Which of the following is a primary user of accounting information with a direct financial interest in the business?

1         Which of the following is a primary user of accounting information with a direct financial interest in the business?

  1. Taxing authority
  2. Creditor
  3. Regulatory agency
  4. Labor union

2          Resources owned by a business are referred to as

  1. stockholders’ equity.
  2. liabilities.
  3. assets.
  4. revenues.

3          Debts and obligations of a business are referred to as

  1. assets.
  2. equities.
  3. liabilities.
  4. expenses.

4          What organization issues U.S. accounting standards?

  1. Security Exchange Commission
  2. International Accounting Standards Committee
  3. International Auditing Standards Committee
  4. Financial Accounting Standards Board

5          The historical cost principle requires that when assets are acquired, they be recorded at

  1. market value.
  2. the amount paid for them.
  3. selling price.
  4. list price.

 6          Otto’s Tune-Up Shop follows the revenue recognition principle. Otto services a car on August 31. The customer picks up the vehicle on September 1 and mails the payment to Otto on September 5. Otto receives the check in the mail on September 6. When should Otto show that the revenue was recognized?

  1. August 31
  2. August 1
  3. September 5
  4. September 6

7          The expense recognition principle matches:

  1. customers with businesses.
  2. expenses with revenues.
  3. assets with liabilities.
  4. creditors with businesses.

8          Closing entries:

  1. are prepared before the financial statements.
  2. reduce the number of permanent accounts.
  3. cause the revenue and expense accounts to have zero balances.
  4. summarize the activity in every account.

9          Using the following balance sheet and income statement data, what is the current ratio?

Current assets                        $  7,000                  Net income                      $  15,000

Current liabilities                         4,000                  Stockholders’ equity            21,000

Average assets                       44,000                  Total liabilities                        9,000

Total assets                             30,000

Average common shares outstanding was 10,000.

 

  1. 0.78 : 1
  2. 3.33 : 1
  3. 0.57 : 1
  4. 1.75 : 1

10        Using the following balance sheet and income statement data, what is the earnings per share?

Current assets                        $  7,000                  Net income                      $  15,000

Current liabilities                         4,000                  Stockholders’ equity            21,000

Average assets                       44,000                  Total liabilities                        9,000

Total assets                             30,000

Average common shares outstanding was 10,000.

 

  1. $1.50
  2. $2.50
  3. $0.67
  4. $0.55

11      Bathlinks Corporation has a debt to assets ratio of 93%. This tells the user of Bathlinks’s financial statements that

  1. Bathlinks is getting a 7% return on its assets.
  2. there is a risk that Bathlinks cannot pay its debts as they come due.
  3. 93% of the assets are financed by the stockholders.
  4. based on this measure, the user should invest in Bathlinks.

12        (2 points each)  Indicate whether each item would appear on the statement of cash flows as a(n):  (O) operating activity, (I) investing activity, or (F) financing activity.

 

____    a.   Cash receipts from customers.

____    b.   Issuance of common stock for cash.

____    c.   Payment of cash dividends.

____    d.   Cash purchase of equipment.

____    e.   Cash payments to suppliers.

____    f.    Sale of old machine for cash.

13        (50 points)  The accounts in the ledger of Dependable Delivery Service contain the following balances on July 31, 2014.

 

Accounts Receivable $11,400 Prepaid Insurance $  1,800
Accounts Payable 7,400 Maintenance and Repairs Expense 1,200
Cash 15,940 Service Revenue 15,500
Equipment 59,360 Dividends 800
Utilities Expense 950 Common Stock 40,000
Insurance Expense 600 Salaries and Wages Expense 8,400
Notes Payable, due 2017 31,450 Salaries and Wages Payable 900
    Retained Earnings 5,200
       (July 1, 2014)  

Instructions

Prepare an income statement and a retained earnings statement for the month of July 2014, and a classified balance sheet for July 31.   Grid paper is provided for you on the following pages.

 

 

 

 

 

 

 

 

 

 

 

 

DEPENDABLE DELIVERY SERVICE
Income Statement
(date)
     
     
     
     
     
     
     
     
     
     
     
     
     
DEPENDABLE DELIVERY SERVICE
Statement of Changes in Retained Earnings
(date)
     
     
     
     
     
     
     
     
     

 

 

 

 

DEPENDABLE DELIVERY SERVICE
Classified Balance Sheet
(date)
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     

 

 

 

14        (50 points)  Journalize the following business transactions in general journal form.  Identify each transaction by number instead of a date.  You may omit explanations of the transactions.

 

  1. Stockholders invest $40,000 in cash in starting a real estate office operating as a corporation.
  2. Purchased $500 of supplies on credit.
  3. Purchased equipment for $25,000, paying $3,500 in cash and signed a 30-day, $21,500, note payable.
  4. Real estate commissions billed to clients amount to $4,000.
  5. Paid $700 in cash for the current month’s rent.
  6. Paid $250 cash on account for office supplies purchased in transaction 2.
  7. Received a bill for $800 for advertising for the current month.
  8. Paid $2,500 cash for office salaries.
  9. Paid $1,200 cash dividends to stockholders.
  10. Received a check for $2,000 from a client in payment on account for commissions billed in transaction 4.

 

 

General Journal
       
Ref. Account Debit Credit
1      
       
       
2      
       
       
3      
       
       
4      
       
       
5      
       
       

 

  Account Debit Credit
6      
       
       
7      
       
       
8      
       
       
9      
       
       
10      
       
       

 

 

 

15        (30 points)  Prepare adjusting entries for the following transactions.  Refer to the transaction by number instead of date.  You may omit explanations.  Journal paper is provided on the next page.

 

  1. Depreciation on equipment is $1,340 for the accounting period.
  2. Interest owed on a loan but not paid or recorded is $275.
  3. There was no beginning balance of supplies and $550 of office supplies were purchased during the period. At the end of the period $100 of supplies were on hand.
  4. Prepaid rent had a $1,000 normal balance prior to adjustment. By year end $700 had expired.
  5. Accrued salaries at the end of the period amounted to $900.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15 (continued)

 

General Journal
       
Ref. Account Debit Credit
1      
       
       
2      
       
       
3      
       
       
4      
       
       
5      
       
       

 

 

 

 

 

 

 

     

16    (5 points)  Leyland Realty Company received a check for $15,000 on July 1, which represents a 6-month advance payment of rent on a building it rents to a client. Unearned Rent Revenue was credited for the full $15,000. Financial statements will be prepared on July 31. Leyland Realty should make the following adjusting entry on July 31:

  1. debit Unearned Rent Revenue, $2,500; credit Rent Revenue, $2,500.
  2. debit Rent Revenue, $2,500; credit Unearned Rent Revenue, $2,500.
  3. debit Unearned Rent Revenue, $15,000; credit Rent Revenue, $15,000.
  4. debit Cash, $15,000; credit Rent Revenue, $15,000.