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ACCT 3331
Topics to know for Exam I
Chapter 1 & 2 – Financial Accounting Standards and Conceptual Framework Know the basic objectives financial reporting and the basic elements of financial
statement Know the fundamental and enhancing qualitative characteristics of accounting
information. Know the assumptions, principles and constraints of accounting information and be able
to identify when each is being illustrated in specific accounting contexts.
Chapter 3 – The Accounting Information System Be able to prepare and/or answer questions related to journal entries, adjusting journal
entries, and closing entries. Be able to reconstruct an event or adjustment when information is missing or not given
in chronological order. This may require using end of period information and cash
receipt/disbursement information to reconstruct the event or adjustment needed.
Chapter 4 – Income Statement Know how to format an income statement when discontinued operations are present. Know how to report unusual or infrequent items on the income statement. Be able to do the income statement reporting of discontinued operations (when
discontinued operations are sold in the reporting period and when they are held for sale,
both with tax effects). Know how to report noncontrolling interest.
Chapter 5 – Balance Sheet and Statement of Cash Flows Be able to prepare and/or answer questions related to a classified balance sheet in good
form. Know useful characteristics of the balance sheet and the limitations of the balance sheet. Know how cash flows should be labeled on the statement of cash flows (operating,
investing or financing) and be able to prepare a statement of cash flows using the direct
method and indirect method.
Chapter 18 – Revenue Recognition Know the five-step process for revenue recognition. Know how to estimate variable consideration in order to determine transaction price and
how to allocate transaction price to separate performance obligations. Accounting for long term contracts under the percentage of completion method and
completed contract method of accounting for long term contracts (including scenarios
with current losses or overall contract losses) 0 Chapter 7 – Cash and Receivables Accounting for cash discounts (gross and net method) Estimating and recording bad debt expense (Income statement approach and balance
sheet approach with single bad debt rate or multiple bad debt rates based on age of
specific receivables) Recording write-offs of actual bad debts Using the transactions that affect A/R and A.D.A to solve for an unknown amount Accounting for interest bearing notes receivable The exam will be a combination of questions requiring short written responses and
problems requiring calculations and/or appropriate journal entries or financial statement
presentation. You will have 2 hour to complete the exam.
The following sample exam reflects a random draw of questions from the material from
Chapters 1-5, Chapter 18 and Chapter 7 that you are expected to know. This sample
exam is intended as a practice test to help you identify areas of weakness once you
have studied all of the material listed above. The sample exam is not a guide of what
to study. 1 ACCT 3331
SAMPLE EXAM 1 NAME_____________________________________________ Question
I
II
III
IV
V
VI
VII
VIII
IX
TOTAL Topic
Conceptual Framework
Adjusting entries
Closing Entries
Balance Sheet
Presentation of Income Statement
Statement of Cash Flows
Revenue Recognition
Long Term Contract
Accounts Receivable Total Points
Assigned
10
14
6
14
12
14
12
8
10
100 Your
Points PLEASE NOTE:
1. This examination consists of 7 pages, including the cover page. Please check immediately
to be certain that all pages are included.
2. Show all your work and calculations. I cannot give partial credit if I cannot see the work
you have done. Use the margins and back of the paper for any calculations.
3. Good luck! 2 I. Conceptual Framework (10 points)
REQUIRED: Provide short answers for questions 1-3 in the space provided.
1. What are the two fundamental qualitative characteristics of accounting information as defined in
SFAC No. 8?
1). ______________________________________
2). ______________________________________
2. What are the four enhancing qualitative characteristics of accounting information as defined in
SFAC No. 8?
1). ____________________________________
2). ____________________________________
3)._____________________________________
4). _____________________________________
3. Land was acquired in 2000 for a future building site at a cost of $40,000. The assessed valuation
for tax purposes is $27,000, a qualified appraiser placed its value at $48,000, and a recent firm offer for
the land was for a cash payment of $46,000. The land should be reported in the financial statements at
what dollar amount?
REQUIRED: In the space provided, give the basic assumption, broad accounting principle or
pervasive constraint that applies to each statement (give only the one answer that best applies to the
statement)
4. Liquidation values are not normally reported in financial statements even though many companies
do go out of business.
________________________________________
5. The Parker Corporation does not adjust the valuation of assets and liabilities to reflect changes in
the purchasing power of the dollar.
_________________________________________
6. In a typical reporting period, a manufacturing company records revenue from selling a product and
also records the cost of goods sold on the sale.
_________________________________________
3 II. Adjusting Entries (14 points)
REQUIRED: For each situation (questions 1-5), prepare the necessary adjusting entry as of
December 31, 2013. Assume that each firm adjusts and closes its books only on an annual basis. If no
adjusting journal entry is necessary, then write “no adjusting entry” in the space provided.
1. On September 1, 2013, Carlisle Inc. paid $10,200 for a two-year fire insurance policy and debited
the entire amount to insurance expense.
Account name
Debit
Credit 2. On January 1, 2013, Darline Trucking Corp. purchased equipment for $160,000. The equipment
has an 8-year useful life and no estimated residual value. Straight-line depreciation is used.
