Post on 14-Mar-2023
Fundamentals of Financial AccountingACC 311
Fall 2007
Practice Exam II
Form: XX
Name Instructor Section Meeting Time
DO NOT OPENuntil given instructions to do so.
Instructions
1. Assume that the accrual basis of accounting applies to all questions, unless a question specifically instructs otherwise.
2. Confirm that you have XX numbered pages. There are also two blank sheets of paper at the end of the exam that you may use forscratch paper.
3. On your Scantron answer sheet, write and bubble in your name, section number, and the Test Form letter noted above.
4. 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 willbe graded.
5. Multiple choice questions are 2 points each; all other questions have their point value noted with the problem.
6. Cell phones, PDA's and calculators capable 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.
7. Bring your entire exam, Scantron answer sheet and student ID to the front of the room when you have finished.
8. 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.
Acc 311 – Practice Exam II Page 1 Fall 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. 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 $18,000 of uncollectible accounts. Ward's allowance for uncollectible accounts had a $15,000 balance on January 1, 2006. In its December 31, 2006, income statement, whatamount should Ward report as bad debt expense?
A) $23,000B) $20,000C) $18,000D) $17,000E) None of the above
2. An analysis and aging of Jay Company's accounts receivable at December 31, 2006, disclosed the following:
Accounts receivable $900,000Allowance for doubtful accounts (before aging) 50,000Amount deemed uncollectible (per aging)64,000
The net realizable value of the accounts receivable at December 31, 2006 is:
A) $886,000B) $850,000C) $836,000D) $786,000E) None of the above
3. 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 priceB) 100% of the invoice priceC) 97% of the invoice priceD) 90% of the invoice priceE) 55% of the invoice price
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The following information pertains to questions 4 and 5.
The 12/31/2006 financial statements of the New Age Company contained the following:
Income statement 2006Bad debt expense $ 18,000
Balance sheet 2006 2005Accounts receivable (net of Allowance account of $30,000 and $20,000 for 2006 and 2005 respectively)
112,000 $80,000
Statement of cash flows 2006Cash collected from customers $450,000
4. Assuming that no accounts were reinstated during 2006, what was the amount of write-offs for New Age during 2006?
A) $ 8,000B) $10,000C) $18,000D) $20,000E) $30,000
5. Without respect to your answer in the previous question, suppose that the amount of the writeoffs for 2005 was $10,000. What was the amount of credit sales for the year? (Assume all company sales are made on credit.)
A) $492,000B) $502,000C) $550,000D) $592,000E) $602,000
6. The Williams Company estimates that 1% of Net Sales is uncollectible. The journal entry for the current year includes acredit to the Allowance account for $5,000, and the resulting
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ending credit balance in the Allowance account is $4,500. What was Net Sales for the current year?
A) $ 500B) $ 500,000C) $ 450,000D) $ 550,000E) Cannot be determined
7.When a company ships product to a customer with the terms f.o.b. (free on board) destination, which of the following is true? A) 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.
8. If ABC Company understates ending inventory in 2006 by $10,000 andno correcting entry is made, what will be the effect of the error on the following:
2006 net income 2007 net income 2007 retained earningsA) overstated understated understatedB) understated overstated overstatedC) understated overstated no effectD) overstated understated no effectE) no effect no effect no effect
Questions 9 and 10 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
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sell for $7.00 each. The following schedule presents the sales and purchases of this item during the month of November:
Purchases
Date of Transaction
QuantityReceived Unit Cost Units
SoldNovember 5 100November 7 200 $4.20November 9 150November 11 200 $4.40November 17 220November 22 250 $4.80November 29 100
9. If Addison uses periodic weighted average inventory costing, the gross profit for November will be
A) $1046B) $1,482C) $1,516D) $1,528E) None of the above
10. If Addison uses periodic LIFO inventory costing, the cost of goodssold for November will be:
A) $2,416B) $2,444C) $2,474D) $2,584E) None of the above
11. Generally, which inventory costing method approximates most closely the current cost for each of the following?
Cost of Goods sold Ending InventoryA) LIFO FIFOB) LIFO LIFO
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C) FIFO FIFOD) FIFO LIFO
12. Which of the following is a true statement about lower of cost ormarket (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.
