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ACG 2021, Introduction to Financial Accounting, Fall 2001, Exam 1

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ACG2021MT1F01A
Page 1
ACG 2021
EXAM 1
FALL 2001
NAME _____________________________________ SS# ____________________________
Instructions:
NOW: Bubble in your section number on your Scan Sheet.
Fill in your name and social security number on this examination and your scan sheet.
1. Listen carefully for any comments your proctor may have related to the exam. Read these instructions
carefully. Failure to do so may result in your losing points.
2. This exam consists of 50 multiple-choice questions. Select the BEST answer and mark the appropriate
space on the scan sheet with a #2 pencil only. You MUST keep your scan sheet face down on the desk
when you are not filling it in.
3. You may use ONLY a non-programmable calculator during the exam. Use of any other calculator will be
considered a violation of the honor code. Your exam will be taken from you and you will receive a grade
of 0.
4. At the end of 2 hours, you will be told to stop. Put your pencils down IMMEDIATELY. Failure to do so
will result in your receiving a zero for the exam.
5. The exam consists of 11 pages, including this cover, and a blank page at the end. Make sure you have all
pages and all questions.
6. Have your University of Florida Identification card ready to be checked when you turn in your exam.
7. Assume the accounting entities use a calendar year unless otherwise noted.
8. Assume a 360-day year.
9. When you are finished, turn in your scan sheet, as well as your exam. Answers will be posted on the web
after the exams are handed back in class.
10. The University of Florida policy on academic honesty will be strictly enforced.
When you are told to open your exam, turn to the first
page and find your exam code. Immediately bubble this
in on your scantron.
ACG2021MT1F01A
Page 2
EXAM CODE = A
1. A major purpose of the classified balance sheet is to provide users with information about the
A) liquidity of the company by separating current from noncurrent assets and liabilities
B) solvency of the company by separating debt from equity
C) the balance of the equation by showing total assets equal total liabilities plus stockholders' equity
D) None of the above
2. A business's balance sheet cannot be used to accurately predict what the business might be sold for because
A) it identifies all the revenues and expenses of the business.
B) assets are generally listed on the balance sheet at their current value, not their original cost.
C) it gives the results of operations for the current period.
D) some of the assets and liabilities on the balance sheet may actually be those of another entity.
E) None of the above is correct.
3. Rarro Corporation received $50,000 cash invested by its owners. The effect on the fundamental
accounting model was
A) assets and liabilities each increased by $50,000.
B) assets and revenues each increased by $50,000.
C) stockholders' equity and revenues each increased by $50,000.
D) stockholders' equity and assets each increased by $50,000.
E) stockholders' equity and liabilities each increased by $50,000.
4. An example of a liability account that would be created at the end of the accounting period because
expense has been incurred but not paid or recorded yet would be?
A) Accounts payable
B) Interest payable
C) Dividends payable
D) All of the above
E) None of the above
5. Which financial statement for a business would you look at to determine the company's performance
during an accounting period?
A) balance sheet.
B) statement of retained earnings.
C) income statement.
D) statement of cash flows.
E) None of the above is correct.
6. In 1998, Coca-Cola reported net sales revenues of $18.8 billion and cost of goods sold of $8.6 billion
while PepsiCo reported revenues of $22.3 billion and cost of goods sold of $9.3 billion. Which of the
following statements is correct?
A) While PepsiCo generated more revenue than Coca-Cola, Coca-Cola generated a higher gross profit percentage
B) Coca-Cola generated a lower gross profit percentage because their sales revenue was lower
C) PepsiCo did a better job of controlling product costs as a percentage of sales than did Coca-Cola as
evidenced by their $13.0 billion gross profit amount
D) None of the above
ACG2021MT1F01A
Page 3
7. On January 1, 20B, Grover Inc., started the year with a $22,000 credit balance in its retained earnings
account. During 20B, the company earned net income of $40,000 and declared and paid dividends of
$10,000. Also, the company received cash of $15,000 as an additional investment by its owners.
Therefore, the balance in retained earnings on December 31, 20B, would be
A) $67,000.
B) $42,000.
