Week Five - Final Exam Here is the exam – Do not return this document – but only the matrix. Use the matrix provided to enter your answers to the final exam in upper case letters (T or F, or A, B, etc.) Be sure to include your name on the worksheet. Excel worksheets provided for the recording of answers to the quiz and final are required – not optional. If the worksheets provided for examinations are not properly submitted (including student’s name on the main answer sheet), ten points will be deducted from the student’s score for failure to meet these requirements. For example, if a Word document is returned with the answers indicated thereon, and no (supplied) Excel summary page of those answers, or an Excel workbook without the student’s name, a perfect exam will earn 90 out of 100, 140 out of 150 points, etc. Thanks, and good luck. ---- DO NOT RETURN THIS AS A WORD DOCUMENT – JUST SUBMIT THE COMPLETED EXCEL “MATRIX” WITH YOUR ANSWER INDICATED THEREON. T F 1 A company's calendar year and fiscal year are always the same. T F 2. Adjusting entries are not necessary if the trial balance debit and credit columns balances are equal. Use the following to answer questions 3-4: Sheepskin Company had the following transactions during 2008. · Sales of $4,500 on account · Collected $2,000 for services to be performed in 2009 · Paid $625 cash in salaries · Purchased airline tickets for $250 in December for a trip to take place in 2009 3. What is Sheepskin's 2008 net income using accrual accounting? A) $3,875 B) $5,875 C) $5,625 D) $3,625 4. What is Sheepskin's 2008 net income using cash basis accounting? A) $5,875 B) $1,375 C) $5,625 D) $1,125 5. An adjusting entry A) affects two balance sheet accounts. B) affects two income statement accounts. C) affects a balance sheet account and an income statement account. D) is always a compound entry. 6. Straight line depreciation expense for a year is computed by taking the A) original cost of an asset – accumulated depreciation. B) depreciable cost ¸ depreciation rate. C) depreciable cost ¸ number of years of useful life. D) market value of the asset ¸ useful life. 7. If business pays rent in advance and debits a Prepaid Rent account, the company receiving the rent payment will credit A) cash. B) prepaid rent. C) unearned rent revenue. D) accrued rent revenue. 8. On January 1, 2007, P.T. Oracle Company purchased a computer system for $3,240. The company expects to use the system for 3 years. The asset has no salvage value. The book value of the system at December 31, 2008 is A) $0. B) $1,080. C) $2,160. D) $3,240. 9. Carter Guitar Company borrowed $12,000 from the bank signing a 9%, 3-month note on September 1. Principal and interest are payable to the bank on December 1. If the company prepares monthly financial statements, the adjusting entry that the company should make for interest on September 30, would be A) Debit Interest Expense, $1,080; Credit Interest Payable, $1,080. B) Debit Interest Expense, $90; Credit Interest Payable, $90. C) Debit Note Payable, $1,080; Credit Cash, $1,080. D) Debit Cash, $270; Credit Interest Payable, $270. 10. Can financial statements be prepared directly from the adjusted trial balance? A) They cannot. The general ledger must be used. B) Yes, adjusting entries have been recorded in the general journal and posted to the ledger accounts. C) No, the adjusted trial balance merely proves the equality of the total debit and total credit balances in the ledger after adjustments are posted. It has no other purpose. D) They can because that is the only reason that an adjusted trial balance is prepared. Use the following to answer questions 11-13: Financial information is presented below: Operating Expenses $ 45,000 Sales Returns and Allowances 13,000 Sales Discounts 6,000 Sales 160,000 Cost of Goods Sold 77,000 11. The amount of net sales on the income statement would be A) $154,000. B) $141,000. C) $160,000. D) $166,000. 12. Gross profit would be A) $77,000. B) $70,000. C) $64,000. D) $83,000. 13. The gross profit rate would be A) .454. B) .546. C) .500. D) .538. 14. A recommended internal control procedure for taking physical inventories is that the counting should be done by employees who do not have custodial responsibility for the inventory. This is an example of what type of internal control procedure? A) Establishment of responsibility C) Independent internal verification B) Documentation procedure D) Segregation of duties Use the following to answer questions 15-17: A company just starting business made the following four inventory purchases in June: June 1 150 units $ 390 June 10 200 units 585 June 15 200 units 630 June 28 150 units 495 $2,100 A physical count of merchandise inventory on June 30 reveals that there are 200 units on hand. 15. Using the LIFO inventory method, the value of the ending inventory on June 30 is A) $536. B) $653. C) $1,447. D) $1,564. 16. Using the FIFO inventory method, the amount allocated to cost of goods sold for June is A) $653. B) $1,272. C) $1,447. D) $1,564. 