Gustav Boström
2006-10-17
Exam Accounting ICT4D IB 7050
2006-10-17
Allowed material:
On the exam you are allowed to have: * Writing material (Pen etc..). * One, personal, not copied, double-sided, A4 “Cheat sheet” * A calculator The cheat sheet should have been written by yourself. It is absolutely forbidden to copy it from another student.
Instructions:
Each Accounting problem answer should be handed in on a separate piece of paper. If you have to make assumptions in order to solve the problem, document the assumptions you make. All the Multiple-choice answers should be on one paper. Do not write your answer on the exam itself. Good luck!
Maximum score: 55p Points required for grade: 3: 30p 4: 40p 5: 45p
Gustav Boström
2006-10-17
Accounting problems section:
1. (4p) Listed below are several account titles. List the type of account listed by the account title. The first item is listed as an example.
Account Title Equipment Notes Payable Merchandise Inventory Prepaid Insurance Common Stock Land Accounts Receivable Accounts Payable Retained Earnings 2.
Account Type Asset
(6p) Northwestern Express Enterprises gathered together the following information at the end of its first year of operations, September 30, 2006: Rent expense Truck Supplies Salary expense Accounts receivable Note payable Common stock $ 7,500 14,600 2,500 19,400 8,200 11,000 25,000 Dividends Accounts payable Service revenue Salary payable Utilities expense Interest expense Cash $10,200 6,700 45,500 1,200 5,000 1,500 20,800
Prepare an income statement for Northwestern Express Enterprises for the year ended September 30, 2006.
3.
(6p) Given the journal entries below, write an explanation of the event that created the transaction (You are allowed to make assumptions, but state the assumptions you make.). a. Cash Common Stock b. Automobile Note Payable Cash 20,000 15,000 5,000 15,000 15,000
Gustav Boström
c. Accounts Receivable Service Revenue d. Dividends Cash e. Accounts Payable Cash f. Salary Expense Cash 1,000 1,000 500 500 1,500 1,500 1,875 1,875
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4. (5p) List the types of accounts that appear on the income statement. List the types of accounts that appear on the balance sheet.
5. (5p) Prepare adjusting entries for the year ended December 31, 2007, based on the following data: a) A two-year insurance policy costing $3,000 was purchased on September 30, 2007. b) Employee salaries are owed for 3 days of a regular 5-day work week. Weekly payroll, $8,000. c) The balance in Supplies before adjustment is $1,600. A physical count reveals $350 of supplies on hand on December 31, 2007. d) Equipment was purchased at the beginning of the year for $20,000. The equipment has a useful life of 4 years and no salvage value. e) Unearned Service Revenue has a balance of $4,200 before adjustment. Records show that $2,725 of that amount has been earned by December 31, 2007. 6. (5p) Use the following information to prepare a cash budget for Andromeda Industries for the year ended December 31, 2007. Proceeds from sale of equipment $ 40,000 Purchases of inventory for cash 150,000 Receipts from customers 518,000 Investment in additional equipment 300,000 Proceeds from issuing short-term note payable 50,000 Payments for operating expenses 125,000 Payments for interest and taxes 45,000 Payments for dividends 22,000 Debt payments 52,000 The Cash balance on January 1, 2007, is $80,300. The budgeted Cash balance for December 31, 2007, is $90,000. 7. (7p) Identify where each of the following items would appear on a statement of cash flows. Use (O) for the operating activities section, (I) for the investing activities section, (F) for the financing activities section, (NIF) for the schedule of noncash investing and financing
Gustav Boström
2006-10-17
activities, and (N) if the item does not appear anywhere on the statement of cash flows. Assume the statement is prepared using the indirect method. a. b. c. d. e. f. g. h. i. j. k. l. m. n. o. gain on sale of land cash sales sale of a long-term investment in stock amortization of a patent payment of long-term debt net income payment of income taxes conversion of preferred stock into common stock sale of treasury stock increase in inventory purchase of equipment cost of goods sold exchange of common stock for a building distribution of a 10% stock dividend collection of accounts receivable
______
8. (5p) For each of the following items, explain its significance and show how the ratio mentioned is calculated: a. A decrease in the current ratio b. An increase in inventory turnover c. An increase in the days’ sales in receivables d. A decrease in the debt ratio e. An increase in the rate of return on net sales
Multiple choice section (1p each):
1. The balance in Accounts Receivable was $800,000 at the beginning of the year and $500,000 at the end of the year. Sales for the year totaled $2,400,000. During the year $200,000 in customer accounts were written off. How much cash was collected from customers during the period? a. $1,900,000 b. $2,500,000 c. $2,700,000 d. $2,900,000 2. All of the following are purposes of internal control except: a. to safeguard assets b. to ensure accurate and reliable accounts records c. to encourage adherence to company policies d. to promote operational inefficiency 3. Which financial statement provides a "snapshot photo" of one moment in time? a. balance sheet b. income statement c. statement of retained earnings d. statement of cash flows
Gustav Boström
4. Given the following data, what is the cost of beginning inventory? Sales revenue Cost of goods sold Ending inventory Purchases a. b. c. d. $1,485,000 $415,000 $1,035,000 $205,000 $1,450,000 845,000 310,000 950,000
2006-10-17
5. The conservatism principle in accounting means that a company should: a. report items in the financial statements at amounts that lead to the most pessimistic immediate financial results b. use the same accounting methods and procedures from period to period c. report enough information in its financial statements for outsiders to make knowledgeable decisions about the company d. perform strictly proper accounting for items and transactions that are significant to the company’s financial statements 6. The process of allocating a plant asset’s cost to expense over the period the asset
is used is called:
a. b. c. d. accumulation depreciation depletion amortization
7. The book value of an asset is defined as: a. cost minus annual maintenance expense b. current sales value minus historical cost c. cost minus accumulated depreciation d. cost minus salvage value 8. A company wishing to expand can obtain the necessary funds by borrowing on a longterm note payable or by issuing 100,000 shares of $10 par value common stock. Net income is estimated at $318,000 if the company borrows the funds, and $360,000 if the company issues stock. The company currently has 200,000 shares of common stock outstanding. If the company issues stock, earnings per share would be: a. $1.59 b. $1.06 c. $1.80 d. $1.20
9. Which of the following would probably be reported as an extraordinary gain or loss? a. natural disaster b. retiring bonds payable c. corporate restructuring d. All of these answers are correct.
Gustav Boström
2006-10-17
10. Which of the three types of activities reported on the statement of cash flows is the MOST critical for evaluating a company’s viability? a. operating activities b. investing activities c. financing activities d. All of the sections are equally important. 11. An expense incurred in 2005 is not paid until 2006. Using the accrual basis of accounting, the expense should appear on: a. the 2006 income statement b. the 2005 income statement c. neither the 2005 nor the 2006 income statement d. both the 2005 and 2006 income statements 12. A company incurs a loss due to restructuring. This is the first time the company has experienced a restructuring. The loss from this event would be shown as: a. an extraordinary item b. other gains and losses c. a prior-period adjustment d. a normal business occurrence requiring an adjustment to the beginning balance in Retrained Earnings