C) $57,000.
D) $52,000.
E) None of the above is correct.
8. Apple Company's bank statement showed an ending balance of $5,000. Items appearing in the bank
reconciliation included: outstanding checks, $500; deposits in transit, $2,000; bank service charges,
$10; and Orange Company's check erroneously charged to Apple's bank account by the bank, $110. The
correct cash balance at the end of the month should be reported as
A) $4,610
B) $5,390
C) $5,610
D) $6,610
E) None of the above is correct
9. The cash account and the December bank statement of Harris Company showed the following: Deposits
made by Harris Company during December $92,000; deposits reflected on the December bank
statement, $95,000; and deposits in transit on November 30, $9,000. Therefore, the deposits in transit at
the end of December amounted to
A) $ 3,000.
B) $ 6,000.
C) $ 8,000.
D) $14,000.
E) None of the above is correct.
10. Failure to make an adjusting entry to recognize accrued salaries payable would cause an
A) understatement of expenses and liabilities and an overstatement of stockholders' equity.
B) overstatement of expenses and liabilities.
C) understatement of expenses, liabilities and stockholders' equity.
D) understatement of assets and stockholders' equity.
E) understatement of expenses and stockholders' equity.
11. Revenue is recognized when
A) expenses are paid.
B) cash is collected.
C) it is earned.
D) the end of the period arrives.
E) None of the above is correct.
ACG2021MT1F01A
Page 4
12. During 20B, Blue Corporation incurred operating expenses amounting to $125,000 of which $100,000
were paid in cash; the balance will be paid in January 20C. Transaction analysis of operating expenses
for 20B, should reflect only the following
A) decrease stockholders' equity, $100,000; decrease assets, $100,000.
B) decrease assets, $100,000; decrease stockholders' equity, $125,000.
C) decrease assets, $100,000; increase liabilities, $25,000; decrease stockholders' equity, $125,000.
D) decrease stockholders' equity, $100,000; decrease assets, $125,000; increase liabilities, $25,000.
E) None of the above is correct.
13. When a depositor receives a bank statement indicating a "NSF check", he should
A) credit the cash account for the amount of the check.
B) record the amount as an expense of the current period.
C) credit a special receivable for the amount of the check.
D) debit sales revenue.
E) None of the above is correct.
14. In applying the revenue principle to a given transaction, the most important moment or period in time is
when the
A) related cash inflows occur.
B) related expenses are incurred.
C) sales transaction is completed (i.e., ownership passes) or services are rendered.
D) The service contract is signed regarding service to be performed.
E) customer is billed.
15. A company had the following partial list of account balances at year-end:
Sales Returns and Allowances $ 500
Accounts Receivable 9,000
Sales Discounts (a contra account) 800
Sales Revenue 57,200
Allowance for Doubtful Accounts 300
The amount of Net Sales shown on the income statement would be
A) $57,200.
B) $64,200.
C) $56,200.
D) $55,900.
E) None of the above is correct.
16. The separate entity assumption states that
A) assets should be recorded at their initial acquisition cost.
B) each business is considered to be part of its owners.
C) The monetary unit should be U.S. dollars.
D) for measurement purposes, the resources, debts, and activities of a business should be kept separate
from those of the owners.
ACG2021MT1F01A
Page 5
17. Which of the following direct effects on the fundamental accounting model is not possible as a result of
transaction analysis?
A) Increase a liability and increase an asset.
B) Decrease stockholders' equity and increase an asset.
C) Increase an asset and decrease an asset.
D) Decrease stockholders' equity and decrease an asset.
E) None of the above is correct.
18. A company reports sales revenue of $120 million this year and $110 million last year. Their total assets
in the current year are $80 million and last year's total assets were $75 million. What is the current
year's asset turnover ratio?
A) 1.55
B) 1.61
C) 1.50
D) 1.46
19. Which of the following liability accounts is usually satisfied by payment of cash?
A) Accounts payable
B) Unearned revenues
C) Revenue received in advance
D) All of the above are satisfied by paying cash
20. At the end of December, the owner of an apartment complex realized that the December rent had not
been collected from one of the tenants. December 31 was the end of the accounting year; therefore, the
owner made the appropriate adjusting entry at that time. When the December rent was collected in
January of the following year, the entry made by the apartment owner should include a
A) debit to Rent revenue receivable.
