Docstoc

Belk College Of Business

Document Sample
Belk College Of Business Powered By Docstoc
					                          PRINCIPLES OF ACCOUNTING I
                              Practice Exam for Exam 3
                                     Spring 2010

These questions have been primarily taken from previous exams using other textbooks. You should
try to answer all of the questions without looking at the answers. Check your answers when you are
finished.

Please understand that success on this practice quiz does not insure success on the actual exam.


1.     A bond that may be exchanged for shares of stock of the issuing company is termed a
       a.    Convertible bond
       b.    Debenture bond
       a.    Mortgage bond
       b.    Serial bond


2.     Oak Tree Corporation issued 500, 7%, 8 year bonds at 102 on 1/1/07. Interest is paid annually. What
       is the total cost of borrowing for the bonds?
       a.       $270,000
       b.       $280,000
       c.       $290,000
       d.       $300,000


3.     Which of the following is a contingent liability?
       a.    A note payable due in two years
       b.    Interest payable due in six months
       c.    Taxes payable to a foreign government
       d.    Product liability lawsuit by a customer


4.     Stock issued by a company and then reacquired by the company is termed
       a.      Callable stock
       b.      Stock dividend
       c.      Stock split
       d.      Treasury stock


5. Declaration and issuance of additional shares of stock (10% of existing shares) by a
   corporation to existing stockholders is
       a.     Callable stock
       b.     Stock dividend
       c.     Stock option
       d.     Treasury stock
                                                                          Acct 2121 Practice Test Sp10 (Sevin)
6.    The number of shares of stock actually sold to stockholders
      a.    Authorized shares
      b.    Issued shares
      c.    Outstanding shares
      d.    Sold shares


7.    Current liabilities include all of the following, except
      a.     accrued wages payable
      b.     prepaid insurance
      c.     accounts payable
      d.     current portion of long-term debt


8.    Which of the following items will not be included in the stockholders’ equity section of the balance
      sheet?
      a.     retained earnings
      b.     additional paid-in capital
      c.     treasury stock
      d.     dividend payable


9.    Rip Off Co. retired $400,000 face value of bonds when the discount on bonds payable had a
      balance of $32,495. Rip Off paid $360,000 to retire the bonds. Rip Off would report a ________ on
      its income statement.
      a.      gain of $72,475.
      b.      gain of $40,000.
      c.      gain of $7,505.
      d.      loss of $7,505.


10.   When common stock is issued for an amount above par value, the amount above par value results in
      a.    an increase in net income.
      b.    an increase in retained earnings.
      c.    an increase in total paid-in capital.
      d.    an increase in liabilities.


11.   Which of the following would NOT be an expense of the period?
      a.    research and development costs on a patent.
      b.    ordinary repairs.
      c.    revenue expenditures.
      d.    capital expenditures.




                                                                          Acct 2121 Practice Test Sp10 (Sevin)
12.    A $1,000 face value bond with a quoted price of 97 is selling for
       a.     $1,000.
       b.     $ 970.
       c.     $ 907.
       d.     $ 97.


QUESTIONS 13 AND 14 ARE BASED ON THE FOLLOWING DATA CONCERNING A BOND
ISSUANCE OF THE TAMPA COMPANY.

Tampa Company plans to issue $100,000 par value, 10-year bonds with a stated interest rate of 10%. Interest
is paid annually.

13.    If, on the date of issuance, the market rate of interest is 8%, the price of the bonds might be
       a.       $100,000                        b. $113,550
       c.       $ 97,000                        d. $88,550


14.    Independent of Question 20, what might be the price of the bonds if the market rate of interest is 12%
       on date of issuance.
       a.      $100,000                    b. $113,550
       c.      $200,000                    d. $88,550


15.    Stadler Corporation issued five-year, 5% bond with par value of $50,000 on January 1, 2003. Interest
       is paid annually on December 31. The issue price of the bond was $51,250. On December 31, 2003,
       after $250 of the premium has been amortized, Stadler bought back all of the bonds at 103. What is
       the amount of gain or loss on the retirement of the bonds?
       a.      $250 gain                       b. $250 loss
       c.      $500 loss                       c. $500 gain


16.    If a company's bonds are callable
       a.      the investor or buyer of the bonds has the right to retire the bonds.
       b.      the issuing company is likely to retire the bonds before maturity if the bonds are paying 8%
               interest while the market rate of interest is 5%.
       c.      the bonds are never allowed to remain outstanding until the maturity date.
       d.      the investor never knows what the redemption price will be until the bonds are actually
               called.


