ACCT 201 Final Exam Answers
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<strong>ACCT</strong> <strong>201</strong> <strong>Final</strong> <strong>Exam</strong> <strong>Answers</strong><br />
http://www.homeworkwarehouse.com/downloads/acct-<strong>201</strong>-final-exam-answers/<br />
<strong>ACCT</strong> <strong>201</strong> <strong>Final</strong> <strong>Exam</strong> <strong>Answers</strong><br />
1. The term “double taxation” refers to which of the following:<br />
A. A sole proprietorship must pay income taxes on its net income and the owner is also required<br />
to pay income taxes on withdrawals.<br />
B. In a partnership, both partners are required to claim their share of net income on their tax<br />
returns.<br />
C. Corporations must pay income taxes on their net income, and their stockholders must pay<br />
income taxes on their dividends.<br />
D. A sole proprietorship must pay income taxes to both the state government and the federal<br />
government.<br />
2. Which of the following is not considered an advantage of the corporate form of business<br />
organization?<br />
A. Ability to raise capital.<br />
B. Government regulation.<br />
C. Ease of transferability of ownership.<br />
D. Continuity of existence.<br />
3. Which of the following entities would have the “Paid-in Capital in Excess” account in the<br />
equity section of the balance sheet?<br />
A. A sole proprietorship.<br />
B. A city.<br />
C. A corporation.<br />
D. A partnership.<br />
4. Which of the following terms designates the maximum number of shares of stock that a<br />
corporation may issue?<br />
A. number of shares outstanding<br />
B. number of shares authorized<br />
C. treasury stock<br />
D. number of shares issued<br />
5. Which of the following statements best describes the term “par value?”<br />
A. an amount used in determining a corporation’s legal capital.<br />
B. the amount that must be paid to purchase a share of stock.<br />
C. determined by dividing total stockholder’s equity by the number of shares of stock.<br />
D. the number of shares currently in the hands of stockholders.<br />
6. Flint Corp. issued 10,000 shares of no-par stock for $150,000. Flint was authorized to issue<br />
25,000 shares. What effect will this event have on the company’s accounting equation?
A. Increase assets by $375,000 increase, equity by $375,000.<br />
B. Increase assets by $150,000, increase net income by $150,000.<br />
C. Increase assets by $150,000, increase equity by $150,000.<br />
D. Both B and C.<br />
7. Flint Company issued 2,000 shares of $10 par value common stock at a market price of $16.<br />
As a result of this accounting event, the amount of stockholders’ equity would<br />
A. increase by $12,000.<br />
B. be unaffected.<br />
C. increase by $32,000.<br />
D. increase by $20,000.<br />
8. Madison Co. paid dividends of $3,000; $6,000; and $10,000 during 2007, 2008 and 2009,<br />
respectively. The company had 500 shares of preferred stock outstanding that paid a $10 per<br />
share cumulative dividend. The amount of dividends received by the common shareholders<br />
during 2009 would be:<br />
A. $5,000.<br />
B. $4,000.<br />
C. $3,000.<br />
D. $2,000.<br />
9. On January 1, 2007, the Accounts Receivable balance was $9,000 and the balance in the<br />
Allowance for Doubtful Accounts was $700. On January 15, 2007 a $200 uncollectible account<br />
was written-off. The net realizable value of accounts receivable immediately after the write-off<br />
is:<br />
A. $9,500.<br />
B. $8,500.<br />
C. $8,300.<br />
D. $9,200.<br />
On January 1, 2007 Grant Company had a $4,000 balance in the Accounts Receivable account<br />
and a zero balance in the Allowance for Doubtful Accounts account. During 2007, Grant<br />
provided $25,000 of service on account. The company collected $24,000 cash from account<br />
