Accounting Final Exam

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ACCOUNTING FINAL EXAM

$23.00

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Question1

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text

Which
ASB balance assertion is of the most importance to auditors for long-term
liabilities?

Select
one:

a.
Existence

b.
Rights & Obligations

c.
Valuation

d.
Completeness

Question2

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text

Which
of the following management assertions for long-term liabilities is related to
the ASB balance assertion of completeness?

Select
one:

a.
All material long-term liabilities are recorded.

b.
Disclosures of maturities for the next five years are accurate and adequate.

c.
Terms, conditions, and restrictions relating to noncurrent debt are adequately
disclosed.

d.
New long-term liabilities and debt extinguishments are properly authorized.

Question3

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In
the audit of notes payable, an auditor testing the ASB balance assertion of
accuracy and valuation most likely would

Select
one:

a.
Select a sample of notes payable and vouch cash receipt to the bank statement.

b.
Read directors’ and finance committee’s minutes for authorization of financing
transactions.

c.
Select a sample of paid notes and trace interest expense to the general ledger
account.

d.
Select a sample of paid notes and recalculate interest expense for the period
under audit.

Question4

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text

During
an audit of an entity’s stockholders’ equity accounts, the auditor determines
whether there are restrictions on retained earnings resulting from loans,
agreements, or state law. This audit procedure most likely is intended to
verify the ASB presentation and disclosure assertion of

Select
one:

a.
Completeness

b.
Understandability

c.
Occurrence.

d.
Rights and Obligations.

Question5

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text

In
confirming with an outside agent, such as a financial institution, that the
agent is holding investment securities in the client’s name, an auditor most
likely gathers evidence in support of ASB balance assertion of existence and

Select
one:

a.
Rights & obligations

b.
Completeness

c.
Valuation

d.
Accuracy

Question6

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text

The
focus of controls in the finance and investment cycle is on

Select
one:

a.
Physical security of assets.

b.
Prenumbered documents

c.
Computer controls over transactions.

d.
Proper authorizations and competent personnel.

Question7

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text

Keeping
track of securities owners for payment of interest or dividends is usually done
by the company’s

Select
one:

a.
Transfer Agent

b.
Register

c.
Broker

d.
Treasurer

Question8

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text

Records
of stock and bond certificates are usually maintained by the company’s

Select
one:

a.
Treasurer

b.
Transfer Agent

c.
Chief Financial Officer

d.
Register

Question9

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text

A
related party is a person or entity that

Select
one:

a.
Is a member of the company’s management.

b.
Does business with the company.

c.
Has a family tie to a management member.

d.
Can exert significant influence over or be influenced by the company.

Question10

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text

To
whom should written representations be addressed?

a.
Auditors

b.
Board of directors

c.
Client

d.
Stockholders

Question11

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question

Question
text

If
auditors are appointed on January 3, 2012, the date of the financial statements
is December 31, 2012, the date of the auditors’ report is February 7, 2013 and
the audit report release date is March 3, 2013, what is the appropriate date of
the written representations?

a.
January 3, 2012

b.
December 31, 2012

c.
February 7, 2013

d.
March 3, 2013

Question12

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text

Orange
Corporation was audited for the year ended December 31. The audit was completed
on January 25; prior to the release of the report, auditors learned of a
two-for-one stock split on February 1. If dual dating is used, what are the proper
dates for the auditors’ reports?

a.
December 31 and January 25

b.
January 25 and February 1

c.
January 25 and February 15

d.
February 1 and February 25

Question13

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text

Interim
testing normally occurs between what two dates?

Select
one:

a.
Date of the financial statements and audit report release date.

b.
End of the year under audit and date of the auditors’ report.

c.
Beginning of the year under audit and audit report release date.

d.
Beginning of the year under audit and date of the financial statements.

Question14

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text

Which
party should request a letter regarding litigation, claims, and assessments
from the client’s attorney?

Select
one:

a.
Attorney

b.
Securities and Exchange Commission or other regulatory body.

c.
Client

d.
Auditors

Question15

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text

Which
of the following reporting options is available if the client refuses to
provide written representations to auditors?

Select
one:

a.
Qualified opinion or disclaimer of opinion.

b.
Qualified or adverse opinion

c.
Unqualified or qualified opinion

d.
Disclaimer of opinion or adverse opinion

Question16

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text

Why
is it the client’s decision to record adjustments to the
financial statements?

Select
one:

a.
Auditors often do not have sufficient client-specific expertise to record
adjustments to the financial statements

b.
Having auditors adjust the financial statements would impair independence with
respect to the client.

c.
The financial statements are the responsibility of the client’s management.

d.
The client will ultimately suffer any losses related to misstated financial
statements

Question17

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text

Subsequent
events occur between which two dates?

Select
one:

a.
Date of the auditors’ report and audit report release date.

b.
Date of the financial statements and audit report release date.

c.
Date of the financial statements and date of the auditors’ report.

d.
Audit report release date and beginning of subsequent year’s audit.

Question18

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text

Which
of the following conditions or set of circumstances would not ordinarily
raise questions about the entity’s ability to continue as a going concern:

Select
one:

a.
Negative cash flow from operations for each of the last three years.

b.
Failure to meet forecasted earnings per share.

c.
Legal proceedings that may have a significant negative impact on the entity.

d.
Default on a loan due in the previous year.

