Final Exam 1: Chapters 1-12

Accounting Principles, 10e

Weygandt, Kieso, & Kimmel

Part
Points

Name ___________________________
Instructor ________________________
Section # _________ Date __________

II

III

IV

VI

VII

Total

72

20

13

15

12

18

20

170

Score

PART I MULTIPLE CHOICE (72 points)

Instructions: Designate the best answer for each of the following questions.
____

1. Which of the following events cannot be quantified into dollars and cents and recorded
as an accounting transaction?
a. The sale of store equipment.
b. The purchase of a new computer.
c. The appointment of a new CPA firm to perform an audit.
d. Payment of income taxes.

____

2. Anderson Company purchased equipment for $2,400 cash. As a result of this event:
a. owners equity decreased by $2,400.
b. total assets remained unchanged.
c. total assets increased by $2,400.
d. Both a and b.

____

3. Which of the following statements related to the adjusted trial balance is incorrect?
a. It is prepared before adjusting entries have been made.
b. It shows the balances of all accounts at the end of the accounting period.
c. It proves the equality of the total debit balances and the total credit balances in the
ledger.
d. Financial statements can be prepared directly from the adjusted trial balance.

____ 4. Carson Supply bought equipment at a cost of $115,000 on January 1, 2010. It

originally had an estimated life of five years and a salvage value of $12,000. Carson
uses the straight-line depreciation method. On January 1, 2014, Carson decided the
useful life likely would end on December 31, 2017, with a salvage value of $8,000. The
depreciation expense recorded in 2014 should be:
a. $11,300.
b. $8,150.
c. $10,866.
d. $6,150.

Final Exam 1

FE1- 2

____ 5. Dawson Company bought furniture on account. Their accountant debited Furniture
and credited Accounts Receivable. An appropriate correcting entry is:
a. debit Accounts Receivable and credit Accounts Payable.
b. debit Furniture and credit Accounts Payable.
c. debit Miscellaneous Expense and credit Accounts Payable.
d. No correcting entry is needed.
____ 6. Income Summary has a credit balance of $29,000 for K. Eagle Co. after closing
revenues and expenses. The entry to close Income Summary is:
a. credit Income Summary $29,000, debit Owners Capital $29,000.
b. credit Income Summary $29,000, debit Owners Drawing $29,000.
c. debit Income Summary $29,000, credit Owners Capital $29,000.
d. debit Income Summary $29,000, credit Owners Drawing $29,000.
____ a7. Bloom Company exchanged old equipment for new equipment. The old equipment
had a cost of $80,000, accumulated depreciation of $46,000, and a fair market value
of $30,000. The exchange had commercial substance. Bloom paid an additional
$16,000 in cash. The new equipment should be recorded at:
a. $64,000.
b. $46,000.
c. $30,000.
d. $50,000.
____ 8. If the entry to record the purchase of inventory is inadvertently omitted, but the item is
correctly included in ending inventory, the effect when using the periodic inventory
method is
Net Income
Assets
a. Overstated
Overstated
b. Overstated
Understated
c. Overstated
No effect
d. No effect
No effect
____

9.

Cunningham Company's records indicate the following information for the year:
Merchandise inventory, 1/1
Purchases
Net Sales

$ 300,000
1,700,000
2,400,000

On December 31, a physical inventory determined that ending inventory of $400,000

was in the warehouse. Cunningham's gross profit on sales has remained constant at
40%. Cunningham suspects some of the inventory may have been taken by some
new employees. At December 31, what is the estimated cost of missing inventory?
a. $600,000
b. $360,000
c. $560,000
d. $160,000

