Practice Exam/Review

CHAPTER 5

  1. Who are the 4 main user groups of financial statements?
  2. Managers
  3. Board of Directors
  4. Creditors
  5. Investors
  6. What 3 things must exist for accounting fraud to occur?
  7. Incentive
  8. Opportunity
  9. Character
  10. Which formula should you probably know from chapter 5?
  11. Gross Profit=Sales – Cost of Goods Sold
  12. Gross Profit=Sales – Cost of Goods Sold
  13. Gross Profit=Sales – Cost of Goods Sold
  14. Gross Profit=Sales – Cost of Goods Sold
  15. Information that is accurate, unbiased, and verifiable is called

A) relevant information.

B) reliable information.

C) consistent information.

D) comparable information.

5. Information that is timely and has predictive value and/or feedback is called

A) relevant information.

B) reliable information.

C) consistent information.

D) comparable information.

6. The information provided by companies that apply similar accounting methods is called:

A) relevant information.

B) reliable information.

C) consistent information.

D) comparable information.

7. Information that can be compared over time because similar accounting methods have been applied is called

A) relevant information.

B) reliable information.

C) consistent information.

D) comparable information.

8.___SOX______is the most significant change to the financial reporting environment in the United States.

9.Match each of the following SOX requirements to the corresponding element of the fraud triangle by entering the appropriate letter in the space provided

__C__ Establish a tip line for employees to report questionable acts (C)

_A__ Increase maximum fines to $5 million. (A)

__B___ Require management to report on effectiveness of internal controls (B)

__c___ Legislate whistle-blower protections ( C)

__b___ Require external auditors report on internal control effectiveness (B)

  1. IncentiveB. OpportunityC. Character

CHAPTER 6

  1. What are the three types of businesses?
  2. Service
  3. Manufacturer
  4. Merchandiser
  5. What is the formula for reconciling the cash balance per Bank Statement:
  6. Balance per bank statement +deposits in transit -- outstanding checks
  7. What is the formula for reconciling the cash balance per Books:
  8. Balancer per books + EFT – Bank Service charge – NSF check
  9. Bank Statement: September 1- September 30

Checks Deposits OtherBalance

Balance Sept 1.$2,000

September 7NSF $100$1,900

September 11$3,000$4,900

September 12 #1 $800$4,100

September 17 #2 $1,700$2,400

September 26 #3 $2,300$100

September 29EFT $150$250

September 30Svc Ch. 20$230

There were NO outstanding checks or deposits in transit at the end of August. However, there are outstanding checks and deposits in transit at the end of September.

Books: Below are the recorded cash activities recorded to the companies books.

Beginning Balance Septemeber 1: $2,000

Deposits:Checks:

Sept. 10: $3,000Sept. 10: #1$800

Sept. 30: $2,500Sept. 15: #2$1,700

Sept. 22: #3$2,300

Sept. 28: #4$50

Ending Balance September 30: $2,650

**Reconcile the cash account to determine the amount to show on the balance sheet***

Bank

230+2500-50=2,680

Books

2650+150-20-100=2,680

  1. Company A had beginning Inventory of $4800. In the month of August they purchased $700 worth of inventory. Their ending inventory at the end of the month is $3500. How much was their COGS for the month of August?

4800+700-3500=2000

  1. Compny B had an ending inventory of $2000. In the month of August they purchased $1700 worth of inventory and sold $2500. How much was their beginning inventory at the beginning of August?

2500=BI+1700-2000

BI=2800

  1. What formula should you know for Chapter 6? (use this for 5 & 6)
  2. Beginning Inventory + Purchases - Ending Inventory=COGS
  3. Differences between Perpetual and Periodic:

9. Using a perpetual inventory system, record the Journal Entries for the following transactions.

Jan. 6: Purchased inventory for $1,200 from InventoryPlus. Terms are 2/10, n/30.

8: Purchased inventory for $5,000 from ABC Inventory. Terms are 2/10, n/30.

12 : Sold goods (inventory) for $2,000, which cost the company $1,500. (two Journal Entries)

16 : Paid ABC Inventory for purchases made on Jan. 8.

