ACCT 201 Principles of Financial Accounting
Practice Examination #1
Combined Chapters 1 - 4
Dr. Fred Barbee
Part I: Multiple-Choice Questions
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1. A corporation:
a.  Is a legal entity separate and distinct from its owners.
b.  Is controlled by the FASB.
c.  Has shareholders who have unlimited liability for the acts of the corporation.
d.  Is the same as a Limited Liability Partnership.
2. An example of an operating activity is:
a.  Purchasing Office Equipment
b.  Paying Wages
c.  Borrowing money from a bank.
d.  Selling Stock
3. Ethical behavior requires:
a.  Accountants to keep business information confidential.
b.  Auditors to invest in businesses they audit.
c.  Analysts to report information favorable to their companies.
d.  Managers to use accounting information to benefit themselves.
4. The accounting principle that requires financial statement information to be based on costs incurred in business transactions, and requires assets and services to be recorded initially at the cash or cash-equivalent amount given in exchange, is the:
a.  Accounting Equation
b.  Cost Principle
c.  Going-Concern Principle
d.  Business Entity Principle
5. According to generally accepted accounting principles, a company's balance sheet should show the company's assets at:
a.  The cash equivalent value of what was given up or the asset received, whichever is more clearly evident.
b.  The market value of the asset received in all cases.
c.  The cash outlay only, even if part of the consideration given was something other than cash.
d.  The objective cost of external users.
6. Which of the following statements is correct?
a.  The left side of a T-account is the credit side.
b.  Entries that decrease asset accounts, or increase liability accounts are posted as debits.
c.  The left side of a T-account is the debit side.
d.  Entries that increase asset accounts and decrease liability accounts are posted as credits.
7. The broad principle that requires expenses to be reported in the same period as the revenues that were earned as a result of the expenses is the:
a.  Recognition Principle
b.  Cost Principle
c.  Cash Basis of Accounting
d.  Matching Principle
8. The accrual basis of accounting:
a.  Is generally accepted for external reporting because it gives more useful information.
b.  Is flawed because it gives complete information about cash flows.
c.  Recognizes revenues when received in cash.
d.  Recognizes expenses when paid in cash.
9. The usual order for the asset section of a classified balance sheet is:
a.  Current assets, prepaid expenses, long-term investments, intangible assets.
b.  Long-term investments, current assets, plant assets, intangible assets.
c.  Current assets, long-term investments, plant assets, intangible assets.
d.  Intangible assets, current assets, long-term investments, plant assets.
10. A company had sales of $375,000 and its gross profit was $157,500. Its cost of goods sold equals:
a.  ($217,000)
b.  $375,000
c.  $157,500
d.  $217,500
11. The operating cycle of a merchandising company:
a.  Begins with the purchase of merchandise.
b.  Ends with the collection of cash from the sale of merchandise.
c.  Can vary in length among different merchandising companies.
d.  All of the above.
12. A Perpetual inventory system:
a.  Gives a continual record of the amount of inventory available.
b.  Uses a purchases account for the cost of new purchases.
c.  Was historically used by companies that sold large quantities of low-value items.
d.  Must be used by companies with computerized accounting systems.

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Part II: Short Problems

Short Problem #1

Weston Enterprises uses a periodic inventory system. Prepare general journal entries to record the following transactions.

a. (June 10) Weston purchased merchandise on credit from Easton for $9,000, terms 2/10, n/30, FOB destination. Transportation costs of $350 were paid by Easton.
b. (June 12)Weston returned $600 of merchandise from the June 10 purchase.
c. (June 19)Weston paid Easton for the June 10 purchase.

Short Problem #2

On December 31 of Year 1 a company forgot to record $7,000 of depreciation on office equipment. In the Year 1 financial statements, what is the effect of this error on assets, net income, and equity?

Short Problem #3

The balances for the accounts of Perkin's Janitorial, Inc., for the year ended December 31 are shown below. Each account shown had a normal balance.

Accounts Payable
$21,750
Accounts Receivable
29,500
Cash
???
Janitorial Supplies
1,700
Building
68,000
Supplies Expense
12,600
Common Stock
25,000
Janitorial Revenue
139,000
Equipment
44,500
Wages Expense
37,200
Utilities Expense
3,700
Notes Payable
52,500
Land
35,000
Unearned Janitorial Fees
3,250

Calculate the correct balance for Cash and prepare a trial balance.

Part III: Problems

Prepare general journal entries on December 31 to record the following unrelated year-end adjustments.

a. Depreciation on office equipment for the year is $4,000.
b. The Prepaid Insurance account has a $4,680 debit balance before adjustment. An examination of insurance policies shows $950 of insurance expired.
c. The company has three office employees who earn $100 per day for a five-day workweek that ends on Friday. The employees were paid on Friday, December 26, and have worked full days on Monday, Tuesday, and Wednesday, December 29, 30, and 31.
d. On November 1, the company received 6 months' rent in advance from a tenant whose rent is $700 per month. The $4,200 was credited to the Unearned Rent account.
e. The company collects rent monthly from its tenants. One tenant whose rent is $750 per month has not paid his rent for December.

         

Last Modified September 19, 2002