receivable. Bad debts are estimated to be 2% of sales on account.<br />
10. Based on this information, the amount of cash flow from operating activities that would<br />
appear on the 2007 statement of cash flows is:<br />
A. $24,850.<br />
B. $25,000.<br />
C. $22,900.<br />
D. $24,000.<br />
11. The amount of bad debts expense to recognize on the 2007 income statement is:<br />
A. $80.<br />
B. $250.
C. $480.<br />
D. $500.<br />
The Morgan Company earned $45,000 of revenue on account during 2009. There was no<br />
beginning balance in the accounts receivable and allowance accounts. During 2009 Morgan<br />
collected $34,000 of cash from its receivables accounts. The company estimates that it will be<br />
unable to collect 3% of its sales on account.<br />
12. The amount of bad debts expense recognized on the 2009 income statement was<br />
A. $1,020.<br />
B. $330.<br />
C. $1,350.<br />
D. $11,000.<br />
13. Hall Company uses the allowance method to account for bad debts. An account that had been<br />
previously written-off as uncollectible was recovered. How would the recovery affect the<br />
company’s accounting equation?<br />
A. Increase assets and increase equity.<br />
B. Increase assets and decrease liabilities.<br />
C. Reduce liabilities and increase equity.<br />
D. Have no effect on assets, liabilities or equity.<br />
14. How would accountants estimate the amount of a company’s bad debts expense?<br />
A. Consider new circumstances that are anticipated to be experienced in the future.<br />
B. Compute as a percentage of credit sales.<br />
C. Consult with trade association and business associates.<br />
D. All of these.<br />
15. A company that uses the allowance method to account for bad debts<br />
A. Reports the net realizable value of its accounts receivable on the balance sheet.<br />
B. Does not record bad debts until the amount becomes significant.<br />
C. Records Bad Debts Expense when a receivable is written off.<br />
D. None of these.<br />
16. Which accounting concept can be used by some companies to justify the use of the direct<br />
write-off method of accounting for bad debts?<br />
A. The entity concept.<br />
B. The materiality concept.<br />
C. The going concern concept.<br />
D. The monetary principle.<br />
17. Which of the following would be classified as a tangible asset?<br />
A. Copyright.<br />
B. Goodwill.<br />
C. Iron ore deposit.<br />
D. Patent.
18. Which of the following would be classified as a long-term operational asset?<br />
A. Accounts receivable.<br />
B. Treasury stock.<br />
C. Inventory.<br />
D. Goodwill.<br />
19. On January 6, 2008, the El Gato Corporation purchased a tract of land for a factory site for<br />
$500,000. An existing building on the site was demolished and the new factory was completed<br />
on October 11, 2008. Additional cost data are shown below:<br />
Which of the following correctly states the capitalized cost of the (a) land and (b) the new<br />
building?<br />
A. $501,500/$863,700<br />
B. $508,200/$857,000<br />
C. $556,200/$800,000<br />
D. $555,700/$809,000<br />
20. Mobley Company purchased an asset with a list price of $35,000 and received a 2% cash<br />
discount on the purchase. The asset was delivered under terms FOB shipping point, and freight<br />
costs amounted to $700. Mobley paid $800 to have the asset installed. Insurance costs to protect<br />
the asset from fire and theft amounted to $400 for the first year of operations. Based on this<br />
information, the amount of cost recorded in the asset account would be:<br />
A. $36,500.<br />
B. $36,900.<br />
C. $35,000.<br />
D. $35,800.<br />
21. Which of the following is considered an accelerated depreciation method?<br />
A. Straight line<br />
B. Units of production<br />
C. LIFO<br />
D. Double declining balance<br />
22. Which method of depreciation is used by most U. S. companies for financial reporting<br />
purposes?<br />
A. Straight line<br />
B. Units of production<br />
C. Double declining balance<br />
D. MACRS<br />
23. At the end of the current accounting period, Rodgers Co. recorded depreciation of $25,000<br />
on its equipment. The effect of this entry on the company’s balance sheet is to:<br />
