ACG 2011 – Final Exam Instructions You will need a calculator to complete this test.1. Depreciationa. Measures the decline in market value of an asset.b. Is the proces

ACG 2011 – Final Exam

Instructions: You will need a calculator to complete this test.

 

1. Depreciation:

a. Measures the decline in market value of an asset.

b. Is the process of allocating to expense the cost of a plant asset

c. Is an outflow of cash from the use of a plant asset

d. Is applied to land.

2. Lomax Enterprises purchased a depreciable asset for $22,000 on March 1, Year 1. The asset will be depreciated using the straight-line method over its four-year useful life. Assuming the asset’s salvage value is $2,000, Lomax Enterprises should recognize depreciation expense in Year 2 in the amount of:
Dep = (22000-2000)/4 = 5000

a. $19,166.67

b. $5,000.00

c. $5,500.00

d. $20,000.00

3. Saturn Co. purchases a used machine for $167,000 cash on January 2 and readies it for use the next day at a $3,420 cost. On January 3 it is installed on a required operating platform costing $1,080 and it is further readied for operations. The company predicts the machine will be used for six years and have a $14,600 salvage value. Depreciation is to be charged on a straight-line basis. On December 31, at the end of its fifth year in operation. It is sold for $13,500 cash. Prepare the journal entry for the sale:

a. Date General Journal Debit Credit
Dec. 31 Cash 14,600
Gain on sale of machinery 21,650
Accumulated depreciation – machinery 130,750
Machinery 167,000

b. Date General Journal Debit Credit
Dec. 31 Cash 14,600
Loss on sale of machinery 152,400
Machinery 167,000

c. Date General Journal Debit Credit
Dec. 31 Cash 13,500
Loss on sale of machinery 27,250
Machinery 40,750

d. Date General Journal Debit Credit
Dec. 31 Cash 13,500
Loss on sale of machinery 27,250
Accumulated depreciation – machinery 130,750
Machinery 171,500

4. MRI Company has one employee that makes $7,200 per month. FICA Social Security taxes are 6.2% and FICA Medicare taxes are 1.45% of gross pay. Prepare the employer’s April 30 journal entries to record salary expense and its related payroll liabilities for this employee. The employee’s federal income taxes withheld by the employer are $135 for this pay period.

a. Date General Journal Debit Credit
Sept. 30 Salaries expense 7,200
Cash 7,200

b. Date General Journal Debit Credit
Sept. 30 Cash 7,200
FUTA 56.00
SUTA 101.50
Employee federal income taxes payable 135.00
Accrued payroll payable 6,907.50

c. Date General Journal Debit Credit
Sept. 30 Salaries expense 7,200
FICA – Social security taxes payable 44.64
FICA – Medicare taxes payable 10.44
Employee federal income taxes payable 135.00
Accrued payroll payable 7,009.92

d. Date General Journal Debit Credit
Sept. 30 Salaries expense 7,200
FICA – Social security taxes payable 446.40
FICA – Medicare taxes payable 104.40
Employee federal income taxes payable 135.00
Accrued payroll payable 6,514.20

5. On January 8, the end of the first weekly pay period of the year, Royal Company’s payroll register showed that its employees earned $11,380 of office salaries and $32,920 of sales salaries. What are the entries to record the gross salaries only?

a. Debit to Salary Expense – Office $11,380
Debit to Salary Expense – Sales $32,920

b. Debit to Cash – Office Salaries $11,380
Debit to Cash – Sales Salaries $32,920

c. Credit to Cash – Office Salaries $11,380
Debit to Cash – Sales Salaries $32,920

d. Debit to Cash – Office Salaries $11,380
Credit to Cash – Sales Salaries $32,920

6. A company estimates that warranty expense will be 4% of sales. The company's sales for the current period are $185,000. The current period's entry to record the warranty expense is:
a. Debit Warranty Expense $7,400; credit Estimated Warranty Liability $7,400.
b. Debit Estimated Warranty Liability $7,400; credit Warranty Expense $7,400.
c. Debit Estimated Warranty Liability $7,400; credit Cash $7,400.
d. No entry is recorded until the items are returned for warranty repairs.

7. All of the following statements regarding uncertainty in liabilities are true except:
a. A company can create a known amount when issuing a note even though the holder of the note may not be known until the maturity date.
b. A company can have an obligation of a known amount to a known creditor but not know when it must be paid.
c. A company only records liabilities when it knows whom to pay, when to pay, and how much to pay.
d. A company can be aware of an obligation but not know how much will be required to settle it.

