The Summer 2012 Accounting Tribe
The Second Encounter
Rules:
No Cheating
__________________________________
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1) The work I complete is my own,
2) I did not and will not give aid to others,
3) I will not share any information about the examination with those
who are taking it later, and
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The following data is for Molly’s Munchies:
Balance
12/31/10
Cash
Accounts Receivable
Allowance for Doubtful Accounts
Inventory
Prepaid Insurance
Equipment
Accumulated Depreciation
Land
Security Deposits
Accounts Payable
Wages Payable
Rent Payable
Interest Payable
Taxes Payable
Note Payable
Common Stock ($1 each)
Retained Earnings
Sales
Cost of Goods Sold
Wage Expense
Rent Expense
Office Expenses
Depreciation Expense
Bad Debt Expense
Insurance Expense
Interest Expense
Income Tax Expense
20,000
40,000
5,000
90,000
3,000
290,000
20,000
10,000
30,000
10,000
6,000
7,000
5,000
140,000
180,000
50,000
Balance
12/31/11
90,000
80,000
12,000
70,000
1,500
340,000
80,000
120,000
12,000
35,000
6,000
8,000
6,500
16,000
130,000
300,000
120,000
1,200,000
575,000
260,000
24,000
70,000
60,000
15,000
9,000
14,000
52,000
Some of the land was acquired on March 31, 2011 by exchanging 60,000 shares of common stock worth
$60,000. The additional common stock (other than that issued for the purchase of the land) was sold on June 30,
2011 for $1 per share. The company did not sell any equipment during the year. All the rest of the equipment
and the land purchased during the year was purchased for cash. The retained earnings balance for both years is
after all closing entries have been made. The Note Payable requires payments of $10,000 principal plus
interest at 10% on December 31 of each year.
The only item that will be graded is the scantron or bubble sheet. Therefore,
you do not need to worry about the format of your financial statements since
they will not be graded. It is highly recommended that you do the income
statement, balance sheet and cash flow statement to be sure they balance and
tie together before you answer the questions about them.
Multiple Choice Circle answer on exam AND bubble in on scan sheet. (6 points each)
The next 16 questions refer to Molly’s Munchies financial statements.
1) The Total Assets at December 31, 2011 was:
A.
B.
C.
D.
E.
$ 229,500
$ 380,000
$ 621,500
$ 12,000
None of the above
2) The Total Current Liabilities at December 31, 2011 was (be careful!)
A.
B.
C.
D.
E.
$ 201,500
$ 81,500
$ 621,500
$ 420,000
None of the above
3) The Income from Operations was
A.
B.
C.
D.
E.
$ 625,000
$ 187,000
$ 173,000
$ 121,000
None of the above
4) The EPS was
A.
B.
C.
D.
E.
$ 0.47
$ 0.40
$ 0.50
$ 0.77
None of the above
5) The “Supplemental Information” section of the Cash Flow Statement for Molly’s would include
A. Cash paid for Interest, Cash paid for Taxes, and Cash paid for Land
B. Cash Paid for Working Capital, Cash Paid for Land, and Interest Expense
C. Cash paid for Interest, Cash Paid for Taxes and Cash Paid for Common Stock
D. Cash Paid for Interest, Cash Paid for Taxes and 60,000 shares of Common Stock
Exchanged for land
E. None of the above describes what would be included in this section
6) The cash paid for wages in 2011 was:
A.
B.
C.
D.
E.
$ 260,000
$ 264,000
$ 266,000
$ 268,000
None of the above
7) On the Cash Flow Statement, the Cash Flow from Operations was
A.
B.
C.
D.
E.
$ 180,000
$ 217,000
$ 183,000
$ 203,000
None of the above
8) On the Cash Flow Statement, the Cash Flow from (Used by) Investing Activities was
A.
B.
C.
D.
E.
($ 132,000)
($ 172,000)
($ 112,000)
($ 130,000)
None of the above
9) On the Cash Flow Statement, the Cash Flow from (Used by) Financing Activities was
A.
B.
C.
D.
E.
($ 1,000)
$ 59,000
$ 47,000
($ 47,000)
None of the above
10) In the “Supplemental Information” section, the Cash Paid for Interest was
A.
B.
C.
D.
E.
11)
$ 14,000
$ 14,500
$ 16,000
$ 17,000
None of the above
In the “Supplemental Information” section, The Cash Paid for Taxes was
A.
B.
C.
D.
E.