17.    Residual (salvage) value is
       a.     the difference at any point in time between book value and market value.
       b.     the scrap value of the asset.
       c.     the part of an asset not yet depreciated at any point in time.
       d.     the excess of cost over accumulated depreciation.




                                                                               Acct 2121 Practice Test Sp10 (Sevin)
18.    Carter Corporation issues 200 6% 10 year bonds at 98.6. Each bond has a $1,000 face value and
       the bonds pay interest annually. What is the total amount of cash interest that Carter Corporation
       will pay over the life of the bonds?
       a.      $197,299
       b.      $120,000
       c.      $122,800
       d.      $202,800


19.    One thousand bonds with a face value of $1,000 each, are sold at 103. The entry to record the
       issuance is
       a.     Cash ...................................     1,030,000
                                  Bonds Payable ......................     1,030,000
       b.     Cash ...................................     1,000,000
                      Premium on Bonds Payable ...........             30,000
                                  Bonds Payable ......................     1,030,000
       c.     Cash ...................................     1,030,000
                                  Premium on Bonds Payable ...........  30,000
                                  Bonds Payable ......................     1,000,000
       d.     Cash ...................................     1,030,000
                                  Discount on Bonds Payable ..........  30,000
                                  Bonds Payable ......................     1,000,000


20.    Where are dividends in arrears reported?
       a.    current liabilities section of the balance sheet
       b.    as a reduction in stockholders’ equity
       c.    notes to the financial statements
       d.    as a contingent liability


21.    If Visser Company issues 1,000 shares of $5 par value common stock for $70,000, the account
       a.      Common Stock will be credited for $70,000.
       b.      Paid-In Capital in Excess of Par Value will be credited for $5,000.
       c.      Paid-In Capital in Excess of Par Value will be credited for $65,000.
       d.      Cash will be debited for $65,000.


 22.   Treasury stock is
       a.     stock issued by the U.S. Treasury Department.
       b.     stock purchased by a corporation and held as an investment in its treasury.
       c.     corporate stock issued by the treasurer of a company.
       d.     a corporation's own stock which has been reacquired and held for future use.




                                                                           Acct 2121 Practice Test Sp10 (Sevin)
23.   The balance sheet of Dakota Company as of December 31, 2003, includes the following information
      about the company’s stockholder’s equity:

      Common stock: $1.00 par value, 1,000,000 shares authorized;
             900,000 issued                                                   $ 900,000
      Additional paid in capital                                              8,000,000
      Retained earnings                                                       2,000,000
      Treasury stock, 9,000 shares, at cost                                     (99,000)
             Total stockholders’ equity                                     $10,801,000

      How many shares of Dakota’s common stock were outstanding as of December 31, 2003?
      a.   900,000                             b.       909,000
      c.   891,000                             d.     1,000,000


24.   When a company issues bonds, how are unamortized bond discounts and premiums classified on
      the balance sheet?

      a.     Bond discounts are classified as assets, and bond premiums are classified as contra-asset
             accounts
      b.     Bond discounts are classified as expenses, and bond premiums are classified as revenues
      c.     Bond premiums are classified as additions to, and bond discounts are classified as
             deductions from, the face value of bonds
      d.     Bond premiums are classified as deductions from, and bond discounts are classified as
             additions to, the face value of bonds


25.   DEN Inc. has 1,000 shares of 6%, $100 par value, cumulative preferred stock and 50,000 shares of
      $1 par value common stock outstanding at December 31, 2003. What is the annual dividend on
      the preferred stock?
      a.      $60 per share
      b.      $6,000 in total
      c.      $600 in total
      d.      $.60 per share


26.   On January 1, 2007 a machine is purchased for $100,000. It is expected to have a useful life of 10
      years, during which time it is expected to be used for 30,000 hours. The residual value is $10,000.
      It is used for 3,500 hours in 2007 and 4,000 in 2008. What is the book value at 12/31/08? (The
      company uses the units-of-activity method.)

      a.     $75,000
      b.     $77,500
      c.     $89,500
      d.     $22,500




                                                                         Acct 2121 Practice Test Sp10 (Sevin)
27.On January 1, 2007 a machine is purchased for $100,000. It is expected to have a useful life of 10
years, during which time it is expected to be used for 30,000 hours. The residual value is $10,000. What
is the total amount of depreciation that can be taken over the machine’s life using the straight-line
method?
         a.     $90,000
         b.     $100,000
         c.     $30,000
         d.     $9,000


28.    Which of the following assets does not decline in service potential over the course of its useful
       life?
       a.    Equipment
       b.    Furnishings
       c.    Land
       d.    Fixtures


29.    The book value of an asset is equal to the
       a.    asset's market value less its historical cost.
       b.    blue book value relied on by secondary markets.
       c.    replacement cost of the asset.
       d.    asset's cost less accumulated depreciation.


