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136A_F06_MT2 - Anderson Econ 136A Fall 2006 Midterm#2 v 1...

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November 20, 2006 Anderson Econ 136A Fall 2006 Midterm #2 v. 1 Name _________________________ 8AM CLASS- TURN THIS EXAM IN WITH YOUR NAME ON IT!!! Answer questions 1-25 on green scantron, and the problems $26-28 in your blue book. ------------------------- SCANTRON 1. The bank lent XYZ, Inc. $1 million and XYZ agreed to maintain a cash reserve of at least $250,000 at all times. XYZ's general ledger shows cash in the amount of $475,000, which includes checks outstanding of $25,000, deposits in transit if $45,000. In addition, they hold $100,000 of certificates of deposit (CD's) at the bank with an original maturity of 12 months, 90 day treasury bills of $15,000, and stock in AOL at $45,000. How much should XYZ present as cash and cash equivelants on their balance sheet? a. $260,000 b. $240,000 c. $245,000 d. $490,000 c. $ 2. Which statement is true about the gross profit method of inventory valuation? a. It may be used to estimate inventories for interim statements. b. It may be used to estimate inventories for GAAP financial statements. c. It may be used by auditors as an acceptable inventory valuation for GAAP financial statements. d. None of these. ------------------------------ Colaw Company, which uses the retail LIFO method to determine inventory cost, has provided the following information for 2004: Cost Retail Inventory, 1/1/04 $ 55,000 $ 80,000 Net purchases 189,000 281,000 Net markups 34,000 Net markdowns 15,000 Net sales 254,000 3. Assuming stable prices (no change in the price index during 2004), what is the cost of Colaw's inventory at December 31, 2004? a. $75,600. b. $83,980. c. $82,600. d. $79,380.
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Midterm #2 v. 1--Page 2 4. Under recent accounting literature, abnormal costs associated with inventory should be: a. Be capitalized to inventory as a cost necessary to make the inventory ready for sale. b. Be capitalized to inventory only if it adds value. c. Be recorded as an expense in the period in which the related inventory is sold. d. Be expensed as incurred. 5. Which of the following methods of determining annual bad debt expense best achieves the matching concept? a. Percentage of sales b. Percentage of ending accounts receivable c. Percentage of average accounts receivable d. Direct write-off 6. A company employs the percentage of sales method for estimating the allowance for doubtful accounts. Using this method, they estimated during the year that the bad debt expense is $100,000. Also during the year, the Company dertermined that the uncollectible accounts to be written-off are $20,000. Finally, the company collected $5,000 on accounts previously written off. The proper amount for them to include as bad debt expense during the year is: a. $100,000 b. $120,000 c. $ 80,000 d. $ 95,000 7. If a material amount of inventory has been ordered through a formal purchase contract at the balance sheet date for future delivery at firm prices, a. this fact must be disclosed. b. disclosure is required only if prices have declined since the
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136A_F06_MT2 - Anderson Econ 136A Fall 2006 Midterm#2 v 1...

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