ACCT 217 Final Exam Review Package
Please note, for any questions below relating to PV calculations, you can refer to Appendix A, a financial calculator, or an
Excel PV formula.
PART A – MULTIPLE CHOICE
1) All of the following are true about GAAP (IFRS and ASPE) except:
a) GAAP encompass generally accepted and practiced methods and concepts
b) Incorporated companies are normally expected to follow GAAP
c) The key underlying assertion of GAAP is the going concern assumption
d) Following GAAP always ensures accuracy
e) The most authoritative source of GAAP in Canada is the CPA Handbook
2) Pawnee Inc.’s year-end is December 31. On May 1, they pay $2,400 for a two-year insurance policy. The company has
never had any insurance until this time. The insurance expense for this year is:
a) $1,200
b) $400
c) $300
d) $800
e) $100
3) Knope Corp. earned service revenue of $1,000 on credit before considering GST (assume 5%). When the entry to record
the ultimate collection of the cash from the customer is recorded, that entry would include:
a) A credit to accounts receivable for $1,050
b) A debit to cash for $1,000
c) A debit to GST payable for $50
d) A credit to GST payable for $50
e) None of the above
4) An unexpected change in the demand for wigs has caused the inventory turnover at the Sheinhardt Wig Company to
change from 6.5 times in 2X16 to 9.0 times in 2X17. Which of the following is likely true?
a) Sheinhardt’s inventory may be overvalued and need a write down
b) Demand for Sheinhardt wigs has increased significantly and management has not been able to react to the change
in demand
c) Sales at Sheinhardt have slowed in 20X9
d) Demand for Sheinhardt wigs has decreased significantly
e) All of the above
5) At the end of the year, a company forgot to count inventory of $5,000. Because of this:
a) Ending inventory is understated by $5,000, cost of goods sold is understated by $5,000, and income is understated
by $5,000
b) Ending inventory is understated by $5,000, cost of goods sold is overstated by $5,000, and income is understated by
$5,000
c) Ending inventory is overstated by $5,000, cost of goods sold is overstated by $5,000, and income is unstated by
$5,000
d) Ending inventory is overstated by $5,000, cost of goods sold is overstated by $5,000, and income is overstated by
$5,000
e) None of the above
6) Which of the following statements is true when a company is experiencing inflation in the cost of its growing inventory and
it is switching from FIFO to Average:
1
, a) Cost of goods sold will rise and inventory will rise
b) Cost of goods sold will fall and inventory will fall
c) Cost of goods sold will fall and inventory will rise
d) Cost of goods sold will not change and inventory will fall
e) Cost of goods sold will rise and inventory will fall
7) Tommy’s Closet has a rising current ratio, a falling inventory turnover ratio and a rising collection period. As a result of this:
a) The company is doing well because the current ratio is rising
b) The company is having problems collecting accounts receivable but is selling inventory faster this year
c) The company is having problems collecting accounts receivable and selling inventory fast enough
d) The company is probably not paying its accounts payable on time
e) None of the above
8) Little Rock Breweries recently painted some of its distilling equipment. The controller is trying to decide whether to expense
or capitalize the $7,500 cost for painting this equipment. The painting did not increase the useful life, value, or performance
of the equipment. What entry should the controller record?
a) A debit to equipment of $7,500, a credit to cash of $7,500
b) A debit to painting expense of $7,500, a credit to cash of $7,500
c) A debit to cash of $7,500, a credit to painting expense of $7,500
d) A debit to cash of $7,500, a credit to equipment of $7,500
Use the following information to answer the next 2 questions.
Gryzzl, a new tech giant, sold equipment to another company for a total of $80,000. The company had originally bought the
asset for $150,000 and had a carrying amount of $110,000 at the time of the sale.
9) What was recorded as the gain/loss on sale of the equipment by Gryzzl?
a) Debit loss on sale $30,000
b) Debit loss on sale $70,000
c) Credit loss on sale $30,000
d) Credit loss on sale $70,000
e) Debit loss on sale $40,000
10) What would be the change in total assets, liabilities, and equity if equipment that had a carrying amount of $110,000 was
sold for $120,000 cash?
a) Assets decrease by 40,000, liabilities unchanged, equity increases by 40,000
b) Assets increase by 40,000, liabilities increase by 10,000, equity increases by 30,000
c) Assets increase by 10,000, liabilities unchanged, equity increases by 10,000
d) Assets decrease by 110,000, liabilities unchanged, equity increases by 110,000
e) None of the above
11) Sweetums Candy has current assets of $7.80 million and current liabilities of $3.64 million. The industry ABC is in has an
average current ratio of 2.2:1. What is ABC’s current ratio and would they be compared better or worse than the industry
average?
a) 0.47:1, worse
b) 2.14:1, better
c) 0.47:1, better
d) 2.14:1, worse
e) None of the above
12) Which of the following is not a limitation of financial analysis?
a) Alternative accounting policies
b) Professional judgement
c) Comprehensive income may distort the true profitability of the company
d) All of the above are limitations
2
, Use the following information to answer the next 2 questions.
