You are on page 1of 17

Ithaca College

Exam Grade:

Financial Accounting
ACCT 22500 - Spring 2009
Exam #1: Form A
(100 points)

Name: __Yung Lam__________ ________________


ID: _____________________________
Class Time (check one): _____MWF 9:00
_____MWF 10:00
_____MWF 11:00

DO NOT OPEN
until given instructions to do so
Instructions:
1. Remove your hat during the exam and have only pencils and calculators available at your seat
(note that cell phones are not permissible as calculators).
2. Turn off all cell phones, pagers, and other electronic devices.
3. In the space provided above, write your name and ID, and check your class time.
4. Confirm that you have 8 consecutively numbered pages (including this cover page and the blank
page at the end).
5. Read all instructions carefully.
6. All multiple-choice answers must be marked in the space provided next to each question.
7. Show all computations (and label them well) to receive partial credit on non-multiple choice
questions.
8. You are reminded of the Colleges academic honesty policy requiring you to do your own work and
not give or receive assistance on this examination. Keep your eyes on your own work and your
own test covered.
9. Bring your entire exam book (including the blank page) and the calculator to the front of the room
when you have completed the exam.

Spring 2009 ACCT 225 Exam #1A

1 of 17

Part 1: Account Classifications (14 points)


For each of the following accounts, complete the chart below by indicating
(1) how the account is usually classified in the financial statements:
CA = Current Asset
NCA = Noncurrent Asset
CL = Current Liability
NCL = Noncurrent Liability
SE = Stockholders Equity

Op Rev
= Operating Revenue
Op Exp
= Operating Expense
Other Item = Other revenue or expense item

(2) and whether the account usually has a debit (Dr) or credit (Cr) balance.
Classification
(CA, NCA, CL, NCL, SE, Op
Rev, Op Exp, or Other Item)
NCL

Debit or Credit
Balance
(Dr or Cr)
Cr

NCA

Cr

3. Cost of goods sold

Op Exp

Dr

4. Service revenue

Op Rec

Cr

NCA

Dr

6. Prepaid insurance

CA

Dr

7. Contributed capital

SE

Cr

Account
1. Note payable (due in 20 years)
2. Loss on sale of building

5. Equipment

Part 2: Definitions (8 points)


In the space provided, define the following terms:
1. Define Assets: goods and services that are measurable with probable economic benefits

2. Define Revenues: inflow of assets and

3. Define Separate Entity Assumption: Operations between the business must be completely
separate from that of the managers and owners
4. What does GAAP stand for? Generally Accepted Accounting Principals

Spring 2009 ACCT 225 Exam #1A

2 of 17

Part 3: Cash Flow Effects (10 points)


According to its 2008 10-K, Sysco Corporation is the largest North American
distributor of food and related products primarily to the foodservice or foodprepared-away-from-home industry, providing products and related services
to over 400,000 customers, including restaurants, healthcare and educational
facilities, lodging establishments and other foodservice customers. Ithaca
College is a customer. The Company reported the following activities for its
fiscal year ending June 30, 2008. Indicate whether each of these items is a cash
flow from
1.) operating activities (O), investing activities (I), or financing activities (F)
and
2.) the direction and amount of the effect on cash flows (+ for increase or
for decrease).
If the transactions has no effect on cash, write NE (No Effect). DO NOT LEAVE ANY BOX BLANK.
A sample is provided.
Location
on
Statemen
t of Cash
Flows

Direction
and Amount
of Effect on
Cash

Delivered foods priced at $27,000 to customers who


paid cash.

+ 27,000

1. Purchased $1,690 in new equipment, paying $1,516


cash and signing a note due in six years for the rest.

2. Paid $750 on June 1, 2008, for insurance for coverage


until August 1, 2008.

(750)

3. Sold equipment for $43, receiving $13 in cash with


the remainder due from the buyers in 60 days.

+13

4. Paid $8,500 for fuel for the delivery equipment.

(8500)

5. Paid dividends of $497.

(497)

During fiscal year July 1, 2007 to June 30,2008


(in millions)

Sample

(1516)

Part 4: Transaction Analysis Model (10 points)


Write the complete transaction analysis model (based on Chapters 2 and 3) showing increases /
decreases and debits / credits (Hint: Its the equations and Ts picture we use to analyze transactions.)