Question19

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text

Long
and Short, CPAs, were auditing Island Corporation for the year ended December
31, 2012. On January 11, 2013, a major customer of Island Corporation declared
bankruptcy as the result of an uninsured loss due to a major fire in its
warehouse on January 8, 2013. As a result, a material accounts receivable from
the customer was determined to be uncollectible. Long and Short, CPAs, would expect
the client to

Select
one:

a.
Treat the loss as a subsequent event and provide a footnote about the loss in
the 2012 financial statements

b.
Treat the loss as a subsequent event and adjust the 2012 financial statements
to record the loss on uncollectible accounts

c.
File a lawsuit against the customer in hopes of collecting some of the money
owed to the client

d.
Record the loss on uncollectible accounts as a routine transaction in the year
2013

Question20

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text

The
_____________________________ paragraph of the auditors’ report on the entity’s
financial statements indicates that an audit has been conducted and identifies
the financial statements the auditors examined.

Introductory

Question21

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text

When
a scope limitation exists and the auditors have not been able to obtain
sufficient appropriate evidence on a particular account balance or disclosure,
the auditors must choose between a(n) _____________________________ opinion and
a(n) _____________________________ of opinion on the entity’s financial
statements.

qualified,
disclaimer of

Question22

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text

When
the auditors lack independence, a(n) ______________________________________
opinion is issued on the fairness of the entity’s financial statements.

disclaimer
of opinion

Question23

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text

The
scope paragraph of the standard report on the entity’s financial statements
does not include the statement

Select
one:

a.
“An audit also includes assessing the accounting principles used and
significant estimates made by management….”

b.
“Those standards require that we plan and perform the audit to obtain
reasonable assurance….”

c.
“In conformity with accounting principles generally accepted in the United
States of America….”

d.
“We believe that our audits provide a reasonable basis for an
opinion.”

Question24

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text

If
financial statements contain a material but nonpervasive departure from
generally accepted accounting principles, the auditors should render a(n)

Select
one:

a.
Disclaimer of opinion

b.
Adverse opinion with reference to departure.

c.
Qualified opinion with reference to departure.

d.
Adverse opinion with scope limitation reference.

Question25

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text

Auditors
will issue an adverse opinion when

Select
one:

a.
A qualified opinion cannot be rendered because the auditors lack independence.

b.
A severe scope limitation has been imposed by the entity.

c.
A violation of generally accepted accounting principles is sufficiently
material and pervasive that a qualified opinion is not justified.

d.
The entity’s ability to continue as a going concern is subject to substantial
doubt.

Question26

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text

When
auditors render an adverse opinion on the entity’s financial statements, the

Select
one:

a.
Auditors do not possess all necessary evidence.

b.
Departures do not need to be explained in the auditors’ report.

c.
Introductory and scope paragraph should not be modified.

d.
Auditors require less evidence to support the opinion.

Question27

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text

You
are an auditor on an engagement. You observe your client take a physical count
of their inventory. What is the primarily purpose of this audit procedure?

Select
one:

a.
Assist the client in taking test counts of year-end inventory.

b.
Determine whether inventory contains obsolete goods.

c.
Verify independently the physical counts obtained by the client.

d.
Test and observe the client’s physical count of inventory.

Question28

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text

You
are an auditor on an engagement. You select an inventory item on your client’s
warehouse floor, test count it, and trace the count to the final inventory
compilation. You are most likely testing the PCAOB assertion of __________

Select
one:

a.
Completeness

b.
Rights and Obligations

c.
Valuation

d.
Existence

Question29

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text

You
are an auditor on an engagement.

You
select a product maintained in the finished goods warehouse. You count the
product and compare this amount with the amount to the finished goods perpetual
inventory subsidiary account. Which ASB balance assertion are you most likely
testing?

Select
one:

a.
Existence

b.
Rights and Obligations

c.
Completeness

d.
Valuation

Question30

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text

Susan
is an auditor on an engagement.

Susan
would most likely make inquiries of production and sales personnel concerning
possible obsolete or slow-moving inventory to support management’s financial
statement (PCAOB) assertion of ______

Select
one:

a.
Existence or occurrence

b.
Rights and obligations

c.
Valuation or allocation

d.
Presentation and disclosure

Question31

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text

Susan
is an auditor on an engagement. Her client is a manufacture.

To
determine her client’s planned timing of production of a product, she will
review the ________

Select
one:

a.
Sales forecast

b.
Production plan

c.
Purchases journal

d.
Inventory reports

Question32

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text

You
are an auditor on an engagement.

The
risk that your own procedures will lead to the decision that material
misstatements do not exist in the financial statements when in fact such
misstatements do exist is _______ risk

a. Audit
risk

b. Inherent
risk

c.
Control risk

d.
Detection risk

Question33

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Question
text

The
Sarbanes-Oxley Act of 2002 prohibits public accounting firms from providing
which of the following services to an audit client?

Select
one:

a.
All of these services are prohibited.

b.
Valuation services.

c.
Internal audit services.

d.
Bookkeeping services.

Question34

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text

The
Sarbanes-Oxley Act of 2002 generally prohibits public accounting firms from

Select
one:

a.
Auditing the firm’s own work on an audit client.

b.
Providing tax consulting to an audit client without audit committee approval.

c.
All of these activities are prohibited

d.
Acting in a managerial decision-making role for an audit client.

Question35

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text

The
likelihood that material misstatements may have entered the accounting system
and not been detected and corrected by the client’s internal control is
referred to as

Select
one:

a.
Risk of material misstatement.

b.
Inherent risk.

c.
Control risk.

d.
Detection risk.

