FIN 6101 MT EXAM 2015
MC – please select the best answer (2 points each, a total of 46 points)
1. In double-entry bookkeeping,
A. assets appear on the right side of the accounting equation.
B. liabilities appear on the left side of the accounting equation.
C. equity appears on the left side of the accounting equation.
D. credits decrease stockholders’ equity account balances.
E. expense accounts have normal debit balances.
Choose Your Answer:
2. In double-entry bookkeeping,
A. asset accounts have normal credit balances.
B. revenue accounts have normal debit balances.
C. debits decrease expense account balances.
D. credits increase revenue account balances.
E. credits increase asset account balances.
Choose Your Answer:
3. A credit, as used in accounting, is an entry that
A. is recorded in a liability account.
B. causes a liability account to decrease.
C. arises because a company bought something with credit card.
D. is made on the right-hand side of a T-account.
E. requires the initiation of a source document for a customer.
Choose Your Answer:
4. In double-entry bookkeeping,
A. purchasing office furniture on credit decreases total assets.
B. financing purchases with long-term notes payable decreases total liabilities.
C. declaring dividends decreases total stockholders’ equity.
D. purchasing inventory and paying for it with cash has a positive net effect on total assets.
E. net income decreases total stockholders’ equity.
Choose Your Answer:
5. Expenses normally have ___ balances and cause stockholders’ equity to ____.
A. debit; increase
B. debit; decrease
C. credit; increase
D. credit; decrease
E. credit; remain unchanged
Choose Your Answer:
6. On April 1, 2013, Dozier purchased 1,000 handkerchiefs at a cost of $1.50 per unit and subject
to credit terms 3/10, net 45. Dozier Inc. remitted full payment to the vendor on April 9, 2013.
The total purchase price of the handkerchiefs was
A. $1,350
B. $1,455
C. $1,500
D. $1,545
E. $1,650
Choose Your Answer:
7. On July 1, 2012, Studemont purchased a delivery truck for $50,000. The truck has a $10,000 salvage
value and a 160,000-mile estimated useful life. Studemont uses the units-of-production depreciation
method. Studemont drove the truck 20,000 and 50,000 miles during 2012 and 2013, respectively. What
is the balance in Studemont’s accumulated depreciation relative to this truck at December 31, 2013?
A. $ 5,000
B. $12,500
C. $15,625
D. $17,500
E. $21,875
Choose Your Answer:
Use the following information to answer questions 8 and 9
On November 1, 2011, ABC Co. purchased a new display case for $8,500. ABC paid an extra $300 for
delivery costs, $400 for a platform needed underneath the case, and $700 for installation costs. The
display case has a $1,900 estimated salvage value and a 10-year estimated useful life.
8. What was the total cost of the machine to ABC Co.?
A. $8,500
B. $8,800
C. $8,900
D. $9,200
E. $9,900
Choose Your Answer:
9. How much depreciation expense on the new display case should ABC Co. recognize in 2011? (using SL)
A. $133.33
B. $145.00
C. $153.33
D. $725.00
E. $800.00
Choose Your Answer:
10. An asset’s estimated value at the end of its useful life is its
A. book value.
B. carrying value.
C. fair market value.
D. net realizable value.
E. salvage value.
Choose Your Answer:
Use the following information to answer questions 11 - 12
On January 1, 2013, Able Rug purchased a delivery truck for $50,000. The truck has a $5,000
salvage value and a four year useful life or 56,250 miles.
11. Using the straight-line method, how much depreciation expense should Able Rug recognize in 2013?
A. $ 6,250
B. $10,500
C. $11,250
D. $12,500
E. $28,125
Choose Your Answer:
12. If Able Rug uses the units-of-production method and puts 18,500 miles on the truck in 2013
how much depreciation expense should Able Rug recognize in 2012?
A. $ 8,000
B. $10,500
C. $12,500
D. $14,800
E. $16,400
Choose Your Answer:
13. The Niven Law Firm signed a $25,000, 120-day, 10% note payable on November 15, 2013.
How much interest expense relative to this note payable should Niven recognize in 2013,
assuming a 360-day calendar year?
A. $111.11
B. $312.50
C. $319.44
D. $506.94
E. $833.33
Choose Your Answer:
14. Raceway Motors signed a $100,000, 6-month, 12% note payable on August 1, 2013.
What is Raceway’s total liability relative to this note payable at December 31, 2013?
A. $100,900
B. $105,000
C. $105,033
D. $106,000
E. $112,000
Choose Your Answer:
15. When a company records an accrued liability, which of the following reflects the journal entry?
Debit Credit
A. asset liability
B. revenue liability
C. liability revenue
D. expense liability
E. liability expense
Choose Your Answer:
16. Jefferson Airways, started in 2013, has a frequent flyer program. During 2013, Jefferson’s customers
earned 200,000,000 miles and redeemed 150,000,000 of those miles. The program’s terms require
customers to exchange 20,000 miles for one free ticket. Jefferson Airways’ average free ticket cost is
$175.00. What is Jefferson’s total liability relative to its frequent flyer program at December 31, 2013?