B) credit to Rent revenue receivable.
C) debit to Rent revenue collected in advance.
D) credit to Rent revenue.
E) credit to Cash.
21. The following is an example of an error that will not be discovered on the trial balance.
A) An entry was posted as a debit to cash for $500 and credited to accounts receivable for $5,000
B) An entry was journalized and posted as a debit to cash and a credit to sales revenue when we
collected a customer's account
C) An entry was journalized and posted as a debit to wages expense and a debit to wages payable
D) All of these would be errors discovered on the trial balance
E) None of these would be errors discovered on the trial balance
22. Financial accounting
A) provides information primarily for external decision makers.
B) is required for corporations but probably would not be done by other business entities.
C) provides information primarily for the use of managers of the company.
D) has been practiced in this country for approximately the last 15 years.
ACG2021MT1F01A
Page 6
23. Assets for a particular business might include
A) cash, accounts payable, and notes payable.
B) cash, retained earnings, and accounts receivable.
C) cash, accounts receivable, and inventory.
D) inventories, property and equipment, and contributed capital.
24. The financial statement that reports the financial position of a business is the
A) income statement.
B) balance sheet.
C) statement of cash flows.
D) footnotes to the financial statements.
E) auditor's opinion.
25. Assume a company's January 1, 20A, financial position was: Assets, $40,000 and Liabilities, $15,000.
During January 20A, the company completed the following transactions: (a) paid on a note payable,
$4,000 (no interest); (b) collected accounts receivable, $4,000; (c) paid accounts payable, $1,000; and
(d) purchased a truck by paying $1,000 cash and signing a $8,000 notes payable. The company's January
31, 20A, financial position is
Assets Liabilities Stockholders' Equity
A) $42,000 $17,000 $25,000
B) $44,000 $17,000 $27,000
C) $43,000 $18,000 $25,000
D) $42,000 $ 9,000 $33,000
E) None of the above is correct.
26. Which is the correct order of the steps in the accounting cycle during the accounting period.
A) Transaction analysis, journal entries, trial balance
B) Transaction analysis, posting to the accounts, journal entries
C) Transaction analysis, posting to the accounts, adjusting the accounts
D) Transaction analysis, journal entries, posting to the accounts
E) None of the above is the correct order
27. Investing activities
A) include securing money by bank loans or selling stock to investors
B) are related to the income producing activities of the company as reported on the income statement
C) include buying and building facilities used over many years by the business
D) none of the above are investing activities
28. If the financial leverage ratio for Papa John's was 1.2 in 1998 while its competitors Uno Restaurant's ratio
was 1.98 and Chuck E Cheese's ratio was 1.41 for that same year. The low ratio for Papa John's indicates
A) Papa John's finances more of its assets through debt than their two competitors
B) Uno Restaurant finances more of its assets using equity than both Papa John's and Chuck E Cheese
C) Papa John's uses less debt than equity financing to acquire its assets
D) None of the above statements is true
E) Both A and B are correct
ACG2021MT1F01A
Page 7
29. Current liabilities are defined as
A) obligations which are incurred during the past year.
B) debts at the balance sheet date which must be paid within two years.
C) accounts payable and bonds payable.
D) debts at the balance sheet date which are expected to be paid with the current assets listed on the
same balance sheet.
E) obligations (debts) related only to normal operations.
30. Which of the following is true about gross profit (gross margin)?
A) It is a separate account in the general ledger.
B) It is net sales minus cost of goods sold.
C) It is sales plus cost of goods sold.
D) It is net sales minus all expenses.
E) None of the above is correct.