Account name
Debit
Credit 3. On March 1, 2013, the Star Printing Company received a $45,000 payment for annual magazine
subscriptions (the subscriptions run from the March, 2013 edition through the February 2014 edition).
Upon receipt of the payment, Star Printing credited the amount to sales revenue.
Account name Debit Credit 4. On October 1, 2013, S&P Company borrowed $100,000 from the bank. The note requires principal
and interest at 11% to be paid on April 30, 2014.
Account name Debit Credit 5. Aventine Corporation made sales on credit in 2013 totaling $80,000. Management estimates a bad
debt rate of ½ percent of credit sales. At January 1, 2013, the balance in allowance for doubtful
accounts was a credit balance of $1,000. There were no actual bad debt write-offs in 2013.
Account name
Debit
Credit 4 III. Closing Entries (6 points)
The adjusted trial balance for Knit Right Corp. at December 31, 2013 is as follows:
dr.
Sales Revenue
Accounts receivable
Cash
Prepaid rent (for 4 months remaining)
Rent expense
Allowance for uncollectible accounts
Accounts Payable
Inventory
Cost of goods sold
Notes payable
Salaries Payable
Interest Payable
Salary expense
Interest expense
Unearned Revenue
Common stock
Retained earnings
Equipment
Accumulated depreciation
Depreciation expense
Totals cr.
$535,000 150,000
72,000
10,000
30,000
6,000
140,000
65,000
400,000
60,000
28,000
2,000
83,000
24,000
23,000
250,000
300,000
800,000
320,000
30,000
$1,664,000 $1,664,000 REQUIRED: Prepare Closing Entries (Use an Income Summary Account)
Account name Debit Credit 5 IV. The Balance Sheet (14 points)
The post-closing trial balance for ABC Corp. at December 31, 2013 is as follows:
Cash
Accounts receivable
Inventory
Prepaid rent (for 4 months remaining)
Equipment
Accumulated depreciation
Allowance for uncollectible accounts
Accounts payable
Unearned revenue
Notes payable
Salaries payable
Interest payable
Common stock
Retained earnings
Totals dr.
$ 21,000
300,000
53,500
10,000
600,000 $984,500 cr. 250,000
20,000
40,000
2,800
60,000
8,000
2,700
400,000
201,000
$984,500 Additional information: The $60,000 note payable is an installment loan. $10,000 of the principal,
plus 9% interest is due each July 1 until maturity. Unearned revenue relates to products that will ship
in early 2014.
REQUIRED: Questions 1-5 below relate to the information presented on the balance sheet of
ABC as of December 31, 2013. Fill in the blank with the appropriate amount.
1. What is the amount that would be reported as total current assets on the 2013 balance sheet?
Total Current Assets 2. What is the amount that would be reported as total current liabilities on the 2013 balance sheet?
Total Current Liabilities 3. What is the amount that would be reported as Net Accounts Receivable on the 2013 balance sheet?
Net Accounts Receivable 4. What is the amount that would be reported as total shareholders’ equity on the 2013 balance sheet?
Total Shareholders’ Equity
5. The balance in interest payable on the 2013 balance sheet is $2,700. What amount of interest
payable would be reported on the 2014 balance sheet?
Interest Payable 2014 Balance Sheet
V. Presentation of the Income Statement (12 points)
6 The Rayburn Company had income from continuing operations before tax of $1,575,000 in 2014.
Additional pre-tax transactions not included in the computation of the $1,575,000 are as follows:
1. In 2014, Rayburn decided to sell one of its manufacturing divisions, which qualifies as a
discontinued operation for financial reporting purposes. On Nov. 1, 2014, the division assets
were sold for $3,250,000. On the date of the sale, the division assets had a book value of
$3,750,000. The discontinued division had a loss from operations from Jan. 1, 2014 through
Nov. 1, 2014 of $200,000.
2. The sale of operational equipment resulted in a loss of $57,000.
3. Rayburn acquired 70% of the outstanding stock of Koch Co. and as such, consolidates Koch
Co.’s financial results with its own. Koch Co. had net income of $300,000 in 2014
REQUIRED:
Use all of the information above to prepare a 2014 income statement for the Rayburn Company
beginning with income from continuing operations before tax. Assume an income tax rate of 40%.
Provide full disclosure on the Income Statement, but ignore EPS disclosures.
$
Income from Continuing Operations, pre-tax 7 VI. Statement of Cash Flows (14 points)
1. The Bolera Company had the following cash transactions during 2014. The Bolera Company uses
the direct method of presenting the Statement of Cash Flows.
REQUIRED: Fill in the following table by classifying the following transactions of the Bolera
Company as cash flows from operating activities, investing activities or financing activities and
identifying the cash flow as an inflow or outflow.
Transaction
Activity
Inflow or
classification? Outflow?
