[FINAL EXAM] ACC 290 FINAL EXAM ANSWERS

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1. Which of the four basic financial statements has three main sections: one dealing with
operating expenses, another dealing with financial activities, and another dealing with
investment activities?
a. Income statement
b. Retained earnings statement
c. Balance sheet
d. Statement of cash flows


2. Which of the following lists the main sections of the statement of cash flows?
a. Operations, investment, and credit activities
b. Investments, credit, and cash operations
c. Operations, investment, and financial activities
d. Financing, investment, and credit activities


3. Which accounts have a normal credit balance?
a. Assets and expenses
b. Liabilities and expenses
c. Assets and revenue
d. Liabilities and revenue

4. A debit entry may indicate which of the following:
a. An increase in an asset account
b. A decrease in an asset account
c. An increase in a liability account
d. An increase in a capital account


5. ABC Corporation records sales for the day totaling $50,000 in cash sales and $35,000 in
sales on account. Which of the following is the correct journal entry?
a. Cash $50,000
Accounts Receivable $35,000
Sales $85,000

b. Cash $50,000
Accounts Receivable $35,000
Sales on Account $35,000
Cash Sales $50,000
c. Sales $85,000
Cash $50,000
Accounts Receivable $35,000
d. Sales on Account $35,000
Cash Sales $50,000
Cash $50,000
Accounts Receivable $35,000

6. ABC Corporation pays its utility bill for October. They received an invoice for $6,000.
Which of the following is the correct journal entry?
a. Utility expense $6,000
Cash $6,000
b. Prepaid utilities $6,000
Cash $6,000
c. Cash $6,000
Prepaid Utilities $6,000
d. Cash $6,000
Utility expense $6,000

7. ABC Corporation is a merchandiser that sells high volume merchandise to a large
number of customers on account on a daily basis. ABC records credit sales in a sales
journal and cash sales in their cash receipts journal. ABC will most likely post the sales
journal transactions to subsidiary ledger

a. daily
b. at least once per month and before customer billings
c. quarterly, before closing
d. once a year, prior to preparing financial statements

8. The accounts receivable ledger should reconcile to a control account located in which
ledger?
a. Accounts payable control ledger
b. Accounts receivable control ledger
c. Accounts payable subsidiary ledger
d. General ledger

9. Using accrual basis accounting, expenses are recorded and reported only
a. when they are incurred, whether or not cash is paid
b. when they are incurred and paid at the same time
c. if they are paid before they are incurred
d. if they are paid after they are incurred

10. A small company may be able to justify using the cash basis of accounting if they have
a. sales under $1,000,000
b. no accountants on staff
c. few receivables and payables
d. all sales and purchases on account

11. Leyland Realty Company received a check for $12,000 on July 1, which represents a 6-
month advance payment of rent on a building it rents to a client. Unearned Rental Revenue

was credited for the full $12,000. Financial statements will be prepared on July 31. Leyland
Realty should make the following adjusting entry on July 31:
a. Debit Unearned Rental Revenue, $2,000; credit Rental Revenue, $2,000
b. Debit Rental Revenue, $2,000; credit Unearned Rental Revenue, $2,000
c. Debit Unearned Rental Revenue, $12,000; credit Rental Revenue, $12,000
d. Debit Cash, $12,000; credit Rental Revenue, $12,000



12. Boyce Company purchased office supplies costing $5,000 and debited office supplies
for the full amount. At the end of the accounting period, a physical count of office supplies
revealed $1,400 still on hand. The appropriate adjusting journal entry to be made at the end
of the period would be
a. debit Office Supplies Expense, $3,600; credit Office Supplies, $3,600
b. debit Office Supplies, $1,400; credit Office Supplies Expense, $1,400
c. debit Office Supplies Expense, $1,400; credit Office Supplies, $1,400
d. debit Office Supplies, $3,600; credit Office Supplies Expense, $3,600


13. Given the following adjusted trial balance:

Debit Credit
Cash $1,562
Accounts receivable 2,098
Inventory 3,124
Prepaid rent 86
Property, plant, & equipment 300

Accumulated depreciation $ 52
Accounts payable 82
Unearned revenue 172
Common stock 206
Retained earnings 6,610
Service revenue 218
Interest revenue 56
Salary expense 160
Travel expense 66
Totals $7,396 $7,396

Net income for the year is
a. $324
b. $270
c. $48
d. $496

14. Can financial statements be prepared directly from the adjusted trial balance?
a. They cannot. The general ledger must be used.
b. Yes, adjusting entries have been recorded in the general ledger and posted to the ledger
accounts.
c. No, the adjusted trial balance merely proves the equality of the total debit and the total
credit balances in the ledger after adjustments are posted. It has no other purpose.
d. They can because that is the only reason that an adjusted trial balance is prepared.



