ACC 356/601 Intermediate Accounting I.

Name

Practice exam

ID #

Spring 2015

Section #

L. Liang
General Instructions: you may use a basic calculator. The exam is composed of two
parts:
Part 1: 25 multiple choice questions
Part 2: 2 problems
I.

Multiple Choice (Record your answers in the box provided below. Only
the letter on that space will be counted. All multiple choices questions
are objective. Partial credit is not given on the MC section. 3 Points
each; 75 total points.)

1)

2)

3)

4)

5)

6)

7)

8)

9)

10)

11)

12)

13)

14)

15)

16)

17)

18)

19)

20)

21)

22)

23)

24)

25)

Please refer to the same set of facts to answer Questions 1 to 3:

Reliable Enterprises sells distressed merchandise on extended credit terms. Collections
on these sales are not reasonably assured, and bad debt losses cannot be reasonably
predicted. It is unlikely that repossessed merchandise is in condition to be re-sold.
Therefore, Reliable uses the cost recovery method. Merchandise costing $30,000 was
sold for $55,000 in 2012. Collections on this sale were $20,000 in 2012, $15,000 in 2013,
and $20,000 in 2014.
1.

In 2012, Reliable would recognize gross profit of:

A.
B.
C.
D.

2.

$0.
$25,000.
$8,090.
$8,333.
In 2013, Reliable would recognize gross profit of:

A.
B.
C.
D.
3.

$0.
$6,000.
$5,000.
$10,000.
In 2014, Reliable would recognize gross profit of:

A.
B.
C.
D.

$0.
$6,000.
$8,000.
$20,000.

4.
Slick's Used Cars sells pre-owned cars on the installment basis and carries its own
notes because its customers typically cannot qualify for a bank loan. Default rates tend to
be high or unpredictable. However, in the event of nonpayment, Slick's can usually
repossess the cars without loss. The revenue method Slick would use is the:
A.
B.
C.
D.
5.

Installment sales method.

Point of sales method.
Cost recovery method.
Installment sales method or cost recovery method.
When using the completed contract method of accounting for long-term contracts:

A. Estimated losses on the overall contract are recognized before the contract is
completed.
B. Expenses are recorded each period, but revenue is only recognized when the
2

contract is completed.
C. Use of this method is not permitted under generally accepted accounting
principles.
D. Neither gains nor losses are recognized until the contract is completed.
Please refer to the same set of facts to answer Questions 6 and 8:
Arizona Desert Homes (ADH) constructed a new subdivision during 2012 and
2013 under contract with Cactus Development Co. Relevant data are summarized
below:

ADH uses the percentage-of-completion method to recognize revenue.

6.

What would be the journal entry made in 2012 to record revenue?

A.

B.

C.

D.

7.

In its December 31, 2012, balance sheet, ADH would report:

A.
B.
C.
D.

8.

The asset, cost and profits in excess of billings, of $500,000.

The liability, billings in excess of cost, of $300,000.
The asset, contract amount in excess of billings, of $1,500,000.
The asset, deferred profit, of $400,000.

For 2013, what is the journal entry to record revenue?

A.

9.
Cash
that is

B.

C.

D.

restricted and not available for current operations is reported in the balance sheet as:
A.
B.
C.
D.

Equity.
Investments.
Liabilities.
A separate section between liabilities and equity.

Use the following information to answer questions 10-11:

4

11.

What is the correct entry for Flores on November 17, assuming the correct
payment was received on that date?
A.

10.

B.
On November 10 of the current year, Flores Mills sold carpet to a customer for
$8,000 with credit terms 2/10, n/30. Flores uses the gross method of accounting for
cash discounts.
What is the correct entry for Flores on November 10?
C.
A.

D.
B.

C.

D.

12.
Tom's Textiles shipped the wrong material to a customer, who refused to accept
the order. Upon receipt of the material, Tom's would credit accounts receivable and debit:

A.
B.
C.
D.

Sales.
Sales discount.
Sales returns.
Sales allowances.
5

13.
Memorex Disks sells computer disk drives with right-of-return privileges. Returns
are material and reasonably predictable. Memorex should:
A.
B.
C.
D.

14.

Not record sales until the right to return has expired.

Record an allowance for sales returns in the year of the sale.
Debit sales returns in the period of the return.
Debit sales in the period of the return.

Which of the following does not change the balance in accounts receivable?
A.
B.
C.
D.

Returns on credit sales.

Collections from customers.
Bad debts expense adjusting entry.
Write-offs.

15.
Chez Fred Bakery estimates the allowance for uncollectible accounts at 3% of the
ending balance of accounts receivable. During 2013, Chez Fred's credit sales and
collections were $125,000 and $131,000, respectively. What was the balance of accounts
receivable on January 1, 2013, if $180 in accounts receivable were written off during
2013 and if the allowance account had a balance of $750 on December 31, 2013?
A.
B.
C.
D.