Bolera made a cash payment to reduce accounts payable
Bolera received the repayment of principal on a note
Bolera received a cash interest payment
Bolera paid dividends to its shareholders
Bolera paid salaries
Bolera sold investments in equity securities of IBM Corp. 2. The Rightway Company uses the indirect method of presenting the Statement of Cash Flows. At
12/31/2014, an investigation of their 2013 and 2014 Balance Sheets reveals that the balance in Net
Accounts Receivable has decreased by $100,000 from 2013 to 2014 and the balance in Accounts
Payable has decreased by $75,000 from 2013 to 2014. The balance in Net Property, Plant and
Equipment has decreased by $15,000 and they noted that no property, plant or equipment was
purchased or sold during 2014.
REQUIRED: In the space provided, prepare the Operating Cash Flow Section of the 2014 Statement
of Cash Flows for the Rightway Company by providing the adjustments to reconcile net income of
$850,000 to net cash flows provided by operating activities.
Statement of Cash Flows
Rightway Company for the Year Ended December 31, 2014
Cash Flows From Operations:
Net Income
Adjustments to reconcile net income to net cash provided by operating
activities: $
$850,000 VII. Revenue Recognition (12 points)
8 REQUIRED: Provide answers for questions 1-4 in the space provided.
1. What is the five-step process for revenue recognition? 2. On March 1, 2003, the Star Printing Company received a $45,000 payment for annual magazine
subscriptions (the subscriptions run from the March, 2003 edition through the February 2004 edition).
Upon receipt of the payment, Star Printing credited the amount to sales revenue. Provide any entries
necessary to correctly state sales revenue on the 2003 income statement.
Account name Debit Credit 3. Peabody Construction Company enters into a contract with a customer to build a warehouse for
$100,000, with a performance bonus of $50,000 that will be paid based on the timing of completion.
The amount of the performance bonus decreases by 10% per week for every week beyond the agreedupon completion date. The contract requirements are similar to contracts that Peabody has performed
previously, and management believes that such experience is predictive for this contract. Management
estimates that there is a 60% probability that the contract will be completed by the agreed-upon
completion date, a 30% probability that it will be completed 1 week late, and only a 10% probability
that it will be completed 2 weeks late.
How should Peabody account for this revenue arrangement? __________________________________________________________________________________
________________________________________________________________________ 4. Handler Company is an experienced manufacturer of equipment used in the construction industry.
Handler's products range from small to large individual pieces of automated machinery to complex
9 systems containing numerous components. Unit selling prices range from $600,000 to $4,000,000 and
are quoted inclusive of installation and training. The installation process does not involve changes to
the features of the equipment and does not require proprietary information about the equipment in
order for the installed equipment to perform to specifications. Handler has the following arrangement
with Chai Company.
(1) Chai purchases equipment from Handler for a price of $2,000,000 and chooses Handler to do the
installation. Handler charges the same price for the equipment irrespective of whether it does the
installation or not. (Some companies do the installation themselves because they either prefer their
own employees to do the work or because of relationships with other customers.) The price of the
installation service is estimated to have a fair value of $20,000.
(2) The fair value of the training sessions is estimated at $50,000. Other companies can also perform
these training services.
(3) Chai is obligated to pay Handler the $2,000,000 upon the delivery and installation of the
equipment.
(4) Handler delivers the equipment on September 1, 2014, and completes the installation of the
equipment on November 1, 2014 (transfer of control is complete). Training related to the equipment
starts once the installation is completed and lasts for 1 year. The equipment has a useful life of 10
years.
Required:
(a) What are the performance obligations for purposes of accounting for the sale of the equipment?
(b) If there is more than one performance obligation, how should the payment of $2,000,000 be
allocated to various components? 10 VIII. Long Term Contract (8 points)
Astra Construction Company contracted to build an office building for $3,000,000. Construction
began in 2003 and was completed in 2005. Data relating to the contract are summarized below:
2003
700,000
1,800,000
900,000
800,000 Costs incurred during the year
Estimated costs to complete as of 12/31
Billings during the year
Cash collections during the year 2004
980,000
1,400,000
1,100,000
1,200,000 2005
1,400,000
0
1,000,000
1,000,000 What amount of income on the long term contract would Astra report in 2003, 2004 and 2005 if the
firm uses the percentage of completion method of accounting for long term contracts?
2003 2004 2005 Income on Long
Term Contract 11 IX. Accounts Receivable (10 points)
Platinum Pools Company has the following information reported on its 2003 comparative Balance
Sheet:
2003
2002
Accounts Receivable (less allowances for doubtful
$958,000
$1,027,000
accounts of $14,000 in 2003 and $17,500 in 2002)
Additional information: During 2003, Platinum wrote-off $20,000 of accounts that had been identified
as uncollectible. Platinum makes all sales on account and collected $2,500,000 from customers in
2003.
REQUIRED: Provide answers to questions 1-4 in the space provided.
1. Provide the journal entry that Platinum made during 2003 to record the write-off.
Account name
Debit
Credit 2. What is the amount of Platinum’s 2003 credit sales?
2003 Credit Sales 3. What is the amount that Platinum recorded as bad debt expense on its 2003 income statement?
2003 Bad debt expense 4. Assuming Platinum used a balance sheet approach with a single bad debt rate (rather than multiple
rates from aging specific receivables) in estimating bad debt expense, what is the bad debt rate applied
in 2003?
2003 Bad debt rate 12
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