ACC 330 – Intermediate Accounting I
First Exam
Name: ___________________________________
Your grade will depend partly on your ability to follow explicit instructions.
I. Multiple choice (36 points) Write your name on the answer sheet. Darken
the circle on the answer sheet corresponding to the best answer for each
question.
1. The Financial Accounting Standards Board employs a “due process” system
which
a. is an efficient system for collecting dues from members.
b. enables interested parties to express their views on issues under
consideration.
c. identifies the accounting issues that are the most important.
d. requires that all accountants must receive a copy of financial standards.
2. Of the following adjusting entries, which one would cause an increase in
assets at the end of the period?
a. The entry to record the earned portion of rent received in advance.
b. The entry to accrue unrecorded interest expense.
c. The entry to accrue unrecorded interest revenue.
d. The entry to record expiration of prepaid insurance.
3. What is the quality of information that is capable of making a difference in a
decision?
a. Faithful representation.
b. Materiality.
c. Timeliness.
d. Relevance.
4. The quality of information that means the numbers and descriptions match
what really existed or happened is
a. relevance.
b. faithful representation.
c. completeness.
d. neutrality.
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5. Which accounting assumption or principle is being violated if a company
provides financial reports only when it introduces a new product?
a. Economic entity.
b. Periodicity.
c. Revenue recognition.
d. Full disclosure.
6. Which of the following basic accounting assumptions is threatened by the
existence of severe inflation in the economy?
a. Monetary unit assumption.
b. Periodicity assumption.
c. Going-concern assumption.
d. Economic entity assumption.
7. Preparation of consolidated financial statements when a parent-subsidiary
relationship exists is an example of the
a. economic entity assumption.
b. relevance characteristic.
c. comparability characteristic.
d. neutrality characteristic.
8. Proponents of historical cost ordinarily maintain that in comparison with all
other valuation alternatives for general purpose financial reporting,
statements prepared using historical costs are more
a. verifiable.
b. relevant.
c. indicative of the entity’s purchasing power.
d. conservative.
9. Watts Corporation made a very large arithmetical error in the preparation of
its year-end financial statements by improper placement of a decimal point
in the calculation of depreciation. The error caused the net income to be
reported at almost double the proper amount. Correction of the error when
discovered in the next year should be treated as
a. an increase in depreciation expense for the year in which the error is
discovered.
b. a component of income for the year in which the error is discovered, but
separately listed on the income statement and fully explained in a note to
the financial statements.
c. a loss and a liability for expected securities-related lawsuits
d. a prior period adjustment.
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10. A change in accounting principle requires that the cumulative effect of the
change for prior periods be shown as an adjustment to:
a. beginning retained earnings of the earliest period presented.
b. net income of the period in which the change occurred.
c. comprehensive income for the earliest period presented.
d. stockholders’ equity of the period in which the change occurred.
11. Why is it necessary to make adjusting entries?
a. The accountant has made errors in recording external transactions.
b. Certain facts about the affairs of the business are not included in the ledger
as built up from external transactions.
c. The accountant wants to show the largest possible net income for the period.
d. The accountant wants to show the net cash flow for the year.
12. Garcia Corporation received cash of $36,000 on August 1, 2016 for one year’s
rent in advance and recorded the transaction with a credit to Rent Revenue. The
December 31, 2016 adjusting entry is
a. Debit Rent Revenue and credit Unearned Rent Revenue, $15,000.
b. Debit Rent Revenue and credit Unearned Rent Revenue, $21,000.
c. Debit Unearned Rent Revenue and credit Rent Revenue, $15,000.
d. Debit Cash and credit Unearned Rent Revenue, $21,000.
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II. Adjusting entries (25 points) On the succeeding page, write your name at
the top and label the sheet “Problem II – Adjusting entries.” Print clearly! An
illegible word in a response will deem the entire answer incomprehensible and
the answer will receive the grade of 0.
Prepare adjusting journal entries at year-end, December 31, 2016, based on
the trial balance information below and the succeeding supplemental
information. Use good form and include a brief explanation for each entry.
Label each answer with the letters a.-e. to correspond with each item of
supplemental information.
Selected amounts from Santos Company’s trial balance of 12/31/16 appear below:
1. Accounts Payable $ 160,000
2. Accounts Receivable 150,000
3. Accumulated Depreciation—Equipment 200,000
4. Allowance for Doubtful Accounts 20,000
5. Bonds Payable 500,000
6. Cash 150,000
7. Common Stock 60,000
8. Equipment 360,000
9. Prepaid Insurance 30,000
10. Interest Expense 10,000
11. Inventory 300,000
12. Notes Payable (due 6/1/17) 200,000
13. Prepaid Rent 300,000
14. Retained Earnings 818,000
15. Salaries and Wages Expense 328,000
(All of the above accounts have their standard or normal debit or credit
balance.)
Supplemental information
a. The equipment has a useful life of 15 years with no salvage value. (Straight-
line method being used.)
b. Interest accrued on the bonds payable is $15,500 as of 12/31/16.
c. Prepaid insurance at 12/31/16 is $16,000.
d. The rent payment of $300,000 covered the six months from November 30,
2016 through May 31, 2017.
e. Salaries and wages earned but unpaid at 12/31/16, $28,000.
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II. Adjusting entries (Answer response area)
a.
b.
c.
d.
e.
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III. Income statement and statement of stockholders’ equity (39 points)
Below is an incorrect income statement and an incorrect statement of stockholders’
equity for Gill Corporation for the year ended December 31, 2017.
Sales, net $600,000
Cost of goods sold (300,000)
Selling expenses (100,000)
Correction of error in reporting 2010 net income (30,000)
Loss on impairment of goodwill (60,000)
Cumulative effect to January 1, 2017, of a change in accounting
principle
20,000
Loss on discontinued operations (10,000)
Unrealized loss on available-for-sale marketable securities (40,000)
Pretax income $100,000
Income tax expense at 30% (30,000)
Net income $70,000
Additional information:
1. Common stock, no par, is $700,000 throughout the year.
2. Retained earnings at December 31, 2016, was reported as
$120,000.
3. No dividends were declared during the year.
4. There was no balance in accumulated other comprehensive
income at December 31, 2016.
5. Gill Corporation had 10,000 shares of common stock outstanding
throughout the year.
Using the information provided above, complete the tasks requested on the
following page.
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III. Income statement and statement of stockholders’ equity – (Answer
response area)
A. Prepare a corrected multi-step income statement in good form. If necessary
information is missing, state a reasonable assumption and apply it.
B. Prepare a correct statement of stockholders’ equity in good form. If necessary
information is missing, state a reasonable assumption and apply it
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