17, Dec 2007
BA 2405 2nd MIDTERM EXAM
GROUP A
Name & Surname
:_________SOLUTIONS____
ID Number
:_________________________
This exam booklet consists of 10 pages including this page. Please count the pages
before you start.
Exam has two sections. Section I has 35 multiple choice questions worth 70
points and section II has 3 classical questions worth 30 points.
Answer the questions in Section I to the OPTIC PAPER. Do not forget to code in
your name, ID and Group code.
Answer the questions in Section II on this booklet at the spaces provided after
each question.
You can use a calculator, but can not share it. You are not allowed to use mobile
phones as calculators.
Make a good TIME MANAGEMENT, GOOD LUCK..
SECTION I
Group A
1) Which of the following entries would not be used when using direct write-off method?
a. Uncollectible Account Expense
xx
Accounts receivable
xx
b. Cash
xx
Accounts receivable
xx
c. Accounts receivable
xx
Allowance for Uncollectible Accounts
xx
d. Accounts Receivable
xx
Sales
xx
2) Restricted cash should be:
a. Classified as long-term assets
b Classified as other receivables
c. Disclosed in the notes to the financial statements
d. both a and c.
3) Which one of the following is not a control over cash
a. Cash is stored in a cash vault located in a locked area.
b. Physical cash inflows and outflows are managed by the cashier.
c. Recording of cash inflows and outflows are performed by the accountant not
by the cashier.
d. At the end of each day the cashier controls the cash movements with the cash
receipt and payment vouchers.
4) Melis Company, which has an adequate amount in its Allowance for Uncollectible
Accounts, writes off an account receivable from a bankrupt customer. The related journal
entry will
a. Have no effect on total current assets.
b. Decrease total current assets.
c. Decrease net income.
d. Decrease shareholders' equity.
5) The Allowance for Uncollectible Accounts represents:
a. Cash set aside to compensate for uncollectible receivables.
b. The total amount of uncollectible accounts written off to date.
c. The difference between total credit sales and collections on
credit sales.
d. The difference between the face value of accounts receivable and
the net realizable value of accounts receivable.
6) The balances of accounts receivable and Allowance for Uncollectible Accounts were
TL 122.000 and TL 13.000, respectively before writing off an uncollectible receivable
from a customer of TL 4.850. The net realizable value of the accounts receivable before and
after the write-off were:
a. TL 122.000 before and TL 117.150 after.
b. TL 109.000 before and TL 109.000 after.
c. TL 109.000 before and TL 104.150 after
d. TL 117.150 before and TL 109.000 after.
Use the following information to answer the question(s) below.
Athletic Sportshop had credit sales of TL 102,000 for May. Accounts
receivable of TL 3.800 were determined to be worthless and were written
off during May. The balance of Accounts Receivable was TL 23.000 at 31 May.
Based on past experience, approximately 2.5% of net credit sales will become
uncollectible.
7) If Athletic Sportshop uses the direct write-off method of valuing accounts receivable
uncollectible accounts expense for May is:
a. TL 2.550.
b. TL 575.
c. TL 3.800.
d. TL 3.125.
8) If Athletic Sportshop uses the net recoverable accounts receivable approach to value
accounts receivable, impairment loss for March is:
a. TL 2.550.
b. TL 575.
c. TL 3.800.
d. TL 3.125.
9) The maturity value of a TL 54.000, 75-day note at 9 percent is (Use 360 days in one year.)
a. TL 54.860.
b. TL 55.013.
c. TL 59.400.
d. TL 55.130.
Use the following information to answer the question(s) below.
Use the following information to answer the question(s) below.
Gentle Boutique made a total of TL 2500 credit card sales on 14 February . The entity's
agreement with the bank for the collection of credit card slips is 4% commission for 30
days
10) The entry to record the sales transactions on 14 February would include a
a. debit to Cash for TL 2500.
b. credit to Sales for TL 2400.
c. debit to Commission Expense for TL 100.
d. debit to Accounts Receivable for TL 2500.
