SALEM STATE COLLEGE
FINANCIAL ACCOUNTING
FINAL EXAM – PROFESSOR MCGEE
May 11, 1999
Name__________________________________
Please indicate the best/correct answer by circling the appropriate letter
1. Warner Company borrowed $25,000 cash on November 1, 1998, and signed a six-month 12% interest-bearing note payable with interest payable at maturity. The amount of accrued interest payable that should be shown on the December 31, 1998 balance sheet is
a. $250
b. $300
c. $500
d. $750
2. An accrued liability results from an expense that is
a. incurred and paid
b. incurred but not yet paid
c. paid but not yet incurred
d. neither incurred nor paid
3. Gross wages of $5,000 accrued but not paid to employees at the end of 1999 should be recorded by the employer in a journal entry that includes a
a. debit of $5,000 to wages payable
b. credit of $5,000 to cash
c. debit of $5,000 to wages expense
d. debit of $5,000 to cash
4. The amount of federal income tax that is withheld from employees’ paychecks by the employer should
a. be recorded on the employer’s books as a current liability
b. be recorded on the employer’s books as an asset
c. be recorded on the employer’s books as revenue
d. not be recorded on the employer’s books
5. Deferred revenue is another term for
a. prepaid expenses
b. sales revenue
c. trade payable
d. unearned revenue
6. The following is a partial list of account balances from the books of Ellsworkth Enterprise at the end of 1999
| Accounts payable | 12,000 |
| Accounts receivable | 10,000 |
| Accrued vacation liability | 9,000 |
| Cash | 10,000 |
| Deferred revenue | 5,000 |
| Income tax payable | 22,000 |
| Notes payable (due in 2 years) | 6,000 |
Based solely upon these balances, the amount of current liabilities appearing on Ellsworth 1999 year-end balance sheet should be
a. $48,000
b. $54,000
c. $43,000
d. $58,000
7. The federal government requires
a. only the employer to pay FICA taxes
b. only the employee to pay FICA taxes
c. both the employer and employee to pay FICA taxes
d. neither the employer nor the employee to pay FICA taxes
8. The par value of common stock is the
a. average market price of the stock during the period in which it is sold
b. ceiling (maximum) amount above which the stock may not be sold initially
c. floor (minimum) amount below which the stock may not be sold initially
d. selling price of the stock at the date it was issued by the corporation
9. The balance sheet of Warner Co. showed the following data about its common stock, par $10; authorized shares 100,000; outstanding shares 55,000; and issued shares 60,000. Therefore, the number of treasury stock shares was
a. 40,000
b. 45,000
c. 30,000
d. 5,000
10. Vaughan Company has one class of stock issued. It is
a. common stock
b. preferred stock, voting
c. preferred stock, noncumulative
d. common stock, non voting
11. If Lynch Corp sells and issues 100 shares of its $10 par value common stock at $11 per share, the entry to record the sale will NOT include a
a. debit to cash of $1,000
b. credit to contributed capital in excess of par of $100
c. credit to common stock of $1,000
d. credit to retained earnings of $100
12. Shares of stock eligible for dividends are
a. the number of shares of authorized
b. the number of shares of issued
c. the number of shares of outstanding
d. the number of shares of treasury shares
13. At the end of 1999, the total assets of Dole Corp were $90,000 and total liabilities were $50,000. The company has been in business five years and has earned an average net income of $4,000 per year during the five years. Total cash dividends of $8,000 were declared and paid. Therefore, the total amount received for the capital stock issued by the company was
a. $28,000
b. $30,000
c. $40,000
d. $46,000
14. Accounting entries associated with a cash dividend usually are made on the
a. record date and payment date
b. payment date only
c. declaration date and record date
d. declaration date and payment date
15. Albert Co. reported the following balance sheet amounts at December 31, 1999
Current assets 70,000
Current liabilities 40,000
Long term liabilities 90,000
Fixed assets 200,000
Common stock, par $10 (10,000 shares issued at par) 100,000
