Acct 220 final exam answers

Acct220: Principles of Accounting I

Problem 1: 15% points:

The account balances appearing on the trial balance (below) were taken from the general ledger of Flip's Copy Shop at June 30, 2012.

Additional information for the month of June which has not yet been recorded in the accounts is as follows:

(a) A physical count of supplies indicates $300 on hand at June 30.

(b) The amount of insurance that expired in the month of June was $200.

(c) Depreciation on equipment for June was $400.

(d) Rent owed on the copy shop for the month of June was $600 but will not be paid until July.

Flip’s Copy Shop

Trial Balance

June 30, 2012

Account Titles

Debit

Credit

Cash

$1,000

Supplies

1,100

Prepaid Insurance

2,200

Equipment

24,000

Accum. Depreciation, Equipment

$4,500

Accounts Payable

2,400

Notes Payable

4,000

Flip’s Capital

15,300

Flip’s Drawings

2,400

Service Revenue

4,900

Utilities Expense

400

Totals

$31,100

$31,100

Instructions:

a. Prepare in journal form, without explanations, the end of month adjusting entries for Flip's opy Shop for the month of June.

b. Prepare a partial adjusted trial balance for the accounts provided.

c. Prepare in journal form, without explanations, the end of month closing entries for Flip's Copy Shop for the month of June.

Problem 2: 15% points:

The following information is available for Flip Company:

Beginning inventory 600 units at $5

First purchase 900 units at $6

Second purchase 500 units at $7.25

Assume that Flip uses a periodic inventory system and that there are 700 units left at the end of the month. (Round all final answers to the nearest dollar.)

Instructions:

a. Compute the cost of goods available for sale.

b. Compute the value of ending inventory and Cost of Good Sold under the

(1) LIFO method.

(2) FIFO method.

(3) Average-cost method

Problem 3: 15% points:

The following items were taken from the December 31, 2013 adjusted trial balance of Flip Company. (All balances are normal.)

Mortgage payable $ 1,443 Accumulated depreciation 3,655

Prepaid expenses 880 Accounts payable 1,444

Equipment 11,000 Notes payable after 2015 1,200

Long-term investments 1,100 Flip’s capital 11,480

Short-term investments 3,690 Accounts receivable 1,696

Notes payable in 2014 1,000 Inventories 1,756

Cash 2,100 Service Revenue 9,000

Rent Expense 1,000 Wages Expense 5,000

Utilities Expense 1,000

Instructions: Prepare a classified balance sheet in good form as of December 31, 2013.

Problem 4: 10% points:

Prepare journal entries to record the following transactions entered into by Flip Company:

2012

June 1 Accepted a $10,000, 12%, 1-year note from Flop as full payment on her account.

Nov. 1 Sold merchandise on account to Flap, Inc. for $12,000, terms 2/10, n/30.

Nov. 5 Flap, Inc. returned merchandise worth $500.

Nov. 9 Received payment in full from Flap, Inc.

Dec. 31 Accrued interest on Flop's note.

2013

June 1 Flop honored her promissory note by sending the face amount plus interest. No interest has been accrued in 2013

Problem 5: 10% points:

Flip Company purchased equipment on January 1, 2011 for $90,000. It is estimated that the equipment will have a $5,000 salvage value at the end of its 5-year useful life. It is also estimated that the equipment will produce 100,000 units over its 5-year life

Instructions

Answer the following independent questions.

1. Compute the amount of depreciation expense for the year ended December 31, 2011, using the straight-line method of depreciation.

2. If 16,000 units of product are produced in 2011 and 24,000 units are produced in 2012, what is the book value of the equipment at December 31, 2012? The company uses the units-of-activity depreciation method.

3. If the company uses the double-declining-balance method of depreciation, what is the balance of the Accumulated Depreciation—Equipment account at December 31, 2013?

Problem 6: 10% points:

Flip earns a salary of $7,500 per month during the year. FICA taxes are 8% on the first $100,000 of gross earnings. Federal unemployment insurance taxes are 6.2% of the first $7,000; however, a credit is allowed equal to the state unemployment insurance taxes of 5.4% on the $7,000. During the year, $25,600 was withheld for federal income taxes and $5,700 was withheld for state income taxes.

