Anguilla, Inc. had $3,700,000 in credit sales during 2011 and historically is unable to collect 1% of its credit sales. The beginning balance of the allowance for doubtful accounts is $1,600 and Anguilla wrote off $400 in bad debts during the year. Anguilla also has a notes receivable of $420,000 consisting of principal owed by a customer on a two-year, 5% note accepted on August 31, 2011. The note requires the customer to make annual interest payments on July 31, 2012 and 2013. Anguilla has no concerns about the collectability of this note. Required: a. Calculate the estimated bad debt expense for 2011 using the percentage of credit sales method and prepare the journal entry. b. Calculate the estimated doubtful accounts balance as of December 31, 2011 using the aging of accounts receivable method given that $1,100,000 of the credit sales are 1-30 days late (estimated that 0.5% are uncollectible), $394,000 are 31-60 days late (estimated that 1.25% are uncollectible) and $21,000 are over 60 days late (estimated that 30% are uncollectible). c. Using the assumptions in the initial problem statement above, and using the aging of accounts method in b., calculate the bad debt expense for 2011. Show your calculation in a T-account for Allowance for Bad Debts and prepare the journal entry to record bad debt expense. d. Prepare the December 31, 2011 adjusting journal entry related to the note receivable. . (TCO1) The two types of accounting are:____ and _____ (Points: 5) profit and nonprofit. financial and managerial. internal and external. bookkeeping and decision-oriented. 2. (TCO2) A company purchased inventory on account. This transaction increased assets and: (Points: 5) increased equity increased liabilities increased revenues decreased assets 3. (TCO1) Which of the following statements is FALSE? (Points: 5) reliable data may be supported by objective evidence. the informed opinion of owners is an important source of objective evidence. an independent appraisal, conducted by a licensed professional, is usually considered reliable. reliable data are verifiable. 4. (TCO2) A company purchased office supplies for cash. This transaction ______________________. (Points: 5) increased assets and decreased assets. increased assest and increased liabilities. increased assets and increased revenues. decreased assets and decreased liabilities. 5. (TCO2) Which type of account is increased when a company records a debt? (Points: 5) expense retained earnings liability none of the above are correct. 6. (TCO2) A trial balance has which of the following features? (Points: 5) totals for balance sheet accounts only totals for income statement accounts only totals for all accounts listed in the general ledger both A and B are correct 7. (TCO3) A company started the year with $400 of supplies. During the year the company purchased additional supplies costing $1,600. There were $800 of supplies on hand at the end of the year. An adjusted trial balance prepared at the end of the accounting period will show the which of the following balance in Supplies: (Points: 5) $1,400. $800. $600. $0. 8. (TCO3) The book value of an asset is computed as: (Points: 5) the cost of a plant asset less accumulated depreciation. the cost of a plant asset plus accumulated depreciation. depreciation expense plus accumulated depreciation. the cost of a plant asset less depreciation expense. 9. (TCO5) Differences between the amount of cash reported on a companys bank statement and the balance in the companys Cash account before the bank reconciliation are primarily due to: (Points: 5) errors in the accounting process by the company. errors made by the bank. differences between the cash basis and accrual basis of accounting. timing difference in recording transactions. 10. (TCO5) Under the allowance method, the entry to reinstate an account previously written off: (Points: 5) increases total assets. increases net income and increases total assets. decreases net income and increases total assets. has no effect on net income or total assets. 11. (TCO5) Portia Incorporated uses the percentage-of-sales method to estimate uncollectibles. Net credit sales for the current year amount to $2,000,000, and management estimates 2% will be uncollectible. Allowance for Uncollectible Accounts prior to adjustment has a debit balance of $1,900. The amount of expense reported on the income statement and the balance in Allowance for Uncollectible accounts, respectively, will be: (Points: 5) $41,900 and $40,000. $40,000 and $38,100. $38,100 and 40,000. $40,000 and $41,900. 12. (TCO5) If the Maturity Value of a 210 day note is $63,500 and the interest is $3,500, based on 10%, what is the principal of this note? (Points: 5) $ 3,500 $ 6,000 $63,500 $60,000 13. (TCO4) Deciding on which inventory method a company should use affects: (Points: 5) the profits to be reported. the income taxes to be paid. the values of ratios reported from the balance sheet. all of the above. 14. (TCO4) A company whose inventory consists of very unique items would probably use which inventory method? (Points: 5) first-in, first-out last-in, first-out specific unit cost weighted-average of only the unique items Time Remaining: 1. (TCO4) Which inventory method produces the highest net income in a time of rising costs? (Points: 5) FIFO. Average Cost. LIFO. KIFO. 2. (TCO6) All expenditures to repair and renovate an existing building for its intended use are charged to: (Points: 5) land. land improvements. land improvements expense. building. 3. (TCO6) Which of the following statements is false? (Points: 5) depreciation is a process of subjective valuation. depreciation is a non-cash expense. accumulated depreciation represents a growing amount of cash to be used to replace the existing asset. accumulated depreciation is that portion of a plant assets cost that has been recorded previously as an expense. 