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PartIIIIIIIVVIITotalPoints4323315ScorePART I — MULTIPLE CHOICE (4 points)__B__1.In order to be relevant, accounting information musta.be neutral.b.be verifiable.c.help predict future events.d.be a faithful representation._C___2.The following information is available for Lighten Company:Sales$130,000Freight-in$10,000Ending Merchandise Inventory12,000Purchase Returns and Allowances5,000Purchases100,000Beginning Merchandise Inventory15,000Lighten’s cost of goods sold isa.$125,000.b.$120,000.c.$108,000.d.$105,000.__B__3.One of the two constraints in accounting parability.b.materiality.c.reliability.d.relevance.__B__4.The assumption that assumes a company will continue in operation long enough to carry out its existing objectives is thea.economic entity assumption.b.going concern assumption.c.monetary unit assumption.d.time period assumption.__D__5.All of the following are intangible assets excepta.patents.b.land improvements.c.goodwill.d.franchises.__C__6.The constraint of conservatism is best expressed asa.the cost of applying an accounting principle should not exceed its benefit.b.only material items should be recorded and reported.c.when in doubt, choose the method that will least likely overstate assets and net income.d.the lower of cost or market method should be used for inventories.____7.If merchandise is sold for $2,000 subject to credit terms of 2/10, n/30, the entry to record collection in full within the discount period would include aa.credit to Sales Discounts for $40.b.credit to Cash for $1,960.c.credit to Accounts Receivable for $40.d.none of the above.____8.Barker Company's records show the following for the month of January:Total Retained Earnings at January 1 $600,000Total Retained Earnings at January 31 900,000Total Revenues 1,005,000Total Dividends Declared 45,000Total expenses for January werea.$960,000.b.$1,005,000.c.$705,000.d.$660,000._____ 9.Jetson Company's financial information is presented below.Sales$ ????Purchase Returns and Allowances$ 30,000Sales Returns and Allowances60,000 Ending Merchandise Inventory70,000Net Sales700,000Cost of Goods Sold360,000Beginning Merchandise Inventory????Gross Profit????Purchases340,000 The missing amounts above are: SalesBeginning InventoryGross Profita.$760,000$90,000$340,000b.$640,000$90,000$400,000c.$760,000$120,000$340,000d.$640,000$120,000$400,000_____ 10.The necessity of making adjusting entries relates mostly to thea.economic entity assumption.b.time period assumption.c.going concern assumption.d.monetary unit assumption.____11.The preparation of closing entriesa.is an optional step in the accounting cycle.b.results in zero balances in all accounts at the end of the period so that they are ready for the following period's transactions.c.is necessary before financial statements can be prepared.d.results in transferring the balances in all temporary accounts to Retained Earnings.____12.Current liabilities are obligations that are reasonably expected to be paid from ExistingCreation of OtherCurrent AssetsCurrent Liabilitiesa.NoNob.YesYesc.YesNod.NoYes____13.Which of the following errors will cause a trial balance to be out of balance? The entry to record a payment on account wasa.not posted at all.b.posted as a debit to Cash and a credit to Accounts Payable.c.posted as a debit to Cash and a debit to Accounts Payable.d.posted as a debit to Accounts Receivable and a credit to Cash.____14.The primary accounting standard-setting body in the United States is thea.Securities and Exchange Commission.b.Accounting Principles Board.c.Financial Accounting Standards Board.d.Internal Revenue Service.