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University Extension          ACCT-E100          Dr. M. Haselkorn
Harvard University          Mid-term Exam          Spring, 2009
I. (12 points)
     Determine whether each of the following is true or false.
1.   If the period revenues are less than the period expenses,
     and there are no gains or losses, then Retained Earnings
     must increase during the period.
2.   In a pre-closing trial balance, revenue and expense accounts
     must have a zero balance..
3.    Even if debits equal credits on the trial balance, you still
     cannot know with certainty that your records are correct.
4.   At the end of the first year of ownership of a long-term
     asset, if straight-line depreciation is used, the net book
     value of the asset will always be equal to or lower than the
     market value of the asset.
5.    If prices are increasing then FIFO, compared with LIFO,
     will show a higher net income for the period.
6.   At the end of the third year of ownership of a long-term
     asset, the balance in the accumulated depreciation account
     must be greater than the balance in the depreciation expense
     account

II. (16 points)
     For each numbered item place the letter(s) that best
     describes its category from the following possibilities:
     (A)Assets, (L)Liabilities, (SE)Stockholders’ Equity,
     (R)Revenue, and (E)Expense.

     1.   Utilities expense             5.   Retained Earnings
     2.   Dividends                     6.   Unearned revenue
     3.   Notes payable                 7.   Land
     4.   Cash                          8.   Cost of Goods Sold

III. (16 points)
     Sarah Jones started a new business in January, 2008. The
following are selected events that occurred in the business
during the first year of business. Please provide journal
entries for these events (explanations are not necessary).

1.   Sarah invested $100,000 to start the business, SaJon Inc.
     and received 1,000 shares of stock from the business.
2.   Purchased inventory of $90,000 on account.
3.   Signed a lease for two years for $48,000. The company paid
     $5,000 immediately; this was one month's rent in advance
     plus a security deposit.
4.   Sold inventory, costing $70,000, on account for $100,000
     (recognize both the revenue and the expense).
5.   Paid for the inventory.
6.   Received payment for the amount billed in 4.
7.   Paid $40,000 in salaries.
8.   Recognized the rent expense for the first month.
                                         2

IV. (18 points)
     The ABC Company has the following inventory records.
2/1       Beginning balance         7@ $10        $ 70
2/5       Purchase                 10@   9           90
2/10      Sale                     13@ 20           260
2/17      Purchase                 12@ 11           132
2/23      Sale                     10@ 20           200
2/25      Purchase                 11@   6           66

3/10           Purchase                      15@    8     120
3/15           Sale                          30@   20     600
3/19           Purchase                      18@    4      72

Required
For the above data set please answer the following multiple
choice questions. Use the periodic inventory method.

       1.   For the month of February, using FIFO, the ending
            inventory would be

       a) 226         b) 132    c) 160       d) 198

       2. For the month of March, using FIFO, the ending inventory
       would be

       a) 84          b) 260    c) 88        d) 160

       3.   For the month of February, using LIFO, the ending
            inventory would be

       a) 226         b) 132    c) 160       d) 198

       4. For the month of March, using LIFO, the ending inventory
       would be
       a) 184         b) 260    c) 198       d) 160

       5.   For the month of February, using Weighted-average, the
            ending inventory would be

       a)      8.95        b) 152.15         c) 205.85   d) 176.50

       6.   For the month of March, using Weighted-average, the
            ending inventory would be

       a)      6.88        b) 206.40         c) 167.50   d) 137.66
                                3

V. (18 points)
     Assume the following events for the year 2008.

1.   Credit sales                                 $700,000
2.   Cash sales                                    200,000
3.   Accounts receivable balance 1/1/08             16,000
4.   Accounts written off during the year were       6,000
5.   Allowance for Uncollectibles balance 1/1/08     4,300
6.   Seventy percent (70%) of this year's credit sales are
     collected during the year.
Scenario One
     Use the above data set. Assume that the company estimates
     its annual bad debt expense at 3% of credit sales.