30.    The Modified Accelerated Cost Recovery System (MACRS) is a depreciation method that
       a.    is used for tax purposes
       b.    must be used for financial statement purposes
       c.    is required by the SEC
       d.    expenses an asset over a single year because capital acquisitions must be expensed in the
             year purchased

31.    A company purchased factory equipment on April 1, 2003 for $48,000. It is estimated that the
       equipment will have a $6,000 salvage value at the end of its 10-year useful life. Using the straight-
       line method of depreciation, the amount to be recorded as depreciation expense at December 31,
       2003 is:
       a.     $4,800
       b.     $4,200
       c.     $3,150
       d.     $3,600


32.    A company sells a plant asset that originally cost $150,000 for $50,000 on December 31, 2003.
       The accumulated depreciation account had a balance of $60,000 after the current year's
       depreciation had been recorded. The company should recognize a
       a.     $100,000 loss on disposal
       b.     $40,000 gain on disposal
       c.     $40,000 loss on disposal
       d.     $25,000 loss on disposal
                                                                            Acct 2121 Practice Test Sp10 (Sevin)
33.    Blue Book had one hundred shares of Big Car Corporation common stock that was purchased for
       $21 per share. Blue Book sold the shares of stock to ABC Racing for $28 per share. On Big Car’s
       books this would
       a.    be shown as an increase in stockholders’ equity of $2,800
       b.    not be shown at all
       c.    be shown as an increase to additional paid-in-capital of $700
       d.    be shown as an increased in stockholders’ equity of $700


QUESTIONS 34 & 35 ARE BASED ON THE FOLLOWING INFORMATION

       Green Company purchased a new van for floral deliveries on January 1, 2002. The van cost
       $20,000 with an estimated life of 5 years and $5,000 salvage value at the end of its useful life. The
       double-declining-balance method of depreciation will be used.


34.    What is the depreciation expense for 2002?
       a.     $4,000
       b.     $3,000
       c.     $6,000
       d.     $8,000


35.    What is the balance of the Accumulated Depreciation account at the end of 2003?
       a.     $ 3,200
       b.     $ 9,600
       c.     $12,800
       d.     $ 4,800

Refer to the Best Buy financial statements contained at the end of the test, and the following ratio
formulas to answer the questions that follow:

Times interest earned = (Net income + interest expense + tax expense) ÷ Interest expense
Return on assets = Net income ÷ Average total assets
Asset turnover ratio = Net sales ÷ Average total assets

36.    Assume interest expense for 2003 was $10 (in millions). Best Buy’s Times Interest Earned ratio
       for fiscal 2003 was:
       a.      50.100
       b.      97.200
       c.      10.900
       d.      102.400




                                                                             Acct 2121 Practice Test Sp10 (Sevin)
37.   What is Best Buy’s Return on Assets Ratio for fiscal 2003?
      a.     .0134
      b.     .0132
      c.     .0129
      d.     2.7872


38.   What is the par value of Best Buy common stock?
      a. $0.10                                    b.     $0.50
      c. $0.75                                    d.     $1.00


39.   What was the number of shares of preferred stock that Best Buy had outstanding at the end of
      fiscal 2003?

      a.    0
      b.    200,000
      c.    300.000
      d.    400,000


40.   What was Best Buy’s Asset Turnover Ratio for fiscal 2003?
      a.    2.992
      b.    2.787
      c.    2.843
      d.    2.733

41.   Pine Tree Corporation issued 100, 6%, 10 year bonds at 97.2 on 1/1/10. Interest is paid annually.
      What is the total cost of borrowing for the bonds?
      a.     $60,000
      b.     $62,800
      c.     $57,200
      d.     $100,000




                                                                        Acct 2121 Practice Test Sp10 (Sevin)
Questions 42 and 43 refer to this exhibit. Wallace Inc. had the following account balances before a 10%
stock dividend:

               Common Stock, $10 par, 100,000 shares
               authorized,
                20,000 shares issued and outstanding                     200,000
               Additional PIC                                            500,000
               Retained Earnings                                         800,000
               Total Stockholders' Equity                              1,500,000

On the date of the stock dividend, the market price of the stock was $40 per share.