Spring 2009 ACCT 225 Exam #1A

3 of 17

Part 5: Journal Entries (18 points)


A. Write the journal entry in good form for Eddys Furniture Repair Company for each of the
following transactions occurring during November 2008. You must include the effect on each account
as shown in the text [e.g., Cash (+A), Sales revenue (+R, +SE)] to receive full credit.
(1)
(2)
(3)
(4)
(5)

Received a $600 deposit from a customer who wanted her dining table and chairs refinished in
December.
Purchased on credit $960 in supplies to be used in 2009.
Paid $1,000 for advertising in the local paper in November.
Received $6,700 cash from Ithaca College (customer) for repairing several bookcases in
November.
The Company paid $2,040 on its accounts to suppliers in late November.

JOURNAL ENTRIES
Accounts

(1)

Debit

600

Cash (A+)
(2)

600

Accounts Payable (+L)

960

Supplies (+A)
(3)

Credit

Unearned Service Revenue (+L)

960

Advertising Expense (+E) (-SE)

1000

Cash (-A)
(4)

1000

Cash (+A)

6700

Service Revenue (+R) (+SE)


(5)

6700

Accounts Payable (-L)

2040

Cash (-A)

2040

B. Given the transactions in Part A, complete the T-account for Cash in good form and determine
the ending balance. The Companys Cash balance on November 1 (the beginning of the month)
was $2,300.
CASH

1) 600
4) 6700

3) 1000
5) 2040

$4260

Spring 2009 ACCT 225 Exam #1A

4 of 17

Part 6: Effects of Transactions (12 points)


The Latta Company is a local temp agency providing temporary employees to area businesses (clients)
needing specialized assistance for short periods of time. For each of the following transactions
occurring in September 2008, indicate in the table the effects of the transaction on the elements of the
financial statements. Indicate the amount and the direction of the effect (e.g., + 10,000 or 2,000).
If the transaction has no effect on an element, you must indicate this by writing NE for No Effect. An
example is provided. You can assume the firm prepares financial statements at the end of each month.
DO NOT LEAVE ANY BOX BLANK.
Example: Received $30,000 cash from stockholders and issued 10,000 shares of stock.
(a) Provided $23,000 in service to clients who will pay next month.
(b) Received a $990 electric bill for September that will be paid in October.
(c) Paid $14,000 to employees who worked in September.
(d) Received $1,500 from a new client as a deposit on services to be provided by Latta Company in
October.
Balance Sheet

Income Statement

Transaction

Assets

Liabilities

Stockholders
Equity

Example

+30,000

NE

+30,000

NE

NE

NE

(a)

+23000

NE

+23000

+23000

NE

+23000

(b)

NE

+990

-990

NE

+990

-990

(c)

-14000

NE

-14000

NE

+14000

-14000

(d)

+1500

+1500

+1500

NE

NE

NE

Spring 2009 ACCT 225 Exam #1A

Revenues

Expenses

Net
Income

5 of 17

Part 7: Multiple Choice (8 points)


Clearly indicate your best response to each question on the appropriate blank line beside each number.

1.

The primary purpose of the balance sheet is to


A) measure the net income of a business up to a particular point in time.
B) report the difference between cash inflows and cash outflows for the period.
C) report the financial position of a reporting entity at a particular point in time.
D) None of the above is correct.

2. Stoner Corporation reported the following for 2007: total assets, $90,000; total liabilities,
$35,000; and contributed capital, $40,000. Therefore, retained earnings was
A) $5,000.
B) $40,000.
C) $20,000.
D) $15,000.
E) None of the above is correct.

3. The CPAs role in performing audits is important to our society because


A) auditors provide direct financial advice to potential investors.
B) auditors have the primary responsibility for the information contained in financial
statements.
C) auditors issue reports on the accuracy of each financial transaction.
D) an audit of financial statements helps investors and others to know that they can rely
on the information presented in the financial statements.
E) None of the above is correct.

4. Accrual accounting says:


A) Record revenues when earned.
B) Accrue expenses when incurred to generate revenues in the same period.
C) Record revenues when earned and expenses when incurred to generate revenues in the
same period.
D) Record revenues when received and expenses when paid.

