2102 Spring 08 Exam

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2102 Exam 2

Version A

Spring 2008/KEY

Select the best answer.

Do not erase on your scantron (these are marked wrong from trace pencil lead).Use a new scantron to change your answer. Mis-marked scantrons are NOT fixed.Present Value tables attached.

Name: _______________________________

Breakout section time (circle): 8 9 10 11

TA Name (circle one) : Ashley Emilee LeslieVaughnInstructor:

1. Kerry Corporation has a forklift that it paid $40,000 for a few years ago and the current bookvalue (carrying value) is $17,000. Kerry is going to sell the forklift for $22,000. In recording thistransaction, Kerry should record:

a.a gain of $5,000.b.a loss of $18,000.c.a loss of $23,000.d.a reduction of accumulated depreciation of $17,000e.a reduction of the asset account of $17,000

Book value of $17,000 vs. proceeds of $22,000 = $5,000 gain.

Blue: Q. 37

2. Tofu, Inc. had Net Income of $60,000 in 2006: Tofu had 4,000 shares of 3% $75 par valuepreferred stock outstanding during 2006. Tofu declared preferred dividends in 2006. Tofuhad 30,000 shares of common stock outstanding at the beginning of 2006 and had only onetransaction during 2006they reissued 3,000 shares held in treasury on Oct 1st 2006. Thebasic earnings per share for 2006 is:a. $ 1.77b. $ 1.87c. $ 1.95d. $ 1.66

60,000 [.03 x $75 x 4,000] / weighted average common shares

30,000 x 9/12 = 22,500

33,000 x 3/12 = 8,250

51,000 / 30,750 = 1.66 rounded

Blue: Q. 38

Is Version A on your SCANTRON ?1

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3. Brightmore Company purchased land and building for $240,000. The appraised values of theland and building are $80,000 and $240,000, respectively. Based on this information, thejournal entry to record the purchase would include a:

a.debit to LAND for $80,000.b.credit to BUILDING for $60,000.c.debit to LAND for $60,000.

d.credit to BUILDING for $180,000.

Land 80,000/320,000 = $60,000. Building 240,000/320,000 = $180,000. Both are

debits.

Blue: Q. 39

4. Edna Enterprises sold a crane with an original cost of $200,000, an estimated life of 10 yearsand no salvage. Edna used straight line depreciation. The sale transaction was at the end of theseventh year of the cranes use and Edna received $50,000 for the crane. In recording thistransaction, Edna should record:

a.a gain of $90,000.

b.a loss of $10,000.c.a loss of $60,000.d.a reduction in the asset account of $60,000.e. a credit to cash of $50,000.

200,000/10 = 20,000 per year x 7 years = $140,000 accumulated deprecation. Book value of$60,000 results in $10,000 loss.

Blue: Q. 40

Use the following information for the next 3 questions.

Equipment with an 8-year useful life is acquired for $125,000. The estimated salvage value is$5,000. The equipment is expected to produce 25,000 units over its useful life.

5. Using the double-declining balance method, depreciation expense forYear 3 is:a.$15,000.b.$16,875.c.$16,000.d.$17,578.e.$11,963.

125,000 x 2/8 = 31,250 year 1. 93,750 x 2/8 = 23,438 year 2. 70,313 x 2/8 = 17,578 year 3

Blue: Q. 1

6. If the equipment produces 3,800 units during 2003 (first year)and the units-of-productionmethod is used, the book value (carrying value) at the End of Year 1 is:

a.$106,760.


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b.$121,200.c.$106,000.d.$19,000.e.$101,760.

(125,000 5,000) x 3,800/25,000 = 18,240 year 1 deprec exp. BV $125,000 18,240 = 106,760

Blue: Q. 2

7. If the straight-line method is used, the accumulated depreciationafter 4 years will be:a.$62,500.b.$65,000.c.$60,000.d.$57,500.e.$55,000.

(125,000 5,000) /8 = $15,000 x 4 = $60,000

Blue: Q. 3

8. LOSS ON THE SALE OF MACHINERY is reported on the income statement as:a. part of gross margin computation.b. part of operating income computation.c. a non-operating item after operating income.d. an extraordinary item at the bottom on the income statement.

Blue: Q. 4

9. The journal entry to record the DECLARATION of a cash dividend would include a:a. credit to CASH.b. debit to RETAINED EARNINGS.c. credit to DIVIDEND EXPENSE.d. debit to DIVIDEND PAYABLE

Blue: Q. 5

10. The cost of an asset that is capitalized on the balance sheet and depreciated over its usefullife should include:

a. The costs of operating and insuring the asset.b. The property taxes associated with owning the asset.c. The allocated purchase price without sales taxes.d. The costs of getting it ready for initial use.