     1.   The adjusting entry to recognize the bad debt expense
          would be

          a) Bad debt ex            8,000
               Allow for bad debts                  8,000
          b) Allow for bad debts   17,000
               A/R                                 17,000
          c) Bad debt ex           21,000
               Allow for bad debts                 21,000
          d) Bad debt ex           27,000
               Allow for bad debts                 27,000

     2.   The write-off of delinquent accounts would be

          a) A/R                      4,300
               Allow for bad debts                 4,300
          b) Allow for bad debts      6,000
               A/R                                 6,000
          c) Bad debt ex              6,000
               Allow for bad debts                 6,000
          d) Allow for bad debts      8,000
               Bad debt ex                         8,000

     3.   The net accounts receivable figure at the end of the
          year would be

          a) 292,700     b) 220,000           c) 200,700    d) 283,700
                                    4
Scenario Two
     Use the above data set. Ignore Scenario One. Assume that
     the company estimates its annual bad debt expense at 5% of
     accounts receivable.

    4.    The adjusting entry to recognize the bad debt expense
          would be

          a) Bad debt ex           11,000
               Allow for bad debts                   11,000
          b) Allow for bad debts   17,600
               A/R                                   17,600
          c) Bad debt ex           12,700
               Allow for bad debts                   12,700
          d) Bad debt ex            6,000
               Allow for bad debts                    6,000

    5.   The write-off of delinquent accounts would be

          a) A/R                        4,300
               Allow for bad debts                   4,300
          b) Allow for bad debts        6,000
               A/R                                   6,000
          c) Bad debt ex                6,000
               Allow for bad debts                   6,000
          d) Allow for bad debts        8,000
               Bad debt ex                           8,000

    6.   The net accounts receivable figure ate the end of the
         year would be

          a) 200,700       b) 201,400           c) 207,000    d) 209,000

VI. (12 points)
     The ABC Company, located in Boston, purchases a piece of
equipment from a dealer in Chicago for $900,000. The cost of
shipping the equipment, $20,000, will be paid for by ABC Co. It
is estimated that the asset will last six years and at the end of
its useful life will have a salvage value of $110,000. When the
equipment arrives it has to be set up and adjusted, at a cost of
$30,000.


    1.    Assume the company uses straight-line depreciation.
          The depreciation expense for year one and year two
          would be

          a)   140,000;   140,000
          b)   135,000;   135,000
          c)   150,000;   150,000
          d)   136,667;   136,667
                                 5

    2.   Assume the company uses double declining balance (DDB)
         depreciation. The depreciation expense for year one
         and year two would be

         a)   280,000; 280,000          c)   300,000; 200,000
         b)   280,000; 186,667          d)   316,667; 211,111

    3.   Assume the company uses sum-of-the-years’-digits (SYD)
         depreciation. The depreciation expense for year one
         and year two would be

         a)   240,000; 200,000          c)   132,000; 126,000
         b)   360,000; 300,000          d)    40,000; 80,000

    4.   This part is independent of parts one through three.
         Assume that a company purchased an asset for $600,000.
         This asset has an estimated salvage value of $25,000.
         At the end of three years the balance in the
         accumulated depreciation account is $40,000, when the
         asset is sold for $460,000.
    Required
    Provide the journal entry for the sale of the asset.

VII. (8 points).
     Consider each of the following scenarios independently.
1. If the beginning balance in Salaries Payable was $4,700, the
ending balance was $3,500, and during the year the cash paid for
salaries (earned both last year and this year) was $80,000, what
must have been the Salary Expense for the year?

2. On July 1, 1998 a five year insurance policy was purchased
for $50,000. By mistake this entire cost was expensed
immediately and this error was never corrected. Ignore taxes.
At the end of 2001 is the Retained Earnings correctly stated and,
if not, is it overstated or understated and by how much?

3. Assume the following. Net assets (assets minus liabilities)
at the beginning of the year were $400,000 and at the end of the
year they were $850,000; common stock increased (some were
issued) during the year by $50,000; and dividends declared for
the year were $180,000. What must have been the net income for
the year?

4. The XYZ Company purchased a building for $760,000. The
estimated salvage value is $60,000 and the estimated useful life
is 20 years. The company uses straight-line depreciation. On
12/31/08, after the appropriate adjusting entry has been made,
the building’s net book value is $655,000. When was the building
purchased? Be as specific as possible.