C) LCM recognizes holding losses in the current period rather than postponing them until inventory is sold.
D) All are true E) None is true
13. If a company uses LIFO and prices are rising, large purchases of inventory near the end of the year under the periodic method will:
A) reduce gross profitB) reduce cost of goods soldC) increase income taxes paidD) have no effect on the amount of cost of goods sold
14. On August 1, Red Company purchased computer equipment for $10,000cash plus 100 shares of White common stock held by Red Company asan investment. The White common stock cost Red Company $5,000 andon August 1 had a market value 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? A) $14,200. B) $15,000. C) $15,400. D) $16,200. E) None of the above is correct.
15. If an expenditure is treated as a capital expenditure, instead ofas a revenue expenditure, which of the following statements is true?
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A) The current year's net income will be lower and future depreciation expense will be higher.
B) The 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.
D) The current year's net income will be lower and future depreciation expense will be lower.
16. 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) a higher estimate of residual value at the beginning of their
useful lives. B) 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. E) All of the above.
17. Hill Inc., purchased an asset on January 1, 2009. Hill chose thedouble-declining- balance depreciation method to depreciate the asset. Had Hill chosen the straight-line method A) depreciation expense would be greater in 2009. B) the book value of the asset would be less at the end of 2009. C) net income would be less in 2009. D) all of above are correct. E) none of the above is correct.
18. In accounting, goodwill A) may be recorded whenever a company achieves a level of net
income that exceeds the industry average. B) needs to be amortized if its useful life is indeterminate.C) may be recorded when a company purchases another business. D) must be expensed in the period it is recorded because benefits
from goodwill are difficult to identify. E) is never recorded.
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19. 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 thetotal estimated useful life was changed to 12 years with the residual value unchanged. Depreciation expense for year 8 would be (assuming straight-line depreciation).A) $2,200. B) $2,920. C) $3,100. D) $8,800. E) None of the above is correct.
20. In 2004, Genentech 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. C) A decrease in short-term borrowings. D) Both A and B would cause the ratio to fall. E) All of the above would cause the ratio to fall.
21. 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.E) Two of the above statements are false.
22. On July 1, 2009, Prism, Inc., borrowed $30,000 from First Bank ona 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
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a A) debit to Interest Expense for $1,500. B) 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 Payable for $1,500.
23. Young Company is involved in a lawsuit. The liability which couldarise as a result of this lawsuit should be recorded on the booksif the probability of Young owing money as a result of the lawsuit is A) remote and the amount can be reasonably estimated. B) probable and the amount can be reasonably estimate d. C) reasonably possible and the amount can be reasonably estimate
d. D) probable and the amount cannot be reasonably estimate d. E) None of the above is correct.
24. 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. B) $11,524. C) $14,151. D) $17,751. E) None of the above is correct.
25. 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.
Option C:
Melissa could receive $15,000 five years from now.
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Assuming an opportunity rate of 8%, which option results in the greatest financial benefit to Melissa? A) Option A B) Option B C) Option C D) Option A and B result in the same financial benefit to
Melissa. E) Option A and C result in the same financial benefit to
Melissa.
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SECTION II (50 points). You MUST show your work to receive credit foryour answers and to receive partial credit. Please try to be as neat and organized as possible.
PROBLEM 1 (12 points)At December 31, 2006, Sycamore Imports reported the following
information on it balance sheet:Accounts receivable $1,020,000Less: Allowance for doubtful accounts 60,000Required:During 2007, the company had the following transactions related to receivables. Please provide the journal entry for each item.
1. Sales on account of $2,670,000.ACCOUNTS DEBIT CREDIT
2. Sales returns and allowances of $40,000.ACCOUNTS DEBIT CREDIT
3. Collections of accounts receivable in the amount of $2,300,000.ACCOUNTS DEBIT CREDIT
4. Wrote off account receivable deemed uncollectible in the amount of $65,000.
ACCOUNTS DEBIT CREDIT
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5. Recovery of bad debts previous written off as uncollectible in the amount of $20,000.