Instructions

(a) Prepare a journal entry summarizing the payment of Flip’s total salary during the year.

(b) Prepare a journal entry summarizing the employer payroll tax expense on Flip’s salary for the year.

(c) Determine the cost of employing Flip for the year.

Multipe Choice Question:

Question 7: Which of the following are the same under both GAAP and IFRS?

a. The journal.

b. The ledger.

c. The chart of accounts.

d. All of the above.

e. Only a & c.

Question 8: Which of the following is true?

a. Transaction analysis is completely different under IFRS and GAAP.

b. Most transactions are recorded differently under IFRS and GAAP.

c. Transaction analysis is the same under IFRS and GAAP, but some transactions are recorded differently.

d. All transactions are recorded the same under IFRS and GAAP.

Question 9: Revenue recognition under IFRS is

a. substantially different from revenue recognition under GAAP.

b. generally the same as revenue recognition under GAAP, but with more detailed guidance.

c. generally the same as revenue recognition under GAAP, but with less detailed guidance.

d. exactly the same as revenue recognition under GAAP.

Question 10: Both IFRS and GAAP require disclosure about

a. accounting policies followed.

b. judgements that management has made in the process of applying the entity's accounting policies.

c. the key assumptions and estimation uncertainty.

d. all of the above.

e. only b & c.

Question 11: The use of fair value to report assets

a. is not allowed under GAAP or IFRS.

b. is required by GAAP and IFRS.

c. is increasing under GAAP and IFRS, but GAAP has adopted it more broadly.

d. is increasing under GAAP and IFRS, but IFRS has adopted it more broadly.

Question 12: A $100 petty cash fund has cash of $16 and receipts of $81. The journal entry to replenish the account would include a

a. debit to Cash for $81.

b. credit to Petty Cash for $84.

c. debit to Cash Over and Short for $3.

d. credit to Cash for $81.

Question 13: In preparing its bank reconciliation for the month of April 2013, Flip, Inc. has available the following information.

Balance per bank statement, 4/30/13 $39,300

NSF check returned with 4/30/13 bank statement 470

Deposits in transit, 4/30/13 5,000

Outstanding checks, 4/30/13 5,200

Bank service charges for April 30

What should be the adjusted cash balance at April 30, 2013?

a. $38,630.

b. $38,800.

c. $39,010.

d. $39,100.

39,300+5,000-5,200 = $39,100

Question 14: If a check correctly written and paid by the bank for $591 is incorrectly recorded on the company’s books for $519, the appropriate treatment on the bank reconciliation would be to

a. deduct $72 from the book’s balance.

b. add $72 to the book’s balance.

c. deduct $72 from the bank’s balance.

d. deduct $591 from the book’s balance.

Question 15: Flip Company had net credit sales during the year of $1,200,000 and cost of goods sold of $720,000. The balance in accounts receivable at the beginning of the year was $180,000, and the end of the year it was $120,000. What was the accounts receivable turnover ratio?

a. 5.0

b. 6.7

c. 8.0

d. 10.0

Question 16: The financial statements of Flip Manufacturing Company report net sales of $400,000 and accounts receivable of $80,000 and $40,000 at the beginning and end of the year, respectively. What is the average collection period for accounts receivable in days?

a. 40 days

b. 50 days

c. 54.7 days

d. 80 days

Question 17: Cash equivalents include each of the following except

a. bank certificates of deposit.

b. money market funds.

c. petty cash.

d. U.S. Treasury bills.

Question 18: Flip Company is building a new plant that will take three years to construct. The construction will be financed in part by funds borrowed during the construction period. There are significant architect fees, excavation fees, and building permit fees. Which of the following statements is true?

a. Excavation fees are capitalized but building permit fees are not.

b. Architect fees are capitalized but building permit fees are not.

c. Interest is capitalized during the construction as part of the cost of the building.

d. The capitalized cost is equal to the contract price to build the plant less any interest on borrowed funds.