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Accounting Final Exam

$35.00

Description

SectionA

40 marks

Answer Question No. 1, then attempt any other THREE questions.
1. Transaction drivers count how often an activity is performed.
Duration drivers represent the amount of time required to perform an activity.
Intensity drivers directly charge for the resources used each time an activity is performed.
Also, a weighted index approach might be used to simulate an intensity driver.
a. Give an example of each of the four types of drivers described
above. b. Explain when each of the four types of drivers should be
used.
c. For each of the first three types of drivers, explain the assumptions about the activity and
the object of the activity.
d. For each of the following activities identify a transaction driver, a duration driver, and
an intensity driver.
Machine maintenance
Machine setup Quality
control Material
ordering Production
scheduling Warehouse
expense Engineering
design

Attempt any THREE questions of the following
2. Describe the steps in the PDCA cycle.
3. Describe some of the drawbacks of using the operating budget as a control device.
4. What role has the increasingly competitive business environment played in the
development of management accounting?
5. Explain how traditional cost systems, using only unit level cost drivers, distort product costs.

SectionB

60 marks

Read the following FOUR cases, then answer the required questions after each case.
Case 1
Profit sharing Knight Medical Devices makes devices and equipment that it sells to hospitals.
The organization has a profit-sharing plan that is worded as follows:
The company will make available a profit-sharing pool that will be the lower of the following two
items:
1. 40% of income before taxes in excess of the target profit level, which is 18% of net assets, or
2. $14 million.
The individual employee is paid a share of the profit -sharing pool equal to the ratio of that
employee’s salary to the total salary paid to all employees.

Required
(a)
If the company earned $90 million of earnings before taxes and had net assets of $200
million, what would be the amount available for distribution from the profit -sharing pool?
(b )
Suppose that Bob Knight’s salary was $136,000 and that total salaries paid in the company
were $50 million. What would Bob’s profit share be?

Sunshine, Inc. sells a single product. The company’s most recent income statement is given below.
Sales (4,000 units)

$120,000

Less variable expenses

(68,000)

Contribution margin

52,000

Less fixed expenses

(40,000)

Net income

$ 12,000

Required:
a. Contribution margin per unit is
b. If sales are doubled to $240,000,
total variable costs will equal
c. If sales are doubled to $240,000,
total fixed costs will equal
d. If Sunshine is past the breakeven point and
10 more units are sold, profits will increase by
e. Compute how many units must be sold to break even.
f. Compute how many units must be sold
to achieve a profit of $20,000.

The Crandon Mill has two divisions. The Cutting Division prepares timber at its sawmills. The
Assembly Division prepares the cut lumber into finished wood for the furniture industry. During the
year, the Cutting Division prepared 60,000 cords of wood at a cost of $660,000. All the lumber was
transferred to the Assembly Division where additional operating costs of $ 6 per cord were incurred.
The 600,000 boardfeet of finished wood were sold for $2,500,000.

Required:
a. Determine the operating income for each division if the transfer price from Cutting to Assembly
is at cost, $11 a cord.
b. Determine the operating income for each division if the transfer price is $9 per cord.
c. Since the Cutting Division sells all of its wood internally to the Assembly Division, does the
manager care what price is selected? Why? Should the Cutting Division be a cost center or a pro fit
center under the circumstances?

Abbot Corporation produces 200,000,000 units of product X and 80,000,000 of product Y with the
following costs and machine hours.
Product X

Product Y

Total

Direct costs
(material plus labor)

$18,000,000

Environmental
support
Nonenvironmental
support
Total support

Total machine hours

$8,000,000

28,000,000

44,000,000

58,000,000

$44,000,000

$86,000,000

$130,000,000

20,000,000

12,000,000

32,000,000

Required
a. Determine total product cost per unit for each product using a traditional costing system with
machine hours as the cost driver.
b. Determine total product cost per unit for each product using an activity based costing system.
Use the number of units as the cost driver for each activity.

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Accounting Final exam

$25.00

Description

  1. Joleen Harmon, CPA, has two clients. Client A requires 20 hours
    of partner time and 100 hours of staff time. Client B will use 12 hours of
    partner time and 80 hours of staff time. Partners are paid $85 an hour and
    bill support time at 60% of their hourly rate. Staff are paid $25 an hour
    and bill support time at $20 per billable hour. On a separate sheet of
    paper, calculate the total charge to each of these clients if profit is added
    at 20% over cost.

2. The Tijama Manufacturing Company has
determined the cost of manufacturing a unit of product to be as follows, based
on annual production of 50,000 units per year:
Direct materials $20.00
Direct labor 15.00
Variable factory overhead 10.00
Fixed factory overhead 12.00
Operating statistics for the month of August and September are as follows:
August September
Units produced 4,200 3,500
Units sold 3,500 4,200
Selling and administrative expenses $25,000 $35,000
The selling price is $75 a unit. There were no inventories on August 1, and
there is no work in process at September 30. Prepare comparative income
statements for each month under both absorption costing
and direct costing.

