ACCT 310: Intermediate Accounting I

Fall 2015
Instructor: Dongkuk Lim, Ph.D.

EXAM I PRACTICE EXAM

Your Name:____________________________

NOTE: IT IS ONLY FOR PRACTICE, AND THERE IS NO GURANTEE

THAT THE ACTUAL EXAM WILL BE DIRECTLY FROM IT. UTILIZE IT
AS A SUPPLIMENTARY MATERIAL IN ORDER TO REVIEW THE
SUBJECTS.

Instruction of Exam I
1. It has total of six pages, including this cover page. Please check the
exam booklet in order to verify that you have a completed exam package
to answer.
2. It is a NON-OPEN BOOK exam.
3. A basic calculator (without memory-function) is allowed, but it should not
be shared during the exam hour.
4. Any electronic device, including a cellular phone, MP3, or a laptop, etc,
is strictly prohibited during the exam hour.
5. In the Multiple-Choice section, you are given X questions. Maximum
possible point is XX.
6. In the Problem-Solving section, you are given Y questions. Maximum
possible point is YY.
7. There will be no extra point beyond maximum possible point of XXX from
this exam.

Multiple Choice.
Choose the best answer for each of the following questions and enter the identifying letter
in the space provided.
1. How does failure to record accrued revenue distort the financial reports?
a. It understates revenue, net income, and current assets.
b. It understates net income, stockholders equity, and current liabilities.
c. It overstates revenue, stockholders equity, and current liabilities.
d. It understates current assets and overstates stockholders equity.

2. A contingent liability which is normally accrued is

a. notes receivable discounted.
b. accommodation endorsements on customer notes.
c. additional compensation that may be payable on a dispute now being
arbitrated.
d. estimated claims under a service warranty on new products sold.

3. On June 15, 2012 Stine Corporation accepted delivery of merchandise which it

purchased on account. As of June 30 Stine had not recorded the transaction
or included the merchandise in its inventory. The effect of this error on its
balance sheet for June 30, 2012 would be
a. assets and stockholders equity were overstated but liabilities were not
affected.
b. stockholders equity was the only item affected by the omission.
c. assets and liabilities were understated but stockholders equity was not
affected.
d. assets and stockholders equity were understated but liabilities were not
affected.

4. Of the following adjusting entries, which one would cause an increase in assets at the
end of the period?
a. The entry to record the earned portion of rent received in advance.
b. The entry to accrue unrecorded interest expense.
c. The entry to accrue unrecorded interest revenue.
d. The entry to record expiration of prepaid insurance.

5. Why is it necessary to make adjusting entries?

a. The accountant has made errors in recording external transactions.
b. Certain facts about the affairs of the business are not included in the ledger
as built up from external transactions.
c. The accountant wants to show the largest possible net income for the
period.
d. The accountant wants to show the net cash flow for the year.

6. Notes to financial statements should not be used to

a. describe the nature and effect of a change in accounting principles.
b. identify substantial differences between book and tax income.
c. correct an improper financial statement presentation.
d. indicate basis for asset valuation.
7. Consistency is best demonstrated when
a. expenses are reported as charges against the period in which incurred.
b. the effect of changes in accounting methods is properly disclosed.
c. extraordinary gains and losses are not reported on the income statement.
d. accounting procedures are adopted which give a consistent rate of net
income.
8. The current assets section of a balance sheet should never include
a. a receivable from a customer not collectible for over one year.
b. the premium paid on short-term bond investment.
c. goodwill arising from the purchase of a going business.
d. customers' accounts with credit balances.

9. Perry Corp. reports operating expenses in two categories: (1) selling and (2) general
and administrative. The adjusted trial balance at December 31, 2012, included the
following expense accounts:
Accounting and legal fees
Advertising
Freight-out
Interest
Loss on sale of long-term investments
Officers' salaries
Rent for office space
Sales salaries and commissions

$280,000
240,000
150,000
120,000
60,000
360,000
360,000
220,000

One-half of the rented premises is occupied by the sales department.

How much of the expenses listed above should be included in Perry's selling
expenses for 2012?
a. $460,000.
b. $610,000.
c. $640,000.
d. $790,000.

10. Logan Corp.'s trial balance of income statement accounts for the year ended
December 31, 2012 included the following:
Debit
Credit
Sales
$280,000
Cost of sales
$100,000
Administrative expenses
50,000
Loss on sale of equipment
18,000
Commissions to salespersons
16,000
Interest revenue
10,000
Freight-out
6,000
Loss due to earthquake damage
24,000
Bad debt expense
6,000
Totals
$220,000
$290,000
Other information:
Logan's income tax rate is 30%. Finished goods inventory:
January 1, 2012
$160,000
December 31, 2012
140,000
On Logan's multiple-step income statement for 2012,

a.
b.
c.
d.

