The Fall 2008 Accounting Tribe
The Second Encounter
Version A
Rules:
No Cheating
Instructor:
Circle
Mrs. Kirch Mrs. Freeland
______
Name
______
PID
______
Days &Time of Your Class
Pledge: By signing my name below, I am promising that:
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
4) I will report any others that I observe violating these rules.
Signature ______
The following data is for Darby and JD’s Truck Sales, Inc.:
Balance Balance
12/31/07 12/31/08
Cash 30,000 78,100
Accounts Receivable50,000 90,000
Allowance for Doubtful Accounts 10,000 15,000
Inventory70,000 50,000
Prepaid Insurance 2,400 3,600
Equipment 200,000 350,000
Accumulated Depreciation20,000 80,000
Land 100,000
Goodwill10,000
Accounts Payable30,000 35,800
Wages Payable 10,000 8,000
Rent Payable 4,000 6,000
Interest Payable 3,750 3,250
Taxes Payable 5,000 10,000
Note Payable 150,000 130,000
Common Stock ($1 each) 60,000 200,000
Retained Earnings 59,650 193,650
Sales 1,400,000
Cost of Goods Sold 719,500
Wage Expense 264,000
Rent Expense 48,000
Office Expenses 41,000
Depreciation Expense 60,000
Bad Debt Expense 30,000
Insurance Expense 3,000
Interest Expense14,500
Income Tax Expense 66,000
The land was acquired on June 30, 2008 by exchanging 60,000 shares of common stock worth $60,000 and
cash for the balance of the purchase price. The additional common stock (other than that issued for the purchase
of the land) was sold on September 30, 2008 for $1 per share. The company did not sell any equipment during the year. All equipment 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 $20,000 principal plus interest at 10% on September 30thof 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 18 questions refer to Darby and JD=s financial statements.
1) The Total Assets at December 31, 2008 was:
A. $ 586,700
B. $ 216,700
C. $ 270,000
D. $578,600
E. None of the above
2) The Total Current Liabilities at December 31, 2008 was (be careful!)
A. $ 103,050
B. $ 83,050
C. $ 63,050
D. $ 193,050
E. None of the above
3) The Income from Operations was
A. $ 240,500
B. $ 234,500
C. $ 220,000
D. $ 154,000
E. None of the above
4) The EPS was
A. $ 6.36
B. $ 2.09
C. $ 0.77
D. $ 1.40
E. None of the above
5) The “Supplemental Information” section of the Cash Flow Statement for Darby and JD’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 60,000 shares of Common Stock Exchanged for Land
D. Cash paid for Interest, Cash paid for Taxes, and 60,000 shares of Common Stock and Cash Exchanged for Land
E. None of the above describes
6) The cash paid for wages in 2008 was:
A. $ 264,000
B. $ 260,000
C. $ 266,000
D. $ 268,000
E. None of the above
7) On the Cash Flow Statement, the Cash Flow from Operations was
A. $ 208,100
B. $ 148,100
C. $ 54,100
D. $ 198,100
E. None of the above
8) On the Cash Flow Statement, the Cash Flow from (Used by) Investing Activities was
A. ($160,000)
B. ($260,000)
C. ($190,000)
D. ($200,000)
E. None of the above
9) On the Cash Flow Statement, the Cash Flow from (Used by) Financing Activities was
A. $ 60,000
B. $ 40,000
C. $ 100,000
D. $ 120,000
E. None of the above
10) In the “Supplemental Information” section, the Cash Paid for Interest was
A. $ 3,750
B. $ 3,250
C. $ 15,000
D. $ 14,500
E. None of the above
11) In the “Supplemental Information” section, The Cash Paid for Taxes was
A. $ 5,000
B. $ 71,000
C. $ 66,000
D. $ 61,000
E. None of the above
12) For Darby & JD’s, Taxable Income for 2008 was
A. $ 234,500
B. $ 1,400,000
C. $ 154,000
D. $ 220,000
E. None of the above
13) Which of the following will NOT appear in the Operating Activities section of the Statement
of Cash Flows?
A. Decrease in Inventory
B. Add: Accumulated Depreciation
C. Increase in Accounts Payable
D. Net Income
E. None of the above
14) Total Current Assets at December 31, 2008 for Darby & JD’s Truck Sales, Inc. was
A. $ 206,700
B. $ 236,700
C. $ 216,700
D. $ 246,700
E. None of the above
15) The Net Fixed Assets at December 31, 2008 for Darby & JD’s was
A. $ 180,000
B. $ 430,000
C. $ 220,000
D. $ 370,000
E. None of the above
16) For Darby & JD’s, Financing Activities will include
A. Payment on Note Payable ($ 35,000)
B. Issuance of Common Stock $ 80,000
C. Issuance of Common Stock $ 140,000
D. Payment of Interest ($ 15,000)
E. None of the above
17) For Darby & JD’s, the total amount of Accounts Receivable written off during 2008 was
A. $ 30,000
B. $ 15,000
C. $ 10,000
D. $ 55,000
E. None of the above
18) For Darby’s & JD’s, Investing Activities will include
A. Purchase of land ($100,000)
B. Sale of equipment $ 10,000
C. Payment for land ($ 40,000)
D. Increase in Accumulated Depreciation $60,000
E. None of the above
19) The major difference on the income statement between a retail operation and a service