Final Exam 1

FE1- 3

____ 10. Left Company purchased Right Company on September 1, 2010, for $22,000,000. On
that date the book value of Right's net assets was $13,000,000; the fair market value
of the net assets was $19,000,000. The entry to record the purchase of Right
Company should include Goodwill of:
a. $0.
b. $9,000,000.
c. $3,000,000.
d. $22,000,000.
____ 11. A contingent liability should be recorded in the accounts if it is:
a. remote.
b. reasonably possible.
c. probable and reasonably estimable.
d. Both (a) and (b) above.
____ 12. In a period of rising prices, the inventory method that results in the lowest income tax
payment is:
a. FIFO.
b. LIFO.
c. average cost.
d. specific identification.
____ 13. On June 30, Gaston Company issued a $9,000, 8%, 6-month note to National Bank.
The entry on Gaston's books to record the payment of the note at maturity will include
a credit to Cash for:
a. $9,360.
b. $9,720.
c. $9,000.
d. $9,180.
____ 14. The following information is available for McDaniel Company:
Beginning Inventory
Cost of Goods Sold
Ending Inventory
Net Sales
Inventory turnover for the year is:
a. 4.5 times.
b. 5.1 times.
c. 10.0 times.
d. 6.0 times.

$ 80,000
360,000
60,000
600,000

FE1- 4

Test Bank for Accounting Principles, Tenth Edition

____ 15. Sister Sue Corporations unadjusted trial balance includes the following balances
(assume normal balances):
Accounts Receivable
Allowance for Doubtful Accounts

$247,000
4,400

Bad debts are estimated to be 4% of outstanding receivables. What amount of bad

debts expense will the company record?
a. $9,880
b. $10,056
c. $5,304
d. $5,480
____ 16. The following information is available for Aikman Company:
Sales
Ending Inventory
Purchases

$210,000
18,000
120,000

Freight-in
Purchase Returns and Allowances
Beginning Inventory

$7,000
3,000
22,000

Aikmans cost of goods sold is:

a. $188,000.
b. $185,000.
c. $124,000.
d. $128,000.
____ 17. If ending inventory is understated, net income and assets will be:
a.
b.
c.
d.

Net Income
Overstated
Understated
Understated
None of the above.

Assets
Overstated
Understated
Unaffected

____a18. Ryan has agreed to pay $50,000 each to McCoy and Alexander for one-fourth of their
interest in their partnership. At the time of the admission, McCoy and Alexander had
balances of $80,000 each in their capital accounts. The entry to record the admission
of Ryan includes a credit to his capital account for:
a. $40,000.
b. $80,000.
c. $50,000.
d. $100,000.
____

19. A company purchased land for $60,000 cash. Real estate brokers' commission was
$6,500 and $10,000 was spent for demolishing an old building on the land before
construction of a new building could start. Under the cost principle, the cost of land
would be recorded at:
a. $70,000.
b. $60,000.
c. $76,500.
d. $66,500.

FE1- 5

Final Exam 1

____ 20. Which of the following errors will cause a trial balance to be out of balance? The entry
to record a payment on account was:
a. posted as a debit to Cash and a debit to Accounts Payable.
b. posted as a debit to Cash and a credit to Accounts Payable.
c. posted as a debit to Accounts Receivable and a credit to Cash.
d. not posted at all.
____ 21. The assumption that assumes a company will continue in operation long enough to
carry out its existing objectives is the:
a. economic entity assumption.
b. monetary unit assumption.
c. going concern assumption.
d. time period assumption.
____ 22. All of the following are intangible assets except:
a. patents.
b. franchises.
c. goodwill.
d. oil deposits.
____a23. Capital balances in the UFO partnership are U $300,000, F $180,000, and O $90,000,
and income ratios are 5:3:2, respectively. The UFOB partnership is formed by
admitting B to the firm with a cash investment of $100,000 for a 10% capital interest.
The bonus to be credited to O Capital in admitting B is:
a. $6,600.
b. $8,600.
c. $13,400.
d. $9,000.
____ 24. A daily cash count of register receipts made by a cashier department supervisor
demonstrates an application of which of the following internal control principles?
a. Documentation procedures.
b. Independent internal verification.
c. Establishment of responsibility.
d. Segregation of duties.
____ 25. When the allowance method is used for bad debts, the entry to write off an individual
account known to be uncollectible involves a:
a. debit to an expense account.
b. credit to an expense account.
c. debit to the allowance account.
d. credit to the allowance account.
____ 26. Shipping terms of FOB destination mean that the:
a. shipping charges are debited to Freight-Out.
b. purchaser is responsible for the shipping charges.
c. items should be in the purchaser's inventory account at year-end if the items are in
transit.
d. Both (a) and (b) above.