3. The Donal
Company has sales of $800,000, variable costs of $300,000, and fixed costs of
$250,000. On a separate sheet of paper, compute the following.
a. Contribution margin ratio
b. Break-even sales volume
c. Margin of safety ratio
d. Net income as a percentage of sales

4.
Devine and O’Clock, architects, have been using a simplified costing system in
which all professional labor costs are included in a single direct cost
category (professional labor) and all overhead costs are included in a single
indirect cost pool (professional support) and allocated to jobs using
professional labor hours as the allocation base. Consider two clients: Shank
Products, which required 50 hours of design work for a new addition; and Sayers
Markets, which required plans for a new store that took 20 hours to draw. The
firm has two partners who each earn a salary of $150,000 a year and four
associates who each earn $60,000 per year. Each professional has 1,500 billable
hours per year. The professional support is $590,000, which consists of
$350,000 of design support and $240,000 of staff support. Shank’s job required
30 hours of partner time and 20 hours of associate time. Sayers job required 5
hours of partner time and 15 hours of associate time.

Required:-
1. Prepare job costs sheets for Shank Products and Sayers Markets, using a
simplified costing system with one direct and one indirect cost pool.
2. Prepare job costs sheets for the two clients, using an activity-based
costing system with two direct cost categories (partner labor and associate
labor) and two indirect cost categories (design support and staff support). Use
professional labor dollars as the cost allocation base for design support and
use professional labor dollars for staff support.

5.
Differential analysis.
Made Easy, Inc., manufactures household products such as windows, light
fixtures, ladders, and work tables. During the year it produced 10,000 Model
10X windows but only sold 5,000 units at $40 each. The remaining units cannot
be sold through normal channels. Cost for inventory purposes on December 31
included the following data on the unsold units:

Materials…………………………………………………………… $10.00
Labor………………………………………………….. 5.00
Variable
overhead……………………………………………………. 3.00
Fixed
overhead…………………………………………………………. 2.00

Total cost per
window $20.00

Made Easy can sell the 5,000 windows at a liquidation price of $20.00 per
window, but it will incur a packaging and shipping charge of $6.00 per window.

Required:-
1. Identify the relevant costs and revenue for the liquidation sale alternative.
Is Made Easy better off accepting the liquidation price rather than doing
nothing?
2. Assume the Model 10X can be reprocessed to another size window, Model 20X,
which will require the same amount of labor and overhead as was initially
required to produce Model 10X but sells only for $30. Determine the most
profitable course of action: liquidate or reprocess

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Accounting Final exam

$37.00

Description

1 of 50

Sarbanes-Oxley was passed in response to which
of the following?

The .com implosion

The savings and loan bailout

The implosion of WorldCom and Enron

None of the above

Question

2 of 50

Which of the following describes the internal
control component “monitoring of controls”?

Internal auditors monitor company controls to
safeguard assets, and external auditors evaluate the controls to ensure that
the accounting records are accurate.

Monitoring of controls is the “tone at
the top” of the business.

Monitoring of controls is designed to ensure
that the business’s goals are achieved.

A company must identify its risks.

Question

3 of 50

Which of the following is a security procedure
designed for e-commerce?

Burglar alarms

Firewalls

Fireproof vaults

None of the above

Question

4 of 50

Case
8.5

At December 31, 2008,
McGovern Company overstated ending inventory by $50,000.

Refer to Case 8.5. How
does this error affect cost of goods sold for 2008?

Has no effect on Cost of Goods Sold

Overstates Cost of Goods Sold by $50,000

Understates Cost of Goods Sold by $50,000

None of the above

Question

5 of 50

Gilkey Construction
Company writes of the account of Arthur Blanks of $78,000. The journal entry to
record this under the direct write off method is:

A)

Bad Debts Expense

78,000

Accounts
Receivable – Arthur Blanks

78,000

B)

Allowance for doubtful accounts

78,000

Bad
Debts Expense

78,000

C)

Allowance for doubtful accounts

78,000

Accounts
Receivable – Arthur Blanks

78,000

D)

Accounts Receivable – Arthur Blanks

78,000

Allowance
for doubtful accounts

78,000

A)

B)

C)

D)

Question

6 of 50

Refer to Case 7.11. What
is the quick ratio for 2004?

.75

1.0

.61

.70

Question

7 of 50

Which of the following is the last step in the
daily control over cash receipts by mail?

A mailroom employee sends all customer checks
to the treasurer who has the cashier make the bank deposit.

A mailroom clerk opens the mail and sends the
remittance advices to the accounting department.

The controller compares the records of the
day’s bank deposit amount from the treasurer and the debit to Cash from the
accounting department.

The accounting department prepares journal
entries to Cash and the customers’ accounts.

Question

8 of 50

Case
7.4

Gilkey Security Systems has the following for
year ended 12-31-09 before adjustments

Accounts
receivable

$130,000

Net
Credit Sales

$840,000

Allowance
for doubtful accounts

$3,000 debit balance

Aging
of accounts receivable

$19,000

Refer to Case 7.4. The
balance in the allowance for doubtful accounts after the adjustment is:

$22,000.

$19,000.

$28,200.

$84,000.

Question

9 of 50

An electronic fund transfer (EFT) for payment of
a bill would be:

subtracted from the bank balance of a bank
reconciliation.

added to the book balance of a bank
reconciliation.

added to the bank balance of a bank
reconciliation.

subtracted from the book balance of a bank
reconciliation.

Question

10 of 50

Case
8.1

Emerson Electronics had
the following information related to its September inventory.

Number of Units

Cost

Sept. 1

Beginning Inventory

100 Units

$10

5

Purchase

200 Units

$11

15

Sold

150 Units

26

Purchase

100 Units

$12

30

Sold

200 Units

Sales were made at $20
per unit and Emerson uses the perpetual inventory system.

