Reliable enterprises sells distressed merchandise

ACCOUNTING INFORMATION SYSTEMS 1

1. Cal Farms reported supplies expense of $2,000,000 this year. The supplies account decreased by $200,000 during the year to an ending balance of $400,000. What was the cost of supplies the Cal Farms purchased during the year?

[removed]A. $1,600,000

[removed]B. $2,200,000

[removed]C. $1,800,000

[removed]D. $2,400,000

2. Listed below are account balances (in $millions) taken from the records of Symphony Stores. All of these are permanent accounts, except the last two that have yet to be closed. The installment receivables are current. Symphony uses a perpetual inventory system.

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What is the amount of working capital for Symphony?

[removed]A. $98

[removed]B. $113

[removed]C. $143

[removed]D. $128

3. On December 31, 2011, the end of Larry's Used Cars first year of operations, the accounts receivable was $53,600. The company estimates that $1,200 of the year-end receivables will not be collected. Accounts receivable in the 2011 balance sheet will be valued at

[removed]A. $53,600.

[removed]B. $54,800.

[removed]C. $52,400.

[removed]D. $1,200.

4. In its first year of operations, Best Corp. had income before tax of $500,000. Best made income tax payments totaling $210,000 during the year and has an income tax rate of 40%. What was Best's net income for the year?

[removed]A. $294,000

[removed]B. $290,000

[removed]C. $300,000

[removed]D. $306,000

5. Yummy Foods purchased a two-year fire and extended coverage insurance policy on August 1, 2011, and charged the $4,200 premium to Insurance expense. At its December 31, 2011, year-end, Yummy Foods would record which of the following adjusting entries?

a.

Insurance expense

875

 Prepaid insurance

875

b.

Prepaid insurance

875

 Insurance expense

875

c.

Insurance expense

875

Prepaid insurance

3,325

 Insurance payable

4,200

d.

Prepaid insurance

3,325

 Insurance expense

3,325

[removed]A. Option b

[removed]B. Option d

[removed]C. Option c

[removed]D. Option a

6. Janson Corporation Co.'s trial balance included the following account balances at December 31, 2011:

Accounts payable

$25,000

Bond payable, due 2020

22,000

Salaries payable

16,000

Note payable, due 2012

20,000

Note payable, due 2016

40,000

What amount should be included in the current liability section of Janson's December 31, 2011, balance sheet?

[removed]A. $41,000

[removed]B. $101,000

[removed]C. $61,000

[removed]D. $63,000

7. On June 1, Royal Corp. began operating a service company with an initial cash investment by shareholders of $2,000,000. The company provided $6,400,000 of services in June and received full payment in July. Royal also incurred expenses of $3,000,000 in June that were paid in August. During June, Royal paid its shareholders cash dividends of $1,000,000. What was the company's income before income taxes for the two months ended July 31 under the following methods of accounting?

  

Cash Basis

Accrual Basis

a.

$3,400,000

$3,400,000

b.

$5,400,000

$2,400,000

c.

$6,400,000

$3,400,000

d.

$6,400,000

$2,400,000

[removed]A. Option c

[removed]B. Option b

[removed]C. Option a

[removed]D. Option d

8. Temporary accounts would not include

[removed]A. cost of goods sold.

[removed]B. depreciation expense.

[removed]C. salaries payable.

[removed]D. supplies expense.

9. On November 1, 2011, Tim's Toys borrows $30,000,000 at 9% to finance the holiday sales season. The note is for a six-month term and both principal and interest are payable at maturity. What should be the balance of interest payable for the loan as of December 31, 2011?

[removed]A. $1,350,000.

[removed]B. $112,500.

[removed]C. $450,000.

[removed]D. $225,000.

10. A cause-and-effect relationship is implicit in the

[removed]A. historical cost principle.

[removed]B. going concern assumption.

[removed]C. matching principle.

[removed]D. realization principle.

11. The most likely important flaw leading to the demise of the APB was the perceived lack of

[removed]A. importance.

[removed]B. competence.

[removed]C. independence.

[removed]D. confidence.

12. An example of a contra account is

[removed]A. sales revenue.

[removed]B. accounts receivable.

[removed]C. depreciation expense.

[removed]D. accumulated depreciation.

13. Janson Corporation Co.'s trial balance included the following account balances at December 31, 2011:

Accounts receivable

$12,000

Inventories

40,000

Patent

12,000

Investments

30,000

Prepaid insurance

6,000

Note receivable, due 2014

50,000

Investments consist of treasury bills that were purchased in November and mature in January. Prepaid insurance is for the next two years. What amount should be included in the current asset section of Janson's December 31, 2011, balance sheet?

[removed]A. $135,000

[removed]B. $55,000

[removed]C. $88.000

[removed]D. $85,000

14. In its first year of operations Best Corp. had income before tax of $500,000. Best made income tax payments totaling $210,000 during the year and has an income tax rate of 40%. What was Best's net income for the year?

[removed]A. $290,000

[removed]B. $306,000

[removed]C. $294,000

[removed]D. $300,000

15. Based on recent financial statement data for Harmony Health Foods, Inc. (HHF), shown below, HHF's debt-to-equity ratio is (rounded)

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[removed]A. 0.53.

[removed]B. 0.75.

[removed]C. 1.13.

16. Pat's Custom Tuxedo Shop maintains its records on the cash basis. During this past year Pat's collected $42,000 in tailoring fees, and paid $14,000 in expenses. Depreciation expense totaled $2,000. Accounts receivable increased $1,500, supplies increased $4,000, and accrued liabilities increased $2,500. Pat's accrual basis net income would be

[removed]A. $29,000.

[removed]B. $23,000.

[removed]C. $18,000.

[removed]D. $34,000.

17. SFAC No.5 focuses on

[removed]A. objectives of financial reporting.

[removed]B. qualitative characteristics of accounting information.

[removed]C. elements of financial statements.

[removed]D. recognition and measurement concepts in accounting.