Blue: Q. 6

Use the information below for the next 2 questions.


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A company wants to compare the performance of its 4 divisions using the following information:

DivisionA

DivisionB

DivisionC

DivisionD

Ave. Assets $100,000 $240,000 $180,000 $120,000

Net Income $13,000 $29,000 $18,000 $16,000

Sales $200,000 $360,000 $300,000 $252,000

11. The correct ranking (from best to worst) of the 4 divisions based on return on assets?

a. D, A, B, Cb. B, A, D, Cc. B, A, C, Dd. D, B, A, Ce. none of the above

Blue: Q. 7

Return on assets: A:13%, B 12.08% C 10% D13.3%

12. Which division had the best return on sales ?

a. Division Ab. Division Bc. Division Cd. Division D

Blue: Q. 8

Return on sales: A 6.5% B 8.05% C 6% D 6.35%


On January 1 Kwok Corp. purchases equipment by signing a $100,000, 10-year noninterest-bearing (lump sum) note. The market rate of interest is 8%; and interest is compoundedSEMIANNUALLY.

13. The journal entry to record the purchase would include:a. a credit to CASHb. a debit toNOTES PAYABLEc. a debit to DISCOUNT ON NOTES PAYABLEd. a credit to EQUIPMENT

Blue: Q. 9

14. The proceeds obtained when signing this note will be:a. $61,590.b. $21,911.c. $95,000.d. $46,610.e. $45,640.


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100,000 x PV p=20 i=4% is .4564 = 45,640

Blue: Q. 10

15. In regards to the note that Kwok signed, which of the following is correct?a. Interest expense will decrease each period.b. Discount on Notes Payable will increase each period.c. Notes Payable will decrease each period.d. The carrying value or net liability increases each period.

Blue: Q. 11

16. Companies would rather classify an expenditure on an existing asset as a renovation thatcan be added to the cost of an asset (and depreciated going forward) because otherwise they haveto expense the full amount and reduce their earnings. In which of these cases can a company getrenovation treatment for spending money on an existing asset?

a. Expenditure causes management to recalculate all year end bonuses.b. Expenditure adds a new ability to the existing asset.c. Invoice says repair anywhere in the description of services performed.d. Expenditure is 10% or more of the initial cost of the long term asset.

Blue: Q. 12

17. Beta Co. reports $220,000 of net income for 2004 and declared a total cash dividend of$100,000. Throughout 2004, Beta had 120,000 shares of $10 par value common stock issued,and 100,000 shares outstanding. It also had 20,000 shares of $50 par, 8% preferred stock issuedand outstanding. Earnings per share for 2004 is:

a. $2.00.b. $1.20.c. $1.17.d. $1.40.

$220,000 80,000 / 100,000 outstanding = $1.40

Blue: Q. 13


Nakano Company purchased equipment by issuing a $100,000, 4% periodic note. The noterequires 12 annual payments of principal and interest.

18. The amount of Nakanos ANNUAL PAYMENT is:

a. $8,859.b. $6,655.c. $10,655.d. $14,651.

100,000 / PV annuity p=12 i=4% 9.3851 = 10,655


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Blue: Q. 14

19. The amount of INTEREST EXPENSE associated with the SECOND PAYMENT will be:

a. higher than the interest expense associated with the first payment.

b. lower than the interest expense associated with the first payment.c. the same as the interest expense associated with the first payment.d. unable to determine without more information

Blue: Q. 15

20. Bozo Clown Inc. signed a $20,000 note requiring 24 monthly payments of principal andinterest of $941.47 with an annual rate of interest of 12%. When the first monthly payment ismade, what is the entry to record the payment?a. Debit CASH for $941.47.b. CreditNOTES PAYABLE for $741.47.c. Debit INTEREST EXPENSE for $200.00.

d. Credit INTEREST EXPENSE for $240.00

Entry includes: Interest Expense 20,000 x .12/12 = 200 debitNotes Payable 941.47 200 = 741.47 debitCash 941.47 credit

Blue: Q. 16

21. A company sells electronics. If their gross profit is down, which of these may be a cause?a. Increase in depreciation expense.b. Loss on sale of warehouse.c. Increase in salaries and wages.

d. Decrease in sales volume.e. New law increasing tax rates.

Blue: Q. 17


Arial Industries issued $100,000 of bonds on January 1 2004. The bonds pay interestSEMIANNUALLY. A partial amortization schedule follows. Amounts have been left blank onpurpose.