A. $ 131,250
B. $ 437,500
C. $1,312,500
D. $1,750,000
E. $3,500,000
Choose Your Answer:
17. Royal Cookware offers its customers a lifetime guarantee that its pots and pans will not break.
The company estimates that 3% of those sets sold will become defective. In 2012, Royal sold 1,000,000
sets of pots and pans; of these units, 2,800 became defective during 2013. Royal’s cost to repair a set of
pots and pans is $40. Which of the following journal entries would be made in 2013 to record Royal’s
repair costs of $85,000 for parts and $24,000 for labor?
Debit Credit
A. Warranty Expense $109,000
Parts Inventory $85,000
Wages Payable $24,000
B. Warranty Liability $109,000
Parts Inventory $85,000
Wages Payable $24,000
C. Warranty Expense $112,000
Parts Inventory $85,000
Wages Payable $24,000
Gain on Warranty Work $3,000
D. Warranty Expense $109,000
Cash $109,000
E. Warranty Expense $112,000
Warranty Liability $112,000
Choose Your Answer:
18. Dallas Corporation employees receive two weeks paid vacation annually. Each payroll period, the
vacation pay accumulated by company employees equals 4% of that week’s payroll. Dallas Corporation’s
bi-weekly payroll is $200,000. No vacation pay accumulated by employees is forfeited. How much
vacation pay expense should Dallas accrue each period?
A. $0
B. $8,000
C. $16,000
D. $200,000
E. $400,000
Choose Your Answer:
19. Bracewell Corporation’s current ratio is currently 2.5:1 and its total current liabilities are $200,000. If
Bracewell buys equipment for $100,000 cash, then its working capital immediately after this transaction is
A. $100,000
B. $200,000
C. $300,000
D. $400,000
E. $500,000
Choose Your Answer:
20. Alpha Corporation sold 100, $1,000 bonds at 103%. What is the appropriate journal entry to record
the sale of these bonds?
Debit Credit
A. Cash $100,000
Bonds Payable $100,000
B. Cash $103,000
Bonds Payable $100,000
Gain on Bonds Payable $3,000
C. Cash $100,000
Bonds Payable $97,000
Premium on Bonds Payable $3,000
D. Cash $97,000
Discount on Bonds Payable $3,000
Bonds Payable $100,000
E. Cash $103,000
Bonds Payable $100,000
Premium on Bonds Payable $3,000
Choose Your Answer:
21. Stock that has been issued and then bought back by a corporation is called
A. authorized stock.
B. common stock.
C. outstanding stock.
D. preferred stock.
E. treasury stock.
Choose Your Answer:
22. Oliver Inc. is authorized to issue 3,000,000 shares of common stock. Oliver sold 600,000 shares
and later bought back 10,000 of those shares. How many shares of Oliver’s common stock are issued?
A. $ 590,000
B. $ 600,000
C. $2,400,000
D. $3,000,000
E. $3,590,000
Choose Your Answer:
23. On January 1, 2013, Brian Brezina owned 25% of Wilder Corporation’s 5,000,000 issued and
outstanding shares of common stock. If Wilder issues another 1,000,000 shares, how may additional
shares of common stock may Brezina have an option to purchase?
A. $ 250,000
B. $ 750,000
C. $1,000,000
D. $1,250,000
E. $1,500,000
Choose Your Answer:
True and False (1 point each, 14 points in total)
1. The difference between the purchase price of a treasury bill and the amount that is paid at maturity is the
interest earned on the bill.
Choose Your Answer:
2. Short-term investments are shown at historical cost rather than fair market value.
Choose Your Answer:
3. Credit terms 2/10, net 30 state that customers will receive a 2% discount if they pay outstanding invoices
within 30 days.
Choose Your Answer:
4. Under the accrual method basis of accounting, businesses generally record transactions only if those
transactions involve cash.
Choose Your Answer:
5. A deferred expense is a liability that represents an amount received by a business for a product or service that
will be provided or delivered in the future.
Choose Your Answer:
6. If employees are not paid on the last day of the month, then a payroll accrual is necessary.
Choose Your Answer:
7. If a depreciable asset is disposed of at any point other than year-end, an adjusting entry must be made to
recognize depreciation expense on that asset before the disposal is recorded.
Choose Your Answer:
8. When an asset is sold at a gain or loss, it affects both the balance sheet and the income statement.
Choose Your Answer:
9. An accrued liability arises from an expense that has been incurred but not yet paid.
Choose Your Answer:
10. A bond indenture is a legal contract that identifies the rights and obligations of both the buyer and seller
of the bond.
Choose Your Answer:
11. The market interest rate, rather than the stated interest rate, determines the present value of the future
cash outflows related to a bond issue.
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12. In terms of dollars, stock splits have no effect on stockholders’ equity account balances.
Choose Your Answer:
13.The dividend yield is the annual dividend divided by its current market price.
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14. Liquidity ratios measure a firm’s ability to finance its day-to-day operations and the firm's ability to pay its
liabilities as they mature.
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Problems (1 - 5 are worth 40 points in total)
P. 1. Transactions and General Journal Entries (1 point each for a total of 11 points)
The following transactions were incurred by Wood Inc.