Refer to Case 8.1. The
value of cost of goods sold under LIFO would be:

$3,900.

$4,200.

$4,000.

$3,800.

Question

11 of 50

For good internal control, the credit department
should have no access to:

customer information.

customer credit applications.

computer systems.

cash.

Question

12 of 50

Accounts receivable minus the allowance for
doubtful accounts equals:

net realizable value of accounts receivable.

market value of accounts receivable.

book value of accounts receivable.

historical costs of accounts receivable.

Question

13 of 50

By law, the provisions of Sarbanes-Oxley apply
to:

all companies

private companies

public companies

public companies with sales greater than one
billion dollars

Question

14 of 50

Case
8.5

At December 31, 2008, McGovern
Company overstated ending inventory by $50,000.

Refer to Case 8.5. How
does this error affect net income for 2009?

Has no effect on Net Income

Overstates Net Income by $50,000

Understates Net Income by $50,000

None of the above

Question

15 of 50

Rising interest rates, gas prices, declining
profits and strong competition in the auto industry all would be factors
impacting the __________ of General Motors.

control environment

segregation of duties

control activities

risk assessment

Question

16 of 50

Non sufficient funds (NSF) checks would be:

subtracted from the book balance of a bank
reconciliation.

subtracted from the bank balance of a bank
reconciliation.

added to the bank balance of a bank reconciliation.

added to the book balance of a bank
reconciliation.

Question

17 of 50

Case
7.5

Gilkey Security Systems
has the following for year ended 12-31-09 before adjustments

Accounts
receivable

$130,000

Net
Credit Sales

$840,000

Allowance
for doubtful accounts

$3,000 debit balance

Aging
of accounts receivable

$19,000

Gilkey uses the aging
method of estimating bad debt expense.

Refer to Case 7.5. The
journal entry for estimating bad debt expense at year end is:

A)

Allowance for doubtful accounts

19,000

Accounts
Receivable

19,000

B)

Bad Debts Expense

22,000

Allowance
for doubtful accounts

22,000

C)

Bad Debts Expense

19,000

Allowance
for doubtful accounts

19,000

D)

Allowance for doubtful accounts

22,000

Bad
Debts Expense

22,000

A)

B)

C)

D)

Question

18 of 50

Open promises to pay by customers are called:

notes receivable.

other receivables.

accounts receivable.

none of the above.

Question

19 of 50

Which of the following is a control over petty
cash?

Support all fund payments with a petty cash
ticket.

Keep a specific amount of cash on hand in the
fund.

Designate a custodian of the petty cash fund.

All of the above are controls.

Question

20 of 50

Which of the following is a requirement of the
Sarbanes-Oxley Act?

The outside auditor must issue an internal
control report for each public company, and the Public Company Oversight
Board evaluates the client’s internal controls

The Public Company Oversight Board issues an
internal control audit report for every publicly held company.

Accounting firms may not both audit a public
client and also provide certain consulting services for the same client

Public companies oversee the work of auditors
of other public companies.

Question

21 of 50

Case
7.2

Oddessy consulting has
the following for year ended 12-31-09 before adjustments

Accounts
receivable

$330,000

Net
Credit Sales

$1,200,000

Allowance
for doubtful accounts

$4,700 credit balance

Estimated
percentage of Bad debts on credit sales

2%

Oddessy uses the net
credit sales method of estimating bad debt expense.

Refer to Case 7.2. The
journal entry for estimating bad debt expense at year end is:

A)

Allowance for doubtful accounts

24,000

Accounts
Receivable

24,000

B)

Allowance for doubtful accounts

28,700

Bad
Debts Expense

28,700

C)

Bad Debts Expense

28,700

Allowance
for doubtful accounts

28,700

D)

Bad Debts Expense

24,000

Allowance
for doubtful accounts

24,000

A)

B)

C)

D)

Question

22 of 50

Which cost would be part of the cost of land?

Putting up fencing around a building

Removing an old building from the land

Installing lights in a parking lot

Installing a sprinkler system

Question

23 of 50

In dealing with cash receipts, the amount
debited to cash should equal:

the amount of the deposit

the amount of total sales

the amount of cash sales

some other amount

Question

24 of 50

Chase Bank loans P+P
Company $120,000 on a 1 year promissory note on July 1, 2009. The interest rate
of this loan is 12%. The principle and interest are due in one year. The
journal entry to accrue interest earned on12-31-09 is:

A)

Cash

7,200

Interest
revenue

7,200

B)

Cash

14,400

Interest
revenue

14,400

C)

Interest receivable

7,200

Interest
Revenue

7,200

D)

Interest Receivable

14,400

Interest
Revenue

14,400

A)

B)

C)

D)

Question

25 of 50

Case
8.1

Emerson Electronics had
the following information related to its September inventory.

Number of Units

Cost

Sept. 1

Beginning Inventory

100 Units

$10

5

Purchase

200 Units

$11

15

Sold

150 Units

26

Purchase

100 Units

$12

30

Sold

200 Units

Sales were made at $20
per unit and Emerson uses the perpetual inventory system.

Refer to Case 8.1. The
value of ending inventory under FIFO would be:

$700.

$600.

$500.

$550.

Question

26 of 50

In a $500 imprest petty cash fund:

the currency minus coins plus tickets should
equal $500.

the currency minus coins minus tickets should
equal $500.

the currency plus coins plus tickets should
equal $500.

the currency plus coins minus tickets should
equal $500.

