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Financial Accounting 101- Spring 2013 Practice Exam - Chapters 10, 11 1. A) B) C) D) 2. A) B) C) D) 3.

A) Failure to record a liability will probably result in an overstated net income. result in overstated total liabilities and owner's equity. have no effect on net income. result in understated total assets. Liabilities are classified as current or long-term based on their description. payment terms. due date. amount. Moss County Bank agrees to lend the Sadowski Brick Company $400,000 on January 1. Sadowski Brick Company signs a $400,000, 6%, 9-month note. The entry made by Sadowski Brick Company on January 1 to record the proceeds and issuance of the note is Interest Expense 18,000 Cash 382,000 Notes Payable Cash Notes Payable C) Cash Interest Expense Notes Payable Cash Interest Expense Notes Payable Interest Payable 18,000

B)

D)

18,000

4. A) B) C) D)

Moss County Bank agrees to lend the Sadowski Brick Company $400,000 on January 1. Sadowski Brick Company signs a $400,000, 6%, 9-month note. What is the adjusting entry required if Sadowski Brick Company prepares financial statements on June 30? Interest Expense 12,000 Interest Payable Interest Expense Cash Interest Payable Cash Interest Payable Interest Expense

5. A) B)

Moss County Bank agrees to lend the Sadowski Brick Company $400,000 on January 1. Sadowski Brick Company signs a $400,000, 6%, 9-month note. What entry will Sadowski Brick Company make to pay off the note and interest at maturity assuming that interest has been accrued to September 30? Notes Payable 418,000 Cash Notes Payable Interest Payable Cash Interest Expense Notes Payable Cash Interest Payable Notes Payable Interest Expense Cash 18,000

C)

400,000

D)

400,000 6,000

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6. A) B) C) D) 7. A) B) C) D) 8. A) B) C) D) 9. A) B) C) D) 10. A) B) C) D) 11. A) B) C) D) 12. A) B) C) D) 13. A) B) C) D)

As interest is recorded on an interest-bearing note, the Interest Expense account is increased; the Notes Payable account is increased. increased; the Notes Payable account is decreased. increased; the Interest Payable account is increased. decreased; the Interest Payable account is increased. The interest charged on a $200,000 note payable, at the rate of 6%, for a year would be $12,000. $6,000. $3,000. $1,000. The interest charged on a $200,000 note payable, at the rate of 6%, on a 60-day note would be $12,000. $6,000. $3,000. $2,000. Sales taxes collected by a retailer are recorded by crediting Sales Taxes Revenue. debiting Sales Taxes Expense. crediting Sales Taxes Payable. debiting Sales Taxes Payable. A company receives $88, of which $8 is for sales tax. The journal entry to record the sale would include a debit to Sales Tax Expense for $8. credit to Sales Tax Payable for $8. debit to Sales for $88. debit to Cash for $80. A retail store credited the Sales account for the sales price and the amount of sales tax on sales. If the sales tax rate is 5% and the balance in the Sales account amounted to $315,000, what is the amount of the sales taxes owed to the taxing agency? $300,000. $315,000. $15,750. $15,000. On January 1, 2012, Keisler Company, a calendar-year company, issued $500,000 of notes payable, of which $125,000 is due on January 1 for each of the next four years. The proper balance sheet presentation on December 31, 2012, is Current Liabilities, $500,000. Long-term Debt , $500,000. Current Liabilities, $125,000; Long-term Debt, $375,000. Current Liabilities, $375,000; Long-term Debt, $125,000. Dominic's Salon has total receipts for the month of $20,140 including sales taxes. If the sales tax rate is 6%, what are Dominic's sales for the month? $18,932.20. $21,348.80. $19,000.00. It cannot be determined. 14. The following totals for the month of April were taken from the payroll register of Noll Company. Salaries $48,000 FICA taxes withheld 2,200 Income taxes withheld 10,000 Medical insurance deductions 1,800 Federal unemployment taxes 128 State unemployment taxes 864 The journal entry to record the monthly payroll on April 30 would include a

A)

debit to Salaries and Wages Expense for $48,000.

