ACCY 206 Exam 1 SI Review

Question 1 Indicate in the space by letter whether each statement below applies to a sole proprietorship (S), partnership (P), or corporation (C). More than one answer may be appropriate. Sp _ a. Simple to establish. P __ b. Shared control. C __ c. Easy to transfer ownership. C __ d. No personal liability. Sp _ e. Tax advantage. C __ f. Easier to raise funds.

Question 2 Match the items below by entering the appropriate code letter in the space provided. A. B. C. D. E. Internal users F. Corporation Management discussion and analysis G. Assets Annual report H. Liabilities Sole proprietorship I. Expenses Dividends J. Retained earnings

E __ 1. Distributions of net income from a corporation to its stock holders. I ___ 2. Consumed assets or services. D __ 3. Ownership is limited to one person. A __ 4. Officers and others who manage the business. H __ 5. Creditor claims against the assets of the business. F __ 6. A separate legal entity under state laws. C __ 7. A report prepared by management that presents financial information. B __ 8. A section of the annual report that presents managements views. G __ 9. Future economic benefits. J ___ 10. Amount of net income kept by a corporation.
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Question 3 Use the following information to calculate for the year ended December 31, 2010 (a) net income (net loss), and (b) total assets. Supplies $ 500 Operating expenses 10,000 Accounts payable 11,000 Accounts receivable 4,000 Common stock 10,000 Retained earnings (beginning) 5,000 Revenue $16,000 Revenues Cash Dividends Notes payable Equipment B.) Supplies Equipment Cash AR 500 1500 15,000 4,000 $16,000 15,000 6,000 1,000 7,500

Operating Exp 10,000 Net Income 6,000

Total assets 27,000

Question 4 Cesar Ruiz was reviewing his business activities at the end of the year (2010) and decided to prepare a Retained Earnings Statement. At the beginning of the year his assets were $550,000, liabilities were $140,000, and common stock was $120,000. The net income for the year was $350,000. Dividends of $220,000 were paid during the year. Prepare a Retained Earnings Statement in good form. A= L+SE A= L+CS+RE 500= 140 +120 +X X=290 Cesar Ruiz Retained earnings statement For the Year ended 2010 Beginning B/E 290,000
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Add net income 350,000 640,000 Less dividends 220,000 Ending R/E 420,000

Question 5 Here are incomplete financial statements for Brandon, Inc. BRANDON, INC. Balance Sheet Assets Cash Inventory Building Total assets $ 5,000 10,000 40,000 $55,000 Liabilities and Stockholders' Equity Liabilities Accounts payable $ 5,000 Stockholders' equity Common stock 21,000 a.) Retained earnings 29,000 b.) Total liabilities and stockholders' equity $55,000

Income Statement Revenues Cost of goods sold Administrative expenses Net income $80,000 (c)46,000 10,000 $ (d) 24,000

Retained Earnings Statement Beginning retained earnings $10,000 Net income (e)24,000 Dividends 5,000 Ending retained earnings $29,000
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Beg. Retaind earnings + e Dividends=End Retained earnings 10,000+ e -5000=29,000 E+ 5000=29,000 E=24,000 Income statement: Revenue-C-Admin. Exp= net income 80,000-c-10,000=24,000 70,000-c=24,000 C=46,000 10,000 + E -5,000= 24,000 15,000+e=29,000 E=24,000 Calculate the missing amounts. 5,000 + A + 29,000= 55,000 A+ 34,000=55,000 A= 21,000

Question 6
Each of the following statements is justified by a characteristic or constraint of accounting. Write the letter in the blank next to each statement corresponding to the characteristic or constraint involved. a. b. c. _D____ 1. Comparability Materiality Verifiable d. e. f. Consistency Relevance Faithful representation

A company uses the same accounting principles from year to year.

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_C____ 2. _B____ 3. _E____ 4. F_____ 5.

Information that is free from error. A company decides to expense capital items that cost less than $500 each. All factors that could affect a decision will be considered. Outside documents will be used to verify transactions whenever possible.

Question 7 Presented below are the basic assumptions and principles underlying financial statements. a. Cost principle b. Economic entity assumption c. Full disclosure principle d. Going concern assumption e. Monetary unit assumption f. Periodicity assumption

Identify the basic assumption or principle that is described below. F __ 1. The economic life of a business can be divided into artificial time periods. D __ 2. The business will continue in operation long enough to carry out its existing objectives. A __ 3. Assets should be recorded at their cost. B __ 4. Economic events can be identified with a particular unit of accountability. C __ 5. Circumstances and events that make a difference to financial statement users should be disclosed. E __ 6. Only transaction data that can be expressed in terms of money should be included in the accounting records.

Question 8 The following lettered items represent a classification scheme for a balance sheet, and the numbered items represent data found on balance sheets. In the blank next to each account, write the letter indicating to which category it belongs. A. B. C. D. E. F. G. H. Current assets Investments Property, plant, and equipment Intangible assets Current liabilities Long-term liabilities Stockholders equity Not on the balance sheet Accumulated Depreciation Common Stock Interest Expense Salary Payable Retained Earnings __A___6. Inventory __D___7. Patents __A___8. Prepaid Interest ___F__9. Mortgage Payable __B___10. Land Held for Investment

_C____1. _G____2. _H____3. _E____4. _G____5.

