ACCT110 Financial Accounting Exam
PART I - MULTIPLE CHOICE
Instructions - Designate the best answer for each of the following questions.
____1. The interest charged on a $50,000 note payable, at the rate of 6%, on a 90-day note would be
a. $3,000.
b. $1,500
c. $750.
d. $500.
____ 2. Riodan Company sold old equipment for $25,000. The equipment had a cost of $50,000 and accumulated depreciation of $30,000. The entry to record the sale of the equipment would include a
a. loss on disposal of $25,000.
b. gain on disposal of $25,000.
c. loss on disposal of $5,000.
d. gain on disposal of $5,000.
____ 3. The cost of patent should be
a. amortized over the assets' estimated useful life, legal life or 20 years, whichever is shorter.
b. amortized over a period not exceeding 5 years.
c. amortized over the assets' estimated useful life.
d. charged to an expense account at acquisition.
____ 4. In a period of rising prices, the inventory method that results in the lowest income tax payment is
a. LIFO.
b. FIFO.
c. average cost.
d. specific identification.
____ 5. On November 30, Thatcher Company issued a $8,000, 6%, 4-month note to the National Bank. The entry on Thatcher's books to record the payment of the note at maturity will include a credit to Cash for
a. $8,000.
b. $8,480.
c. $8,160.
d. $8,320.
____ 6. All of the following are intangible assets except
a. patents.
b. land improvements.
c. goodwill.
d. franchises.
____ 7. A daily cash count of register receipts made by a cashier department supervisor demonstrates an application of which of the following internal control principles?
a. Documentation procedures
b. Segregation of duties
c. Establishment of responsibility
d. Independent internal verification
____ 8. If merchandise is sold for $1,000 subject to credit terms of 2/10, n/30, the entry to record collection in full within the discount period would include a
a. debit to Sales Discounts for $20.
b. credit to Cash for $980.
c. credit to Accounts Receivable for $20.
d. none of the above.
____9. Interest may be included in the acquisition cost of a plant asset
a. if the asset is purchased on credit.
b. If the asset acquisition is financed by a long-term not payable.
c. If it is a part of a lump-sum purchase
d. during the construction period of a self-constructed asset
____ 10. Jamison Inc. is a regional air cargo carrier. Jamison made a $4,500 improvement to one of its airplanes. If Jamison's accountant expensed this amount, which of the following statements is true?
a. The entry will improperly overstate net income for the year.
b. The entry will improperly overstate the balance sheet for the year.
c. The entry is the correct treatment.
d. The entry will improperly understate net income for the year.
PART II - ASSET PURCHASES AND DISPOSITIONS
1. On January 1, 2003, Flower Company purchased a patent for $80,000. The patent has a useful life of 10 years. Amortization expense for the first year is $_____________.
2. Osborne Industries purchased equipment costing $40,000 on January 1, 2001. The equipment has a 4-year useful life, $8,000 salvage value, and is being depreciated using the straight-line method. It was sold at $8,000 loss on June 30, 2003. The selling price of the equipment was $_____________.
3. Protect Corporation purchased R&W Corporation for $85,000, while the value of the net assets of R&W Corporation is only $66,000. The amount of the goodwill of this firm is $_____________.
4. Gunning Industries purchased a piece of land on June 30, 2003, and recorded $40,000 on this purchase. The useful life of the land is estimated to be 50 years. The depreciation expense for 2004 is $_____________.
PART III - ALLOWANCE METHOD
Alice Bookstore has credit sales of $40,000 in 2012 and a debit balance of $600 in the Allowance for Doubtful Accounts at year end. As of December 31, 2012, $25,000 of accounts receivable remain uncollected. The credit manager prepared an aging schedule of accounts receivable and estimates that $5,000 will prove to be uncollectible.
Instructions
(a) Prepare the year-end adjusting entry to record the estimated uncollectible accounts expense in 2012.
(b) Show the balance sheet presentation of accounts receivable on December 31, 2012.
(c) On June 16, 2013 the credit manager authorizes a write-off of the $2,000 balance owed by James. Make the appropriate entry to record the write off of the James account. Also show the balance sheet presentation of accounts receivable after the write-off.
PART IV - INVENTORY
Potter Company had a beginning inventory of 200 units at a cost of $12 per unit on August 1. During the month, the following purchases and sales were made.
Purchases
August 4 250 units at $13
August 15 350 units at $15
August 28 200 units at $14
Potter Company uses a periodic inventory system, and sold 750 units this month.
Instructions
Determine ending inventory and cost of goods sold under (a) average cost, (b) FIFO, and (c) LIFO.
PART V - DEPRECIATION
Faulton Corporation purchased a machine on January 1, 2003, at a total cost of $900,000. The machine has an estimated useful life of 10 years or 1,000,000 units of output and a salvage value of $100,000.
Instructions - Complete the following table by presenting the annual depreciation expense for the years 2003 and 2004, under the indicated depreciation methods. Assume actual activity in terms of units of output was: 2003-80,000 units and 2004-120,000 units.
PART VI - Bank Reconciliation
Blake Corp. gathered the following reconciling information in preparing its October bank reconciliation:
Cash balance per bank, 10/31, 2016 $6,710
Cash balance per books, 10/31, 2016 $4,200
Deposits in transit $150
Notes receivable and interest collected by bank (face value is $800, interest $100 and bank collection fee $50) $850
Bank charge for check printing $20
Outstanding checks $2,000
NSF check from R. Smith $170
1. Prepare a bank reconciliation on October 31, 2016.
2. Journalize the adjusting entries for Blake Corp.