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B) C) D)

credit to Salaries and Wages Payable for $48,000. debit to Salaries and Wages Payable for $48,000. debit to Salaries and Wages Expense for $34,000. 15. The following totals for the month of April were taken from the payroll register of Noll Company. Salaries $48,000 FICA taxes withheld 2,200 Income taxes withheld 10,000 Medical insurance deductions 1,800 Federal unemployment taxes 128 State unemployment taxes 864 The entry to record the payment of net payroll would include a

A) B) C) D)

debit to Salaries and Wages Payable for $33,008. debit to Salaries and Wages Payable for $34,000. debit to Salaries and Wages Payable for $31,800. credit to Cash for $36,200. 16. The following totals for the month of April were taken from the payroll register of Noll Company. Salaries $48,000 FICA taxes withheld 2,200 Income taxes withheld 10,000 Medical insurance deductions 1,800 Federal unemployment taxes 128 State unemployment taxes 864 The entry to record accrual of employer's payroll taxes would include a

A) B) C) D)

debit to Payroll Tax Expense for $992. debit to Payroll Tax Expense for $3,192. credit to FICA Taxes Payable for $4,400. credit to Payroll Tax Expense for $992. 17. The following totals for the month of April were taken from the payroll register of Noll Company. Salaries $48,000 FICA taxes withheld 2,200 Income taxes withheld 10,000 Medical insurance deductions 1,800 Federal unemployment taxes 128 State unemployment taxes 864 The entry to record the accrual of federal unemployment tax would include a

A) B) C) D) 18. A) B) C) D) 19. A) B) C) D) 20. A) B) C) D)

credit to Federal Unemployment Taxes Payable for $128. debit to Federal Unemployment Taxes Expense for $128. credit to Payroll Tax Expense for $128. debit to Federal Unemployment Taxes Payable for $128. From the standpoint of the issuing company, a disadvantage of using bonds as a means of long-term financing is that bond interest is deductible for tax purposes. interest must be paid on a periodic basis regardless of earnings. income to stockholders may increase as a result of trading on the equity. the bondholders do not have voting rights. A legal document that indicates the name of the issuer, the face value of the bond and such other data is called a bond certificate. a bond debenture. trading on the equity. a convertible bond. Bonds that are secured by real estate are termed mortgage bonds. serial bonds. debentures. convertible bonds.

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21. A) B) C) D) 22. A) B) C) D) 23. A) B) C) D) 24. A) B) C) D) 25. A) B) C) D)

Bonds that are subject to retirement at a stated dollar amount prior to maturity at the option of the issuer are called callable bonds. early retirement bonds. options. debentures. When authorizing bonds to be issued, the board of directors does not specify the total number of bonds authorized to be sold. contractual interest rate. selling price. total face value of the bonds. Bond discount should be amortized to comply with the historical cost principle. the matching principle. the revenue recognition principle. conservatism. Winrow Company received proceeds of $377,000 on 10-year, 8% bonds issued on January 1, 2011. The bonds had a face value of $400,000, pay interest annually on December 31st, and have a call price of 101. Winrow uses the straight-line method of amortization. What is the carrying value of the bonds on January 1, 2013? $400,000 $381,600 $395,400 $379,300 Liquidity ratios measure a company's operating cycle. revenue-producing ability. short-term debt paying ability. long-range solvency. 26. The adjusted trial balance for Hamilton Corp. at the end of the current year, 2012, contained the following accounts. 5-year Bonds Payable 8% $1,000,000 Bond Interest Payable 50,000 Premium on Bonds Payable 100,000 Notes Payable (3 mo.) 40,000 Notes Payable (5 yr.) 165,000 Mortgage Payable ($15,000 due currently) 200,000 Salaries Payable 18,000 Taxes Payable (due 3/15 of next yr) 25,000 The total long-term liabilities reported on the balance sheet are

A) B) C) D)

$1,365,000 $1,350,000 $1,465,000 $1,450,000

27. Two sisters operate a bed and breakfast on the coast of Maine. As customers make reservations they are required to pay cash in advance equal to onehalf of the rate for their stay. How should the sisters account for the cash received as reservations are made? A) Cash Unearned Revenue

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B) Earned Revenue C) Earned Revenue D) Sales

28. A) B) C) D) 29. A) B) C) D) 30. A) B) C) D) 31. A) B) C) D) 32. A) B) C) D) 33. A) B) C) D) 34. A) B) C) D) 35. A) B) C) D) 36. A) B) C) D)