ACCOUNTS DEBIT CREDIT
6. Prepare the journal entry to record bad debt expense, assuming thatan aging of accounts receivable indicates that estimated uncollectible accounts total $95,000.
ACCOUNTS DEBIT CREDIT
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PROBLEM 2 (12X points)
Red Robin Inc. is reevaluating the appropriateness of using its present inventory cost flow method, which is average cost. The company would like to determine the results of operations for 2006 if either the FIFO or LIFO method had been used. For 2006, the accounting records show the following:
Inventories Purchases and Sales Beginning (10,000 units)$22,800 Total net sales (225,000 units)
$865,000Ending (15,000 units) Total cost of goods purchased
578,500 (230,000 units)
Purchases were made quarterly as follows:Quarter Units Unit cost Total cost
1 60,000 $2.30 $138,0002 50,000 2.50 125,0003 50,000 2.60 130,0004 70,000 2.65 185,500
230,000 $578,500
Operating expenses were $147,000, and the company’s income tax rate is30%.
Required1. Calculate the company’s net income under FIFO.
2. Calculate the company’s net income under LIFO.
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3. How much more cash will be available for management under LIFO thanunder FIFO?
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PROBLEM 3 (13 points)
Please fill out the chart below with the annual depreciation expense, using the following facts:
Acquisition Cost of Company Van = $65,000Salvage Value of Company Van = $5,000Estimated Useful Life (in years) = 3 yearsEstimated Useful Life (in units) = 150,000 miles
(Note – the van was driven 60,000 miles in Year 1; 50,000 miles in Year 2; and 70,000 miles in Year 3)You must show your work to receive credit for this problem. Round to the nearest dollar.
Year 1 Year 2 Year 3
Straight-Line
Units-of-Production
Double-Declining-Balance
2. The van was sold in Year 4 for $8,000 in cash. Please prepare the journal entry.
ACCOUNTS DEBIT CREDIT
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PROBLEM 4 (13 points)
On January 1, 2006, Mission Company agreed to buy some equipment from Anna Company. Mission signed a note, agreeing to pay Anna one payment of $500,000 for the equipment on December 31, 2008. The market rate ofinterest for this note was 10%.
Required:A. Prepare the journal entry Mission would record on January 1,
2006 related to this purchase.
ACCOUNTS DEBIT CREDIT
B. Prepare the December 31, 2006, adjusting entry to record interest expense related to the note for the first year.
ACCOUNTS DEBIT CREDIT
C. Prepare the December 31, 2007, adjusting entry to record interest expense related to the note for the second year.
ACCOUNTS DEBIT CREDIT
D. Prepare the entry Mission would record on December 31, 2008, the due date of the note to record interest expense for the third year and payment of the note.