Question

27 of 50

Case
8.2

Emerson Electronics had
the following information related to its September inventory.

Number of Units

Cost

Sept. 1

Beginning Inventory

200 Units

$10

6

Purchase

200 Units

$12

16

Sold

250 Units

27

Purchase

200 Units

$14

30

Sold

300 Units

Sales were made at $15
per unit and Emerson uses the perpetual inventory system.

Refer to Case 8.2. Gross
profit would be how much under FIFO?

$8,250

$1,550

$1,950

$1,750

Question

28 of 50

Which of the following demonstrates internal
control over cash receipts?

A mailroom employee deposits all customer
checks at the bank.

A mailroom employee sends remittance advices
to the treasurer

A mailroom employee sends all customer checks
to the treasurer who has the cashier make the bank deposit

All of the above demonstrate internal control
over cash receipts

Question

29 of 50

A written promise to pay a specified amount of
money at a particular future date by a customer is a(n):

accounts receivable.

mortgage payable.

notes payable.

notes receivable.

Question

30 of 50

Case
8.2

Emerson Electronics had
the following information related to its September inventory.

Number of Units

Cost

Sept. 1

Beginning Inventory

200 Units

$10

6

Purchase

200 Units

$12

16

Sold

250 Units

27

Purchase

200 Units

$14

30

Sold

300 Units

Sales were made at $15
per unit and Emerson uses the perpetual inventory system.

Refer to Case 8.2. Gross
profit would be how much under LIFO?

$1,950

$8,250

$1,550

$1,750

Question

31 of 50

Which of the following describes the internal control
component “control procedures”?

A company must identify its risks.

Internal auditors monitor company controls to
safeguard assets, and external auditors monitor the controls to ensure that
the accounting records are accurate.

Control procedures are the “tone at the
top” of the business.

Control procedures are designed to ensure that
the business’s goals are achieved.

Question

32 of 50

Mary is a warehouse worker who fills orders for
shipment, receives new shipments of inventory in the warehouse and also records
all inventory transactions into the accounting records. Mary is violating which
of the following?

Independent checks

Physical safe guards

Segregation of duties

None of the above

Question

33 of 50

A(n) __________ is an internal control tool that
reconciles the differences between a depositor’s cash records and the
depositor’s cash balance in its bank account.

checking account

bank statement

bank reconciliation

imprest petty cash fund

Question

34 of 50

The direct write off method of accounting for
bad debts violates which of the following accounting principles?

Entity concept

Going concern

Historical cost

Matching principle

Question

35 of 50

The intentional misrepresentation of financial information
on the financial statements is called:

lack of internal controls.

theft.

fraudulent financial reporting.

employee fraud.

Question

36 of 50

Case
8.1

Emerson Electronics had
the following information related to its September inventory.

Number of Units

Cost

Sept. 1

Beginning Inventory

100 Units

$10

5

Purchase

200 Units

$11

15

Sold

150 Units

26

Purchase

100 Units

$12

30

Sold

200 Units

Sales were made at $20
per unit and Emerson uses the perpetual inventory system.

Refer to Case 8.1. The
value of cost of goods sold under FIFO would be:

$2,800.

$3,100.

$2,900.

$3,800.

Question

37 of 50

Case
8.6

At December 31, 2008,
McGovern Company understated ending inventory by $50,000.

Refer to Case 8.6. How
does this error affect net income for 2008?

Understates Net Income by $50,000

Overstates Net Income by $50,000

Has no effect on Net Income

None of the above

Question

38 of 50

The journal entry to set up a $500 imprest petty
cash fund would be:

A)

Miscellaneous Expense

500

Cash
in bank

500

B)

Cash in bank

500

Petty
Cash

500

C)

Petty Cash

500

Cash
in bank

500

D)

Accounts Receivable

500

Cash
in bank

500

A)

B)

C)

D)

Question

39 of 50

Which of the following is the first step in the
purchasing and payment process?

The supplier ships the goods and sends an
invoice to the purchaser.

The purchaser sends a check to the supplier.

The purchaser sends a purchase order to the
supplier.

The purchase receives the inventory and
prepares a receiving report.

Question

40 of 50

Which inventory method would use the most
current costs to determine costs of goods sold?

LIFO

Specific Identification

Weighted average

FIFO

Question

41 of 50

Which of the following is considered a long term
asset?

Inventory

Accounts receivable

Land

Cash

Question

42 of 50

Which of the following is NOT one of the
components of internal control?

Control procedures

Risk assessment

Theft management

Control environment

Question

43 of 50

With good internal controls, the person who
handles cash can also:

issue credits to customers for merchandise
returned to us.

account for cash receipts from customers.

account for cash payments.

do none of the above.

Question

44 of 50

Which inventory method would use the oldest
costs to value ending inventory?

LIFO

Weighted average

Specific Identification

FIFO

Question

45 of 50

Which of the following describes the internal control
component “control environment”?

Internal auditors monitor company controls to
safeguard assets, and external auditors monitor the controls to ensure that
the accounting records are accurate.

The control environment is the “tone at
the top” of the business.

The control environment is designed to ensure
that the business’s goals are achieved

A company must identify its risks.

Question

46 of 50

Case
8.4

Emerson Electronics had
the following information related to its September inventory.

