Exam2.Sample_1

Problem 1. Balance Sheet. (20 Points) ABC Confectionary Company has the following accounts as of December 31, Yr. 1:Accounts payable 200Accounts receivable 2,000B. Sanders, Capital 6,905Cash 900Inventory 800Investment in bonds - due 1/31/Yr. 4 2,000Notes payable - due 1/31/Yr. 3 2,000Notes payable - due 10/30/Yr. 1 5,050Prepaid rent 2,500Property, plant and equipment 5,955Required: Prepare a classified balance sheet for December 31, Yr. 1, including sub totals for current assets, current liabilities, and total liabilities. Please ensure that it balances (Assets = Liabilities + Owner’s Equity) and includes appropriate headings/sub-headings.Problem 2 (20 points).Below is an alphabetical list of income statement and selected balance sheet account titles for Ace Retail Company at the end of Year 1. On the right of that list is an alphabetical list of income statement headings and subtitles.Required: 1) Write out a properly classified income statement for Year 1 using the appropriate income statement account titles and income statement headings and subtitles from the following lists.Hint: First you may want to read through the list of account titles and cross out the balancesheet accounts.Ace Retail CompanyIncome StatementYear Ended December 31, Year 1Problem 3. (20 points) Cash flow Statement. Based on the information below, prepare the direct method cash flow statement on the following page. You may use the formulas or the accounting equation method we learned in class. The accounting equation is provided for you below. However, you DO NOT have to use it – it will NOT be graded.Tiny Toy Company Partial Income Statement Other activities at Tiny Toy During Year 2 For the year ended December 31, Year 2Purchased land for $20,300Sales revenue $250,000 Issued a note payable for $9,000Cost of Goods Sold 115,000 Sold equipment for $20,000Salaries expense 65,000 The owner withdrew $15,000 Depreciation Expense 2,000Tiny Toy Company Partial Balance SheetDec. 31, Year 2 Dec. 31, Year 1Current AssetsCash $155,480 $65,980Accounts receivable 26,850 32,850Inventory 22,950 29,150Current LiabilitiesAccounts payable $32,640 $37,640Salaries payable 45,840 27,240Problem 4. (16 points) Bank Reconciliation Problem. Use the information listed below to create a bank reconciliation for Simpson Company at July 31st:1) Cash Account balance on July 31 before reconciliation: $7,439.092) Bank statement balance on July 31 before reconciliation: $8,107.663) On July 30, the company deposits a check in the amount of $455.00. On July 31, the companydeposits a check in the amount of $560.00. However, neither deposit appears on the bankstatement ending July 31.4) Outstanding checks:Check number Amount#926 $175.00#928 $136.805) The bank collected Note Receivable of $1,600 and interest of $70 directly from Simpson’scustomer on July 31. Simpson Company has not recorded this collection.6) The following items were on the bank statement but not recorded in the company’s cash a ccount:Interest earned on saving account: $36.77Bank service charge – printed checks $40.007) A check received from a customer for $310 in payment of his account and deposited by theSimpson was returned marked “NSF” with the bank statement. The bank charged a $30.00 feedirectly from Simpson’s bank account for the returned deposit.8) Simpson discovered that Check # 927, which was correctly written as $216 for the payment to asupplier for a credit purchase, was actually recorded as $261 in the company’s cash account. Required:1) Prepare a bank reconciliation on the next page.2) Make the appropriate entries in the accounting equation below the bankreconciliation.SIMPSON COMPANYBank ReconciliationJuly 31Cash balance from bank statement, July 31 ___________ Add:Deduct:Reconciled cash balance, July 31 ____________ Cash balance from company’s records, July 31 ____________ Add:Deduct:Reconciled cash balance, July 31 _____________Multiple Choice (16 points)1. A revenue account is referred to as a temporary account because:a. it relates to only one specific accounting period.b. it only appears on the income statement.c. once it is recorded it may be deleted.d. it only appears on the balance sheet.2. A cash account is referred to as a permanent account because:a. it flows into the statement of owner’s equity.b. It’s balance is carried forward from one year into the next year.c. it has a physical presence.d. it is in the account at the bank.3. A revenue will impact the financial statements by:a. decreasing assets on the balance sheet.b. decreasing net income on the income statement.c. increasing assets on the income statement.d. increasing assets on the balance sheet.4. Blackstone Company uses a periodic inventory system. It had beginning inventory of $100,000,purchases of $1,300,000, and ending inventory of $125,000. What was Blackstone's cost of goods sold?a. $1,300,000b. $1,325,000c. $1,275,000d. $1,400,0005. The difference between a perpetual inventory system and a periodic inventory system is:a. perpetual will record the sales as they occurb. perpetual requires a physical inventory count at the end of the year.c. periodic will record inventory purchases in the inventory account as theyoccur.d. periodic will determine the cost of goods sold each year by counting theinventory that’s left at the end of the year6. What is financial flexibility?a. A company's change in cashb. A company's working capitalc. A company's ability to adapt to changed. A company’s ability to continue operating at the existing level of operations7. The book value of equipment is:a. Its cost.b. Its cost plus any accumulated depreciation.c. Its cost minus any accumulated depreciation.d. Its market value.8. Earth Grains Consulting has a quick ratio (quick assets ÷ current liabilities) of 1.74 to 1. This ratiocan be interpreted as:a. having $1.74 in sales for every $1.00 in accounts receivable.b. having $1.74 in quick assets for every $1.00 in current obligations.c. having $1.74 in quick obligations for every $1.00 in assets.d. having $1.74 in current assets for every $1.00 in current obligations.9. Which of the following refers to a company's ability to sustain a given level of operations?a. Financial Flexibilityb. Operating Capabilityc. Liquidityd. Solvency10.Given the above information about a company’s accounts receivable turnover, what evaluation should be communicated to management about the accounts receivable turnover (Sales Revenue ÷ Average Accounts Receivable)?a. The collection period is getting longer.b. The firm is doing a better job of collecting receivables.c. The firm should start charging interest on overdue accounts.d. The selling period is getting shorter.11. How is depreciation treated on the indirect method cash flow statement?a. Added to net income to help compute cash flows from operating activitiesb. Subtracted from net income to help compute cash flows from operatingactivitiesc. Subtracted in cash flows from investing activitiesd. Depreciation is ignored under the indirect method cash flow statement12. What is a primary difference between the income statement and the cash flows statement?a. The cash flows statement contains information on operating activities, theincome statement does not.b. The cash flows statement reports on only cash activities, the incomestatement reports on cash and credit activities.c. The cash flows statement reflects how well a company is doing financially,the income statement does not.d. The income statement is used by investors and creditors, the cash flowsstatement is not.13. If a company has a cash return on owner's equity (cash flows from operating activities ÷averageowner’s equity) of -14% (a negative 14%),a. the company's assets decreased 14%.b. the owner lost $0.14 of profits for every dollar of capital they had invested.c. the company's net sales were down 14% from last period.d. None of the above14. How can managers control cash receipts in a small company?a. Proper use of a cash registerb. Separating the duties of receiving and processing collections of accountsreceivablec. Depositing receipts dailyd. All of the above15. The purpose of the bank reconciliation is:a. To see how much a company owes on a bank loan.b. To close a bank account.c. To enable the company to report the correct cash balance in the balancesheet.d. To learn how much cash the company has in its bank account16. Ideally, in a perpetual inventory system, after a physical count of inventory has been taken:a. The physical count will equal the number of units in the inventory records.b. The physical count will be greater than the number of units in the inventoryrecords.c. The physical count will be less than the number of units in the inventoryrecords.d. Perpetual inventory records will be greater than periodic inventory records.。