Question 9 The following data are taken from the financial statements of Rosen, Inc. as of the end of the year 2010. The data are in alphabetical order. Accounts payable $ 28,000 Accounts receivable 66,000 Cash 54,000 Gross profit 160,000 Income before income taxes 54,000 Net income $ 48,000 Other current liabilities 17,000 Total assets 250,000 Total liabilities 200,000 Wages payable 5,000

Additional information: The average common shares outstanding during the year was 40,000. Instructions Compute the following: (a) Current ratio. (b) Working capital. (c) Earnings per share. (d) Debts to total assets ratio.

A.) Current assets/current liabilities= 120,000/50,000=2.4:1 B.) Current assets-current liabilities=working capital=70,000 C.) Net income-Preferred stock dividends/ Avg. Common shares outstanding =Earnings per share. $48,000/40,000=$1.20 D.) Debt total assets ratio= Total Liabilities/ Total assets 200,000/250,000= 80% (higher is worse)

Question 10 Sara Obermeyer decides to open a pizza parlor near the local college campus that will operate as a corporation. Analyze the following transactions for the month of June in terms of their effect on the basic accounting equation. Record each transaction by increasing (+) or decreasing () the dollar amount of each item affected. It is not necessary to identify the cause of changes in stockholders equity. (1) Sara Obermeyer invests $25,000 cash in exchange for common stock to start a pizza parlor business on June 1. (2) Purchased baking equipment for $4,000 paying $2,000 in cash and the remainder due in 30 days. (3) Purchased cooking supplies for $1,200 cash. (4) Received a bill from Campus News for $200 for advertising in the campus newspaper.
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(5) (6) (7) (8) (9) (10)

Cash receipts from customers for pizza sales amounted to $1,500. Paid salaries of $200 to student workers. Billed the Tiger Football Team $100 for pizzas ordered. Paid $200 to Campus News for advertising that was previously billed in Transaction 4. Sara Obermeyer was paid dividends of $800. Incurred utility expenses for month on account, $200.

TransAccounts Cooking Baking Accounts Common Retained action Cash + Receivable + Supplies + Equipment = Payable + Stock + Earnings (1) 25,000 25,000 ___________________________________________________________________ (2) 4,000 2,000 ____________________________________________________________________ (3) -1200 1200 ____________________________________________________________________ (4) 200 -200 ____________________________________________________________________ (5) 1500 1500 ____________________________________________________________________ (6) -200 -200 ____________________________________________________________________ (7) 100 100 ____________________________________________________________________ (8) -200 -200 ____________________________________________________________________ (9) -800 -800 ____________________________________________________________________ (10) 200 -200 ____________________________________________________________________ Totals 22,100 100 1200 4,000 2200 25000 200

Assets 27,400 Lia+equity 27,400

Question 11 Selected accounts from the ledger of McDaniel Corporation appear below. For each account, indicate the following:
(a) In the first column at the right, indicate the nature of each account, using the

following abbreviations:

Asset - A Expense - E

Liability - L Revenues - R

None of the above -

(b) In the second column, indicate the normal balance by inserting Dr. or Cr. Type of Account A L R N L E N A A A Normal Balance Debit Cr. Cr. Debit. Cr. debit Cr. Debit Debit Debit

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Supplies .. Note Payable . Service Revenue. Dividends. Accounts Payable.. Salaries Expense Common Stock Accounts Receivable.. Equipment.. Notes Receivable

B.S B.S

Question 12 Transactions for the Hartman Company for the month of November are presented below. Journalize each transaction and identify each transaction by number. You may omit journal explanations. 1. Stockholders invested an additional $36,000 cash in the business. 2. Purchased land costing $18,000 for cash. 3. Purchased equipment costing $15,000 for $4,500 cash and the remainder on credit.
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4. 5. 6. 7. 8.

Purchased supplies on account for $800. Received $3,000 for services to be provided in the future. Received $2,000 cash for services performed. Paid wages to employees for $2,500. Paid dividends to stockholders of $400.

Question 13 Some of the following errors would cause the debit and credit columns of the trial balance to have unequal totals. For each of the four cases, state whether the error would cause unequal totals in the trial balance. If the error causes unequal totals, indicate the amount of difference between the columns and state whether the debit or credit is larger. Each case is to be considered independently of the others.

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A collection on account of $400 was journalized and posted as a debit to Cash $400 and a credit to Service Revenue $400. A $950 purchase of supplies on account was recorded as a debit of $950 to Equipment and a credit of $950 to Accounts Payable. A purchase of equipment for $3,500 on account was not recorded. A $270 receipt on account was recorded as a $720 debit to Cash and a $270 credit to Accounts receivable. Wont effect trial Balance Wont effect trial Balance Wont effect trial Balance Yes, will be unequal. The debit column will be higher than the credit column.

Need to make sure Debit and credit is equal.

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