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UGBA XBW102A - Introduction to Financial Accounting Final Examination




Question;UGBA_XBW102A_Form A Page 1Name ___________________________________________ Date ________________Final ExaminationUGBA XBW102A: Introduction to Financial AccountingSection: 004Details:Form: A ? No booksTime limit: 3 hours ? 1pg Notes, Double Sided? Calculator **? No electronic/mobile devicesInstructions:? Answers must be handwritten, single-side only. Extra paper is allowed if necessary.? **Only non-programmable, non-graphing calculators are acceptable for use on final exams.All examination materials must be returned to the proctor at the end of the exam.Instructor?s notes:Place your answers on the answer sheet on the last page of this exam.Final ExaminationUGBA_XBW102A_Form A Page 21. For a business, a supplierA) is a company or individual that owns shares of the business.B) is a company or individual to whom the business sells goods or services.C) provides goods and services used by the business.D) makes loans to the company to help finance its activities.E) None of the above is correct.2. A group of people establishing a business might prefer to set it up as a corporation ratherthan a partnershipA) to have limited liability.B) to avoid double taxation.C) because of ease of formation.D) because a corporation is considered to be a separate business entity and a partnership isnotE) Both A and D are correct.3. The ending retained earnings balance of Juan's Mexican Restaurant chain increased by $4.5billion from the beginning of the year. The company had declared a dividend of $1.9 billionduring the year. What was the net income earned during the year?A) $2.6 billionB) $4.5 billionC) $6.4 b illionD) There is no way to determine net income as not enough information was given.4. The collection of an account receivable from a customer wouldA) Increase liabilities.B) Decrease liabilities.C) Not affect liabilities.D) Decrease stockholders' equity.E) None of the above is correct.5. When a company buys equipment for $60,000 and pays for one third in cash and the othertwo thirds is financed by a note payable, the following are the effects on the equationA) cash decreases by $20,000B) equipment increases by $60,000C) liabilities increase by $40,000D) total assets increase by $40,000E) All of the above effects occur on the equationFinal ExaminationUGBA_XBW102A_Form A Page 36. The duality (or duality of effects) concept statesA) there is more than one way of looking at any situation.B) every transaction has good and bad ramifications.C) there are two entities involved in every transaction.D) every transaction has at least two effects on the accounting equation.E) None of the above is correct.7. Rarro Corporation received $50,000 cash invested by its owners. The effect on thefundamental accounting model wasA) assets and liabilities each increased by $50,000.B) assets and revenues each increased by $50,000.C) stockholders' equity and revenues each increased by $50,000.D) stockholders' equity and assets each increased by $50,000.E) stockholders' equity and liabilities each increased by $50,000.8. Borrowing $100,000 of cash from First National Bank wouldA) increase cash by a credit and increase notes payable by a debit.B) increase notes payable by a debit and increase cash by a debit.C) increase notes payable by a credit and increase cash by a debit.D) decrease cash by a debit and decrease notes payable by a credit.E) None of the above would occur.9. Which of the following liability accounts is usually not satisfied by payment ofcash?A) Accounts payableB) Unearned revenuesC) Taxes payableD) All of the above are satisfied by paying cash10. Which of the following would cause retained earnings to increase?A) Sale of service on credit.B) Sold shares of our company stock to investors.C) Gain on the disposal of land and building.D) Both A and C would increase retained earningsE) All of the above would increase retained earnings.11. A landlord received $600 cash for December 20C's rent but the tenant's rent forDecember is $1,000. Which of the following is true for year ended 20C.A) $600 would be reported on the statement of cash flows.B) $400 would appear on the balance sheet as rent receivable.C) $1,000 would appear on the income statement as rent revenue earned.D) All of the above are true.E) None of the above is true.Final ExaminationUGBA_XBW102A_Form A Page 412. In 2001, Boeing Company reported total assets of $48,343 million and net sales of $58,198million. In 2000, they reported total assets of $42,677 million and net sales of $51,321million. Their 2001 asset turnover