42.    What was the balance in the Common Stock account after the stock dividend?
       a.    $200,000
       b.    $20,000
       c.    $280,000
       d.    $220,000

43.    What was total stockholders’ equity after the stock dividend?
       a.    $1,500,000
       b.    $1,580,000
       c.    $880,000
       d.    $1,520,000

44.    Go back to the original data for Wallace Inc. This time assume that Wallace declared and issued a 2-
       1 stock split. What was the balance in the Common Stock account after the stock split?
       a.      $200,000
       b.      $20,000
       c.      $280,000
       d.      $220,000

45.    What was total stockholders’ equity after the stock split?
       a.    $1,500,000
       b.    $1,580,000
       c.    $880,000
       d.    $1,520,000

46.    What was the par value per share after the stock dividend?
       a.    $10
       b.    $20
       c.    $5
       d.    $22




                                                                             Acct 2121 Practice Test Sp10 (Sevin)
                                                 Best Buy Co., Inc.
                                           Consolidated Statements of Earnings
                                           $ in millions, except per share amounts

For the Fiscal Years Ended                     March 1, 2003     March 2, 2002     March 3, 2001
Sales Revenue                                       $ 20,946          $17,711           $15,189
Cost of goods sold                                    15,710            13,941            12,177
Gross profit                                        $ 5,236           $ 3,770            $ 3,012
Selling, general and administrative expenses           4,226             2,862             2,401
Operating income                                       1,010               908               611
Net interest income                                         4               18                38
Earnings from continuing operations
 before income tax expense                             1,014                926              649
Income tax expense                                        392               356              248
Earnings from continuing operations                       622               570              401
Loss from discontinued operations net of tax           (441)                 —                (5)
Cumulative effect of change in accounting principle
 for goodwill net of $24 tax                             (40)                —                —
Cumulative effect of change in accounting principle
  for vendor allowances , net of $26 tax                 (42)                —               —
Net earnings                                         $     99          $    570           $ 396

Basic earnings (loss) per share:
Continuing operations                                 $ 1.93           $ 1.80             $ 1.29
Discontinued operations                                (1.37)              —               (0.02)
Cumulative effect of accounting changes                (0.25)              —                   —
Basic earnings per share                              $ 0.31           $ 1.80             $ 1.28
Diluted earnings (loss) per share:
Continuing operations                                 $ 1.91           $ 1.77             $ 1.26
Discontinued operations                                 (1.36)              —              (0.02)
Cumulative effect of accounting changes                 (0.25)              —                  —
Diluted earnings per share                             $ 0.30           $ 1.77            $ 1.24
Basic weighted average common shares
  outstanding (in millions)                             321.1              316.0           310.0
Diluted weighted average common shares
 outstanding (in millions)                              324.8              322.5           319.0
Pro forma effect of change in accounting
 principle for vendor allowances
Earnings from continuing operations                                        $564            $396
Basic earnings per share                                                    1.78            1.28
Diluted earnings per share                                                  1.75            1.24
Net earnings                                                               $564            $390
Basic earnings per share                                                    1.78            1.26
Diluted earnings per share                                                  1.75            1.22




                                                                                        Acct 2121 Practice Test Sp10 (Sevin)
                                                     Best Buy Co., Inc.
                                               Consolidated Balance Sheets
                                          $ in millions, except per share amounts

Assets                                                         March 1,2003         March 2,2002
Current Assets
Cash and cash equivalents                                              $1,914             $ 1,861
Receivables                                                               312                 221
Recoverable costs from developed properties                                10                  79
Merchandise inventories                                                 2,046               1,875
Other current assets                                                      188                 116
Current assets of discontinued operations                                 397                 448
Total current assets                                                   $4,867              $4,600
Property and Equipment
Land and buildings                                                         208                205
Leasehold improvements                                                     719                540
Fixtures and equipment                                                   2,108              1,649
Property under capital lease                                                54                 39
                                                                        $3,089             $2,433
Less accumulated depreciation and amortization                           1,027                772
Net property and equipment                                              $2,062             $1,661
Goodwill, Net                                                              429                465
Intangible Assets                                                           33                 —
Other Assets                                                               115                 80
Noncurrent Assets of Discontinued Operations                               157                561
Total Assets                                                           $ 7,663             $7,367