Number of Units

Cost

Sept. 1

Beginning Inventory

200 Units

$10

8

Purchase

200 Units

$12

29

Sold

200 Units

$14

200 units were sold @
$15 per unit and Emerson uses the perpetual inventory system.

Refer to Case 8.4.
Emerson has how many units in Ending Inventory?

200 units

50 units

100 units

300 units

Question

47 of 50

Case
7.6

Chase Bank loans P+P
Company $120,000 on a 1 year promissory note on January 1, 2009. The interest
rate of this loan is 12%. The principle and interest are due on 12-31-2009.

Refer to Case 7.6. The
amount of interest revenue that Chase will earn on this loan is:

$1,200.

$120,000.

$14,400.

$1,000.

Question

48 of 50

Which of the following is TRUE of internal
control?

A company’s outside auditor is responsible for
the company’s internal control system.

One of the major purposes of internal control
is to ensure accurate, reliable accounting records.

Internal control procedures tend to diminish
the importance of operational efficiency.

Public companies generally had no internal
control systems prior to the enactment of the Sarbanes-Oxley Act

Question

49 of 50

Case
9.3

Leah, Inc. has machinery
with a cost of $100,000. The machinery has an estimated useful life of 10
years, and an estimated salvage value of $10,000. The machinery is expected to
be able to produce a total of 1,000,000 units during its estimated life.

Refer to Case 9.3. The
amount of deprecation expense in the second year under straight line
depreciation would be:

$1,000.

$10,000.

$9,000.

$5,000.

Question

50 of 50

Inventory should be shown on the balance sheet
at:

market value.

cost.

the higher of cost or market value.

the lower of cost or market value.

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ACCOUNTING Final Exam

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Description

1. A corporation sold a fixed asset for $100,000. This is
A. an investment cash flow and a source of funds.
B. an operating cash flow and a source of funds.
C. an operating cash flow and a use of funds.
D. an investment cash flow and a use of funds.
2. A proxy statement is
A. a statement giving the votes of a stockholder to the CEO
B. a statement giving the votes of a stockholder to the board of director
C. a statement giving the votes of a stockholder to another party
D. None of the above.
3. The theory suggesting that for any given issuer, long-term interest rates tends to be higher than short-term rates is called
A.expectation hypothesis
B. liquidity preference theory
C. Market segmentation theory
D. None of the Above
4.The present value of an ordinary annuity of $350 each year for five years, assuming an opportunity cost of 4 percent, is
A. $288 B. $1,896 C. $1,750 D.$1,558
5.Typically the long-term capital source that is the least expensive is
A. Common stock B. Current (short-term) debt C. Long-term debt D. Preferred stock

6. How much is a bond with a face value of $1,000 that matures in 3 years and pays 12% annually worth? (pick the best answer)
$867
$1,000
$823
$952
7.________ yield curve reflects higher expected future rates of interest.
An upward-sloping
A flat
A downward-sloping
A linear
• 8. The key participants in financial transactions are individuals, businesses, and governments. Individuals are net ________ of funds, and businesses are net ________ of funds.
demanders; suppliers

users; providers

suppliers; demanders

purchasers; sellers
• 9.The ________ are sometimes referred to as the residual owners of the corporation.
preferred stockholders

unsecured creditors

common stockholders

secured creditors
•
• 10. A firm has an outstanding issue of 1,000 shares of preferred stock with a $100 par value and an 8 percent annual dividend. The firm also has 5,000 shares of common stock outstanding. If the stock is cumulative and the board of directors has passed the preferred dividend for the prior two years, how much must the preferred stockholders be paid prior to paying dividends to common stockholders?
$ 8,000

$16,000

$24,000

$25,000

• 11. What is the highest effective rate attainable with a 12 percent nominal rate?
12.00%

12.55%

12.75%

12.95%
• 12. Colin would like to send her parents on a cruise for their 25th wedding anniversary. She has priced the cruise at $15,000 and she has 5 years to accumulate this money. How much must Janice deposit annually in an account paying 10 percent interest in order to have enough money to send her parents on the cruise?
$1,862

$2,457

$3,000

$2,234

• 13.Which of the following is a career opportunity in managerial finance?
Investment.

Real Estate and Insurance.

Capital Expenditures Management.

Personal Financial Planning.

• 14.The ________ represents a summary statement of the firm’s financial position at a given point in time.
income statement

balance sheet

statement of cash flows

statement of retained earnings

• 15. Gross profits are defined as
operating profits minus depreciation.

operating profits minus cost of goods sold.

sales revenue minus operating expenses.

sales revenue minus cost of goods sold.
• 16. When preparing a statement of cash flows, retained earnings adjustments are required so that which of the following are separated on the statement?
Revenue and cost.

Assets and liabilities.

Depreciation and purchases.

Net profits and dividends.

• 17. The legal contract setting forth the terms and provisions of a corporate bond is a(n)
indenture

debenture

loan document

promissory note

18. Most businesses raise money by selling their securities in a
public offering.

private placement.
direct placement.

stock exchange
19._____________ is the rate of return companies must earn on investments to support the market value of its stock.
Internal rate of return
Cost of capital
Net present value
Gross profit margin
20. Stock represents __________ and bonds represent ____________.
debt; equity
retained earnings; debt
equity; debt
equity; current liabilities
• 21. An ADR is
a claim issued by a U.S. bank representing ownership of shares of a foreign company’s stock held on deposit by the U.S. bank and is issued in dollars to U.S. investors

a claim issued by a foreign bank representing ownership of shares of a foreign company’s stock held on deposit by the foreign bank and is issued in dollars to U.S. investors

a claim issued by a U.S. bank representing ownership of shares of a U.S. company’s stock held on deposit by the U.S. bank and is issued in dollars to U.S. investors

None of the above.

