Description Update: Midterm Recording Title: Midterm Review Date: Jul 2, 2023 6:55 PM Central Time ...
Description Update: Midterm Recording Title: Midterm Review Date: Jul 2, 2023 6:55 PM Central Time (US and Canada) Recording-1(318 MB) https://gwu-edu.zoom.us/rec/play/vpUcdeML1gyHIEml8RnDU_cpKl2wgiFoXVK5JKpA3wtaYh0YGwwPvInds6MqAc6i59GOIJ3ermqs1z3y.Btu_jHFArdgSQX9A Passcode: .r$%4EiP Midterm Logistics Please allow 3.25 hours for the exam; once you begin the exam, you will have to complete it in one sitting. The book is open book, open notes - you are permitted to use material from the course. The exam is hosted within Blackboard and is a mix of (10) calculations, (10) true/false, and (10) multiple choice. There is a non-graded question for you attach supporting work for partial credit on the calculation problems. 2 attachments Slide 1 of 2 attachment_1 attachment_1 attachment_2 attachment_2 UNFORMATTED ATTACHMENT PREVIEW Financial Accounting 2013 SAMPLE MIDTERM EXAM QUESTIONS PART I - Answer True (T) or False (F) in the space provided. ______1. The income statement reports where cash came from and how it was used. FALSE ______2. The income statement is dated over the period of time covered, such as “For the Year Ended December 31, 2012. TRUE ______3. Management’s judgment and estimation play a larger role under accrual basis accounting than under cash basis accounting. TRUE ______4. Closing the books sets the balances of asset and liability accounts back to zero. FALSE ______5. Garmin is a manufacturer of GPS-enabled devices. At the end of 2009 and 2008, Garmin’s total owners’ equity was $2,836.4 and $2,225.9, respectively. Garmin reported sales of $1,111.2 and net income of $704.0 in 2009. NIVS IntelliMedia Technology Group, another consumer electronic equipment manufacturer, had an ROA of 16.7% and an ROE of 29.7% in 2009. As a common equity shareholder, based solely on this information, you prefer NIVS. TRUE ______6. Failure to record the $500 of rent expense incurred during the period will overstate owners’ equity on the balance sheet at the end of the period by $500. TRUE (if an expense is understated, retained earnings is overstated at the end of the period) ______7. Aetna spends $750 million repurchasing its stock. This cash outflow is reported in the operating section of the cash flow statement. FALSE (outflow in financing) ______8. Generally accepted accounting principles are identical world-wide. FALSE ______9. When a corporation buys equipment and pays cash, total assets increase by the cost of the equipment. FALSE ______10. If research and development costs lead to a feasible new product then these R&D costs are recorded as an asset under U.S. GAAP because they provide future benefit to the company. FALSE (must expense immediately because at the time of these R&D costs the firm does not know if a feasible product exists) ______11. Assume Groupon sells a coupon for a local restaurant. The SEC requires Groupon to measures revenue on the income statement using the gross selling price of this coupon and not just the net amount retained after paying the restaurant. FALSE ______12. Earnings management is the process of recording adjusting journal entries at the end of the period so that earnings are reported in accordance with GAAP. FALSE ______13. If Exxon Mobil uses the LIFO inventory costing method for tax reporting it must use it for financial reporting as well. TRUE 1 ______14. When prices are rising, the FIFO inventory costing method will generally result in higher taxable income than LIFO. TRUE ______15. No gain or loss can be recorded when a company sells a fully-depreciated fixed asset. FALSE PART II - Place your letter answer in the space provided. _______1. All of the following are primary financial statements except a. income statement b. statement of retained earnings. c. statement of assets. d. statement of cash flows. e. all of the above are primary financial statements _______2. Which of the following is a permanent account? a. dividends b. rent expense c. sales revenue d. salary payable e. bad debt expense f. none of the above are permanent accounts _______3. A lower Accounts Receivable Turnover ratio relative to prior years may suggest: a. the company is able to collect its receivables in a more timely manner b. the company is attracting new customers with better credit c. the company has become more aggressive with its revenue recognition policies d. All of the above e. None of the above _______4. Which of the following companies is mostly likely to recognize revenue on a percentage-of-completion basis: a. Pet store b. Coal mining company c. Amusement park d. Text book publisher