386ss00ex2

							                                Accounting 386, Exam 2, Summer 2000, Kurtenbach

Name____________________________________

Multiple choice - 10 questions, 100 points available

1.   On July 1, 1998, Dan Wise signed an agreement to operate as a franchisee of Kwik Foods, Inc., for
     an initial franchise fee of 30,000. Of this amount, 10,000 was paid when the agreement was signed
     and the balance is payable in four equal annual payments of 5,000 beginning July 1, 1999. The
     agreement provides that the down payment is not refundable and no future services are required of
     the franchisor. Wise's credit rating indicates that he can borrow money at 14% for a loan of this
     type. Information on present and future value factors is as follows:

              Present value of $1 at 14% for 4 periods                            0.59
              Future value of $1 at 14% for 4 periods                             1.69
              Present value of an ordinary annuity of $1 at 14% for 4 periods     2.91

              Wise should record the acquisition cost of the franchise on July 1, 1998 at

     a)   21,800.
     b)   24,550.
     c)   30,000.
     d)   33,800

2.   Which of the following methods of determining annual bad debts 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


3.   The journal entries for a bank reconciliation
     a) are taken from the "balance per bank" section only.
     b) may include a debit to Rent Expense for bank service charges.
     c) may include a credit to Accounts Receivable for an NSF check.
     d) may include a debit to Accounts Payable for an NSF check.


4.   A trial balance before adjustments included the following:

                                                       Debit       Credit
                    Sales                                         425,000
                    Sales returns and allowance                    14,000
                    Accounts receivable                43,000
                    Allowance for doubtful accounts                  760

     If the estimate of uncollectibles is made by taking 8% of gross account receivables, the amount of
     the adjustment, i.e., the adjusting journal entry, is

     a)   2,680.
     b)   3,440.
     c)   3,379.
     d)   4,200.
5.   Mota Co.'s allowance for uncollectible accounts was 95,000 at the end of 1998 and 90,000 at the
     end of 1997. For the year ended December 31, 1998, Mota reported bad debt expense of 13,000 in
     its income statement. What amount did Mota debit to the appropriate account in 1998 to write off
     actual bad debts?

     a)   5,000
     b)   8,000
     c)   13,000
     d)   18,000



6.   Which of the following is NOT considered cash for financial reporting purposes?

     a)   Petty cash funds and change funds
     b)   Money orders, certified checks, and personal checks
     c)   Coin, currency, and available funds
     d)   Postdated checks and I.O.U.'s


7.   If a petty cash fund is established in the amount of 250, and contains 150 in cash and 95 in receipts
     for disbursements when it is replenished, the journal entry to record replenishment should include
     credits to the following accounts:

     a)   Petty Cash, 95; Cash Over and Short, 5
     b)   Petty Cash, 100.
     c)   Cash, 95; Cash Over and Short, 5.
     d)   Cash, 100.


8.   Byrd Co. accepted delivery of merchandise which it purchased on account. As of December 31,
     Byrd had recorded the transaction, but did not include the merchandise in its inventory. The effect
     of this on its financial statements for December 31 would be

     a)   net income, current assets, and retained earnings were understated.
     b)   net income was correct and current assets were understated.
     c)   net income was understated and current liabilities were overstated.
     d)   net income was overstated and current assets were understated.


9.   Refer to the attached Hewlett Packard balance sheet. Assume the balance in the 1999 allowance for
     doubtful accounts is 134 (in millions, i.e., the same scale as the balance sheet). What is gross
     accounts receivable?

     a)   5,824
     b)   5,958
     c)   6,092
     d)   cannot be calculated from the information provided


10. Assume the current ratio is 2.5:1. The CFO elects to borrow a short-term note at the local bank.
    What effect does this decision have on the current ratio and on working capital?
        Current            Working
        Ratio              Capital
    a) Increase            Decrease
    b) Decrease            Increase
    c) Decrease            Decrease
    d) Increase            Increase
11. (15 points) Please refer to the attached Hewlett Packard balance sheet. Please complete the
    following table for each item. Indicate the category on the Statement of Cash Flows and whether
    the item is treated as a cash inflow (source of cash) or a cash outflow (use of cash).

           Account                 Category                Inflow (source)         Outflow (use)
           Accounts Receivable
           Inventory
           Accounts Payable
           Deferred Revenue
           Add’l Paid in Capital

12. (35 points) Panther Corporation is preparing a bank reconciliation and has identified the following
    potential reconciling items. Please complete the bank reconciliation by providing: 1) the
    unadjusted balance per bank, 2) the adjusted balance per Panther’s books, and 3) any required
    journal entries.

             Deposits in Transit                               $ 275
             Outstanding checks                                   680
             NSF check returned by the bank                       230
             Interest credited to Panther’s account                30
             Bank service charges                                  25
             Adjusted balance per bank                          1,200
             Unadjusted balance per Panther’s books             1,425
13. (25 points) A bond has a stated interest rate of 12% and is sold to yield a return of 10% on January
    1, 2000 and matures on December 31, 2004. The bond pays semi-annual interest on June 30 and
    December 31. Given the following time value of money tables, please calculate the selling price of
    the bond and provide the journal entry for the issuance. Show all of your work.

                          For interest rates of :     5% per period              6% per period
                          Number of periods:          5       10                 5       10
             Present value of $1                      .78     .61                .75     .56
             Present value of an annuity              4.33    7.72               4.21    7.36
             Future value of $1                       1.27    1.63               1.34    1.79
             Future value of an annuity               5.53    12.58              5.64    13.18




14. (25 points) Refer to the attached Hewlett Packard financial statements to answer the following
    questions for the 1999 financials. Where necessary, assume 360 days for activity ratios:
    a) Calculate the gross margin (gross profit percentage) for Products ___________ and
        Services ___________.
    b) What is the total “other revenue and expense”? __________________
    c) What is the effective tax rate for 1999? __________________
    d) What is the Accounts Receivable turnover? ______________ In days? _______________
    e) What is the Inventory turnover?____________            In days?__________________
    f) What is the 1999 current ratio? ___________________
    g) What is the 1999 working capital? _________________