17. Using the average-cost method, the amount allocated to the ending inventory on June 30 is A) $2,100. B) $1,500. C) $575. D) $600. 18. Euler Company made an inventory count on December 31, 2008. During the count, one of the clerks made the error of counting an inventory item twice. For the balance sheet at December 31, 2008, the effects of this error are A) Assets overstated, liabilities understated, equity overstated B) Assets understated, liabilities – no effect, equity understated C) Assets overstated, liabilities – no effect, equity overstated D) Assets overstated, liabilities overstated, equity understated T F 19.The three primary accounting problems with accounts receivable are: (1) recognizing, (2) depreciating, and (3) disposing. T F 20.The percentage of sales basis for estimating uncollectible accounts always results in more Bad Debts Expense being recognized than the percentage of receivables basis. 21. A debit balance in the Allowance for Doubtful Accounts A) is the normal balance for that account. B) indicates that actual bad debt write-offs have exceeded previous provisions for bad debts. C) indicates that actual bad debt write-offs have been less than what was estimated. D) cannot occur if the percentage of sales method of estimating bad debts is used. 22. Bad Debts Expense is considered A) an avoidable cost in doing business on a credit basis. B) an internal control weakness. C) a necessary risk of doing business on a credit basis. D) avoidable unless there is a recession. 23. The method of accounting for uncollectible accounts that results in a better matching of expenses with revenues is the A) aging accounts receivable method. C) percentage of receivables method. B) direct write-off method. D) percentage of sales method. 24. Long Company uses the percentage of sales method for recording bad debts expense. For the year, cash sales are $500,000 and credit sales are $2,000,000. Management estimates that 1% is the sales percentage to use. What adjusting entry will Long Company make to record the bad debts expense? a. Bad Debts Expense 25,000 Allowance for Doubtful Accounts 25,000 b. Bad Debts Expense 20,000 Allowance for Doubtful Accounts 20,000 c. Bad Debts Expense 20,000 Accounts Receivable 20,000 d. Bad Debts Expense 25,000 Accounts Receivable 25,000 25. In reviewing the accounts receivable, the cash realizable value is $16,000 before the write-off of a $1,500 account. What is the cash realizable value after the write- off? A) $16,000 B) $1,500 C) $17,500 D) $14,500 26. The maturity value of a $90,000, 10%, 60-day note receivable dated July 3 is A) $90,000. B) $99,000. C) $105,000. D) $91,500. T F 27.The Accumulated Depreciation account represents a cash fund available to replace plant assets. T F 28. The IRS does not require the taxpayer to use the same depreciation method on the tax return that is used in preparing financial statements. T F 29. Research and development costs which result in a successful product which is patentable are charged to the Patent account. T F 30. When an asset is purchased during the year, it is not necessary to record depreciation expense in the first year under the declining-balance depreciation method. Use the following to answer questions 31-32: Grey Company purchased a new van for floral deliveries on January 1, 2008. The van cost $36,000 with an estimated life of 5 years and $9,000 salvage value at the end of its useful life. The double-declining-balance method of depreciation will be used. 31. What is the depreciation expense for 2008? A) $7,200 B) $5,400 C) $10,800 D) $14,400 32. What is the balance of the Accumulated Depreciation account at the end of 2009? A) $5,760 B) $17,280 C) $23,040 D) $8,640 33. A company sells a plant asset which originally cost $180,000 for $60,000 on December 31, 2008. The Accumulated Depreciation account had a balance of $72,000 after the current year's depreciation of $18,000 had been recorded. The company should recognize a A) $120,000 loss on disposal. C) $48,000 loss on disposal. B) $48,000 gain on disposal. D) $30,000 loss on disposal. 34. On July 1, 2008, Meed Kennels sells equipment for $66,000. The equipment originally cost $180,000, had an estimated 5-year life and an expected salvage value of $30,000. The accumulated depreciation account had a balance of $105,000 on January 1, 2008, using the straight-line method. The gain or loss on disposal is A) $9,000 gain. B) $6,000 loss. C) $9,000 loss. D) $6,000 gain. 35. Jarman's Courier Service recorded a loss of $3,000 when it sold a van that originally cost $28,000 for $5,000. Accumulated depreciation on the van must have been A) $26,000. B) $8,000. C) $25,000. D) $20,000. T F 36. Metropolitan Symphony sells 200 season tickets for $60,000 that includes a five concert season. The amount of Unearned Ticket Revenue after the second concert is $24,000. T F 37. Each bondholder may vote for the board of directors in proportion to the number of bonds held. T F 38. Bond interest paid by a corporation is an expense, whereas dividends paid are not an expense of the corporation. T F 39. If bonds are issued at a premium, the carrying value of the bonds will be greater than the face value of the bonds for all periods prior to the bond maturity date. T F 40. The carrying value of bonds at maturity should be equal to the face value of the bonds. Use the following to answer questions 41-42: Coffey County Bank agrees to lend Adcock Brick Company $200,000 on January 1. Adcock Brick Company signs a $200,000, 8%, 9-month note. 41. What is the adjusting entry required if Adcock Brick Company prepares financial statements on June 30? A) Interest Expense …….. 