• 22. Allocation of the historic costs of fixed assets against the annual revenue they generate is called
net profits.

gross profits.

depreciation.

amortization
23. is an expense that is a legal obligation of the firm.
Labor expense

Interest expense

Salaries expense

Rent expense
• 24. Nico Nelson, a management trainee at a large New York-based bank is trying to estimate the real rate of return expected by investors. He notes that the 3-month T-bill currently yields 3 percent and has decided to use the consumer price index as a proxy for expected inflation. What is the estimated real rate of interest if the CPI is currently 2 percent?
5%

1%

3%

2%
• 25. One of the most influential documents issued by a publicly-held corporation is the
letter to stockholders.

annual report.

cash flow statement.

income statement.

• 26. ________ is concerned with the duties of the financial manager in the business firm.
Financial Services

Financial Manager

Managerial Finance

None of the above
•
• 27. The treasurer is commonly responsible for
taxes.

data processing.

making capital expenditures.

cost accounting

• 28. Bond prices and interest rates are:
Directly related
Unrelated
Conversely related
Inversely related

• 29. The cost of long-term debt generally ________ that of short-term debt.
is less than

is equal to

is greater than

has no relation to
• 30. A downward-sloping yield curve that indicates generally cheaper long-term borrowing costs than short-term borrowing costs is called
normal yield curve

inverted yield curve

flat yield curve

None of the above

• 31. Preferred stockholders
do not have preference over common stockholders in the case of liquidation

do have preference over bondholders in the case of liquidation

do not have preference over bondholders in the case of liquidation

Two of the above are true statement

• 32. The ________ rate of interest is typically the required rate of return on a three-month U.S. Treasury bill.
nominal

real

risk-free

Premium

• 33. The ________ is/are a graphic depiction of the term structure of interest rates.
yield curve

supply and demand functions

risk-return profile

aggregate demand curve
•
• 34. How much would Sophie have in her account at the end of 10 years if she deposit $2,000 into the account today if she earned 8 percent interest and interest is compounded continuously?
$4,317

$4,444

$4,451

35. Cash flows associated with the purchase and sale of fixed assets and business interests are called
operating flows.

investment flows.

financing flows.

none of the above

• 36. What is the nominal rate of return on an IBM bond if the real rate of interest is 3 percent, the inflation risk premium is 2 percent, the U.S. T-bill rate is 5 percent, the maturity risk premium on the IBM bond is 3 percent, the default risk premium on the IBM bond is 2 percent, and the liquidity risk premium on the bond is 1 percent?
16%

13%

11%

9

• 37. The Glass-Steagall Act allowed commercial and investment banks to engage in the same activities.

created the Securities Exchange Commission.

created the Federal Deposit Insurance program and separated the activities of commercial and investment banks.

was intended to regulate the activities in the primary market.

38. The ________ provides a financial summary of the firm’s operating results during a specified period.
income statement

balance sheet

statement of cash flows

statement of retained earnings

• 39. A corporation
must use the same depreciation method for tax and financial reporting purposes.

must use different depreciation methods for tax and financial reporting purposes.

may use different depreciation methods for tax and financial reporting purposes.

must use different (than for tax purposes), but strictly mandated, depreciation methods for financial reporting purposes.

• 40. The financial manager must determine ______________ to apply the Gordon growth model
A growth rate
A required return
The next period’s dividend
All of the above

• 41. The Modified Accelerated Cost Recovery System (MACRS) is a depreciation method used for ________ purposes.
tax

financial reporting

managerial

cost accounting

• 42. The officer responsible for the firm’s financial activities such as financial planning and fund raising, making capital expenditure decisions, and managing cash, credit, the pension fund, and foreign exchange is
treasurer.

controller.

foreign exchange manager.

None of the Above.

• 43. Which of the following serve as intermediaries channeling the savings of individuals, businesses and governments into loans and investments?
Financial Institutions

Financial Markets

Securities Exchanges

OTC market

• 44. Which of the following provide savers with a secure place to invest funds and offer both individuals and companies loans to finance investments?
Investment Banks

Securities Exchanges

Mutual Funds

Commercial Banks

• 45. Given the financial manager’s preference for faster receipt of cash flows,
a longer depreciable life is preferred to a shorter one.

a shorter depreciable life is preferred to a longer one.

the manager is not concerned with depreciable lives, because depreciation is a non-cash expense.

the manager is not concerned with depreciable lives, because once purchased, depreciation is considered a sunk cost.

• 46. Bonds sell at a __________ when the required return is greater than the coupon rate.
par
a discount
a premium
the par value divided by expected return plus the coupon rate

• 47. Finance can be defined as
the system of debits and credits.

the science of the production, distribution, and consumption of wealth.

the art and science of managing money.

the art of merchandising products and services.

• 48. The sale of a new security directly to an investor or a group of investors is called
the secondary market

the primary market

the capital market

the private placement market

• 49. The statement of cash flows provides a summary of the firm’s
cash flows from operating activities.

cash inflows from financing activities.

cash flows from investment activities.

all of the above.

• 50. The net value of fixed assets is also called its
market value.

par value.

book value.

price.

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