Download Solutions to test no2

BUSA 101
Test #2 Chapters 6-9
Mr. Moloney
True/False (1.5 points each)
Indicate whether the sentence or statement is true or false.
____
1. Long-lived assets that are tangible in nature, used in the operations of the business, and not held for sale in the
ordinary course of business are called fixed assets.
____ 2. The cost of computer equipment includes the consultant's fee to supervise installation of the equipment.
Multiple Choice (1.5 points each)
Identify the letter of the choice that best completes the statement or answers the question.
____
____
____
____
____
____
3. At the end of the fiscal year, Accounts Receivable has a balance of $450,000 and Allowance for Doubtful
Accounts has a balance of $25,000. What is the net expected realizable value of the accounts receivable?
a. $25,000
b. $425,000
c. $450,000
d. $455,000
4. Allowance for Doubtful Accounts has a credit balance of $400 at the end of the year (before adjustment), and
uncollectible accounts expense is estimated at 1% of net sales. If net sales are $300,000, the amount of the
adjusting entry to record the provision for doubtful accounts is:
a. $3,000
b. $3,400
c. $400
d. $2,600
5. Merchandise inventory at the end of the year was inadvertently overstated. Which of the following statements
correctly states the effect of the error on net income, assets, and stockholders'equity?
a. net income is overstated, assets are overstated, stockholders' equity is understated
b. net income is overstated, assets are overstated, stockholders' equity is overstated
c. net income is understated, assets are understated, stockholders' equity is understated
d. net income is understated, assets are understated, stockholders' equity is overstated
6. If merchandise inventory is being valued at cost and the purchase price is steadily falling, which method of
costing will yield the largest gross profit?
a. average cost
b. lifo
c. fifo
d. weighted average
7. If the cost of an item of inventory is $70, the current replacement cost is $65, and the sales price is $85, the
amount included in inventory according to the lower of cost or market is:
a. $85
b. $70
c. $65
d. $160
8. A fixed asset with a cost of $40,000 and accumulated depreciation of $36,500 is traded for a similar asset
priced at $60,000. Assuming a trade-in allowance of $3,000, the recognized loss on the trade is:
a. $1,000
b. $3,500
c. $ 500
d. $1,500
____
9. Generally accepted accounting principles require that gains be recognized when a fixed asset is:
a. traded if the asset acquired by the taxpayer is similar in use
b. sold for a loss
c. traded if the asset acquired by the taxpayer is dissimilar in use
d. traded and the book value of the old asset is greater than the trade-in allowance.
____ 10. Accounts Receivable Turnover measures:
a. how frequently during the year the accounts receivable are converted to cash
b. the number of days outstanding
c. the fair market value of accounts receivable
d. the efficiency of the accounts payable function
PROBLEM
11. 20 Points The bank statement for Corley Co. indicates a balance of $9,000.00 on June 30. The cash account
had a balance of $4,675.00 at the end of the month. Prepare a bank reconciliation on the basis of the following
reconciling items:
Part I
(a)
Cash sales of $342 had been erroneously recorded in the journal as $324.
(b)
Deposits in transit not recorded by bank, $500.00.
(c)
Bank debit memorandum for service charges, $25.00.
(e)
Bank credit memorandum for note collected by bank, $l,850, including $50 interest.
(e)
Bank debit memorandum for $218.00 NSF (not sufficient funds) check from Alice
Martin, a customer.
(f)
Checks outstanding, $3,200.00.
11. Part I
Corley Co.
Bank Reconciliation
June 30, 20-Cash balance according to bank statement
Add deposits in transit not recorded by bank
Deduct outstanding checks
Adjusted balance
Cash balance according to depositor's records
Add: Note collected by bank, including
$50 interest
Error in recording cash sales of
$342 as $324
Deduct: NSF check from Alice Martin
Bank service charges
Adjusted balance
Part II
Cash
Notes Receivable
Interest Revenue
Cash
Sales
Accounts Receivable
Cash
Service Charge Expense
Cash
$9,000.00
500.00
$9,500.00
3,200.00
$6,300.00
$4,675.00
$1,850.00
18.00
$ 218.00
25.00
1,868.00
$6,543.00
243.00
$6,300.00
1850.00
1800.00
50.00
18.00
18.00
218.00
218.00
25.00
25.00
12.12 Points For a business that uses the allowance method for uncollectible receivables:
(a) Journalize the entries to record the following
(1)
Record the adjusting entry at December 31, the end of the fiscal year, to provide for
doubtful accounts. The accounts receivable account has a balance of $900,000, and
the allowance for doubtful accounts before adjustment has a debit balance of
$1,000. Analysis of the receivables indicates doubtful accounts of $22,000.