e. Cruise ship builder f. Pharmaceutical manufacturer _______5. Lee King Plumbing, Inc. reported assets of $1,500 and liabilities of $700 at the end of year 1. At the end of year 2, the company reported assets of $2,300 and liabilities of $1,400. Assume Lee King did not pay dividends or repurchase stock in year 2 but it did issue common stock for $250. What was net income in year 2? a. 100 b. -100 c. 150 d. -150 e. 350 f. -350 2 Frozen Food Express December 31, Current Assets Tires on equipment in use 2011 2010 5,592 5,425 _______6. A portion of Frozen Food Express’s most recent balance is provided above. The company has an unusual current asset – tires. Per the footnotes, the company capitalizes the costs of tires purchased and expenses them on a per mile basis using an estimated 75,000 mile tire life. Assume that when the tires have reached 75,000 miles, they have no value and are scrapped. If ‘Tire Expense’ was $3,802, how much cash did Frozen Food Express pay to purchase tires in 2011. a. $167 b. $3,636 c. $3,802 d. $3,969 _______7. Life Technologies Corporation and Affymetrix Inc. are competitors in the life sciences and clinical healthcare industry. Total revenues and R&D expenses from each company’s income statement are: Total revenue R&D Life Technologies Corporation (“LTC”) 2012 2011 2010 $1,620,323 $1,281,747 $1,151,175 $142,505 $115,833 $104,343 Affymetrix Inc 2012 2011 2010 $410,249 $371,320 $355,317 $84,482 $72,740 $86,296 Which of the following is true? a. Affymetrix is less R&D intensive in 2012 than in 2010. b. LTC is the more R&D intensive company of the two. c. LTC has become more R&D intensive over the three years. d. All of the above are true. e. None of the above are true. Perry Ellis Accounts receivable, less allowances of $1,298 and $2,549 in 2007 and 2006, respectively 1/31/2007 1/31/2006 157,420 152,529 _______8. For the year ended January 31, 2007 Perry Ellis International earned credit sales of $829,842. For that same period, write-offs were $1,609. How much did Perry Ellis record for bad debt expense for the year ended January 31, 2007? a. $358 b. $1,251 c. $1,298 d. $1,609 e. $2,860 3 SBA Company had credit sales of $672,000. As of year-end, the balance in the Allowance for Doubtful Accounts before adjusting for bad debts was a $300 debit and the balance in Accounts Receivable was $72,000. SBA Company incurs the following bad debts percentages historically: Total Credit Sales 1.5% _______9. Referring to the above information, what journal entry will SBA will make if it estimates bad debts by using a percentage of credit sales? a. Bad Debts Expense 9,780 Allowance for Doubtful Accounts 9,780 b. Bad Debts Expense 10,080 Allowance for Doubtful Accounts 10,080 c. Bad Debts Expense 10,380 Allowance for Doubtful Accounts 10,380 d. Bad Debts Expense 12,300 Allowance for Doubtful Accounts 12,300 e. Bad Debts Expense 12,600 Allowance for Doubtful Accounts 12,600 _______10. Referring to the above information, what is the balance in the Allowance for Doubtful Accounts after SBA estimates bad debts using a percentage of credit sales? a. $9,780 b. $10,080 c. $10,380 d. $12,300 e. $12,600 _______11. Given the following data, by how much would taxable income change if LIFO were used rather than FIFO Beginning inventory 1,000 units at $25 Purchases 2,400 units at $30 Units sold 1,500 a. decrease by $5,000 b. decrease by $7,500 c. increase by $7,000 d. increase by $5,000 e. none of the above 4 _______12. Dunder Mifflin has inventory recorded on its book at $50,000. The actual market value of this inventory is $40,000. Suppose Dunder Mifflin inappropriately applies the LCM rule and writes the inventory down to $0. What will be the effect on the income statement next year if the company then sells the written-down inventory? a. Cost of goods sold will be overstated and net income will be understated. b. Cost of goods sold will be overstated and net income will be overstated. c. Cost of goods sold will be understated and net income will be overstated. d. Cost of goods sold will be understated and net income will be understated. e. $12,600 _______13. A firm buys a building for $10,000 on January 1, 2011. The building has an expected life of 20 years and an expected residual value of $100. Using the double-declining method, what is the depreciation expense for the year ended December 31, 2012? a. $475 b. $495 c. $891 d. $900 e. $990 f. $1,000 _______14. A plant asset is acquired on July 1, 2010 at a cost of $35,000. Estimated residual value is $5,000 and the estimated useful life is 5 years. The company uses straight-line depreciation. The balance in accumulated depreciation on December 31, 2011, is: a. $6,000 debit b. $6,000 credit c. $9,000 debit d. $9,000 credit e. $12,000 debit f. $12,000 credit _______15. Polk Company sold equipment costing $30,000 with $28,000 of accumulated depreciation for $5,000 cash. Polk’s journal entry to record this sale includes: a. credit to equipment $2,000 b. debit to depreciation expense $28,000 c. debit to accumulated depreciation $28,000 d. debit to gain on sale of $5,000 e. all of the above are included 5 _______16. How does management select an inventory valuation method? a. If a company generally sells its oldest inventory first, it must use the FIFO inventory valuation method. b. If a company generally sells its newest inventory first, it must use the FIFO inventory valuation method. c. If a company sometimes sells its newest inventory and sometimes sells its oldest inventory, then it must use the weighted average inventory valuation method. d. A company does not need to consider the physical flow of inventory when choosing an inventory valuation method. 6 PART III The following questions relate to The Walt Disney Company (“Disney”). You will need to refer to extracts from the 2010 annual report attached to the back of the exam to answer some of the questions in this section. 1. Accounting Equation In the space provided below write the accounting equation in words: _____assets__________=_____liabilities_________+ _equity _____ In the space provided below, using the appropriate financial statement, write the dollar value of each account in the accounting equation for Disney as of October 2, 2010. $_____69,206_______ = $____29,684_______ + $____39,342_______ 2. Composition of Assets One way that Disney earns money is to produce and distribute TV shows and movies. Briefly describe what the asset ‘Film and TV costs’ represents. This asset represents all of the costs to produce movies and TV shows (e.g., salaries, sets, location travel, scripts) that have not been expensed yet. It also includes broadcast rights (e.g., Disney pays the NFL for the right to broadcast games on ESPN) Briefly describe the transaction and the journal entry that initially places the asset ‘Film and TV costs’ on the balance sheet. Tranaction: Disney pays the film and TV costs, which are capitalized as the show is being produced. These costs are “inventory” to Disney Journal Entry: Film and TV costs (asset) Cash or Accounts Payable $XXX $XXX Briefly describe the transaction and the journal entry that removes the asset ‘Film and TV costs’ from the balance sheet. Transaction: The movie premieres or the TV show airs. Disney is not “selling” the show and earning revenue. Disney will match the expense of producing the movie/show with the revenue earned, over the expected useful life of the production. Journal entry: Cash $YYY Revenue $YYY Amortization Expense – Film Costs (exp) $ZZZ Film and TV Costs (asset) $ZZZ Name at least one famous ‘asset’ or income-generating resource belonging to Disney that is not listed on its balance sheet. Why is this item not listed on the balance sheet? Mickey – no reliable way to measure the value of this internally-generated asset. 7 PART IV Short Answers Blockbuster Video offers gift certificates to its customers. When a customer gives Blockbuster $5 and receives a gift certificate, what journal entry does Blockbuster record? (Assume that there is no expiration date on the gift certificate and that eventually customer will redeem the entire amount of the gift certificate.) Cash Unearned revenue 5 5 A customer rents the movie Black Swan at a rental fee of $4.00 and buys one box of Raisinets at a price of $1.00. For purposes of this question, assume that the cost to Blockbuster of providing the movie rental is zero. The cost of the box of Rasinets to Blockbuster is 35 cents. The customer pays for this transaction with a gift certificate. Prepare the complete journal entry that Blockbuster must record for this transaction. Unearned Revenue 5 COGS 0.35 Video rental revenue Concession revenue Inventory (revenue could be combined into one line) 4 1 0.35 Assume Blockbuster depreciates DVDs over three years on a straight-line basis. At the end of the three years the DVDs have no value. Suppose Blockbuster purchased 100 copies of the movie The King’s Speech for $9 each on January 1, 2010. What adjusting journal entry does Blockbuster make at the end of the year? How much is in accumulated depreciation on December 31, 2011? $900/3 = $300 depreciation per year Depreciation expense Accumulated Depreciation 300 300 Accum Dep: $300 (2010) + $300 (2011) = $600 at 12/31/11 At the beginning of the year, accounts payable were $150 and, at the end of the year, accounts payable were $450. Blockbuster paid $700 cash to its suppliers during the year. How much did Blockbuster purchase from its suppliers on account during the year? Acct Payable 150 700 ? = 1000 450 8 Suppose Outback Steakhouse uses LIFO inventory valuation while the Cheesecake Factory uses FIFO. Describe in words the adjustments you would make to the reported financial statements in order to compare the two companies. Convert Outback to FIFO as follows: FIFO Inventory = LIFO inventory + LIFO Reserve FIFO COGS = LIFO COGS - ?LIFO Reserve The following information was taken from the footnotes of three package delivery companies. United Parcel Service of America, Inc. Revenue is recognized upon delivery of a package. Federal Express Corporation Revenue is generally recognized upon delivery of shipments. For shipments in transit, revenue is recorded based on the percentage of service completed. Airborne Express Domestic revenues are recognized when shipments are picked up from the customer. Which revenue recognition policy do you think is most consistent with the revenue principle? Why? UPS. Companies should not record revenue until they have delivered the goods or services. Customers are not paying these companies to pick up a package or to partially transfer a package. Customers pay for the package to be delivered to the intended recipient. Do you believe the difference between Airborne’s and UPS’s revenue recognition policies materially affects their earnings? Why or why not? No, the difference in revenue recognition policies in this case probably does not materially affect earnings. These companies are picking up and delivering packages every day. With Airborne, so long as the number of packages picked up approximates the number of packages delivered, there will not be a material difference in the total amount of revenue recorded in a given period. 9 PART IV (continued) For each of the following situations, indicate when the organization should record revenue and a reason for your answer. Keep your answers BRIEF. Barnes & Noble: Book retailer Transaction: Barnes & Noble offers a Member Program which entitles members to receive discounts on books and other purchases. Customers pay Barnes and Noble $25 for a one year membership. The annual membership fee is non-refundable after the first 30 days. Refunds due to cancellations within the first 30 days are minimal. Revenue should be recognized ratably over the 12-month membership period because Barnes & Noble has promised to provide membership benefits for one year and, thus, earns the revenue as it provides these membership benefits. (OK, if answer that B&N should wait until the end of 12 month period but waiting until end of membership period probably doesn’t reflect economic reality of when B&N is providing membership benefits) Merck: Transaction: Pharmaceutical company In September 2011, Merck receives cash from the federal government as an incentive to stockpile flu vaccines. In return, the federal government requires Merck to be able to delivery vaccines at a moment’s notice. If there is a flu outbreak, Merck will deliver the vaccines. If there is no need for the vaccines by the end of the flu season (April 2012), Merck still retains the cash. You can make valid arguments to recognize revenue at various points. Merck should record revenue when it fulfills its obligation. What is Merck being contracted to do: Deliver vaccines to its stockpile? Stand ready to provide vaccines each month of flu season? Have vaccines in its stockpile until flu season over? Guitar Center: Transaction: Musical instruments retailer A customer puts a keyboard on lay-away; the company sets the instrument aside while the customer makes periodic, incremental payments. Once the amount is paid in full, the customer receives the keyboard. Guitar Center has a policy of refunding all amounts paid if the customer reneges. Guitar Center should record revenue only after the customer pays the amount in full and the keyboard is delivered. Guitar Center has not yet provided the instrument to the customer (e.g., what happens if a fire in the store destroys the guitar on lay-away?) Also, there is too much uncertainty about ultimate collection until the keyboard is paid in full to know the amount of revenue earned. 