FE1- 6

Test Bank for Accounting Principles, Tenth Edition

____ 27. Troy Company has a $500,000 balance in Accounts Receivable and a $12,000 debit
balance in Allowance for Doubtful Accounts. Credit sales for the period totaled
$1,400,000. What is the amount of the bad debt adjusting entry if Troy uses a
percentage of credit sales basis (at 3%) or a percentage of receivables basis (at 8%)?
% Credit Sales
% Receivables
a.
$42,000
$40,000
b.
$30,000
$28,000
c.
$30,000
$28,000
d.
$42,000
$52,000
____ 28. FICA taxes do not provide workers with:
a. supplemental retirement.
b. life insurance.
c. employment disability.
d. medical benefits.
____ 29. A petty cash fund:
a. results in expense accounts being charged when cash is disbursed.
b. should be replenished when the fund is low and at the end of the period.
c. results in expense accounts being charged when the fund is replenished.
d. Both (b) and (c) above.
____ 30. If merchandise is sold for $14,000 subject to credit terms of 1/15, n/30, the entry to
record collection in full within the discount period would include a:
a. credit to Sales Discounts for $140.
b. credit to Accounts Receivable for $13,860.
c. credit to Accounts Receivable for $140.
d. None of the above.
____ 31. Barley Company's records show the following for the month of March:
Total Owner's Equity at March 1................................................
$140,000
Total Owner's Equity at March 31..............................................
210,000
Total Revenues..........................................................................
530,000
Total Withdrawals by Owner......................................................
25,000
There were no investments made during March. Total expenses for March were:
a. $505,000.
b. $530,000.
c. $435,000.
d. $460,000.

Final Exam 1

FE1- 7
____ 32. Fordham Company's financial information is presented below.
Sales
$ ????
Sales Returns and Allowances
30,000
Net Sales
1,010,000
Beginning Inventory
????
Purchases
450,000

The missing amounts above are:

Sales
Beginning Inventory
a. $1,040,000
$40,000
b. $980,000
$20,000
c. $1,040,000
$20,000
d. $980,000
$40,000

Purchase Returns and Allowances $ 20,000

Ending Inventory
60,000
Cost of Goods Sold
410,000
Gross Profit
????

Gross Profit
$600,000
$630,000
$600,000
$630,000

____ 33. A partner invests into a partnership a building with an original cost of $110,000 and
accumulated depreciation of $55,000. This building has a $60,000 fair market value.
As a result of the investment, the partners capital account will be credited for:
a. $115,000.
b. $110,000.
c. $55,000.
d. $60,000.
____ 34. The preparation of closing entries:
a. is an optional step in the accounting cycle.
b. results in zero balances in all accounts at the end of the period so that they are
ready for the following period's transactions.
c. results in transferring the balances in all nominal accounts to owner's capital.
d. is necessary before financial statements can be prepared.
____ 35. Allowance for Doubtful Accounts is reported in the:
a. balance sheet as a contra liability account.
b. balance sheet as a contra asset.
c. income statement under other expenses and losses.
d. income statement under other revenues and gains.
____ 36. Two categories of expenses for merchandising companies are:
a. cost of goods sold and operating expenses.
b. operating expenses and financing expenses.
c. cost of goods sold and financing expenses.
d. sales and cost of goods sold.

FE1- 8

Test Bank for Accounting Principles, Tenth Edition

PART II MATCHING (20 points)

Instructions: Designate the terminology that best represents the definition or statement given
below by placing the identifying letter(s) in the space provided. No letter should be used more
than once.
A.
B.
C.
D.
E.
F.
G.
H.
I.
J.
K.
L.
M.