company is
A. The owners= equity is shown differently
B. A service company=s income statement is as of a certain date, not for a period ending
C. A service company has no Cost of Goods Sold
D. A retail company includes interest in the operating expense section
E. There is no difference
20) An increase in accumulated depreciation
A. increases total assets.
B. decreases total assets.
C. decreases the current ratio.
D. increases the current ratio.
E. both B and C are correct.
21) The matching concept 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
22) Which of the following would not be an adjustment in arriving at net cash flow from operations?
A. Changes in wages payable
B. Depreciation expense for the year
C. Changes in prepaid expenses
D. Decrease in inventory
E. Net increase in long-term debt
Use the following information for the next 7 questions
Anna’s Bellas, Inc Anna’s Bellas, Inc
Statement of Income Balance Sheet
For the Year Ended December 31, 2008 Dec. 31,
2007 2008
Assets
Sales $ 600,000 Current Assets
Cost Of Goods Sold 300,000 Cash $170,000 $140,000
Gross Margin 300,000 Accounts Receivable 80,000 70,000
Operating Expenses Inventory 80,000 90,000
Wages Expense 60,000Total Current Assets 330,000 300,000
Rent Expense 24,000
Depreciation Expense 10,000 Property and Equipment
Utilities Expense 6,000 Equipment 320,000 400,000
Total Operating Expenses 100,000 Less: Accumulated
Income Before Taxes 200,000 Depreciation 50,000 60,000
Tax Expense 60,000Net Property & Equipment 270,000 340,000
Net Income $ 140,000 Total Assets $600,000 $ 640,000
Liabilities
EPS $ 2.55 Current Liabilities
Wages payable $ 10,000 $ 5,000
Taxes Payable 60,000 40,000
Total Current Liabilities 70,000 45,000
Long-Term Debt
Note Payable 180,000 130,000 Total Liabilities 250,000 175,000
Owners’ Equity
Common Stock
($1 per share) 50,000 60,000
Retained Earnings 300,000 405,000
Total Owners’ Equity 350,000 465,000
Total Liabilities and
Owners’ Equity $600,000 $640,000
Stock Price at 12/31/08 $ 15.00
23) At December 31, 2008 the book value per share was approximately
A. $ 1.00
B. $ 10.67
C. $ 7.75
D. $ 8.45
E. some other number
24) For 2008, the return on assets was approximately
A. 22.58%
B. 21.88%
C. 24.33%
D. 11.29%
E. some other number
25) For 2008, return on equity was approximately
A. 17.18%
B. 34.36%
C. 40.00%
D. 30.11%
E. some other number
26) For 2008, the average collection period was approximately
A. 43 days
B. 49 days
C. 46 days
D. 91 days
E. some other number
27) At December 31, 2008, the current ratio was approximately
A. 6.67
B. 6.00
C. 4.71
D. 1.71
E. some other number
28) At December 31, 2008, the Debt to Equity Ratio was approximately
A. 34.27%
B. 27.34%
C. 41.67%
D. 37.63 %
E. None of the above
29) At December 31, 2008, the Price Earnings Ratio was approximately
A. 1.00
B. 15.00
C. 5.88
D. 9.33
E. None of the above
30) Wills Co. had a beginning balance (12/31/x7)in Accounts Receivable of $600,000 and a beginning creditbalance in the Allowance for Doubtful Accounts of $30,000. During 20x8 he sold $800,000 of goodson credit and collected $600,000. If Wills estimates that 5% 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. $ 4,000
B. $ 1,000
C. $ 40,000
D. $ 10,000
E. None of the above
31) Still Wills Co. - If Wills had written off $5,000 of accounts receivable during 20x8, the debit to bad debt expense would have been:
A. $ 39,750
B. $ 14,750
C. $ 15,000
D. $ 4,750
E. None of the above
32) Still Wills Co. - After the $5,000 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, 20x8 would be:
A. $ 39,750
B. $ 64,750
C. $ 25,000
D. $ 40,000
E. None of the above
33) You are preparing a bid for a note that has exactly five years to go. It was originally for $100,000 payable in 12 equal annual payments which included interest at 10%. Current interest rates are 6%. How much do you offer for the note so that you will earn 6%?