10 Part V The following list shows all of the account balances taken from Flour Power Bakery’s trial balance at December 31, 2012: Cash Dividends Unearned revenue Interest revenue Advertising expense Accumulated depreciation Allowance for doubtful accounts Cost of goods sold Wage expense Inventory Common Stock Accounts receivable Interest receivable Sales Depreciation expense Bad debt expense Accounts payable Retained earnings Building Income tax expense Prepaid insurance Note receivable Income tax payable $ 11,800 21,000 4,000 1,000 4,100 21,000 700 94,300 56,000 15,800 9,400 14,300 1,000 257,600 7,000 500 3,300 13,100 63,000 19,540 6,300 15,000 19,540 Prepare the income statement and statement of retained earnings for the year ended December 31, 2012. Flour Power Bakery Income Statement For the year ended December 31, 2012 Sales COGS Gross profit $257,600 94,300 163,300 Operating expenses: Advertising 4,100 Wages 56,000 Depreciation 7,000 Bad debts 500 Operating income 67,600 95,700 Interest revenue Income before taxes 1,000 96,700 11 Income taxes Net income 19,540 77,160 NOTE: PRESENTATION FORMAT CAN VARY SO LONG AS START WITH REVENUE AND END WITH NET INCOME Flour Power Bakery Statement of Retained Earnings For the year ended December 31, 2012 RE, beg bal Net income Dividends RE, end bal 13,100 77,160 (21,000) 69,260 EXTRA - NOT REQUIRED: Flour Power Bakery Balance Sheet As of December 31, 2012 Assets Current assets Cash A/R, net Inventory Prepaid insurance Liabilities $11,800 13,600 15,800 6,300 Long-term assets Note receivable Interest receivable Building, net 15,000 1,000 42,000 Total assets $105,500 A/P Unearned revenue Income taxes payable $ 3,300 4,000 19,540 Stockholders’ equity Common Stock Retained earnings Total SE 9,400 69,260 78,660 Total liabilities and SE 12 $105,500 CONSOLIDATED BALANCE SHEETS (in millions) October 2, 2010 October 3, 2009 ASSETS Current assets Cash and cash equivalents Receivables, net Inventories Television costs Other current assets Total current assets 2,722 5,784 1,442 678 1,599 12,225 3,417 4,854 1,271 631 1,716 11,889 Film and television costs Parks, resorts and other property, net Other assets 4,773 17,806 34,402 5,125 17,597 28,506 Total assets 69,206 63,117 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities Accounts payable and other accrued liabilities Current portion of borrowings Unearned royalties and other advances Total current liabilities 6,109 2,350 2,541 11,000 5,616 1,206 2,112 8,934 Notes payable Deferred income taxes Other long-term liabilities 10,130 2,630 6,104 11,495 1,819 5,444 Shareholders’ equity Common stock Retained earnings Treasury stock Total shareholders' equity 30,559 32,446 (23,663) 39,342 28,729 29,389 (22,693) 35,425 Total liabilities and shareholders' equity 69,206 63,117 13 Film and television costs include capitalizable production costs, production overhead, development costs and acquired production costs and are stated at cost less accumulated amortization. Acquired programming costs for the Company’s television and cable networks are stated at cost less accumulated amortization. Film and television production costs are expensed based on the ratio of the current period’s revenues to estimated remaining total revenues (Ultimate Revenues) for each production. For film productions, Ultimate Revenues include revenues that will be earned within ten years from the date of the initial theatrical release. For television network series, Ultimate Revenues include revenues that will be earned within ten years from delivery of the first episode, or if still in production, five years from delivery of the most recent episode, if later. For acquired film libraries, remaining revenues include amounts to be earned for up to twenty years from the date of acquisition. Costs of film and television productions are subject to regular recoverability assessments. The amount by which the unamortized costs of film and television productions exceed their estimated fair values is written off. Film development costs for projects that have been abandoned or have not been set for production within three years are generally written off. Based on management’s total gross revenue estimates as of October 2, 2010, approximately 82% of unamortized film and television costs for released productions is expected to be amortized during the next three years. The Company expects to amortize, based on current estimates, approximately $1.4 billion in capitalized film and television production costs during fiscal 2011. 