Exam #2 B - “ti Lita Esam #: ACC 311, Fundamentals of...

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Unformatted text preview: “ti Lita Esam #: ACC 311, Fundamentals of Financial Accounting 1% (‘0 Fall 2008 / Exam H q Z/ Form B Name “Sgérew greed—- Instructor Kmth Section Meeting Time % AM i" """"""""""""""""""""""""""""""""" “'“l : l 3 DO NOT OPEN } : until given instructions to do so. i t I I 1 Instructions 1. Assume that the accrual basis of accounting applies to all questions, unless a question specifically instructs otherwise. Confirm that you have 12. numbered pages. There are also two blank sheets of paper at the end of the exam that you may use for scratch paper. On your Scantron answer sheet, write and bubble in your name, section number, and the Test Form letter noted above. Use a #2 pencil oniy to mark your responses on your Scantron answer sheet. Mark clearly and erase completely as needed. You should also mark your answers on your exam. However, only multiple choice answers marked on your Scantron answer sheet will be graded. Multiple choice questions are 2 points each; all other questions have their point value noted with the problem. ' Cell phones and PDA's are NOT allowed and must be turned off and put away during the exam. Calculators capable of storing text (programs) are not allowed. You may use a basic calculator with a numerical memory function only. Bring your entire exam, Scantron answer sheet and student ID to the front of the room when you have finished. You are reminded of the University’s honor policy which requires you do your own work and not give or receive assistance on this exam. Ace 311 — Exam 11 Form B ~ Page I. Fa112008 SECTION I - MULTIPLE CHOICE (50 points - 2 points each) - Please choose the BEST answer for each question and record your answer on the Scantron answer sheet. 1. Under the FIFO cost flow assumption during a period of inflation, whichof the following is false? = W “E Income tax expense will be higher than under LIFO. “t' ' I Gross margin will be higher than under LIFO. Wé? Ending inventory will beiower than under LIFO. “T” D Cost of goods sold will be lower than under LIFO. E Ail of the above are true. 2. Which of the following statements is “age? revenue is recorded when goods are shipped fob. destination. revenue is recorded when cash collection is made. revenue is recorded upon delivery when goods are shipped fob. destination. revenue is recorded either when the sale is made, collection occurs and/or delivery is made. It is the company’s decision. 3. Under the periodic inventory system: K a transaction by transaction unit inventory record is maintained. '. the cost of goods sold for each sale is recorded at the time each sale is made. C ending inventory and cost of goods soid are calculated at the end of each accounting period. ,9": a cont'muous inventory record provides the amount of ending inventory and the cost of goods sold throughout the period. E. none of the above is correct. 4. Lauer Corporation uses the periodic inventory system and the following information about their laptop computer is available: Date Transaction Number of Units Cost gerUnit 1/: Beginning Inventory 100” s 800 5/5 Purchase 200 $ 900 8/10 Purchase 300 $1,000 10/15 Purchase 200 $1,050 During the year, 750 laptop computers were sold. 'What was ending inventory and cost of goods sold on 12/31 under the LIFO cost flow assnrn tion? . a p ZCPQ W qufi‘m W [email protected] 7306,» - Mom.) ‘r‘r "3599,6999 A. $56,000 and $714,000. “Loo a each firmness) ‘ $45,000 and $725,000. V a E ' . $40,000 and $730,000. W ‘ ‘3‘” it??? its) None of the answers is correct. erg eh m f 5;; g) m W Ace 311 » Exam 11 Form B — Page 2 Fall 2008 5. On January 1, 2009, Simko Company acquired a truck that had a purchase price of $20,000. The seller agreed to allow Simko to pay for the truck over a threeuyear period at 10% interest with equal payments due at the end of 2009, 2010 and 2011. The amount of each annual payment the company must make is (round to the nearest dollar). ~ if}? 