$5,820.
$31,000.
$31,180.
None of the above is correct.

17.

In periods when costs are rising, LIFO liquidations:

A.
B.
C.
D.

16.

Can't occur.
Are used to reduce tax liabilities.
Are a source of off-balance-sheet financing.
Distort the net income.

18. Malone Corporation uses the perpetual inventory method. On March 1, it purchased
$40,000 of inventory, terms 2/10, n/30. On March 3, Malone returned goods that cost
$4,000. On March 9, Malone paid the supplier. On March 9, Malone should credit
A)
The following information relates to Halloran Co.'s accounts receivable for 2013:
A)
A)
A)
A)
A)
A)
A)
A)
What amount should Halloran report for accounts receivable, before allowances, at
A)
December 31, 2013?
A)
A)
A)
A.
$1,040,000.
A)
A)
B. $970,000.
A)
A)
A)
C.
$760,000.
A)
A)
D.
None of the above.
A)
purchase discounts for $4000
B) inventory for $4000.
C) purchase discounts for $720.
D) inventory for $720.
Please refer to the same set of facts to answer Questions 19 to 21:
Inventory records for Herb's Chemicals revealed the following:

Inventory records for Herb's Chemicals revealed the following:

March 1, 2013, inventory: 1,000 gallons @ $7.20 = $7,200

19.

Ending inventory assuming LIFO in a periodic inventory system would be:

A.
B.
C.
D.

20.

$5,040.
$5,055.
$5,075.
$5,135.
Ending inventory assuming LIFO in a perpetual inventory system would be:

A.
B.
C.
D.

$4,960.
$5,060.
$5,080.
$5,140.

21.
The ending inventory under a periodic inventory system assuming average cost
(rounding unit cost to three decimal places) is:
A.
B.
C.
D.

$5,087.
$5,107.
$5,077.
$5,005.

22.
GG Inc. uses LIFO. GG disclosed that if FIFO had been used, inventory at the end
of 2013 would have been $15 million higher than the difference between LIFO and FIFO
at the end of 2012. Assuming GG has a 40% income tax rate:
A. Its reported cost of goods sold for 2013 would have been $9 million higher if it
had used FIFO rather than LIFO for its financial statements.
B. Its reported cost of goods sold for 2013 would have been $15 million higher if it
had used FIFO rather than LIFO for its financial statements.
C. Its reported net income for 2013 would have been $9 million higher if it had used
FIFO rather than LIFO for its financial statements.
D. Its reported net income for 2013 would have been $15 million higher if it had
used FIFO rather than LIFO for its financial statements.
23.

The primary reason for the popularity of LIFO is that it:

A.
B.
C.
D.

Provides better matching of physical flow and cost flow.

Saves income taxes currently.
Simplifies recordkeeping.
Provides a permanent reduction of income taxes.

24.
During periods when costs are rising and inventory quantities are stable, ending
inventory will be:
A.
B.
C.
D.

Higher under LIFO than FIFO.

Lower under average cost than LIFO.
Higher under average cost than FIFO.
Higher under FIFO than LIFO.

25.

The purpose of assigning accounts receivable is to:

-2-2

A.
B.
C.
D.

Satisfy a court order.

Complete the legal prerequisites to record their sale
Comply with form and content rules of bankruptcy proceedings.
Provide collateral for a loan.

10

PROBLEM 1
Charter Corporation, which began business in 2013, appropriately uses the installment
sales method of accounting for its installment sales. The following data were obtained for
sales made during 2013 and 2014:

Installment sales
Cost of installment sales
Cash collections on installment sales during:
2013
2014

2013
$ 430,000
344,000

2014
$ 420,000
378,000

160,000

120,000
125,000

Required:
1.
How much gross profit should Charter recognize in 2013 and 2014 from
installment sales?

2.
What should be the balance in the deferred gross profit account at the end of 2013
and 2014?

11

PROBLEM 2:
Harwell Company manufactures automobile tires. On July 15, 2013, the company sold
2,000 tires to the Nixon Car Company for $50 each. The terms of the sale were 2/15,
n/30. Harwell uses the gross method of accounting for cash discounts.

Required:
1.
Prepare the journal entries to record the sale on July 15 (ignore cost of goods) and
collection on July 23, 2013. (If no entry is required for a particular transaction, select "No
journal entry required" in the first account field.)

2.
Prepare the journal entries to record the sale on July 15 (ignore cost of goods) and
collection on August 15, 2013. (If no entry is required for a particular transaction, select
"No journal entry required" in the first account field.)

12