14 Financial Accounting 2013 SAMPLE MIDTERM EXAM QUESTIONS PART I - Answer True (T) or False (F) in the space provided. ______1. The income statement reports where cash came from and how it was used. ______2. The income statement is dated over the period of time covered, such as “For the Year Ended December 31, 2012. ______3. Management’s judgment and estimation play a larger role under accrual basis accounting than under cash basis accounting. ______4. Closing the books sets the balances of asset and liability accounts back to zero. ______5. Garmin is a manufacturer of GPS-enabled devices. At the end of 2009 and 2008, Garmin’s total owners’ equity was $2,836.4 and $2,225.9, respectively. Garmin reported sales of $1,111.2 and net income of $704.0 in 2009. NIVS IntelliMedia Technology Group, another consumer electronic equipment manufacturer, had an ROA of 16.7% and an ROE of 29.7% in 2009. As a common equity shareholder, based solely on this information, you prefer NIVS. ______6. Failure to record the $500 of rent expense incurred during the period will overstate owners’ equity on the balance sheet at the end of the period by $500. ______7. Aetna spends $750 million repurchasing its stock. This cash outflow is reported in the operating section of the cash flow statement. ______8. Generally accepted accounting principles are identical world-wide. ______9. When a corporation buys equipment and pays cash, total assets increase by the cost of the equipment. ______10. If research and development costs lead to a feasible new product then these R&D costs are recorded as an asset under U.S. GAAP because they provide future benefit to the company. ______11. Assume Groupon sells a coupon for a local restaurant. The SEC requires Groupon to measures revenue on the income statement using the gross selling price of this coupon and not just the net amount retained after paying the restaurant. ______12. Earnings management is the process of recording adjusting journal entries at the end of the period so that earnings are reported in accordance with GAAP. ______13. If Exxon Mobil uses the LIFO inventory costing method for tax reporting it must use it for financial reporting as well. ______14. When prices are rising, the FIFO inventory costing method will generally result in higher taxable income than LIFO. ______15. No gain or loss can be recorded when a company sells a fully-depreciated fixed asset. 1 PART II - Place your letter answer in the space provided. _______1. All of the following are primary financial statements except a. income statement b. statement of retained earnings. c. statement of assets. d. statement of cash flows. e. all of the above are primary financial statements _______2. Which of the following is a permanent account? a. dividends b. rent expense c. sales revenue d. salary payable e. bad debt expense f. none of the above are permanent accounts _______3. A lower Accounts Receivable Turnover ratio relative to prior years may suggest: a. the company is able to collect its receivables in a more timely manner b. the company is attracting new customers with better credit c. the company has become more aggressive with its revenue recognition policies d. All of the above e. None of the above _______4. Which of the following companies is mostly likely to recognize revenue on a percentage-of-completion basis: a. Pet store b. Coal mining company c. Amusement park d. Text book publisher e. Cruise ship builder f. Pharmaceutical manufacturer _______5. Lee King Plumbing, Inc. reported assets of $1,500 and liabilities of $700 at the end of year 1. At the end of year 2, the company reported assets of $2,300 and liabilities of $1,400. Assume Lee King did not pay dividends or repurchase stock in year 2 but it did issue common stock for $250. What was net income in year 2? a. 100 b. -100 c. 150 d. -150 e. 350 f. -350 2 Frozen Food Express December 31, Current Assets Tires on equipment in use 2011 2010 5,592 5,425 _______6. A portion of Frozen Food Express’s most recent balance is provided above. The company has an unusual current asset – tires. Per the footnotes, the company capitalizes the costs of tires purchased and expenses them on a per mile basis using an estimated 75,000 mile tire life. Assume that when the tires have reached 75,000 miles, they have no value and are scrapped. If ‘Tire Expense’ was $3,802, how much cash did Frozen Food Express pay to purchase tires in 2011. a. $167 b. $3,636 c. $3,802 d. $3,969 _______7. Life Technologies Corporation and Affymetrix Inc. are competitors in the life sciences and clinical healthcare industry. Total revenues and R&D expenses from each company’s income statement are: Total revenue R&D Life Technologies Corporation (“LTC”) 2012 2011 2010 $1,620,323 $1,281,747 $1,151,175 $142,505 $115,833 $104,343 Affymetrix Inc 2012 2011 2010 $410,249 $371,320 $355,317 $84,482 $72,740 $86,296 Which of the following is true? a. Affymetrix is less R&D intensive in 2012 than in 2010. b. LTC is the more R&D intensive company of the two. c. LTC has become more R&D intensive over the three years. d. All of the above are true. e. None of the above are true. Perry Ellis Accounts receivable, less allowances of $1,298 and $2,549 in 2007 and 2006, respectively 