Name: ___________________________________ Date: ______________ 1. A common set of accounting standards and procedures are called A) nancial accounting standards.

B) generally accepted accounting principles. C) objectives of nancial reporting. D) statements of nancial accounting concepts. 2. The most signicant current source of generally accepted accounting principles is the A) AICPA. B) SEC. C) APB. D) FASB. 3. The objectives of nancial reporting include all of the following except to provide information that A) is useful to the Internal Revenue Service in allocating the tax burden to the business community. B) is useful to those making investment and credit decisions. C) is helpful in assessing future cash ows. D) identies the economic resources (assets), the claims to those resources (liabilities), and the changes in those resources and claims. 4. Information is neutral if it A) provides benets which are at least equal to the costs of its preparation. B) can be compared with similar information about an enterprise at other points in time. C) would have no impact on a decision maker. D) is free from bias toward a predetermined result. 5. Which of the following is an argument against using historical cost in accounting? A) Fair values are more relevant. B) Historical costs are based on an exchange transaction. C) Historical costs are reliable. D) Fair values are subjective. 6. Accounting conceptsidentication. Presented below are a number of accounting procedures and practices in Ramirez Corp. For each of these items, choose which of the following -- Conservatism, Consistency, Economic Entity, Historical Cost, Matching, Periodicity, Revenue Recognition -- is violated. i. Because the company's income is low this year, a switch from accelerated depreciation to straight-line depreciation is made this year. ii. The president of Ramirez Corp. believes it is foolish to report nancial information on a yearly basis. Instead, the president believes nancial information should be disclosed only when signicant new information is available related to the company's operations.

iii. Ramirez Corp. decides to establish a large loss and related liability this year because of the possibility that it may lose a pending infringement lawsuit. The possibility of loss is considered remote by its attorneys. iv. An ofcer of Ramirez Corp. purchased a new home computer for personal use with company money, charging miscellaneous expense. v. A machine, that cost $40,000, is reported at its current market value of $45,000. 7. Which of the following is a recordable event or item? A) Changes in managerial policy B) The value of human resources C) Changes in personnel D) None of these 8. An adjusting entry should never include A) a debit to an expense account and a credit to a liability account. B) a debit to an expense account and a credit to a revenue account. C) a debit to a liability account and a credit to revenue account. D) a debit to a revenue account and a credit to a liability account. 9. An accrued revenue can best be described as an amount A) collected and currently matched with expenses. B) collected and not currently matched with expenses. C) not collected and currently matched with expenses. D) not collected and not currently matched with expenses. 10. Mune Company recorded journal entries for the declaration of $50,000 of dividends, the $32,000 increase in accounts receivable for services rendered, and the purchase of equipment for $21,000. What net effect do these entries have on owners' equity? A) Decrease of $71,000. B) Decrease of $39,000. C) Decrease of $18,000. D) Increase of $11,000. 11. In November and December 2010, Lane Co., a newly organized magazine publisher, received $90,000 for 1,000 three-year subscriptions at $30 per year, starting with the January 2011 issue. Lane included the entire $90,000 in its 2010 income tax return. What amount should Lane report in its 2010 income statement for subscriptions revenue? A) $0. B) $5,000. C) $30,000. D) $90,000.

12. Data relating to the balances of various accounts affected by adjusting or closing entries appear below. (The entries which caused the changes in the balances are not given.) You are asked to supply the missing journal entries which would logically account for the changes in the account balances. i. Interest receivable at 1/1/10 was $1,000. During 2010 cash received from debtors for interest on outstanding notes receivable was 4,000. The 2010 income statement showed interest revenue in the amount of $5,400. You are to provide the missing adjusting entry they made, assuming reversing entries are not made. ii. Unearned rent at 1/1/10 was $5,300 and at 12/31/10 was $8,000. The records indicate cash receipts from rental sources during 2010 $40,000, all of which was credited to the Unearned Rent Account. You are to prepare the missing adjusting entry. iii. Accumulated depreciationequipment at 1/1/10 was $230,000. At 12/31/10 the balance of the account was $270,000. During equipment was sold. The equipment had an original cost of $40,000 and was 3/4 depreciated when sold. You are to prepare the entry. iv. Allowance for doubtful accounts on 1/1/10 was $50,000. The balance in the allowance account on 12/31/10 after making the annual was $65,000 and during 2010 bad debts written off amounted to $30,000. You are to provide the missing adjusting entry. v. Prepaid rent at 1/1/10 was $9,000. During 2010 rent payments of $120,000 were made and charged to "rent expense." The 2010 shows as a general expense the item "rent expense" in the amount of $125,000. You are to prepare the missing adjusting entry that made, assuming reversing entries are not made. vi. Retained earnings at 1/1/10 was $150,000 and at 12/31/10 it was $210,000. During 2010, cash dividends of $50,000 were paid and stock dividends of $40,000 were issued. Both dividends were properly charged to retained earnings. You are to provide the missing closing entry. 13. When a company discontinues an operation and disposes of the discontinued operation (component), the transaction should be included in the income statement as a gain or loss on disposal reported as A) a prior period adjustment. B) an extraordinary item. C) an amount after continuing operations and before extraordinary items. D) a bulk sale of plant assets included in income from continuing operations. 14. Comprehensive income includes all of the following except A) dividend revenue. B) losses on disposal of assets. C) investments by owners. D) unrealized holding gains. 15. For Mortenson Company, the following information is available: In Mortenson's multiple-step income statement, gross prot A) should not be reported B) should be reported at $13,500. C) should be reported at $40,000. D) should be reported at $42,500.

16. An income statement shows income before income taxes and extraordinary items in the amount of $2,055,000. The income taxes payable for the year are $1,080,000, including $360,000 that is applicable to an extraordinary gain. Thus, the income before extraordinary items is A) $1,335,000. B) $615,000. C) $1,395,000. D) $675,000. 17. Multiple-step income statement.

Instructions Prepare in good form a multiple-step income statement for the year 2011. Assume a 30% tax rate and that 80,000 shares of common stock were outstanding during the year. 18. Jane wants to set aside funds to take an around the world cruise in four years. Jane expects that she will need $12,000 for her dream vacation. If she is able to earn 8% per annum on an investment, how much will she need to set aside at the beginning of each year to accumulate sufficient funds? A) $2,663. B) $16,325. C) $8,820. D) $2,466. 19. Crone Co. has machinery that cost $80,000. They would like to lease it for 15 years to Jones and Sons with rent received at the beginning of each year. Crone wants a return of 10%. Compute the amount of the annual rent it must charge to Jones and Sons.

20. Indicate how each of the items below should be classified at December 31, 2010. If an item is not reported on the December 31, 2010 balance sheet, write NOT INCLUDED. If the item is a contra account within the particular classification, indicate this as well. i. ii. iii. iv. v. vi. vii. viii. ix. x. Allowance for doubtful Accounts Accounts receivable Accounts payable Bonds payable Goodwill Land Salaries which have been accrued but not yet paid. Accumulated depreciation Dividends declared but not yet paid. Retained earnings

1(39) B 2(71)D 3 (114) A 4(133) D 5(161) A 6(185) 1. Consistency. 2. Periodicity. 3. Matching (also, conservatism). 4. Economic entity. 5. Historical cost (also, revenue recognition)*. 7(217) D 8 (226) B 9 (241) C 10 (252) C 11(270) A 12(286)

13(326)C 14(341)C 15(345)C 16(351)A 17 (386)

18 D 19. Present value factor for an annuity due for 15 periods at 10% (1.10 7.60608) = 8.36669 $80,000 8.36669 = $9,562. 20.