On March 1st 2016, Magic Michael Inc. decides they want to open a ski resort and borrows $240,000 from the bank for an 8-
year period at a 5% interest rate. The bank requires monthly blended payments of $3,285. (Round to 2 decimal places).
13) What is the principal amount remaining on the loan after the sixth payment?
a) $234,116.61
b) $226,146.40
c) $176,422.50
d) $227,458.30
14) What is the interest expense on the third payment?
a) $986.30
b) $10,830.00
c) $1,000.00
d) $980.92
15) The present value of a cash flow:
a) Is equal to its future value
b) Is lower than its future value due to uncertainty about its collection in the future
c) Is lower than its future value because as time passes, interest is earned
d) Is higher than its future value due to inflation
e) None of the above is true
Use the following information to answer the next 2 questions.
Moonlife Financial issued 8-years, semi-annual $250,000 bonds at 7% on January 1st 2017 when the market rate was 9%.
Interest is paid July 1st and December 31st.
16) What is the interest expense on December 31st 2017?
a) $9,986.17
b) $8,750.00
c) $10,041.80
d) $20,235.17
17) What is the carrying amount after the interest expense on July 1st 2018?
a) $218,037.67
b) $225,792.25
c) $230,649.84
d) $224,442.93
18) NiceLife pays $2,500 in preferred dividends, reported $48,338 in income, and $320,500 in shareholders equity in 2016.
NiceLife also reported $40,355 in income and $289,900 in shareholders equity in 2015. What is the return on common
shareholders’ equity in 2016?
a) 14.30%
b) 15.02%
c) 15.84%
d) 14.53%
Use the following information to answer the next 3 questions.
On January 1, 20X6 the Saperstein Dental issued a 2-year bond bearing interest at 6% to finance the purchase of new dental
equipment. The bond is repayable on December 31, 20X7 for $100,000 and was issued when interest rates were 8%. Interest
is payable on July 1 and January 1. The company records adjusting entries at the end of each year.
19) What is the amount that the company would receive when the bond is sold?
a) $96,433
3
Please note, for any questions below relating to PV calculations, you can refer to Appendix A, a financial calculator, or an
Excel PV formula.
PART A – MULTIPLE CHOICE
1) All of the following are true about GAAP (IFRS and ASPE) except:
a) GAAP encompass generally accepted and practiced methods and concepts
b) Incorporated companies are normally expected to follow GAAP
c) The key underlying assertion of GAAP is the going concern assumption
d) Following GAAP always ensures accuracy
e) The most authoritative source of GAAP in Canada is the CPA Handbook
2) Pawnee Inc.’s year-end is December 31. On May 1, they pay $2,400 for a two-year insurance policy. The company has
never had any insurance until this time. The insurance expense for this year is:
a) $1,200
b) $400
c) $300
d) $800
e) $100
3) Knope Corp. earned service revenue of $1,000 on credit before considering GST (assume 5%). When the entry to record
the ultimate collection of the cash from the customer is recorded, that entry would include:
a) A credit to accounts receivable for $1,050
b) A debit to cash for $1,000
c) A debit to GST payable for $50
d) A credit to GST payable for $50
e) None of the above
4) An unexpected change in the demand for wigs has caused the inventory turnover at the Sheinhardt Wig Company to
change from 6.5 times in 2X16 to 9.0 times in 2X17. Which of the following is likely true?
a) Sheinhardt’s inventory may be overvalued and need a write down
b) Demand for Sheinhardt wigs has increased significantly and management has not been able to react to the change
in demand
c) Sales at Sheinhardt have slowed in 20X9
d) Demand for Sheinhardt wigs has decreased significantly
e) All of the above
5) At the end of the year, a company forgot to count inventory of $5,000. Because of this:
a) Ending inventory is understated by $5,000, cost of goods sold is understated by $5,000, and income is understated
by $5,000
b) Ending inventory is understated by $5,000, cost of goods sold is overstated by $5,000, and income is understated by
$5,000
c) Ending inventory is overstated by $5,000, cost of goods sold is overstated by $5,000, and income is unstated by
$5,000
d) Ending inventory is overstated by $5,000, cost of goods sold is overstated by $5,000, and income is overstated by
$5,000
e) None of the above
6) Which of the following statements is true when a company is experiencing inflation in the cost of its growing inventory and
it is switching from FIFO to Average:
1
, a) Cost of goods sold will rise and inventory will rise
b) Cost of goods sold will fall and inventory will fall
c) Cost of goods sold will fall and inventory will rise
d) Cost of goods sold will not change and inventory will fall
e) Cost of goods sold will rise and inventory will fall
7) Tommy’s Closet has a rising current ratio, a falling inventory turnover ratio and a rising collection period. As a result of this:
a) The company is doing well because the current ratio is rising
b) The company is having problems collecting accounts receivable but is selling inventory faster this year
c) The company is having problems collecting accounts receivable and selling inventory fast enough
d) The company is probably not paying its accounts payable on time
e) None of the above
8) Little Rock Breweries recently painted some of its distilling equipment. The controller is trying to decide whether to expense
or capitalize the $7,500 cost for painting this equipment. The painting did not increase the useful life, value, or performance
of the equipment. What entry should the controller record?
