Questions:
1. The net amount of a bond liability that appears on the balance sheet is equal to the face value of the bond plus any related discount or minus any related premium.
True False (circle one)
If false, explain below or correct above:
2. Goodwill is amortized using the straight-line method over its estimated useful life.
True False (circle one)
If false, explain below or correct above:
3. Long-lived assets found on a company's balance sheet may include some assets that have no physical substance.
True False (circle one)
If false, explain below or correct above:
4. Under the allowance method for uncollectible accounts, the write-off of a specific account will not affect the totalreported value of a firm's assets.
True False (circle one)
If false, explain below or correct above:
5. When a company reissues shares of its treasury stock at an amount different from its cost, it reports a gain or loss on the sale.
True False (circle one)
If false, explain below or correct above:
6. For a manufacturing company, the use of raw materials in the manufacturing process is immediately reported as an operating expense on the income statement.
True False (circle one)
If false, explain below or correct above:
7. A corporation has no legal obligation to pay dividends.
True False (circle one)
If false, explain below or correct above:
8. Atits maturity date (but before repayment of the bond's face value), the carrying value of a bond will equal the face value.
True False (circle one)
If false, explain below or correct above:
9. The journal entry to write down inventory under the lower of cost or market (LCM) rule results in a decrease in both ending inventory and cost of goods sold.
True False (circle one)
If false, explain below or correct above:
10. If a company produces the same number of units per period over an asset's useful life, each period's depreciation expense using the straight-line method will be the same as that recorded using the units-of-production method.
True False (circle one)
If false, explain below or correct above:
Section II Multiple Choice - Circle the correct answer.
11. Labrador, Inc. has the following information available for the current year:
- Net Sales, $750,000
- Bad Debt Expense, $60,000
- Beginning Accounts Receivable, $120,000
- Ending Accounts Receivable, $55,000
- Beginning Allowance for Doubtful Accounts, $42,000
- Ending Allowance for Doubtful Accounts, $62,000
How much was written off from accounts receivable during the year?
A) $62,000
B) $60,000
C) $55,000
D) $40,000
12. A company provided the following data: sales were $500,000; beginning inventory was $40,000; ending inventory was $45,000; and gross profit was $150,000. What was the amount of inventory purchased during the year?
A) $385,000
B) $355,000
C) $345,000
D) $145,000
13. When shares of another corporation are purchased by a company, what is the effect on total stockholders' equity (of the company that purchased the shares)?
A) Decrease
B)Increase
C)No effect
D) Cannot tell without more information about the purchase price
14. XYZ Corp. uses the percentage of credit sales method of determining its bad debt expense. The following information comes from the accounting records of XYZ Corp.
- Cash Sales, $200,000
- Credit Sales, $800,000
- Total Sales, $1,000,000
- Credit Balance in the Allowance for Doubtful Accounts, $5,000
- Estimated Bad Debt loss rate - 3%
What is XYZ's estimate of bad debt expense for the year?
A) $24,000
B) $25,000
C) $29,000
D) $30,000
15. City View Limousine depreciates its stretch Hummer using the units-of-production method and bases usage on the miles driven per year. The estimated useful life of the vehicle is 250,000 miles. The vehicle was purchased for $115,000 and is not expected to have any residual value at the end of its life. It was driven a total of 40,000 miles during the first year of its useful life and 25,000 miles during the second year. What is the balance in the Accumulated Depreciation account for the vehicle at the end of the second year?
A) $70,769
B)$29,900
C)$11,500
D) $18,400
16. Luna Corp. shows the following information in the stockholders' equity section of the balance sheet:
|
Common Stock; $10 par value; 30,000 shares authorized; 12,000 shares issued; 10,000 shares outstanding
|
$120,000
|
|
Additional Paid-In Capital
|
60,000
|
|
Retained Earnings
|
50,000
|
|
Treasury Stock; 2,000 shares
|
26,000
|
What was the average issue price per share of the Common Stock, assuming that all Additional Paid-In Capital relates to the issuance of stock?
A) $10
B) $12
C)$13
D)$15
17. Chucky D acquired a hydraulic lift on August 1, 2016. The lift cost $165,000 had an estimated useful life of 10 years and a residual value of $16,500 at the end of its useful life. What amount of depreciation expense would be recognized under the double-declining balance method for the year ending December 31, 2016?
A) $13,750
B) $16,500
C) $33,000
D) $19,250
18. Which of the following statements correctly describes the accounting for bonds that were issued at a discount?
A) The market rate of interest is less than the coupon interest rate.
B) The interest expense over the life of the bonds will be greater than the total cash interest payments.
C) The present value of the bond at issuance is greater than the bonds' maturity value.
D) The book value of the bond liability decreases when interest payments are made on due dates.
19. Which of the following is correct when, in the same year, beginning inventory is overstated by $1,300 and ending inventory is understated by $700?
A) Net Income is understated by $600
B) Net Income is understated by $2,000
C) Net Income is overstated by $600
D) Net Income is overstated by $2,000
20. Accounting is:
A) Not as bad as I expected it to be.
B) Often referred to as "the language of business".
C) Much harder than I expected to be.
D) None of the above.
(Don't worry - you can't miss points for this problem!)