11) The entry to record the collection on 14 March would include a
a. debit to Commission Expense for TL 100.
b. debit to Cash account for TL 2400.
c. debit to Cash for TL 2500.
d. credit to Sales for TL 2400.
12) On 1 January 2000, High Line Corporation, borrowed TL 160.000 from a local bank
of which TL 40,000 is due on 1 January for each of the next four years. In the balance
sheet as of 31 December 2000 the bank loan will be classified as
a. Current Liabilities, TL 160.000 .
b. Long-term Liabilities, TL 160,000.
c. Current Liabilities, TL 40,000; Long-term Liabilities, TL 120,000.
d. Current Liabilities, TL 120,000; Long-term Liabilities, TL 40,000.
13) The account Discount on Notes Payable eventually is transferred to
a. Interest Expense.
b. Cash.
c. Interest Income.
d. Interest Payable.
14) Which of the following is a deduction borne by the employee only?
a. Stamp duty
b. Unemployment Insurance premium
c. Social Security Premium
d. All of the above
15) An employee has gross earnings of TL 1.200 and withholdings of TL 60 for social security
and unemployment insurance premiums and TL 120 for income taxes. The employer
pays TL 75 for social security and unemployment premiums. The total cost of this
employee to the employer is
a. TL 1.380
b. TL 1.275
c. TL 1.200
d. TL 1.455
16) N&N PC Shop sells keyboards that cost TL 28 each and have a 4 percent failure rate. If
375 keyboards are sold, the estimated product warranty expense would be
a. TL 15
b. TL 420
c. TL 405
d. TL 450
17) A customer is injured using a company's product. The potential liability that may result is
called a(n)
a. Current Liability.
b. Contra Liability.
c. Product Warranty Liability.
d. Contingent Liability.
18) The trial balance of Silvershine Corporation shows the following balances for the
selected accounts as of 31 December 2006.
Debit
Prepaid Rent
Prepaid Tax
Taxes Payable- Stamp Duty
Credit
5.750
67.500
22.400
Corporate income tax for Silvershine was computed to be TL 128.450 for the year ended
31 December 2006. The journal entry to accrue for corporate income taxes would include
a. debit to prepaid tax for TL 65.700
b. debit to Taxes Payable-Stamp Duty for TL 22.400
c. credit to Income Taxes Payable for TL 128.450
d. debit to Income Tax Expense for TL 128.450
19) Intelligence Corporation had TL 35.750 of VAT paid on purchases of goods and services
and TL 42.300 of VAT received from sale of merchandise at the end of August 2007. Which of
the following statements is true for Intelligence Corporation?
a. TL 6.550 will be paid to tax office on 25 September 2007.
b. Since there is no VAT payable for August transactions, the Company will not file a
c. VAT return on 25 September 2007.
d. TL 6.550 of VAT carried forward will be deducted from VAT payable of next month.
e. Both b and c above.
20) One of the major differences between an investment in debt securities and an investment
in equity securities is that:
a. Equity securities are traded on the stock market but bonds are available only through
the government.
b. An investment in equity securities can be traded at any time; an investment in bonds
must be held to maturity.
c. The interest on bonds accrues from day to day; dividends do not accrue.
d. Equity securities are classified as current assets if the investor intends to hold them
for only a short time; investments in bonds are classified as current assets only if
maturing within one year.
21) Corporation A owns 30% of the voting stock of Corporation B. The investment should be
accounted for:
a. At lower-of-cost-or-market as a current asset.
b. By the equity method as a long-term investment.
c. On a consolidated basis.
d. By the method chosen by the board of directors of Corporation A.
22) Under the equity method, an investment in common stock of a corporation:
a. is initially recorded at cost and is not adjusted unless sold.
b. is recorded at cost and adjusted for changes in the stockholders' equity of the investee.
c. is recorded at cost and adjusted for changes in the stockholders' equity of the investee
and for the lower-of-cost-or-market rule.
d. recorded is at cost and adjusted at the end of each year to lower-of-cost-or-market
value.
23) When Kavak Company uses the equity method to account for its investment in 40% of
the voting stock of Palmiye Company:
a. The cash dividends received from Palmiye are recorded by a debit to Cash and a
credit to Dividend Income.
