1. Which of the following is a contra account?
a. Premium on bonds payable
b. Unearned revenue
c. Patents
d. Accumulated depreciation
2. Treasury stock should be reported as a(n)
a. current asset.
b. investment.
c. other asset.
d. reduction of stockholders' equity.
3. Presented below are data for Linda Corp.
2017 2018
Assets, January 1 $8,850 $9,720
Liabilities, January 1 4,860 ?
Stockholders' Equity,Jan.1 ? ?
Dividends 1,620 1,215
Common Stock 1,458 1,296
Stockholders' Equity,Dec.31 ? ?
Net Income 1,920 1,296
Stockholders' Equity at January 1, 2018 is
a. $5,748.
b. $3,990.
c. $4,290.
d. $5,910.
4. When a company has cash available in another account in the same bank at which an overdraft has occurred, the company will:
a. offset the overdraft against cash account.
b. report the same in the notes to financial statement.
c. report the bank overdraft amount as account payable.
d. classify the bank overdraft as compensating balance.
5. Presented below are data for Bob Corp.
2017 2018
Assets, January 1 $4,200 $5,040
Liabilities, January 1 2,520 ?
Stockholders' Equity, Jan.1 ? ?
Dividends 840 630
Common Stock 756 672
Stockholders' Equity, Dec. 31 ? ?
Net Income 840 672
Stockholders' Equity at January 1, 2017 is
a. $1,056.
b. $1,140.
c. $1,680.
d. $2,436.
Items 6 and 7 apply to the appropriate use of present value tables. Given below are the present value factors for $1.00 discounted at 10% for one to five periods. Each of the items 69 to 72 is based on 10% interest compounded annually.
Present Value of $1
Periods Discounted at 10% per Period
1 0.909
2 0.826
3 0.751
4 0.683
5 0.621
6. What amount should be deposited in a bank today to grow to $10,000 three years from today?
a. $10,000 ÷ 0.751
b. $10,000 × 0.909 × 3
c. ($10,000 × 0.909) + ($10,000 × 0.826) + ($10,000 × 0.751)
d. $10,000 × 0.751
7. What is the present value today of $15,000 to be received six years from today?
a. $15,000 × 0.909 × 6
b. $15,000 × 0.751 × 2
c. $15,000 × 0.621 × 0.909
d. $15,000 × 0.683 × 3
8. Beau Company financed the purchase of a machine by making payments of $25,000 at the end of each of five years. The appropriate rate of interest was 8%. The future value of one for five periods at 8% is 1.46933. The future value of an ordinary annuity for five periods at 8% is 5.8666. The present value of an ordinary annuity for five periods at 8% is 3.99271. What was the cost of the machine to Beau?
a. $36,985
b. $99,818
c. $125,000
d. $146,668
9. Which of the following concepts relates to using the allowance method in accounting for accounts receivable?
a. Bad debt expense is an estimate that is based on historical and prospective information.
b. Bad debt expense is based on the actual amounts determined to be uncollectible.
c. Bad debt expense is an estimate that is based only on an analysis of the receivables aging.
d. Bad debt expense is management's determination of which accounts will be sent to the attorney for collection.
10. What is "recourse" as it relates to selling receivables?
a. The obligation of the seller of the receivables to pay the purchaser in case the debtor fails to pay.
b. The obligation of the purchaser of the receivables to pay the seller in case the debtor fails to pay
c. The obligation of the seller of the receivables to pay the purchaser in case the debtor returns the product related to the sale.
d. The obligation of the purchaser of the receivables to pay the seller if all of the receivables are collected.
11. At the close of its first year of operations, December 31, 2017, Chen Company had accounts receivable of $1,620,000, after deducting the related allowance for doubtful accounts. During 2017, the company had charges to bad debt expense of $270,000 and wrote off, as uncollectible, accounts receivable of $120,000. What should the company report on its balance sheet at December 31, 2017, as accounts receivable before the allowance for doubtful accounts?
a. $2,010,000
b. $1,770,000
c. $1,470,000
d. $1,320,000
12. On December 31, 2017, Marc Corporation sold for $150,000 an old machine having an original cost of $270,000 and a book value of $120,000. The terms of the sale were as follows:
$30,000 down payment
$60,000 payable on December 31 each of the next two years
The agreement of sale made no mention of interest; however, 9% would be a fair rate for this type of transaction. What should be the amount of the notes receivable net of the unamortized discount on December 31, 2017 rounded to the nearest dollar? (The present value of an ordinary annuity of 1 at 9% for 2 years is 1.75911.)
a. $105,547
b. $135,546.
c. $120,000.
d. $211,092.
13. What is consigned inventory?
a. Goods that are shipped, but title transfers to the receiver.
b. Goods that are sold, but payment is not required until the goods are sold.
c. Goods that are shipped, but title remains with the shipper.
d. Goods that have been segregated for shipment to a customer.
