Westminster International University in Tashkent

4ACCN008C-n-Financial Accounting
Final exam
Semester 2
Section A Multiple choice questions (60 marks=20*3 marks)

1. Items that are deducted from net income in determining cash provided by operating activities
under the indirect method include:
A depreciation expense.
B a decrease in inventory.
C a decrease in accounts payable
D loss on sale of equipment.
Answer: C
2. Which accounting principle states that business should maintain the same accounting methods
throughout the accounting periods?
A. Materiality
B. Prudence
C. Historical cost
D. Consistency
Answer: D
3. Green Ville Inc computes depreciation on machinery at $2,000 for the month of August. The
adjusting entry to record this depreciation is as follows.
A Dr Machinery Expense 2,000, Cr Accumulated Depreciation— Machinery 2,000
B Dr Depreciation Expense 2,000, Cr Accumulated Depreciation— Machinery 2,000
C Dr Depreciation Expense 2,000, Cr Machinery 2,000
D Dr Accumulated Depreciation- Machinery 2,000, Cr Depreciation Expense 2,000
Answer: B
4. Elizabeth White earned a salary of $5,000 for May month. She will be paid on June 7. The
adjusting entry for Elizabeth’s employer at May 31 is:
A Dr Salaries and Wages Payable 5,000, Cr Salaries and Wages Expense
B Dr Salaries and Wages Payable 5,000, Cr Cash 5,000
C Dr Salaries and Wages Expense 5,000, Cr Cash 5,000
D Dr Salaries and Wages Expense 5,000, Cr Salaries and Wages Payable 5,000
Answer: D

5. Trial balance shows Office Supplies $500 and Office Expenses $0. If $100 of supplies is on
hand at the end of the period, the adjusting entry is:
A Dr Office Supplies 500, Cr Office Expenses 500
B Dr Office Expenses 400, Cr Office Supplies 400
C Dr Office Supplies 400, Cr Office Expenses 400
D Dr Office Expenses 500, Cr Office Supplies 500
Answer: B

6. Which of the following would an increase in the allowance for receivables result in?
A decrease in net profit
B decrease in liabilities
C increase in net profit
D increase in liabilities
Answer: A
 7. What are the functions of the IASB?
A giving a practical advice on the implementation of particular standards
B clarification of the issues where unsatisfactory or conflicting interpretations have developed
C developing and publishing international financial reporting standards
D overseeing the standard setting and regulatory process
Answer: C

8. The difference in the Trial Balance has been placed in a Suspense account. The accountant
made an advanced payment for insurance. Prepaid insurance of 4,000 was mistakenly brought down as
a credit balance in the Insurance account. The correcting entry should require:
A Dr Suspense account 4,000, Cr Insurance account 8,000
B Dr Insurance account 4,000, Cr Suspense account 4,000
C Dr Suspense account 8,000, Cr Insurance account 8,000
D Dr Insurance account 8,000, Cr Suspense account 8,000
Answer: D

9. Lazart Company has the following inventory, purchases, and sales data for the month of
January.
Inventory: January 1 300 units * $2.20 = $660
Purchases: January 8 500 units * $2.30 =$1,150
January 15 600 units * $2.50 =$1,500
January 27 400 units * $2.60 =$1,040
Sales: January 22 1,000 units
January 30 400 units
Under a periodic inventory system, determine the cost of goods sold for January under FIFO
method.
A $3,310
B $ 3,460
C $ 1,040
D $3,383
Answer: A
Sales (units) =1000+400=1400
COGS ($) =300*2,2+500*2.3+600*2.5=$3,310

10. Centrepoint Company has the following inventory, purchases, and sales data for the month
of August.
Inventory: August 3 200 units * $4.10 = $ 820
Purchases: August 9 500 units * $4.20 =$2,100
August 15 800 units * $4.30 =$3,440
August 28 600 units * $4.45 =$2,670
Sales: August 12 400 units
August 29 1,500 units
Under a periodic inventory system, determine the cost of inventory on hand at August 31under
average cost (AVCO) method.
A $890
B $852.5
C $820
D $860
Answer: D
Average cost per unit = ($820+$2,100+$3,440+$2,670)/2,100=$4.3
Ending inventory (units) =200+500+800+600-400-1900=200;
Ending inventory ($) =200*4.3=$860
 11. At 31 December 2022 Lumber Room Company had a credit balance of $12,300 in its
allowance for receivables. At 31 December 2022 accounts receivable totaled $345,000. Based on
review the allowance for receivables was to be adjusted to an amount equivalent to 5% of the accounts
receivable.
What amount of change in allowance for receivables should be shown in Profit and loss
statement at 31 December 2022?
A 4,335
B 29,550
C 17,250
D 4,950
Answer: D
New allowance= 345,000*5%=$17,250
Change in allowance for receivables=$17,250-12,300=$4,950