25: Paid InventoryPlus in full.

10. Record the Journal entries for the following transactions. We are the buyer.

Feb. 1: Bought $3,000 of inventory on account. Terms are 2/10, n/30.

3: Returned $200 of inventory purchased.

7: Paid for inventory purchased on Feb. 1

11. Record the journal entries for the following transactions. We are the supplier.

March 1: Sold $1,000 of inventory to Company XYZ. Terms are 2/10, n/30. (at cost=$500)

3: Company XYZ returned $200 worth of inventory. (at cost=$150)

8: Company XYZ pays in full.

CHAPTER 7

  1. What is inventory?
  2. tangible property that is held for sale in the course of normal business or will be used in producing goods or services
  3. What are the four types of inventory?
  4. Merchandise Inventory
  5. Raw material
  6. Work-in-process
  7. Finished good

Date Item Quantity Cost/Unit Total

Jan. 2 Beginning inventory 100 $18.00 $1,800

Mar. 4 Purchase 400 19.00 7,600

May 8 Purchase 800 20.00 16,000

Nov. 3Purchase 500 21.00 10,500

Dec. 31Ending Inventory 400

1400 units were sold

Determine Ending Inventory & COGS under LIFO…Then FIFO..Then Weighted Average

FIFO: COGS=27500 EI=8400

LIFO: COGS=28400 EI=7500

Date Item Quantity Cost/Unit Total

Jan. 2 Beginning inventory 10 $10.00 $100

Mar. 4 Purchase 35 11.00 385

May 8 Purchase 40 12.00 480

Nov. 3 Purchase 20 13.00 260

Dec. 31 Ending Inventory 20

Eighty-five units were sold. Determine End Inv/COGS under LIFO….Then FIFO..Then Weighted Average

FIFO: COGS=965 EI=260

LIFO: COGS=1015 EI=210

5. Which of the following is true during periods of rising prices?

A) The use of FIFO will result in smaller net income than LIFO.

B) The use of FIFO will result in a larger cost of goods sold than LIFO.

C) The use of LIFO will result in a smaller cost of goods sold than FIFO.

D) The use of FIFO will result in a higher net income and higher ending inventory than LIFO. **

6. The LIFO conformity rule requires that:

A) if LIFO is used for tax purposes, it must be used for financial statements.

B) if LIFO is used for tax purposes, it is allowable to use FIFO for financial statements.

C) if LIFO is used for financial statements, it is allowable to use FIFO for tax purposes.

D) LIFO be used during periods of rising prices.

Consider the following:

Item Units on hand Cost/Unit Market/Unit

A 1,000 $5.00 $5.50

B 2,000 4.50 3.00

C 1,500 6.00 7.50

Use LCM and determine the total value of the ending inventory.

A) $23,000 C) $22,750

B) $20,000D) $25,800

CHAPTER 8

  1. In a previous year Mad Cartz reported beginning and ending balances in the Allowance for Doubtful Accounts of $5971 and $6329, respectively. It also reported that write-offs of bad accounts amounted to $3,979. Assuming no other changes in the account what amount did Mad Cartz record as bad debt expense for the period?

Bad Debt Expense4331

Allowance4331

Young and Old Corporation (YOC) use two aging categories to estimate uncollectible accounts. Accounts less than 60 days are considered young and have a 5% uncollectible rate. Accounts more than 60 days are considered old and have a 35% uncollectible rate.

  1. If YOC has $10,000 of young accounts and $40,000 of old accounts, how much should be reported in the Allowance for doubtful accounts?

(5% x 10,000)+(35%x 40,000)=14500

  1. If YOC’s Allowance for doubtful accounts currently has an unadjusted credit balance of $4,000, how much should be credited to the account?10,500
  1. If YOC’s Allowance for doubtful accounts has an unadjusted debit balance of $500, how much should be credited to the account?15,000

Aging of Accounts Receivables (allowance method)

Company XYZ has the following information regarding their A/R.