623er i‘iflaM-swyéww-teweeiw ‘5' dayd’ir'tlt-eiefgmii A. 6,042 " ‘1 :8 042 s tandem . $15,026 W D. $15,206 “WWWM as ea. 3,... fiancee; (Ht 6. Eagle Corporation, purchased an asset on January 1, 2009. They chosc the double—declining— balance depreciation method to depreciate the asset. Had Eagle Corporation chosen the straight« line method “4.” depreciation expense would be greater in 2009. the book value of the asset would be more at the end of 2009. net income would be less in 2009. D. all of above are correct. E. none of the above is correct. 7. Failure to make a necessary adjusting entry for accrued interest on a note payable would cause In? B. 8. - On December 31, 2009, Mason Inc. sold a used industrial crane for $1,000 0%gsh. The original cost of the crane was $5.0 million and its accumulated depreciation equalgtflngéll million on December 31, 2009 (bpfifgggwgeflépggfise); they had been using the straightdine depreciation method. The estimated residual valueHWas zero and its useful life was 25 years when the asset was purchases. What is the gainer loss on the equipment on December 31, 2009? 2;; 3, car-sorry an understatement of liabilities and stockholders‘ equity. net income to be overstated and assets to be understated. net income to be understated and liabilities to be understated. an overstatement of net income, an understatement of liabilities, and an overstatement of stockholders equity. t,“ eaten emf at @593 2%.. $300,000 loss ‘ ‘ $100,000 gain {we we»? a.) are: $300,000 gain “ “43::ng We: a a a . $100,000 loss ' ‘ L; a W; E. No Gain or Loss 25%? gm? 9. An understatement of the ending inventory in Year 1, if not corrected, will cause i 9 Year 1 net income to be understated and Year 2 net income to be overstated. . Year 1 net income to be overstated and Year 2 net income to be overstated. C. Year 1 net income to be overstated and Year 2 net income will be correct. D. Year 1 net income to be overstated and Year 2 net income to be understated. 5. ’23:» figment“ i admit;- ti-‘Wv “i ii! Ace 311 . Exam II ' Form B — Page 3 Fall 2008 10. The following is a partial list of account balances from the books of Probst Enterprise at the end of 2009: g V{Accounts Payable $20,500 amp: Accrued Vacation Liability 1,200 ‘0‘ 6,500 gferred Revenue 1,300 t. come Taxes Payable 1,900 [email protected]) 10,000 Based solely upon these balances, the amount of current liabilities appearing on Probst Enterprise’s 2009 year-end balance sheet should be in a, Mn "‘ I "51:33 ~15 5v? A $24,900. in a, Q Q .. $24,100. ' L t “a... to eh ' to: C. $23,700. W “:5 E Q a; rt in -. WE -‘ - ' D. if” t“: wag Q Q {A}; gating? W 11. if an expenditure is treated as a betterment, insgead of as a repair, which of the following statements is true? WW " “53W” e. “2., new law in, one A The current year's net income will be lower and future depreciation expense will be higher. W current year's net income will be higher and future depreciation expense will be lower. C. The current year's net income will be higher and future depreciation expense will be higher. ' current year‘s net income will be lower and future depreciation expense will be lower. E. The current year’s balance sheet will be lower. 