Part 8: Finding Financial Information (20 points)


Attached (on page 8) are financial statements for Kroger Co., one of the largest retailers in the United
States based on annual sales. The Company also manufactures and processes some of the food for sale
in its supermarkets and employs approximately 323,000 full and part-time employees (Kroger, 2007
10-K report). Answer each of the following questions about Krogers.

Spring 2009 ACCT 225 Exam #1A

6 of 17

1. Is Krogers a corporation, sole proprietorship, or partnership? ____________How do you know?


Corporation because the company produces a 10-k annual financial statements of corporations
2. Why are the dates on the balance sheet not ending on the same date each year (e.g., January 31)?
In the balance sheet is not over a period of time but for that exact time
3. Did net income
computations)

increase

or

decrease

since 2006? (circle one) By what percentage? (Show

Increase 1115 / 1181 = 5.92%

4. For the most recent year, what are Krogers three largest liability accounts by size? What
percentage is each to total liabilities? (Show computations. Round percentages to two decimal
places.)
Largest Liabilities

Percentage of Total Liabilities

Long Term Debt

6629 / 17385 = 38.13%

Accounts Payable

4050 / 17385 = 23.30%

Other Current Liabilities

2231 / 17385 = 12.83%

5. What statement would you look at to determine if Krogers paid dividends in 2007?
Statement of Shareholders Equity

6. What does the financial leverage ratio measure?


The company has enough liquid short term assets to cover its liabilities
7. Is the income statement classified? How do you know this?
Yes, Revenue, expenses, income tax, and earnings per share are stated. Also, it is listed in a 10-K

Spring 2009 ACCT 225 Exam #1A

7 of 17

THE KROGER CO.


CONSOLIDATED BALANCE SHEETS
(In millions)
ASSETS
Current assets
Cash and temporary cash investments
Receivables
Inventory
Prepaid and other current assets
Total current assets
Property, plant and equipment, net
Other assets
Total Assets

February 2,
2008

February 3,
2007

918
786
4,855
555
7,114
12,498
2,687
22,299

1,592
4,050
815
2,231
8,689

LIABILITIES
Current liabilities
Current portion of long-term debt
Accounts payable
Accrued salaries and wages
Other current liabilities
Total current liabilities

Long-term debt
Other long-term liabilities
Total Liabilities
SHAREOWNERS EQUITY
Common stock
Accumulated earnings
Common stock in treasury, at cost, 284 shares in 2007 and 232 shares in
2006
Total Shareowners Equity
Total Liabilities and Shareowners Equity

803
778
4,609
565
6,755
11,779
2,681
21,215

906
3,804
796
2,075
7,581

6,529
1,167
17,385

6,154
2,557
16,292

3,856
6,480

3,433
5,501

(5,422)
4,914
22,299

(4,011)
4,923
21,215

THE KROGER CO.


CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended February 2, 2008, February 3, 2007, and January 28, 2006
(In millions, except per share amounts)
Sales
Merchandise costs, including advertising, warehousing, and transportation,
excluding items shown separately below
Operating, general and administrative
Rent
Depreciation and amortization
Operating Profit
Interest expense
Earnings before income tax expense
Income tax expense
Net earnings
Net earnings per basic common share

2007
(52 weeks)
$
70,235

2006
(53 weeks)
$
66,111

2005
(52 weeks)
$
60,553

53,779
12,155
644
1,356
2,301
474
1,827
646
1,181

50,115
11,839
649
1,272
2,236
488
1,748
633
1,115

45,565
11,027
661
1,265
2,035
510
1,525
567
958

1.71

1.56

1.32

End of Exam

Spring 2009 ACCT 225 Exam #1A

8 of 17

Part 1: Adjusting the Records (30 points)


Prepare the adjusting journal entry in good form for each of the following independent transactions of Jones
Company. The company has a December 31 year-end.
a.) On March 1, 2008, the company loaned $3,000 to one of its employees on a two-year, 12 percent note.
The principal plus interest are payable by the employee on March 1, 2010.
Accounts

Debit

Credit

Interest Revenue (+SE +R)


