Fachhochschule Sdwestfalen

Hochschule fr Technik und Wirtschaft

University of Applied Sciences

Module Exam Financial Accounting

Winter Term 20XY/XZ
Mock Exam

General Guidelines:
The exam lasts 90 minutes.
The exam consists of 2 parts (90 points). All questions have to be answered completely.
Please write your last name, first name and Matrikel-Number on every page.
Please write on both sides of the pages (for your calculations!). Do not open the staple and do not
use own paper. If you need additional paper, ask your lecturer/supervising staff.
Please leave a right margin of about 4 cm for correcting purposes, also on the rear page.
You may only use your pens and, if necessary, a calculator. No additional equipment and material is
permitted!

Good luck!
Last Name: ___________________________

First Name: _________________________

Matrikel-Number: _____________________

E-Mail Address: ______________________

Cell Phone:

Declaration of Your State of Health

I hereby declare that I feel physically capable to take part in the exam.
________________________________________________________________________________
Date
Signature

Punktzahl/Points:
Note/Grade:
Signature Lecturer:

Name: __________________________ Matrikel-No.: _______________________

PART I: MULTIPLE CHOICE QUESTIONS

(45 Points)

Please indicate the one correct answer with a cross:

1. The partnership form of business organization
a. is a separate legal entity.
b. is a common form of organization for service-type businesses.
c. enjoys an unlimited life.
d. has limited liability.
(1 point)

2. Which of the following is an advantage of corporations relative to partnerships and

sole proprietorships?
a. Reduced legal liability for investors.
b. Harder to transfer ownership.
c. Lower taxes.
d. Most common form of organization.
(1 point)

3. The liability created by a business when it purchases coffee beans and coffee cups on
credit from suppliers is termed a(n)
a. account payable.
b. account receivable.
c. revenue.
d. expense.
(1 point)

4. These are selected account balances on December 31, 2010.

Land (location of the corporations office building)
Land (held for future use)
Corporate Office Building
Inventory
Equipment
Office Furniture
Accumulated Depreciation

$100,000
150,000
600,000
200,000
450,000
100,000
300,000

What is the total amount of property, plant, and equipment that will appear on the
balance sheet?
a. $1,300,000
b. $1,100,000
c. $1,600,000
d. $950,000
(4 points)

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Name: __________________________ Matrikel-No.: _______________________

5. Use the following data to determine the total dollar amount of assets to be classified
as current assets.
Eddy Auto Supplies
Balance Sheet
December 31, 2010

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Cash
$ 50,000
Prepaid Insurance
30,000
Accounts Receivable
40,000
Inventory
70,000
Land held for investment
80,000
Land
75,000
Building
$110,000
Less Accumulated
Depreciation
(20,000)
90,000
Trademark
70,000
Total Assets
$525,000
a.
b.
c.
d.

Accounts Payable
Salaries Payable
Mortgage Payable
Total Liabilities

$ 55,000
10,000
90,000
$155,000

Common Stock
Retained Earnings
Total stockholders equity
Total Liabilities and
Stockholders Equity

$120,000
250,000
$370,000
$525,000

$270,000.
$120,000.
$190,000.
$130,000.

(4 points)

6. If a company buys a $700 machine on credit, this transaction will affect the:
a. income statement and retained earnings statement only.
b. income statement only.
c. income statement, retained earnings statement, and balance sheet.
d. balance sheet only.
(1 point)

7. Which of the following describes the classification and normal balance of the
Retained Earnings account?
a. Asset, debit
b. Stockholders equity, credit
c. Revenues, credit
d. Expense, debit
(1 point)

8. An accountant has debited an asset account for $1,000 and credited a liability
account for $500. What can be done to complete the recording of the transaction?
a. Nothing further must be done.
b. Debit a stockholders equity account for $500.
c. Debit another asset account for $500.
d. Credit a different asset account for $500.
(1 point)

Name: __________________________ Matrikel-No.: _______________________

9. During January 2010, its first month of operation, Osborn Enterprises earned net
income of $1,900 and paid dividends to the owners of $500. At January 31, the
balance in Retained Earnings will be
a. $0
b. $1,900 credit
c. $1,400 credit
d. $500 debit
(3 points)

10. In a service-type business, revenue is considered earned:

a. at the end of the month.
b. at the end of the year.
c. when the service is performed.
d. when cash is received.
(3 points)

11. If a company fails to adjust a Prepaid Rent account for rent that has expired, what
effect will this have on that month's financial statements?
a. Failure to make an adjustment does not affect the financial statements.
b. Expenses will be overstated and net income and stockholders equity will be
under- stated.
c. Assets will be overstated and net income and stockholders equity will be
under-stated.
d. Assets will be overstated and net income and stockholders equity will be
overstated.
(1 point)