 

8. Anita Kroll and Aaron Rogers organize a partnership on January 1. Kroll’s initial investment consists of cash ($14,000), equipment ($66,000), and a note payable reflecting a bank loan for the new business ($20,000). Roger’s initial investment is cash of $25,000. These amounts are the values agreed on by both parties. Prepare journal entries to record Kroll’s investment.

a. Date General Journal Debit Credit
Jan. 1 Cash 14,000
A. Kroll, Capital 14,000

b. Date General Journal Debit Credit
Cash 14,000
Other 46,000
A. Kroll, Capital 60,000

c. Date General Journal Debit Credit
Jan. 1 Cash 14,000
Equipment less note payable 46,000
A. Kroll, Capital 60,000

d. Date General Journal Debit Credit
Jan. 1 Cash 14,000
Equipment 66,000
Note payable 20,000
A. Kroll, Capital 60,000

9. Partners’ withdrawals of assets are:
a. Credited to their equity accounts.

b. Debited to their equity accounts.

c. Credited to their retained earnings.

d. Debited to their retained earnings.

 

 

10. A corporation sold 14,000 shares of its $10 par value common stock at a cash price of $13 per share. The entry to record this transaction would include:
a. A debit to Cash for $140,000
b. A debit to Paid-in Capital in Excess of Par Value, Common Stock for $42,000
c. A credit to Common Stock for $182,000
d. A credit to Common Stock for $140,000
11. Shamrock Company had net income of $32,830. The weighted-average common shares outstanding were 9,800. The company declared a $4,500 dividend on its noncumulative, nonparticipating preferred stock. There were no other stock transactions. The company's earnings per share are:
a. $3.81
b. $2.89
c. $3.35
d. $3.56
12. A corporation declared and issued a 10% stock dividend on November 1. The following information was available immediately prior to the dividend:
Retained earnings $830,000
Shares issued and outstanding 68,000
Market value per share $23
Par value per share $5
The amount that equity will decrease as a result of recording this stock dividend is: (3 choices)
a. $156,400.
b. $0.
c. $34,000.

 

 

13. The following data were reported by a corporation
The number of outstanding shares is:
Authorized shares 36,000
Issued shares 31,000
Treasury shares 11,500

a. 24,500.
b. 36,000.
c. 31,000.
d. 19,500.
14. The carrying value of bonds at maturity is always equal to the:

a. Amount of cash originally received in exchange for the bonds.

b. Par or face value that the issuer pays the holder.

c. Amount of discount or premium.

d. Amount of cash originally received in exchange for the bonds plus any unamortized discount or less any premium.

15. Heathrow issues $2,000,000 of 6%, 15-year bonds dated January 1, 2011, that pays interest semiannually on June 30 and December 31. The bonds are issued at a price of $1,728,224. Prepare the January 1, 2011, entry to record the bonds’ issuance (3 choices)
a. Date General Journal Debit Credit
Jan. 1 Cash 1,728,224

Discount on Bond Payable 271,776

Bond Payable 2,000,000

b. Date General Journal Debit Credit
Jan. 1 Cash 1,728,224
Bond Payable 1,728,224

c. Date General Journal Debit Credit
Jan. 1 Discount on Bond Payable 271,776

Interest Expense
120,000
Bonds Payable 2,000,000
Interest Payable 120,000

16. A company’s motivation for financial investments is all but:
a. Gaining income on from the investment
b. Hiding cash
c. Gaining growth on excess cash
d. Taking a strategic position in another company

17. Held-to-Maturity Debt (HTM) is:
a. Financial instruments measured at fair value through profit and loss
b. Financial debt measured at amortized cost
c. Financial debt measured at fair value through OCI
d. Equity measured by the equity method
18. Influential investors own __________% of the company’s ________stock
a. Under 20%/ Common stock
b. 20-50%/ Common stock
c. +51%/ Common stock
d. +51%/ Preferred stock

19. The statement of cash flows report:

a. Assets, liabilities, and equity

b. Revenues, gains, expenses, and losses

c. Cash inflows and cash outflows for an accounting period.

d. Equity, net income, and dividends.

 

20. Use this information and the indirect method to find cash provided or used by operations:

Net income $ 13,400
Depreciation expense 13,100
Gain on sale of land 8,600
Increase in merchandise inventory 3,150
Increase in accounts payable 7,250
Proceeds from sale of land 8,550
Payment on mortgage payable 16,100

a. $14,450
b. $39,200
c. $22,000
d. $30,600
Extra Credit for One Point- Ethics Question: Led Zep Auditing Firm has two branches – one in NYC and the other in LA. Both service each others clients and the clients of their clients. A junior partner in the LA office learns in confidence from client ZZ-Todd that a client of the NYC office, Eddie Mercury Inc., is taking bribes from the police. LA office is responsible to:

a. Tell the police.

b. Tell the NYC office.

c. Keep the confidence of the client.

d. Keep the confidence of the NYC client.

Extra Credit for One Point-Available-for-Sale Accounting: December 31, 2011, Manhattan Co. held the following short-term available-for-sale securities.

Cost Fair Value
Nintendo Co. common stock $ 68,900 $ 75,300
Atlantic bonds payable 24,500 22,800
Kellogg Co. notes payable 50,000 47,200
McDonald's Corp. common stock 91,400 86,600
________________________________________

Manhattan had no short-term investments prior to the current period. Prepare the December 31, 2011, year-end adjusting entry to record the fair value adjustment for these securities.

Date General Journal Debit Credit
Dec. 31

 

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