Salem State College

Financial Accounting – 2^nd Exam

Professor Paul McGee

April 13, 1999

 

Name__________________________________________

 

Please indicate the best/correct answer by circling the appropriate letter.

 

1.      A special name, image, or slogan identified with a product or a company; that is protected by law is called a

 

a.       Trademark

b.      Patent

c.       Copyright

d.      Franchise

 

2.      Sure Company purchased a machine on January 1, 1998, at a cost of $12,000.  The estimated useful life is 10 years, and the estimated residual value is $3,000.  The company uses the straight-line depreciation method.  Depreciation expense for the second year will be

 

a.       $1,800

b.      $   900

c.       $1,200

d.      $2,400

 

3.      An extraordinary repair to a building

 

a.       Is a revenue expenditure and is debited to an expense account.

b.      Is a capital expenditure and is debited to an expense account.

c.       Is a capital expenditure and is debited to an asset account.

d.      Is a revenue expenditure and may be debited to accumulated depreciation.

 

4.      When goods are sold on credit, revenue usually should be recognized at the date of

 

a.       receipt of the sales order

b.      passage of title from the seller to the buyer

c.       manufacture of the goods

d.      cash collection of the sales price

 

5.      When prices are rising, the method of inventory valuation that results in the lowest taxes is

 

a.       FIFO

b.      LIFO

c.       Weighted average

d.      Specific identification

 

6.      The 1998 records of Tom Company showed beginning inventory, $6,000; cost of goods sold, $14,000; and ending inventory, $8,000.  The purchases amount for 1998 was

 

a.       $12,000

b.      $10,000

c.       $  9,000

d.      $16,000

 

7.      Rogers Inc. had the following transaction for the month of April 1999:

 

 

Using weighted average the ending inventory will be

 

a.       $1,736

b.      $2,025

c.       $1,950

d.      $1,500

 

8.      Which of the following costs belongs in inventory

 

a.       heat, light and power for the factory building

b.      heat, light and power for the office building

c.       sales salaries

d.      commission expense

 

9.      When using the allowance method for accounting for bad debts, accounts receivable is reported on the balance sheet at the expected net realizable value.  When a particular receivable from a customer ultimately is determined to be uncollectible, the recording of this event will

 

a.       decrease the net realizable value of the accounts receivable

b.      have an effect that is not determinable from the information given

c.       increase the net realizable value of the accounts receivable

d.      have no effect on the net realizable value of the accounts receivable

 

10.  During 1998, Thomas Company recorded bad debt expense of $15,000 and wrote off an uncollectible account receivable amounting to $5,000.  Assuming a January 1, 1998 balance in the allowance for doubtful accounts of $10,000, the December 31, 1998 balance in the allowance account would be

 

a.       $25,000

b.      $20,000

c.       $15,000

d.      $  5,000

 

11.  Credit terms of 2/10, n/30 indicate that a

 

a.       two percent discount for early payment is available if the invoice is paid before the tenth day of the month following the month of sale

b.      two percent discount for early payment is available if the invoice is paid within ten days of the invoice date

c.       ten percent discount for early payment is available if the invoice is paid within two days of the date of invoice

d.      payment must be received within 40 days.

 

12.  As of December 31, Mesa Company has a balance of $5,000 in accounts receivable of which $500 is more than 30 days overdue.  Mesa has a credit balance of $45 in the allowance for doubtful accounts.  Mesa estimates its bad debt losses at 1% of current accounts and 10% of accounts over thirty days.  What adjustment should Mesa make to the allowance for doubtful accounts?

 

a.       $95 (credit)

b.      $55 (credit)

c.       $50 (credit)

d.      $50 (debit)

 

13.  Milsap Corp. reported total assets of $2,500,000, total current liabilities of $900,000, and total long-term liabilities of $800,000.  Therefore, the stockholders’ equity was

 

a.       $100,000

b.      $800,000

c.       $1,600,000

d.      $1,700,000

 

14.  Libbyway, Inc. issued capital stock for $20,000 during 1998.  In its statement of cash flows, the stock issue would be shown as a cash flow from

 

a.       operating activities

b.      financing activities

c.       investing activities

d.      selling activities

 

15.  Extraordinary items are gains and losses that are

 

a.       unusual in nature

b.      recurring

c.       infrequent in occurrence

d.      both unusual in nature an infrequent in occurrence.

 

 

 

________________________________________________________  

 

Problems – Please use blue book provided.

 

1.      Anderson Co. uses a periodic inventory system.  At the end of the annual accounting period, December 31, 1998, the accounting records provided the following information for one of the Company’s products:

 

Required: 

 

a.       Calculate Ending Inventory using FIFO

b.      Calculate Cost of Goods Sold using FIFO

c.       Calculate Ending Inventory using LIFO

d.      Calculate Cost of Goods Sold using LIFO

 

 

2.      The following data were selected from Walker Company for the year ended June 30, 1998.  In the following order, except for cash sales, sold merchandise and made collections on credit terms 2/10, n/30  (assume a unit sales price of $400 in all transactions and use the gross method to record sales revenue).

 

a.       Sold merchandise for cash, $200,000

b.      Sold merchandise to A. Hart; invoice price, $40,000

c.       Six days after purchase date, A. Hart returned ten units purchased in (b) and received an account credit

d.      Sold merchandise to T. Bates; invoice price $36,000

e.       A. Hart paid her account in full within the discount period

f.        Collected $196,000 cash from customers sales on credit in prior year, all within the discount period

g.       After the discount period, collected $10,000 cash on an account receivable on sales in a prior year

h.       The estimated bad debt rate used by the company was 1 percent of credit sales net of returns

 

 

3.      What type of account (asset, liability, equity, revenue, expense, contra) and what statement would the following appear:

 

 

a.       Accumulated depreciation

b.      Prepaid insurance

c.       Sales returns and allowance

d.      Purchases

e.       Inventory

f.        Short-term investment

g.       Cost of Goods Sold

h.       Allowance for doubtful accounts

i.         Retained earnings

j.        Note receivable