Zicklin School of Business, Baruch College ACC Financial Accounting 1 Fall Sample of Mid Term 1

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1 Zicklin School of Business, Baruch College ACC Financial Accounting 1 Fall 2004 Sample of Mi Term 1 Instructor: Prof. Donal Byar Name: Office: VC Phone: (646) Last 4 Digits of SSN: onal_byar@baruch.cuny.eu General Instructions: This is a close book, close notes, close iscussion exam. Your exam must reflect only your work. Please verify that you have all eight pages of the exam booklet. You may bring an orinary non-memory programmable calculator into the exam. There are 300 points for this exam an you have 100 minutes to complete (finishing at 9:20pm). The exam points are ivie as follows: 15 Multiple-choice questions (3.33 points each) 50 points 1 Discussion question with a written answer (20 points) 20 points 3 Numerical Problem questions (60 point each) 180 points 250 For the multiple choice questions, circle your choice of answer on the exam paper. For the iscussion question an the numerical problem questions, provie your answers in the spaces provie on this exam. For numerical problems you must show all your supporting calculations/explanations, where appropriate. All supporting calculations an scheules must be legible an in goo form. Be neat with your answers. You must honor Baruch College s stanars regaring integrity, honesty, an cheating at all times; sharing of information uring this exam in any form is strictly forbien. Any breach of these stanars will be ealt with in accorance with Baruch College s Coe of Acaemic Integrity. There are no extra creit options available for this exam. You must return the entire exam book when you are complete. 1

2 Part 1 -- Multiple Choice Questions [15 questions, 3.33 points each] Question 1 Financial statements in the early 2000s provie information relate to a. non-financial measurements. b. forwar-looking ata. c. har assets (inventory an plant assets).. none of these. Question 2. Which of the following statements is not an objective of financial reporting? a. Provie information that is useful in investment an creit ecisions. b. Provie information about enterprise resources, claims to those resources, an changes to them. c. Provie information on the liquiation value of an enterprise.. Provie information that is useful in assessing cash flow prospects. Question 3. Which of the following organizations has not been instrumental in the evelopment of financial accounting stanars in the Unite States? a. AICPA b. FASB c. IASB. SEC Question 4. The most significant current source of generally accepte accounting principles is the a. AICPA. b. SEC. c. APB.. FASB. Question 5. The most authoritative category of generally accepte accounting principles inclues all of the following except a. Accounting Research Bulletins. b. APB Opinions. c. FASB Stanars.. FASB Technical Bulletins. 2

3 Question 6. Ajusting entries are necessary to 1. obtain a proper matching of revenue an expense. 2. achieve an accurate statement of assets an equities. 3. ajust assets an liabilities to their fair market value. a. 1 b. 2 c an 2 Question 7. Which of the following is a nominal (temporary) account? a. Unearne Revenue b. Salary Expense c. Inventory. Retaine Earnings Question 8. Limitations of the income statement inclue all of the following except a. items that cannot be measure reliably are not reporte. b. only actual amounts are reporte in etermining net income. c. income measurement involves jugment.. income numbers are affecte by the accounting methos employe. Question 9. Which of these is generally an example of an extraorinary item? a. Loss incurre because of a strike by employees. b. Write-off of eferre marketing costs believe to have no future benefit. c. Gain resulting from the evaluation of the U.S. ollar.. Gain resulting from the state exercising its right of eminent omain on a piece of lan use as a parking lot. Question 10. Gross billings for merchanise sol by Otto Company to its customers last year amounte to $10,720,000; sales returns an allowances were $270,000, sales iscounts were $175,000, an freight-out was $140,000. Net sales last year for Otto Company were a. $10,720,000. b. $10,450,000. c. $10,275,000.. $10,135,000. Question 11. Information in the income statement helps users to a. evaluate the past performance of the enterprise. b. provie a basis for preicting future performance. c. help assess the risk or uncertainty of achieving future cash flows.. all of these. 3

4 Question 12. The single-step income statement emphasizes a. the gross profit figure. b. total revenues an total expenses. c. extraorinary items an accounting changes more than these are emphasize in the multiple-step income statement.. the various components of income from continuing operations. Question 13. Classification as an extraorinary item on the income statement woul be appropriate for the a. gain or loss on isposal of a component of the business. b. substantial write-off of obsolete inventories. c. a loss from a currency translation.. none of these. Question 14. The balance sheet is useful for analyzing all of the following except a. liquiity. b. solvency. c. profitability.. financial flexibility. Question 15. Which of the following woul be classifie in a ifferent major section of a balance sheet from the others? a. Capital stock b. Common stock subscribe c. Stock ivien istributable. Stock investment in affiliate 4

5 Part 2 -- Discussion Question Question 16 (30 points) Historic cost as a basis of accounting for assets has been severely criticize. What efense can you offer for the use of historic cost as the basis for financial accounting information? [Do not write beyon this point] 5