Date PaymentInterestExpense

Changein Disc

Disc.

onBonds

Bond

FaceAmount

CarryingValue

9,799 $100,000 $90,201Month 6 $2,500 $2,706.03

Month 12 $2,500 $212.21Month 18 $2,500 X

22. What is the face rate of interest on the bonds (hint: remember to express your answer as anannual rate)?


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a. 4%b. 3%c. 5%d. 6%

Blue: Q. 18

23. Which of these best describes the interest rate in the market when these bonds were issued?

a. Market rate was the same as the face rate.b. Market rate was below the face rate.c. Market rate was above the face rate.d. You dont have enough information to determine the market interest rate.

Blue: Q. 19

24. What is the interest expense for the third payment (month 18)? I am looking for the amountthat goes where the X is shown.a. $2,500.00

b. $2,718.58c. $2,712.21d. $2,693.85

Blue: Q. 20


ABC, whose tax rate is 30%, has the following account balances (listed randomly) at the end ofthe year.

Taxes 204,000

Salaries and wages expense 60,000Rent expense 5,000Cost of goods sold 140,000Dividends declared and paid 18,000GAIN on the sale of equipment 15,000LOSS on discontinued operation 40,000Interest expense 40,000Sales 960,000Treasury stock 14,000Utilities expense 10,000Advertising & commissions expense 40,000

25. On its income statement, ABC will report Income before extraordinary items,discontinued operation and taxes of:

a. $448,000b. $680,000c. $495,000d. $640,000e. $465,500

Sales $960,00


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0COGS $140,00

0Gross Profit $820,00

0Operating expenses:

Salaries and wages expense $ 60,000Rent expense $ 5,000

Utilities expense $ 10,000

Advertising & commissions expense $ 40,000

operating income$705,00

0

Interest expense $ 40,000

Gain on sale of equipment $ 15,000

income before taxes and extra items$680,00

0

Taxes$204,00

0

income before extra items

$476,00

0Extraord items:

Loss on discontinued op, net of tax $ 28,000

Net Income$448,00

0

Blue: Q. 21

26. On its income statement, ABC will report Gross Profit of:a. $710,000.b. $574,000.

c. $820,000.d. $806,000.e. $834,000.

Blue: Q. 22


On January 1, 2000, a corporation issued $1,000,000 of 18-year bonds with a face rate of 6%.Interest is paid SEMIANNUALLY. The market rate of interest on January 1, 2000 was 8%.

27. The PROCEEDS from the bond issue were:

a. $804,008b. $1,206,120c. $1,117,040d. $810,949

1,000,000 x.03 = 30,000 x pv annuity p=36 i=4% 18.9083 = 567,2491,000,000 x pv p=36 i=4% .2437 = 243,700$810,949


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Blue: Q. 23

28. If the market rate on the issue date of the above bond had been 5% instead of 8%, which ofthese would be TRUE?a. the initial entry to record the bond would include a debit to discount on bond payableaccount.

b. interest expense on this bond would be less than the interest payments.c. the carrying value of the bond would go up each payment.d. the proceeds upon issue would be less than the face amount.

Blue: Q. 24

29. Brother Inc. has a truck that cost $60,000 when originally purchased. Brother Inc. decided toreplace the engine and transmission at the end of year 4 when the accumulated depreciation was$45,000. The replacements cost $10,000 and are expected to increase the useful life and salvagevalue of the truck. What is the proper way to record the cost of the engine and transmissionreplacement?

a. Record it as repair expense.b. Add it to the cost of the asset and recompute depreciation expense going forward.c. Add it to the cost of the asset and recompute depreciation expense for every year sincepurchase.d. Add it to the accumulated depreciation account and recomputed depreciation expense goingforward.

Blue: Q. 25

30. Gold Inc. had the following transactions during 2006, its first year of operation:

Issued 6,000 shares $50 par value preferred stock for $50.Issued 50,000 shares common stock, par value $2.00 for $10.00 per share.Reported Net Income of $160,000.Purchased $20,000 worth of treasury stock.Declared (but didnt pay) a dividend of $40,000.