18. Which of the following was the first private sector entity that set accounting standards in the United States?

[removed]A. AICPA

[removed]B. Committee on Accounting Procedure

[removed]C. Accounting Principles Board

[removed]D. Financial Accounting Standards Board

19. Dave's Duds reported cost of goods sold of $2,000,000 this year. The inventory account increased by $200,000 during the year to an ending balance of $400,000. What was the cost of merchandise that Dave purchased during the year?

[removed]A. $1,800,000

[removed]B. $1,600,000

[removed]C. $2,400,000

[removed]D. $2,200,000

20. Ace Bonding Company purchased merchandise inventory on account. The inventory costs $2,000 and is expected to sell for $3,000. Indicate how Ace should record the purchase by selecting one of the options listed below.

a.

Inventory

2,000

 Accounts payable

2,000

b.

Cost of goods sold

2,000

Deferred revenue

1,000

 Sales in advance

3,000

c.

Cost of goods sold

2,000

 Inventory payable

2,000

d.

Cost of goods sold

2,000

Profit

1,000

 Sales payable

3,000

[removed]A. Option b

[removed]B. Option a

[removed]C. Option d

[removed]D. Option c

21. Listed below are account balances (in $millions) taken from the records of Symphony Stores. All of these are permanent accounts, except the last two that have yet to be closed. The installment receivables are current. Symphony uses a perpetual inventory system.

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What would Symphony report as total assets?

[removed]A. $2,338

[removed]B. $2,318

[removed]C. $2,303

[removed]D. $2,323

22. The full disclosure principle requires a balance between

[removed]A. relevance and cost effectiveness.

[removed]B. timeliness and predictive value.

[removed]C. comparability and consistency.

[removed]D. reliability and neutrality.

23. Based on recent financial statement data for Harmony Health Foods, Inc. (HHF), shown below, HHF's times interest earned ratio is (rounded):

https://my.pennfoster.com/exams/images/061500NR_Q36-38.gif

[removed]A. 3.47

[removed]B. 2.47.

[removed]C. 1.73.

24. Listed below are account balances (in $millions) taken from the records of Symphony Stores. All of these are permanent accounts, except the last two that have yet to be closed. The installment receivables are current. Symphony uses a perpetual inventory system.

https://my.pennfoster.com/exams/images/061500NR_Q16-19.gif

What would Symphony report as total current assets?

[removed]A. $843

[removed]B. $838

[removed]C. $1,696

[removed]D. $823

25. In its first year of operations Acme Corp. had income before tax of $400,000. Acme made income tax payments totaling $150,000 during the year and has an income tax rate of 40%. What would be the balance in income tax payable at the end of the year?

[removed]A. $10,000 debit.

[removed]B. $150,000 credit.

[removed]C. $160,000 credit.

[removed]D. $10,000 credit

ACCOUNTING INFORMATION SYSTEMS 2
1. Cendant Corporation's results for the year ended December 31, 2011, include the following material items:

Sales revenue

$6,200,000

Cost of goods sold

3,800,000

Selling and administrative expenses

1,300,000

Loss on sale of investments

200,000

Loss on discontinued operations

500,000

Loss on expropriation (unusual and infrequent event)

800,000

Restructuring costs

80,000

Overstatement of amortization expense in 2010
 caused by mathematical error

60,000

Cendant Corporation's income from continuing operations before income taxes for 2011 is

[removed]A. $900,000.

[removed]B. $880,000.

[removed]C. $820,000.

[removed]D. $320,000.

2. Reliable Enterprises sells distressed merchandise on extended credit terms. Collections on these sales aren't reasonably assured and bad debt losses can't be reasonably predicted. It's unlikely that repossessed merchandise will be in salable condition. Therefore, Reliable uses the cost recovery method. Merchandise costing $30,000 was sold for $55,000 in 2010. Collections on this sale were $20,000 in 2010, $15,000 in 2011, and $20,000 in 2012.

In its 2010 year-end balance sheet, Reliable would report installment receivables (net) of

[removed]A. $20,000.

[removed]B. 25,909.

[removed]C. $35,000.

[removed]D. $10,000.

3. On October 28, 2011, Mercedes Company committed to a plan to sell a division that qualified as a component of the entity according to GAAP regarding discontinued operations and was properly classified as held for sale on December 31, 2011, the end of the company's fiscal year. The division's loss from operations for 2011 was $2,000,000.
The division's book value and fair value less cost to sell on December 31 were $3,000,000 and $3,500,000, respectively. What before-tax amount(s) should Mercedes report as loss on discontinued operations in its 2011income statement?

[removed]A. $500,000 gain included in continuing operations and a $2,000,000 loss from discontinued operations

[removed]B. $2,000,000 loss

[removed]C. None

[removed]D. $2,500,000 loss

4. Lake Power Sports sells jet skis and other powered recreational equipment. Customers pay 1/3 of the sales price of a jet ski when they initially purchase the ski, and then pay another 1/3 each year for the next two years. Because Lake has little information about collectibility of these receivables, they use the installment method for revenue recognition. In 2010 Lake began operations and sold jet skis with a total price of $900,000 that cost Lake $450,000. Lake collected $300,000 in 2010, $300,000 in 2011, and $300,000 in 2012 associated with those sales. In 2011 Lake sold jet skis with a total price of $1,500,000 that cost Lake $900,000. Lake collected $500,000 in 2011, $400,000 in 2012, and $400,000 in 2013 associated with those sales. In 2013 Lake also repossessed $200,000 of jet skis that were sold in 2011. Those jet skis had a fair value of $75,000 at the time they were repossessed.
In 2013, Lake would record a loss on repossession of

[removed]A. $120,000.

[removed]B. $80,000.

[removed]C. $200,000.

[removed]D. $45,000.

5. Chancellor Ltd. sells an asset with a $1 million fair value to Sophie Inc. Sophie agrees to make 6 equal payments, one year apart, commencing on the date of sale. The payments include principal and 6% annual interest. Compute the annual payments.

[removed]A. $191,852

[removed]B. $166,651

[removed]C. $203,351

[removed]D. $135,252

6. Elmore Co. purchased an offset press on January 1, 2008, at a cost of $120,000. The press had an estimated eight-year life with no residual value. Elmore uses straight-line depreciation. At January 1, 2011, Elmore estimated that the press would have only three more years of remaining life with no residual value. For 2011, Elmore would report depreciation of

[removed]A. $25,000.