Section III Free Response Questions. (Points as indicated)
Reminder: For the questions that remain, show your work to be eligible for partial credit.
Use the information below for questions 21-23.
On June 1, 2016, Concorde Company sold 80 skateboards at $125 each to Jet Grind Sports, with terms of 2/10, n/30.
21. Prepare any journal entries necessary for Concorde to record the sale of skateboards, ignoring cost of goods sold.
22. Prepare any journal entries necessary for Concorde to record the receipt of payment, assuming Jet Grindpaid down their account on June 28, 2016.
23. Prepare any journal entries necessary Concorde to record the receipt of payment, now instead assuming instead that Jet Grind paid down their account on June 9, 2016.
Time Value of Money Problems
FOR QUESTIONS 24 and 25, ROUND YOUR FINAL ANSWERS TO TWO DECIMAL PLACES (e.g., $123.45 or 123.45%)
24. Your company has placed $197,000 in an investment account to help with long-term expansions plans. How many years will it take for the $197,000 to grow to be $554,000 if it is invested in an account with a quoted annual interest rate of 8%?
25. Mergenthaler Technologies plans to invest $4 million right now, and $750,000 a year at the end of each of the next two years, in a top-secret project. At the end of the second year they expect to sell the results of the project to Google for $18 million. What is Mergenthaler's expected annual rate of return on the project?
Long-Lived Assets.
Use the following information for questions 26-29.
Martinez, Inc., acquired a patent on January 1, 2016 for $40,000 cash. The patent was estimated to have a useful life of 10 years with no residual value, and the firm decided to use straight-line amortization. On January 1, 2017, management determined that the remaining useful life was actually only 6 years. On June 30, 2018, the patent was sold for $25,000.
26. Prepare the journal entry to record the acquisition of the patent on January 1, 2016.
27. Prepare the journal entry to record amortization of the patent for 2016.
28. Compute the amount of amortization that would be recorded for 2017.
29. Prepare the journal entry to record the sale of the patent on June 30, 2018.
Bonds
Use the following information for questions 31-32 below. On January 1, 2014, Houston Company authorized a $1,000,000, 10-year, 6% coupon bond, with annual interest to be paid each December 31. The market rate of interest at the time the bonds were issued was 8.75%. ROUND ALL ANSWERS TO TWO DECIMAL PLACES (e.g., $123.45).
30. Prepare the required journal entry to record the sale of the bonds
31. Prepare the required journal entry on December 31, 2014, to record amortization for the year, assuming the straight-line method.
Inventory
32. The inventory records of Freimanis Corporation reflected the information shown below for the month of August.The company values its inventory on a periodic basis.
|
Date
|
Transaction
|
Number of Units
|
Cost Per
Unit
|
|
8/1
|
Beginning inventory
|
400 |
$5
|
|
8/3
|
Purchase No. 1
|
400 |
$5
|
|
8/5
8/7
|
Sale No. 1
|
600 |
|
|
Sale No. 2
|
100 |
|
8/11
|
Purchase No. 2
|
1,000 |
$7
|
|
8/17
|
Sale No. 3
|
700 |
|
|
8/19
8/21
|
Purchase No. 3
|
1,000 |
$7
|
|
Sale No. 4
|
600 |
|
8/28
|
Sale No. 5
|
600 |
|
|
8/29
|
Purchase No. 4
|
1,200 |
$9
|
Determine the dollar amounts of ending inventory and cost of goods sold at the end of August under each of the inventory valuation methods listed. Enter your responses in the blanks provided. (2 points each blank, 12 points total).
|
Method
|
Ending
Inventory
|
Cost of Goods Sold
|
|
a.
|
Average cost
|
|
|
|
b.
|
FIFO
|
|
|
|
c.
|
LIFO
|
|
|
Cost of Goods Sold
a. Average cost
b. FIFO
c. LIFO
Stockholders' Equity
33. HighRise Company reported the following amounts of contributed capital in the stockholders' equity accounts as of January 1, 2016:
|
Contributed capital:
|
|
|
Common stock, par $5, authorized 50,000 shares;
|
|
|
Issued and outstanding 30,000 shares
|
$150,000
|
|
Additional paid-in capital
|
100,000
|
Indicate the journal entry to record each of the following transactions by entering the letter code corresponding to each account that would be debited and credited. Enter the code letter and the amount of each debit and credit (do not use dollar signs). The transactions, including the example, are not interrelated. (1point each blank, 8 points total).
Accounts
|
A.
|
Cash
|
D.
|
Additional paid-in capital
|
|
|
B.
|
Dividends payable
|
E.
|
Retained earnings
|
|
|
C.
|
Common stock
|
F.
|
Treasury stock
|
|
|
|
Transaction
|
Debits
|
Credits
|
|
|
Code
|
Amount
|
Code
|
Amount
|
|
Ex.
|
Paid a previously declared cash dividend of $2,000.
|
B
|
2,000
|
A
|
2,000
|
|
1
|
Dec. 1, 2016-The board of directors declared a $2 per share cash dividend payment, which will be paid in 2017.
|
|
|
|
|
|
2.
|
Dec. 28, 2016-The corporation purchased 200 of its own shares at $10 per share.
|
|
|
|
|