4. (TCO6) On January 10, 2006, Maxim Corporation acquired equipment for $124,000. The estimated life of the equipment is 3 years or 24,000 hours. The estimated residual value is $10,000. What is the balance of Accumulated Depreciation on December 31, 2007, if Baldwin Corporation uses the asset 5,500 hours in 2006 and 4,500 hours in 2007? (Points: 5) $76,000 $61,218 $52,083 $47,500 5. (TCO6) Valtrex Inc. sells a major plant asset. (Points: 5) depreciation expense should be recorded through the date of sale. the book value of the asset should be credited to the asset account. no gain should be recognized if depreciation expense was taken on the asset before the asset was sold. a loss should be recognized, but not a gain, if depreciation expense was taken on the asset before the asset was sold. 6. (TCO6) Current liabilities fall into two categories which are referred to as: (Points: 5) liabilities of a known amount and estimated liabilities. contingent liabilities and noncontingent liabilities. contingent liabilities and contra-liabilities. unearned liabilities and accrued liabilities. 7. (TCO7) In a corporation, the two-basic sources of stockholders' equity are: (Points: 5) donated capital and contributed capital. par value and no-par value stock. preferred stock and common stock. paid-in capital and retained earnings. 8. (TCO7) When 100 shares of $10 par value Common Stock are sold at $53 per share, Paid-in Capital in Excess of Par valueCommon will: (Points: 5) increase $1,000. increase $4,300. increase $5,300. not be affected. 9. (TCO7) The number of shares of treasury stock plus the number of shares outstanding equals the number of shares: (Points: 5) authorized that have not been issued. authorized. issued. issued that have not been reacquired by the company. 10. (TCO2) Consider the following transactions: I. Owners invested $8,000 cash to begin the business II. Provided services for cash, $6,000 III. Provided services on account, $4,000 IV. Paid cash for expenses, $7,500 How much cash does the business have? (Points: 5) $2,500 $4,500 $6,500 $10,500 ) Your friend, Jacob, has opened a movie theater. Jacob states that he does not have time to develop and implement a system of internal controls. a. Provide Jacob with the objectives of a system of internal control. b. Explain to Jacob why he should develop a system of internal control. (Points: 10) 2. (TCO6) Credit Company incurred the following costs in acquiring plant assets: purchased land for a $50,000 down payment and signed a $100,000 note payable for the balance delinquent property tax of $2,500 and legal fees of $1,500 $5,000 to remove an unwanted building architect fee of $2,000 for the design of a building constructed an office building at a cost of $500,000 interest cost on construction loan for the building, $20,000 $7,500 for fencing, $4,000 for landscaping, and $5,000 for lighting Determine the cost of the land, land improvements, and building. (Points: 20) 3. (TCO2) List the steps in the Accounting Cycle. (Points: 20) 1. (TCO6) Block Company issued a $20,000, 10-year Bond on 7/1/2008, when the Market Interest Rate was 6.5%. Assume that the accounting year of Block Company ends on December 31. Journalize the following transactions. a. Issuance of the Bond on 7/1/2008 b. Accrual of the Interest Expense on 12/31/2008 c. Payment of Interest on 1/1/2009 d. Payment of the Bond at Maturity (Points: 20) 2. (TCO7) The Cosmo Company was started by issuing 800 shares of $10 par value stock at an average market price of $20 per share. The company repurchased 100 shares at a market price of $15 per share. The company later sold 50 shares at a market price of $25 per share. At the end of the first year of operations the company has $2,600 of retained earnings in addition to its contributed capital. Prepare the equity section of the balance sheet for Cosmo Company. (Points: 20) 3. (TCO1) The following information has been obtained from the accounting records of Sandy Shores Enterprises. Prepare the operating section of the statement of cash flows for Sandy Shores Enterprises for the year ended December 31, 2007, using the indirect method. Principal payments on long-term debt $50,000 Increase in accounts payable 24,300 Acquisition of equipment by issuing long-term note payable 70,000 Amortization expense 18,700 Proceeds from sale of investments, not including a $5,100 gain 49,100 Increase in accounts receivable 8,700 Cash payments to purchase plant assets 62,000 Decrease in accrued liabilities 60,300 Payment of cash dividends 64,500 Proceeds from sale of plant assets, not including a $7,400 loss 22,600 Net income 174,100 Depreciation expense 35,500 Proceeds from issuance of common stock 300,000 Increase in inventory 71,400 Bonds payable converted into common stock 130,000 Decrease in prepaid expenses 12,800 Cash balance: December 31, 2006 52,500 Cash balance: December 31, 2007 373,000 (Points: 20) 4. (TCO 1) The income statement for the OverUnder Company for the year ended December 31, 2007, appears below. Sales 670,000 Costs of goods sold 390,000 Gross profit 280,000 Expenses 180,000* Net income $100,000 *Includes $25,000 of interest expense and $20,000 of income tax expense. Additional information: a. Common stock outstanding on January 1, 2007, was 50,000 shares. On July 1, 2007, 10,000 more shares were issued. b. The market price of OverUnder's stock was $18 at the end of 2007. c. Cash dividends of $35,000 were paid, $5,000 of which were paid to preferred stockholders. Part 1: Compute the following ratios for 2007 (show your work): a. Earnings per share. b. Price-earnings. c. Times interest earned. Part 2: Please explain the meaning of these ratios and the results you have calculated. (Points: 20)