[removed]B. $20,000.

[removed]C. $30,000.

[removed]D. $15,000.

7. First Financial Auto Loan Department wishes to know the payment required at the first of each month on a $10,500, 48-month, 11% auto loan. To determine this amount, First Financial would

[removed]A. Multiply $10,500 by the present value of an ordinary annuity of 1.

[removed]B. Divide $10,500 by the present value of an annuity due of 1.

[removed]C. Multiply $10,500 by the present value of 1.

[removed]D. Divide $10,500 by the future value of an ordinary annuity of 1.

8. Present and future value tables of $1 at 3% are presented below:

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Shane wants to invest money in a 6% CD account that compounds semiannually. Shane would like the account to have a balance of $100,000 four years from now. How much must Shane deposit to accomplish his goal?

[removed]A. $22,510

[removed]B. $25,336

[removed]C. $88,849

[removed]D. $78,941

9. Lake Power Sports sells jet skis and other powered recreational equipment. Customers pay 1/3 of the sales price of a jet ski when they initially purchase the ski, and then pay another 1/3 each year for the next two years. Because Lake has little information about collectibility of these receivables, they use the installment method for revenue recognition. In 2010 Lake began operations and sold jet skis with a total price of $900,000 that cost Lake $450,000. Lake collected $300,000 in 2010, $300,000 in 2011, and $300,000 in 2012 associated with those sales. In 2011 Lake sold jet skis with a total price of $1,500,000 that cost Lake $900,000. Lake collected $500,000 in 2011, $400,000 in 2012, and $400,000 in 2013 associated with those sales. In 2013 Lake also repossessed $200,000 of jet skis that were sold in 2011. Those jet skis had a fair value of $75,000 at the time they were repossessed.
In 2010, Lake would recognize realized gross profit of

[removed]A. $0.

[removed]B. $150,000.

[removed]C. $300,000.

[removed]D. $450,000.

10. Freda's Florist reported the following before-tax income statement items for the year ended December 31, 2011:

Operating income

$250,000

Extraordinary gain

$70,000

All income statement items are subject to a 40% income tax rate. In its 2011 income statement, Freda's separately stated income tax expense and total income tax expense would be

[removed]A. $100,000 and $128,000, respectively.

[removed]B. $128,000 and $100,000, respectively.

[removed]C. $128,000 and $128,000, respectively.

[removed]D. $100,000 and $100,000, respectively.

11. Lake Power Sports sells jet skis and other powered recreational equipment. Customers pay 1/3 of the sales price of a jet ski when they initially purchase the ski, and then pay another 1/3 each year for the next two years. Because Lake has little information about collectibility of these receivables, they use the installment method for revenue recognition. In 2010 Lake began operations and sold jet skis with a total price of $900,000 that cost Lake $450,000. Lake collected $300,000 in 2010, $300,000 in 2011, and $300,000 in 2012 associated with those sales. In 2011 Lake sold jet skis with a total price of $1,500,000 that cost Lake $900,000. Lake collected $500,000 in 2011, $400,000 in 2012, and $400,000 in 2013 associated with those sales. In 2013 Lake also repossessed $200,000 of jet skis that were sold in 2011. Those jet skis had a fair value of $75,000 at the time they were repossessed.
In its December 31, 2011, balance sheet, Lake would report

[removed]A. installment receivables (net) of $900,000.

[removed]B. deferred gross profit of $700,000.

[removed]C. deferred gross profit of $1,050,000.

[removed]D. installment receivables (net) of $750,000.

12. Quaker State Inc. offers a new employee a lump sum signing bonus at the date of employment. Alternatively, the employee can take $8,000 at the date of employment plus $20,000 at the end of each of his first three years of service. Assuming the employee's time value of money is 10% annually, what lump sum at employment date would make him indifferent between the two options?

[removed]A. $57,737

[removed]B. $23,026

[removed]C. $8,000

[removed]D. $62,711

13. On May 1, Foxtrot Co. agreed to sell the assets of its Footwear Division to Albanese Inc. for $80 million. The sale was completed on December 31, 2011.
The following additional facts pertain to the transaction:
* The Footwear Division qualifies as a component of the entity according to GAAP regarding discontinued operations.
* The book value of Footwear's assets totaled $48 million on the date of the sale.
* Footwear's operating income was a pretax loss of $10 million in 2011.
* Foxtrot's income tax rate is 40%.
Suppose that the Footwear Division's assets had not been sold by December 31, 2011, but were considered held for sale. Assume that the fair value of these assets at December 31 was $80 million. In the 2011 income statement for Foxtrot Co., under discontinued operations it would report a

[removed]A. 16% gain.

[removed]B. $6 million loss

[removed]C. $10 million loss

[removed]D. $13.2 million income

14. Indiana Co. began a construction project in 2011 that will provide it $150 million when it is completed in 2013. During 2011, Indiana incurred $36 million of costs and estimates an additional $84 million of costs to complete the project.
Using the percentage-of-completion method, Indiana recognized _______ on the project in 2011.

[removed]A. $36 million loss

[removed]B. $6 million loss

[removed]C. $9 gross profit

[removed]D. no gross profit or loss

15. Lucia Ltd. reported net income of $135,000 for the year ended December 31, 2011. January 1 balances in accounts receivable and accounts payable were $29,000 and $26,000 respectively. Year-end balances in these accounts were $30,000 and $24,000, respectively. Assuming that all relevant information has been presented, Lucia's cash flows from operating activities would be

[removed]A. $136,000.

[removed]B. $134,000.

[removed]C. $132,000.

[removed]D. $138,000

16. Fenland Co. plans to retire $100 million in bonds in five years, so it wishes to create a fund by making equal investments at the beginning of each year during that period in an account it expects to earn 8% annually. What amount does Fenland need to invest each year?

[removed]A. $17,045,650

[removed]B. 15,783,077

[removed]C. $23,190,400

[removed]D. The amount can't be determined from the given information.

17. Shady Lane's income tax payable account decreased from $14 million to $12 million during 2011. If its income tax expense was $80 million, what would be shown as an operating cash flow under the direct method?

