ACCT IS 301 701 Intermediate Accounting Fall 2013 Practice Exam 1 This practice exam provides an example of the nature and types of questions on the actual exam It is not intended to be representative of the length or difficulty of the actual exam Note Solutions are at the end of the exam Multiple Choice Circle the best answer for each question 1 The process of identifying measuring analyzing and communicating financial information needed by management to plan evaluate and control an organization s operations is called a b c d financial accounting managerial accounting tax accounting auditing 2 What is the relationship between the Securities and Exchange Commission SEC and accounting standard setting in the United States a The SEC requires all companies listed on an exchange to submit their financial statements to the SEC b The SEC coordinates with the AICPA in establishing accounting standards c The SEC has a mandate to establish accounting standards for enterprises under its jurisdiction d The SEC reviews financial statements for compliance 3 The assumption that a business enterprise will not be sold or liquidated in the near future is known as the a b c d economic entity assumption monetary unit assumption conservatism assumption none of these 4 Bush Corporation reports the following information Net income 500 000 Dividends on common stock 140 000 Dividends on preferred stock 60 000 Weighted average common shares outstanding 100 000 Bush should report earnings per share of a b c d 5 3 00 3 60 4 40 5 00 Burnett Corporation reports the following information Correction of understatement of depreciation expense in prior years net of tax 430 000 Dividends declared in 2012 320 000 Net income 2012 1 000 000 Retained earnings 1 1 12 as reported2 000 000 Burnett should report retained earnings 1 1 12 as adjusted at a b c d 1 570 000 2 000 000 2 430 000 3 110 000 6 Which of these statements regarding the IFRS and U S GAAP is correct a U S GAAP is considered to be principles based and more detailed than IFRS b U S GAAP is considered to be rules based and less detailed than IFRS c IFRS is considered to be principles based and less detailed than U S GAAP d Both U S GAAP and IFRS are considered to be rulesbased but U S GAAP tends to be more complex 7 Which of the following is NOT an objective of financial reporting a To provide information about economic resources the claims to those resources and the changes in them a To provide information that is helpful to investors and creditors and other users in assessing the amounts timing and uncertainty of future cash flows b To provide information that is useful to those making investment and credit decisions c To provide information on the liquidation value of an enterprise d All of these are objectives of financial reporting 8 In order to be classified as an extraordinary item in the income statement an event or transaction should be a unusual in nature infrequent and material in amount b unusual in nature and infrequent but it need not be material c infrequent and material in amount but it need not be unusual in nature d unusual in nature and material but it need not be infrequent 9 Which of the following is an example of managing earnings up a b c d Decreasing estimated salvage value of equipment Writing off obsolete inventory Underestimating warranty claims Accruing a contingent liability for an ongoing lawsuit 10 Accounting policies disclosed in the notes to the financial statements typically include all of the following except a the cost flow assumption used b the depreciation methods used c significant estimates made d significant inventory purchasing policies 11 The balance sheet is useful for analyzing all of the following except a b c d liquidity solvency profitability financial flexibility 12 On January 1 2012 Cobb Co received for the sale of a parcel of land a ten year note receivable having a face amount of 2 000 000 and a stated interest rate of 8 payable annually each December 31 The market rate of interest for this type of note is 10 Present value factors are as follows At8 At10 Present value of 1 for 10 periods 0 46 0 38 3 6 Present value of an ordinary annuity of 6 71 6 14 1 for 10 periods 0 5 The amount to record as proceeds for the sale of the land is a 2 000 000 b 1 960 200 c 1 840 000 d 1 755 200 e None of the above PROBLEMS Complete each problem below Show all your work concisely and neatly so that you can be assigned partial credit where applicable Problem 1 Time Value of Money On the right are six diagrams representing six different present and future value concepts stated on the left Identify the diagrams with the concepts by writing the identifying letter of the diagram on the blank line at the left Assume n 4 and i 8 Concept 1 Future value of 1 1 Diagram of Concept a 1 1 1 1 1 1 1 1 1 2 Present value of 1 3 Future value of an annuity 1 due of 1 b 4 Future value of an ordinary annuity of 1 5 Present value of an ordinary annuity of 1 6 Present value of an annuity 1 due of 1 1 c d 1 e 1 1 1 1 f Problem 2 Financial Statements Prepare the 2012 Balance Sheet and Multi step Income Statement in good form for Crosby Inc Crosby Inc Adjusted Trial Balance December 31 2012 Debit Credit Accounts Payable 2 300 Accounts Receivable 2 200 Accumulated Depreciation 2 550 Additional Paid in Capital 2 200 Administrative Expenses 1 100 Allowance for Bad Debts 150 Bonds Payable 2 100 Due in 2014 Buildings 3 500 Cash 200 Common Stock 400 There are 80 shares outstanding Cost of Goods Sold 3 600 Depreciation Expense 320 Equipment 1 800 Goodwill 3 400 Income Tax Expense 150 Income Taxes Payable 565 Interest Expense 350 Inventory 2 400 Land 350 Notes Payable 1 700 Due in 2013 Accrued Warranty 1 450 Office Supplies 400 Rent Expense 670 Retained Earnings 125 Salaries Payable 350 Salary Expense 2 250 Sales 8 900 Discount on Note Payable100 Totals 22 790 22 790 Income Statement Balance Sheet Problem 3 Cash to Accrual Accounting The following information is available for Finley Corporation s first year of operations Payment for merchandise purchases 250 000 Ending merchandise inventory 110 000 Accounts payable balance at end of year 60 000 Collections from customers 210 000 The balance in accounts payable relates only to merchandise purchases All merchandise items were marked to sell at 40 above cost What should be the ending balance in accounts receivable assuming all accounts are deemed collectible Problem 4 Conceptual Framework After each