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Midterm-2-Summer-2004 - m-mp.“.gmma in'I...

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Unformatted text preview: m-mp.“.gmma . in: 'I:;(.\;\ n: '-.".3E\3l'i"-‘. , I_1!’.‘!-‘1l{l! ‘ I‘“' l'.‘.l,"l aun-fi-u S. Olayan School of Business Acct 210 Midterm II Summer 2003—2004 Name: ”#— Date: July 31, 2004 Duration: 2 hours Ins tructions: 1. This examination paper consists of 7 pages including this page. Please make sure your paper has all pages before commencing to write. Write your name on both the exam and answer booklets. Write your answers in the answer book- let. You have to hand in both of the exam copy and the answer booklet. Read the questions carefully and budget your time wisely. Show all calculations. This is a closed book examination. However, silent hand-held calculators are permitted. Kindly make sure to Sign and write your ID # next to your name on the attendance sheet when you hand in your paper. 1 I —_—— Good Luck! W (gunmen omen. L I H H A R Y m: “saints: TRUE Z FALSE Indicate whether the sentence or statement is true or false. I. An increase in inventory value above its original cost must be recognized. True False 2. When the direct write—015’ method for dealing with uncollectibles is used, there is no need for an allowance account. ”9“ all. True False 3. Inventory is always recorded at cost, no matter what the inventory’s market value is. True False 4. The periodic inventory system does not compute ending inventory and cost of goods continuously. True False S. The average cost method assigns figsame cost per unit to cost of goods sold and ending inventory. True False 6. Unrealized gains or losses for trading securities are not reported directly on the income statement. True False 7. Equity securities have a maturity date. True False 8. The unrealized gain on marketable securities-availab1e-for-sale is a temporary account that is closed to retained earnings. True False 9. Investments in marketable securities generally will earn lower returns than could be achieved from putting the cash in a bank account. True False 10. Available-for—sale and Trading securities are both ‘marked—to-market’. True False 1:10 lat-of? (.th (shew phat}! FICO c z, a 1/. , II. MULTIPLE CHOICE: 3; Mom, _\f [65%, 1. When a company has been ex flow method will result in: a. the lowest net income and the lowest cost of ending inventory. PM“ l’ the highest net income and the lowest cost of ending inventory. c. the highest net income and the highest cost ofending inventory. d. the lowest net income and the highest ending inventory. ' periencing a sustained period of declining prices, the LIFO cost Which of the following statements is true under the perpetual inventory system? a. The cost of inventory purchased is debited to the purchases account. x sold account and inventory account balances are perpetually up-to— c. End-of—period physical counts are not necessary. ,4 d. The balance in the merchandise inventory account is dormant during the year and only changed once a year after the physical inventory is taken. 3. The adjustment to estimate the amount of uncollectibles impacts the following statement(s): a. balance sheet only b. income statement only BRA 907% (3" p I is c. both the balance sheet and income statement d. neither the balance sheet or income statement Pf T” DH BU 4. When using the aging approach, the writing offofa specific account receivable will result in: a. an increase in total assets A“; b. a decrease in total assets 9 T- 9 Pt e. no change in total assets Pt [Q d. a decrease in stockholders” equity it a 5. Which of the following would be classified as a contra asset account? a. Accounts written off b. Bad Debt Expense c. Purchases d. Allowance for doubtful accounts 6. The main drawback ofthe direct write-oflmethod of accounting for uncollectibles is that it: a. takes into account time value of moneyx b. fails to include the bad debt expense in the period in whicl nized c. overstatesliabilities d. fails to record sales revenue in the period the sales revenue is earned i the sales revenue is recog- 7. The following journal entry represents: Bad debts expense XXX Allowance for doubtful accounts XXX a. recognition of sales on credit fl b. collection ofcash from a previous credit sale 2‘ c. writing offa bad debt d. recording bad debt expense in anticipation of not collecting l00 percent of receivables basis (i.e. the aging method). Ifthe Allo $5,000 before adjustment, what is the balance after adjustment? a. $ 12,000. 