Prof. Dr.

Marius Gros

QUESTIONNAIRE

Orientation Accounting (OBRW)

Midterm Mock Exam (just until the beginning of chapter 3))

Matriculation number: __________________________

Part I (19 Points)

a.) True/False-Questions. Choose the correct answer! (9 Points)
1. The economic entity assumption requires that the activities of an entity be kept separate
and distinct from the activities of its owner and all other economic entities. (0,5 Points)
A) True
B) False

2. Under International Financial Reporting Standards (IFRS) the time period assumption
means companies must issue financial statements using a calendar year time period.
(0,5 Points)
A) True
B) False

3. The purchase of office equipment on credit increases total assets and total liabilities.
(0,5 Points)
A) True
B) False

4. Net income for the period is determined by subtracting total expenses and dividends
from total revenues. (0,5 Points)
A) True
B) False

5. Expenses are increases in equity that result from operating the business. (0,5 Points)
A) True
B) False

6. If a revenue account is credited, the revenue account is increased. (0,5 Points)

A) True
B) False

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 7. The dividends account is a subdivision of the retained earnings account and appears as
an expense on the income statement. (0,5 Points)
A) True
B) False

8. The complete effect of a transaction on the accounts is disclosed in the journal.

(0,5 Points)
A) True
B) False

9. Posting is the process of proving the equality of debits and credits in the trial balance.
(0,5 Points)
A) True
B) False

10. The time period assumption is often referred to as the expense recognition principle.
(0,5 Points)
A) True
B) False

11. The monetary unit assumption states that transactions that can be measured in terms of
money should be recorded in the accounting records. (0,5 Points)
A) True
B) False

12. Income will always be greater under the cash basis of accounting than under the accrual
basis of accounting. (0,5 Points)
A) True
B) False

13. An adjusting entry always involves two statement of financial position accounts.
(0,5 Points)
A) True
B) False

14. IFRS follow one measurement principle known as the cost principle. (0,5 Points)
A) True
B) False

15. Compared to IFRS, US-GAAP tend to e simpler and less detailed. (0,5 Points)
A) True
B) False

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16. Expense recognition is tied to revenue recognition. (0,5 Points)
A) True
B) False

17. Adjusting entries are recorded in the general journal but are not posted to the accounts
in the general ledger. (0,5 Points)
A) True
B) False

18. Adjusting entries are often made because some business events are not recorded as they
occur. (0,5 Points)
A) True
B) False

b.) Multiple Choice-Questions. Choose the correct answer! (10 Points)

19. The fiscal year of a business is usually determined by (1 Point)
A) a government agency.
B) a lottery.
C) the business.
D) the IASB.

20. Monthly and quarterly time periods are called (1 Point)

A) calendar periods.
B) fiscal periods.
C) interim periods.
D) quarterly periods.

21. The chart of accounts is a (1 Point)

A) list of accounts and their balances at a given time.
B) device used to prove the mathematical accuracy of the ledger.
C) listing of the accounts and the account numbers which identify their location in the
ledger.
D) required step in the recording process.

22. The revenue recognition principle dictates that revenue should be recognized in the
accounting records (1 Point)
A) when cash is received.
B) when it is earned.
C) at the end of the month.
D) in the period that income taxes are paid.

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23. The fair value principle (1 Point)
A) is one of the two costing principles followed by the IASB.
B) is more useful than the cost principle for valuing some assets.
C) dictates that an asset should be valued at the price at which it could be sold.
D) All of the above.

24. Credits (1 Point)

A) decrease both assets and liabilities.
B) decrease assets and increase liabilities.
C) increase both assets and liabilities.
D) increase assets and decrease liabilities.

25. Sternberg Company purchases equipment for $1,200 and supplies for $400 from Tran
Co. for $1,600 cash. The entry for this transaction will include a (1 Point)
A) debit to Equipment $1,200 and a debit to Supplies Expense $400 for Tran.
B) credit to Cash for Tran.
C) credit to Accounts Payable for Sternberg.
D) debit to Equipment $1,200 and a debit to Supplies $400 for Sternberg.

26. On October 3, Josh Antonio, a carpenter, received a cash payment for services
previously billed to a client. Josh paid his telephone bill, and he also bought equipment
on credit. For the three transactions, at least one of the entries will include a (1 Point)
A) credit to Retained Earnings.
B) credit to Notes Payable.
C) debit to Accounts Receivable.
D) credit to Accounts Payable.

27. Which of the following are in accordance with IFRS? (1 Point)

A) Accrual basis accounting
B) Cash basis accounting
C) Both accrual basis and cash basis accounting
D) Neither accrual basis nor cash basis accounting

28. A credit to a liability account (1 Point)

A) indicates an increase in the amount owed to creditors.
B) indicates a decrease in the amount owed to creditors.
C) is an error.
D) must be accompanied by a debit to an asset account.

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Part II. Brief exercises and short answer questions. (52 Points)

29. Selected transactions for Parton Company are listed below. List the number of the
transaction and then describe the effect of each transaction on assets, liabilities, and
equity. (4,5 Points)
Sample: Issued ordinary shares in exchange for cash investment.
The answer would be—Increase in assets and increase in equity.

1. Paid monthly utility bill.

2. Purchased new display case for cash.
3. Paid cash for repair work on security system.
4. Billed customers for services performed.
5. Received cash from customers billed in 4.
6. Paid dividends.
7. Incurred advertising expenses on account.
8. Paid monthly rent.
9. Received cash from customers when service was rendered.