1-Oct Paid $486 electricity bill for September. The bill had been received and recorded
on September 21 and was due by October 3.
2-Oct Bought car costing $18,500, paying $3,000 cash & signing a note for the rest.
5-Oct Purchased stationery for the business on credit for $300. The company will use
this stationery during the month for various purposes.
15-Oct Paid employee salaries for first half of October, $2,340.
16-Oct Received $500 from a customer in payment of services performed on July 29.
18-Oct Paid $85 for an advertisement running in the October 18 newspaper.
21-Oct Performed services for a customer who paid the company $268.
23-Oct Paid November insurance policy, $200.
25-Oct Sold 1,000 shares of $1.50 par value common stock for $10 per share.
29-Oct Received $2,500 payment from a customer for services to be provided in March.
31-Oct Employees earned $2,360 of salaries for the last half of October and
will be paid on November 15.
Select the correct account descriptions for these journal entries to record the transactions above.
Note: Account Descriptions may be used once, several times, or not at all.
Date Account Description Debit Credit
1-Oct $486
$486
2-Oct $18,500
$3,000
$15,500
5-Oct $300
$300
15-Oct $2,340
$2,340
16-Oct $500
$500
18-Oct $85
$85
21-Oct $268
$268
23-Oct $200
$200
25-Oct $10,000
$1,500
$8,500
29-Oct $2,500
$2,500
31-Oct $2,360
$2,360
P. 2. Equipment Acquisition and Depreciation Journal Entries ( total of 7 points)
2. On January 1, 2012, LoCoco Corporation purchased a new assembly line for $100,000 cash and a
$200,000, 10%, 5-year note payable. The assembly line has an estimated salvage value of $20,000 and an
estimated useful life of 14 years.
Required:
1. Prepare a journal entry to record the acquisition of the assembly line.
2. Assume that LoCoco depreciates its assets using the straight-line method.
a. Compute the 2012 depreciation expense and prepare a journal entry to record.
b. Compute accumulated depreciation at the end of 2012 and 2013.
c. Compute the assembly line’s book value at the beginning and end of 2012 and 2013.
Solution 1 Date Description Debit Credit
01/01/12 P,P,&E-ASSEMBLY LINE
Solution 2a Date Description Debit Credit
12/31/12
SolutionS 2a-2c
Year 2c. Book Value 2a. Depreciation Expense 2b. Accumulated Depreciation 2c. Book Value
1-Jan Computation Dec. 31
2012
2013
P. 3. Bond Issuance and Coupon payments. ( Part (a) is 6 points, part (b) is 4 points, a total of 10 points)
3. The following transactions were incurred by Roundtop Corporation, a calendar year-end company.
In all cases, bond interest is paid semi-annually at 6 and 12 months from issue date.
1-Apr Sold $100,000 worth of 5-year, 5% bonds at 100% of par.
1-Jun Sold $200,000 worth of 10-year, 8% bonds at 101% of par.
1-Aug Sold $150,000 worth of 8-year, 4% bonds at 99% of par.
(a) Prepare journal entries to record these bond issuances.
(b) Prepare journal entries to record all necessary interest payments and
December 31 year-end adjusting entries. (April 1 issue only)
Solution (a) DATE A/C DESCRIPTION DEBIT CREDIT
1-Apr
1-Jun
1-Aug
Solution (b) DATE A/C DESCRIPTION DEBIT CREDIT
Oct. 1
Dec. 31
P. 4. Closing Entry. (2 points for each entry for a total of 6 points.)
4. Book the year ending closing entries for ABC firm. Below is their year-end income statement.
Note: Your entry must be in the same order as the income statement.
ABC COMPANY
INCOME STATEMENT
PRODUCT REVENUE $975,000
TOTAL REVENUE $975,000
SALARY EXPENSE $495,000
ADVERTISING EXPENSE $11,000
RENT EXPENSE $30,000
UTILITY EXPENSE $14,000
DEPRECIATION EXPENSE $70,000
INTEREST EXPENSE $85,000
TOTAL EXPENSES $705,000
NET INCOME $270,000
DATE A/C DESCRIPTION DEBIT CREDIT
Dec. 31
Dec. 31
Dec. 31
P. 5. Closing Entry. (3 points for each entry part, a and b, for a total of 6 points.)
5. On May 31, 2011, XYZ bought (with cash) a machine for $90,000. The company uses the DDB method of
depreciation and the asset will be depreciated over 4 years, with a projected salvage value of $15,000.
On March 31, 2013, the company sold the machine for $40,000.
a. Calculate the depreciation and ending NBV for: 2011 2012, and 2013.
2011 2012 2013
Beginning NBV $90,000 $90,000 $90,000
Depreciation
Ending NBV $90,000 $90,000 $90,000
b. Book the disposition entry for March 31, 2013.
DATE A/C DESCRIPTION DEBIT CREDIT
03/31/13 CASH $40,000
P,P,& E - MACHINE
$0
-
Rating:
5/
Solution: FIN 6101 MT EXAM 2015 SOLUTION