[removed]A. A cash outflow of $80 million

[removed]B. A cash outflow of $82 million

[removed]C. A cash outflow of $12 million

[removed]D. A cash outflow of $78 million

18. Misty Company reported the following before-tax items during the current year:

Sales

$600

Operating expenses

250

Restructuring charges

20

Extraordinary loss

50

Misty's effective tax rate is 40%.
What would be Misty's net income for the current year?

[removed]A. $112

[removed]B. $148

[removed]C. $168

[removed]D. $198

19. Reliable Enterprises sells distressed merchandise on extended credit terms. Collections on these sales aren't reasonably assured and bad debt losses can't be reasonably predicted. It's unlikely that repossessed merchandise will be in salable condition. Therefore, Reliable uses the cost recovery method. Merchandise costing $30,000 was sold for $55,000 in 2010. Collections on this sale were $20,000 in 2010, $15,000 in 2011, and $20,000 in 2012.

In 2010, Reliable would recognize gross profit of

[removed]A. $8,090.

[removed]B. $25,000.

[removed]C. $0.

[removed]D. $8,333.

20. On October 28, 2011, Mercedes Company committed to a plan to sell a division that qualified as a component of the entity according to GAAP regarding discontinued operations and was properly classified as held for sale on December 31, 2011, the end of the company's fiscal year. The division's loss from operations for 2011 was $2,000,000.
The division's book value and fair value less cost to sell on December 31 were $3,000,000 and $2,500,000, respectively. What before-tax amount(s) should Mercedes report as loss on discontinued operations in its 2011 income statement?

[removed]A. None

[removed]B. $2,500,000 loss

[removed]C. $500,000 impairment loss included in continuing operations and a $2,000,000 loss from discontinued operations

[removed]D. $2,000,000 loss

21. Indiana Co. began a construction project in 2011 that will provide it $150 million when it is completed in 2013. During 2011, Indiana incurred $36 million of costs and estimates an additional $84 million of costs to complete the project.
In 2012, Indiana incurred costs of $58.5 million and estimated an additional $40.5 million in costs to complete the project. Using the percentage-of-completion method, Indiana recognized _______ on the project in 2012.

[removed]A. $1.5 million gross profit

[removed]B. $6 million gross profit

[removed]C. $15 million gross profit

[removed]D. $13.5 million gross profit

22. On May 1, Foxtrot Co. agreed to sell the assets of its Footwear Division to Albanese Inc. for $80 million. The sale was completed on December 31, 2011.
The following additional facts pertain to the transaction:
* The Footwear Division qualifies as a component of the entity according to GAAP regarding discontinued operations.
* The book value of Footwear's assets totaled $48 million on the date of the sale.
* Footwear's operating income was a pretax loss of $10 million in 2011.
* Foxtrot's income tax rate is 40%.
Suppose that the Footwear Division's assets had not been sold by December 31, 2011, but were considered held for sale. Assume that the fair value of these assets at December 31 was $40 million. In the 2011 income statement for Foxtrot Co., it would report a loss from discontinued operations of

[removed]A. $3 million loss

[removed]B. $18 million loss

[removed]C. $10.8 million loss

[removed]D. $10 million loss

23. Misty Company reported the following before-tax items during the current year:

Sales

$600

Operating expenses

250

Restructuring charges

20

Extraordinary loss

50

Misty's effective tax rate is 40%.

What would be Misty's income before extraordinary item(s)?

[removed]A. $198

[removed]B. $210

[removed]C. $360

[removed]D. $330

24. Kunkle Company wishes to earn 20% annually on its investments. If it makes an investment that equals or exceeds that rate, it considers it a success. Assume that it invests $2 million and gets $500,000 in return at the end of each year for x years. What is the minimum value of x for which it will consider the investment a success? Assume that it can't invest for fractional parts of a year.

[removed]A. 7 years

[removed]B. 6 years

[removed]C. 9 years

[removed]D. 4 years

25. Hong Kong Clothiers reported revenue of $5,000,000 for its year ended December 31, 2011. Accounts receivable at December 31, 2010 and 2011, were $320,000 and $355,000, respectively. Using the direct method for reporting cash flows from operating activities, Hong Kong Clothiers would report cash collected from customers of

[removed]A. $4,965,000.

[removed]B. $5,035,000.

[removed]C. $5,045,000.

[removed]D. $5,000,000.

ECONOMIC RESOURCES 1

1. Alliance Software began 2011 with accounts receivable of $115,000. All sales are made on credit. Sales and cash collections from customers for the year were $780,000 and $700,000, respectively. Cost of goods sold for the year was $450,000. What was Alliance's receivables turnover ratio (rounded) for 2011?

[removed]A. 6.78

[removed]B. 2.90

[removed]C. 5.03

[removed]D. 4.00

2. Chez Fred Bakery estimates the allowance for uncollectible accounts at 3% of the ending balance of accounts receivable. During 2011, Chez Fred's credit sales and collections were $125,000 and $131,000, respectively. What was the balance of accounts receivable on January 1, 2011, if $180 in accounts receivable were written off during 2011 and if the allowance account had a balance of $750 on 12/31/11?

[removed]A. $31,000

[removed]B. $5,820

[removed]C. $31,180

[removed]D. 138,000

3. Data below for the year ended December 31, 2011, relates to Houdini Inc. Houdini started business January 1, 2011, and uses the LIFO retail method to estimate ending inventory.

Cost

Retail

Beginning inventory

 $66,000

 $104,000

Net purchases

280,000

420,000

Net markups

20,000

Net markdowns

40,000

Net sales

375,000

Current period cost-to-retail percentage is

[removed]A. 63.6%.

[removed]B. 63.5%.

[removed]C. 68.7%.

[removed]D. 70.0%.

4. Sullivan Corporation has determined its year-end inventory on a FIFO basis to be $500,000. Information pertaining to that inventory is as follows:

Selling price

 $520,000

Disposal costs

30,000

Normal profit margin

60,000

Replacement cost

440,000

What should be the carrying value of Sullivan's inventory?

