Practice Final Exam and Group Assignment #2
NCCB 5000
FINANCIAL ACCOUNTING
Summer/Fall 2016
NAME:___________________________________ Net ID: ____________
Instructions:
This examination consists of 12 pages, including the cover. For partial credit, please show all calculations and state any assumptions you make. If this were a real exam, you would have 180 minutes to complete your responses.
The exam consists of 3 sections with 140 possible points (scaled later to 10% of your course grade):
Points Assigned and Suggested Times Points Suggested
Assigned Times
Section I - 10 True/False questions 30 points 30 min
Section II - 10 Multiple-choice questions 40 points 35 min
Section III - 16Free Response questions 70 points 85 min
Review 30 min
TOTAL 140 points 180 min
For partial credit, please show all calculations and state any assumption you make. Record your answers on the exam in the space provided. Please read the directions preceding each section carefully before answering the questions. You may use your textbook, class notes, and a basic (non-graphing) calculator to complete the exam.
GOOD LUCK!
Section ITrue/False - If the statement is FALSE, you must explain why or correct it to get credit. (3 points each)
Example:
New York City is the capital of the United States of America.
Washington D.C.
True False (circle one)
Questions:
1. When a particular account receivable is determined to be uncollectible, the journal entry to write off the account reduces net income.
True False (circle one)
If false, explain below or correct above:
2. Depreciation is the process of estimating a long-lived asset's current market value.
True False (circle one)
If false, explain below or correct above:
3. An expenditure is capitalized when it is reported as an expense on the income statement.
True False (circle one)
If false, explain below or correct above:
4. Net income increases when treasury stock is sold foran amount in excess of its cost.
True False (circle one)
If false, explain below or correct above:
5. Goodwill is recorded only when an existing company is bought by another company and the purchase price exceeds the fair value of the purchased company's net identifiable assets.
True False (circle one)
If false, explain below or correct above:
6. Period costs should be included as part of the recorded value of a firm's inventory.
True False (circle one)
If false, explain below or correct above:
7. Firms are not required to use a cost flow assumption that matches the actual order in which inventory is typically sold.
True False (circle one)
If false, explain below or correct above:
8. Earnings-per-share increases when a company purchases treasury stock.
True False (circle one)
If false, explain below or correct above:
9. The journal entry to write off a specific uncollectible account reduces the net realizable value (i.e., book value) of accounts receivable, net.
True False (circle one)
If false, explain below or correct above:
10. The issuance of $1 par value common stock for $18 per share results in a $17 credit to the common stock account for each share issued.
True False (circle one)
If false, explain below or correct above:
Section II Multiple Choice - Circle the correct answer. (4 points each)
11. Phipps Company borrowed $25,000 cash on October 1, 2014, and signed a nine-month, 8% interest-bearing note payable with interest payable at maturity. Note that the stated 8% rate is an annual rate (not a 9-month rate). The amount of interest to be reported during 2015 is which of the following?
A) $1,000
B) $1,333
C) $500
D) $750
12. Which of the following statements is false?
A) The bond principal is the amount due at the maturity date of the bond.
B) The coupon rate is used to determine the cash interest payments on a bond.
C)The bond principal is used to determine the cash interest payments on a bond.
D) The market rate of interest is used to determine the cash interest payments on a bond.
13. Rachel Corporation purchased a building by paying $90,000 cash on the purchase date, agreeing to pay $50,000 every year for the next ten years and one additional payment of $50,000 ten years from the purchase date. The first payment is due one year after the purchase date. Rachel's relevant borrowing rate is 10%. The building reported on the balance sheet as of the purchase date is closest to:
A) $326,500
B) $460,000
C) $287,950
D) $416,500
14. Carr Corporation provided the following information for its most recent month of operation: sales were $8,000; beginning inventory was $1,000; ending inventory was $2,000; and gross profit was $5,000. How much were Carr's inventory purchases during the period?
A) $9,000
B)$5,000
C) $6,000
D) $4,000
15. A machine, acquired for a cash cost of $15,000, is being depreciated on a straight-line basis at an expense of $2,700 per year. The residual value is estimated to be 10% of its cost. The estimated useful life is:
A) 3 years
B)4 years
C)5 years
D) 6 years
16. RJ Corporation has provided the following information about one of its inventory items:
|
Date
|
Transaction
|
# of Units
|
Cost per Unit
|
|
1/1
|
Beginning Inventory
|
400
|
$3,200
|
|
6/6
|
Purchase
|
800
|
$3,600
|
|
9/10
|
Purchase
|
1,200
|
$4,000
|
|
11/15
|
Purchase
|
800
|
$4,200
|
During the year, RJ sold 3,000 units. What was the ending inventory using the LIFO cost assumption?
A) $640,000
B) $840,000
C)$770,000
D)$880,000
17. A company purchased treasury stock for $19,000. The treasury stock was initially issued for $12,000 and had a $5,000 par value. Which of the following statements correctly describes the effects of the treasury stock purchase?
A) Net Income increases by $7,000
B) Net Income decreases by $7,000
C) Stockholders' equity increases by $12,000
D) Stockholders' equity decreases by $19,000
18. Wilmington Company reported pretax income of $25,000 during 2013 and $30,000 during 2014. Later it was discovered that the ending inventory for 2013 was understated by $2,000 (and not corrected in 2013). What is the correct pretax income for each year?
