Accounting 215
Practice Exam #2A
Name: _________________________________
Student ID: ________________________________
Instructions:
1. Please sign the statement below.
2. Work neatly and legibly. Please show your work for problems requiring calculations.
3. Do not open this exam until I tell you to do so.
4. Round to the nearest dollar for the short answer portion of this exam unless noted.
5. Accrual method of accounting is used for all questions unless noted.
Exam Point Breakdown:
Section 1: 20 points
Section 2: 60 points
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Exam 2 Grade: _________ / 80 points
TRUE/FALSE and Multiple Choice (2 pts each):
Please summarize your answers below for this section. Write a “T” or “F” for True/False questions and write the
Multiple-Choice Letter for the Multiple-Choice questions.
1. __F___
2. ___T___
3. ___F___
4. ____F__
5. ___T____
6. ___T____
7. ___C___
8. __D____
9. __D____
10. __C____
True/False:
1. When costs are rising, using LIFO will return a higher ending inventory amount than using FIFO.
2. If a company accidently didn’t record $50,000 worth of cost of goods sold in 2016, then the 2017 beginning inventory
balance would be overstated by $50,000.
3. Under GAAP, the journal entry to record bad debt expense is made during the period in which it is determined that a
particular receivable is uncollectible, regardless of the period of sale.
4. A payment of $20,000 in 3 years from now with an annual rate of 3% is called an annuity.
5. You are considering a payment plan requiring semi-annual payments of $1,000 for four years with an interest rate of
10%. To calculate the present value, you should use an interest rate of 5%.
6. A software company buys a building in Lower Queen Anne for a new office. The software company also paid legal
fees as part of the sale. The legal fees would be capitalized.
Multiple Choice:
7. Which of the following accurately describes the accounting for goodwill?
a. Goodwill is recorded when internally generated
b. Goodwill is amortized over its useful life
c. Goodwill is written down when it has been determined to be impaired
d. Goodwill is recorded on the stockholders’ equity section of the balance sheet
e. All of the above
8. In year one, which of the following statements are true if a company used the double-declining method of
depreciation instead of straight-line depreciation for a piece of equipment?
a. Expenses will be lower
b. Stockholders equity will be lower
c. Assets will be lower
d. Both B and C
e. All of the above are true
9. When recording depreciation, which of the following is true?
a. Total assets increase and stockholders’ equity increases.
b. Total assets decrease and total liabilities increase.
c. Total assets decrease and stockholders’ equity increases.
d. None of the above are true.
10. Which inventory method provides a better matching of current costs with sales revenue on the income statement and
outdated values for inventory on the balance sheet?
a. FIFO
b. Average Cost
c. LIFO
d. Specific Identification
Short Answer Section:
1. Calculate the present value of the following scenarios and note which choice gives you the lowest present value (12
points)
a. You rented a truck and you could pay $10,000 at the end of each year for 5 years or pay $50,000 today. The
annual interest rate assumed is 4%
PV annuity (I = 4%, n = 5) = factor of 4.45182*10,000 = 44,518.20 (choose this one)
Vs $50,000
b. You bought a new scooter and you can either pay $300 a month to a company for 20 months or pay $4,000
today. The company is charging an annual interest rate of 12%.
PV annuity (i=1%, n = 20) = factor 18.04555 * $300 = $5,413.67
Vs. $4,000 (choose this one)
c. You bought a new computer and can pay $200 a year for 2 years and then $300 on the third year or you can
pay $600 in three years. The annual interest rate assumed is 5%.
PV annuity (I = 5%, n = 2) = factor 1.85941 * $200 = $371.88 + PV $1( I = 5%, n = 3) = factor 0.86384 * $300 = $259.15
Total $371.88 + $259.15 = $631.03
Vs. PV $1(i=5%, n = 3) = factor 0.86384 * $600 = $518.30 (choose this one)
2. Shridhar’s Ship Shop purchased a piece of ship building equipment on January 1, 2011 for $500,000 cash. At the time
of purchase, Shridhar estimated the equipment had a service life of 10 years, and a residual value of $20,000.
Shridhar’s yearend is 12/31. Be careful to note the year in each problem below.
a. Assume that Shridhar depreciates the piece of equipment using the double-declining method of depreciation.
After all adjusting and closing entries have been entered, what will be the balance in the equipment’s accumulated
depreciation account on 12/31/2013 (4 points)?
500,000 * 2/10 = 100,000 Year 1
(500,000 – 100,000) * 2/10 = 80,000 Year 2
(500,000 – 180,000) * 2/10 = 64,000 year 3
Total = $244,000 Acc Depr.
b. Shridhar sells the equipment for $300,000 at the end of 2013 just after recording depreciation expense from part a.
Record the journal entry to update Shridhar’s books for the sale (4 points).
Dr. Cash
300,000
Dr. Accumulated Depreciation 244,000
Cr. Equipment
Cr. Gain on Sale
500,000
44,000
3) A garden nursery, Green Thumb Inc., purchases compost from its supplier to resell to customers at the retail store.
Green Thumb Inc. uses the periodic method.
Date
September 1
September 3
September 9
September 18
September 20
September 27
Activity
Purchased 20 bags for $8 each
Sold 10 bags for $15 each
Purchased 40 bags for $8.50 each
Sold 30 bags for $15 each
Purchased 12 bags for $10 each
Sold 15 bags for $16 each
a. What is Green Thumb Inc.’s ending inventory at the end of the month using the FIFO method (3 points)?