ratio wasA) 1.20B) 1.28C) 1.25D) None of the above.13. On December 31, 20A, Denton Corporation paid $3,000 for next year's insurance policy.This transaction should be recorded as follows by Denton:A) Insurance Expense $3,000Insurance Payable $3,000B) Prepaid Insurance $3,000Insurance Payable $3,000C) Prepaid Insurance $3,000Cash $3,000D) Insurance Expense $3,000Cash $3,000A) Entry AB) Entry BC) Entry CD) Entry D14. Typically, the largest, continuous cash inflow for a business will come from?A) Sale of our stock to investorsB) Bank loansC) Cash collected from customersD) Cash interest received on our investments15. Which of the following would most likely have the longest operating cycle?A) Taco Bell restaurantsB) Aeronautical manufacturer BoeingC) Motorcycle manufacturer Harley-DavidsonD) Safeway grocery stores.Final ExaminationUGBA_XBW102A_Form A Page 516. On January 1, 20D, a two-year insurance policy was paid for in advance and debited toprepaid insurance for $2,400, therefore, on December 31, 20D, the adjusting entry for theexpiration of this item should be a debit to insurance expense for $1,200 and a credit to cashfor $1,200.A) TrueB) False17. The statement of stockholders' equity would not includeA) Net income.B) Net sales.C) Investments by owners for stock issued.D) Dividends declared.E) None of the above is correct.18. Which one of the following accounts would not be closed at the end of the accounting year?A) Rent expense.B) Sales revenue.C) Unearned subscriptions revenue.D) Salaries expense.E) All of the above would be closed.19. When Lowry Company reports $120,000 of revenue and $130,000 of expenses for 20D, thefollowing is the effect:A) Lowry's retained earnings is increased by the net income.B) Lowry's contributed capital is increased by the net income.C) Lowry's retained earnings decrease by the net loss.D) Lowry's total stockholders' equity decreases by the net loss.E) Both C and D occur.20. Both the adjusting entries and the closing entries usually are dated as of the last day of theaccounting period.A) TrueB) False21. When the receivables turnover ratio has decreased over the last year, it indicates lesseffective management of the company's credit granting and collection activities.A) TrueB) FalseFinal ExaminationUGBA_XBW102A_Form A Page 622. Monitor Company's bank statement showed an ending balance of $10,000. Items appearingin the bank reconciliation included: outstanding checks, $500, deposits in transit, $1,000,bank service charges, $10, and Orange Company's check erroneously charged to Monitor'sbank account by the bank, $110. The correct cash balance at the end of the month should bereported asA) $10,600B) $10,500C) $11,610D) $10,61023. It is important to record sales returns and allowances in a separate account so managementcan determine the volume of returns and allowances in order to measure the quality of theirproducts.A) TrueB) False24. A company offers their credit customers terms of 3/10, n/60. This translates to an annualinterest rate of between 21 and 22%.A) TrueB) False25. Outstanding checks that appear on a bank reconciliation are those checks issued during thecurrent statement period that have not yet cleared the bank during the current period.A) TrueB) False26. A company has beginning inventory of $50,000, ending inventory of $35,000 and purchasesof $250,000. Therefore, its cost of goods sold is $235,000.A) TrueB) False27. If a company has an increase in inventory equal to $3 million and a decrease in accountspayable of $2 million, then cash flow from operating activities will decrease by $1 million.A) TrueB) FalseFinal ExaminationUGBA_XBW102A_Form A Page 7Use the following to answer question 28:Johnstone Co. uses the periodic inventory system. The following information about theirinventory of Model ZZ Mountain Bicycles is available:Date Transaction Number Units Cost per Unit1/1 Beginning Inventory 50 $8004/12 Purchase 80 $8207/8 Purchase 75 $8409/22 Purchase 90 $850During the year, 235 bicycles were sold at a price of $1,500 each. Other operating costsequaled $80,000 and their tax rate is 30%. Round final answers to the nearest dollar.28. What was ending inventory and cost of goods sold on 12/31 under the LIFO cost flowassumption?A)$51,000 and $194,100B)$48,200 and $196,900C)$49,851 and $195,249D)None of the above.29. The cost of goods sold account is a/an:A) asset.B) contra asset.C) extraordinary item.D) liabilityE) None of the above is correct.30. With a perpetual inventory system, we track both the units and costs of beginning inventory,purchased inventory and inventory sold.A) TrueB) False31. Companies cannot change the method of depreciation