1/31/2007 1/31/2006 157,420 152,529 _______8. For the year ended January 31, 2007 Perry Ellis International earned credit sales of $829,842. For that same period, write-offs were $1,609. How much did Perry Ellis record for bad debt expense for the year ended January 31, 2007? a. $358 b. $1,251 c. $1,298 d. $1,609 e. $2,860 3 SBA Company had credit sales of $672,000. As of year-end, the balance in the Allowance for Doubtful Accounts before adjusting for bad debts was a $300 debit and the balance in Accounts Receivable was $72,000. SBA Company incurs the following bad debts percentages historically: Total Credit Sales 1.5% _______9. Referring to the above information, what journal entry will SBA will make if it estimates bad debts by using a percentage of credit sales? a. Bad Debts Expense 9,780 Allowance for Doubtful Accounts 9,780 b. Bad Debts Expense 10,080 Allowance for Doubtful Accounts 10,080 c. Bad Debts Expense 10,380 Allowance for Doubtful Accounts 10,380 d. Bad Debts Expense 12,300 Allowance for Doubtful Accounts 12,300 e. Bad Debts Expense 12,600 Allowance for Doubtful Accounts 12,600 _______10. Referring to the above information, what is the balance in the Allowance for Doubtful Accounts after SBA estimates bad debts using a percentage of credit sales? a. $9,780 b. $10,080 c. $10,380 d. $12,300 e. $12,600 _______11. Given the following data, by how much would taxable income change if LIFO were used rather than FIFO Beginning inventory 1,000 units at $25 Purchases 2,400 units at $30 Units sold 1,500 a. decrease by $5,000 b. decrease by $7,500 c. increase by $7,000 d. increase by $5,000 e. none of the above 4 _______12. Dunder Mifflin has inventory recorded on its book at $50,000. The actual market value of this inventory is $40,000. Suppose Dunder Mifflin inappropriately applies the LCM rule and writes the inventory down to $0. What will be the effect on the income statement next year if the company then sells the written-down inventory? a. Cost of goods sold will be overstated and net income will be understated. b. Cost of goods sold will be overstated and net income will be overstated. c. Cost of goods sold will be understated and net income will be overstated. d. Cost of goods sold will be understated and net income will be understated. e. $12,600 _______13. A firm buys a building for $10,000 on January 1, 2011. The building has an expected life of 20 years and an expected residual value of $100. Using the double-declining method, what is the depreciation expense for the year ended December 31, 2012? a. $475 b. $495 c. $891 d. $900 e. $990 f. $1,000 _______14. A plant asset is acquired on July 1, 2010 at a cost of $35,000. Estimated residual value is $5,000 and the estimated useful life is 5 years. The company uses straight-line depreciation. The balance in accumulated depreciation on December 31, 2011, is: a. $6,000 debit b. $6,000 credit c. $9,000 debit d. $9,000 credit e. $12,000 debit f. $12,000 credit _______15. Polk Company sold equipment costing $30,000 with $28,000 of accumulated depreciation for $5,000 cash. Polk’s journal entry to record this sale includes: a. credit to equipment $2,000 b. debit to depreciation expense $28,000 c. debit to accumulated depreciation $28,000 d. debit to gain on sale of $5,000 e. all of the above are included 5 _______16. How does management select an inventory valuation method? a. If a company generally sells its oldest inventory first, it must use the FIFO inventory valuation method. b. If a company generally sells its newest inventory first, it must use the FIFO inventory valuation method. c. If a company sometimes sells its newest inventory and sometimes sells its oldest inventory, then it must use the weighted average inventory valuation method. d. A company does not need to consider the physical flow of inventory when choosing an inventory valuation method. 6 PART III The following questions relate to The Walt Disney Company (“Disney”). You will need to refer to extracts from the 2010 annual report attached to the back of the exam to answer some of the questions in this section. 1. Accounting Equation In the space provided below write the accounting equation in words: _______________=______________+ _ _____ In the space provided below, using the appropriate financial statement, write the dollar value of each account in the accounting equation for Disney as of October 2, 2010. $____________ = $___________ + $___________ 2. Composition of Assets One way that Disney earns money is to produce and distribute TV shows and movies. Briefly describe what the asset ‘Film and TV costs’ represents. Briefly describe the transaction and the journal entry th