The total amount of retained earnings on December 31, 1999 was
a. $50,000
b. $40,000
c. $30,000
d. $20,000
16. The basic financial statements prepared for external users include all of the following except
a. balance sheet
b. income statement
c. revenue statement
d. statement of cash flows
17. On a multi-step income statement, cost of goods sold is reported as
a. an addition to gross sales
b. an operating expense
c. a deduction from net sales to derive gross margin
d. a deduction from gross margin
18. The collection of an accounts receivable from a customer would
a. increase liabilities
b. decrease liabilities
c. not effect liabilities
d. decrease stockholders equity
19. December 31, 1998, Ted Corporation paid $2,000 for next year’s insurance coverage. This transaction should be recorded as follows by Ted Corporation:
a. insurance expense 2,000
insurance payable 2,000
b. prepaid insurance 2,000
insurance payable 2,000
c. cash 2,000
retained earnings 2,000
d. prepaid insurance 2,000
cash 2,000
20. At the end of 1999, Dallas Company made the following adjusting entry to record $10,000 accrued (unpaid) wages: debit to wages expense $10,000, credit to wages payable $10,000. A payroll of $40,000 (including the $10,000 accrued wages) was paid during the first week of January 1999. The entry to record the payment of this payroll should include a
a. $30,000 debit to wages expense and a $10,000 debit to wages payable
b. $40,000 debit to wages expense and a $20,000 debit to wages payable
c. $50,000 debit to wages expense and a $10,000 debit to wages payable
d. $10,000 debit to wages expense and a $30,000 debit to wages payable
1. Western Co. sold $4,000 of goods to Eastern Co. on credit on May 1. At the time of the sale, Western recorded a debit to accounts receivable and a credit to sales revenue for $4,000. Terms were 2/10, n/30.
Required:
Present the entries Western would record for each of the following independent situations:
A. Eastern paid the balance due, less discount, on May 10.
B. Eastern returned half of the goods for credit on May 4. Paid the balance due, less the discount, on May 10.
C. Eastern paid their bill May 30 (there were no returns).
2. What type of account (asset, liability, equity, income, expense, contra) and statement (balance sheet, income statement) are the following:
a. Treasury stock
b. Sales returns and allowances
c. Common stock
d. Dividends payable
e. Telephone expense
f. Accounts receivable
g. Purchases
h. Notes payable
i. Cash
j. Additional paid in capital
k. Accumulated depreciation
l. Federal unemployment taxes payable
m. Deposit
3. Warner Co. was formed on January 1, 1998 by selling and issuing 20,000 shares of common stock at $15 per share. On December 1, 1999, the company declared a cash dividend of $10,000, which will be paid in cash on January 15, 2000. The annual accounting period ends December 31.
A. Give the journal entry to record the sale and issuance of the common stock on January 1, 1998.
(1) The common stock was $10 par value per share.
(2) The common stock was no par with a stated value of $5 per share.
(3) The common stock was no par stock with no stated value
B. Give the journal entry to record the dividends declared on December 1, 1998
C. Show the journal entry to record payment of the dividend on January 15, 2000.
4. Franklin Co. completed the following transactions during 1999. The annual accounting period ends December 31, 1999.
Jan 10 Purchased merchandise for resale at an invoice cost of $14,000, assume a periodic inventory system
Jan 25 Paid January 10 invoice.
Apr 1 Borrowed $50,000 from Salem Five for general use; executed a 12-month, 10 percent interest-bearing note payable.
Jun 1 Purchased merchandise for resale at an invoice cost of $18,000
Jul 2 Paid June 1 invoice
Sep 1 Rented a small office building owned by the company and collected six months rent in advance amounting to $6,000. (record collection in a way that will not require an adjusting entry at year-end)
Nov 15 Received a $100 deposit from a customer as a guarantee to return a dumptruck borrowed for 60 days.
Dec 31 Determined wages of $7,000 earned but not yet paid on December 31 (disregard payroll taxes).
Required: Prepare journal entries for these transactions.