adopted for a group of assets.A) TrueB) FalseFinal ExaminationUGBA_XBW102A_Form A Page 832. Areollis Company recently purchased a truck. The price negotiated with the dealer was$100,000. Areollis also paid sales tax of $8,000 on the purchase, shipping and preparationcosts of $6,000, and insurance for the first year of operation of $3,000. For the truck, whatamount should be debited to the asset account Vehicles?A) $100,000.B) $114,000.C) $108,000.D) $106,000.E) $109,000.33. Regardless of the method of depreciation used under generally accepted accountingprinciples (GAAP), the ending book value will be the same at the end of the asset's usefullife.A) TrueB) False34. In 20B, Gamma Company made an ordinary repair to a delivery truck at a cost of $300.Gamma's accountant debited the asset account, Delivery Vehicles. Was this treatment anerror, and if so, what will be the effect on the financial statements of Gamma?A) The repair was accounted for correctly.B) The error increased assets and net income in 20B.C) In the years following 20B, net income will be too high.D) The error decreased net income in 20B.E) Net income was correctly stated for 20B.35. No clear line distinguishes capital expenditures (assets) from revenue expenditures(expenses), therefore, it requires managers to exercise judgment in making a subjectivedecision.A) TrueB) False36. Because of its large investment in equipment, Delta Air Lines closely monitors the unusedseats on flights since it may be more profitable to reduce fares to fill more seats thereby usingmore of the capacity.A) TrueB) False37. The current ratio is the dollar difference between total assets and total liabilities.A) TrueB) FalseFinal ExaminationUGBA_XBW102A_Form A Page 938. A company that sells primarily on a cash basis could support a lower current ratio becausetheir cash inflow is faster than a company selling on credit.A) TrueB) False39. On January 1, 20A, Ross Company acquired a truck that had a purchase price of $20,000.The seller agreed to allow Ross to pay for the truck over a two-year period at 10% interestwith equal payments due at the end of 20A and 20B. The amount of each annual payment thecompany must make is (round to the nearest dollar)A) $22,267.B) $11,524.C) $14,151.D) $17,751.E) None of the above is correct.40. A contingent liability that is ?reasonably possible? but ?cannot reasonably be estimated?A) must be recorded and reported as a liability.B) does not need to be recorded or reported as a liability.C) must only be disclosed as a note to the financial statements.D) must be reported as a liability, but not recorded.41. A liability, to be reported on the balance sheet, must have a fixed, known amount to be paidin the future.A) TrueB) False42. Disney Company's accounts payable equaled $4,603 million in 2001 and was $5,163 millionin 2000. This change in accounts payable had a negative impact on cash.A) TrueB) False43. Which of the following statements is false relating to payroll taxes?A) When recording the payroll entry, the credit to wages payable is usually more than thedebit to wages expense.B) FICA (social security) tax is a ?matching? tax with the employer.C) Income taxes withheld from employees' paychecks are liabilities of the employer.D) When the salaries expense entry is recorded, the credit to cash will be for less than thedebit to salaries expense.E) Two of the above statements are false.Final ExaminationUGBA_XBW102A_Form A Page 1044. In 2001, Toys ? R? Us had an accounts payable turnover ratio of 5.65, in 2000,5.49 and 6.08 in 1999. Which statement is true about what the ratios indicate?A) Toys ?R? Us is taking longer to pay its vendors in 2001 versus 2000.B) Toys ?R? Us is taking more time to pay vendors in 2001 than in 1999.C) Toys ?R? Us has seen some weakening of its accounts payable turnover ratio but it hasnot been a dramatic change.D) Both B and C are true.E) All of the above are true.45. Amortization of a discount on a bond payable will make the amount of interest expensereported on the income statement less than the cash paid for that year.A) TrueB) False46. Bonds payable usually are classified on the balance sheet asA) long-term liabilities.B) current liabilities.C) investments and funds.D) current assets.E) None of the above is correct.47. When a company prepares a bond indenture, certain provisions of the bonds are included.Which of the following are not provisions specified in the indenture?A) Dates of interest payments.B) Rate of interest to be paid.C) Maturity date.D) Cash to be received at the issue date.E) All of the above are specified in the indenture.Final ExaminationUGBA_XBW102A_Form A Page 11Use