Accounting Test Questions Set 2015

1. (TCO A) Listed below are some information characteristics and accounting principles and assumptions. Each of these items is assigned a number. Match the number of each with the appropriate phrase that states its application. Note: Each answer may be used multiple times.

(Points : 30)

Potential Matches:

1 : Historical cost principle

2 : Industry practices or fair value principle

3 : Revenue recognition principle

4 : Revenue and expense recognition principles

5 : Periodicity assumption

6 : Materiality

7 : Expense recognition principle

8 : Full disclosure principle

9 : Economic entity assumption

10 : Conservatism

Answer

: Fair value changes are not recognized in the accounting records

: Repair tools are expensed when purchased

: Financial information is presented so that investors will not be misled

: Rationale for accrual accounting

: Intangible assets are capitalized and amortized over periods benefited

: Agricultural companies use fair value for purposes of valuing crops

: Lower of cost or market is used to value inventories

: Revenue is recorded at point of sale

: The use of consolidated statements is justified

: Reporting must be done at defined time intervals

Question 2. 2. (TCO B) Adjusting Entries: Minnie Smile, D.D.S. opened a dental practice on January 1, 201X. During the first month of operations the following transactions occurred: performed services for patients who had dental plan insurance. At January 31, $1,000 of such services was earned but not yet billed to the insurance companies. Salaries were incurred totaling $800 but not paid at month-end. Supplies totaling $600 were purchased on account. Prepare the adjusting entries on January 31. Omit explanations. For each journal entry write Dr. for debit and Cr. for credit. (Points : 10)

Question 3. 3. (TCO B) Adjusting Entries: Seymor Stars is the new owner of Night Computer Services. At the end of August 201X, his first month of ownership, Seymor is trying to prepare monthly financial statements. At August 31, Seymor owed his employees $2,000 in wages that will be paid on September 1. At the end of the month he had not yet received the month’s utility bill. Based on past experience, he estimated that the bill would be approximately $1000. A telephone bill in the amount of $317 covering August charges is unpaid at August 31. You are to provide the missing adjusting entries that must be made. For each journal entry write Dr. for debit and Cr. for credit. (Points : 10)

Question 4. 4. (TCO B) Adjusting Entries: When the accounts of Upside Down Inc. are examined, the adjusting data listed below are uncovered on December 31, the end of annual fiscal period. The prepaid insurance account shows a debit of $6,000, representing the cost of a 2-year fire insurance policy dated August 1 of the current year. On November 1, Rental Revenue was credited for $3,600, representing revenue from a sub-rental for a 3-month period beginning on that date. Interest of $770 has accrued on notes payable. You are to prepare the missing adjusting entry. For each journal entry write Dr. for debit and Cr. for credit. (Points : 10)

Question 5. 5. (TCO B) Adjusting Entries: On April 1, 201X, Jokers Company assigns $600,000 of its accounts receivable to the First National Bank as collateral for a $300,000 loan due July 1, 201X. The assignment agreement calls for Jokers Company to continue to collect the receivables. First National Bank assesses a finance charge of 2% of the accounts receivable, and interest on the loan is 10% (a realistic rate of interest for a note of this type). Prepare the April 1, 201X journal entry for Jokers Company. You are to prepare the missing adjusting entry. For each journal entry write Dr. for debit and Cr. for credit. (Points : 10)

Question 6. 6. (TCO B) Adjusting Entries: Wizard Industries purchase $12,000 of merchandise on February 1, 2010, subject to a trade discount of 10% and with credit terms of 3/15/, n/60. It returned $3,000 (gross price before trade or cash discount) on February 4. The invoice was paid on February 13. At what amount would the purchase on February 1 be recorded if the net method were used? (Points : 10)

Question 7. 7. (TCO B) Adjusting Entries: Shabbona Corporation operates a retail computer store. To improve delivery services to customers, the company purchased a new truck on April 1, 2010. The terms for the acquisition of the truck are that it has a list price of $14,000. It is acquired in exchange for 1,000 shares of common stock in Shabbona Corporation. The stock has a par value per share of $10 and a market value of $13 per share. Write the journal entry to record the purchase of the truck. Write Dr. for debit and Cr. for credit. (Points : 10)

Question 8. 8. (TCO D) The adjusted trial balance of Cavamanlis Co. as of December 31, 2011 contains the following.