$ 53,000
$ 27,000
$ 41,000
$ 68,000
None of the above
12)
For Molly’s, Net Income for 2011 was
A.
B.
C.
D.
E.
13)
For Molly’s, Financing Activities will include
A.
B.
C.
D.
E.
14)
$ 625,000
$ 187,000
$ 173,000
$ 121,000
None of the above
Payment on Note Payable ($ 20,000)
Issuance of Common Stock $ 160,000
Issuance of Common Stock $ 140,000
Payment of Dividends ($ 51,000)
None of the above
For Molly’s, the total amount of Accounts Receivable written off during 2011 was
A.
B.
C.
D.
E.
$ 8,000
$ 23,000
$ 12,000
$ 15,000
None of the above
15) For Molly’s, Investing Activities will include
A.
B.
C.
D.
E.
Purchase of land ($120,000)
Purchase of land ($ 60,000)
Purchase of equipment ($ 70,000)
Increase in Accumulated Depreciation $60,000
None of the above
16) For Molly’s, Net Accounts Receivable at 12/31/11 is
A.
B.
C.
D.
E.
$35,000
$68,000
$250,000
$260,000
None of the above
17) Bad Debt Expense is:
A) recognized as an expense in the year the sale was made
B) considered a normal cost of doing business
C) an operating expense
D) none of these
E) all of these
18) On July 10, Mark’s Company made a $10,000 credit sale under the terms 2/10, n/30. If Mark
receives full payment of the account on July 19, the amount of cash received is:
A.
B.
C.
D.
E.
19)
$ 9,800
$ 9,000
$ 9,990
$10,200
$10,000
The matching concept is
A.
B.
C.
D.
E.
Debits = Credits
Assets = Liabilities + Owners’ Equity
Revenues - Cost of Goods Sold = Gross Margin
Recording all expenses incurred in generating the revenues of the period
The same as the book value
20) Which of the following would not be an adjustment in arriving at net cash flow from
operations?
A.
B.
C.
D.
E.
Changes in wages payable
Depreciation expense for the year
Changes in prepaid expenses
Decrease in inventory
Net increase in long-term debt
21)
Joshie Co. had a beginning balance (12/31/10) in Accounts Receivable of $500,000 and a
beginning credit balance in the Allowance for Doubtful Accounts of $30,000. During 2011 he
sold $800,000 of goods on credit and collected $600,000. If Joshie estimates that 6% of his
ending accounts receivable will eventually not be collected, his adjusting journal entry for the
bad debt expense will include a credit to allowance for doubtful accounts of
A.
B.
C.
D.
E.
22)
$ 10,000
$ 12,000
$ 30,000
$ 42,000
None of the above
Still Joshie Co. - If Joshie had written off $ 10,000 of accounts receivable during 2011, the
debit to bad debt expense would have been:
A.
B.
C.
D.
E.
$ 10,000
$ 12,000
$ 21,400
$ 41,400
None of the above
23) Still Joshie Co. - After the $ 10,000 write off of accounts receivable and the recording of the
bad debt expense, the ending balance in the Allowance for Doubtful Accounts at December
31, 2011 would be:
A.
B.
C.
D.
E.
$ 10,000
$ 12,000
$ 21,400
$ 41,400
None of the above
24) A 10-year, $1,000,000 zero coupon bond is priced to yield 10%. The amount the
issuing company will receive when it is issued is
A.
B.
C.
D.
E.
$ 620,921
$ 1,000,000
$ 998,980
$ 783,500
$ 385,543
Use the following information for the next 4 questions:
Eric’s Enterprises, Inc.
Income Statement
For the Year Ended December 31, 2011
Sales
$ 900,000
Cost of Goods Sold
400,000
Gross Margin
500,000
Operating Expenses
Wage Expense
$250,000
Rent Expense
36,000
Depreciation Expense
30,000
Utilities Expense
18,000
Total Operating Expenses
334,000
Operating Income
166,000
Other Revenues & <Expenses>
Interest Expense
< 16,000>
Taxable Income
150,000
Tax Expense
45,000
Net Income
$ 105,000
EPS
$ 1.91
Eric’s Enterprises, Inc.