31. Which of the following errors would most likely lead to an overstatement of income?
A) Recording revenue next period when the cash is collected although it is earned in the current year
B) Recording an incurred expense this year instead of next year when the cash is paid
C) Failure to adjust deferred rent revenue account for the portion of rent earned this year
D) All of the above lead to overstated income this period
E) None of the above leads to overstated income this period
32. Expresso Company purchased a machine that cost $28,000 and had an estimated useful life of 7 years and
an estimated salvage value of $7,000 on January 1, 20A. The book value at the end of 20B, would be
A) $28,000.
B) $25,000.
C) $24,000.
D) $22,000.
E) None of the above is correct.
33. On January 31, 20A, Low Company wrote off an uncollectible account of $2,000. The allowance
method is used. The write-off would cause bad debt expense to
A) decrease $2,000.
B) increase $2,000.
C) be unchanged.
D) None of the above is correct.
34. The primary difference between revenues and gains is
A) gains are increases in net assets from peripheral activities while revenues are increases from ongoing
activities
B) generally accepted accounting principles makes no distinction between them since they both
increase income
C) revenues cause increases in net assets as a result of peripheral activities and gains cause increases
through ongoing activities
D) both revenues and gains cause a decrease in net assets from ongoing and peripheral transactions
respectively
ACG2021MT1F01A
Page 8
35. During 20A, Thomas Company recorded bad debt expense of $15,000 and wrote off an uncollectible
account receivable amounting to $10,000. Assuming a January 1, 20A, balance in the allowance for
doubtful accounts of $5,000, the December 31, 20A, balance in the allowance account would be
A) $25,000.
B) $20,000.
C) $10,000.
D) $ 5,000.
E) None of the above is correct.
36. When a company buys equipment for $60,000 and pays for one third in cash and the other two thirds is
financed by a note payable, the following are the effects on the equation
A) cash decreases by $20,000
B) equipment increases by $60,000
C) liabilities increase by $40,000
D) total assets increase by $40,000
E) All of the above effects occur on the equation
37. At the end of 20D, the following data were taken from the accounts of Timberline Company:
Contributed Capital $ 209,000
Retained earnings, beginning balance January 1, 20D 100,000
Total revenue earned during 20D 190,000
Total expenses incurred during 20D 180,000
Dividends declared during 20D 20,000
Total cash collected during 20D 200,000
The 20D closing entries would include a
A) $10,000 net credit to Retained earnings.
B) $10,000 net debit to Retained earnings.
C) $190,000 debit to Retained earnings.
D) $180,000 credit to Retained earnings.
E) $10,000 credit to Contributed capital.
38. The qualitative characteristic that says accounting information can influence users' decisions is
A) comparability.
B) materiality.
C) reliability.
D) relevance.
E) None of the above is correct.
39. The primary qualities of accounting information that increase the usefulness to decision makers are
A) relevance and cost-benefit.
B) reliability and comparability.
C) materiality and relevance.
D) reliability and relevance.
E) None of the above is correct.
ACG2021MT1F01A
Page 9
40. Adjusting entries
A) are primarily used to change account balances because of accounting errors that have been made.
B) usually are recorded as of the last day of the accounting period.
C) always change at least one income statement account balance and one balance sheet account
balance.
D) all of the above are correct.
E) only B and C are correct.
41. On July 1, 20A, Goode Company borrowed $10,000. The company signed a note payable with interest
at 12 percent per year. The note and interest are due on December 31, 20A. On December 31, 20A,
Goode paid $10,600 to settle the debt in full. Transaction analysis of the $10,600 cash payment on
December 31, 20A, should reflect the following:
A) decrease assets, $10,600; decrease liabilities, $10,600.
B) decrease assets, $10,000; decrease stockholders' equity, $600; and decrease liabilities, $10,600.
C) decrease stockholders' equity, $10,000; decrease liabilities, $600; and decrease assets, $10,600.
D) decrease liabilities, $10,000; decrease stockholders' equity, $600; and decrease assets, $10,600.
E) None of the above is correct.
