ACCT 3311 Spring 2012 Exam 1 (Version B)

Name________________________ Signature_____________________

Note: Present value tables are included at the end of the exam and can be used to solve time value of money Qs. Part 1: Multiple Choice (3 points each), mark your answer on the scantron in pencil: 1. Jim Yount, M.D., keeps his accounting records on the cash basis. During 2011, Dr. Yount collected $350,000 from his patients and paid $150,000 for operating expenses. At December 31, 2010, and December 31 2011 Dr. Yount had accounts receivable, unearned revenue, accrued liabilities, and prepaid expenses as shown: Dec 31, 2010 Dec 31, 2011 Accounts receivable $50,000. $70,000 Unearned revenue $0 $10,000. Accrued Liabilities $12,000 $15,000 Prepaid Expenses $5,000 $3,000 On the accrual basis, how much was Dr. Yount's patient operating expenses for 2011? a. $149,000. b. $150,000. c. $155,000. d. $145,000. For Gold Company, the following information is taken from their adjusted trial balance: Cost of goods sold Accounts Receivable Extraordinary loss (net of taxes) Income tax expense Dividends Administrative expenses Unusual Gain Sales Sales returns & allowances $ 60,000 3,500 2,500 6,000 10,000 20,000 5,000 110,000 10,000

2.

In Golds multiple-step income statement, operating income a. b. c. d. should be reported at $20,000. should be reported at $19,000. should be reported at $16,500. should be reported at $14,000.

3. Which of the following is a nominal (temporary) account? 1

a. b. c. d. e. 4.

Unearned Revenue Dividends Inventory Retained Earnings Accumulated Other Comprehensive Income

The purpose of Statements of Financial Accounting Concepts is to a. b. c. d. establish GAAP. modify or extend the existing FASB Standards Statement. form a conceptual framework for solving existing and emerging problems. determine the need for FASB involvement in an emerging issue.

5.

Collin Corporation reports the following information at 12/31/09: Net income Dividends on common stock Dividends on preferred stock ($10,000 of which was not paid until 1/30/2010) Common shares authorized: During the first 9 months of 2009 During the last 3 months of 2009 Common shares issued and outstanding: During the first 9 months of 2009 During the last 3 months of 2009 Collin should report 2009 Basic earnings per share of a. b. c. d. $2.80. $4.56. $3.80. $1.17. $600,000 220,000 30,000 300,000 300,000 100,000 200,000

6.

Adjusting entries categorized as accrued revenues are a. revenues received in cash and earned in the current period b. revenues received in cash and recorded as liabilities before they are earned. c. revenues received in cash and recorded as Assets before they are earned. d. revenues earned but not yet received in cash or recorded. Bee-Gee Company paid $8,000 on October 1, 2010 for a two-year insurance policy beginning immediately and initially recorded the entire amount as a debit to the Prepaid Insurance account and a credit to cash. Given this initial entry, the December 31, 2010 adjusting entry that is required to correctly record the balance sheet and income statement accounts is: a. b. c. d. e. debit Insurance Expense and credit Prepaid Insurance, $1,000. debit Insurance Expense and credit Prepaid Insurance, $7,000. debit Prepaid Insurance and credit Insurance Expense, $1,000. debit Prepaid Insurance and credit Insurance Expense, $7,000. credit Prepaid Insurance and debit Insurance Expense, $2,000.

7.

8.

Which one of the following correctly identifies the current assets in order of liquidity (most liquid to the least liquid): a. b. c. d. e. Cash, inventories, accounts receivable, prepaid expenses Cash, short term investments, inventories, accounts receivable Cash, accounts receivable, prepaid expenses, inventories Cash, accounts receivable, short term investments, prepaid expenses Cash, accounts receivable, inventories, prepaid expenses

9.

Differences between the FASB and the APB (Accounting Principles Board include which one of the following: a. The FASB has smaller membership. b. The FASB is less autonomous. c. The FASB has part-time, unpaid membership. d. The FASB has less independence. One difference between the IASBs conceptual framework and the FASBs conceptual framework is that the FASB: a. b. c. d. e. states that accrual basis accounting should be used for financial statement reporting. states that a modified cash basis of accounting should be used for financial reporting. does not elevate its conceptual framework to U.S. GAAP elevates its conceptual framework to U.S. GAAP states that financial reporting should provide information on the stewardship role.

10.

11.