[removed]A. $490,000

[removed]B. $440,000

[removed]C. $430,000

[removed]D. $500,000

5. Ramen, Inc., adopted dollar-value LIFO (DVL) as of January 1, 2011, when it had a cost inventory of $600,000. Its inventory as of December 31, 2011, was $667,800 at year-end costs and the cost index was 1.06. What was DVL inventory on December 31, 2011?

[removed]A. $667,800

[removed]B. $631,800

[removed]C. $636,000

[removed]D. $630,000

6. Cashmere Soap Corporation had the following items listed in its trial balance at 12/31/11:

Currency and coins

 $ 650

Balance in checking account

2,600

Customer checks waiting to be deposited

1,200

Treasury bills, purchased on 11/1/11,
 mature on 4/30/12

3,000

Marketable equity securities

10,200

Commercial paper, purchased on 11/1/11,
 mature on 1/30/12

5,000

What amount will Cashmere Soap include in its year-end balance sheet as cash and cash equivalents?

[removed]A. $9,450

[removed]B. $12,450

[removed]C. $19,650

[removed]D. $7,450

7. On July 8, a fire destroyed the entire merchandise inventory on hand of Larrenaga Wholesale Corporation. The following information is available:

Sales, January 1 through July 8

 $700,000

Inventory, January 1

130,000

Purchases, January 1 through July 8

640,000

Gross profit ratio

30%

What is the estimated inventory on July 8 immediately prior to the fire?

[removed]A. $192,000

[removed]B. $280,000

[removed]C. $490,000

[removed]D. $510,000

8. Baker Inc. acquired equipment from the manufacturer on 10/1/11 and gave a noninterest-bearing note in exchange. Baker is obligated to pay $918,000 on 4/1/12 to satisfy the obligation in full. If Baker accrued interest of $9,000 on the note in its 2011 year-end financial statements, what is its imputed annual interest rate?

[removed]A. 4%

[removed]B. 5%

[removed]C. 6%

[removed]D. 2%

9. False Value Hardware began 2011 with a credit balance of $32,000 in the allowance for sales returns account. Sales and cash collections from customers during the year were $650,000 and $610,000, respectively. False Value estimates that 6% of all sales will be returned. During 2011, customers returned merchandise for credit of $28,000 to their accounts.

What is the balance in the allowance for sales returns account at the end of 2011?

[removed]A. $39,000

[removed]B. $21,000

[removed]C. $43,000

[removed]D. $11,000

10. Prunedale Co. uses a periodic inventory system. Beginning inventory on January 1 was overstated by $32,000, and its ending inventory on December 31 was understated by $62,000. These errors were not discovered until the next year. As a result, Prunedale's cost of goods sold for this year was

[removed]A. Understated by $30,000.

[removed]B. Overstated by $94,000.

[removed]C. Overstated by $30,000.

[removed]D. Understated by $94,000.

11. Data related to the inventories of Costco Medical Supply is presented below:

Surgical
Equipment

Surgical
Supplies

Rehab
Equipment

Rehab
Supplies

Selling price

$260

$120

$340

$165

Cost

170

90

250

162

Replacement cost

240

80

235

158

Disposal cost

30

5

25

10

Normal gross profit ratio

30%

30%

30%

20%

In applying the LCM rule, the inventory of surgical supplies would be valued at

[removed]A. $115.

[removed]B. $69.

[removed]C. $90.

[removed]D. $80.

12. Oswego Clay Pipe Company sold $46,000 of pipe to Southeast Water District #45 on April 12 of the current year with terms 1/15, n/60. Oswego uses the gross method of accounting for cash discounts.

What entry would Oswego make on June 10, assuming the customer made the correct payment on that date?

a.

Cash

46,000

 Accounts receivable

45,540

 Discounts receivable

460

b.

Cash

46,000

 Accounts receivable

45,540

 Interest revenue

460

c.

Cash

46,000

 Accounts receivable

46,000

d.

Cash

46,460

 Accounts receivable

46,000

 Interest revenue

460

[removed]A. Option b

[removed]B. Option a

[removed]C. Option d

[removed]D. Option c

13. Nu Company reported the following pretax data for its first year of operations.

Net sales

2,800

 Cost of goods available for sale

 2,500

 Operating expenses

880

 Effective tax rate

40%

 Ending inventories:

  If LIFO is elected

820

  If FIFO is elected

1,060

What is Nu's net income if it elects LIFO?

[removed]A. $144

[removed]B. $240

[removed]C. $288

[removed]D. $480

14. GG, Inc., uses LIFO. GG disclosed that if FIFO had been used, inventory at the end of 2011 would have been $15 million higher than the difference between LIFO and FIFO at the end of 2010. Assuming GG has a 40% income tax rate, its reported

[removed]A. cost of goods sold for 2011 would have been $15 million higher if it had used FIFO rather than LIFO for its financial statements.

[removed]B. cost of goods sold for 2011 would have been $9 million higher if it had used FIFO rather than LIFO for its financial statements.

[removed]C. net income for 2011 would have been $15 million higher if it had used FIFO rather than LIFO for its financial statements.

[removed]D. net income for 2011 would have been $9 million higher if it had used FIFO rather than LIFO for its financial statements.

15. At December 31, 2010, Gill Co reported accounts receivable of $216,000 and an allowance for uncollectible accounts of $8,400. During 2011, accounts receivable increased by $22,000, and $7,800 of bad debts were written off. An analysis of Gill Co.'s December 31, 2011, accounts receivable suggests that the allowance for uncollectible accounts should be 3% of accounts receivable. Bad debt expense for 2011 would be

[removed]A. $600.

[removed]B. $7,800.

[removed]C. $7,140.

[removed]D. $6,540.

16. Data below for the year ended December 31, 2011, relates to Houdini Inc. Houdini started business January 1, 2011, and uses the LIFO retail method to estimate ending inventory.

Cost

Retail

Beginning inventory

 $66,000

 $104,000

Net purchases

280,000

420,000

Net markups

20,000

Net markdowns

40,000

Net sales

375,000

Estimated ending inventory at retail is

[removed]A. $25,000.

[removed]B. $65,000.