Liabilities and Shareholders’ Equity                           March 1, 2003        March 2, 2002
Current Liabilities
Accounts payable                                                       $2,195              $2,202
Accrued compensation and related expenses                                 174                 174
Accrued liabilities                                                       729                 613
Accrued income taxes 374                                                  291
Current portion of long-term debt                                           1                   7
Current liabilities of discontinued operations                            320                 418
Total current liabilities                                              $3,793              $3,705
Long-Term Liabilities                                                     287                 312
Long-Term Debt                                                            828                 808
Noncurrent Liabilities of Discontinued Operations                          25                  21
Shareholders’ Equity
Preferred stock, $1.00 par value: Authorized
 400,000 shares; Issued and outstanding—none                                —                  —
Common stock, $.10 par value: Authorized
 1 billion shares; Issued and outstanding
 321,966,000 and 319,128,000 shares, respectively                          32                   31
Additional paid-in capital                                                778                 702
Retained earnings                                                       1,893               1,794
Accumulated other comprehensive income (loss)                              27                  (6)
Total shareholders’ equity                                             $2,730              $2,521
Total Liabilities and Shareholders’ Equity                             $7,663              $7,367




                                                                                         Acct 2121 Practice Test Sp10 (Sevin)
                                                     Best Buy Co., Inc.
                                           Consolidated Statements of Cash Flows
                                                        $ in millions

For the Fiscal Years Ended                      March 1,2003       March 2,2002    March 3,2001
Operating Activities
Net earnings                                                $ 99         $ 570            $ 396
Loss from discontinued operations                            441            —                 5
Cumulative effect of change in accounting principles          82            —                —
Earnings from continuing operations                          622           570              401
Adjustments to reconcile earnings from continuing
 operations to net cash provided by operating activities:
Depreciation                                                 310            242             164
Deferred income taxes                                       (37)             15              36
Amortization of goodwill                                      —               3               1
Other                                                         24             36              18
Changes in operating assets and liabilities,
 net of acquired assets and liabilities:
Receivables                                                 (89)              1              (9)
Merchandise inventories                                   (225)           (324)           (185)
Other assets                                                (36)           (24)            (16)
Accounts payable                                            (20)            575             159
Other liabilities                                             86            196             149
Accrued income taxes                                         111            253             143
Total cash provided by operating activities                $746          $1,543           $ 861

Investing Activities
Additions to property and equipment                      ($725)          ($581)          ($657)
Acquisitions of businesses, net of cash acquired            (3)           (368)           (326)
Decrease (increase) in recoverable costs
 from developed properties                                   69              25             (31)
Increase in other assets                                     —               —              (15)
Total cash used in investing activities                  ($659)          ($924)         ($1,029)

Financing Activities
 Net proceeds from issuance of long-term debt           $   18           $ 726            $ —
 Long-term debt payments                                  (13)               (5)           (17)
Issuance of common stock                                    40                48            235
Total cash provided by financing activities                 45              769             218
Net Cash Used in Discontinued Operations                  (79)            (270)            (58)
Increase (Decrease) in Cash and Cash Equivalents            53            1,118              (8)
Cash and Cash Equivalents at Beginning of Year           1,861              743             751
Cash and Cash Equivalents at End of Year                $1,914           $1,861           $743

Supplemental Disclosure of Cash Flow Information
Income tax paid                                             $283          $139              $62
Interest paid                                                 24            25                7




                                                                                       Acct 2121 Practice Test Sp10 (Sevin)
Answers

   1. A
   2. A
   3. D
   4. D
   5. B
   6. B
   7. B
   8. D
   9. C
   10. C
   11. D
   12. B
   13. B
   14. D
   15. C
   16. B
   17. B
   18. B
   19. C
   20. C
   21. C
   22. D
   23. C
   24. C
   25. B
   26. B
   27. A
   28. C
   29. D
   30. A
   31. C
   32. C
   33. B
   34. D
   35. C
   36. A
   37. B
   38. A
   39. A
   40. B
   41. B
   42. D
   43. A
   44. A
   45. A
   46. A

           Acct 2121 Practice Test Sp10 (Sevin)

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:3
posted:9/4/2011
language:English
pages:13