Account Titles Dr Cr

Cash $18,972

Accounts Receivable 6,920

Prepaid Rent 4,280

Equipment 20,050

Accumulated Depreciation $5,895

Notes Payable 5,700

Accounts Payable 4,472

Common Stock 20,000

Retained Earnings 15,310

Dividends 4,000

Service Revenue 12,590

Salaries Expense 6,840

Rent Expense 2,760

Depreciation Expense 145

Interest Expense 83

Interest Payable 83

$64,050 $64,050

Instructions:

Prepare in good form a balance sheet for the year ended December 31, 2011. (Points : 15)

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1. (TCO C) Flynn Design Agency was founded by Kevin Flynn in January 2009. Presented below is the adjusted trial balance as of December 31, 2010.

Flynn Design Agency

Adjusted Trial Balance

December 31, 2010

Account Titles Dr Cr

Cash $10,000

Accounts Receivable 21,500

Art Supplies 5,000

Prepaid Insurance 2,500

Printing Equipment 60,000

Accumulated Depreciation $35,000

Accounts Payable 8,000

Interest Payable 150

Notes Payable 5,000

Unearned Advertising Revenue 5,600

Salaries Payable 1,300

Common Stock 10,000

Retained Earnings 3,500

Advertising Revenue 58,500

Salaries Expense 12,300

Insurance Expense 850

Interest Expense 500

Depreciation Expense 7,000

Art Supplies Expense 3,400

Rent Expense 4,000

Total $127,050 $127,050

Prepare a single-step income statement for the year ending December 31, 2010. (Points : 15)

Question 2. 2. (TCO C) Two accountants for the firm of Allen and Wright are arguing about the merits of presenting an income statement in a multiple-step versus a single-step format. The discussion involves the following 2010 information related to Webster Company.

Administrative expense

Officers’ salaries $4,900

Depreciation of equipment 3,960

Cost of Goods Sold 63,570

Rental revenue 17,230

Selling Expense

Transportation-out 2,690

Sales commission 7,980

Depreciation of equipment 6,480

Sales 96,500

Income tax 7,580

Interest expense 1,860

Prepare a single-step income statement for the year ended December 31, 2010. (Points : 20)

Question 3. 3. (TCO D) Bruno Company has decided to expand its operations. The bookkeeper recently completed the balance sheet presented below in order to obtain additional funds for expansion.

Bruno Company

Balance Sheet

December 31, 2010

Current Assets

Current Assets

Cash $350,000

Accounts Receivable (net) 340,000

Inventories at lower of average cost or market 401,000

Trading securities – at cost (fair value $120,000) 140,000

Property, plant and equipment

Building (net) 609,000

Office equipment (net) 160,000

Land held for future use 175,000

Intangible assets

Goodwill 80,000

Cash surrender value of life insurance 90,000

Prepaid expenses 12,000

Current liabilities

Accounts payable 155,000

Notes payable (due next year) 175,000

Pension obligation 102,000

Rent payable 49,000

Premium on bonds payable 53,000

Long-term liabilities

Bonds payable 550,000

Stockholders’ Equity

Common stock, $1.00 par, authorized

400,000 shares, issued 290,000 290,000

Additional paid-in capital 240,000

Retained earnings ?