[removed]C. $129,000.

[removed]D. $169,600.

17. Cinnamon Buns Co. (CBC) started 2011 with $52,000 of merchandise on hand. During 2011, $280,000 in merchandise was purchased on account with credit terms of 2/10 n/30. All discounts were taken. Purchases were all made f.o.b. shipping point. CBC paid freight charges of $9,000. Merchandise with an invoice amount of $4,000 was returned for credit. Cost of goods sold for the year was $316,000. CBC uses a perpetual inventory system.

Assuming CBC uses the gross method to record purchases, ending inventory would be

[removed]A. $6,480.

[removed]B. $15,400.

[removed]C. $21,000.

[removed]D. $15,480.

18. The following information pertains to Jacobsen Co.'s accounts receivable at December 31, 2011:

Days
Outstanding

Amount

Estimated %

Uncollectible

0-30

$420,000

2%

31-60

140,000

5%

61-120

100,000

10%

Over 120

120,000

20%

During 2011, Jacobsen wrote off $18,000 in receivables and recovered $6,000 that had been written off in prior years. Jacobsen's December 31, 2010, allowance for uncollectible accounts was $40,000. Under the aging method, what amount of allowance for uncollectible accounts should Jacobsen report at December 31, 2011?

[removed]A. $31,400

[removed]B. $55,400

[removed]C. $49,400

[removed]D. $28,000

19. Sullivan Corporation has determined its year-end inventory on a FIFO basis to be $500,000. Information pertaining to that inventory is as follows:

Selling price

 $520,000

Disposal costs

30,000

Normal profit margin

60,000

Replacement cost

440,000

What should be the carrying value of Sullivan's inventory if the company prepares its financial statements according to International Financial Reporting Standards?

[removed]A. $500,000

[removed]B. $490,000

[removed]C. $430,000

[removed]D. $440,000

20. Cinnamon Buns Co. (CBC) started 2011 with $52,000 of merchandise on hand. During 2011, $280,000 in merchandise was purchased on account with credit terms of 2/10 n/30. All discounts were taken. Purchases were all made f.o.b. shipping point. CBC paid freight charges of $9,000. Merchandise with an invoice amount of $4,000 was returned for credit. Cost of goods sold for the year was $316,000. CBC uses a perpetual inventory system.

What is cost of goods available for sale, assuming CBC uses the gross method?

[removed]A. $312,480

[removed]B. $326,000

[removed]C. $337,000

[removed]D. $331,480

21. Northwest Fur Co. started 2011 with $94,000 of merchandise inventory on hand. During 2011, $400,000 in merchandise was purchased on account with credit terms of 1/15, n/45. All discounts were taken. Purchases were all made f.o.b. shipping point. Northwest paid freight charges of $7,500. Merchandise with an invoice amount of $5,000 was returned for credit. Cost of goods sold for the year was $380,000. Northwest uses a perpetual inventory system.

What is ending inventory assuming Northwest uses the gross method to record purchases?

[removed]A. $112,550

[removed]B. $116,500

[removed]C. $112,490

[removed]D. $120,300

22. Nu Company reported the following pretax data for its first year of operations.

Net sales

2,800

 Cost of goods available for sale

 2,500

 Operating expenses

880

 Effective tax rate

40%

 Ending inventories:

  If LIFO is elected

820

  If FIFO is elected

1,060

What is Nu's net income if it elects FIFO?

[removed]A. $144

[removed]B. $480

[removed]C. $1,360

[removed]D. $288

23. Clarabell, Inc., uses the conventional retail method to estimate ending inventory. Cost data for the most recent quarter is shown below:

Cost

Retail

Beginning inventory

 $112,000

 $191,000

Net purchases

402,000

703,000

Net markups

43,000

Net markdowns

21,000

Net sales

685,000

To the nearest thousand, estimated ending inventory using the conventional retail method is

[removed]A. $127,000.

[removed]B. $136,000.

[removed]C. $124,000.

[removed]D. $163,000.

24. Nueva Company reported the following pretax data for its first year of operations.

Net sales

 7,340

 Cost of goods available for sale

5,790

 Operating expenses

1,728

 Effective tax rate

40%

 Ending inventories:

  If LIFO is elected

618

  If FIFO is elected

798

What is Nueva's net income if it elects LIFO?

[removed]A. $620

[removed]B. $440

[removed]C. $264

[removed]D. $372

25. Bond Company adopted the dollar-value LIFO inventory method on January 1, 2011. In applying the LIFO method, Bond uses internal cost indexes and the multiple-pools approach. The following data were available for Inventory Pool No. 3 for the two years following the adoption of LIFO:

https://my.pennfoster.com/exams/images/061502NR_Q18.gif

Under the dollar-value LIFO method the inventory at December 31, 2012, should be

[removed]A. $351,600.

[removed]B. $600,120.

[removed]C. $350,000.

[removed]D. $357,600.

ECONOMIC RESOURCES 2
1. Gulf Consulting Co. reported the following on its December 31, 2011, balance sheet:

Equipment (at cost) . . .$700,000

In a disclosure note, Gulf indicates that it uses straight-line depreciation over five years and estimates salvage value as 10% of cost. Gulf’s equipment averages 3.5 years at December 31, 2011.

What is the book value of Gulf’s equipment at December 31, 2011?

[removed]A. $259,000

[removed]B. $490,000

[removed]C. $441,000

[removed]D. $210,000

2. Broadway Ltd. purchased equipment on 1/1/09 for $800,000, estimating a five-year useful life and no residual value. In 2009 and 2010, Broadway depreciated the asset using the straight-line method. In 2011, Broadway changed to sum-of-years'-digits depreciation for this equipment. What depreciation would Broadway record for the year 2011 on this equipment?

[removed]A. $120,000.

[removed]B. $240,000.

[removed]C. $160,000.

[removed]D. $200,000.

3. Axcel Software began a new development project in 2010. The project reached technological feasibility on June 30, 2011 and was available for release to customers at the beginning of 2012. Development costs incurred prior to June 30, 2011 were $3,200,000 and costs incurred from June 30 to the product release date were $1,400,000. 2012 revenues from the sale of the new software were $4,000,000 and the company anticipates additional revenues of $6,000,000. The economic life of the software is estimated at four years. 2012 amortization of the software development costs would be

[removed]A. $350,000.

