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					                                                                            Final Examination Study Guide   1
                                                                                      ACC/291 Version 2

ACC/291 Final Examination Study Guide
This study guide prepares you for the Final Examination you complete in the last week of the course. It
contains practice questions, which are related to each week’s objectives. Highlight the correct response,
and then refer to the answer key at the end of this study guide to check your answers.

Use each week’s questions as a self-test at the start of a new week to reflect on the previous week’s
concepts. When you come across concepts that you are unfamiliar with, refer to the Student Guide for
that particular week.


Week One: Principle Assets

Prepare journal entries to account for transactions related to accounts receivable and bad debt
using both percentage of sales and the percentage of receivables methods.

1.       The method of accounting for uncollectible accounts that results in a better matching of
         expenses with revenues is the
         a. aging accounts receivable method
         b. direct write-off method
         c. percentage of receivables method
         d. percentage of sales method

Answer
         a. percentage of sales method


2.       Using the percentages of receivables method for recording bad debts expense, estimated
         uncollectible accounts are $25,000. If the balance of the Allowance for Doubtful Accounts is
         $8,000 debit before adjustment, what is the amount of bad debts expense for that period?
         a. $25,000
         b. $8,000
         c. $33,000
         d. $17,000

Answe
         c.$33,000



Distinguish between tangible and intangible assets.

3.       Copyrights are granted by the federal government
         a. for the life of the creator or 70 years, whichever is greater
         b. for the life of the creator plus 70 years
         c. for the life of the creator or 70 years, whichever is shorter
         d. and therefore cannot be amortized


answer
         b . for the life of the creator plus 70 years


4.       The cost of a patent should be amortized over
         a. 20 years
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         b. the shorter of its legal life or its useful life
         c. the longer of its legal life or its useful life
         d. its useful life

answer
              b. the shorter of its legal life or its useful life


Objective: Identify the entries associated with acquisition, disposal, and sales of plant assets.

5.       Mattox Company is building a new plant that will take 3 years to construct. The construction will
         be financed in part by funds borrowed during the construction period. There are significant
         architect fees, excavation fees, and building permit fees. Which of the following statements is
         true?

         a.   Excavation fees are capitalized but building permit fees are not.
         b.   Architect fees are capitalized but building permit fees are not.
         c.   Interest is capitalized during the construction as part of the cost of the building.
         d.   The capitalized cost is equal to the contract price to build the plant less any interest on
              borrowed funds.

Answer
      c.Interest is capitalized during the construction as part of the cost of the building.


6.       Orr Corporation sold equipment for $12,000. The equipment had an original cost of $36,000 and
         accumulated depreciation of $18,000. As a result of the sale,
         a. net income will increase $12,000
         b. net income will increase $6,000
         c. net income will decrease $6,000
         d. net income will decrease $12,000

answer
         c.income will decrease $6,000


Objective: Distinguish between revenue and capital expenditures, and the entries associated with
each.

7.       The paneling of the body part of an open pickup truck would be classified as
         a. a revenue expenditure
         b. an addition
         c. an improvement
         d. an ordinary repair

answer
              b.an addition


8.       Additions and improvements
         a. occur frequently during the ownership of a plant asset
         b. normally involve immaterial expenditures
         c. increase the book value of plant assets when incurred
         d. typically only benefit the current accounting period

answer
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         c.increase the book value of plant assets when incurred

Week Two: Liabilities

Objective: Differentiate among accounts payable, notes payable, and accrued expenses.

9.       Interest expense on an interest bearing note is
         a. always equal to zero
         b. accrued over the life of the note
         c. only recorded at the time the note is issued
         d. only recorded at maturity when the note is paid

answer
         b.accrued over the life of the note


10.      The interest charged on a $100,000 note payable, at the rate of 6%, on a 60-day note would be
         a. $6,000
         b. $3,333
         c. $1,500
         d. $1,000

Answer
         d.$1,000


Objective: Prepare necessary journal entries to record the issuance of bonds, the periodic
interest, and amortization of bond premiums and discounts.