Which of the following is true about the new codification for GAAP: a. The codification provides, in one place, all authoritative literature by topic. b. The codification distinguishes between the most authoritative and least authoritative Accounting Standards and guidelines. c. The codification includes only the Statements, Interpretations, and Staff Positions published by the FASB. d. The IASB developed and maintains changes to the new codification based upon changes in International Accounting Standards. Capital lease assets would most likely be reported in what section of a classified Balance sheet. a. the Property Plant and Equipment section. b. the Intangible Assets section. c. the Current Assets section. d. the Investment section. The present value of the following series of 15 cash payments of $1,000 (indicated in the time diagram) assuming an appropriate rate of interest of 6% is? $1,000 $1,000 $1,000 $1,000 $1,000

12.

13.

0 a. b. c. d. 14.

1 $10,564. $9,712. $8,644. $8,155.

15

16

17

Evan has $50,000 to invest today. In 5 years he wants the investment to grow to $60,833. What annual interest rate does Evan require? a. 3%. b. 4%. c. 5%. d. 6% Income tax expense is allocated to all of the following except: a. Income from continuing operations before tax b. Discontinued operations c. Correction of errors d. Unusual gains

15.

16.

At 12/31/2010 Carol Co. has the following Notes payable which total $2,000,000 and mature (are due to be paid) at different dates as follows: $500,000 matures on 6/30/2011 $500,000 matures on 6/30/2012 $1,000,000 matures on 6/30/2013 Assuming that Carol Co.s operating cycle is shorter than 1 year, which of the following is correct: a. The current liabilities section of Carols 12/31/2010 Balance sheet will not be affected by the Note Payable b. The current liabilities section of Carols 12/31/2010 Balance sheet will include $500,000 of the $2,000,000 Note Payable c. The current liabilities section of Carols 12/31/2010 Balance sheet will include $1,000,000 of the $2,000,000 Note Payable d. The current liabilities section of Carols 12/31/2010 Balance sheet will include $2,000,000 of the $2,000,000 Note Payable. e. There is not enough information to answer this question because the operating cycle is shorter than 1 year.

17.

Determine the present value of a Note Payable with the following terms of the contract: Payment of $100,000 at maturity at the end of 3 years and a stated interest rate of 10%. Interest is paid semiannually. The market rate of interest is determined to be 8%. a. b. c. $94,924 $105,154 $105,242

d. e.

$131,452 $94,814

Part 2: Matching (10 points) Presented below are the assumptions, principles, characteristics, constraints, and elements used in the conceptual framework. a. b. c. d. e. f. g. h. i. j. k. l. Economic entity assumption Going concern assumption Monetary unit assumption Periodicity assumption Expense recognition Revenue recognition Full disclosure principle Cost-benefit relationship Materiality Industry Practices Conservatism Comprehensive Income m. n. o. p. q. r. s. t. u. v. w. x. Relevance Faithful Representation Comparability Investments by owners Verifiability Expense Assets Liabilities Equity Distributions to owners Gain Loss

Write the corresponding letter of the accounting assumption, principle, information characteristic, constraint, or element that is most applicable in the following cases. 1. Requiring that the effects of a change in accounting principle are adjusted in income statements for all years presented and not just the current year best describes this characteristic. 2. Probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events. 3. This element is described as an increase in equity (net assets) from peripheral or incidental transactions of a business. 4. Identifying product versus period costs is an important component of this principal. 5. This element is described as a change in equity (net assets) of an entity during a period from transactions and other events and circumstances from non-owner sources 6. Decreases in net assets of a particular enterprise that result from transferring assets, rendering services, or incurring liabilities by the enterprise to owners. 7. Companies will survive indefinitely or for as long as is necessary to achieve its purpose 8. Personal transactions of the proprietor are distinguished from business transactions. 9. Defining characteristics of this accounting quality are that it is complete, neutral, and free from bias. 10. Outflows or other using up of assets or incurrences of liabilities during a period from carrying out activities that constitute the entity's ongoing major or central operations. Answers (indicate by letter only, e.g. for Conservatism write the letter K by the relevant question): 1. O 3.W 5.L 7.B 9.N 2.S 4.E 6.V 8.A 10.R

Part 3Statement of cash flows, 10 points: The comparative balance sheets of Kong Inc. at the beginning and the end of the year 2010 appear below.

Assets Cash Accounts receivable Land Total Liabilities and Stockholders Equity Accounts payable Common stock Retained earnings Total

Dec. 31, 2010 $ 80,000 180,000 44,000 $304,000

Jan. 1, 2010 $ 26,000 170,000 50,000 $246,000

$ 40,000 200,000 64,000 $304,000

$ 46,000 160,000 40,000 $246,000

Net income of $40,000 was reported, and dividends of $16,000 were paid in 2010. No new Land was purchased but some land was sold for $6,000. The company issued $40,000 of Common Stock. Prepare a statement of cash flows (on the following page) for the year 2010

