Exam II Practice - The University of Texas at Austin...

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Unformatted text preview: The University of Texas at Austin Fundamentals of Financial Accounting ACC 311 - Fall 2006 Exam 11: Form A Name: UT EID: Instructor & Time (check one): Florence Atiase-MW F 8:00 Bob May-MW 2:00 Florence Atiasc-MWF 9:00 Will O’Hara-TTh 12:30 Florence Atiase—MWF 11:00 Will O’Hara-TTh 3:30 Brian Lendecky-MW 8:00 Fred Phillips-TTh 9:30 Brian Lendecky-MW 3:30 lllll . . . . .. OPEN .......... ...= ' until given instructions to do so I n v u - u u n I a a n u n u n a n a a - - u a u u n u c u n n n n u u u - n n n n u n u n - n u n n u n u u - g n n .nn' Instructions: 1. 9’!” >195"? 9° 10. 11. 12. A Assume that the accrual basis of accounting applies to all questions, unless a question specifically instructs otherwise. Use a #2 pencil only; mark clearly and erase completely as needed. Remove your hat during the exam and have only pencils and calculators available at your seat (note that cell phones are not permissible as calculators). Silence all cell phones, pagers, and other electronic devices, and do not access them during the exam. In the space provided above, write your name and UT ED), and check your instructor’s name. On your Scantron answer sheet, write and bubble in your name, UT Ell), and Test Form letter. Confirm that you have ten (10) consecutively numbered pages (including this cover page) plus three (3) blank sheets at the end. Read all instructions carefully. All multiple-choice answers must be marked on your Scantron answer sheet to be graded. Each multiple-choice question is worth two (2) points. You are reminded of the University’s academic honesty policy requiring you to do your own work and not give or receive assistance on this examination. Keep your eyes on your own work and prevent others from seeing your test responses. Bring your entire exam book (including the blank pages) and Scantron sheet to the front of the room when you have completed the exam. Use the available time wisely. You will not be given extra time afier the end of the exam to complete the Scantron sheet. GOOD LUCK! l. Page 2, ACC 311, Fall 2006, Exam 11, Form A MULTIPLE CHOICE! 2 Points Each) Augie Corporation purchased a truck at a cost of $60,000. It has an estimated useful life of five years and estimated residual value of $5,000. At the beginning of year three, Augie's managers concluded that the total useful life would be four years, rather than five. There was no change in the estimated residual value. What is the amount of depreciation that Augie should record for year 3 under the straight-line method? A) $15,500. B) $ 8,250. C) $1 1,000. D) $16,500. E) $19,000. Which of the following statements is tr_u_e? A) Depreciation expense is added to net income in the operating activities section of the statement of cash flows under the indirect method because it had no cash effect on net income. B) Depreciation is a non-cash expense that reduces net income but involves no outflow of cash. C) The only cash effect for depreciation is the tax savings provided by its deduction to derive taxable income. D) All of the above are true. E) None of the above is true. On January 1, 2009, Woodstock, Inc., purchased a machine with a cash price of $40,000. Woodstock also paid $1,000 for transportation and installation. The expected useful life of the machine is 6 years and the residual value is $5,000. Assuming straight-line depreciation, the annual depreciation expense would be A) $6,100. B) $6,000. C) $5,950. D) $5,750. E) None of the above is correct. A company reports its cost of goods sold as $15.0 billion in 2006. It has $2.9 billion in inventory and reports accounts payable at $1.2 billion at the end of 2006. The 2005 ending inventory was reported at $3.1 billion and ending accounts payable was $1.4 billion. Assume all inventory was purchased on account, and accounts payable arise only from purchases of inventory. How much cash was paid to suppliers for 2006? A) $14.8 billion B) $15.0 billion C) $15.2 billion D) $15.7 billion E) None of the above Page 3, ACC 311, Fall 2006, Exam 11, Form A As of December 31, Chief Company has a balance of $10,000 in accounts receivable of which $1,000 is overdue. Chief has a credit balance of $100 in the allowance for doubtful accounts. Chief estimates its bad debts losses at 1% of accounts not yet due and 10% of accounts overdue. What adjustment should Chief make to the allowance for doubtful accounts? A) $120 (credit). B) $105 (credit). C) $ 90 (credit). D) $100 (credit). E) None, the Current balance is correct. Alexander Company reported net income in 2006 of $250,000 and in 2007 of $285,000. Later it was discovered that the ending inventory for 2006 was overstated by $15,000, but ending inventory was correctly reported for 2007. Disregard income taxes. The correct amounts of net income for 2006 and 2007 were 2999 A39]. A) $265,000 $270,000. B) $235,000 $300,000. C) $265,000 $270,000. D) $235,000 $300,000. E) None of the above is correct. Use the following to answer Questions 7 and 8: A company had net credit sales of $5.0 million for the year and estimates its bad debts to be 1% of net credit sales. The accountant for the company is thinking about switching to the aging of accounts receivable method and after preparing the aging schedule, the estimate equals $48,000. Accounts receivable has a $450,000 balance and the allowance for doubtful accounts has a credit balance of $3,000 prior to adjustment. 