A. decrease assets and increase liabilities.<br />
B. decrease owners’ equity and increase liabilities.<br />
C. decrease assets and increase owners’ equity.<br />
D. decrease owners’ equity and decrease assets.
24. On January 1, 2007, Franz Company purchased a truck that cost $22,000. The truck had an<br />
expected useful life of 5 years and a $4,000 salvage value. The amount of depreciation expense<br />
recognized in 2007 assuming that Franz uses the double declining balance method is:<br />
A. $4,320.<br />
B. $5,280.<br />
C. $7,200.<br />
D. $8,800.<br />
25. On January 1, 2007, Franz Company purchased a truck that cost $22,000. The truck had an<br />
expected useful life of 5 years and a $4,000 salvage value. The amount of depreciation expense<br />
recognized in 2008 assuming that Franz uses the double declining balance method is:<br />
A. $4,320.<br />
B. $5,280.<br />
C. $7,200.<br />
D. $8,800.<br />
26. Which of the following statements concerning internal controls is true?<br />
A. Internal administrative controls are designed to limit the amount of funds spent on<br />
investments.<br />
B. The control procedure, separation of duties, prohibits the employment of a husband and wife<br />
or other closely related parties within the same company.<br />
C. Internal accounting controls are limited to the policies and procedures used to protect the<br />
company from embezzlement.<br />
D. Strong internal controls provide reasonable assurance that the objectives of a company will be<br />
accomplished.<br />
27. Which of the following statements accurately describes a fidelity bond?<br />
A. Insurance that the company buys to protect itself from loss due to employee dishonesty.<br />
B. Proper procedures for processing transactions.<br />
C. Procedures to provide reasonable assurance that the objectives of a company are<br />
accomplished.<br />
D. Guidelines or policies that limit the actions of different levels of management.<br />
28. What documentation issued by a bank increases a company’s checking account balance at the<br />
bank?<br />
A. balance sheet<br />
B. debit memo<br />
C. credit memo<br />
D. certified check<br />
29. At March 31, Carrie Co. had a balance in its cash account of $5,500. At the end of March the<br />
company determined that it had outstanding checks of $900, deposits in transit of $600, a bank<br />
service charge of $20, and an NSF check from a customer for $200. The true cash balance at<br />
March 31 is:<br />
A. $5,200<br />
B. $5,280
C. $5,500<br />
D. $4,980<br />
30. In preparing the April bank reconciliation for G2-Net Company, it was discovered that on<br />
April 10 a check was written to pay delivery expense of $45 but the check was erroneously<br />
recorded as $54 in the company’s books. The journal entry required to correct the error is<br />
A.<br />
B.<br />
C.<br />
D.<br />
31. In a bank reconciliation, a customer’s NSF check included with the bank statement is:<br />
A. deducted from the bank’s cash balance to get the true cash balance.<br />
B. added to the bank’s cash balance to get the true cash balance.<br />
C. deducted from the company’s cash balance to get the true cash balance.<br />
D. added to the company’s cash balance to get the true cash balance.<br />
32. In a period of rising prices, which inventory costing method will produce an amount for cost<br />
of goods sold that is closest to current market value ?<br />
A. Weighted average.<br />
B. Specific identification.<br />
C. FIFO.<br />
D. LIFO.<br />
33. When prices are falling:<br />
A. LIFO will result in lower income and a lower inventory valuation than will FIFO.<br />
B. LIFO will result in lower income and a higher inventory valuation than will FIFO.<br />
C. LIFO will result in higher income and a lower inventory valuation than will FIFO.<br />
D. LIFO will result in higher income and a higher inventory valuation than will FIFO.<br />
34. Hall Company purchased two identical inventory items. The item purchased first cost $12.00.<br />
The item purchased second cost $15.00. Hall sold one of the inventory items for $20.00. Based<br />
on this information:<br />
A. the amount of ending inventory is $12.00 if Hall uses the LIFO cost flow method.<br />
B. the amount of gross margin is $5.00 if Hall uses the weighted average cost flow method.<br />
C. the amount of cost of goods sold is $12.00 if Hall uses the weighted average cost flow<br />
method.<br />
D. the amount of gross margin is $5.00 if Hall uses the FIFO cost flow method.<br />
35. Which of the following accounts normally has a debit balance?<br />
A. Accounts Payable<br />
B. Accumulated Depreciation<br />
C. Prepaid Insurance<br />
D. Common Stock
36. The left side of a T-account is known as the:<br />
A. Equity side<br />
B. Claims side<br />
C. Debit side<br />
D. Credit side<br />
37. The difference between the debit and credit side of a T-account is known as the<br />
A. Net income.<br />
B. Account balance.<br />
C. Equality.<br />
D. Trial balance.<br />
38. Which of the following is increased with a credit?<br />
A. Salaries Expense<br />
B. Prepaid Rent<br />
C. Dividends<br />
D. Accounts Payable<br />
39. Revenue on account amounted to $5,000. Cash collections of accounts receivable amounted<br />
to $2,300. Expenses for the period were $2,100. Net income for the period was<br />
A. $200.<br />
B. $350.<br />
C. $3,050.<br />
D. $2,900.<br />
40. The Blumer Company issued stock for $30,000 cash on January 20, 2007. During 2007, the<br />
company recorded revenue on account of $12,000 and expenses for which cash was paid of<br />
$7,000. Blumer received $8,200 cash from accounts receivable. The company also purchased<br />
land for $5,000 cash. Based on this information, the amount of change in cash for 2007 was<br />
A. $38,200<br />
B. $26,200<br />
C. $31,500<br />
D. $30,000