____ 15.Which of the following would not be included in the operating activities section of a statement of cash flows?a.Cash inflows from returns on loans (i.e., interest)b.Cash inflows from returns on equity securities (i.e., dividends)c.Cash outflows to governments for taxesd.Cash outflows to reacquire treasury stock____16.Which of the following combinations presents correct examples of liquidity, profitability, and solvency ratios, respectively?LiquidityProfitabilitySolvencya.Inventory turnoverInventory turnoverTimes interest earnedb.Current ratioInventory turnoverDebt to total assetsc.Receivable turnoverReturn on assetsTimes interest earnedd.Average days collectionPayout ratioReturn on assets____17.Which of the following pairs of terms in the area of financial statement analysis are synonymous?a.Ratio — Trendb.Horizontal — Trendc.Vertical — Ratiod.Horizontal — Ratio____18.The statement of cash flows is a(n)a.required supplemental financial statement.b.required basic financial statement.c.optional basic financial statement.d.optional supplementary statement.____19.Which of the following should be classified as an extraordinary item?a.Effects of major casualties not infrequent in the areab.Write-off of a significant amount of receivablesc.Loss from the expropriation of facilities by a foreign governmentd.Losses due to a bitter, lengthy labor strike____20.In order to be considered extraordinary, an item must bea.frequent and uninsured.b.unusual and uninsured.c.uninsured and infrequent.d.infrequent and unusual.PART II — MATCHING (3 points)InstructionsDesignate the terminology that best represents the definition or statement given below by placing the identifying letter(s) in the space provided. No letter should be used more than once.A.Additions and improvements X.Full disclosure principleB.Allowance methodY.Going-concern assumptionC.AmortizationZ.Held-to-maturity securitiesD.Available-for-sale securitiesAA.Internal controlE.Average cost methodAB.Last-in, first-out methodF.Book valueAC.LIFO reserveG.Capital expenditureAD.Matching principleH.Cash debt coverage ratioAE.MaterialityI.ConsistencyAF.Monetary unit assumptionJ.Contra asset purchasesK.Cost methodAH.Periodic inventory systemL.Credit memorandumAI.Permanent accountsM.Debit memorandumAJ.Perpetual inventory systemN.Declining-balance methodAK.Ratio analysisO.Depreciable CostAL.RelevanceP.DepreciationAM.ReliabilityQ.Direct write-off methodAN.Revenue expenditureR.Discontinued operationsAO.Revenue recognition principleS.Earnings per shareAP.Stock dividendT.Economic entity assumptionAQ.Stock splitU.Equity methodAR.Temporary accountsV.Extraordinary itemsAS.Time period assumptionW.First-in, first-out methodAT.Units-of-activity method___1.The periodic write-off of an intangible asset.___2.The total amount subject to depreciation.___3.The principle that efforts be matched with accomplishments.___4.An expenditure charged against revenues as an expense when incurred.___5.The inventory costing method that assumes that the costs of the earliest goods purchased are the first to be recognized as cost of goods sold.___6.Use of the same accounting principles and methods from period to period by the same business enterprise.___7.A measure of solvency calculated as cash provided by operating activities divided by average total liabilities.___8.An assumption that economic events can be identified with a particular unit of accountability.PART II — MATCHING (cont.)___9.A characteristic of information that means it is capable of making a difference in a decision.___10.Used by a bank when a previously deposited customer’s check “bounces” because of insufficient funds.___11.The assumption that the enterprise will continue in operation long enough to carry out its existing objectives and commitments.___12.The methods and measures adopted within a business to safeguard its assets and enhance the accuracy and reliability of its accounting records.___13.Revenue, expense, and dividends accounts whose balances are transferred to retained earnings at the end of an accounting period.___14.A technique for evaluating financial statements that expresses the relationship among selected financial statement data.___15.Events and transactions that are unusual in nature and infrequent in occurrence.