Exam 2 A - Spring 2007 Exam 2 Sorted on Form A DJ M N...

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Unformatted text preview: Spring 2007, Exam 2, Sorted on Form A DJ M N C) ,...‘ )—-! U.) N 5 N i ' W H] . N C) Form C 16 12 I0O ,_‘ \J M M ._.; r—IU} H U} ,— 00 I ,__. CD N U’! r—Ia—l \JN 00 My»: 4343 M ,_; N Fundamentals of Financial Accounting ACC 31 1 Spring 2007 Exam Il Form: A Name Instructor Section Meeting Time .1 I I } DO NOT OPEN : : until given instructions to do so. : I I I I mmmmmnmmmmmmm__—————uuummwu—«flumwwmmmmm Instructions 1. Assume that the accrual basis of accounting applies to all questions, unless a question specifically instructs otherwise. Confirm that you have 14 numbered pages. There is also one blank sheet 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 only 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, PDA'S and calculators cayabie of storing text are NOT allowed at your desk during the exam. Please silence all cell phones and do not access them during the exam. 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 3li — Exam ll Form A, Page 1 Spring 2007 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, If a company sells goods under the terms "3/10, net 45" and the customer sends payment on day 30, how much should the customer send the seller? A) 103% of the invoice price 100% of the invoice price C) 97% of the invoice price D) 90% of the invoice price E) 55% of the invoice price '2. Generally, which inventory costing method approximates most closely the current cost for each of the following? Cost of Goods sold Ending Inventory @ LIFO FIFO B) LIFO LIFO C) FIFO FIFO D) FIFO LIFO 3. Omitted, 4. An analysis and aging of Jay Company’s accounts receivable at December 3 l , 2006, disclosed the following: Accounts receivable $900,000 Allowance for doubtful accounts (before aging) 50,000 Amount deemed uncoliectible (per aging) 64,000 The net realizable value of the accounts receivable at December 31, 2006 is: A) $886,000 ),. $850,000 @ $836,000 D) $786,000 E) None of the above @000 Alfie...— UH [DD 0 ‘5 D, Lil/i) Ace 311 - Exam ll Form A, Page 2 Spring 2007 5. Which of the following is a title statement about lower of cost or market (LCM)? A) It is optional under generally accepted accounting principles, whether you apply LCM in the year in which net realizable value declines below cost or the company waits until the inventory is sold. B) LCM can be applied to all cost methods under generally accepted accounting principles except for LIFO. CC) LCM recognizes holding losses in the current period rather than postponing them until inventory is sold. D) All are true E) None is true The following information pertains to questions 6 and 7. The 12/3 l/2006 financial statements of the New Age Company contained the following: w 2006 _ —— -— Statement ofcashflows Cash collected from customers 6. Assuming that no accounts were reinstated during 2006, what was the amount of write—offs for New Age during 2006? 00, 1,.gaL,,,....,.., Alla/flaw '9' ‘ A) 3; 8,000 mot? B $10,000 131.0329 C) $18,000 8 50 000 D) $20,000 . l a) $30,000 7. Without respect to your answer in the previous question, suppose that the amount of the writeoffs for was $10,000. What was the amount of credit sales for the year? (Assume all company sales 31% made on. credit.) $492,000 gazing/awn 51;? $502,000 " C) $550,000 Jul/pol) M D) $592,000 we” 20 00:) E) $602,000 / ~~~~~ M" . i ' Ace 311 - Exam II Form A, Page 3 Spring 2007 8. Ward Company estimates its bad debt expense to be 2% of credit sales. Ward's credit sales for 2006 were $1,000,000. During 2006, Ward wrote off $1 8,000 of uncollectiblc accounts. Ward's allowance for uncollectible accounts had a $15,000 balance on January 1, 2006. In its December 31, 2006, income statement, what amount should Ward report as bad debt expense? A) $23,000 , pp, areal“ 20,300 pair) 43) $20,000 , C) $18,000 t D) $17,000 E) None of the above 9. On August 1, Red Company purchased computer equipment for $10,000 cash plus 100 shares of White common stock held by Red Company as an investment. The White common stock cost Red Company $5,000 and on August 1 had amaflcet-azahie of $4,200. Installation cost was $700 and shipping cost Was $500. What. amount should be the total amount debited to the computer equipment account? infill-30 A) $14,200. ,p ’ “700 B) $15,000. gran $5,400. «ti/0‘0 $i6,200. M E) None of the above is correct. lg WV 10. On July 1, 2009, Prism, Inc., borrowed $30,000 from First Bank on a one year, 10% note payable. Interest is payable on June 30, 2010, the due date of the note. Prism’s accounting year ends December 31, 2009. The journal entry required on the company's books to record the interest on this note for 2009, would include a CAD debit to Interest Expense for $1,500. 13) credit to Interest Expense for $1,500. C) credit to Cash for $1,500. D) debit to Cash for $1,500 E) debit to Notes Fayable for $1,500. It. On January 1, 2006, 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 two-year period at 10% interest with equal payments due at the end of 2006 and 2007. The amount of each annual payment the company must make is (round to the nearest dollar) /’ A) $22,267. $11,524. \f) 7733/ C) $14,151. D) $7,751. . so x 533g?) E) None of the above is correct. ”fwd”! {\l Acc 311 ~ Exam II Form A, Page 4 Spring 2007 12. Williams Company purchased a machine at a cash cost of $25,000 and is depreciating it over a 10— year estimated useful life with a residual value of $3,000. At the beginning of the eighth year, a major overhaul on it was completed at a cost of $8,000, and. the total estimated useful life was changed to 12 years with the residual