30. Under a double-entry system, show how the entry in each statement is entered in the ledger
by using debit or credit to indicate the increase or decrease in the affected account. (5 Points)

Debit or Credit
1. An increase in Salary Expense.
2. A decrease in Accounts Payable.
3. An increase in Prepaid Insurance.
4. An increase in Share Capital-Ordinary.
5. A decrease in Office Supplies.
6. An increase in Dividends.
7. An increase in Service Revenue.
8. A decrease in Accounts Receivable.
9. An increase in Rent Expense.
10. A decrease in Store Equipment.

31. Journalize the following business transactions in general journal form. Identify each
transaction by number. You may omit explanations of the transaction. (5 Points)

1. Kevin Diaz invested $50,000 cash in exchange for ordinary shares.

2. Hired an employee to be paid $400 per week, starting tomorrow.
3. Paid two years' rent in advance, $7,200.
4. Paid the worker's weekly wage.
5. Recorded revenue earned and received for the week, $1,500.

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32. Prepare journal entries for each of the following transactions. (4 Points)

1. Performed services for customers on account €5,000.

2. Purchased €20,000 of equipment on account.
3. Received €3,000 from customers in transaction 1.
4. The company paid dividends of €1,000.

33. Post the following transactions to T-accounts and determine each account's ending
balance (5 Points)

1. Supplies 2,500
Accounts Payable 2,500
2. Accounts Receivable 4,000
Service Revenue 4,000
3. Cash 3,500
Accounts Receivable 3,500
4. Accounts Payable 1,000
Cash 1,000

34. M Caria and Associates is a financial planning service. The account balances at
December 31, 2011 are shown by the following alphabetical list: (4 Points)

Accounts Payable $ 8,000

Accounts Receivable 19,000
Automobiles 27,500
Building 120,000
Cash 21,500
Share Capital-Ordinary 179,700
Computer 22,000
Computer Software 4,200
Land 42,000
Notes Payable 95,000
Notes Receivable 8,100
Office Furniture 15,400
Office Supplies 800
Technical Library 2,200

Instructions
Prepare a trial balance with the accounts arranged in financial statement order.

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35. A service proprietorship shows five transactions summarized below. The effect of each
transaction on the accounting equation is shown, and also the new balance of each item in
the equation. For each transaction (a) to (e) write an explanation of the nature of the
transaction. (5 Points)

Accounts Equip- Accounts

Cash + Rec. + ment + Land + Building = Payable + Equity
————————————————————————————————————
$5,000 $6,500 $10,000 $7,500 $50,000 $3,000 $76,000
a) –2,000 ______ ______ ______ ______ –2,000 ______
3,000 6,500 10,000 7,500 50,000 1,000 76,000
b) +1,000 – 1,000 ______ ______ ______ ______ ______
4,000 5,500 10,000 7,500 50,000 1,000 76,000
c) ______ ______ + 5,000 ______ ______ +5,000 ______
4,000 5,500 15,000 7,500 50,000 6,000 76,000
d) +2,500 ______ ______ ______ ______ ______ + 2,500
6,500 5,500 15,000 7,500 50,000 6,000 78,500
e) ______ +3,000 ______ ______ ______ ______ + 3,000
$6,500 $8,500 $15,000 $7,500 $50,000 $6,000 $81,500

36. The Europe Steel SE (parent company) is listed at the Frankfurt Stock Exchange (Prime
Standard). The Europe Steel SE controls three subsidiaries located in two different countries.
Which statements (according to German GAAP or/and IFRS) has the Europe Steel SE to
prepare or/and to publish? (3 Points)

37. Who audits and approves the financial statements? How is the auditor involved in this? (2
Points)

38. What is the main difference between single and consolidated financial statements? (3 Points)

39. Why is an “Endorsement” of (each) IFRS necessary on EU level? (2 Points)

40. What does the term “Enforcement” (with regard to financial reporting according to IFRS as
endorsed by the EU) stand for? Why is “Enforcement” necessary? How is the German
Enforcement System structured? Which sanctioning mechanism is inherent in the German
Enforcement System? (4 Points)

41. What is the purpose of the “Statement of Cash Flows”? Why is it necessary? (3 Points)

42. State some differences between HGB, IFRS and US-GAAP! (2,5 Points)

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Part III. Bookkeeping Exercise (29 Points)

43. All-you-need Services was formed on April 1, 2011. All following transactions took place
during the first month.

Transactions on April 1, 2011:

1. Shareholders invested $70,000 cash in exchange for ordinary shares.

2. Purchased furniture and Equipment costing $30,000. A Cash payment of $20,000 was made
immediately; the remainder will be paid in 6 months.
3. Paid $1,500 cash for a one-year insurance policy (policy starts in 2012) on the furniture and
equipment.
4. Signed a 2-year rental agreement on a warehouse; paid $24,000 cash in advance for the first
year.
5. Hired two workers to work in the warehouse. They will each be paid a salary of $3,000 per
month.

Transactions during the remainder of the month:

6. Received utility bills in the amount of $600, to be paid next month.

7. Total revenues earned were $20,000; $9,000 cash and $11,000 on account.
8. Paid $400 to suppliers for accounts payable due.
9. Purchased basic office supplies for $500 on account.
10. Purchased more office supplies for $1,500 cash.
11. Paid the monthly salaries of the two employees, totaling $6,000.
12. Received $2,500 from customers in payment of account receivable.

Instructions:

(a) Prepare journal entries to record each of the events listed. (Omit explanations) (12 Points)
(b) Post the journal entries to T accounts. (7 Points)
(c) Prepare a trial balance as of April 30, 2011. (4 Points)
(d) Prepare a cash flow-statement for the month of April, 2011. (6 Points)

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