Kennesaw State University

Michael J. Coles College of Business

Professor Taewoo Park

Student Name :

Student (User) ID :

♣ The examination booklet contains eight (8) pages including this cover
page. Ensure that this booklet is complete.

♣ When the space is not enough for your answer, please use the back
page of the exam.

♣ For quantitative questions, it is strongly recommended to show detail

procedure for good partial credit : when the final answer is incorrect,
partial credits will be granted based on procedure presented in the
answer sheets.

♣ When turn in the exam, please make sure again the answer sheets are
properly page-numbered and stapled.
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PART 1 : Multiple Choices (3 points each)

1. According to the FASB’s conceptual framework, financial information exhibits the

characteristics of consistency when ( )

a. expenditures are reported as expenses together with related revenues in the

same period
b. extraordinary gains and losses are shown separately on the income statement
c. accounting entities give similar events the same accounting treatment each
period
d. accounting procedures are adopted to smooth net income and make results
consistent between years
e. accounting entities adopt the same accounting treatment as other entities in
the same industry

2. The most significant source of generally accepted accounting principles in the

governmental sector is the ( ).

a. NYSE b. SEC
c. CASB d. FASB
e. IRS

3. The company decided in October 2009 to start a massive advertising campaign to

enhance the marketability of their product. In December, 2009, the company paid
$ 240,000 cash for advertising time on a major television network to advertise its
products during the next 12 months. The controller expensed the $ 240,000 during
the fiscal year ended 12/31/2009 on the basis that “once the money is paid, it can
never be recovered from the television network”. However, the controller’s
argument is in conflict with ( ).

a. historical cost principle b. revenue recognition principle

c. going concern assumption d. matching principle
e. periodicity assumption

For Information : The following shows a list of exemplary account names that are used frequently
(alphabetical order). You may refer to the account names. This list is just an example, and you are not
restricted to use those account names exclusively for this exam.

Cash Interest Receivable

Accounts Payable Interest Revenue
Accounts Receivable Inventory
Accumulated Depreciation Prepaid Expense
Advertising Expense Property, Plant and Equipment
Advertising Expense Payable Rent Expense
Allowance for Doubtful Accounts Rent Revenue
Bad Debt Expense Retained Earnings
Depreciation Expense Salary Expense
Dividend Salary Payable
Dividend Payable Sales Revenue
Insurance Expense Supplies
Interest Expense Supplies Expense
Interest Payable Unearned Revenue
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PART 2 : Kennesaw Corporation (30 points)

In analyzing the accounts of Kennesaw Corporation, the adjusting data listed below are
determined on December 31, 2009. Give the adjusting entry for each item. (Show all
computations.)

1. On November 1, 2009, Cash was debited and the Rent Revenue was credited for
$9,000, representing revenue from sub-rental for a 6-month period beginning on
that date.

2. On September 1, 2009, the company borrowed $ 800,000 from a local bank on a

30-year mortgage. The annual interest rate is 9%, payable at August 31 each
year from 2010. During 2009, no amount of interest was recorded yet.

3. The company charges the purchase of supplies to the “Supply Expense” account
during the year. The company’s Trial Balance as of 12/31/2009 before adjusting
entries shows the balance of $ 3,000 in the “Supplies” (asset) account, which was
actually the balance as of January 1, 2009. The company has $ 4,500 supplies
inventory on hand at the end of 2009.

4. The company’s estimated bad debts would be 1% of net sales. Net Sales amount
for the year is $2,500,000.
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5. On September 1, 2009, the company has paid the fire insurance premium of
$ 3,600 which covers one-year from the date, charging the amount to the
“Insurance Expense” account.

6. On November 1, 2009, the company rented a warehouse for $ 2,000 per month,
paying $24,000 in advance, debiting Prepaid Rent.

7. On December 18, 2009, the company declared cash dividend of $36,000. The
actual cash will be paid as of January 3, 2010.
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PART 3 : Jane Corporations (30 Points)

The following presents some part of the Trial Balances before adjusting entries at
December 31, 2009;

Sales Revenue……………. $195,000

Accounts Receivable……….. 75,000
Equipment…………….…… 150,000
Accumulated Depreciation... 12,000
Inventory…………………… 40,000
Salary Payable..……………. 10,000
Notes Receivable…………...120,000
Advertising Expense…….. 6,000
Salary Expense…………. 120,500

For each of the additional information, provide an adjusting entry. Write “None
Necessary” if no adjusting entry is required

(1) The company purchased equipment for $150,000 on January 1, 2009. It has an
estimated useful life of five years and a salvage value of $10,000. Depreciation is
calculated using the straight-line method.