42. For a merchandising company like Burdines, the largest operating cash outflow would result from
A) payments to suppliers from whom we have purchased inventory on credit
B) payment of wages and benefits to employees
C) payment of taxes to the various government entities
D) payment of interest on notes payable
43. On January 1, 20A, two individuals invested $150,000 each to form Hornbeck Corporation. Hornbeck
had total revenues of $15,000 during 20A and $40,000 during 20B. Total expenses for the same periods
were $8,000 and $23,000, respectively. Cash dividends paid out to stockholders totaled $6,000 in 20A
and $12,000 in 20B. What was the ending balance in Hornbeck's retained earnings account at the end of
20A and 20B?
A) $301,000 and $306,000 respectively.
B) $7,000 and $18,000 respectively.
C) $7,000 and $19,000 respectively.
D) $1,000 and $6,000 respectively.
E) $1,000 and $7,000, respectively.
44. On January 1, 20B, the ledger of Global Corporation correctly showed supplies inventory of $800.
During 20B, supplies purchases amounted to $700. A count (inventory) of supplies on hand at
December 31, 20B, showed $400. The 20B income statement should report supplies expense amounting
to
A) $ 1,200.
B) $ 1,100.
C) $ 800.
D) $ 700.
E) None of the above is correct.
ACG2021MT1F01A
Page 10
45. Which statement is incorrect regarding the financial statements?
A) Current assets reported in the balance sheet are generally reported in order of their liquidity.
B) Distributions to owners (dividends) are reported in the retained earnings statement.
C) Expenses on the income statement are reported as incurred, not as paid.
D) The statement of cash flows reports the sources and uses of cash during the accounting period.
E) None of the above is incorrect.
46. Which of the following businesses would not report cost of sales on their income statements?
A) A large accounting firm
B) An automobile dealership
C) A pizza restaurant chain
D) A computer chip manufacturer
E) All of the above would report cost of sales on their income statements
47. In 1998, Amgen reported product sales revenue of $2,514.4 million and accounts receivable of $319.9
million for 1998 and $330.0 million in 1997. What was the cash flow generated by sales?
A) $2,504.3 million
B) $2,524.5 million
C) $2,184.4 million
D) $2,194.5 million
E) None of the above
48. A trial balance prepared after the closing entries have been posted would exclude which one of the
following accounts?
A) Inventory.
B) Accounts receivable.
C) Accumulated depreciation.
D) Service revenue.
E) None of the above is correct.
49. The operating cycle of a business is best defined as
A) the period of time for which we prepare our financial statements
B) the time it takes for a company to purchase and pay for goods or services from suppliers, sell those
goods or services to customers and collect cash from the customers
C) the length of time over which our plant and equipment assets are expected to be used by the
company in generating revenues
D) None of the above
50. Which is the correct order of the steps in the accounting cycle at the end of the accounting period.
A) Prepare a trial balance, journalize and post adjustments, prepare financial statements, and journalize
and post the closing entries
B) Prepare a trial balance, journalize and post adjustments, journalize and post the closing entries, and
prepare financial statements
C) Journalize and post adjustments, journalize and post the closing entries, prepare financial statements,
and prepare a trial balance
D) Prepare financial statements, journalize and post adjustments, journalize and post the closing entries,
and prepare a trial balance
E) None of the above is the correct order
ACG2021MT1F01A
Page 11


Form A Form B Form C Form D Form E
1 A B B D D
2 E D B A D
3 D D C D C
4 B B B E C
5 C E C E C
6 D C E A D
7 D D E E C
8 D B D B A
9 B B C B A
10 A C D B B
11 C A B A D
12 C A A D D
13 A B B A A
14 C B A B B
15 D D D B B
16 D D A A C
17 B B D B D
18 A C D A E
19 A D A A C
20 B C B C E
21 B A B A A
22 A D B C B
23 C C C D C
24 B D C E A
25 C B D C A
26 D C B B D
27 C A C C D
28 C E C A B
29 D A A D B
30 B C E C B
31 E B D C E
32 D B A E A
33 C C D D C
34 A D C B D
35 C E A D D
36 E A C C B
37 B B B D C
38 D D B C C
39 D A D B A
40 E A A D E
41 D D D D A
42 A C C B E
43 D E E D B
44 B D A D D
45 E C D D B
46 A D D A D
47 B D D C D
48 D E A B D
49 B A D D A
50 A A E C B

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