Interest Receivable (+A)

300
300

b.) During 2008, office supplies amounting to $4,600 were purchased for cash and debited in full to
Supplies. At the beginning of 2008, the count of supplies on hand was $510 and, at December 31, 2008,
it was $300.
Supplies Expense (-SE +E)

4810

Supplies (-A)

4810

c.) On October 1, 2008, the company received $21,000 from one of its clients for services to be provided
to the client each month for one year beginning on October 1, 2008. The $21,000 received was
recorded as Unearned Fee Revenue.
Unearned Fee Revenue (-L)
Service Revenue (+R +SE)

Spring 2009 ACCT 225 Exam #1A

5250
5250

9 of 17

Part 2: Reconciling Cash (8 points)


The following are Yukelson Inc.s December 31, 2008, bank statement and the December ledger account for
cash:

BANK STATEMENT
Deductions
Balance, December 1, 2008
Deposits during December
Checks cleared during December
Bank service charge
NSF check SK Company
Balance, December 31, 2008

CASH

Additions
$30,400

$29,500
80
2,300

Balance
$ 3,800
34,200
4,700
4,620
2,320
$ 2,320

12/1/08
3,800
Deposits 37,690
12/31/08 6,790

34,700

Checks
written

Prepare Decembers bank reconciliation to determine the correct cash balance. Use the following form:

Yukelson Inc. Bank Reconciliation


December 31, 2008
$

Correct cash

Spring 2009 ACCT 225 Exam #1A

Correct cash

10 of 17

Part 3: Accounting and Reporting Sales and Accounts Receivable and Ratio Analysis (26 points)
A. Selected data from recent financial statements of Mattel Inc. appear below (in millions). Answer the
following questions and show well-labeled computations for partial credit.
December 31, December 31,
2008
2007
(In millions)

CONSOLIDATED BALANCE SHEETS (partial)


ASSETS
Current Assets
Cash and equivalents

Accounts receivable, less allowances of $26 million and $21 million in 2008 and 2007,
respectively

618 $

901

874

991

...
Total Assets

CONSOLIDATED STATEMENTS OF OPERATIONS

4,805

For the Year


2007
(In millions)

2008

Net Sales

4,675 $

2006

5,918 $

5,970 $

5,650

Cost of sales

3,234

3,193

3,038

Gross Profit

2,684

2,777

2,612

719

709

651

1,423

1,338

1,232

542

730

729

Interest expense

82

71

80

Interest (income)

(25)

(33)

(30

(3)

(11)

(4

Advertising and promotion expenses


Other selling and administrative expenses
Operating Income

Other non-operating (income), net

)
)

Income Before Income Taxes

488

703

683

Provision for income taxes

108

103

91

380 $

600 $

Net Income
SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS AND
ALLOWANCES

592

Balance at Additions
Beginning Charged to
Net
of Year Operations Deductions
(In millions)

Balance
at
End of
Year

Allowance for Doubtful Accounts


Spring 2009 ACCT 225 Exam #1A

11 of 17

Year ended December 31, 2008

20 $

? $

Year ended December 31, 2007

19

21

Year ended December 31, 2006

25

19

1.

2.

Record the companys write-offs for 2008:


(in millions)

Debit

Credit

Assuming all sales were on credit, what amount of cash did Mattel collect
from customers in 2008?

million

3. Compute Mattels Net Profit Margin for the last three years. Show percentage to two decimal places.
NP = NI / NS %
Year

4.

Computation

Result

2008

380/5918

6.42%

2007

600/5970

10.05%

2006

592/5650

10.48%

The industry average for net profit margin is 10.26%. What does this and the above results suggest
about Mattel?

As the years progresses, Mattel is not generating its revenues into net income as efficiently because it
has had generated less revenue over time

B. The following transactions were selected from the records of Califano Company:
Spring 2009 ACCT 225 Exam #1A

12 of 17

Oct. 12
Oct. 15
Oct. 22
Oct. 23
Oct. 30

Sold goods to Ms. Albinder, who charged the $3,000 purchase on her VISA credit
card. VISA charges Califano a 2% credit card fee.
Sold merchandise to Ms. Luzzi for $5,000 on account, terms 3/10, n/30.
Ms. Luzzi returned $1,000 of items purchase on Oct. 15 (they were the wrong size),
and credit was given to the customer.
Collected cash from Ms. Luzzi from the Oct. 15 purchase.
Collected cash from Ms. Albinder for the Oct. 12 purchase.