11.      On January 1, 2011, Grant Corporation issued $4,000,000, 10-year, 8% bonds at $102. Interest
         is payable semiannually on January 1 and July 1. The journal entry to record this transaction on
         January 1, 2011 is
         a. Cash………………………………………….4,000,000
                     Bonds Payable…………………………………….4,000,000
         b. Cash………………………………………….4,080,000
                     Bonds Payable………………………………….…4,080,000
         c. Premium on Bonds Payable……………..……80,000
             Cash…………………………………………4,000,000
                     Bonds Payable……………………………………4,080,000
         d. Cash………………………………………...4,080,000
                     Bonds Payable……………………………………4,000,000
                     Premium on Bonds Payable………………………..80,000


Answer
         d.Cash………………………………………...4,080,000
                 Bonds Payable……………………………………4,000,000
                 Premium on Bonds Payable………………………..80,000



Objective: Calculate depreciation and amortization expense using various methods.

12.      Either the straight-line method or the effective-interest method of amortization will always result in
         a. the same amount of interest expense being recognized over the term of the bonds
         b. the same amount of interest expense being recognized each year
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                                                                                       ACC/291 Version 2

         c. more interest expense being recognized than if premium or discounts were not amortized
         d. the same carrying value each year during the term of the bonds


answer
         a. the same amount of interest expense being recognized over the term of the bonds


13.      On January 1, Martinez Inc. issued $3,000,000, 9% bonds for $2,817,000. The market rate of
         interest for these bonds is 10%. Interest is payable annually on December 31. Martinez uses the
         effective-interest method of amortizing bond discount. At the end of the first year, Martinez should
         report unamortized bond discount of:

         a.   $164,700
         b.   $171,300
         c.   $154,830
         d.   $153,000

Answer
         b.$171,300


Week Three: Equity and Investments


Objective: Differentiate types of stocks issued by corporations.


14.      Treasury stock is
         a. a contra asset account
         b. a retained earnings account
         c. an asset account
         d. a contra stockholders’ equity account

      answer
        d.a contra stockholders’ equity account

15.      Accounting for treasury stock is done by the
         a. LIFO method
         b. FIFO method
         c. cost method
         d. lower of cost or market method

answer
         c.cost method

Objective: Calculate stocks, dividends, and stock splits.

16.      Outstanding stock of the Colt Corporation included 20,000 shares of $5 par common stock and
         5,000 shares of 5%, $10 par noncumulative preferred stock. In 2010, Colt declared and paid
         dividends of $2,000. In 2011, Colt declared and paid dividends of $6,000. How much of the 2011
         dividend was distributed to preferred shareholders?

         a. $3,000
         b. $3,500
         c. $2,500
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                                                                                       ACC/291 Version 2

         d. $2,000

Answer
         c.$2,500


17.      Luther Inc. has 2,000 shares of 6%, $50 par value, cumulative preferred stock and 100,000
         shares of $1 par value common stock outstanding at December 31, 2011 and December 31,
         2010. The board of directors declared and paid a $5,000 dividend in 2010. In 2011, $24,000 of
         dividends are declared and paid. What are the dividends received by the preferred stockholders
         in 2011?

         a.   $7,000
         b.   $12,000
         c.   $17,000
         d.   $6,000

Answer
      a. $7,000


Objective: Record treasury stock transactions.

18.      Restricting retained earnings for the cost of treasury stock purchased is a
         a. contractual restriction
         b. stock restriction
         c. voluntary restriction
         d. legal restriction

answer
         d.legal restriction


19.      Kendrick Corporation was organized on January 2, 2011. During 2011, Kendrick issued 20,000
         shares at $24 per share, purchased 3,000 shares of treasury stock at $26 per share, and had net
         income of $300,000. What is the total amount of stockholders’ equity at December 31, 2011?

         a.   $640,000
         b.   $702,000
         c.   $708,000
         d.   $720,000

Answer
         b.$702,000

Week Four: Financial Statement Analysis

Objective: Prepare a statement of cash flows using both direct and indirect methods.