Additions and improvements

Natural resources
Allowance method
Amortization
Periodic inventory system
Book value
Nominal accounts
Closing entries
Comparability
Permanent accounts
Consistency
Contra asset
Cost principle

N.
O.
P.
Q.
R.
S.
T.
U.
V.
W.
X.
Y.
Z.

Debit
Declining-balance method
Depletion
Depreciable cost
Direct write-off method
Economic entity assumption
First-in, first-out method
Inventoriable costs
Going-concern assumption
Internal control
Time period assumption
Last-in, first out method
Retail inventory method

___

1. Use of the same accounting principles and methods from period to period by the same
business enterprise.

___

2. The total amount subject to depreciation.

___

3. An assumption that the economic life of a business can be divided into artificial time
periods.

___

4. The cost of an asset less its accumulated depreciation.

___

5. The left side of an account.

___

6. The periodic write-off of an intangible asset.

___

7. A depreciation method that produces decreasing periodic depreciation by applying a

constant rate to the book value of the asset.

___

8. An inventory method that records the earliest goods purchased as cost of goods sold.

___

9. This method of accounting for uncollectible accounts is required when bad debts are
significant in size.

___ 10. Accumulated depreciation is an example of this term.

___ 11. An assumption that requires that the activities of a company be kept separate and
distinct from the activities of its owner.
___ 12. All accounts appearing on the post-closing trial balance.
___ 13. An inventory costing method which assumes that the latest units purchased are the first
to be allocated to cost of goods sold.

FE1- 9

Final Exam 1

___ 14. An accounting principle that requires assets be recorded at their historical cost.
___ 15. Revenue, expense, and drawing accounts whose balances are transferred to owner's
capital at the end of an accounting period.
___ 16. A system in which detailed records are not maintained and cost of goods sold is
determined only at the end of an accounting period.
___ 17. Assets such as timber, oil, coal, and mineral deposits.
___ 18. Entries at the end of an accounting period to transfer the balances of temporary
accounts to permanent owner's equity accounts.
___ 19. The pool of costs that consist of the cost of the beginning inventory and the cost of
goods purchased.
___ 20. The methods and measures adopted within a business to safeguard its assets and
enhance the accuracy and reliability of its accounting records.

FE1- 10

Test Bank for Accounting Principles, Tenth Edition

PART III ADJUSTING ENTRIES (13 points)

The trial balance of Steemer Corporation reported the following balances for selected accounts
on July 31, 2012:
Prepaid Insurance
Equipment
Accumulated Depreciation

$12,000
60,000
9,000

Unearned Service Revenue

Notes Payable
Interest Payable

$ 4,800
30,000
700

Instructions: Using the additional information given below, prepare the appropriate monthly
adjusting entries at July 31. Show computations.
1.

Revenue for services rendered to customers, but not yet billed, totaled $8,000 on July 31.
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________

2.

The note payable is a 7%, 1 year note issued March 1, 2012.

_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________

3.

The equipment was purchased on January 1, 2012, for $60,000. It has an estimated life of 8
years and an estimated salvage value of $12,000. Steemer uses the straight-line
depreciation method.
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________

4.

An insurance policy was acquired on June 30, 2012; the premium paid for 2 years was
$5,760.
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________

5.

Steemer received $4,800 fees in advance from a customer on January 1, 2012. Two-thirds
of this amount was earned in July.
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________

Final Exam 1

FE1- 11
PART IV BANK RECONCILIATION (15 points)

A review of the September 30 bank statement and other data of Lutz Company reveals the
following:
1.
2.
3.
4.
5.
6.
7.
8.

Balance per bank statement on September 30....................................................

Balance per books on September 30...................................................................
NSF Check from R. Angel in payment of account................................................
Collection of $1,000, 4-month, 6% note with a $15 collection fee. No interest
had been accrued................................................................................................
Deposits in transit at September 30.....................................................................
Outstanding checks at September 30..................................................................
A check written by Lutz to McMahon for salary on September 10 was
recorded at $560 but correctly cleared the bank at $650.
A check drawn on the account of Marley Company for $1,552 was mistakenly
charged against Lutz' account by the bank.

$16,912
$17,421
$212
1,005
3,120
3,460

Instructions: Prepare the September 30 (a) bank reconciliation (omit heading) and (b) related
journal entries.
1.

BANK RECONCILIATION:
Balance per bank statement

2.

