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PART I

Accounting

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PART I. MULTIPLE CHOICE. CIRCLE THE LETTER OF THE BEST RESPONSE.     

 1. A business had the following assets and liabilities at the

       beginning and at the end of a year:

 

                            Assets     Liabilities

       Beginning of year... $67,000      $14,000

       End of year......... 78,000       17,000

       

       Determine the net income or net loss during the year under the

       assumption that dividends total $19,200 and shareholders invested

      an additional $10,000 in the business by year?end.

       a. $51,800 net income.

       b. $ 1,200 net loss.

       c. $17,200 net income.

       d. $ 8,000 net income.

 

 

 

 

 

 

    

 

    2. The following transactions occurred during July:

           1) Received $700 cash for photography services provided to

               customer during the month.

           2) Received $1,500 cash from Barbara Hanson, the owner of the

               business.

           3) Received $800 from a customer in partial payment of his

               account receivable which arose as a result of sales during

               June.

           4) Rendered photography services to a customer on credit, $500.

           5) Borrowed $2,500 from the bank by signing a promissory note.

           6) Received $1,000 from a customer in payment for services to

               be rendered next year.

       What was the amount of revenue for July?

       a. $7,000.

       b. $5,500.

       c. $3,000.

       d. $2,000.

       e. $1,200.

 3. If the accountant failed to make the end?of?period adjustment to

       remove from the Unearned Revenue account the amount of

       revenue earned, the omission would cause:

       a. An overstatement of net income.

       b. An overstatement of assets.

       c. An overstatement of liabilities.

       d. An overstatement of owner's equity.

  4. A company begins a year by purchasing a five?year insurance policy

       for $1,800. If the purchase was charged to Prepaid Insurance, the

       adjusting entry at the end of the first year is:

       a. Debit Prepaid Insurance, $1,800; credit Cash, $1,800.

       b. Debit Prepaid Insurance, $1,440; credit Insurance Expense, $1,440.

       c. Debit Prepaid Insurance, $360; credit Insurance Expense, $360.

       d. Debit Insurance Expense, $360; credit Prepaid Insurance, $360. 5. (would appear here) 

    6. The accounting principle that guides accountants to select the less

       optimistic estimate when two estimates of amounts to be received or

       paid are about equally likely is the:

       a. Consistency principle.

       b. Conservatism principle.

       c. Objectivity principle.

       d. Full?disclosure principle.

       e. Realization principle.

    

    .... questions 7-10 would appear next.....

 

PART II. PROBLEMS

 

    11. The adjusted trial balance of the Cox Company is as follows:

        

                                                      Adjusted

                                                    Trial Balance

                                                  Debit    Credit

           Cash ................................  8,000

           Prepaid insurance ...................  2,400

           Equipment ........................... 18,000

           Accumulated depreciation, equipment .            3,600

           Salaries payable ....................            2,000

           Unearned revenue    ................            1,200

           Service revenue   ..................           23,800

           Salaries expense ....................  9,000

           Depreciation expense ................  1,800

           Insurance expense ...................  1,400

           Dividends............................  3,700

           Retained earnings ...................              700

          Common stock ........................            13,000

                                                  44,300   44,300

                                                  ??????   ??????

        In good form, present the closing entries for Cox

        Company.

    

12. Use the following information to calculate the unknown amount.

On May 31, Beanstalk Company had a $6,000 balance in Accounts Receivable. During June, the company collected $5,000 from its credit customers. The June 30 balance in Accounts Receivable was $8,000. Determine the amount of sales on account that occurred in June. No other types of transactions affected Accounts Receivable.

The amount of sales on account that occurred in June was __________.

13. The following situation requires an adjusting journal entry to prepare financial statements as of June 30, 20X6. First, present the adjusting entry. Second, present the entry that would be made to record the payment of the accrued liability during July. Include dates in your entries but omit explanations and posting references.

The total weekly salaries expense for all employees is $5,000. This amount is paid at the end of the day on Friday of each week with five working days. June 30 falls on Wednesday of this year, which means that the employees had worked three days since the last payday. The next payday is July 2. 

Present your answer in good form.