Age of A/R / Amount of A/R / Estimated % Bad Debt
0-30 Days / $500,000 / 2%
30-60 Days / $250,000 / 5%
60-90 Days / $100,000 / 8%
>90 Days / $60,000 / 12%

(500000x2%)+(250000x5%)+(100000x8%)+(60000x12%)=37,700

a. How much should be in the allowance for doubtful accounts?37700

b. Assume the beginning balance in the allowance is $15,000 (normal credit). What is the appropriate journal entry to recognize bad debt for this period?37700-15000=22700

c. Company XYZ determines $5,000 of uncollectible A/R. What is the appropriate journal entry to “write off” this A/R?

Allowance5000

A/R5000

  1. Using the % of Credit Sales Method: If Pac Sun had credit sales in the current year of $1,836,400 and had experienced bad debt loss of .25% of credit sales in prior years, what would the estimated current year’s bad debt expense be? And what is the journal entry to record this estimate?

1,836,400x25%=459,100

4.Company Y lent $300,000 for 4% annual interest on July 1,2008. The interest will be collected with the repayment of the loan on July 1, 2009. 300,000x4%=12,000/12=1000/month

a. On December 31, 2008, how much interest has Company Y earned? What is the appropriate journal entry?6 months passed….earned 6,000

Interest Receivable6000

Interest Revenue6000

b. On July 1, 2009, how much cash will Company Y collect? What will the journal entry be?

Cash312,000

Interest Rec.6000

Interest Revenue6000

N/R300,000

CHAPTER 9

1.What is depreciation?

  1. the allocation of the cost of long-lived tangible assets over their productive lives.

2.Book value = acquisition cost – accumulated depreciation

3.For each of the following items, enter the correct letter to the left to show whether the expenditure should be capitalized ( C ) or expensed ( E ).

__e_ Paid $600 for ordinary repairs.

__c_ Paid $16,000 for extraordinary repairs.

__c_ Paid cash, $200,000, for addition to old building

_e__ Paid $250 for routine maintenance

__c_ Purchased a machine, $70,000; gave long-term note.

__c_ Purchased a patent, $45,300 cash.

__e_ Paid $20,000 for monthly sales.

4.What is the formula for the straight line method?

5.What is the formula for the Units-of-Production method?

6.What is the formula for the Declining-Balance Method?

7.Plastic Works Corporation bought a machine at the beginning of the year at a cost of $12,000. The estimated useful life was five years, and the residual value was $2,000. Assume that the estimated productive life of the machine is 10,000 units. Expected annual production was: year 1 3,000 units; year 2 3,000 units; year 3 2,000 units; year 4 1,000 units, and year 5 1,000 units.

Complete a depreciation schedule for each of the alternative methods. Year one has been completed for you.

a. Straight-line: Income Statement Balance Sheet

Year / Computation / Depreciation Expense / Cost / Accumulated Depreciation / Book
Value
At acquisition / $12,000
1 / (12,000-2000)/5 / 2000 / 12000 / 2000 / 10000
2 / 2000 / 4000 / 8000
3 / 2000 / 6000 / 6000
4 / 2000 / 8000 / 4000
5 / 2000 / 10000 / 2000

b. Units-of-production ( ? )  ? = $1.00 per unit of output

Year / Computation / Depreciation Expense / Cost / Accumulated Depreciation / Book
Value
At acquisition / $12,000
1 / (12,000-2000)/10 / 3000 / 12000 / 3000 / 9000
2 / Multiply by actual / 3000 / 12000 / 6000 / 6000
3 / 2000 / 12000 / 8000 / 4000
4 / 1000 / 12000 / 9000 / 3000
5 / 1000 / 12000 / 10000 / 2000

c. Double-declining-balance:

Year / Computation / Depreciation Expense / Cost / Accumulated Depreciation / Book
Value
At acquisition / $12,000
1 / (12,000-0)/(2/5) / 4800 / 12000 / 4800 / 7200
2 / 2880 / 12000 / 7680 / 4320
3 / 1728 / 12000 / 9408 / 2592
4 / 592 / 12000 / 10000 / 2000