Assuming returns and any discounts are treated as contra-revenues, compute net sales based on these
transactions by filling in the following schedule:

Sales revenue

8000

Sales returns and allowances

1000

Sales discounts

1000

Credit card discounts


Net sales

Spring 2009 ACCT 225 Exam #1A

60
6940

13 of 17

C. At the end of 2008, the unadjusted trial balance of Bird Industries, Inc., indicated $176,000 in Accounts
Receivable, a credit balance of $12,100 in Allowance for Doubtful Accounts, and Sales Revenue (all on
credit) of $14,360,000. Based on prior experience, Bird estimates a 0.1 percent bad debt rate on credit sales.
You must show well-labeled computations (below problem) to receive partial credit.
a.

What is the amount of bad debt expense that should be recorded for 2008?

b. Show where and how Accounts Receivable will be reported on the 2008 balance sheet.
Which section of the classified balance sheet will it appear?
How will the receivables line be written?

D.

Lane Enterprises uses the aging approach to estimate bad debt expense. At the end of 2008, Lane estimates
that $3,900 of the $270,000 in accounts receivable will likely be uncollectible. The allowance for doubtful
accounts has a $200 debit balance at year-end. You must show well-labeled computations (below
problem) to receive partial credit.
a.

What is the amount of bad debt expense that should be recorded for 2008?

b. Show where and how Accounts Receivable will be reported on the 2008 balance sheet.
How will receivables line be written?

Spring 2009 ACCT 225 Exam #1A

14 of 17

Part 4: Multiple Choice (6 points)


Place your answer in the space provided next to each question.
__B__ 1. Which generally accepted accounting principle best supports the establishment of the account,
Allowance for Doubtful Accounts?
A. Continuity principle
B. Matching principle
C. Historical cost principle
D. Revenue principle
E. Comparability principle

__ _ 2. Effective control of cash requires that


A. One person handles the receipts and disbursements of cash.
B. Cash is deposited monthly in a bank.
C. There is approval of cash payments.
D. A reconciliation of the bank balance with the cash balance is prepared twice a year.
E. None of the above is correct.

__B__ 3. The closing process


A. Results in transferring Retained Earnings to Net Income.
B. Established a zero balance only in each of the temporary accounts to start accumulation in the
next accounting period.
C. Established a zero balance in all accounts to start accumulation in the next accounting period.
D. Requires debiting expenses.
E. None of the above is correct.

Spring 2009 ACCT 225 Exam #1A

15 of 17

Part 5: Statement of Cash Flows (30 points)


Use the following information for Rittenberg Company to prepare the 2008 statement of cash flows using the
indirect method (use the bottom of this page for your computations and the next page for your statement). The
companys fiscal year ends on December 31 and all amounts are in thousands of dollars.
2008

2007

Assets
Cash
Accounts receivable
Inventory
Property and equipment
Accumulated depreciation
Total assets

Change

$48
106
142
876
(500)
$672

$32
83
161
840
(460)
$656

$+16
+23
-19
+36
(+40)
$ 16

Liabilities & Shareholders Equity


Accounts payable
Interest payable
Notes payable
Contributed capital
Retained earnings
Total liabilities & stockholders equity

$131
12
109
266
154
$672

$136
10
120
250
140
$656

$ -5
+2
-11
+16
+14
$ 16

For the year ended


Sales revenue
Cost of goods sold
Gross profit
Operating expenses:
Wages expense
Depreciation expense
Operating income
Interest expense
Pretax income
Income tax expense
Net income

Additional Information:
Property and equipment costing $15 with accumulated depreciation of $10 were sold for cash (no gain
or loss).

2008
$1,200
788
412

Spring 2009 ACCT 225 Exam #1A

16 of 17

280
50
82
12
60
22
$ 38

Rittenberg Company
Statement of Cash Flows
For the year ended December 31, 2008

Spring 2009 ACCT 225 Exam #1A

17 of 17

You might also like