Extraordinary loss is
$16,800.
$24,000.
$29,400.
$42,000.

11. The following trial balance of Reese Corp. at December 31, 2012 has been properly adjusted
except for the income tax expense adjustment.
Reese Corp.
Trial Balance
December 31, 2012
Dr.
Cr.
Cash
$ 975,000
Accounts receivable (net)
2,695,000
Inventory
2,085,000
Property, plant, and equipment (net)
7,366,000
Accounts payable and accrued liabilities
$ 1,801,000
Income taxes payable
654,000
Deferred income tax liability
85,000
Common stock
2,350,000
Additional paid-in capital
3,680,000
Retained earnings, 1/1/12
3,450,000
Net sales and other revenues
13,460,000
Costs and expenses
11,180,000
Income tax expenses
1,179,000
$25,480,000
$25,480,000
Other financial data for the year ended December 31, 2012:

Included in accounts receivable is $1,200,000 due from a customer and payable in quarterly
installments of $150,000. The last payment is due December 29, 2014.

The balance in the Deferred Income Tax Liability account pertains to a temporary difference
that arose in a prior year, of which $20,000 is classified as a current liability.

During the year, estimated tax payments of $525,000 were charged to income tax expense.
The current and future tax rate on all types of income is 30%.

In Reese's December 31, 2012 balance sheet,

A. The current assets total is
a. $6,280,000.
b. $5,755,000.
c. $5,605,000.
d. $5,155,000.
B. The current liabilities total is
a. $1,950,000.
b. $2,015,000.
c. $2,475,000.
d. $2,540,000.
C. The final retained earnings balance is
a. $4,551,000.
b. $4,636,000.
c. $5,076,000.
d. $5,005,000.

Problem-solving.
Problem 1. Adjusting and Reversing Entries.
The following list of accounts and their balances represents the unadjusted trial balance of Alt
Company at December 31, 2012:
Cash
Equity Investments (trading)
Accounts Receivable
Allowance for Doubtful Accounts
Inventory
Prepaid Rent
Plant Assets
Accumulated Depreciation-Plan Assets
Accounts Payable
Bonds Payable
Common Stock
Retained Earnings
Sales Revenue
Cost of Goods Sold
Freight-Out
Salaries and Wages Expense
Interest Expense
Rent Revenue
Miscellaneous Expense
Insurance Expense

$ 29,090
60,000
69,000
$

500

54,720
36,000
160,000
14,740
11,370
90,000
170,000
97,180
214,800
154,400
11,000
32,000
2,040
21,600
890
11,050
$620,190

$620,190

Additional Data:
1. The balance in the Insurance Expense account contains the premium costs of three policies:

2.
3.

4.
5.
6.
7.

8.

Policy 1, remaining cost of $2,550, 1-yr. term, taken out on May 1, 2011;
Policy 2, original cost of $7,200, 3-yr. term, taken out on Oct. 1, 2012;
Policy 3, original cost of $1,300, 1-yr. term, taken out on Jan. 1, 2012.
On September 30, 2012, Alt received $21,600 rent from its lessee for an eighteen month lease
beginning on that date.
The regular rate of depreciation is 10% per year. Acquisitions and retirements during a year
are depreciated at half this rate. There were no purchases during the year. On December 31,
2011, the balance of the Plant and Equipment account was $240,000.
On December 28, 2012, the bookkeeper incorrectly credited Sales for a receipt on account in
the amount of $10,000.
At December 31, 2012, salaries and wages accrued but unpaid were $4,200.
Alt estimates that 1% of sales will become uncollectible.
On August 1, 2012, Alt purchased, as a short-term investment, 60 $1,000, 7% bonds of Allen
Corp. at par. The bonds mature on August 1, 2013. Interest payment dates are July 31 and
January 31.
On April 30, 2012, Alt rented a warehouse for $3,000 per month, paying $36,000 in advance.

Instructions
(a) Record the necessary correcting and adjusting entries.

Problem 2. Key Conceptual Terms.

Various accounting assumptions, principles, constraints, and characteristics are listed below.
Select those which best justify the following accounting procedures and indicate the
corresponding letter(s) in the space(s) provided. A letter may be used more than once or not at
all.
a.
b.
c.
d.
e.

Historical cost
Relevance
Monetary unit
Going concern
Consistency

f.
g.
h.
i.
j.