A. $ 116,849.46
B. $ 81,271.69
C. $ 73,381.65
D. $ 61,822.04
E. None of these is close to the correct number
34) The Dariko Company prepares annual financial statements at December 31 of each year. On April 1, 20x6 the Company borrowed $100,000 from the bank. The Dariko Company must pay interest of 10% on the unpaid balance plus $10,000 on the principal on April 1of each year. The journal entry on December 31, 20x6 is:
A. Interest Payable $ 7,500
Interest Expense$ 7,500
B. Interest Expense $ 7,500
Cash$ 7,500
C. Interest Expense $ 7,500
Note Payable$ 10,000
Cash$ 17,500
D. Interest Expense $ 2,500
Interest Payable$ 2,500
E. Interest Expense $ 7,500
Interest Payable$ 7,500
35) Still Dariko - The journal entry on April 1, 20x7 is:
A. Interest Expense $ 7,500
Interest Payable$ 7,500
Note Payable $ 10,000
Cash$10,000
B. Interest Expense $ 7,500
Note Payable $ 10,000
Cash$ 17,500
C. Interest Payable $ 7,500
Interest Expense $ 2,500
Note Payable $ 10,000
Cash $ 20,000
D. Interest Payable $ 7,500
Cash$ 7,500
E. Interest Payable $ 2,500
Interest Expense $ 7,500
Note Payable $ 10,000
Cash$ 20,000
36) Meganwill sell you a Doodlebop for $30,000. 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. $ 11,200.00
B. $ 10,810.46
C. $ 12,063.44
D. $ 8,264.69
E. None of the above
37) How much are you really paying for the Doodlebop under Megan=s deal?
A. $ 33,600.00
B. $ 26,884.01
C. $ 30,000.00
D. $ 36,190.32
E. None of the above
38) If you amortize the Megan deal properly, the interest for thefirst year would be
A. $ 3,619.03
B. $ 3,000.00
C. $ 2,688.40
D. $ 1,200.00
E. None of the above
39) Meghann=s Corporation is buying all the assets and assuming all the liabilities of Dylan=s, Inc. The following information is available for Dylan=s at the date of the purchase:
Accounts Receivable 300,000Accounts payable 40,000
Inventory 100,000Wages Payable 10,000
Equipment 200,000 Note Payable 100,000
Accumulated Depreciation 80,000 Common Stock 300,000
Land 300,000 Retained Earnings 270,000
The inventory is worth $60,000, the land is worth $400,000 and the equipment is worth
$300,000. Everythingelse is worth its book value. Meghann=s Corporation will pay $1,000,000 for Dylan=s, Inc. How much of thepurchase price will Meghann=s Corporation debit to goodwill?
A. $ 90,000
B. $ 240,000
C. $ 330,000
D. $ 390,000
E. Some other number which is not here
40) 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
41) Kevin, Inc. is buying all the assets and assuming all the liabilities of Makenna, Inc. for $500,000. The following information is available for Makenna, Inc. at the date of purchase:
Accounts Receivable70,000 Accounts Payable 20,000
Inventory80,000 Note Payable 100,000
Equipment90,000 Common Stock 50,000
Accumulated Depreciation10,000 Retained Earnings 60,000
The accounts receivable are worth $60,000, the inventory is worth $70,000 and the equipment
is worth$70,000. Additionally, the Note Payable debt is payable interest only at 12% per year
for the next 5 years and then the principal is due. The current interest rate for similar debt is
9%. How much of the purchase price will Kevin, Inc. debit to goodwill?
A. $390,000.00
B. $431,668.95
C. $427,902.78
D. $409,183.20
E. None of the above
42) Patrick, Inc. issued 7-year, $100,000 face, 8% coupon bonds to yield 5%. The journal
entry to record the issuance of the bonds would include
A. A debit to bond discount of $ 17,359.12
B. A debit to cash of $ 100,000.00
C. A credit to bonds payable of $ 117,359.12
D. A credit to bond premium of $ 17,359.12
E. None of the above
43) Jason Industries is issuing a 5-year, $50,000 zero coupon bond priced to yield 8% on
December 31, 20x0. How muchwill Jason Industries receive when it is issued?
A. $ 50,000.00
B. $ 70,000.00
C. $ 33,841.97
D. $ 34,029.16
E. None of the above
44) Still on Jason Industries – If the first year’s interest was paid on December 31, 20x1, the
entry to record that interest would include
A. A credit to cash for $ 4,000.00
B. A debit to interest expense of $ 4,000.00
C. A debit to interest expense of $ 2,722.33
D. A debit to bond premium of $ 2,722.33
E. None of the above
45) Eric Company issued 10-year, $100,000 face, 5% coupon bonds to yield 9% on
December 31, 20x0. The journal entry on Eric Company’s books on December 31, 20x2
(the date of the second interest payment) would include
A. A debit to interest expense of $ 6,841.71
B. A debit to bond discount of $ 1,841.71
C. A credit to cash of $9,000.00
D. A debit to interest expense of $ 5,000.00
E. None of the above
46) Still on Eric Company – At December 31, 20x2
A. The Balance Sheet would show Net Bonds Payable of $ 76,019.01 under Current
Liabilities
B. The Balance Sheet would show Add: Bond Discount of $ 1,689.64
C. The balance in the bond premium account would be credit of $3,531.35
D. The balance in the bond discount account would be a debit of $ 22,139.28
E. None of the above