Adjusted balance per bank

ENTRIES:
Account Titles

Amount
$

Balance per books

Amount
$

Adjusted balance per books

Debit

Credit

FE1- 12

Test Bank for Accounting Principles, Tenth Edition

PART V INVENTORY (12 points)

Ethridge Company had a beginning inventory of 300 units at a cost of $16 per unit on May 1.
During the month, the following purchases and sales were made.
May
May
May

Purchases
4
200 units at $18
15
400 units at $15
20
100 units at $17

May
May
May
May

Sales
7
200 units
11
250 units
17
300 units
24
150 units

Ethridge uses a periodic inventory system.

Instructions: Determine ending inventory and cost of goods sold under 1, average cost, 2, FIFO,
and 3, LIFO.
1.

Average cost:
Ending inventory = $____________; cost of goods sold = $_____________.

2.

FIFO:
Ending inventory = $_____________; cost of goods sold = $____________.

3.

LIFO:
Ending inventory = $_____________; cost of goods sold = $____________.

Final Exam 1

FE1- 13
PART VI DEPRECIATION (18 points)

Grisham Company purchased equipment for $500,000 cash on January 1, 2011. The estimated
life is 4 years or 600,000 units; salvage value is estimated at $20,000. Actual activity was 105,000
units in 2011 and 135,000 units in 2012.
Instructions: Compute the annual depreciation expense for 2011 and 2012, and book value at
December 31, 2012, under the following depreciation methods: 1, units-of-activity, 2, straight-line,
and 3, double-declining-balance.
1.

Units-of-activity
2011 depreciation =

$_______________.

2012 depreciation =

$_______________.

12/31/12 book value = $_______________.

2.

Straight-line
2011 depreciation =

$_______________.

2012 depreciation =

$_______________.

12/31/12 book value = $_______________.

3.

Double-declining-balance
2011 depreciation =

$_______________.

2012 depreciation =

$_______________.

12/31/12 book value = $_______________.

FE1- 14

Test Bank for Accounting Principles, Tenth Edition

PART VII DIVISION OF PARTNERSHIP NET INCOME (LOSS) (20 points)

Mark and Chris have formed a partnership and are interested in seeing the results of various
income and loss sharing arrangements before they finalize their partnership agreement. Mark and
Chris will have beginning capital balances of $200,000 and $250,000, respectively.
Instructions: Prepare a schedule indicating the amounts to be debited or credited to the capital
accounts in each of the following independent situations. (Be sure to designate debit or credit!)
1.

Net income is $120,000. Chris receives a salary allowance of $58,000 with any remainder
divided equally.
Mark
Chris
Total
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

2.

Net income is $150,000. Each partner is allowed 20% interest on beginning capital balances
with any remainder divided equally.
Mark
Chris
Total
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

3.

Net income is $170,000. Mark receives a salary allowance of $85,000; each partner is
allowed a 12% interest on beginning capital balances with any remainder divided equally.
Mark

Chris

Total

________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

Final Exam 1

FE1- 15
4.

Net income is $70,000. Use the sharing arrangement described in 3, above.

Mark

Chris

Total

________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
5.

Prepare the journal entry to record the distribution of income computed in 4, above.

FE1- 16

Test Bank for Accounting Principles, Tenth Edition

Solutions Final Exam 1: Chapters 112

PART I MULTIPLE CHOICE (72 points)
1.
2.
3.
4.
5.
6.
7.
8.

c
b
a
d
a
c
b
c

9.
10.
11.
12.
13.
14.
15.
16.

d
c
c
b
a
b
d
d

17.
18.
19.
20.
21.
22.
a
23.
24.
a

b
a
c
a
c
d
a
b

25.
26.
27.
28.
29.
30.
31.
32.

c
a
d
b
d
d
c
a

16.
17.
18.
19.
20.

E
B
H
U
W

33.
34.
35.
36.

d
c
b
a

PART II MATCHING (20 points)

1.
2.
3.
4.
5.

K
Q
X
F
N

6.
7.
8.
9.
10.

D
O
T
C
L

11.
12.
13.
14.
15.

S
J
Y
M
G

PART III ADJUSTING ENTRIES (13 points)

1.
2.
3.
4.
5.

Accounts Receivable....................................................................
Service Revenue.................................................................

8,000

Interest Expense ($30,000 0.07 1/12)....................................

Interest Payable...................................................................