ACCOUNTS DEBIT CREDIT
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Acc 311 – Practice Exam II Page 18 Fall 2007
Present Value of $1 to be received after "n" periods at "i" rate.n\i 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 20%
10.990
10.980
40.970
90.961
50.952
40.943
40.934
60.925
90.917
40.909
10.900
90.892
90.885
00.877
20.869
60.833
3
20.980
30.961
20.942
60.924
60.907
00.890
00.873
40.857
30.841
70.826
40.811
60.797
20.783
10.769
50.756
10.694
4
30.970
60.942
30.915
10.889
00.863
80.839
60.816
30.793
80.772
20.751
30.731
20.711
80.693
10.675
00.657
50.578
7
40.961
00.923
80.888
50.854
80.822
70.792
10.762
90.735
00.708
40.683
00.658
70.635
50.613
30.592
10.571
80.482
3
50.951
50.905
70.862
60.821
90.783
50.747
30.713
00.680
60.649
90.620
90.593
50.567
40.542
80.519
40.497
20.401
9
60.942
00.888
00.837
50.790
30.746
20.705
00.666
30.630
20.596
30.564
50.534
60.506
60.480
30.455
60.432
30.334
9
70.932
70.870
60.813
10.759
90.710
70.665
10.622
70.583
50.547
00.513
20.481
70.452
30.425
10.399
60.375
90.279
1
80.923
50.853
50.789
40.730
70.676
80.627
40.582
00.540
30.501
90.466
50.433
90.403
90.376
20.350
60.326
90.232
6
90.914
30.836
80.766
40.702
60.644
60.591
90.543
90.500
20.460
40.424
10.390
90.360
60.332
90.307
50.284
30.193
810
0.9053
0.8203
0.7441
0.6756
0.6139
0.5584
0.5083
0.4632
0.4224
0.3855
0.3522
0.3220
0.2946
0.2697
0.2472
0.1615
11
0.8963
0.8043
0.7224
0.6496
0.5847
0.5268
0.4751
0.4289
0.3875
0.3505
0.3173
0.2875
0.2607
0.2366
0.2149
0.1346
12
0.8874
0.7885
0.7014
0.6246
0.5568
0.4970
0.4440
0.3971
0.3555
0.3186
0.2858
0.2567
0.2307
0.2076
0.1869
0.1122
1 0.878 0.773 0.681 0.600 0.530 0.468 0.415 0.367 0.326 0.289 0.257 0.229 0.204 0.182 0.162 0.093
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Acc 311 – Practice Exam II Page 19 Fall 20073 7 0 0 6 3 8 0 7 2 7 5 2 2 1 5 514
0.8700
0.7579
0.6611
0.5775
0.5051
0.4423
0.3878
0.3405
0.2992
0.2633
0.2320
0.2046
0.1807
0.1597
0.1413
0.0779
15
0.8613
0.7430
0.6419
0.5553
0.4810
0.4173
0.3624
0.3152
0.2745
0.2394
0.2090
0.1827
0.1599
0.1401
0.1229
0.0649
16
0.8528
0.7284
0.6232
0.5339
0.4581
0.3936
0.3387
0.2919
0.2519
0.2176
0.1883
0.1631
0.1415
0.1229
0.1069
0.0541
17
0.8444
0.7142
0.6050
0.5134
0.4363
0.3714
0.3166
0.2703
0.2311
0.1978
0.1696
0.1456
0.1252
0.1078
0.0929
0.0451
18
0.8360
0.7002
0.5874
0.4936
0.4155
0.3503
0.2959
0.2502
0.2120
0.1799
0.1528
0.1300
0.1108
0.0946
0.0808
0.0376
19
0.8277
0.6864
0.5703
0.4746
0.3957
0.3305
0.2765
0.2317
0.1945
0.1635
0.1377
0.1161
0.0981
0.0829
0.0703
0.0313
20
0.8195
0.6730
0.5537
0.4564
0.3769
0.3118
0.2584
0.2145
0.1784
0.1486
0.1240
0.1037
0.0868
0.0728
0.0611
0.0261
30
0.7419
0.5521
0.4120
0.3083
0.2314
0.1741
0.1314
0.0994
0.0754
0.0573
0.0437
0.0334
0.0256
0.0196
0.0151
0.0042
40
0.6717
0.4529
0.3066
0.2083
0.1420
0.0972
0.0668
0.0460
0.0318
0.0221
0.0154
0.0107
0.0075
0.0053
0.0037
0.0007
50
0.6080
0.3715
0.2281
0.1407
0.0872
0.0543
0.0339
0.0213
0.0134
0.0085
0.0054
0.0035
0.0022