Balance Sheet
December 31,
2010
2011
Assets
Current Assets
Cash
$ 170,000
$ 150,000
Accounts Receivable
85,000
80,000
Allowance for Doubtful
Accounts
(5,000)
(10,000)
Net Accounts Receivable
80,000
70,000
Inventory
70,000
90,000
Total Current Assets
320,000
310,000
Property and Equipment
Equipment
340,000
420,000
Less: Accumulated
Depreciation
60,000
90,000
Net Property & Equipment 280,000
330,000
Other Assets
Security Deposit
10,000
10,000
Total Assets
25)
$ 610,000
$ 650,000
Liabilities
Current Liabilities
Accounts Payable
Wages payable
Interest Payable
Taxes Payable
Total Current Liabilities
Long-Term Debt
Note Payable
Total Liabilities
72,000
46,000
60,000
388,000
Total Owners’ Equity
Total Liabilities and
Owners’ Equity
30.42 days
28.39 days
32.44 days
54.72 days
some other number
At December 31, 2011 the inventory turn was approximately
4.44
5.71
5.00
1.00
some other number
$28,000
5,000
1,000
12,000
Owners’ Equity
Common Stock ($1 per share) 50,000
Retained Earnings
288,000
26) For 2011, the average collection period was approximately
A.
B.
C.
D.
E.
$ 52,000
8,000
2,000
10,000
156,000
202,000
A.
1.00
B. 12.00
C. 11.25
D. 12.86
E. some other number
27)
2011
200,000
272,000
At December 31, 2011 the receivable turn was approximately
A.
B.
C.
D.
E.
2010
333,000
448,000
$ 610,000
$ 650,000
28)
For 2011, the Days Sales in Inventory was approximately
A.
B.
C.
D.
E.
29)
82.20
31.08
68.92
73.00
None of the above
Megan will sell you a Doodlebop for $40,000. The deal is you pay for the Doodlebop in three
equal annual payments that include interest at 4%. You put no money down and the first
payment is not due until one year from today!! You called the bank and they said that they
would charge you 10% for a similar loan.
How much are the payments if you take Megan’s deal?
A.
B.
C.
D.
E.
30)
$ 11,200.00
$ 10,810.46
$ 12,063.44
$ 14,413.94
None of the above
How much are you really paying for the Doodlebop under Megan’s deal?
A. $ 35,845.34
B. $ 26,884.01
C. $ 30,000.00
D. $ 36,190.32
E. None of the above
31)
If you amortize the Megan deal properly, the interest for the first year would be
A.
B.
C.
D.
E.
$ 3,584.53
$ 3,000.00
$ 2,688.40
$ 1,200.00
None of the above
32) Goodwill is
A. an intangible asset
B. categorized on the Balance Sheet as an Other Asset
C. the portion of the purchase price of a business that exceeds the fair market value
of the net assets purchased.
D. all of the above
E. none of the above
33)
On a statement of cash flows, depreciation expense is treated as an adjustment to net income
because depreciation expense
A. is a direct source of cash.
B. reduces reported income because it involves an inflow of cash.
C. reduces reported income but does not involve an outflow of cash
D. is an inflow of cash to an account set up for the replacement of assets.
E. None of the above
Use the following information for the next six questions
John’s Jollies, Inc. (JJI) issued a 10 year, $100,000 face bond with a 10% interest rate. The
bond pays the interest for 10 years and then pays the principal of $100,000 at the end of
the 10th year.
34) If the current interest rates are 12% at the time of issue, on the date of issue, JJI will
receive
A.
B.
C.
D.
E.
$ 100,000.00
$ 91,954.77
$ 73,734.81
$ 88,699.55
None of the above
35) If the current interest rates are 10% at the time of issue, on the date of issue, JJI will
receive
A.
B.
C.
D.
E.
$ 104,986.81
$ 113,420.16
$ 77,399.11
$ 100,000.00
None of the above
36) If the current interest rates are 8% at the time of issue, on the date of issue, JJI will
receive
A.
B.
C.
D.
E.
$ 104,986.81
$ 113,420.16
$ 77,399.11
$ 100,000.00
None of the above
37) If the JJI bonds are sold to yield 8%, they will be said to be sold at:
A.
B.
C.
D.
E.
a discount
a premium
par
the coupon rate
None of the above
38) If the JJI bonds are issued to yield 12%, the interest expense for the first year for JJI will
be:
A. $ 12,729.50
B. $ 10,643.95
C. $ 10,000.00
D. $ 12,000.00
E. None of the above
39) If the JJI bonds are issued to yield 12%, the face interest rate of 10% is also known as:
A.
B.
C.
D.
E.