Question 19: Depreciation is the process of allocating the cost of a plant asset over its service life in

a. an equal and equitable manner.

b. an accelerated and accurate manner.

c. a systematic and rational manner.

d. a conservative market-based manner.

Question 20: Sales taxes collected by a retailer are expenses

a. of the retailer.

b. of the customers.

c. of the government.

d. that are not recognized by the retailer until they are submitted to the government.

Question 21: Flip’s Market recorded the following events involving a recent purchase of merchandise:

Received goods for $50,000, terms 2/10, n/30.

Returned $1,000 of the shipment for credit.

Paid $250 freight on the shipment.

Paid the invoice within the discount period.

As a result of these events, the company’s inventory increased by

a. $48,020.

b. $48,265.

c. $48,270.

d. $49,250.

Question 22: Closing entries are made

a. in order to terminate the business as an operating entity.

b. so that all assets, liabilities, and owner's capital accounts will have zero balances when the next accounting period starts.

c. in order to transfer net income (or loss) and owner's drawings to the owner's capital account.

d. so that financial statements can be prepared.

Question 23: Flip Company purchased merchandise from Flop Company with freight terms of FOB shipping point. The freight costs will be paid by the

a. seller.

b. buyer.

c. transportation company.

d. buyer and the seller.

Question 24: A Sales Returns and Allowances account is not debited if a customer

a. returns defective merchandise.

b. receives a credit for merchandise of inferior quality.

c. utilizes a prompt payment incentive.

d. returns goods that are not in accordance with specifications.

Question 25: Which of the following statements is incorrect?

a. A major consideration in developing an accounting system is cost effectiveness.

b. When an accounting system is designed, no consideration needs to be given to the needs and knowledge of the various users.

c. The accounting system should be able to accommodate a variety of users and changing information needs.

d. To be useful, information must be understandable, relevant, reliable, timely, and accurate.

Question 26: Flip is warehouse custodian and also maintains the accounting record of the inventory held at the warehouse. An assessment of this situation indicates

a. documentation procedures are violated.

b. independent internal verification is violated.

c. segregation of duties is violated.

d. establishment of responsibility is violated.

Question 27: Flip Company purchases a new delivery truck for $60,000. The sales taxes are $4,000. The logo of the company is painted on the side of the truck for $1,600. The truck license is $160. The truck undergoes safety testing for $290. What does Flip record as the cost of the new truck?

a. $66,050

b. $65,890

c. $64,000

d. $65,600

Question 28: A company purchased factory equipment on April 1, 2012 for $80,000. It is estimated that the equipment will have an $10,000 salvage value at the end of its 10-year useful life. Using the straight-line method of depreciation, the amount to be recorded as depreciation expense at December 31, 2012 is

a. $8,000.

b. $7,000.

c. $5,250.

d. $6,000.

Question 29: Flip's Boutique has total receipts for the month of $30,660 including sales taxes. If the sales tax rate is 5%, what are Flip's sales for the month?

a. $29,127

b. $29,200

c. $32,193

d. It cannot be determined.

Question 30: Flip Electric began operations in 2012 and provides a one year warranty on the products it sells. They estimate that 10,000 of the 200,000 units sold in 2012 will be returned for repairs and that these repairs will cost $8 per unit. The cost of repairing 8,000 units presented for service in 2012 was $64,000. Flip should report

a. warranty expense of $16,000 for 2012.

b. warranty expense of $80,000 for 2012.

c. warranty liability of $80,000 on December 31, 2012.

d. no warranty obligation on December 31, 2012, since this is only a contingent liability.

Question 31: Partners Flip and Flop have capital balances in a partnership of $80,000 and $120,000, respectively. They agree to share profits and losses as follows:

Flip Flop

As salaries $20,000 $24,000

As interest on capital at the beginning of the year 10% 10%

Remaining profits or losses 50% 50%

If income for the year was $60,000, what will be the distribution of income to Flip?

a. $26,000

b. $34,000

c. $20,000

d. $28,000