June 30, ) Received $25,000 cash from customers for services to be provided during ) Sold common stock for $75,000 cash. Starting on the next page of this exam: Record the journal entry the company should record when each transaction above took place. Descriptions under each journal entry are NOT required.: To make it easier on you and avoid any confusion on what account titles to use- please use only the following account titles in your journal entries: Cash Accounts Receivable Inventory Prepaid rent Accounts payable Accrued interest Unearned revenue Debt Common Stock Sales Cost of sales Interest expense 5

15 1) Account Title DEBIT CREDIT 2) 3) 4) 5) 6) 7) OKAY- PART TWO: Some of the journal entries recorded when they took place per above require adjustment at the end of the year (December 31, 2004). Also, the debt carries an interest rate of 10% per year and no payments of principle or interest has been made. Please list below any of these adjusting entries (NOTE: descriptions under the journal entries are NOT required for this exercise): FINALLY: Use whatever tool you like to track all of this activity (i.e T-accounts) present the ending trial balance in the following space (HELP- Don t forget that retained earnings has been impacted by each journal entry which effects the income statement): Account Title Cash Accounts receivable Inventory Prepaid rent Fixed assets Accumulated depreciation Accounts payable Unearned revenue Debt Retained earnings Common stock Net debit/ <Credit> DR/ <CR> 6 HINT: What should this number be?

16 ID: B 3a S05 mt2 Answer Section MULTIPLE CHOICE 1. ANS: A DIF: 2 REF: p. 156 OBJ: 3 2. ANS: C DIF: 1 REF: p OBJ: 5 3. ANS: B DIF: 2 REF: p OBJ: 5 4. ANS: A DIF: 2 REF: p OBJ: 5 5. ANS: A DIF: 2 REF: p OBJ: 5 6. ANS: C DIF: 3 REF: p OBJ: 3, 5 7. ANS: B DIF: 2 REF: p OBJ: 5 8. ANS: A DIF: 1 REF: p OBJ: 7 9. ANS: A DIF: 1 REF: p OBJ: ANS: D DIF: 1 REF: p OBJ: ANS: B DIF: 1 REF: p OBJ: ANS: D DIF: 1 REF: p. 113 OBJ: ANS: A DIF: 1 REF: p OBJ: ANS: C DIF: 1 REF: p OBJ: ANS: C DIF: 2 REF: p. 107 OBJ: ANS: B DIF: 2 REF: p OBJ: ANS: B DIF: 1 REF: p OBJ: ANS: D DIF: 2 REF: p OBJ: ANS: A DIF: 1 REF: p. 111 OBJ: ANS: C DIF: 3 REF: p OBJ: ANS: B DIF: 1 REF: p OBJ: ANS: B DIF: 1 REF: p OBJ: ANS: C DIF: 2 REF: p OBJ: ANS: A DIF: 3 REF: p OBJ: ANS: B DIF: 2 REF: p OBJ: 5 1

17 ID: B PROBLEM 26. ANS: Account Title DEBIT CREDIT 1) Inventory 800,000 Accounts payable 800,000 2) Accounts receivable 1,000,000 Sales 1,000,000 Cost of sales 770,000 Inventory 770,000 3) Cash 975,000 Accounts receivable 975,000 4) Accounts payable 800,000 Cash 800,000 5) Prepaid rent 12,000 Cash 12,000 6) Cash 25,000 Unearned revenue 25,000 7) Cash 75,000 Common Stock 75,000 PART II- ADJUSTING ENTRIES: ADJUST PREPAID RENT FOR 6 MONTHS PASSING: Rent expense 6,000 Prepaid expenses 6,000 ACCRUE INTEREST EXPENSE: Interest expense 50,000 Accrued interest ENDING TRIAL BALANCE: In place of T-Accounts: Account Title DR/ <CR> (in 000 s) Cash 688,000 = Accounts receivable 100,000 =75+1, Inventory 255,000 = Prepaid rent 6,000 = Accounts payable (60,000) = Accrued interest (50,000) =0+50 Unearned revenue (25,000) =0+25,000 Debt (500,000) =500,000 Retained earnings (239,000) =65+1, Common stock (175,000) =100,000+75,000 2

18 ID: B Net debit/ <Credit> 0! HINT: What should this number be? 3

REVIEW Which of the following would be classified as external users of financial statements?

REVIEW Which of the following would be classified as external users of financial statements? REVIEW 1 1. The three forms of business entities are: a. Government, cooperatives, and philanthropic organizations b. Financing, investing, and operating c. Sole proprietorships, partnerships, and corporations