7. What will be the ending balance in the allowance for doubtful accounts after the accounts have been adjusted when the % of net credit sales method was used? A) $53,000. B) $47,000. C) $48,000. D) $50,000. What is the net realizable value of accounts receivable after adjustment when the aging of accounts receivable method is used? A) $402,000. B) $403,000. C) $397,000. D) $400,000. E) $450,000. 10. ll. 12. 13. Page ‘4, ACC 311, Fall 2006, Exam [1, Form A Sheffield Company had the following information taken from its 2006 adjusted trial balance: Sales, $400,000; Sales Discounts, $12,000; Beginning Inventory, $20,000; and Purchases, $200,000. A physical count of the merchandise on hand at the end of the year showed $25,000. Compute the gross margin (gross profit) that would appear in the income statement. A) $162,000. B) $180,000. C) $193,000. D) $205,000. The main purpose of recording depreciation is to A) allocate the cost of a tangible asset to the periods in which its use contributes to earning revenue. B) estimate the remaining useful life of the asset. C) report the asset on the balance sheet at the estimated amount for which the asset could be sold on the balance sheet date. D) estimate the current replacement cost of the asset. E) give the bookkeeper something to do. Which of the following statements is false? A) Sales returns and allowances are always treated as a contra- revenue. B) ‘ Sales returns and allowances, sales discounts and credit card discounts are always treated as selling expenses. C) Credit card discounts and sales discounts cause cash collected from sales to be less than sales revenues. D) Sales discounts are used to encourage early payment by customers. Which of the following is the most likely cause of a decrease in a company’s gross profit percentage? A) The company discounted its selling prices. B) The company reduced its product cost as a percentage of sales. C) The company reduced its operating costs. D) Both B and C caused the change in gross profit percentage. E) None of the above would have caused the change. The Walt Disney Company reported revenue of $30,752 million for 2004, all of which represent credit sales. Their accounts receivable balance was $5,330 million at the end of 2004 and $4,912 million at the end of 2003. Assuming no accounts were written-off, cash collected from customers equals A) $25,013 million B) $28,926 million C) $30,334 million D) None of the above 14. 15. Page 5, ACC 311, Fall 2006, Exam II, Form A Which of the following statements is true? A) B) C) D) B) All intangible assets are amortized over their useful lives. The research and development costs connected to developing a product, which is later patented are capitalized to the patent account. If an intangible asset has an indefinite life, it is not amortized but is tested annually to determine any impairment. All of the above are true. None of the above is true. In 2007, Gilbert Company made an ordinary repair to a delivery truck at a cost of $500. Gilbert's accountant debited the asset account, Delivery Vehicles. Was this treatment an error, and if so, what will be the effect on the financial statements of Gilbert? A) B) C) D) E) The repair was accounted for correctly. The error increased assets and net income in 2007. In the years following 2007, net income will be too high. The error decreased net income in 2007. Net income was correctly stated for 2007. Use the following to answer questions 16 and 17: Cyclone Co. uses the periodic inventory system. The following information about their inventory of Model XX Mountain Bicycles is available: _D_at_e 1/1 4/12 7/8 9/22 Transaction Number of Units Cost per Unit Beginning Inventory 50 $800 Purchase 80 $820 Purchase 75 $840 Purchase 90 $850 During the year, 235 bicycles were sold at a price of $1,500 each. Other operating costs equaled $80,000 and their tax rate is 30%. Round final answers to the nearest dollar. 16. 17. How much is gross margin (gross profit) under the FIFO method for the year ended 12/31? A) B) C) D) $155,600 $157,251 $158,400 None of the above. How much is income tax expense under the LIFO method as of 12/31? A) B) C) D) $22,680 $23,520 $23,] 75 None of the above. 18. 19. 20. 21. 22. Page 6, ACC 311, Fall 2006, Exam 11, Form A Depletion is recorded for natural resources A) B) C) D) E) to recognize increases in market value with the passage of time. to recognize the cost of resources extracted and depletion of the remaining resources and for buildings and equipment used in extracting the resource. by a method similar to declining balance depreciation. None of the above is correct. 