15. The following information is from the income statement of the Dirt Poor Laundry Service:

Revenues
Laundry Service Revenues $5,500
Expenses
Wages expense $ 1,450
Advertising expense 500
Rent expense 300
Supplies expense 200
Insurance expense 100
Total expenses 2,550
Net Income $2,950

The entry to close the laundry service revenue account includes a
a. debit to Laundry Service Revenue for $5,500
b. credit to Laundry Service Revenue for $5,500
c. debit to Income Summary for $5,500
d. debit to Retained Earnings for $5,500

16. Which types of accounts will appear in the post-closing trial balance?
a. Permanent accounts
b. Temporary accounts
c. Accounts shown in the income statement columns of a worksheet
d. No accounts are shown

17. The work sheet contains columns for the

a. statement of retained earnings
b. statement of cash flows
c. post-closing trial balance
d. balance sheet

18. The following information is from the income statement of the Dirt Poor Laundry Service:

Revenues
Laundry Service Revenues $5,500
Expenses
Wages expense $ 1,450
Advertising expense 500
Rent expense 300
Supplies expense 200
Insurance expense 100
Total expenses 2,550
Net Income $2,950

The entry to close the expense account includes a
a. credit to Income Summary for $2,550
b. debit to Income Summary for $2,550
c. debit to Wages Expense for $1,450
d. credit to Retained Earnings for $2,550



19. During the year, Megans Pet Shops merchandise inventory decreased by $20,000. If
the companys cost of goods sold for the year was $300,000, purchases would have been
a. $320,000
b. $260,000
c. $280,000
d. Need additional information

20. The figure for which the following items is determined at a different time under the
perpetual inventory system than under the periodic method is the
a. sales revenue
b. cost of goods sold
c. purchases
d. accounts receivable


21. Sampson Companys accounting records show the following for the year ending on
December 31, 2012:

Purchase Discounts $ 5,600
Freight-in 7,800
Purchases 300,010
Beginning Inventory 23,500
Ending Inventory 28,800
Purchase Returns 6,400

Using the periodic system, the cost of goods purchased is
a. $280,210

b. $304,210
c. $308,610
d. $295,810

22. When sales of merchandise are made for cash, the transaction may be recorded by the
following entry:
a. Debit Sales Revenue, credit Cash
b. Debit Cash, credit Sales
c. Debit Sales Revenue, credit Cash Discounts
d. Debit Sales Revenue, credit Sales Returns and Allowances


23. Radical Radials Company has the following inventory data:

July 1 Beginning inventory 20 units at $19 $ 380
7 Purchases 70 units at $20 1,400
22 Purchases 10 units at $22 220
$2,000

A physical count of merchandise inventory on July 30 reveals that there are 40 units on
hand. Using the LIFO inventory method, the amount allocated to ending inventory for July is
a. $780
b. $813
c. $800
d. $760


24. Which of the following statements is correct with respect to inventories?
a. The FIFO method assumes that the costs of the earliest goods acquired are the last to be
sold.
b. It is generally good business management to sell the most recently acquired goods first.
c. Under FIFO, the ending inventory is based on the latest units purchased.
d. FIFO seldom coincides with the actual physical flow of inventory.


25. Given equal circumstances, which inventory method would probably be the most time
consuming?
a. FIFO
b. LIFO
c. Average cost
d. Specific identification


26. In periods of rising prices, which is an advantage of using the LIFO inventory costing
method?
a. Ending inventory will include latest (most recent) costs and thus be more realistic.
b. Cost of goods sold will include latest (most recent) costs and thus be more realistic.
c. Net income will be the highest and thus reflect the prosperity of the company.
d. Phantom profits are reported.


27. From an internal control standpoint, the asset most susceptible to improper diversion
and use is
a. prepaid insurance

b. cash
c. buildings
d. land


28. An accounts payable clerk also has access to the approved supplier master file for
purchases. The control principle of
a. establishment of responsibility is violated
b. independent internal verification is violated
c. documentation procedures is violated
d. separation of duties is violated


29. The Sarbanes-Oxley Act of 2002 created a new governance body:
a. The Public Company Accounting Oversight Board (PCAOB)
b. The American Institute of Internal Auditors (AIIA)
c. The Financial Accounting Standards Board (FASB)
d. The American Institute of Certified Public Accountants (AICPA)


30. The Sarbanes-Oxley Act of 2002 applies to which of the following companies?
a. Privately-held companies
b. Publicly-held companies
c. All companies operating in the United States, including international firms
d. All U.S. companies operating in the United States