[removed]B. $0.

[removed]C. $1,840,000.

[removed]D. $560,000.

4. Below are data relative to an exchange of similar assets by Grand Forks Corp. Assume the exchange has commercial substance.

https://my.pennfoster.com/exams/images/061503NR_Q5-6.gif

In Case B, Grand Forks would record a gain/(loss) of

[removed]A. $3,000.

[removed]B. $(5,000).

[removed]C. $(3,000).

[removed]D. $5,000.

5. Below are listed data relative to an exchange of equipment by Pensacola Inc. Assume the exchange has commercial substance.

https://my.pennfoster.com/exams/images/061503NR_Q27-28.gif

In Case B, Pensacola would record a gain/(loss) of:

[removed]A. $(10,000).

[removed]B. $(4,000).

[removed]C. $0.

[removed]D. $4,000.

6. Below are listed data relative to an exchange of equipment by Pensacola Inc. Assume the exchange has commercial substance.

https://my.pennfoster.com/exams/images/061503NR_Q27-28.gif

In Case A, Pensacola would record the new equipment at:

[removed]A. $68,000.

[removed]B. $80,000.

[removed]C. $67,250.

[removed]D. $63,750.

7. Robertson Inc. prepares its financial statements according to International Financial Reporting Standards. At the end of its 2011 fiscal year, the company chooses to revalue its equipment. The equipment cost $540,000, had accumulated depreciation of $240,000 at the end of the year after recording annual depreciation, and had a fair value of $330,000. After the revaluation, the accumulated depreciation account will have a balance of

[removed]A. $270,000.

[removed]B. $264,000.

[removed]C. $330,000.

[removed]D. $240,000.

8. Rice Industries owns a manufacturing plant in a foreign country. Political unrest in the country indicates that Rice should investigate for possible impairment. Below are data related to the plant's assets ($ in millions):

Book value

$190

Undiscounted sum of future estimated cash flows

210

Present value of future cash flows

175

Fair value less cost to sell (determined by appraisal)

180

The amount of impairment loss that Rice should recognize according to U.S. GAAP and IFRS, respectively, is

https://my.pennfoster.com/exams/images/061503NR_Q39B.gif

[removed]A. Option b

[removed]B. Option c

[removed]C. Option d

[removed]D. Option a

9. An asset acquired January 1, 2011, for $15,000 with an estimated 10-year life and no residual value is being depreciated in an equipment group asset account that has an average service life of eight years. The asset is sold on December 31, 2012, for $6,000. The entry to record the sale would be

a. Cash           6,000

  Loss on sale of equipment   9,000

  Equipment

15,000

b. Cash           6,000

  Equipment

6,000

c. Cash           6,000

  Accumulated depreciation   3,750

  Loss on sale of equipment   5,250

  Equipment

15,000

d. Cash           6,000

  Accumulated depreciation   9,000

  Equipment

15,000

[removed]A. Option c

[removed]B. Option a

[removed]C. Option d

[removed]D. Option b

10. Murgatroyd Co. purchased equipment on 1/1/09 for $500,000, estimating a four-year useful life and no residual value. In 2009 and 2010, Murgatroyd depreciated the asset using the sum-of-years'-digits method. In 2011, Murgatroyd changed to straight-line depreciation for this equipment. What depreciation would Murgatroyd record for the year 2011 on this equipment?

[removed]A. $125,000

[removed]B. $350,000

[removed]C. $150,000

[removed]D. $75,000

11. Jennings Advertising, Inc., reported the following in its December 31, 2011, balance sheet:

Equipment

$500,000

Less: Accumulated depreciation—equipment

$135,000

In a disclosure note, Jennings indicates that it uses straight-line depreciation over 10 years and estimates salvage value at 10% of cost. What is the average age of the equipment owned by Jennings?

[removed]A. 7.3 years

[removed]B. 2.7 years

[removed]C. 3 years

[removed]D. 7 years

12. Cantor Corporation acquired a manufacturing facility on four acres of land for a lump-sum price of $8,000,000. The building included used but functional equipment. According to independent appraisals, the fair values were $4,500,000, $3,000,000, and $2,500,000 for the building, land, and equipment, respectively. The initial values of the building, land, and equipment would be

Building

Land

Equipment

a.

$4,500,000

$3,000,000

$2,500,000

b.

$4,500,000

$3,000,000

$500,000

c.

$3,600,000

$2,400,000

$2,000,000

d.

None of the above.

[removed]A. Option c

[removed]B. Option a

[removed]C. Option d

[removed]D. Option b

13. Nanki Corporation purchased equipment on 1/1/09 for $650,000. In 2009 and 2010, Nanki depreciated the asset on a straight-line basis with an estimated useful life of 8 years and a $10,000 residual value. In 2011, due to changes in technology, Nanki revised the useful life to a total of six years with no residual value. What depreciation would Nanki record for the year 2011 on this equipment?

[removed]A. $650,000.

[removed]B. $122,500.

[removed]C. $108,333.

[removed]D. $106,667.

14. P. Chang & Co. exchanged land and $9,000 cash for equipment. The book value and the fair value of the land were $106,000 and $90,000, respectively.

Chang would record equipment at and record a gain/(loss) of

  

Equipment

  Gain/Loss

a.  

$99,000

$(16,000)

b.  

$99,000

$(25,000)

c.  

$108,000

$16,000

d.  

$106,000

$(9,000)

[removed]A. Option b

[removed]B. Option c

[removed]C. Option d

[removed]D. Option a

15. On March 31, 2011, M. Belotti purchased the right to remove gravel from an old rock quarry. The gravel is to be sold as roadbed for highway construction. The cost of the quarry rights was $164,000, with estimated salable rock of 20,000 tons. During 2011, Belotti loaded and sold 4,000 tons of rock and estimated that 16,000 tons remained at December 31, 2011. At January 1, 2012, Belotti estimated that 20,000 tons still remained. During 2012, Belotti loaded and sold 8,000 tons.
Belotti would record depletion in 2012 of

[removed]A. $52,480.