175

Depreciation Expense [($60,000 $12,000) 96]........................

Accumulated Depreciation...................................................

500

Insurance Expense ($5,760 24).................................................

Prepaid Insurance................................................................

240

Unearned Service Revenue ($4,800 2/3)..................................

Service Revenue.................................................................

3,200

8,000
175
500
240
3,200

PART IV BANK RECONCILIATION (15 points)

1. BANK RECONCILIATION:
Balance per bank statement
Add: Deposits in transit
Bank error
Less: Outstanding checks
Adjusted balance per bank

Amount
$16,912
3,120
1,552
$21,584
(3,460)
$18,124

Amount
$17,421

Balance per books

Add:
Note collection
Less: NSF check
Error in recording check
Adjusted balance per books

1,005
$18,426
(212)
(90)

(302)
$18,124

Final Exam 1

FE1- 17
2.

ENTRIES:
Account Titles
Cash.............................................................................................
Miscellaneous Expense................................................................
Notes Receivable.................................................................
Interest Revenue.................................................................

Debit
1,005
15

Accounts Receivable....................................................................
Cash....................................................................................

212

Salaries and wages expense........................................................

Cash....................................................................................

90

Credit

1,000
20
212
90

PART V INVENTORY (12 points)

1.

Average cost ending inventory:

100 $16.10 = $1,610

Average cost of goods sold:

Cost of goods available for sale
Less: Ending inventory
Cost of goods sold

$16,100
1,610
$ 14,490

FIFO ending inventory:

100 $17 =$1,700

FIFO cost of goods sold:

Cost of goods available for sale
Less: Ending inventory
Cost of goods sold

$16,100
1,700
$ 14,400

LIFO ending inventory:

100 $16 =$1,600

LIFO cost of goods sold:

Cost of goods available for sale
Less: Ending inventory
Cost of goods sold

$16,100
1,600
$14,500

$16,100
Average cost = - = $16.10
1,000
2.

3.

PART VI DEPRECIATION (18 points)

Depreciable cost: $500,000 $20,000 = $480,000.
1.

2.

3.

Units-of-activity
2011 depreciation [105,000 ($480,000 600,000)]...............................
2012 depreciation (135,000 ($480,000 600,000)]...............................
12/31/12 book value [$500,000 ($84,000 + $108,000)].........................

$84,000
$108,000
$308,000

Straight-line
2011 depreciation [($500,000 $20,000) 4]..........................................
2012 depreciation [($500,000 $20,000) 4]..........................................
12/31/12 book value [$500,000 ($120,000 + $120,000)].......................

$120,000
$120,000
$260,000

Double-declining-balance
2011 depreciation ($500,000 .5)............................................................
2012 depreciation [($500,000 $250,000) .5].......................................
12/31/12 book value [$500,000 ($250,000 + $125,000)].......................

$250,000
$125,000
$125,000

FE1- 18

Test Bank for Accounting Principles, Tenth Edition

PART VII DIVISION OF PARTNERSHIP NET INCOME (LOSS) (20 points)

Mark

1.

Salary allowance.......................................
Remainder.................................................
Total...........................................................

Chris
$ 58,000
$31,000
31,000
$31,000 Cr. $ 89,000 Cr.

2.

Interest allowances....................................
Remainder.................................................
Total...........................................................

$40,000
30,000
$70,000 Cr.

$50,000
30,000
$80,000 Cr.

$ 90,000
60,000
$150,000

3.

Salary allowance.......................................
Interest allowances....................................
Remainder.................................................
Total...........................................................

$85,000
$24,000
15,500
$124,500 Cr.

30,000
15,500
$45,500 Cr.

$ 85,000
54,000
31,000
$170,000

Salary allowance.......................................
Interest allowances....................................
Remainder.................................................
Total...........................................................

$85,000
$24,000
(34,500)
$74,500 Cr.

30,000
(34,500)
$(4,500) Dr.

$85,000
54,000
(69,000)
$70,000

4.

5.

Income Summary.........................................................................
Chris, Capital................................................................................
Mark, Capital........................................................................

Total
$ 58,000
62,000
$120,000

70,000
4,500
74,500