a) A debit to equipment of $7,500, a credit to cash of $7,500
b) A debit to painting expense of $7,500, a credit to cash of $7,500
c) A debit to cash of $7,500, a credit to painting expense of $7,500
d) A debit to cash of $7,500, a credit to equipment of $7,500
Use the following information to answer the next 2 questions.
Gryzzl, a new tech giant, sold equipment to another company for a total of $80,000. The company had originally bought the
asset for $150,000 and had a carrying amount of $110,000 at the time of the sale.
9) What was recorded as the gain/loss on sale of the equipment by Gryzzl?
a) Debit loss on sale $30,000
b) Debit loss on sale $70,000
c) Credit loss on sale $30,000
d) Credit loss on sale $70,000
e) Debit loss on sale $40,000
10) What would be the change in total assets, liabilities, and equity if equipment that had a carrying amount of $110,000 was
sold for $120,000 cash?
a) Assets decrease by 40,000, liabilities unchanged, equity increases by 40,000
b) Assets increase by 40,000, liabilities increase by 10,000, equity increases by 30,000
c) Assets increase by 10,000, liabilities unchanged, equity increases by 10,000
d) Assets decrease by 110,000, liabilities unchanged, equity increases by 110,000
e) None of the above
11) Sweetums Candy has current assets of $7.80 million and current liabilities of $3.64 million. The industry ABC is in has an
average current ratio of 2.2:1. What is ABC’s current ratio and would they be compared better or worse than the industry
average?
a) 0.47:1, worse
b) 2.14:1, better
c) 0.47:1, better
d) 2.14:1, worse
e) None of the above
12) Which of the following is not a limitation of financial analysis?
a) Alternative accounting policies
b) Professional judgement
c) Comprehensive income may distort the true profitability of the company
d) All of the above are limitations
2
, Use the following information to answer the next 2 questions.
On March 1st 2016, Magic Michael Inc. decides they want to open a ski resort and borrows $240,000 from the bank for an 8-
year period at a 5% interest rate. The bank requires monthly blended payments of $3,285. (Round to 2 decimal places).
13) What is the principal amount remaining on the loan after the sixth payment?
a) $234,116.61
b) $226,146.40
c) $176,422.50
d) $227,458.30
14) What is the interest expense on the third payment?
a) $986.30
b) $10,830.00
c) $1,000.00
d) $980.92
15) The present value of a cash flow:
a) Is equal to its future value
b) Is lower than its future value due to uncertainty about its collection in the future
c) Is lower than its future value because as time passes, interest is earned
d) Is higher than its future value due to inflation
e) None of the above is true
Use the following information to answer the next 2 questions.
Moonlife Financial issued 8-years, semi-annual $250,000 bonds at 7% on January 1st 2017 when the market rate was 9%.
Interest is paid July 1st and December 31st.
16) What is the interest expense on December 31st 2017?
a) $9,986.17
b) $8,750.00
c) $10,041.80
d) $20,235.17
17) What is the carrying amount after the interest expense on July 1st 2018?
a) $218,037.67
b) $225,792.25
c) $230,649.84
d) $224,442.93
18) NiceLife pays $2,500 in preferred dividends, reported $48,338 in income, and $320,500 in shareholders equity in 2016.
NiceLife also reported $40,355 in income and $289,900 in shareholders equity in 2015. What is the return on common
shareholders’ equity in 2016?
a) 14.30%
b) 15.02%
c) 15.84%
d) 14.53%
Use the following information to answer the next 3 questions.
On January 1, 20X6 the Saperstein Dental issued a 2-year bond bearing interest at 6% to finance the purchase of new dental
equipment. The bond is repayable on December 31, 20X7 for $100,000 and was issued when interest rates were 8%. Interest
is payable on July 1 and January 1. The company records adjusting entries at the end of each year.
19) What is the amount that the company would receive when the bond is sold?
a) $96,433
3