14. If the beginning inventory for 2017 is overstated, the effects of this error on cost of goods sold for 2017, net income for 2017, and assets at December 31, 2018, respectively, are
a. overstatement, understatement, overstatement.
b. overstatement, understatement, no effect.
c. understatement, overstatement, overstatement.
d. understatement, overstatement, no effect.
15. Kat Corporation uses the perpetual inventory and the gross method. On March 1, it purchased $80,000 of inventory, terms 2/10, n/30. On March 3, Kat returned goods that cost $8,000. On March 9, Kat paid the supplier. On March 9, Kat should credit
a. purchase discounts for $1,600.
b. inventory for $1,600.
c. purchase discounts for $1,440.
d. inventory for $1,440.
16. Andrey Inc. took a physical inventory at the end of the year and determined that $780,000 of goods were on hand. In addition, Andrey, Inc. determined that $60,000 of purchased goods that were in transit that were shipped f.o.b. shipping point were actually received two days after the inventory count. Also, the company had $90,000 of goods out on consignment. What amount should Andrey report as inventory at the end of the year?
a. $780,000.
b. $860,000.
c. $870,000.
d. $930,000.
Use the following information for questions 17 and 18. Sue Co. has the following data related to an item of inventory:
Inventory, March 1 400 units @ $2.10
Purchase, March 7 1,400units @ $2.20
Purchase, March 16 280 units @ $2.25
Inventory, March 31 520 units
17. The value assigned to ending inventory if Sue uses LIFO is
a. $1,160.
b. $1,104.
c. $1,092.
d. $1,168.
18. The value assigned to cost of goods sold if Sue uses FIFO is
a. $1,160.
b. $1,104.
c. $3,448.
d. $3,392.
19. Net realizable value is
a. acquisition cost plus costs to complete and sell.
b. selling price.
c. selling price plus costs to complete and sell.
d. selling price less costs to complete, sell, and transport
20. Which statement is not 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 annual statements.
c. It may be used by auditors.
d. None of these answers are correct.
21. Bernie Company sells product 2005WSC for $30 per unit. The cost of one unit of 2005WSC is $27, and the replacement cost is $26. The estimated cost to dispose of a unit is $6, and the normal profit is 40%. At what amount per unit should product 2005WSC be reported, applying lower-of-cost-or-market?
a. $12.
b. $24.
c. $26.
d. $27.
22. The following information is available for October for Jeff Company.
Beginning inventory $350,000
Net purchases 1,050,000
Net sales 2,100,000
Percentage markup on cost 66.67%
A fire destroyed Jeff's October 31 inventory, leaving undamaged inventory with a cost of $21,000. Using the gross profit method, the estimated ending inventory destroyed by fire is
a. $119,000.
b. $539,000.
c. $560,000.
d. $700,000.
23. Dicer uses the conventional retail method to determine its ending inventory at cost. Assume the beginning inventory at cost (retail) were $390,000 ($594,000), purchases during the current year at cost (retail) were $2,055,000 ($3,300,000), freight-in on these purchases totaled $129,000, sales during the current year totaled $3,000,000, and net markups (markdowns) were $72,000 ($108,000). What is the ending inventory value at cost?
a. $556,842.
b. $567,138.
c. $580,206.
d. $858,000.
II. Cash flow statement categories (13 points). Classify the transactions into the best of these five categories and darken the circle on the bubble sheet to indicate the best answer.
a. Operating activity-add to net income.
b. Operating activity-deduct from net income.
c. Investing activity.
d. Financing activity.
e. Reported as a significant non-cash activity.
Transactions:
24. Issuance of common stock.
25. Purchase of land and building.
26. Redemption (i.e., payoff) of bonds owed.
27. Sale of equipment.
28. Depreciation of machinery.
29. Amortization of patent.
30. Issuance of bonds for plant assets.
31. Payment of cash dividends.
32. Exchange of furniture for office equipment.
33. Purchase of treasury stock.
34. Loss on sale of equipment.
35. Increase in accounts receivable during the year.
36. Decrease in accounts payable during the year.
III. Accounts receivable transactions (18 points) The balance sheet of Holbrook, Inc. at December 31, 2015, includes the following:
Accounts receivable 88,000
Less: Allowance for doubtful accounts 5,900 $82,100
Transactions during 2016 include the following:
1. Credit sales during 2016 were $94,000.
2. Accounts receivable of $72,000 were collected including $32,000 of accounts on which 2% sales discounts were allowed (sales were initially recorded on the gross method).
3. $2,800 was received in payment of an account which was written off the books as worthless in 2015.
4. Customer accounts of $5,300 were written off during the year.
5. At year-end, Allowance for Doubtful Accounts was estimated to need a balance of $8,500.
Instructions: In the space provided, properly record transactions 1-5 above, including explanations. Show work for partial credit.