[removed]B. $54,667.

[removed]C. $65,600.

[removed]D. $55,760.

18. Vijay, Inc., purchased a 3-acre tract of land for a building site for $320,000. On the land was a building with an appraised value of $120,000. The company demolished the old building at a cost of $12,000, but was able to sell scrap from the building for $1,500. The cost of title insurance was $900 and attorney fees for reviewing the contract was $500. Property taxes paid were $3,000, of which $250 covered the period subsequent to the purchase date. The capitalized cost of the land is

[removed]A. $201,150.

[removed]B. $336,150.

[removed]C. $334,650.

[removed]D. $336,400

16. Kingston Corporation has $95 million of goodwill on its books from the 2009 acquisition of Reliant Motors. At the end of its 2011 fiscal year, management has provided the following information for its annual goodwill impairment test ($ in millions):

Fair value of Reliant (approximates fair value less costs to sell)

$655

Fair value of Reliant's net assets (excluding goodwill)

600

Book value of Reliant's net assets (including goodwill)

700

Present value of estimated future cash flows

670

Assuming that Reliant is considered a reporting unit for U.S. GAAP and a cash-generating unit for IFRS, the amount of goodwill impairment loss that Kingston should recognize according to U.S. GAAP and IFRS, respectively, is

https://my.pennfoster.com/exams/images/061503NR_Q40B.gif

[removed]A. Option d

[removed]B. Option c

[removed]C. Option a

[removed]D. Option b

17. Bloomington Inc. exchanged land for equipment and $3,000 in cash. The book value and the fair value of the land were $104,000 and $90,000, respectively.

Bloomington would record equipment at and record a gain/(loss) of

  

Equipment

  Gain/Loss

a.

$87,000

$3,000

b.

$104,000

$(5,000)

c.

$87,000

$(14,000)

d.

None of the above.

[removed]A. Option c

[removed]B. Option d

[removed]C. Option b

[removed]D. Option a

19. Fellingham Corporation purchased equipment on January 1, 2009, for $200,000. The company estimated the equipment would have a useful life of 10 years with a $20,000 residual value. Fellingham uses the straight-line depreciation method. Early in 2011, Fellingham reassessed the equipment's condition and determined that its total useful life would be only six years in total and that it would have no salvage value. How much would Fellingham report as depreciation on this equipment for 2011?

[removed]A. $27,333

[removed]B. $36,000

[removed]C. $24,000

[removed]D. $41,000

20. On June 1, 2010, the Crocus Company began construction of a new manufacturing plant. The plant was completed on October 31, 2011. Expenditures on the project were as follows ($ in millions):

Cash Outflow

Probability

July 1, 2010

54

October 1, 2010

22

February 1, 2011

30

April 1, 2011

21

September 1, 2011

20

October 1, 2011

6

July 1, 2010, Crocus obtained a $70 million construction loan with a 6% interest rate. The loan was outstanding through the end of October, 2011. The company's only other interest-bearing debt was a long-term note for $100 million with an interest rate of 8%. This note was outstanding during all of 2010 and 2011. The company's fiscal year-end is December 31.

In computing the capitalized interest for 2011, Crocus' average accumulated expenditures are

[removed]A. $124.25 million.

[removed]B. $46.30 million.

[removed]C. $122.30 million.

[removed]D. $103.54 million.

21. On June 1, 2010, the Crocus Company began construction of a new manufacturing plant. The plant was completed on October 31, 2011. Expenditures on the project were as follows ($ in millions):

Cash Outflow

Probability

July 1, 2010

54

October 1, 2010

22

February 1, 2011

30

April 1, 2011

21

September 1, 2011

20

October 1, 2011

6

July 1, 2010, Crocus obtained a $70 million construction loan with a 6% interest rate. The loan was outstanding through the end of October, 2011. The company's only other interest-bearing debt was a long-term note for $100 million with an interest rate of 8%. This note was outstanding during all of 2010 and 2011. The company's fiscal year-end is December 31.

What is the amount of interest that Crocus should capitalize in 2011, using the specific interest method (rounded to the nearest thousand dollars)?

[removed]A. $7,248,000 (rounded)

[removed]B. None of these answers is correct.

[removed]C. $8,740,000 (rounded)

[removed]D. $7,283,000 (rounded)

22. Below are data relative to an exchange of similar assets by Grand Forks Corp. Assume the exchange has commercial substance.

https://my.pennfoster.com/exams/images/061503NR_Q5-6.gif

In Case A, Grand Forks would record the new equipment at

[removed]A. $60,000.

[removed]B. $50,000.

[removed]C. $65,000.

[removed]D. $75,000.

23. Fryer, Inc., owns equipment for which it paid $90 million. At the end of 2011, it had accumulated depreciation on the equipment of $27 million. Due to adverse economic conditions, Fryer's management determined that it should assess whether an impairment should be recognized for the equipment. The estimated undiscounted future cash flows to be provided by the equipment total $60 million, and the equipment's fair value at that point is $40 million. Under these circumstances, Fryer would record

[removed]A. an impairment loss on the equipment of less than $1,000.

[removed]B. a $3 million impairment loss on the equipment.

[removed]C. no impairment loss on the equipment.

[removed]D. a $23 million impairment loss on the equipment.

24. Horton Stores exchanged land and cash of $5,000 for similar land. The book value and the fair value of the land were $90,000 and $100,000, respectively.

Assuming that the exchange has commercial substance, Horton would record land-new at and record a gain/(loss) of

  

Land

Gain/Loss

a.  

$105,000

$  0

b.  

$105,000

$10,000

c.  

$95,000

$  0

d.  

$95,000

$10,000

[removed]A. Option d

[removed]B. Option b

[removed]C. Option c

[removed]D. Option a

25. Asset C3PO has a depreciable base of $16.5 million and a service life of 10 years. What would the accumulated depreciation be at the end of year five under the sum-of-the-years' digits method?

[removed]A. $4.5 million.

[removed]B. $12 million.

[removed]C. $8.25 million.

[removed]D. $16.5 million.