12. Data Logic Company purchased machinery on January 1, 2016, for $100,000. The equipment
has an estimated residual value of $8,000 and an estimated useful life of 10 years. The amount of
accumulated depreciation at December 31, 2022, if the straight-line method of depreciation is used is:
A$55,200
B$60,000
C$64,400
D $70,000
Answer: C
Annual depreciation charge= (100,000-8,000)/10=$9,200;
Accumulated depreciation at December 31, 2022=9,200*7(years) = $64,400

13. Misty Melon Company sold one of its old machines on August 31, 2017. The machine was
purchased for $240,000 on June 30, 2012, and was depreciated on a straight-line basis, estimated
useful life of 10 years. The machine was sold for $120,000, what was the amount of the gain or loss
recorded at the time of the sale?
A loss of $4,000
B loss of $2,000
C gain of $4,000
D gain of $2,000
Answer: C

Annual depreciation charge: $240,000/10=$24,000; $24,000/12=$2,000

2012:6 months; 2013-2016:4*12 months=48 months; 2017:8 months. Total: 62 months
$2,000*62 months=$124,000
Net book value=$240,000-$124,000=$116,000
Gain=$120,000-$116,000=$4,000

14. Venture Electrics Company acquired Pine Plains Company. The purchase consideration is
of $70 million in order to obtain 65% stake in Pine Plains Company. The fair value of the non-
controlling interest is $ 40 million. It is also estimated that the fair value of net assets is $69 million.
Calculate the goodwill based on the given information.
A $30 million
B $41 million
C $1 million
D $99 million
Answer: B
Goodwill=$70+$40-$69=$41
 15. Which of the following companies are subsidiaries of Adventure Holdings?

Sunny Planet Co: Adventure Holdings Co has six representatives on the board of directors of
Sunny Planet Co. Each director can cast 10 votes each out of the total of 70 votes at board meetings.
Aqua-Ventures Co: Adventure Holdings Co owns 58 % of the ordinary share capital of Aqua-
Ventures Co.
Premier Co: Adventure Holdings owns 82% of the non-voting preference shares of Premier Co.

A Premier Co
B Sunny Planet Co
C Sunny Planet Co, Aqua-Ventures Co
D Sunny Planet Co, Premier Co
Answer: C

16. Use the following financial statement information to compute the current ratio for 2022:
2022
$
Current assets 240,000
Fixed Assets 500,000
Total assets 750,000
Current liabilities 120,000
Non-current liabilities 230,000
Total liabilities 350,000
Share capital—preference 100,000
Ordinary shareholders’ equity 280,000
Retained earnings 20,000
Total capital 400,000
A1:2
B 2,14:1
C 2:1
D 1:2.14
Answer: C
Current Ratio= 240,000/120,000=2:1

17. (Bank reconciliation) The company’s cash book shows a balance of $ 25,100.
Bank statement contains $500 of service charge of operating the account. Bank statement
contains interest income of $2500.A note receivable of $ 8,300 was collected by the bank
Compute the adjusted cash book balance.

A$35,400
B$30,400
C$36,400
D$18,800
Answer: A
25,100-500+2,500+8,300=$35,400

18. Use the following information for the year ended 31 December 2022 to compute the sales
revenue for 2022:
 $
Beginning inventory 23,000
Purchases 300,000
Ending inventory 15,000
The gross profit as a percentage of sales is 20%

A $422,500
B $308,000
C $246,400
D $385,000
Answer: D
COGS=23,000+300,000-15,000=$308,000; Sales revenue=308,000*100/80=$385,000

19. The company's ending inventory was understated by $10,000. What will be the effect of
this error?
A The current year's assets will be overstated
B The current year's cost of goods sold will be understated and net income will be overstated
C The current year's cost of goods sold will be overstated and net income will be understated
D The current year's cost of goods sold will be understated, the equity will be overstated
Answer: C

20. The following transactions relate to Data Logic Co electricity expense ledger account for
the year ended 31 December 2022:
$
Prepayment brought forward at 1 January 2022 3,200
Cash paid 8,400
Prepayment carried forward at 31 December 2022 3,700

What amount should be charged to the statement of profit or loss in the year ended 31
December 2022 for electricity?