A loss reported by Palmiye is recorded by Kavak by a debit to Retained Earnings and
a credit to Cash.
c. The earnings reported by Palmiye are recorded by a debit to the Investment in
Palmiye account and a credit to Retained Earnings.
d. Cash dividends received from Palmiye are recorded by a debit to Cash and a credit to
the Investment in Palmiye account.
b.
24) The investor consolidates if :
a. it has elected a majority of the subsidiary's directors.
b. it owns 20% or more of the subsidiary's outstanding voting shares.
c. it owns a majority (more than 50% ) of the subsidiary's voting shares.
d. it owns 100% of the subsidiary's outstanding common shares.
Aydem Company owns the following investments in marketable equity securities at 31
December 2005 and applies the LCM rule:
Investment
Cost
ZMX Corporation TL 5.200
NBR Industries
12.000
Demir Corporation
9.200
Market Value
TL 5.800
11.600
5.700
25) Refer to the information above. What is the balance of the valuation Allowance for
Marketable Equity Securities account at 31December 2005?
a. TL3.600.
b. TL3.900.
c. TL0.
d. TL3.300.
26) Refer to the information above. The balance of Marketable Equity Securities in the
balance sheet of 31 December 2005 is:
a. TL23.100.
b. TL22.500.
c. TL23.400.
d. TL22.800.
27) Refer to the information above. Aydem Company sells its entire investment in NBR
Industries on 4 January 2006 , for TL11.900. Aydem Company should record:
a. A TL400 unrealized gain and a TL100 realized loss.
b. A TL300 realized gain.
c. A TL100 realized loss.
d. A TL200 realized gain.
28) Which of the following costs incurred during the acquisition of a machine is not a part of
the cost of this asset?
a. Transportation charges incurred for delivery.
b. Installation charges.
c. Taxes and duties incurred.
d. Replacement of parts damaged during installation of the machine.
29) Which of the following is not a capital expenditure?
a. Advertising expenditures to introduce a new product line.
b. Customs and duties paid in conjunction with the purchase of new machinery.
c. Installation of elevators to replace escalators.
d. An amount paid to acquire a patent with a remaining life of only
three years.
30) The book value of an asset in the property, plant and equipment category is:
a. The accumulated depreciation of the asset as of the current date.
b. The current replacement cost of the asset.
c. The original cost of the asset.
d. The difference between the original cost and the accumulated depreciation of the date.
31) If the units-of-output method of depreciation is used:
a. Depreciation expense will decrease over the life of the asset.
b. Depreciation expense will be the same amount for each period.
c. Depreciation expense will be high when output is low and low when output is high.
d. Depreciation per unit of output will be an equal amount over the life of the asset.
32) On 1 January 1999, Kampus Kafe purchased fixtures for TL2,600 millions, which are
estimated to have a useful life of eight years. Kampus Kafe uses the straight-line method of
depreciation. If the book value of the fixtures is TL2,325 at 31 December 1999, the
estimated residual value must be: (in millions)
a. TL275.
b. TL325.
c. TL400.
d. TL125.
33) Bati Company acquired new machinery on 1 January 1995 at a cost of TL48,000 that was
estimated to have a useful life of 10 years and a residual salvage value of TL12,000.
Straight-line depreciation was used. On 1 January 2001, following six full years of use of the
machinery, management decided that the estimate of useful life had been too long and that the
machinery would have to be retired on 1 January 2003, that is, at the end of the eighth year of
service. Under this revised estimate, the depreciation expense for the seventh year of use
would be:
a. TL7,200.
b. TL9,600.
c. TL13,200.
d. TL14,400.
34) Portakal AS sold a used truck for cash of TL3,500 incurring a loss of TL 800. The
accumulated depreciation amounted to TL8,300 at that date, then the original cost of the
truck must have been:
a. TL7,600.
b. TL9,100.
c. TL11,000.
d. TL12,600.
35) UM Corporation acquired an old used factory building. Before placing the building in
use, the company spent several billions of Turkish Liras to install new support beams, to
replace broken windows, and to paint the building. These expenditures should be recorded by
debiting:
a. Repairs Expense.
b. Land.
c. Building.
d. Land Improvements.