The effective rate
The coupon rate
The premium rate
The discount rate
None of the above
40) Current portion of Long-term Debt is:
A. The total payment on a loan due in the next 12 months
B. The principal payment on a loan due in the next 12 months
C. The balloon portion of long-term debt
D. An example of a significant noncash transaction
E. None of these
41) The accounting equation is
A. Debits = Credits
B. Assets = Liabilities + Owners’ Equity
C. Revenues - Cost of Goods Sold = Gross Margin
D. Recording all expenses incurred in generating the revenues of the period
E. The same as the book value
42)
The reason you need to have an Allowance for Doubtful Accounts is
A.
B.
C.
D.
E.
so your debits = your credits.
it is one of the Laws of the Universe.
to confuse and bewilder accounting students.
adherence to the matching principle requires it.
There is no good reason.
43) A “capital lease” is really
A.
B.
C.
D.
E.
A temporary rental of something
A better lease than a non-capital lease
A purchase of the asset
A current asset
A purchase of a net present value
44) Ben is buying a new Truck from Zeb’s Pretty Good Value Truck Sales. The deal on the table is
that the total cost of the truck is $6,000. Ben will put $1,000 down. Zeb will charge Ben only
2% interest!! Ben will make 5 annual interest only payments (he will send him 2% at the end of
each year) and then at the end of the fifth year, along with the last interest payment, he also
sends the remaining $5,000. Ben called the bank and they told him that they would charge
him 12% for a truck loan at this time. How much is Ben really paying for the truck?
A.
B.
C.
D.
E.
$ 1,272.95
$ 3.197.61
$ 4.197.61
$ 6,120.00
None of the above
45) Still on Ben, he purchased the truck under the stated deal. If he amortized the deal correctly,
what would be the principal balance after the first annual interest payment?
A.
B.
C.
D.
E.
$ 3,481.33
$ 2,913.90
$ 4,900.00
$ 4,481.33
None of the above
46) Susie Corporation is buying all the assets and assuming all the liabilities of John’s Barbeque
Company. The following information is available for John’s at the date of the purchase:
Accounts Receivable
Inventory
Land
250,000
100,000
300,000
Accounts payable
Note Payable
Common Stock
Retained Earnings
150,000
100,000
200,000
400,000
The accounts receivable are worth $200,000, the inventory is worth $75,000 and the land is worth
$500,000. The Accounts Payable are worth book value. Susie will pay $650,000 for John’s. How
much of the purchase price will Susie debit to goodwill?
A.
B.
C.
D.
E.
$ 125,000.00
$ 129,804.45
$ 117,790.45
$ 120,196.45
Some other number which is not here
Use the following information to answer the next 2 questions:
You have the option of:
1)
Purchasing a car for $32,880 with 10% down and making 5 equal annual
payments including interest. The bank will charge you 8%.
Or
2) Leasing the car for $6,000 per year for 5 years with a down payment of
$1,500. You can purchase the car at the end of the lease for $3,000.
47)
If you purchase the vehicle and finance it according to the terms above (Option 1), the
payments will be
A.
B.
C.
D.
E.
48)
$ 8,325.01
$ 6,576.00
$ 6,000.00
$ 7,411.51
None of the above
Which of the following is correct?
A.
B.
C.
D.
E.
Leasing is better by $5,381.99
Buying is better by $5,381.99
Leasing is better by $3,881.99
Buying is better by $3,881.99
None of the above
49) The world is moving toward a common set of accounting rules. These rules are know collectively
as:
A.
B.
C.
D.
E.
The World Wide Financial Standards
GAAP
IFRS
The Commonality Initiative
International Generally Accepted Accounting Principles
50) Assume that a company issues a ten-year $100,000, 6% bond to yield 10% for $75,421.73 on
January 1, 2011 and interest payments are due on December 31st of each year. The journal
entry to record the first payment on December 31, 2011 will include
A. a debit to interest expense of $6,000.
B.
a credit to bond payable of $1,542.17.
C.
a credit to bond premium of $1,542.17.
D.
a debit to bond discount of $1,542.17.
E.
a credit to bond discount of $1,542.17.
51)
The accounts receivable turn measures
A.
B.
C.
D.
E.
the ability of a company to pay its bills for the coming year.
how well a company uses its assets to create profits.
the amount of debt a company is carrying as a percentage of total assets.
the percentage the company is earning for its shareholders.
the ability of a company to turn sales into cash.
52)
The major difference on the income statement between a retail operation and a service
company is
A.
B.
C.
D.
E.
The owners’ equity is shown differently
A service company’s income statement is as of a certain date, not for a period ending
A service company has no Cost of Goods Sold
A retail company includes interest in the operating expense section
There is no difference