A) $23,000 in 2013 and $32,000 in 2014
B) $27,000 in 2013 and $32,000 in 2014
C) $27,000 in 2013 and $28,000 in 2014
D) $23,000 in 2013 and $28,000 in 2014
19. RKJ Company has provided the following information:
- 100,000 shares of $5 par value common stock are authorized.
- 70,000 shares have been issued.
- 65,000 shares are outstanding
Which of the following statements is correct?
A) RKJ has 35,000 shares of treasury stock.
B) RKJ has 30,000 shares of treasury stock.
C) RKJ can resell 5,000 shares of common stock.
D) RKJ can issue an additional 35,000 shares of common stock.
20. Skylar Company issued $50,000,000 of its 10% bonds at par on January 1, 2016. On December 31, 2016, the bonds were trading on the exchange at $51,250,000. Since the issue date, what must have happened to the market rate of interest?
A. The market rate has increased.
B. The market rate has decreased.
C. The market rate stayed the same.
D. The market rate cannot be determined.
Section III Free Response Questions. (Points as indicated)
Reminder: For the questions that remain, show your work to be eligible for partial credit.
21. Compute the missing amounts that are numbered in parentheses for the income statement of each independent case, and enter them in the blanks below. (Hint: Each case need not be calculated in the numerical order of the missing numbers.) (12 points - 1.5 points each)
ßLoss of 50
(1) _____________
(2) _____________
(3) _____________
(4) _____________
(5) _____________
(6) _____________
(7) _____________
(8) _____________
Use the following information for questions 22-24 below. Prior to the year-end adjustment to record bad debt expense for 2014, the general ledger of Stickler Company included the following accounts and ending balances:
Allowance for Doubtful Accounts $1,000 credit balance
Bad Debt Expense 0
Accounts Receivable, Gross 200,000
Cash collections on Accounts Receivable during 2014 amounted to $450,000. Sales Revenue during 2014 amounted to $800,000, of which 75% was on credit, and it was estimated that 2% of these credit sales made in 2014 would eventually become uncollectible.
22. Show the complete T-Account for the Accounts Receivable, Gross, account in 2014 (4 points)
23. Prepare the journal entry necessary for recording Bad Debt expense for 2014 (4 points)
24. Determine the adjusted 2014 year-end balance in the allowance for doubtful accounts. (2 points)
Time Value of Money Problems
FOR ALL QUESTIONS BELOW, ROUND YOUR ANSWERS TO TWO DECIMAL PLACES (e.g., $123.45 or 123.45%)
25. On April 1, 2014, Copacetic Co. made a deposit of $100,000 in a fund and left the fund undisturbed for four years to earn compound interest at a rate which did not change during the four-year period. At the end of the four years, the fund had accumulated to $132,088.60. If interest was compounded quarterly, what was the rate of interest earned each quarter? (5 points)
26. If you wish to accumulate $468,000 on an initial investment of $136,000, how many years will it take to reach your goal if you invest in an account with an annual interest rate of 8%? (5 points)
27. You are valuing an investment that will pay you $27,000 per year for the first ten years, $35,000 per year for the next ten years, and $48,000 per year for the following ten years (all payments are made at the end of each year). If the appropriate discount rate is 9%, what is the value of the investment to you today? (6 points)
Long-Lived Assets.
Use the following information for questions 28-33. Note that these problems are presented across two separate pages.
In January of 2012, Delilah Manufacturing purchased a machine for $80,000. At the date of purchase, Delilah paid $800 to have the machine delivered. Delilah also incurred $2,300 in installation costs, $300 in costs to test the machine prior to operation, and $1,500 to fix a control panel damaged during installation. The estimated salvage value of the machine was $5,000, and Delilah estimated the machine would have a useful life of 15 years. Delilah estimates that the machine will produce 20,000 units of product during its lifetime. Where applicable, round your answers to two decimal places (e.g., 567.23).
28. What is the capitalized cost of Delilah's machine? Show your work. (5 points)
29. If Delilah produces 1,500 units of product with the machine in 2012, and uses the Units of Production depreciation method, what is the depreciation expense in 2012? (3 points)
30. If Delilah uses the double-declining balance depreciation method, what is the depreciation expense in 2012? (3 points)
31. IfDelilahusesthestraight-linedepreciationmethod, what is the depreciation expense in 2012? (3 points)
32. Still assuming that Delilah uses the straight-line depreciation method, assume that at the end of three years (i.e., at the end of 2014), Delilah realizes that the machine will only last for 9 years total rather than the 15 years that were originally estimated. Using this new information, provide the depreciation expense going forward for 2015. (3 points)
33. In January of 2015, accessories costing $5,200 were spent on the machine in order to improve its output and efficiency. Provide the journal entry to account for this $5,200 expenditure. (3 points).
Changes in Estimates
Use the following information for questions 34-36 below. Einstein Corporation purchased a new machine on January 1, 2010. Relevant information is as follows:
Cost when acquired $26,000
Estimated residual value $2,000
Estimated useful life 10 years
Accumulated depreciation at the end of year 5 $12,000
(assume straight-line depreciation)
It is now the beginning of year 6 and management has reevaluated the estimates related to the machine. Compute depreciation expense for year 6 under the following independent cases:
34. The estimated total useful life is changed to 15 years, residual value is unchanged (4 points)
35. The residual value is changed to $1,000, useful life is unchanged. (4 points)
36. The estimated total useful life is changed to 7 years and the residual value is changed to $3,000. (4 points)
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