What is their total equity at the end of 2006?a. $980,000 b. $940,000c. $920,000d. $900,000

300,000 + 500,000 + 160,000 20,000 40,000 = $900,000

Blue: Q. 26

31. Sally rebuilt her generator with an original cost of $12,000 (no salvage expected) on the firstday of the fifth year of a six year estimated life. Sally uses the straight-line depreciation method.The rebuilding cost $1,400 and will extend the life of the generator to a seventh year with nosalvage. What is the depreciation in year 5?

a. $2,000b. $1,333


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c. $1,800d. $2,700

Blue: Q. 27

32. George Ryan obtained a car loan that requires him to make payments of $235 per

month for 36 months at which time the loan is paid off. This is an example of a:a. lump-sum noteb. periodic payment notec. noninterest-bearing noted. periodic and lump-sum note

Blue: Q. 28

33 .Hunter Corporation beginning of year retained earnings balance was $28,300. Thecorporation declared and paid $19,400 during the year and ended the year with a$36,500 balance. The net income or loss for the year was:

a. $(11,200)b. $ 8,200c. $ 17,100d. $ 27,600

Blue: Q. 29

34. Carolina Corporation just issued 10,000 shares of $2 par value common stock for$7.50 per share. The journal entry to record this transaction will include a:a. debit to Donated Capital for $75,000b. credit to Common Stock for $75,000

c. debit to Retained Earnings for $20,000d. credit to Paid-in-Capital in Excess of Par--Common Stock for $55,000

Blue: Q. 30

35. Where in the balance sheet is preferred stock usually reported?a. long-term liabilitiesb. stockholders' equityc. contra stockholders' equityd. After long-term liabilities but before stockholders' equity

Blue: Q. 31

36. When the market rate of interest on the date bonds are issued is higher than the facerate of interest on the bonds:a. the proceeds from the issuance of the bonds will be greater than the face value

of the bondsb. the bonds are issued at a premiumc. the bonds are issued at a discount


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d. both a and c are correct

Blue: Q. 32

37. Ferris Corporation issued $40,000,000 of 20-year, 9 percent bonds, paying interestsemi-annually. The market interest rate at the time of issuance was 10 percent.One step in computing the issue price of the bonds is to multiply the interestpayment times the present value ofa. $1 for 40 periods and 5 percentb. $1 for 40 periods and 4.5 percentc. an annuity of $1 for 40 periods and 4.5 percentd. an annuity of $1 for 40 periods and 5.0 percent

Blue: Q. 33

38. Lester Corporation purchased equipment with a fair value of $150,000 on a 6

percent note. The note requires four end-of-year payments of $43,290. Whatwould be the carrying value of the note immediately after the first payment.a. $106,710b. $115,710c. $141,000d. unable to determine from the information given

Blue: Q. 34

39. Water Products Company incurred a pre-tax extraordinary loss of $248,000 and apre-tax extraordinary gain of $193,500 in the same accounting period. Assuming

an effective tax rate of 37%, the net amount that would appear on Water's incomestatement for extraordinary items is a:a. $54,500 lossb. $34,335 lossc. $20,165 lossd. $37,260 gain

Blue: Q. 35

40. Noncash assets given to a corporation in exchange for stock would be recorded at:a. their book value when owned directly by the stockholder

b. cost less accumulated depreciationc. fair market valued. depreciable cost

Blue: Q. 36


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You are done!Enjoy the rest of your day!


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Present Value of $1:

interest rate

1% 4% 8% 12%

# of periods

2 .9803 .9246 .8573 .79723 .9706 .8890 .7938 .7118

12 .8874 .6246 .3971 .2567

20 .8195 .4564 .2145 .1037

24 .7876 .3901 .1577 .0659

36 .6989 .2437 .0626 .0169

Future Value of $1:

interest rate

1% 4% 8% 12%

# of periods

2 1.0201 1.0816 1.1664 1.25443 1.0303 1.1249 1.2597 1.4049

12 1.1268 1.6010 2.5182 3.8960

20 1.2202 2.1911 4.6610 9.6463

24 1.2697 2.5633 6.3412 15.1786

36 1.4308 4.1039 15.9682 59.1356

Present Value of an annuity of $1:

interest rate

1% 4% 8% 12%

# of periods2 1.9704 1.8861 1.7833 1.6901

3 2.9410 2.7751 2.5771 2.4018

12 11.2551 9.3851 7.5361 6.1944

20 18.0456 13.5903 9.8181 7.4694

24 21.2434 15.2470 10.5288 7.7843

36 30.1075 18.9083 11.7172 8.1924

Future Value of an annuity of $1:

interest rate

1% 4% 8% 12%

# of periods2 2.0100 2.0400 2.0800 2.1200

3 3.0301 3.1216 3.2464 3.3744

12 12.6825 15.0258 18.9771 24.1331

20 22.0190 29.7781 45.7620 72.0524

24 26.9735 39.0826 66.7648 118.1552

36 43.0769 77.5983 187.1021 484.4631


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