Acc212 Financial Accounting: Final Study Guide (11 Questions)_Aug2012

Acct212 Financial Accounting

Final Exam (11 Short Answers)

1. (TCO 3) At the end of the period it is necessary to close all temporary accounts. (1) Explain why this process is required and (2) provide an example of the closing of an expense account, Salary Expense in the form of a journal entry.

2. (TCO 2) As required to complete Course Project 1, one must follow the cycle that includes 10 steps to complete the accounting cycle. (1) Explain how to construct an Unadjusted Trial Balance and (2) provide an example of the application of the debit/credit rules in the development of the trial balance.

3. (TCO 5) Internal Control Procedures are required to safeguard company assets and to ensure ethical operation of the business. (1) Explain how smart hiring practices can satisfy the purpose of internal control and (2) provide an example of how this control could be implemented.

4. (TCO 4) Inventory valuation methods determine the cost of goods sold and the inventory balance. (1) Explain how the Last in First out (LIFO) method is applied and (2) provide an example of the impact that this method of inventory valuation will have on Gross Profit.

5. (TCO 1) To evaluate the financial operation and health of a business ratio analysis is used. (1) Provide the formula for the Debt Ratio and explain how it is computed and (2) provide an example of how this ratio can be used in decision-making in business.

1. (TCO 6) Depreciation is a process to allocate the cost of long-life assets to each period's income statement and adjusts the value of the asset on the balance sheet. (1) Explain how the straight-line method is computed and (2) provide an example of how this method could be used on a new delivery truck purchased for $25,000 to be used for 4 years with a salvage value of $5,000 for year one only.

2. (TCO 6) To raise capital, companies might sell bonds. This allows them to bypass lenders such as banks and go directly to the investing public. Your company is planning to sell bonds with a face amount of $1,000 and paying 5% annual interest. (1) The day the bonds hit the market, the bond price is quoted at 88.5. What is the bond's selling price?and (2) how does the company record this sale in its accounting information system? Use journal entries to support your answer.

3. (TCO 1) Financial statement analysis is used by investors, creditors, and managers of business to evaluate the operation and health of the business. This information is in part the basis for decision-making. (1) Explain how to prepare common-size financial statements and (2) provide an example of how the results of this analysis could be used to make business decisions.

1. (TCO 7) There are three different forms of business; sole-proprietor, partnership, and corporation. (1) Explain why a corporation's separate legal entity status may be a benefit and (2) as a stockholder explain why the right to vote may be a benefit.

2. (TCO 4) Inventory valuation methods allow management to select a method that best fits their business model. Given the following data, what is the value of the cost of goods sold as determined by the First in First out (FIFO) method? Show all computations.
Sales revenue 300 units at $15 per unit
Purchases 240 units at $10 per unit
Beginning inventory 120 units at $9 per unit

3. (TCO 5) A business may find that they have access cash required for some future date so will invest some of the cash in short-term investments. Explain how gains and losses are reported when the securities are sold.
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