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Finact 3 Prelims 2019-2020
Finact 3 Prelims 2019-2020
Preliminary Examination-FINACT 3
Name of student: ____________________________________ Score: _______________
Date: _______________
1. It is an error that resulted from writing decimal point improperly.
a. Transposition Error
b. Sliding Error
c. Selfcorrecting
d. Unconditional Error
2. At yearend 2019, you see that no insurance expense was recorded for
2018. On July 1, 2018, your company had prepaid a 2year policy for P
4,800, debiting Prepaid Insurance and crediting Cash. Correcting this
error requires:
a. a prior period adjustment
b. a current period adjustment
c. both a and b
d. neither a nor b
3. Company accounting departments perform periodic reviews to ensure the
reliability of company accounting procedures during:
a. preparation of the trial balance
b. a review of adjusting journal entries
c. an external audit
d. an internal audit
4. Bad debt expense of P 5,010 recorded as P 5,100 is an example of:
a. a transposition error
b. incorrect use of an estimate
c. a classification error
d. a slide error
5. GrayCo estimates debt using 2% of net sales, but you discover that this
year someone used 4% of net sales. This is:
a. a transposition error
b. an incorrect estimate
c. incorrect use of an accounting principle
d. a slide error
7. Which of the following errors would not be revealed by the trial balance?
a. Receipt of a payment debited to Accounts Receivable for $2,000 and
credited to Cash for $2,000
b. Payment of a utility bill debited to Utilities Expense for $890 and
credited to Cash for $980
c. A sale debited to Accounts Receivable for $80 and credited to Sales
for $800
d. Receipt of a $1,200 check for sublet office space debited to Cash for
$2,100 and credited to Accounts Receivable for $1,200
8. A trial balance may reveal:
a. a transposition error
b. an omission error
c. a classification error
d. a bank reconciliation error
9. If you accrue expenses of $130 instead of $150, the financial statements
will:
a. overstate assets and understate expenses
b. understate prepaid expenses
c. understate both liabilities and expenses
d. overstate liabilities
10. On November 1, 20X4, ComCo debits Cash and credits Notes Payable for
$20,000 for a note maturing May 1, 20X5. At that time, ComCo must
repay the entire $20,000 plus interest of 6% accrued annually. If no
adjusting entry is made at yearend 20X4, ComCo will record a correcting
entry that:
a. debits Interest Expense for $400
b. credits Interest Payable for $100
c. debits Interest Expense for $200
d. none of the above
13. A calendar year company plans to pay its December gas bill in January.
As of December 31, no adjusting entry has been recorded. As a result:
a. the balance sheet total will overstate assets
b. the balance sheet total will overstate retained earnings
c. the income statement total overstate expenses
d. the balance sheet total will overstate liabilities
14. On March 1, 20X1, your calendar year company borrows $10,000. Terms
require repayment of principal and annual interest of 9% after 4 years.
At yearend 20X1, an adjusting entry accrues $550 interest expense. If
you discover the error before the books are closed, what is the correcting
entry?
a. Interest Payable 600
Interest Expense 600
b. Interest Expense 600
Interest Payable 600
c. Interest Expense 200
Interest Payable 200
d. Interest Expense 200
Interest Payable 200
15. On November 1, 20X4, DumpCo debits Cash and credits Notes Payable
for $20,000 for a note maturing on May 1, 20X5, when principal and
accrued interest of 6% a year is due. If, on December 31, 20X4, you
discover that no adjusting entry was made to accrue interest for 20X4,
you will record an entry that includes:
a. a debit to Interest Payable for $400
b. a debit to Interest Expense for $200
c. a credit to Interest Payable for $400
d. none of the above
Problem no 1
On January 1, 2010, Knapp Corporation acquired machinery at a cost of
$500,000. Knapp adopted the doubledeclining balance method of
depreciation for this machinery and had been recording depreciation
over an estimated useful life of ten years, with no residual value. At
the beginning of 2013, a decision was made to change to the straight
line method of depreciation for the machinery. The depreciation
expense for 2013 would be
Problem no 2
Armstrong Inc. is a calendaryear corporation. Its financial statements
for the years ended 12/31/12 and 12/31/13 contained the following
errors: 2012 2013 Ending inventory $20,000 overstatement $32,000
understatement Depreciation expense 8,000 understatement 16,000
overstatement 55. Assume that the 2012 errors were not corrected
and that no errors occurred in 2011. By what amount will 2012
income before income taxes be overstated or understated?
Problem no 3
Armstrong Inc. is a calendaryear corporation. Its financial statements
for the years ended 12/31/12 and 12/31/13 contained the following
errors: 2012 2013 Ending inventory $20,000 overstatement $32,000
understatement Depreciation expense 8,000 understatement 16,000
overstatement 55. Assume that the 2012 errors were not corrected
and that no errors occurred in 2011Assume that no correcting entries
were made at 12/31/12, or 12/31/13. Ignoring income taxes, by
how much will retained earnings at 12/31/13 be overstated or
understated?
Problem no 4
Accrued salaries payable of P 51,000 were not recorded at December 31,
2012. Office supplies on hand of P 34,000 at December 31, 2013 were
erroneously treated as expense instead of supplies inventory.
Neither of these errors was discovered nor corrected. The effect of
these two errors would cause
Problem no 5
Ernst Company purchased equipment that cost $1,500,000 on January 1,
2012. The entire cost was recorded as an expense. The equipment
had a nineyear life and a $60,000 residual value. Ernst uses the
straightline method to account for depreciation expense. The error
was discovered on December 10, 2014. Ernst is subject to a 40%
tax rate. 66. Ernst’s net income for the year ended December
31, 2012, was understated by