12. Which of the following statements about liabilities is correct? A. When a liability is first recorded, it is measured as the value of what is received when it is incurred (e.g., cash borrowed) or the fair value (present value) of what is promised to be paid—-whichever is more evident. A decrease in a ty will increase a firm’s Current Ratio. , Accrued liabilitr enes that have been incurred before the end of an accounting period but have not been paid. All of the above are correct. Only A & C are correct. m 13. Gross wages of $20,000 a I ‘ _ r en @2040 should be recorded by the employer in a journal entry that includes a 133:5"? inmaWM-W ‘ debit of $20,000 to Compensation payable. credit of $20,000 'to Cash. debit of $20,000 to Compensation expense. debit of $20,000 to Cash. \ Ace 311 — Exam II 14. 15. p is. 17. a Form B — Page 4 Fall 2008 Williams Company plans to depreciate a new building using doubledeciining-balance depreciation. The building cost $7 00,000. The estimated residual value of the building is $25,000 and it has an expected useful life of 4 years. What is the building’s book value at the end of the second year? . smfififlfig ,, $175,000. " . $362,500. C. $168,750. D. $ 77,778. E. None of the above is correct. Mountain View Corporation purchased a machine with an initial cost of $90,000, a residual value of $5,000, and an estimated useful life of 10 years. At the beginning of the fifth year, Mountain View Corporation spent $12,000 for an extraordinary repair (betterment). Following the betterment, Mountain View estimated that the machine had a remaining useful iife of 8 years, and that the residual value was unchanged. Calculate depreciation expense on the machine for the fifth year, assuming they use the straightdine method. am) mag; a a3! My} in». " $7,875. i , $12,125, midiifgjswtflw “dimmer-o gem, not.) ' C. $8,500. D. $6,375. iii; in: 0 eat; Vii, no eh m ‘33 (at? t3? % meagre? as; E. None of the above " ‘ ‘ U ‘ ' ' % ‘6. By treating sales returns and allowances, sales discounts, and credit card discounts as contra- revenues, we have the following impact e B. M On October 31, 2008, Shift Easy bought $47,000 worth of inventory from a vendor giving a 6~ month note payable requiring payment of principal and interest at 8%. Assuming that Shift Easy’s fiscal year end is December 31, the interest expense (to the nearest dollar) recognized in 2009 by Gross profit is reduced by sales returns and allowances; sales discounts and credit card discounts Gross profit is increased by sales returns and allowances, sales discounts and credit card discounts Gross profit is unchanged by sales returns and allowances, sales discounts and credit card discounts Net income is increased by sales returns and allowances, sales discounts and credit card discounts the company will be: 5 W H ’ rig, . ’- * ‘ a >32) in, my; «ZUQQeg . . $3,750 V v rm 5"“ ‘ . 13 $52753 , state a it” 2,, v tears, “at “We a D. $2,667 t ’ E. None of the above "in to Ace 311 - Exam II Form B n Page 5 Fall 2008 win - eras Q . 18. A company reports its cost of goods s‘bf in 2009. It has $2.9 billion in inventory and reports accounts ' ' "" the en of 2009. At the end of 2008 ending inventory was reported at $3.1 billion and accounts payabie was $1.4 billion. much cash was paid to suppliers for 2009? ET; . $15.0 billion ’53; «3ch C. $15.2 biliion D. $15.7 billion ifltn‘b i 33 19. When using the allowance method for accounting for bad debts, accounts receivable is reported on the balance sheet at the expected net realizable value. When a particular receivable from a customer ultimately is determined to be uncollectible and is written off, the recording of this event will. . . A. decrease the net realizable value of the accounts receivable. B. have an effect that is not determinable from the information given. increase the net realizable value of the accounts receivable. have no effect on the net realizable value of the accounts receivable. 20. On December 31, 2009, the end of the accounting period, Cruise Company has on hand 10,000 units of a resale item which cost $40 per unit when purchased on June 15, 2009. The selling price is $70 per unit. On December 30, 2009, the cost had dropped to $38 per unit. In View of the large quantity of units on hand, no purchases are anticipated in the next six to nine months. At what inventory amount should the 10,000 units be reported? 