(2)
In March of the following fiscal year, the $750 owed by Saks Co. on account is
written off as uncollectible.
(3)
Eight months later, $350 of the Saks Co. account is reinstated and payment of that
amount is received.
(4)
In October, $500 is received on the $700 owed by Cox Co. and the remainder is
written off as uncollectible.
(b) Based on ONLY the data in (a) (1) above, what is the net realizable value of the accounts
receivable as reported on the balance sheet as of December 31?
(a) (1)
(2)
(3)
(4)
(b)
Uncollectible Accounts Expense
Allowance for Doubtful Accounts
23,000
23,000
Allowance for Doubtful Accounts
Accounts Receivable-Saks Co
750
Accounts Receivable-Saks Co
Allowance for Doubtful Accounts
Cash
Accounts Receivable-Saks Co
350
Cash
Allowance for Doubtful Accounts
Accounts Receivable-Cox Co
500
200
750
350
350
350
700
$878,000 ($900,000 - $22,000)
A/R
Allowance
13. 8 Points Journalize the following transactions:
Mar. 1
Received a 60-day, 10% note for $25,000, dated March 1, from S Co. on account.
Apr. 30
Received amount due on note dated March 1
Apr. 30
Received a 90-day, 12% note for $5,000, dated April 30, from Baker on account.
July 29
Baker declares bankruptcy and won’t pay us.
Mar. 1
Apr. 30
Apr. 30
July 29
Notes Receivable
Accounts Receivable-S Co
25,000
Cash
Notes Receivable
Interest Revenue
25,417
25,000
25,000
417
Notes Receivable
Accounts Receivable-Baker
5,000
Accounts Receivable
Interest Revenue
Notes Receivable
5,150
5,000
150
5,000
15. 18 Points Machinery is purchased on July 1, 2004 of the current fiscal year for $165,000. It is expected to
have a useful life of 6 years, or 21,000 operating hours, and a residual value of $15,000. Compute the
depreciation for the current fiscal year ending December 31 by each of the following methods:
(a)
(b)
(c)
(A)
straight-line
declining-balance at twice the straight-line rate
units-of-production (used for 1,500 hours during the current year)
Straight-line:
Cost of the equipment
Less: residual value
Cost to allocate
Divide by useful life
Depreciation per YEAR
Divide by TWO for ½ year
Depreciation for SIX months
(B)
$165,000
15,000
$150,000
6 years
$ 25,000 per year
2
$ 12,500
Declining –balance at twice the straight-line rate:
Computation for the rate:
100%
divide by SL years
6
= SL rate
16.66%
double the SL
X 2
declining balance rate 33.33%
Cost of the equipment
$165,000
X the declining rate
33.33%
Cost to allocate
$ 55,000
Divide by TWO for ½ year
2
Depreciation for SIX months $ 27,500
(C)
Units-of Production:
Cost of the equipment
Less: residual value
Cost to allocate
Divide by useful life
Depreciation per HOUR
Times the HOURS used
Depreciation
$165,000
15,000
$150,000
21,000 HOURS
$ 7.14 per HOUR
1,500
$ 10,710
16. 16.
12 Points Machinery acquired at a cost of $100,000 and on which there is accumulated depreciation
of $60,000 (including depreciation for the current year to date) is exchanged for similar machinery. For
financial reporting purposes, present entries to record the disposition of the old machinery and the acquisition
of new machinery under each of the following assumptions:
(a)
(b)
(A)
Price of new, $120,000; trade-in allowance on old, $4,000; balance paid in cash.
Price of new, $120,000; trade-in allowance on old, $44,000; balance paid in cash.
$4,000 Trade-in
Cost of the equipment
Less: Accumulated Dep.
Book value
Trade-in
Loss on exchange
$100,000
$ 60,000
$ 40,000
$ 4,000
$ 36,000
New equipment:
Less: trade-in
Cash paid for new equip.
$120,000
$ 4,000
$116,000
(a)
(b)
(B)
Accumulated Depreciation-Machinery
Machinery
Loss on Disposal of Fixed Assets
Machinery
Cash
60,000
120,000
36,000
Accumulated Depreciation-Machinery
Machinery
Machinery
Cash
60,000
116,000
$44,000 Trade-in:
Cost of the equipment
Less: Accumulated Dep.
Book value
Trade-in
Gain on exchange
$100,000
$ 60,000
$ 40,000
$ 44,000
$ 4,000
New equipment:
Less: trade-in
Cash paid for new equip.
$120,000
$ 44,000
$ 76,000
NEW EQUIP COST – because of like-kind exchange:
Origianl Cost
$120,000
Less gain on exchange
$ 4,000
Cost of new equipment
$116,000
100,000
116,000
100,000
76,000