12. An adjusting entry made to record accrued interest on a note receivable due next
year consists of a:
a. debit to Interest Expense and a credit to Interest Payable.
b. debit to Interest Receivable and a credit to Interest Earned.
c. debit to Interest Expense and a credit to Notes Payable.
d. debit to Interest Expense and a credit to Cash.
(3 points)

13. The entry to record a sale of $600 with terms of 2/10, n/30 will include a
a. debit to Sales Discounts for $12.
b. debit to Sales for $588.
c. credit to Accounts Receivable for $600.
d. credit to Sales for $600.
(3 points)

14. Indicate which one of the following would not appear on a single-step income
statement.
a. Gross profit
b. Operating expenses
c. Sales revenues
d. Cost of goods sold
(1 point)

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Name: __________________________ Matrikel-No.: _______________________

15. Which of the following should not be included in the physical inventory of a
company?
a. Goods held on consignment from another company.
b. Goods in transit from another company shipped FOB shipping point.
c. Goods shipped on consignment to another company.
d. All of the above should be included.
(1 point)

Cost Flow Assumptions:

A company just starting business made the following four inventory purchases in June:
June 1
150 units
$ 780
June 10
200 units
1,170
June 15
200 units
1,260
June 28
150 units
990
$4,200
A physical count of merchandise inventory on June 30 reveals that there are 200 units
on hand.
16. Using the LIFO inventory method, the value of the ending inventory on June 30 is
a. $1,040.00
b. $1,072.50
c. $1,305.00
d. $1,320.00
(3 points)

17. Using the FIFO inventory method, the amount allocated to ending inventory for
June is
a. $1,040.00
b. $1,072.50
c. $1,305.00
d. $1,320.00
(3 points)

18. Using the average cost method, the amount allocated to the ending inventory on
June 30 is
a. $1,170.
b. $1,320.
c. $1,260.
d. $1,200.
(3 points)

19. The inventory method which results in the highest gross profit for June is
a. the FIFO method.
b. the LIFO method.
c. the weighted average unit cost method.
d. not determinable.
(3 points)

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Name: __________________________ Matrikel-No.: _______________________

20. Westcoe Company's goods in transit at December 31 include sales made
(1)
FOB destination
(2)
FOB shipping point
and purchases made
(3)
FOB destination
(4)
FOB shipping point.
Which items should be included in Westcoe's inventory at December 31?
a. (2) and (3)
b. (1) and (4)
c. (1) and (3)
d. (2) and (4)
(2 points)

21. Manuels Tune-Up Shop follows the revenue recognition principle. Javier services a
car on August 31. The customer picks up the vehicle on September 1 and mails the
payment to Manuel on September 5. Manuel receives the check in the mail on
September 6. When should Manuel show that the revenue was earned?
a. August 31
b. August 1
c. September 5
d. September 6
(2 points)

PART II: CASE STUDY & MAIN QUESTIONS

(45 Points)

Question 1: Adjusting Entries (20 Points)

The following information for Valance Company is available on June 30, 2009, the
end of a monthly accounting period. Prepare the necessary adjusting journal entries for
the Valance Company for the month of June for each situation given. Appropriate
adjusting entries had been recorded in previous months. For each adjusting entry, name
the subcategory of the accrual/deferral.
1. Valance Company purchased a 2-year insurance policy on April 1, 2009, and debited
Prepaid Insurance for $3,600.
2. On April 1, 2009, a tenant in an apartment building owned by the Valance Company
paid $4,500, which represents three months' rent in advance. The amount received
was credited to the Unearned Rent account.
3. On June 1, 2009, the balance in the Office Supplies account was $130. During June,
office supplies costing $750 were purchased. A physical count of office supplies at
June 30 revealed that there was $150 still on hand.
4. On March 31, 2009, the Valance Company purchased a delivery van for $30,000. It
is estimated that the annual depreciation will be $7,500.
5. Valance Company has two office employees who earn $100 and $125 per day,
respectively. They are paid each Friday for a five-day work week that begins each
Monday. June 30 is a Wednesday in 2009.

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Name: __________________________ Matrikel-No.: _______________________

Question 2: Financial Analysis (25 Points)
The following data are taken from the financial statements of H. Hogan Company.
The average number of shares of common outstanding for the year was 10,000. The
following data are in alphabetical order:
Accounts payable
Accounts receivable
Cash
Gross profit
Net income

$ 25,000
$ 76,000
$ 34,000
$ 185,000
$ 60,000

Net sales
Other current liabilities
Salaries payable
Stockholders equity
Total assets

$ 400,000
$ 15,000
$ 4,000
$ 114,000
$ 285,000

Describe briefly the following ratios in general, compute them for H. Hogan Company
and interpret each ratio with one sentence:
(a)
Current ratio
(b)
Debt to total assets ratio
(c)
Earnings per share
(d)
Working capital
Discuss the amount of earnings per share from a stockholders perspective!

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