8,000 Interest Payable ….. 8,000 B) Interest Expense ……. 8,000 Cash …………….. 8,000 C) Interest Payable ………. 8,000 Cash ……………… 8,000 D) Interest Payable ………. 8,000 Interest Expense 8,000 42. What entry will Adcock Brick Company make to pay off the note and interest at maturity assuming that interest has been accrued to September 30? A) Notes Payable ……………. 212,000 Cash ……………. 212,000 B) Notes Payable ……………. 200,000 Interest Payable …………… 12,000 Cash …………….. 212,000 C) Interest Expense ….……… 12,000 Notes Payable ……………. 200,000 Cash …………….. 212,000 D) Interest Payable ……………. 8,000 Notes Payable ……………… 200,000 Interest Expense ………….… 4,000 Cash ……………….. 212,000 43. Gomez Corporation issues 1,000, 10-year, 8%, $1,000 bonds dated January 1, 2008, at 98. The journal entry to record the issuance will show a A) debit to Cash of $1,000,000. B) credit to Discount on Bonds Payable for $20,000. C) credit to Bonds Payable for $980,000. D) debit to Cash for $980,000. 44. The market interest rate is often called the A) stated rate. B) effective rate. C) coupon rate. D) contractual rate. 45: Golden Company received proceeds of $94,250 on 10-year, 8% bonds issued on January 1, 2007. The bonds had a face value of $100,000, pay interest semi-annually on June 30 and December 31, and have a call price of 101. Golden uses the straight-line method of amortization. What is the amount of interest Golden must pay the bondholders in 2007? A) $7,540 B) $8,000 C) $8,575 D) $7,425 T F 46. The acquisition of treasury stock by a corporation increases total assets and total stockholders' equity. 47. Which of the following would not be true of a privately held corporation? A) It is sometimes called a closely held corporation. B) Its shares are regularly traded on the New York Stock Exchange. C) It does not offer its shares for sale to the general public. D) It is usually smaller than a publicly held company. 48. Ed Stone has invested $400,000 in a privately held family corporation. The corporation does not do well and must declare bankruptcy. What amount does Stone stand to lose? A) Up to his total investment of $400,000. B) Zero. C) The $400,000 plus any personal assets the creditors demand. D) $200,000. 49. What is ordinarily the first step in the formation of a corporation? A) Development of by-laws for the corporation B) Issuance of the corporate charter C) Application for incorporation to the appropriate Secretary of State D) Registration with the SEC 50. The effect of the declaration of a cash dividend by the board of directors is to a. Increase Stockholder’s Equity …… Decrease Assets b. Increase Assets …………………… Decrease Liabilities c. Increase Liabilities ……………….. Decrease Stockholders’ Equity d. Increase Liabilities ……………….. Decrease Assets T F 51. The use of cash to purchase highly liquid short-term investments (cash equivalents) would be reported on the statement of cash flows as an investing activity. 52. If a company reports a net loss, it A) may still have a net increase in cash. B) will not be able to pay cash dividends. C) will not be able to get a loan. D) will not be able to make capital expenditures. 53: Joy Elle's Vegetable Market had the following transactions during 2008: 1. Issued $25,000 of par value common stock for cash. 2. Repaid a 6 year note payable in the amount of $11,000. 3. Acquired land by issuing common stock of par value $50,000. 4. Declared and paid a cash dividend of $1,000. 5. Sold a long-term investment (cost $3,000) for cash of $3,000. 6. Acquired an investment in IBM stock for cash of $6,000. What is the net cash provided by financing activities? A) $13,000 B) $25,000 C) $14,000 D) $9,000 54. Flynn Company reported a net loss of $20,000 for the year ended December 31, 2008. During the year, accounts receivable decreased $10,000, merchandise inventory increased $16,000, accounts payable increased by $20,000 and depreciation expense of $10,000 was recorded. During 2008, operating activities A) used net cash of $4,000. C) provided net cash of $4,000. B) used net cash of $16,000. D) provided net cash of $16,000. 55. In the Freyfogle Company, land decreased $60,000 because of a cash sale for $60,000, the equipment account increased $20,000 as a result of a cash purchase, and Bonds Payable increased $70,000 from an issuance for cash at face value. The net cash provided by investing activities is A) $60,000. B) $110,000. C) $40,000. D) $50,000.