0.0014
0.0009
0.0001
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Present Value of an annuity of $1 to be received at the end of each of "n" periods at "i" rate.n\i 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 20%
10.990
10.980
40.970
90.961
50.952
40.943
40.934
60.925
90.917
40.909
10.900
90.892
90.885
00.877
20.869
60.833
3
21.970
41.941
61.913
51.886
11.859
41.833
41.808
01.783
31.759
11.735
51.712
51.690
11.668
11.646
71.625
71.527
8
32.941
02.883
92.828
62.775
12.723
22.673
02.624
32.577
12.531
32.486
92.443
72.401
82.361
22.321
62.283
22.106
5
43.902
03.807
73.717
13.629
93.546
03.465
13.387
23.312
13.239
73.169
93.102
43.037
32.974
52.913
72.855
02.588
7
54.853
44.713
54.579
74.451
84.329
54.212
44.100
23.992
73.889
73.790
83.695
93.604
83.517
23.433
13.352
22.990
6
65.795
55.601
45.417
25.242
15.075
74.917
34.766
54.622
94.485
94.355
34.230
54.111
43.997
53.888
73.784
53.325
5
76.728
26.472
06.230
36.002
15.786
45.582
45.389
35.206
45.033
04.868
44.712
24.563
84.422
64.288
34.160
43.604
6
87.651
77.325
57.019
76.732
76.463
26.209
85.971
35.746
65.534
85.334
95.146
14.967
64.798
84.638
94.487
33.837
2
98.566
08.162
27.786
17.435
37.107
86.801
76.515
26.246
95.995
25.759
05.537
05.328
25.131
74.946
44.771
64.031
010
9.4713
8.9826
8.5302
8.1109
7.7217
7.3601
7.0236
6.7101
6.4177
6.1446
5.8892
5.6502
5.4262
5.2161
5.0188
4.1925
11
10.368
9.7868
9.2526
8.7605
8.3064
7.8869
7.4987
7.1390
6.8052
6.4951
6.2065
5.9377
5.6869
5.4527
5.2337
4.3271
12
11.255
10.575
9.9540
9.3851
8.8633
8.3838
7.9427
7.5361
7.1607
6.8137
6.4924
6.1944
5.9176
5.6603
5.4206
4.4392
1 12.13 11.34 10.63 9.985 9.393 8.852 8.357 7.903 7.486 7.103 6.749 6.423 6.121 5.842 5.583 4.532
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Acc 311 – Practice Exam II Page 21 Fall 20073 4 8 5 6 6 7 7 8 9 4 9 5 8 4 1 714
13.004
12.106
11.296
10.563
9.8986
9.2950
8.7455
8.2442
7.7862
7.3667
6.9819
6.6282
6.3025
6.0021
5.7245
4.6106
15
13.865
12.849
11.938
11.118
10.380
9.7122
9.1079
8.5595
8.0607
7.6061
7.1909
6.8109
6.4624
6.1422
5.8474
4.6755
16
14.718
13.578
12.561
11.652
10.838
10.106
9.4466
8.8514
8.3126
7.8237
7.3792
6.9740
6.6039
6.2651
5.9542
4.7296
17
15.562
14.292
13.166
12.166
11.274
10.477
9.7632
9.1216
8.5436
8.0216
7.5488
7.1196
6.7291
6.3729
6.0472
4.7746
18
16.398
14.992
13.754
12.659
11.690
10.828
10.059
9.3719
8.7556
8.2014
7.7016
7.2497
6.8399
6.4674
6.1280
4.8122
19
17.226
15.678
14.324
13.134
12.085
11.158
10.336
9.6036
8.9501
8.3649
7.8393
7.3658
6.9380
6.5504
6.1982
4.8435
20
18.046
16.351
14.877
13.590
12.462
11.470
10.594
9.8181
9.1285
8.5136
7.9633
7.4694
7.0248
6.6231
6.2593
4.8696
30
25.808
22.396
19.600
17.292
15.372
13.765
12.409
11.258
10.274
9.4269
8.6938
8.0552
7.4957
7.0027
6.5660
4.9789
40
32.835
27.355
23.115
19.793
17.159
15.046
13.332
11.925
10.757
9.7791
8.9511
8.2438
7.6344
7.1050
6.6418
4.9966
50
39.196
31.424
25.730
21.482
18.256
15.762
13.801
12.233
10.962
9.9148
9.0417
8.3045
7.6752
7.1327
6.6605
4.9995
21