7-?X “80°; we 160,888 (5° can b. $7,000. léofisequ-Su/oL42 ) fl 0. $17,000. ’ ”O 5 #00 d. $ 31,000. Are“; ‘17. ,u (:00 10 On January I, 200 1, Auburn Corp purchased a $10 000 held-to—matunty security. The company was expecting a 6 percent rate of return. The security wrll mature on December 3 l, 2002 The original purchase price is $8,899.97. What will be the value of the security in the books of Auburn on December 31, 2001‘? d, a. $7,558.20 . , ,4,“ 301... I 1 L g; b. $10,000.00 231%;- ”‘11 c. $9,433.97 d. $8,899.97 3 1 3"“ .90 >0 ”’6’ l l. An increase in the market value of marketable ‘ will result in the following impacts: a. ‘ ' ' securities (trading), from $432,000 to $476,000 a $500,000 b $30,000 1 113833; ' ’ :8. , .1, 198-9., , C, L. SC \LHJJQ [3‘le 13. In the perpetual inventory system a physical count ofinventory will still be taken a the end of each period: a. to determine the amount of bad debts b. to determine the amount of purchases (3. to determine the amount of inventory shrinkage from damage, theft, etc. 01. to determine the market to book ratio 14. Inventory turnover is calculated as follows: a. cost of goods sold/average accounts receivable b. average inventory/cost of goods sold it c. cost of goods sold/average inventory d. cost of goods sold/sales X 15. The following information pertains to the Gill Corporation for 2002: Net income: $445,000 Cost ofgoods sold: $943,000 9a 3, o o o - l M; .9 January 1, 2002 inventory: $95,000 _/‘"’S‘“‘J ’ December 31, 2002 inventory: $35,000 913%, g5; 0 00 Based upon the above information, determine the days inventory held. a. 341 days b. 365 days c. 0.086 days d. 25.16 days PROBLEM 1: RECEIVABLES 1. Alissa Corporation was established on 1/1/2001. During 2001, the company experienced the following: - credit sales $200,000 - collections on credit sales $120,000 ' mite-offs of bad debts: $30,000 . . ‘ -‘ write-backs of accounts previously written off: $10,000 hep Mam JM C0510 ' aging analysis of accounts deemed uncollectible at 12/31/2001 shows $16,000 of po— tentially uncollectible accounts Required: a. Compute the balance of Alissa’s accounts receivable on December 31, 2001. b. Assuming that Alissa uses the aging approach to estimate uncollectible accounts, what is the amount of bad debt expense for 2001 ‘? e. Compute the balance of Alissa’s allowance for doubtful accounts (that would appear on the Balance Sheet) on December 31, 2001 . d. Compute the balance of Alissa’s net accounts receivable on December 31, 2001. e. Assuming that Alissa estimates bad debts using the percentage-of-sales approach, what will be the amount of bad debts expense for 2001 if Alicia assumes that 12 per- cent of credit sales will become uncollectible? What will be the amount of net ac- counts receivable on December 31, 2001? f. Assuming that Alissa estimates bad debts using the direct wrote-off approach, what will be the amount of bad debts expense for 2001? What will be the amount of net ac- counts receivable on December 31, 2001? PROBLEM 2: INVENTORIES Young Company uses the periodic inventory system. Information related to Young Company's in- ventory at December 3 l , 2001 is given below: Jan. 1 Beginning inventory 400 units @ $10.00 = $ 4,000 Mar. 8 Purchase 800 units @ $10.40 = 8,320 Sept. 16 Purchase 600 units @ $10.80 = 6,480 Dec. 24 Purchase 200 units $1 1.60 = 2 320 Total units and cost 2,000 units $21,120 During the year, the company sold 1,150 units for $13.00 each. M BM. 9 60 Required: a. Compute the ending inventory value and cost of goods sold for 2001 under FIFO, LIFO, and average cost flow assumptions. b. What would be the gross profit and gross profit percentage under the FIFO cost flow assumption? c. Assume that the company is using the LIFO cost flow assumption and that, at the end of the year, the market value of each unit of inventory is $9.00. Prepare the necessary adjusting entry. PROBLEM 3: MARKETABLE SECURITIES 3. Zenith Corporation had the following information about its portfolio of marketable securi- ties as oflanuary 31,2002: Cost of securities (purchased 2/ 14/ 1999) $200,000 Market value of securities on 12/31/199 $24 12/31/2000 $160,000 12/31/2001 $18,000 ’ Unfortunately, Zenith’s entire portfolio consisted largely of high-profile companies such as Enron, Worldcom, Adelphia Communications and Dynergy. The securities were classified as available-for-sale securities. On January 31, 2002, the company decided to salvage any re- maining value and sold the entire portfolio for $12,000. Required: /- 03'" Prepare the adjusting entries required on 12/31/1999, 12/31/2000, and 12/31/2001. Prepare the entry to record the sale of the securities on 1/31/2002. What effect did the ownership of the securities have on Zenith’s income for each year from 1999 through 2001? How would the sale of the securities affect Zenith’s income statement, balance sheet and cash flow statement for 2002? State the dollar impact and direction of the change (if any). Prepare the adjusting entry required at 12/31/02 assuming there were no further trans- actions involving Marketable Securities during the year? How would the impact on the Income Statement for each year from 1999 through 2002 be different if the securities had been classified as trading securities? Explain. ...
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