Part 3 Continued

KONG INC. Statement of Cash Flows For the Year Ended December 31, 2010 Cash flows from operating activities Net income .......................................................... Adjustments to reconcile net income to net cash provided by operating activities: Increase in accounts receivable .................. decrease in accounts payable ..................... Net cash provided by operating activities ........ Cash flows from investing activities Sale of Land ........................................................ Cash flows from financing activities Issuance of common stock................................ Payment of cash dividends ............................... Net cash used by financing activities ............... Net increase in cash................................................. Cash at beginning of year........................................ Cash at end of year .................................................. $ 40,000

(10,000) (6,000)

(16,000) 24,000 6,000

40,000 (16,000) 24,000 54,000 26,000 $ 80,000

Part 3Statement of Retained Earnings, 10 points: Jason Woo Corporation began operations on January 1, 2009. During its first year of operations in 2009, Woo reported net income of $100,000 and declared no dividends. The following information relates to operations in 2010 (All 2010 amounts are reported before any tax effects are considered). - Income before income tax $200,000 - Prior period adjustment: understatement of 2010 depreciation expense $20,000 - Cumulative decrease in income from change in inventory methods $10,000 - Dividends declared $20,000 (of this amount, $10,000 will be paid on Jan. 15, 2011) - Effective tax rate 50% Prepare a 2010 retained earnings statement for Jason Woo Corporation

Jason Woo Corp. Retained Earnings Statement For the Year Ended December 31, 2010 Balance, January 1, as reported.............................................. $100,000* Correction for depreciation error (net of $10,000 tax)............................................................. (10,000) Cumulative decrease in income from change in inventory methods (net of $5,000 tax) .............................. (5,000) Balance, January 1, as adjusted ............................................. 85,000 Add: Net income .................................................................... 100,000** 185,000 Less: Dividends declared ....................................................... 20,000 Balance, December 31 ............................................................. $165,000 *($100,000 net income in 2009) ($0 dividends) **[$200,000 (50% X $200,000)]

Present Value of $1
Periods 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 3% 0.97087 0.94260 0.91514 0.88849 0.86261 0.83748 0.81309 0.78941 0.76642 0.74409 0.72242 0.70138 0.68095 0.66112 0.64186 4% 0.96154 0.92456 0.88900 0.85480 0.82193 0.79031 0.75992 0.73069 0.70259 0.67556 0.64958 0.62460 0.60057 0.57748 0.55526 5% 0.95238 0.90703 0.86384 0.82270 0.78353 0.74622 0.71068 0.67684 0.64461 0.61391 0.58468 0.55684 0.53032 0.50507 0.48102 6% 0.94340 0.89000 0.83962 0.79209 0.74726 0.70496 0.66506 0.62741 0.59190 0.55839 0.52679 0.49697 0.46884 0.44230 0.41727 8% 0.92593 0.85734 0.79383 0.73503 0.68058 0.63017 0.58349 0.54027 0.50025 0.46319 0.42888 0.39711 0.36770 0.34046 0.31524 10% 0.90909 0.82645 0.75131 0.68301 0.62092 0.56447 0.51316 0.46651 0.42410 0.38554 0.35049 0.31863 0.28966 0.26333 0.23939 12% 0.89286 0.79719 0.71178 0.63552 0.56743 0.50663 0.45235 0.40388 0.36061 0.32197 0.28748 0.25668 0.22917 0.20462 0.18270

Present Value of an Ordinary Annuity of $1

Periods 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 3% 0.97087 1.91347 2.82861 3.71710 4.57971 5.41719 6.23028 7.01969 7.78611 8.53020 9.25262 9.95400 10.63496 11.29607 11.93794 4% 0.96154 1.88609 2.77509 3.62990 4.45182 5.24214 6.00205 6.73274 7.43533 8.11090 8.76048 9.38507 9.98565 10.56312 11.11839 5% 0.95238 1.85941 2.72325 3.54595 4.32948 5.07569 5.78637 6.46321 7.10782 7.72173 8.30641 8.86325 9.39357 9.89864 10.37966 6% 0.94340 1.83339 2.67301 3.46511 4.21236 4.91732 5.58238 6.20979 6.80169 7.36009 7.88687 8.38384 8.85268 9.29498 9.71225 8% 0.92593 1.78326 2.57710 3.31213 3.99271 4.62288 5.20637 5.74664 6.24689 6.71008 7.13896 7.53608 7.90378 8.24424 8.55948 10% 0.90909 1.73554 2.48685 3.16987 3.79079 4.35526 4.86842 5.33493 5.75902 6.14457 6.49506 6.81369 7.10336 7.36669 7.60608 12% 0.89286 1.69005 2.40183 3.03735 3.60478 4.11141 4.56376 4.96764 5.32825 5.65022 5.93770 6.19437 6.42355 6.62817 6.81086

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