15%; i. to 2 new A. $100,000. a B. $120,000. e: "neareJtrea $350,000. $380,000 21. A company purchased goods on credit with credit terms of 3/15, n/45. Although the company does not have cash available to pay within the discount period, the manager of the company is considering borrowing money to take advantage of the discount. In order to make the appropriate decision, the manager computed the annual interest rate associated with the sales discount. This annual rate is approximately fl toe « ., an 5L”? A. 56%. Br” 38%. ,c. 25%. 36‘5" 1-. ' 18%. so (Linnea; , '3 ,Qe‘ I '3 I 745- 38:72: “W” ‘1 's-oa‘h an m Ace 311 — Exam II ' Form B - Page 6 Fall 2008 22. Which of the following statements about asset impairment is false? A. Asset impairment is caused by events or circumstances where the estimated future cash flows are greater than the asset‘s current net book value. if an asset is impaired, a loss would be‘ recognized in the period it can be estimated. Impairment will lead to writing down the asset's value. Asset impairment can impact both intangible and tangible assets. Qiosw fishes-fi- 23. Net income for Trex Outdoors i1172009 was $9,154 (in thousands). There was an addition to net income on the statement of cash flows for $2,106 (in thousands) for the change in accounts receivable. The accounts receivable balance on December 31, 2008 was $20,851 (in thousands). How much was the accounts receivable balance on December 31, M? $11,260 (in thousands) g . . . . ., $13,745 (in thousands) ‘ g __ C. $22,957 (in thousands) Momma... 6» 25 {Cu} D. $20,851 (in thousands) 24. American Airlines purchased a machine on January 1, 2007, for $80,000. The company bookkeeper incorrectly used a 10-year life instead of an 8-year life to depreciate thgmaqhine. The effect of this error on the 2007 financial statements would be an a an) “tit-T); emit“ g a.qu . _ ‘ . . . ‘a 10 “125' overstatement of assets offset by an understatement of retained earnlngs. " “ “a i 0W) e. to one A. understatement of assets offset by an understatement of retained earnings. Q; overstateinent of assets, income, and stockholders' equity. D. overstatement of assets and an understatement of liabilities. E. None of the above is correct. 25. Upon completing an aging analysismpwfpflaqgcounts receivable, the accountant for Rosco Works m: a M- thaw-munwimtmsimmww- estimated that $53003}? the 565%“th $98,000 of accounts receivable would be uncollectible. The allowance for doubtful accounts had a $400 debit balance at year-end prior to adjustment. 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F m med omhfim mF FdN coo.mF théF wmm.vF .vmhdw mm F.m.F meNF mmmF F mmNF F mmwdF memd QNmNd Nommfi mehfi Km FOR momwd Nh Fvfi thmé Fm. FNM mwmwd mm Fm.F 00.5.0 «NT Fm mm F.mm mmmNN www.mm mmmNN mowdm me.0F Quad—t whmfiw wNNNF NmméF mmmdw NmNJVF Nmmm F mde F w FNV F www.mF www.mF mo F.N F #006 F mew. F F Wm F.N F mhmdF mmN. F F mmmhd mmmdw mmwmfi thvd NNG F.w owwmd mmNmK F meK omhwd www.md 3.09m mmmhfi mm :6 gmmé buomfi QNOQM mmmm.m o vad w FEWF V0.54. 3wmd Fommd mgxm- 3m 00¢. FWNMQ’M‘Dh-wm I: Ace 311 — Exam 11 Form B ~ Page 9 Fail 2008 SECTION II (50 points) You WST show your work to receive credit for your answers and to receive partial credit. Please try to be as neat and organized as possible. PROBLEM i (22 points) The following summary events occur for Morris Engineering during 2008 and 2009, its first two years of operations. ' Requirement 1: Record each of the following transactions. 1. During 2008 - ?rovided' services to customers on account for $32,000. (gffiémr meg ' . lfiwflem -_ .4 3. 