Solutions of Section 1
1C
8A
15B
22B
29A
2D
9B
16B
23D
30D
3D
10C
17D
24C
31D
4A
11B
18D
25D
32C
5D
12C
19A
26A
33A
6B
13A
20C
27B
34D
7C
14A
21B
28D
35C
SECTION II
1) On 1 January 2007, EDO Hardware Company's trial balance included the following
accounts:
Accounts Receivable
Allowance for Uncollectible Accounts
Debit
TL 420.000
Credit
TL 12.200
Following transactions regarding the accounts receivable occurred during the year.
8 March:
A major customer declared bankruptcy, and a receivable from that customer in
the amount of TL 7.400 became uncollectible.
15 May:
The customer mentioned in the above transaction won the lottery and paid TL
5.000 of the total amount to MP Hardware Company and promised to pay the remainder in 2
months.
30 June:
EDO Hardware checked its accounts receivables for impairment and
determined that the net realizable value of the total TL 540.000 accounts receivable is TL
516.000
31 December:As of year-end the net realizable value of accounts receivable of the total
TL500.000 is TL 480.000. (In EDO company the net realizable value study is done twice a
year, June 30th and Dec 31st.)
In the general journal provided below, prepare the necessary journal entries for the
transactions at the above dates.
Date
Account Title and Description
Debit
Credit
March 8, 07
June 30, 07
Dec 31, 07
7.400
Dr. A/R
Cr. Allowance for unc.accts
7.400
7.400
Dr. Cash
Cr. A/R
May 15, 07
Dr. Allowance for uncollect. Accts 7.400
Cr. A/R
5.000
Dr. Impairment loss
Cr. Allow. For uncollect.accts
24.000 or 11.800
Dr. Allowance for uncoll. Accts.
Cr. Recovery of impairment
4.000
5.000
24.000 or
11.800
4.000
2) On 1 September, Prima Business Center issued a 75 day, 14% promissory note and
borrowed TL 55.000 from White Bank. Interest is in addition to the face value.
Prepare Prima Business Center's journal entries at 1 September, 30 September (end of
fiscal year) and 15 November (Maturity), loan is fully paid back.
Use the general journal provided below (Explanations for the entries are not needed).
Date
Account Title and Description
Debit
Sep 1,
Dr. Cash
Cr Notes payable
55.000
Dr. Interest expense
Cr. Interest payable
642
Dr. N/P
Dr. Interest payable
Dr. Interest expense
55.000
642
962
Sep 30,
Nov 15
Cr. Cash
Credit
55.000
642
56.604
3) Alara Corporation acquired a paint machine with an estimated life of 5 years and an
estimated salvage value of TL 5.000 on 1 August 2006 for TL 50.000. It is estimated that the
machine can operate for 10.000 hours in total.
Using the following depreciation methods determine the depreciation expense for 2006 and
2007.
depreciation
expense in TL
2006
2007
a
Straightline
b
Units-ofoutput *
c Declining-balance
3.750
9.000
5.400
11.250
7.500 or 8.333
18.000 or 16.667
(* 1,200 hours in 2006, 2,500 hours in 2007)
If the machine is sold for TL 25.000 cash at 1 January 2008, what is the loss or gain on sale
of asset under each depreciation method. Provide the journal entries below:
Date
Account Title and Description
Debit
Dr. Cash
25.000
Dr. Accumulated deprectiation
12.750
Dr. Loss on sale of fixed assets
Credit
12.250
Straight-line method
Jan 1, 08
Cr. Machine (F/A)
50.000
Units of Output method
Jan 1, 08
Dr. Cash
25.000
Dr. Accumulated deprectiation
16.650
Dr. Loss on sale of fixed assets
8.350
Cr. Machine (F/A)
50.000
Declining balance meth.
Dr. Cash
25.000
Dr. Accumulated deprectiation
25.500 or 25.000
Dr. Loss on sale of fixed assets
500 or 0
Cr. Machine (F/A)
50.000