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 receivable from a specific customer is ultimately 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. C) increase the net realizable value of the accounts receivable. D) have no effect on the net realizable value of the accounts receivable. E) None of the above is correct. Under the LIFO cost flow assumption during a period of inflation, which of the following is fellif? A) Cost of goods sold will be lower than under FIFO. B) Gross margin will be lower than under FIFO. C) Income tax expense will be lower than under FIFO. D) Ending inventory will be lower than under FIFO. B) All of the above are true. When a credit sale is made with terms of 2/10, net 30 on May 10 and the customer's check is received on May 19, which of the following is true about the May 19 journal entry? A) B) C) D) E) The debit to cash will equal the credit to accounts receivable because the discount was recorded on May 10. There will be a debit to sales discounts on May 10. The debit to cash will be less than the credit to accounts receivable on May 19. There will be a credit to sales discounts on May 19. None of the above are true. Which method of depreciation results in periodic depreciation expense that fluctuates from one period to the next, not necessarily in a steadily upward or downward direction? A) B) C) D) E) Straight-line. Units-of-production. Amortization. Declining balance. None of the above are correct. 23. 24. 25. Page 7, ACC 311, Fall 2006, Exam 11, Form A Bad debt expense should A) appear on the balance sheet as a contra-asset. B) appear on the income statement as part of selling expenses. C) appear on the income statement as a contra- revenue. D) not appear in the financial statements. E) None of the above is correct. The 2006 records of Coleman Company showed beginning inventory, $100,000; cost of goods sold, $450,000; and ending inventory, $80,000. Purchases on credit for 2006 equal A) $450,000. B) $410,000. C) $430,000. D) $420,000. E) None of the above is correct. The records of Bartley Company showed the following about a machine on January 1, 2006: Purchased 1/1/2003 for $50,000 Accumulated depreciation at January 1, 2006, $32,600 On July 1, 2006, the machine was sold for $12,000. Depreciation for the first six months of 2006 was $2,400. The gain or loss on disposal would be A) $3,000 gain. B) $5,400 gain. C) $3,000 loss. D) $5,400 loss. E) None of the above is correct. Page 8, ACC 311, Fall 2006, Exam II, Form A Problem 1 (15 points) On December 31, 2006, Colonial Corporation had the following account balances related to credit sales and receivables prior to recording adjusting entries: Accounts receivable $ 25,000 Allowance for doubtful accounts 200 (credit) Sales revenue (all credit sales) 400,000 Reguired: Present the necessary year-end adjusting entry related to uncollectible accounts for each of the following independent assumptions: A. An aging of accounts receivable is completed. It is estimated that $2,150 of the receivables outstanding at year-end will be uncollectible. w ——- -___ B. It is estimated that 1% of credit sales for the year will prove to be uncollectible. C. Assume the same information presented in (A) above except that prior to adjustment, the Allowance for Doubtful Accounts actually had a debit balance of $200 rather than a credit balance of $200. w I“ ——— -—-— Page 9, ACC 311, Fall 2006, Exam [1, Form A Problem 2 (18 points) The inventory records of Merin Corporation reflected the following information for the month of August: Mg Transaction Units Unit Cost 8/1 Beginning Inventory 400 $5 8/3 Purchase # 1 400 $5 8/5 Sale # l 600 8/7 Sale # 2 100 8/1 1 Purchase # 2 1,000 $7 8/17 Sale # 3 700 8/19 Purchase # 3 1,000 $7 8/21 Sale # 4 600 8/28 Sale # 5 600 8/29 Purchase # 4 1,200 $9 The selling price for all units sold was $11. Reguired: (You Must Show Your Computations to Receive Credit) Determine the amount of the ending inventory, cost of goods sold and gross profit under each of the following methods assuming the periodic inventory system: Method Inventog Cost of Goods Sold Gross Profit Wei ghted-Average * FIFO LIFO Page 10, ACC 311, Fall 2006, Exam 11, Form A Problem 3 (17 points) Covey Company purchased a machine on January 2, 2007, by paying cash of $250,000. The machine has an estimated useful life of five years (or the production of 500,000 units) and an estimated residual value of $25,000. Reguired: (You Must Show Your Computations and Box Your Answers to Receive Credit) A. Determine depreciation expense (to the nearest dollar) for each year of the machine's useful life under (a). straight-line depreciation and the (b).the double declining balance method. B. What is the book value of the machine after three years with the double declining— balance method? 4, C. What is the book value of the machinery after three years with straight-line depreciation? D. If the machine was used to produce and sell 120,000 units in 2007, what would the depreciation expense be under the units of production method? ...
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Exam II Practice - The University of Texas at Austin...

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