6 Part 3 -- Numerical Problems [3 questions, 60 points each] Question 17 Presente below is information relate to Gregg Company. Retaine earnings, December 31, 2003 $ 650,000 Sales 1,600,000 Selling an aministrative expenses 240,000 Hurricane loss (pre-tax) on plant (extraorinary item) 250,000 Cash iviens eclare on common stock 33,600 Cost of goos sol 960,000 Gain resulting from computation error on epreciation charge in 2002 (pre-tax) 520,000 Other revenue 60,000 Other expenses 50,000 Instructions Prepare in goo form a multiple-step income statement for the year Assume a 30% tax rate an that 100,000 shares of common stock were outstaning uring the year. 6

7 Question 18 The following trial balance was taken from the books of Fisk Corporation on December 31, Account Debit Creit Cash $ 12,000 Accounts Receivable 40,000 Note Receivable 7,000 Allowance for Doubtful Accounts $ 1,800 Merchanise Inventory 54,000 Unexpire Insurance 4,800 Furniture an Equipment 125,000 Accumulate Depreciation of F. & E. 15,000 Accounts Payable 10,800 Common Stock 44,000 Retaine Earnings 55,000 Sales 310,000 Cost of Goos Sol 131,000 Salaries Expense 50,000 Rent Expense 12,800 Totals $436,600 $436,600 At year en, the following items have not yet been recore. a. Insurance expire uring the year, $2,000. b. Estimate ba ebts, 1% of gross sales. c. Depreciation on furniture an equipment is at a rate of book value 12% per year.. Interest at 8% is receivable on the note for one full year. e. Rent for 2005 pai in avance at December 31, $5,400 (originally charge to expense). f. Accrue salaries at December 31, $5,800. Instructions Prepare the necessary ajusting entries. 7

8 Question 19 Presente below is the ajuste trial balance of Walsh Corporation at December 31, Debit Creit Cash $? Office supplies 1,200 Prepai insurance 1,000 Equipment 48,000 Accumulate Deprreciation Equipment $ 4,000 Traemarks 950 Accounts Payable 10,000 Wages Payable 500 Unearne Service Revenue 2,000 Bons Payable, ue ,000 Common Stock 10,000 Retaine Earnings 25,000 Service Revenue 10,000 Wages Expense 9,000 Insurance Expense 1,400 Rent Expense 1,200 Interest Expense 900 Totals?? Aitional Information: 1) Net loss for the year was $2,500. 2) No iviens were eclare uring Instructions Prepare a classifie balance sheet as of December 31,

9 Answer Key Multiple Choice Questions Part A: [15 Questions, 4 points each] Question Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Q11 Q12 Q13 Q14 Q15 Answer c c c b b c b c Question 16 [30 points] Historic cost is efinite an verifiable an not a matter for conjecture or opinion. As a result, it can be sai to be very reliable. Once establishe, historic cost is fixe as long as the asset remains the property of the party that incurre the cost. Historic cost is base on fact; that is, it can easily be establishe from an invoice. So, it is easily measurable or eterminable. Historic cost is very practical, it makes recor keeping easy an is not very costly to implement. 9

10 Question 17. [60 points] Gregg Company INCOME STATEMENT For the Year Ene December 31, 2004 Sales $1,600,000 Cost of goos sol 960,000 Gross profit 640,000 Selling an aministrative expenses 240,000 Income from operations 400,000 Other revenue 60,000 Other expenses (50,000) Income before taxes 410,000 Income taxes (123,000) Income before extraorinary item 287,000 Extraorinary loss, net of applicable income taxes of $75,000 (175,000) Net income $ 112,000 Per share of common stock Income before extraorinary item $2.87 Extraorinary item, net of tax (1.75) Net income $1.12 Question 18. [60 points]...[10 points each] a. Insurance Expense... 2,000 Unexpire Insurance... 2,000 b. Ba Debt Expense... 3,100 Allowance for Doubtful Accounts... 3,100 c. Depreciation Expense... 13,200 Accumulate Depreciation of F. & E ,200. Interest Receivable Interest Revenue e. Prepai Rent... 5,400 Rent Expense... 5,400 f. Salaries Expense... 5,800 Salaries Payable... 5,800 10

11 Question 19 [60 points] Kelly Corporation Balance Sheet December 31, 2004 Assets Current assets Cash $ 6,850 Office supplies 1,200 Prepai insurance 1,000 Total current assets 9,050 Equipment $48,000 Less accumulate epreciation 4,000 44,000 Intangible traemark 950 Total assets $54,000 Liabilities an Stockholers Equity Current liabilities Accounts payable $10,000 Wages payable 500 Unearne service revenue 2,000 Total current liabilities 12,500 Long-term liabilities Bons payable 9,000 Total liabilities 21,500 Stockholers equity Common stock 10,000 Retaine earnings ($25,000 $2,500) 22,500 Total stockholers equity 32,500 Total liabilities an stockholers equity $54,000 11