the following to answer question 48:On January 1, 20D, Janus Company issued $5 million of 10-year bonds at a 10% statedinterest rate to be paid semiannually. The following present value factors have been providedto answer the subsequent questions:Time Period Interest PV of $ PV of an Annuity10 10%.386 6.14510 8%.463 6.71010 12%.322 5.65020 5%.377 12.46220 4%.456 13.59020 6%.312 11.47048. Calculate the issuance price if the market rate of interest is 12%.A) $4,427,500B) $4,477,500C) $4,435,000D) $5,000,00049. A bond sold at a discount will pay total cash payments for interest that is more than the totalinterest expense recognized over the period the bond is issued.A) TrueB) False50. The balance sheet of Warner Company showed the following data about its common stock,par $1: authorized shares, 5,000,000, outstanding shares, 2,300,000, and issued shares2,500,000. Therefore, the number of treasury stock shares wasA) 0.B) 2,700,000.C) 2,500,000.D) 200,000.51. Which of the following statements is true?A) An initial public offering (IPO) occurs when the company first offers their stock for saleto the public.B) A seasoned new issue is the term used for any additional sales of new stock to the publicafter the IPO.C) An underwriter, usually an investment banker, advises the corporation on mattersconcerning the sale of shares of stock and helps to market those shares for a fee.D) A and B are true.E) All of the above are true.Final ExaminationUGBA_XBW102A_Form A Page 1252. A small stock dividend is generally defined as one involving the distribution of additionalshares that are more than 50% of the currently outstanding shares.A) TrueB) False53. When a corporation calls in its outstanding shares and issues two or more shares with a lowerpar value in place of each share called in, the corporation is said to have issued a stock split.A) TrueB) False54. While all businesses are separate economic entities from their owners, only corporations areseparate legal entities with the right to own assets, incur liabilities, sue and be sued and enterinto contracts.A) TrueB) False55. Which of the following are the typical rights afforded the preferred stockholders?A) A preference to receive dividends when declared by the board of directors before commonstockholders can receive their dividends.B) A preference to receive the liquidation value of the assets as stated in the stock contractbefore common stockholders can receive their share.C) The right to vote on major corporate issues including electing the board of directors.D) Only A and B are preferred stockholder rightsE) All the above are preferred stockholder rights.56. Which one of the following is a basic right of an owner of common stock?A) Participation in the corporation by voting in stockholder meetings.B) Participation in the profits of the corporation through dividends declared by the board ofdirectors.C) Sharing in the distribution of assets of the corporation at liquidation.D) Both A and B are rights.E) All of the above are basic rights.57. In 2001, Genentech had 535.3 million average common shares outstanding, actual sharesoutstanding at year-end of 528.3 million and reported earnings per share of $.28. Genentech'sreported net income in 2001 equalsA) $149.9 million.B) $147.9 million.C) $148.9 million.D) an amount that cannot be computed with the given information.Final ExaminationUGBA_XBW102A_Form A Page 1358. Increases in current liabilities are added to net income while decreases in current liabilitiesare subtracted from net income to derive the net cash flows.A) TrueB) FalseUse the following to answer question 59:In 20D, Malcom Corporation reported the following information:Income StatementSales Revenue $ 8,200,000Cost of goods sold 6,400,000Gross profit 1,800,000Operating expenses (includes $200,000 depreciation expense) 1,250,000Pretax income 550,000Income tax expense (30% rate) 165,000Net Income 385,000Balance Sheet20D 20CAccounts receivable $ 800,000 $ 600,000Inventory 520,000 480,000Prepaid expenses 110,000 120,000Accounts payable 340,000 310,000Accrued liabilities 80,000 90,000Income taxes payable 25,000 40,000Unearned revenue 100,000 200,00059. Malcom's cash paid for income taxes in 20D is:A) 165,000B) 180,000C) 150,000D) 135,00060. The statement of cash flows (indirect method) reports depreciation expense as an addition tonet income because depreciationA) causes an inflow of funds for the replacement of assets.B) reduces reported net income of the period but does not involve an outflow of cash for thatperiod.C) is a direct use of cash.D) reduces reported net income and causes an inflow of cash.E) None of the above is correct.Final