value unchanged. Depreciation expense for year 8 would be (assuming straightnline depreciation). ““35 A) $2,200. lewd “23““ 2 217/00 . ~ 2) are ““73”” ewe} 3000 a ' WM D) $8,800. ”MOD 5 E) None of the above is correct. ext = (hot) Questions 13 and 14 are based on the following information. Addision Hardware began the month of November with 150 large brass switch plates on hand at a cost of $4.00 each. These switch plates sell for $7.00 each. The following schedule presents the sales and purchases of this item during the month of November: Purchases Quantity Date of Transaction Received Unit Cost Units Sold 010 a November 5 lg” ‘15“ 100 ' KS 0 November 7 2002 $4.20 , ‘4“ :3 November 9 150 ‘tq’ a _ 90 November 1 1 200. $4.40 \ of) Z/ (in November 17 22c /,{v‘°‘\ November 22 250 $4.80 4” , a, _ Novamber 29 ”:53 100 “:f/ 13. If Addison uses periodic weighted average inventory costing, the gross grofit for November will be . 34% A) $1046 ,g $1,482 .2 133 $1,516 / D) $r,52s E) None of the above 14. If Addison uses periodic LIFO inventory costing, the cost of goods sold for November will be: A) $2,416 B) $2,444 C) $2,474 $25 84 None of the above Ace 311 -« Exam 11 Form A, Page 5 Spring 2007 15. The Williams Company estimates that 1% of Net Sales is uncollectible. The journal entry for the current year includes a credit to the Allowance account for $5,000, and the resulting ending credit balance in the Allowance account is $4,500. What was Net Sales for the current year? A $500 All»: é? $500,000 600 009 - $450,000 / D) $ 550,000 E) Cannot be determined l6. Omitted... 17. If a company uses LIFO and prices are rising, large purchases of inventory near the end of the year under the periodic method will: /\ l 03 (:5 reduce gross profit . reduce cost of goods sold ) increase income taxes paid D) have no effect on the amount of cost of goods sold 18. A company that has a policy of trading in its fleet of delivery trucks every three years in comparison to another company with a policy of trading in their trucks every five years would most likely have a lower book value at the end of their useful lives. C) more in accumulated depreciation at the end of their useful lives. D) Both B and C. B) All of the above. 9 a higher estimate of residual value at the beginning of their useful lives. 19. In 2004, Genenteeh reported a current ratio of 2.75 and in 2003 it was 3.10. Which of the following is a potential cause of a fall in this ratio? A) An increase in accounts payable. B) A decrease in inventories. Q) A decrease in short—term borrowings. Q3) Both A and B would cause the ratio to fall. B) All of the above would cause the ratio to fall. Ace 311 — Exam Ii Form A, Page 6 Spring 2007 20. If ABC Company understates ending inventory in 2006 by $10,000 and no correcting entry is made, what will be the effect of the error on the following: soon; 2006 net income 2007 net income 2007 retained earnings 2,1 4/ {1’ a 3 L055 5%) overstated understated understated - use 0W l3 understated overstated overstated Q understated overstated no effect ‘31 overstated understated no effect {5% a 9' El ” 0053? m no effect no effect no effect NM W ‘21. In accounting, goodwill A) may be recorded whenever a company achieves a level of net income that exceeds the industry average. , ) needs to be amortized if its useful life is indeterminate. (é may be recorded when a company purchases another business. 9 must be expensed in the period it is recorded because benefits from goodwill are difficult to identify. E) is never recorded. 22. Which of the following statements is false relating to payroll taxes? -\ A) When recording the payroll entry, the credit to wages payable is usually more than the debit to wages expense. B) FICA (social security) tax is a “matching” tax with the employer. C) Income taxes withheld from employees‘ paychecks are liabilities of the employer. D) When the salaries expense entry is recorded, the credit to cash will be for less than the debit to salaries expense. B) Two of the above statements are false. 23. Melissa is considering several possible investment alternatives. Option A: Melissa could receive $10,000 today. Option B: Melissa could receive $3,000 at the end of each year for four years. (icl 73L .3 Option C: Melissa could receive $15,000 five years from now. ID] 7/00 Assuming an opportunity rate of 8%, which option results in the greatest financial benefit to Melissa? A) Option A Option B @9 Option C Option A and B result in the same financial benefit to Melissa. E) Option A and C resuit in the same financial benefit to Melissa. Acc 3i 1 — Exam 11 Form A, Page 7 Spring 2007 24. When a company ships product to a customer with the terms fob. (free on board) destination, which of the following is true? @ The seller will pay the shipping charges and title will not be exchanged until goods are received by the customer. ' ' B) The buyer will pay the shipping charges and title is exchanged at point of shipment. C) The seller will pay the shipping and title is exchanged at point of shipment. D) The buyer will pay the shipping and title is exchanged when the goods are received by the customer. 25. Young Company is involved in a lawsuit. The liability which could arise as a result of this lawsuit should be recorded on the books if the probability of Young owing money as a result of the lawsuit is A) remote and the amount can be reasonably estimated. probable and the amount can be reasonably estimate (1. C) reasonably possible and the amount can be reasonably estimate d. D) probable and the amount cannot be reasonably estimate (1. E) None of the above is correct. Problems. . . 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