20.      Where would the event paid income appear on a statement of cash flows, if it appears at all?
         a. operating activities section
         b. investing activities section
         c. financing activities section
         d. does not represent a cash flow

answer
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                                                                                         ACC/291 Version 2

         a. operating activities section


21.      Harbor Company reported net income of $90,000 for the year ended December 31, 2011. During
         the year, inventories decreased by $12,000, accounts payable decreased by $18,000,
         depreciation expense was $20,000, and a gain on disposal of equipment of $9,000 was recorded.
         Net cash provided by operating activities in 2011 using the indirect method was

         a.   $149,000
         b.   $95,000
         c.   $107,000
         d.   $85,000

Answer
         b.$95,000

Objective: Apply ratio, vertical, and horizontal analyses to financial statements.

22.      Horizontal analysis evaluates a series of financial statement data over a period of time
         a. 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

answer
         d.to determine the amount and/or percentage increase or decrease that has taken place


23.      In performing a vertical analysis, the base for prepaid expenses is
         a. total current assets
         b. total assets
         c. total liabilities and stockholders’ equity
         d. prepaid expenses

answer
         b.total assets


Objective: Prepare journal entries associated with the issuance of preferred and common stocks
and the declaration and payment of dividends.

24.      Kim, Inc. issued 8,000 shares of stock at a stated value of $10 per share. The total issue of stock
         sold for $15 per share. The journal entry to record this transaction would include a
         a. debit to cash for $80,000
         b. credit to common stock for $80,000
         c. credit to paid-in capital in excess of par value for $40,000
         d. credit to common stock for $120,000

answer
         b.credit to common stock for $80,000

25.      Kerwin Packaging Corporation began business in 2010 by issuing 30,000 shares of $5 par
         common stock for $8 per share and 10,000 shares of 6%, $10 par preferred stock for par. At year
         end, the common stock had a market value of $10. On its December 31, 2011 balance sheet,
         Kerwin Packaging would report
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         a.   common stock of $300,000
         b.   paid-in capital of $150,000
         c.   common stock of $240,000
         d.   common stock of $150,000

answer
         d.common stock of $150,000

Week Five: Ethics

Objective: Identify situations that might lead to unethical accounting practices.

26.      An accounts payable clerk also has access to the approved supplier master file for purchases.
         The control principle of
         a. establishment of responsibility is violated
         b. independent internal verification is violated
         c. documentation procedures is violated
         d. segregation of duties is violated

      answer
        d.segregation of duties is violated


27.      Joe is a warehouse custodian and also maintains the accounting record of the inventory held at
         the warehouse. An assessment of this situation indicates
         a. documentation procedures are violated
         b. independent internal verification is violated
         c. segregation of duties is violated
         d. establishment of responsibility is violated

answer
         c.segregation of duties is violated


Examine the effects of unethical behavior and the Sarbanes-Oxley Act on financial statements.

28.      Internal auditors
         a. are hired by CPA firms to audit business firms
         b. are employees of the IRS who evaluate the internal controls of companies filing tax returns
         c. evaluate the system of internal controls for the companies that employ them
         d. cannot evaluate the system of internal controls of the company that employs them because
             they are not independent

answer
              c.evaluate the system of internal controls for the companies that employ them


29.      Controls that enhance the accuracy and reliability of the accounting records are
         a. automated controls
         b. external controls
         c. mechanical and electronic controls
         d. physical controls

answer
         c.mechanical and electronic controls
                        Final Examination Study Guide   8
                                  ACC/291 Version 2

          Answer Key:

1.    d
2.    c
3.    b
4.    b
5.    c
6.    c
7.    b
8.    c
9.    b
10.   d
11.   d
12.   a
13.   b
14.   d
15.   c
16.   c
17.   a
18.   d
19.   b
20.   a
21.   b
22.   d
23.   b
24.   b
25.   d
26.   d
27.   c
28.   c
29.   c

				
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