(2) The company had the balance of $10,000 in the Salary Payable account as of
January 1, 2009. When the company paid cash for salaries during the year, it
debited Salary Expense and credited Cash. At December 31, 2009, the company
identifies that $ 13,000 of December 2009 salary is to be paid on January 10,
2010, and this amount is not recorded yet.
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(3) On November 1, 2009, the company paid $120,000 cash to Clayton Corporation
for an 8% notes receivable of $120,000, with interests payable at October 30 each
year. The company debited Notes Receivable and credited Cash at that date. No
interest on this note has been recorded during 2009.

(4) The company paid total $6,000 for three identical advertisements to be run during
the months of January to March 2010 each in the Atlanta Journal & Constitution.
The company debited Advertising Expense when cash was paid.

(5) The company has realized that the cash receipt of $12,000 at 12/31/2009 has not
been recorded yet. It is for the order of merchandise, to be delivered on January 3,
2009.

(6) The company found that it already debited Account Receivable and credited Sales
Revenue at the amount of $20,000. The merchandise is actually in the company’s
shipping deck, waiting for delivery at January 2, 2010.
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PART 4 : Analyses of accounts (31 Points)

(1) The company has reported “Accounts Receivable” from the sale of merchandise
as follows in its financial statements.

Date Adjusted Final Balance

December 31, 2008 $ 32,000
December 31, 2009 $ 45,000

The company collected cash in the amount of $ 123,000 from the customers
during the year. What amount of “Sales Revenue” should the company have
reported for the year ended December 31, 2009? Show your computations.

(2) The company has reported “Unearned Service Revenue” as follows in its financial
statements.

Date Adjusted Final Balance

December 31, 2008 $ 9,500
December 31, 2009 $ 8,200

The company collected cash in the amount of $ 23,500 for the service during the
year. What amount of “Service Revenue” should the company have reported for
the year ended December 31, 2009? Show your computations.
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(3) The company has reported “Interest Expense Payable” as follows in its financial
statements.

Date Adjusted Final Balance

December 31, 2008 $ 8,000
December 31, 2009 $ 9,000

The company has correctly reported the Interest Expense in the amount of
$15,000 after all adjusting entries. What amount of cash should the company
have paid for interest during the year ended December 31, 2009? Show your
computations.

(4) The company has reported “Prepaid Rent” as follows in its financial statements.

Date Adjusted Final Balance

December 31, 2008 $ 8,500
December 31, 2009 $ 7,000

The company has correctly reported the Rent Expense of $15,500 in the income
statement. What amount of cash should have been paid for the rent during the
year ended December 31, 2009? Show your computations.
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ACCT3100 Solutions to Exam #1

Part 1 : 1. C
2. B
3. D
Part 2 :

(1) Rent Revenue $ 6,000 : $9,000 × 4/6 = $6,000

Unearned Revenue $ 6,000

(2) Interest Expense $ 24,000 : $800,000×9%×4/12=$24,000

Interest Payable $ 24,000

(3) Supplies $ 1,500

Supplies Expenses $ 1,500

(4) Bad Debt Expense $ 25,000

Allowance for Doubtful Accounts $ 25,000

(5) Prepaid Insurance $ 2,400 : $3,600 × 8/12 = $ 2,400

Insurance Expense $ 2,400

(6) Rent Expense $ 4,000 : $24,000× 2/12 = $ 4,000

Prepaid Rent $ 4,000

(7) Dividend (or Retained Earnings) $ 36,000

Dividend Payable $ 36,000

Part 3 :

(1) Depreciation Expense $ 28,000

Accumulated Depreciation $ 28,000

($150,000 – 10,000)/5 = $28,000 per year

(2) Salary Expense $ 3,000

Salary Payable $ 3,000

(3) Interest Receivable $ 1,600

Interest Revenue $ 1,600

$120,000 × 8% × 2/12 = $1,600

(4) Prepaid Advertising Expense $ 6,000

Advertising Expense $ 6,000
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(5) Cash $ 12,000

Unearned Revenue $ 12,000

(6) Sales Revenue $ 20,000

Accounts Receivable $ 20,000
Part 4 :

(1) Accounts Receivable :

Beginning + Increase in A/R - Decrease = Ending Balance

$ 32,000 + Delivered - Cash Received $ 123,000 = $ 45,000

Therefore, Sales Revenue realized during the year = $ 136,000

(3) Unearned Service Revenue :

Beginning + Increase in unearned - Decrease = Ending Balance

$ 9,500 + Cash Received $ 23,500 - Revenue realized = $ 8,200

Therefore, Service Revenue realized during the year = $ 24,800

(3) Interest Expense Payable :

Beginning + Expense occurred - Decrease = Ending Balance

$ 8,000 + 15,000 - Cash Paid = $ 9,000

Therefore, Cash Payments during the year = $ 14,000

(4) Prepaid Rent :

Beginning + Increase in Prepaid - Expired = Ending Balance

$ 8,500 + Cash Paid - Expense $15,500 = $ 7,000

Therefore, Cash Payment during the year = $ 14,000