Economic entity
Materiality
Conservatism
Periodicity
Expense recognition

k. Revenue recognition
l. Full disclosure
m. Cost constraint
n. Industry practices
o. Faithful
representation

____

1. Chose the solution that will be least likely to overstate assets or income.

____

2. Describing the depreciation methods used in the financial statements.

____

3. Applying the same accounting treatment to similar accounting events.

____

4. The quality which helps users make predictions about present, past, and future events.

____

5. Recording a transaction when goods or services are exchanged for cash or claims to
cash.

____

6. Preparing consolidated statements.

____

7. Information must make a difference or a company need not disclose it.

____

8. Provides the figure at which to record a liability.

____

9. The preparation of timely reports on continuing operations.

____ 10. Accrual accounting (do not use "going concern").

____ 11. Reporting those items which are significant enough to affect decisions. Select two (11
and 12).
____ 12. See item 11 above.
____ 13. Ignoring the phenomenon of price-level changes (do not use "historical cost").
____ 14. Not reporting assets at liquidation prices (do not use "historical cost").
____ 15. Characterized by completeness, neutrality, and being free from error.
____ 16. Establishment of an allowance for doubtful accounts.
____ 17. Additivity of financial statement figures relating to different time periods.
____ 18. Carrying inventories at sales price less distribution costs.
____ 19. Use of estimating procedures for amortization policies. Select two (do not use
"periodicity") (19 and 20).
____ 20. See item 19 above.

Problem 3. Balance Sheet Form.

List the corrections needed to present in good form the balance sheet below. Errors include
misclassifications, lack of adequate disclosure, and poor terminology. Do not concern yourself
with the arithmetic. If an item can be classified in more than one category, select the category
most favored by the authors of your textbook.
Tanner Corporation
Balance Sheet
For the year ended December 31, 2012
Assets
Current Assets:
Cash
Equity investments-trading (fair value, $32,000)
Accounts receivable
Inventory
Supplies inventory
Investment in subsidiary company
Investments:
Treasury stock
Tangible Fixed Assets:
Buildings and land
Less: Reserve for depreciation

$ 18,000
27,000
75,000
60,000
3,000
60,000

$243,000
78,000

213,000
60,000

Deferred Charges:
Discount on bonds payable
Other Assets:
Cash surrender value of life insurance

153,000

3,000
54,000
$531,000

Liabilities and Capital

Current Liabilities:
Accounts payable
Reserve for income taxes
Customer's accounts with credit balances

45,000
42,000
3

Long-Term Liabilities:
Bonds payable
Total Liabilities
Capital Stock:
Capital stock
Earned surplus
Cash dividends declared

$ 87,003

120,000
207,003

225,000
74,997
24,000

323,997
$531,000

Problem 4. Balance Sheet and Income Statement Classifications.

Specify, to the left of each account, the letter of the financial statement classification the account
would appear in. Use only the classifications shown.
Balance Sheet
a. Current Assets
b. Investments
c. Property, Plant, and Equipment
d. Intangible Assets
e. Other Assets
f. Current Liabilities
g. Long-term Debt
h. Capital Stock
i. Retained Earnings

Income and Retained Earnings Statement

j. Sales Revenue
k. Cost of Goods Sold
l. Operating Expenses
m. Other Revenues and Gains
n. Other Expenses and Losses
o. Extraordinary Item
p. Retained Earnings Section
q. Not on the Statements

Account balances taken from the ledger of Morin Company on December 31, 2012 follow:
____

1. Common Stock, $10 par

_____ 16. Inventory

____

2. Loss on Disposal of Equipment

_____ 17. Salaries and Wages Expense

____

3. Buildings

_____ 18. Merchandise on order with supplier

____

4. Office Expense

_____ 19. Interest Revenue

____

5. Allowance for Doubtful Accounts

_____ 20. Selling Expenses

____

6. Notes Payable (Short Term)

_____ 21. Interest Expense

____

7. Accum. DepreciationBuildings

_____ 22. Income Taxes Payable

____

8. Mortgage Payable due 2014

_____ 23. Insurance Expense

____

9. Depletion Expense

_____ 24. Advertising Expense

____ 10. Freight-Out

_____ 25. Equity Investments

____ 11. Sales Revenue

_____ 26. Accounts Receivable

____ 12. Dividends

_____ 27. Land

____ 13. Retained Earnings Dec. 31,

2011

_____ 28. Accounts Payable

____ 14. Cash

____ 15. Sales Discounts

_____ 29. Error made in computing 2010

depreciation expense
_____ 30. Gain on Redemption of
Debt