Prepare a revised balance sheet given the available information. Assume that the accumulated depreciation balance for the buildings is $160,000 and for the office equipment, $105,000. The allowance for doubtful accounts has a balance of $17,000. The pension obligation is considered a long-term liability. (Points : 20)

Question 4. 4. (TCO F) Determine the cash account balance. If the item described is not reported as cash, explain the rationale. Checking account balance $500,000; and overdraft in special checking account at same bank as normal checking account of $17,000; cash held in a bond sinking fund $200,000; petty cash fund $300; and coins and currency on hand $1,350. (Points : 20)

Question 5. 5. (TCO F) At the end of 2010 Sorter Company has accounts receivable of $900,000 and an allowance for doubtful accounts of $40,000. On January 16, 2011, Sorter Company determined that its receivable from Ordonez Company of $8,000 will not be collected, and management authorized its write-off. What is the net realizable value of Sorter Company’s accounts receivable after the write-off of the Ordonez receivable? (Points : 20)

Question 6. 6. (TCO G) In your audit of Garza Company, you find that a physical inventory on December 31, 2010, showed merchandise with a cost $441,000 was on hand at that date. You also discover the following items were all excluded from the inventory count.

•Merchandise of $61,000, which is held by Garza on consignment. The consignee is the Bontemps Company.

•Merchandise costing $33,000, which was shipped by Garza f.o.b. destination to a customer on December 31, 2010. The customer was expected to receive the merchandise on January 6, 2011.

•Merchandise costing $46,000, which was shipped by Garza f.o.b. shipping point to a customer on December 29, 2010. The customer was schedule to receive the merchandise on January 2, 2011.

•Merchandise costing $73,000 shipped by a vendor f.o.b. destination on December 30, 2010, and received by Garza on January 4, 2011.

•Merchandise costing $51,000 shipped by a vendor f.o.b. shipping point on December 31, 2010, and received by Garza on January 5, 2011.

Based on the above information, calculate the amount that should appear on Garza’s balance sheet at December 31, 2010, for inventory. (Points : 20)

Question 7. 7. (TCO G) Werth Company asks you to review its December 31, 2010 inventory values and prepare the necessary adjustments to the books. The following information is given to you.

•Werth uses the periodic method of recording inventory. A physical count reveals $234,890 of inventory on hand at December 31, 2010.

•Not included in inventory is $8,540 of merchandise purchased from Minsky Industries. This merchandise was received on December 31 after the inventory had been counted. The invoice was received and recorded on December 30.

•Included in inventory was $10,438 of inventory held by Werth on consignment from Jackel Industries.

•Included in inventory is merchandise sold to Sims f.o.b. shipping point. This merchandise was shipped after it was counted. The invoice was prepared and recoded as a sale for $18,900 on December 31, The cost of this merchandise was $11,520, and Sims received the merchandise on January 5.

•Excluded from inventory was a carton labeled “Please accept for credit.” This carton contains merchandise costing $1,500, which had been sold to a customer for $2,600. No entry had been made to the books to reflect the return, but none of the returned merchandise seemed damaged.

Determine the proper inventory balance for Werth Company at December 31, 2010. (Points : 20)

Question 8. 8. (TCO H) Pollachek Co. purchased land as a factory site for $450,000. The process of tearing down two old buildings on the site and constructing the factory required 6 months. The company paid $51,000 to tear down the old buildings and sold salvaged lumber and brick for $10,300. Legal fees of $3,750 were paid for title investigation and drawing the purchase contract. Pollachek paid $2,200 to an engineering firm for a land survey, and $65,000 for drawing the factory plans. The land survey had to be made before definitive plans could be drawn. Title insurance on the property cost $1,500, and a liability insurance premium paid during construction was $1,900. The contractor’s charge for construction was $2,740,000. The company paid the contractor in two installments: $1,200,000 at the end of 3 months and $1,540,000 upon completion. Interest costs of $170,000 were incurred to finance the construction.

Determine the cost of the land and the cost of the building as they should be recorded on the books of Pollachek Co. Assume that the land survey was for the building. (Points : 30)

Question 9. 9. (TCO E) Maserati Corporation purchased a new machine for its assembly process on August 1, 2010. The cost of this machine was $150,000. The company estimated that the machine would have a salvage value of $24,000 at the end of its service life. Its life is estimated at 5 years and its working hours are estimated at 21,000 hours. Year-end is December 31. Compute the depreciation expense under the double-declining-balance method for 2011. (Points : 30)