A $11,600
B $8,900
C $15,300
D $7,900
Answer: D

Balance b/f 3,200

Expense incurred (cash) 8,400
Prepaiment c/f 3,700
7,900

Section B
Task 1 (30 marks)
Data Republic Co., Inc. was organized on October 1, 2022. Quarterly financial statements are
prepared. The unadjusted and adjusted trial balances as of December 31 are shown below.

Unadjusted Adjusted
Dr Cr Dr Cr
Cash at Bank 50 000 50 000
Accounts Receivable 13 400 28 500
Inventory 14000 11200
Prepaid insurance 800 200
Equipment 78 000 78 000
Accumulated depreciation -
Equipment 0 1 950
Notes Payable 15 000 15 000
Accounts Payable 5 800 5 800
Salaries and Wages Payable 0 7 500
Interest Payable 0 400
Unearned Service Revenue 21 400 18 200
Share Capital-Ordinary 118 000 118 000
Dividends 1 000 1 000
Sales Revenue 18 500 33 600
Cost of Goods Sold 14 300 17 100
Service Revenue 3 200 6 400
Salaries and Wages Expense 8 000 15 500
Insurance Expense 0 600
Depreciation Expense 1 950
Utilities Expense 2 400 2 400
Interest Expense 400
Total: 181 900 181 900 206 850 206 850

Instructions: (a) Journalize the adjusting entries that were made.

(b) Prepare an income statement for the 3 months ending December 31 and a statement of financial
position at December 31.
Solutions:
a) Dr Cr
1. Accounts Receivable 15100
Sales Revenue 15100
2. Insurance Expense 600
Prepaid Insurance 600
3. Depreciation Expense 1950
Accumulated Depreciation -Equipment 1950
4. Salaries and Wages 7500
Salaries and Wages Payable 7500
5. Interest Expense 400
Interest Payable 400
6. Unearned Service Revenue 3200
ServiceRevenue 3200
7. COGS 2800
Inventory 2800
Task 2 (10 marks)
The income statement for the year ended December 31, 2022, for Sunny Cloud Company contains the
following condensed information.
Sunny Cloud Company Income Statement
For the Year Ended December 31, 2022

Sales revenue 3 728 000

Operating expenses (excluding depreciation) 1 246 800
Depreciation expense 253 000 1 499 800
Income before income taxes 2 228 200
Income tax expense 334 230
Net income 1 893 970

Included in operating expenses is a $15,000 loss resulting from the sale of machinery for $145,000
cash. New machinery was purchased at a cost of $300,000.
The following balances are reported on Sunny Cloud’s comparative statements of financial position at
December 31.
Sunny Cloud Company Comparative Statements of Financial Position (partial)
2 021 2022
Inventory 258 000 249 400
Accounts receivable 354 200 415 300
Cash 562 000 2 464 670
Accounts payable 110 400 88 600
Income tax expense of $334,230 represents the amount paid in 2022. Dividends declared and paid in
2022 totaled $30,000.
Instructions:
Prepare the statement of cash flows using the indirect method.
Solution:
Sunny Cloud Company Statement of Cash Flows—Indirect Method
For the Year Ended December 31, 2022

Cash flows from operating activities

Net income 1 893 970
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation expense 253 000
Loss on disposal of plant assets 15 000
Increase in accounts receivable -61 100
Decrease in inventory 8 600
Decrease in accounts payable -21 800
Net cash provided by operating activities 2 087 670
Cash flows from investing activities
Disposal of plant assets 145 000
Purchase of machinery -300 000
Net cash used by investing activities -155 000
Cash flows from financing activities
Payment of cash dividends -30 000
Net increase in cash 1 902 670
Cash at beginning of period 562 000
Cash at end of period 2 464 670