Beruflich Dokumente
Kultur Dokumente
Fall 2015
Instructor: Dongkuk Lim, Ph.D.
Your Name:____________________________
Instruction of Exam I
1. It has total of six pages, including this cover page. Please check the
exam booklet in order to verify that you have a completed exam package
to answer.
2. It is a NON-OPEN BOOK exam.
3. A basic calculator (without memory-function) is allowed, but it should not
be shared during the exam hour.
4. Any electronic device, including a cellular phone, MP3, or a laptop, etc,
is strictly prohibited during the exam hour.
5. In the Multiple-Choice section, you are given X questions. Maximum
possible point is XX.
6. In the Problem-Solving section, you are given Y questions. Maximum
possible point is YY.
7. There will be no extra point beyond maximum possible point of XXX from
this exam.
Multiple Choice.
Choose the best answer for each of the following questions and enter the identifying letter
in the space provided.
1. How does failure to record accrued revenue distort the financial reports?
a. It understates revenue, net income, and current assets.
b. It understates net income, stockholders equity, and current liabilities.
c. It overstates revenue, stockholders equity, and current liabilities.
d. It understates current assets and overstates stockholders equity.
4. Of the following adjusting entries, which one would cause an increase in assets at the
end of the period?
a. The entry to record the earned portion of rent received in advance.
b. The entry to accrue unrecorded interest expense.
c. The entry to accrue unrecorded interest revenue.
d. The entry to record expiration of prepaid insurance.
9. Perry Corp. reports operating expenses in two categories: (1) selling and (2) general
and administrative. The adjusted trial balance at December 31, 2012, included the
following expense accounts:
Accounting and legal fees
Advertising
Freight-out
Interest
Loss on sale of long-term investments
Officers' salaries
Rent for office space
Sales salaries and commissions
$280,000
240,000
150,000
120,000
60,000
360,000
360,000
220,000
10. Logan Corp.'s trial balance of income statement accounts for the year ended
December 31, 2012 included the following:
Debit
Credit
Sales
$280,000
Cost of sales
$100,000
Administrative expenses
50,000
Loss on sale of equipment
18,000
Commissions to salespersons
16,000
Interest revenue
10,000
Freight-out
6,000
Loss due to earthquake damage
24,000
Bad debt expense
6,000
Totals
$220,000
$290,000
Other information:
Logan's income tax rate is 30%. Finished goods inventory:
January 1, 2012
$160,000
December 31, 2012
140,000
On Logan's multiple-step income statement for 2012,
a.
b.
c.
d.
Extraordinary loss is
$16,800.
$24,000.
$29,400.
$42,000.
11. The following trial balance of Reese Corp. at December 31, 2012 has been properly adjusted
except for the income tax expense adjustment.
Reese Corp.
Trial Balance
December 31, 2012
Dr.
Cr.
Cash
$ 975,000
Accounts receivable (net)
2,695,000
Inventory
2,085,000
Property, plant, and equipment (net)
7,366,000
Accounts payable and accrued liabilities
$ 1,801,000
Income taxes payable
654,000
Deferred income tax liability
85,000
Common stock
2,350,000
Additional paid-in capital
3,680,000
Retained earnings, 1/1/12
3,450,000
Net sales and other revenues
13,460,000
Costs and expenses
11,180,000
Income tax expenses
1,179,000
$25,480,000
$25,480,000
Other financial data for the year ended December 31, 2012:
Included in accounts receivable is $1,200,000 due from a customer and payable in quarterly
installments of $150,000. The last payment is due December 29, 2014.
The balance in the Deferred Income Tax Liability account pertains to a temporary difference
that arose in a prior year, of which $20,000 is classified as a current liability.
During the year, estimated tax payments of $525,000 were charged to income tax expense.
The current and future tax rate on all types of income is 30%.
Problem-solving.
Problem 1. Adjusting and Reversing Entries.
The following list of accounts and their balances represents the unadjusted trial balance of Alt
Company at December 31, 2012:
Cash
Equity Investments (trading)
Accounts Receivable
Allowance for Doubtful Accounts
Inventory
Prepaid Rent
Plant Assets
Accumulated Depreciation-Plan Assets
Accounts Payable
Bonds Payable
Common Stock
Retained Earnings
Sales Revenue
Cost of Goods Sold
Freight-Out
Salaries and Wages Expense
Interest Expense
Rent Revenue
Miscellaneous Expense
Insurance Expense
$ 29,090
60,000
69,000
$
500
54,720
36,000
160,000
14,740
11,370
90,000
170,000
97,180
214,800
154,400
11,000
32,000
2,040
21,600
890
11,050
$620,190
$620,190
Additional Data:
1. The balance in the Insurance Expense account contains the premium costs of three policies:
2.
3.
4.
5.
6.
7.
8.
Policy 1, remaining cost of $2,550, 1-yr. term, taken out on May 1, 2011;
Policy 2, original cost of $7,200, 3-yr. term, taken out on Oct. 1, 2012;
Policy 3, original cost of $1,300, 1-yr. term, taken out on Jan. 1, 2012.
On September 30, 2012, Alt received $21,600 rent from its lessee for an eighteen month lease
beginning on that date.
The regular rate of depreciation is 10% per year. Acquisitions and retirements during a year
are depreciated at half this rate. There were no purchases during the year. On December 31,
2011, the balance of the Plant and Equipment account was $240,000.
On December 28, 2012, the bookkeeper incorrectly credited Sales for a receipt on account in
the amount of $10,000.
At December 31, 2012, salaries and wages accrued but unpaid were $4,200.
Alt estimates that 1% of sales will become uncollectible.
On August 1, 2012, Alt purchased, as a short-term investment, 60 $1,000, 7% bonds of Allen
Corp. at par. The bonds mature on August 1, 2013. Interest payment dates are July 31 and
January 31.
On April 30, 2012, Alt rented a warehouse for $3,000 per month, paying $36,000 in advance.
Instructions
(a) Record the necessary correcting and adjusting entries.
Historical cost
Relevance
Monetary unit
Going concern
Consistency
f.
g.
h.
i.
j.
Economic entity
Materiality
Conservatism
Periodicity
Expense recognition
k. Revenue recognition
l. Full disclosure
m. Cost constraint
n. Industry practices
o. Faithful
representation
____
1. Chose the solution that will be least likely to overstate assets or income.
____
____
____
4. The quality which helps users make predictions about present, past, and future events.
____
5. Recording a transaction when goods or services are exchanged for cash or claims to
cash.
____
____
____
____
$ 18,000
27,000
75,000
60,000
3,000
60,000
$243,000
78,000
213,000
60,000
Deferred Charges:
Discount on bonds payable
Other Assets:
Cash surrender value of life insurance
153,000
3,000
54,000
$531,000
45,000
42,000
3
Long-Term Liabilities:
Bonds payable
Total Liabilities
Capital Stock:
Capital stock
Earned surplus
Cash dividends declared
$ 87,003
120,000
207,003
225,000
74,997
24,000
323,997
$531,000
Account balances taken from the ledger of Morin Company on December 31, 2012 follow:
____
____
____
3. Buildings
____
4. Office Expense
____
____
____
7. Accum. DepreciationBuildings
____
____
9. Depletion Expense