Stockholders of a corporation directly elect the president of the corporation. the board of directors. the treasurer of the corporation. all of the employees of the corporation. Which one of the following would not be considered an advantage of the corporate form of organization? Limited liability of stockholders. Separate legal existence. Continuous life. Government regulation. Which of the following would not be true of a privately held corporation? It is sometimes called a closely held corporation. Its shares are regularly traded on the New York Stock Exchange. It does not offer its shares for sale to the general public. It is usually smaller than a publicly held company. The officer that is generally responsible for maintaining the cash position of the corporation is the controller. treasurer. cashier. internal auditor. A disadvantage of the corporate form of business is its status as a separate legal entity. continuous existence. government regulation. ease of transfer of ownership. If a stockholder cannot attend a stockholders' meeting, he may delegate his voting rights by means of a(n) absentee ballot. proxy. certified letter. telegram. Which of the following factors does not affect the initial market price of a stock? The company's anticipated future earnings. The par value of the stock. The current state of the economy. The expected dividend rate per share. The authorized stock of a corporation only reflects the initial capital needs of the company. is indicated in its by-laws. is indicated in its charter. must be recorded in a formal accounting entry. If Norben Company issues 2,000 shares of $5 par value common stock for $140,000, the account Common Stock will be credited for $140,000. Paid-in Capital in Excess of Par Value will be credited for $10,000. Paid-in Capital in Excess of Par Value will be credited for $130,000. Cash will be debited for $130,000.

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37. A) B) C) D) 38. A) B) C) D) 39. A) B) C) D) 40. A) B) C) D) 41. A) B) C) D) 42. A) B) C) D) 43. A) B) C) D) 44. A) B) C) D) 45. A) B) C) D) 46. A) B) C) D)

If Pratt Company issues 3,000 shares of $5 par value common stock for $210,000, the account Common Stock will be credited for $195,000. Paid-in Capital in Excess of Par Value will be credited for $210,000. Paid-in Capital in Excess of Par Value will be credited for $225,000. Cash will be debited for $210,000. Which of the following represents the largest number of common shares? Treasury shares. Issued shares. Outstanding shares. Authorized shares. Which of the following statements about treasury stock is true? Few corporations have treasury stock. Purchasing treasury stock is done to eliminate hostile shareholder buyouts. Companies acquire treasury stock to increase the number of shares outstanding. Companies acquire treasury stock to decrease earnings per share. Kaplan Manufacturing Corporation purchased 2,000 shares of its own previously issued $10 par common stock for $46,000. As a result of this event, Kaplan's Common Stock account decreased $20,000. Kaplan's total stockholders' equity decreased $46,000. Kaplan's Paid-in Capital in Excess of Par Value account decreased $26,000. All of the above. A corporation purchases 30,000 shares of its own $20 par common stock for $35 per share, recording it at cost. What will be the effect on total stockholders' equity? Increase by $1,050,000. Decrease by $600,000. Decrease by $1,050,000. Decrease by $605,000. The cumulative effect of the declaration and payment of a cash dividend on a company's financial statements is to decrease total liabilities and stockholders' equity. increase total expenses and total liabilities. increase total assets and stockholders' equity. decrease total assets and stockholders' equity. The board of directors of Bosco Company declared a cash dividend on November 15, 2012, to be paid on December 15, 2012, to stockholders owning the stock on November 30, 2012. Given these facts, the date of November 30, 2012, is referred to as the declaration date. record date. payment date. ex-dividend date. The effect of a stock dividend is to decrease total assets and stockholders' equity. change the composition of stockholders' equity. decrease total assets and total liabilities. increase the book value per share of common stock. Which of the following statements about dividends is not accurate? Dividends are generally reported quarterly as a dollar amount per share. Low dividends may mean high stock returns. The board of directors is obligated to declare dividends. Payment of dividends from legal capital is illegal in many states. A stockholder who receives a stock dividend would expect the market price per share to increase. own more shares of stock. expect retained earnings to increase. expect the par value of the stock to change.

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47. A) B) C) D)

Retained earnings are occasionally restricted to set aside cash for dividends. to keep the legal capital associated with paid-in capital intact. due to contractual loan restrictions. if preferred dividends are in arrears. 48. What is the total stockholders' equity based on the following account balances? Common Stock $400,000 Paid-In Capital in Excess of Par 50,000 Retained Earnings 175,000 Treasury Stock 25,000

A) B) C) D)

$650,000. $625,000. $600,000. $450,000. 49. Racer Corporation's December 31, 2012 balance sheet showed the following: 8% preferred stock, $20 par value, cumulative, 30,000 shares authorized; 15,000 shares issued Common stock, $10 par value, 3,000,000 shares authorized; 1,950,000 shares issued, 1,920,000 shares outstanding Paid-in capital in excess of par value preferred stock Paid-in capital in excess of par value common stock Retained earnings Treasury stock (15,000 shares) Racer's total paid-in capital was

A) B) C) D) 50. A) B) C) D)

$46,860,000. $47,490,000. $46,230,000. $27,060,000. Which one of the following events would not require a journal entry on a corporation's books? 2-for-1 stock split. 100% stock dividend. 2% stock dividend. $1 per share cash dividend.

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Answer Key
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50. A C B A B C A D C B D C C A B B A B A A A C B B C D A B D B B C B B C C D D B B C D B B C B C C A A

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