ExaminationUGBA_XBW102A_Form A Page 1461. The capital acquisitions ratio takes cash flow from operations divided by property, plant andequipment, net from the balance sheet.A) TrueB) False62. The net cash inflow (or outflow) from operating activities is computed by adjusting thereported accrual net income for noncash revenue and noncash expense items.A) TrueB) False63. Investing activities must be disclosed under the gross method. Therefore, if a company paid$200 million to acquire new equipment and sold old equipment for $25 million, then boththese items would be separately disclosed in the investing section of the statement of cashflows.A) TrueB) False64. The book value of the investment stock sold would show up as cash inflow from investingactivities.A) TrueB) False65. The income statement, balance sheet and statement of cash flows all are prepared on theaccrual basis.A) TrueB) False66. In 2001, Coca-Cola disclosed cash paid for property, plant and equipment of $769 millionand cash flow from operations of $4,110 million. Their average property, plant andequipment from the comparative balance sheet was $4,311 million. Compute Coca-Cola'scapital acquisitions ratio for 2001.A).95B) 5.34C) 5.61D) None of the above.Final ExaminationUGBA_XBW102A_Form A Page 1567. XYZ Co. bought stock in ABC Corporation. This would be reported as a cash outflowconnected to investing activities.A) TrueB) False68. Which of the following statements about the statement of cash flows is correct?A) The sale of an investment in bonds for less than the carrying value of the investmentwould be reported as cash outflow from financing activities.B) The sale and issuance of common stock for cash would be reported as a cash inflow frominvesting activities.C) The retirement of bonds payable by the issuance of common stock would be reported as acash inflow from investing activities.D) Collecting cash interest revenue on a note receivable would be reported as a cash inflowfrom investing activities.E) None of the above is correct.69. Which of the following statements about cash flows from operating activities, in a statementof cash flows prepared under the indirect method, is correct?A) An increase in accounts receivable would be subtracted from net income.B) An increase in salaries payable would be subtracted from net income.C) An increase in inventory would be added to net income.D) Depreciation expense would be subtracted from net income.E) None of the above is correct.70. Custer Corporation reported the following information related to its common stock (par $10)outstanding and net income:Total stockholders? equity (no preferred stock) $125,000Current market price per share of common stock $40Dividends declared and paid during 20F $10,000Balance in the common stock account $40,000Net Income $35,000The price earnings ratio and dividend yield ratio is, respectively:A) 4.57 and 6.25%B) 4.26 and 6.77%C) 4.57 and 6.77%D) 4.26 and 6.25%Final ExaminationUGBA_XBW102A_Form A Page 1671. Which of the following statements is true?A) When cost of goods sold as a percentage of sales increases the gross margin percentagewill increase.B) It is possible for cost of goods sold in dollars to increase while cost of goods sold as apercentage of sales decreases.C) If gross margin percentage is the same for the current and past year, then sales and cost ofgoods sold in dollars did not change.D) Both B and C are true.E) All of the above are true.72. If accounts receivable are collected quickly,A) the accounts receivable turnover is low.B) the company's credit policies may be overly stringent.C) credit is often granted to poor credit risks.D) Two of the above are correct.E) None of the above is correct.73. The quick ratio of a company will always be less than or equal to the current ratio (workingcapital ratio).A) TrueB) False74. In 2004, Coca-Cola's gross profit ratio was 65.2% and their profit margin was 22.1%. In2004, PepsiCo's gross profit ratio was 54.2% and their profit margin was 14.4%. Which ofthe following is false?A) Coca-Cola's cost of goods sold was a lower percentage of sales than PepsiCo's.B) In 2004, Coca-Cola's profit margin was 53% greater than PepsiCo's which would beexplained as a higher return on sales.C) The major reason for PepsiCo's lower profit margin is that their selling, general andadministrative expenses were double the percentage of sales compared to Coca-Cola'spercentage of sales.D) All of the above are false.E) None of the above is false.75. The effective (market) interest rate is less than the stated interest rate on bonds that sell at apremium.A) TrueB) False


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