12/31/2008 -— Based on an aged trial balance, estimated that 30% of the baiance in accounts receivable will not be collected. wioocv ,‘8 '-'-~ “began firemeww-W oi we, we,me 5. During 2009 ~ Received $6,000 from customers for services provided in 2008. Mun-“WWW‘MW - Lb, mm .p 7;,ch weflooo Meant) Ace 311 ~ Exam 11 Form B — Page 10 Fall 2008 7. During 2009 — Received $40,000 from customers for services provided in 2009. Aemmmlfl Mag’wmlwkg, 9. 12/31/2009 — Based on an aged trial balance, estimated that 30% of the balance in accounts receivable will not be collected" WI CalCIflate the 1:61 realizable value of accounts receivable at the end of each year. Gray“, A/(ZM “" A-erum,g, ' 2008 git 052w" *fiaVQQ‘fi . % .téa 13?"??? “Elm”; . l .r get} (we? m Ace 311 - Exam II Form B ~ Page 11 Fall 2008 PROBLEM 2 (12 points) of Midwest Corporation uses the periodic inventory method. Its inventory records reflected the following information for the month of August: we «is, E: raw-22v . . . e- ‘35 $13; grainsacttoir:1 t UméSCost ‘ 9W _ gt m. $3; mg; e 11min ven or 8/3 Purgchaseil y 400 ‘9 ‘W s5 ’W‘m " “gt 1:“ étww 8/5 Sale # I 600 e? Meta ' to “e goose 8/11 Purchase # 2 £000 ‘3‘?” $8 8/17 Sale #2 700 (am? antenna % 8/ 19 Purchase # 3 11,000 $9 v ' ‘1’ it? “"i' 8/21 Sale#3 900 «as “games 8/29 Wrchase # 4 2,000 $10 The selling price for all units sold was $20. Reguired: (You Must Show Your Computations to Receive Credit) 3. Determine the amount of Revenue, Cost of Goods Sold, and Ending Inventory (all in dollars) under each of the following methods assuming the periodic inventory system: Inventory Costing Method Weighted fl, _ - g? ‘ $3 o1} sea Average ’ “Mimi g'tgsaafl We’%%‘€3 FIFO it Ending Cost of Goods Revenue Sold Inventory “l u l " er "" ‘ lees-egos} ti “spams st negates) “Literate v to situations 9%ti‘ifi m3, fitness) m it; “’5 MULEWQ «assesses $000 {77100 {$pr ' w“ We a sit ea fiflyfitt} “31°?oo eras-t New . tag Matteo-o { toot“: « 3'33" '1' States; stem - 4t 1: “mess “page. slots _ 23510 Leos: at” w some mm a ‘" "‘ ‘ “ arses: to moaoo-o est), a 'Ltetb e “a. ‘2 trig “mist-WM“ l.,‘e‘t¢:§€2‘i> . b. Based on the infonnation above, compute Midwest Corporation’s gross profit percentage assuming the company uses the 0 cost flw assu for reporting inventory. You must - v.“ ‘ ’R‘Y'WEM‘im-fif’fifimugx-Mw nv ,_ show your computations. . ..Nurator and Denominator to receive partial credit. r‘m , Gama es first? lr fim‘ ' mg a? -‘ ' fires 9% ‘t’free‘swi‘te ts ‘ "g" 6 fl: Q vfgggg figus’mswfiy We, 1% f 59% 63% to» fi'fis.q§fi?e -.THM*VWMWN‘J‘-Wrmami Ace 311 n Exam II Form B ~ Page 12 Fall 2008 PROBLEM 3 (16 points) Bevo Inc. purchased a machine by signing a 3 year note at 10% interest on January I, 2009. The note requires 3 equal payments of $11.§49 beginning on December 31, 2009. Bevo Inc. plans on using this machine for 5 years at which time they believe they can sell it for $2,000. Bevo Inc. uses straightwline depreciation W of their machines. (SHOW YOUR COMPUTATIONS and please round all answers to the nearest doll . W 31' ) m “an: rzfmedwemvammh Requirements: ’ it? I . 1. Prepare the appropriate journal entry on January 1, 2009. waifgw? Q 2. 9repare the adjusting journal entry to record the yearly depreciation on December 31, 2009. ’"LWWQ "i Witt? e seats rum-rm»ch (m. a». .fior‘wn‘iimlfigmj‘ fiat, ~ Avg,» -i ' fifiufils,wfi?fia.%%fl“ogg€2$§% Elm Wwfitv Earnest“, 4. Prepare the journal entry to record the second note payment on December 31, 2010. __ mm” L?fi'20'—‘$“t§’l.t 2:334? ° ...
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This note was uploaded on 03/03/2011 for the course ACC 311 taught by Professor Charrier during the Spring '08 term at University of Texas.

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Exam #2 B - “ti Lita Esam #: ACC 311, Fundamentals of...

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