Page 1 of 12 Name Student Number TA Section Time Code of Conduct By signing below you acknowledge that you are a member of a learning community at the Foster School of Business that is committed to the highest academic standards and that you adhered to these standards while completing this exam Specific to this exam by signing below you acknowledge that you did not receive or give help to others nor did you witness others receiving or giving help to others during the exam Signature Date A215 Winter 2013 Exam I KEY Relax You have one hour and twenty minutes to complete this exam For problems that require calculations show your work Relax Provide your answers in the space provided not on a separate answer sheet Please check to see that you have 13 pages they are numbered Relax and get started Page 2 of 12 The questions below come directly from my lecture slides the text quiz section materials or the homework problems 1 2 pts Accounting is considered the language of ANSWER CH1 business 2 3 pts Companies engage in three types of business activities which are represented by the three sections of the cash flow statement What are the three sections of the cash flow statement ANSWER CH1 CH 4 Operating investing financing 3 2 pts One of the major disadvantages of organizing a business as a public corporation has to do with taxes What is the phrase used to describe this disadvantage ANSWER CH1 Double taxation also correct corporate tax rate personal tax rate 4 2 pts At the end of fiscal 2012 Bolt Company sells a Jamaican shirt to a customer on credit The customer promises to pay early in fiscal 2013 This transaction will affect three of the four financial statements at the end of fiscal 2012 Which financial statement will it not affect ANSWER CH1 2 3 Cash flow statement 5 4 pts The FASB and the IASB set and modify accounting standards What do we call these standards provide a name for full credit An acronym is worth half credit FASB standards are called IASB standards are called ANSWER CH1 Generally Accepted Accounting Principles GAAP We also accepted Financial Accounting Standards FAS International Financial Reporting Standards IFRS 6 2 pts There are six steps in measuring external transactions What is the first step ANSWER CH2 Analyze source documents or receipts Page 3 of 12 7 2 pts If an investor would like to know the aggregate amount of profit that a company has earned over its lifetime and not paid back to investors in the form of a dividend which account on the balance sheet should the investor examine ANSWER CH2 4 Retained earnings 8 2 pts After creating a trial balance Mr Gatlin totals up his debit column and credit column They are equal both have a balance of 540 000 Does this imply that Mr Gatlin has recorded all of his company s transactions correctly circle one Yes Mr Gatlin knows his stuff No Mr Gatlin should pay closer attention in A215 ANSWER CH2 No It is possible that Mr Gatlin forgot to record a transaction so both the debit and credit side are missing the transaction or recorded a transaction for the wrong amount both sides reflect the wrong amount so they equal 9 2 pts What is the principle that states that a company should recognize revenue in the period in which it is earned The ANSWER CH3 Revenue recognition principle 10 3 pts Does a credit increase or decrease the following accounts circle one answer per account Interest revenue Increase Decrease Sales returns Increase Decrease Dividends Increase Decrease ANSWER multiple chapters Interest revenue Sales returns Dividends Increase Decrease Decrease Page 4 of 12 11 2 pts Before completing the closing process Joyner Company s trial balance reflects the following accounts and balances Cash Equipment Unearned revenue Long term debt Retained earnings Revenues Expenses Dividends Debits 10 000 40 000 Credits 12 000 14 000 22 000 15 000 11 000 2 000 After completing the closing process what will be the balance in Joyner s retained earnings account ANSWER CH3 24 000 22 000 15 000 11 000 2 000 12 2 pts You are at a reception and overhear Mr Bailey the owner of a running shoe company say The Sarbanes Oxley Act SOX of 2002 requires a company s auditor to document and assess the effectiveness of the company s internal controls Ms Ashford who is standing next to Mr Bailey asks if you agree What do you say Yes Mr Bailey knows his stuff and is correct No Mr Bailey should have paid closer attention in A215 ANSWER CH4 Yes Mr Bailey is correct 13 3 pts A customer purchases a shirt from Nesterenko Company using a credit card When recording both the sale side and the cost side of this transaction what three accounts will Nesterenko debit ANSWER CH4 Cash credit card fee expense or something similar cost of goods sold Page 5 of 12 14 2 pts After completing a bank reconciliation and thorough investigation Christie Company cannot explain why its cash balance is 50 less than the cash balance on its bank statement Christie determines it will never be able to explain the discrepancy but needs to update its cash account to reflect the additional 50 In doing so what account will Christie credit in its journal entry ANSWER CH4 Miscellaneous revenue or some other descriptive revenue account 15 2 pts Lewis Company likes to begin each fiscal year with 2 000 in its petty cash account At the end of fiscal 2012 the balance in the petty cash account is 1 100 In replenishing the petty cash account what account will Lewis debit and by how much ACCOUNT ANSWER CH4 Petty cash AMOUNT 900 16 2 pts When analyzing a company investors often compare a company s net income with its free cash flows to assess quality ANSWER CH4 earnings 17 2 pts Richter Company uses the aging of accounts receivable method to estimate its uncollectible accounts Before making its bad debt estimate for 2012 the T account for Richter s Allowance for Uncollectible Accounts has a credit balance of 1 200 At the end of 2012 Richter estimates that 200 of accounts receivable that have been outstanding for less than three months will not be collected that 400 of accounts receivable that have been outstanding for between three and six months will not be collected and that 800 of accounts receivable that have been outstanding for more than six months will not be collected When recording the journal entry to update its Allowance for Uncollectible Accounts to the desired amount what account will Richter debit and for how much ACCOUNT ANSWER CH5 Bad debt expense AMOUNT 200 Page 6 of 12 18 2 pts