____ 16.The disposal of a significant segment of a business.1.C6.I11.Y16.R2.O7.H12.AA3.AD8.T13.AR4.AN9.AL14.AK5.W10.M15.VPART III — ADJUSTING ENTRIES (2 points)The trial balance of Timlin Company shows the following balances for selected accounts on November 30, 2008:Prepaid Insurance$12,000Unearned Revenue$ 4,800Equipment60,000Notes Payable30,000Accumulated Depreciation6,600Interest Payable450Instructions: Using the additional information given below, prepare the appropriate monthly adjusting entries at November 30. Show computations.A.Revenue for services rendered to customers, but not yet billed, totaled $6,000 on November 30.Accounts Receivable 6,000Service Revenue 6,000B.The note payable is a 9%, 1 year note issued September 1, 2008.Interest Expense ($30,000 × 9% × 1/12) 225Interest Payable 225C.The equipment was purchased on January 2, 2007, for $60,000. It has an estimated life of 10 years and an estimated salvage value of $6,000. Timlin uses the straight-line depreciation method.Depreciation Expense [($60,000 - $6,000) ÷ 120] 450Accumulated Depreciation 450D.An insurance policy was acquired on June 30, 2008; the premium paid for 2 years was $14,400.Insurance Expense ($14,400 ÷ 24) 600Prepaid Insurance 600E.Timlin received $4,800 fees in advance from a customer on November 1, 2008. Three-fourths of this amount was earned by November 30.Unearned Revenue ($4,800 × 3/4) 3,600Service Revenue 3,600PART IV — BANK RECONCILIATION (3 points)A review of the November 30 bank statement and other data of James Company reveals the following:1.Balance per bank statement on November 30$17,3002.Balance per books on November 30$12,1733.NSF Check from J. Smith in payment of account$4804.Collection of $3,000, 4-month, 9% note with a $30 collection fee. No interest had been accrued3,0605.Deposits in transit at November 304,2006.Outstanding checks at November 306,9207.A check written by James to Green for equipment on November 10 was recorded as $463 but correctly cleared the bank as $436.8.A check drawn on the account of Johns Company for $200 was mistakenly charged against James' account by the bank.Instructions: Prepare the November 30 (a) bank reconciliation (omit heading) and (b) related journal entries.(a)BANK RECONCILIATION:AmountAmountBalance per bank statement$17,300Balance per books$12,173Adjusted balance per bank$Adjusted balance per books$James CompanyBank ReconciliationBalance per Bank Statement$17,300 ?Balance per Books$12,173 ?Add: Deposits in Transit$4,200 ?Add: error in Recording Check$27 ?Add: Bank Error$200 $21,700 Note Collection$3,060 $15,260 Less: Outstanding Checks($6,920)?Less: NSF($480)?Adjusted Balance per Bank?$14,780 Adjusted Balance per Books?$14,780 (b)ENTRIES:Account TitlesDebitCreditCash$3,060 Miscellaneous Expense$30 Notes Receivable$3,000 Interest Revenue$90 Accounts Receivable$480 Cash$480 Cash$27 Equipment$27 PART VII — RATIO ANALYSIS (3 points)The condensed financial statements of Jenner Corporation for 2008 are presented below.Jenner CorporationJenner CorporationBalance SheetIncome StatementDecember 31, 2008For the Year Ended December 31, 2008AssetsRevenues$2,000,000Current assetsExpensesCash and short-termCost of goods sold960,000 investments$ 30,000Selling and administrativeAccounts receivable70,000 expenses740,000Inventories 140,000Interest expense 50,000Total current assets240,000Total expenses 1,750,000Property, plant, andIncome before income taxes250,000 equipment (net) 760,000Income tax expense 100,000Total assets$1,000,000Net income$ 150,000Liabilities and Stockholders' EquityCurrent liabilities$ 100,000Long-term liabilities350,000Stockholders' equity 550,000Total liabilities andstockholders' equity$1,000,000Additional data as of December 31, 2007: Inventory = $100,000; Total assets = $800,000; Stockholders' equity = $450,000.Instructions: Compute the following listed ratios for 2008 showing supporting calculations.(a)Current ratio = .(b)Debt to total assets ratio = .(c)Times interest earned = .(d)Inventory turnover = .(e)Profit margin = .(f)Return on stockholders' equity = .(g)Return on assets = .(a)Current ratio = $240,000 / $100,000 = 2.4.(b)Debt to total assets ratio = ($100,000 + $350,000) / $1,000,000 = 0.45.(d)Inventory turnover = $960,000 / [($140,000 + $100,000)/2] = 8.(e)Profit margin = $150,000 / $2,000,000 = 7.5%(f)Return on stockholders' equity = $150,000 / [($550,000 + $450,000)/2] = 30%.(g)Return on assets = $150,000 / [($$1,000,000 + $800,000)/2] = 16.67%. ................
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