 14. (would appear here)

   15. Presented below are the year?end balances of the accounts for

    Crimson Repair Service at December 31. All accounts have normal

    balances. The bookkeeper decided to alphabetize the accounts.

    

        Accounts receivable ............................. $ 24,000

        Accounts payable ................................   38,000

        Accumulated depreciation, trucks ................   10,000

        Accumulated depreciation, building ..............    7,000

        Advertising expense .............................    3,000

        Building ........................................   50,000

        Cash ............................................   40,000

        Depreciation expense, building ..................    3,000

        Depreciation expense, trucks ....................    4,000

        Insurance expense ...............................    2,000

        Land ............................................   15,000

       Dividends .......................................   26,000

       Common stock ....................................   10,000 

        Retained earnings....... ........................   46,000

        Prepaid insurance ...............................      500

        Salaries payable ................................    2,000

        Salaries expense ................................   42,000

        Unearned repair service revenue .................    2,500

        Repair service revenue ..........................  150,000

        Supplies ........................................    1,500

        Supplies expense ................................    8,000

        Repairs expense, trucks .........................   18,000

        Trucks ..........................................   25,000

        Utilities expense ...............................    3,500

   

    In good form, prepare a balance sheet for Crimson Repair Service. 

Show your work. The next page is blank and can help you show your work.

I. MULTIPLE CHOICE. CIRCLE THE LETTER OF THE BEST RESPONSE.

    

    1. A business purchased a cash register on January 1, 20X1, for $4,500.

       This cash register had a useful life of 10 years and a salvage value

       of $300. What should the second (20X2) year's depreciation expense

       be using the declining?balance method at twice the straight?line

       rate?

       a. $900.

       b. $840.

       c. $720.

       d. $672.

       e. $405.

 Part II. Problems. Show your work.

  8. On April 1, 20X2, Lockhart Company discarded a computer that cost

        $8,000 and that had a useful life of 4 years, a salvage value of

        $400, and, under straight?line depreciation, accumulated depreciation

        as of December 31, 20X1 of $5,700.\

a. Prepare a journal entry to record depreciation up to the date of disposal of the computer.

b. Prepare a journal entry to record the disposal of the computer.

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11.a. On January 1, 20X1, a company borrowed $40,000 in exchange for an interest-bearing note. The note plus compounded interest at an annual rate of 10% is due on January 1, 20X4. What is the amount that the company will pay on the due date? _________ Show your work.

11.b. A company can repay a 6% loan by making a $3,000 payment at the end of each year for the next four years. What is the amount that the company can borrow today? ___________ Show your work.12. It is 20X6 and Denise Johnson is the chief executive officer (CEO) of a large firm, the Janice Corporation. Assume you are a manager with the firm. The firm is having financial problems. The Board of Directors and the shareholders have been disappointed in the firm's net income over the past few years. Denise also has a problem with a bank loan. The bank is concerned that the firm's debt ratio, which is defined as total liabilities divided by assets, is high at .45. The bank, in its loan agreement with the firm, requires that the debt ratio not exceed .50. If the debt ratio exceeds .50, the bank has the option of declaring a loan violation and requiring the firm to repay the entire loan within 2 days.Denise feels the firm should sell some vacant land that the firm purchased for $1 million in 1970. The land can now be sold for $30 million, its fair market value. The land has been held as a long term investment. The firm has no bonus plan for Denise. (Note: Managers at times must deal with incomplete information and uncertainty. You are a manager in this situation. If you feel you need to make additional assumptions to support your answers, state the assumptions in your answers.)

a.If the land were sold for cash on December 10, 20X6, what would be the journal entry?

b.Based on these facts, why might Denise want to sell the land? For each motivation, carefully explain why the sale of the land can achieve her goals. Use your knowledge of accounting. Write legibly. 

c.Assume Denise wants you, as a manager in the firm, to express support for her decision to sell the land. Are you going to support her decision? ______ (yes or no)  Why or why not? Do you see any ethical issues? ______ (yes or no)  Why or why not? If you see ethical issues, describe them.

d.Given your answers in part (c), what are the best arguments against your positions? (For example, if you do not support Denise and believe there are ethical problems with her decision, what is her best argument in her defense? On the other hand, if you do support Denise and believe there are no ethical problems with her decision, what is the best argument against her position?)