Purchased 20 + 40 + 12 = 72
Sold 15 + 30 + 10 = 55
Ending inventory = 72 – 55 = 17
FIFO Ending Inventory (last ones purchased) =
12 x $10 = $120
5 x $8.50 = $42.50
= $162.50 total
b. If, instead, Green Thumb Inc. chose the weighted average method, calculate the Green Thumb’s gross profit at the end
of the month (3 points).
(20 x $8) + (40 x $8.50) + (12 x $10) = $620
20 + 40 + 12
72
= $8.61 avg cost/unit
COGS = 55 units sold * $8.61 = $473.61
Gross Profit = Revenue – COGS
Revenue = (15 x $16) + (30 x $15) + (10 x $15) = $840
COGS = $473.61
Gross Profit = $840 - $473.61
= $366.39
4) The company had the following beginning year balances in 2016. The company had credit sales of $1,000,000 and cash
sales of $1,200,000. The company estimates bad debts at 1%. During the year $12,000 of the bad debt was deemed
uncollectable. On 12/31/16 the remaining accounts receivable outstanding balance for the company was $295,000.
Complete the 2016 T accounts for Accounts Receivable and Allowance for Doubtful Accounts. (5 points)
2016 Beginning Balances:
Accounts Receivable
Less: Allowance for Doubtful Accounts
Accounts Receivable, net
Accounts Receivable
$162,000
($9,000)
$153,000
Allowance for Doubtful Accounts
162,000 BB
1,000,000 credit
sales
9,000 BB
12,000 write-off
855,000 cash
collections
295,000 EB
12,000 write-off
10,000 = (1m *1%)
Bad Debt Expense
7,000 EB
5) Below are the purchases and sales for SeaTech for 2016.
Month
Activity
March
Beginning Inventory of 2,000 units at $52
April
Sold 500 units at $80
July
Purchased 1,000 units at $51
August
Sold 200 units at $65
September
Purchased 50 units at $49
October
Sold 100 units at $60
a) SeaTech uses the periodic method and LIFO costing method. What is the total cost of goods sold for the year? (4
points)
Sold 800 units:
50 @ 49 = 2,450
750 @ 51 = 38,250
Total = $40,700
b) At the end of the year in December, SeaTech evaluates its ending inventory and determines that the replacement cost
for the product is $50. Record the journal entry for this. (4 points)
EI = 2,000 @ 52 = $104,000. Write down to $50/unit ($104,000 – (2,000@50) = $100,000) = 4,000
250 @ 51 = $12,750. Write down to $50/unit ($12,750 – (250@50) = $12,500) = 250
Total writedown = 4,250
Dr. COGS
4,250
Cr. Inventory 4,250
6) At the end of 2016, the following accounts are included in the aging schedule below. The beginning balance of
allowance for doubtful accounts was $8,000 (credit balance). The company had write-offs of $5,000 during the year.
Record the journal entry for bad debt expense for the year. (5 points)
Aging Group
Estimated % Uncollectible
Accounts Receivable
0 – 30 days
1%
$120,000
1,200
31 – 60 days
10%
$43,000
4,300
Greater than 61 days outstanding
30%
$20,000
6,000
11,500
Dr. Bad Debt Expense 8,500
Cr. Allowance for Bad Debt
8,500
Allowance
BB 8,000
Writeoffs 5,000
Solve for BD
Expense of
8,500
EB 11,500
(above)
7) Record the journal entries below from the company’s perspective. Round to the nearest cent.
In the blank on the left side, note the dollar impact on the income statement after the transaction on each date. If the dollar
impact increases net income use a positive number, and if it decreases use a negative number (). For example, a $100
increase to net income would be 100 and a $100 decrease to net income would be (100). (16 points)
The fiscal year end is March 31st. Adjusting entries are only recorded at the end of each fiscal year.
____1,000___ a) January 15 - The company sold 100 shirts for $25 a shirt to a customer on account.
The shirts originally cost $15 each.
Dr. Accounts Receivable 2,500
Cr. Sales Revenue
Dr. COGS
1,500
Cr. Inventory
2,500
1,500
______0______ b) January 28 - The company purchased 500 more shirts for $20 a shirt on account to sell
next month.
Dr. Inventory 10,000
Cr. Accounts Payable
10,000
____(75,000)__ c) March 29 - The company evaluated its goodwill and determined that the
book value was greater than its estimated future cash flows. The book value of goodwill is $325,000,
future cash flows are $280,000 and the fair value is $250,000.
325,000 - 250,000 = 75,000
Dr. Impairment Loss 75,000
Cr. Goodwill 75,000
______0______ d) March 30 – Unexpectedly a customer pays $200 related to an account that the
company had previously written off. The customer will not be able to pay back the rest.
Dr. Accounts Receivable
200
Cr. Allowance
Dr. Cash
200
Cr. Accounts Receivable
200
200
___(750)______ e) March 31 – Recorded annual depreciation for a piece of equipment. The equipment
had been purchased on April 1 of last year for $10,000. The company estimates a useful life of 12 years
and a residual value of $1,000 and uses straight-line depreciation.
10,000 – 1,000 / 12 = 750
Dr. Depreciation Expense
750
Cr. Accumulated Depreciation 750