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1. (TCO A) Listed below are several information characteristics and accounting principles and assumptions. Each of these items is assigned a number. Match the number of each with the appropriate phrase that states its application. Note: Each answer may be used multiple times. (Points : 30) Potential Matches: 1 : Expense recognition principle 2 : Materiality 3 : Full disclosure principle 4 : Historical cost principle 5 : Periodicity assumption 6 : Revenue and expense recognition principles 7 : Conservatism 8 : Industry practices or fair value principle 9 : Revenue recognition principle 10 : Economic entity assumption Answer : Fair value changes are not recognized in the accounting records 1 : Repair tools are expensed when purchased 2 : Financial information is presented so that investors will not be misled 3 : Rationale for accrual accounting 4 : Intangible assets are capitalized and amortized over periods benefited 5 : Agricultural companies use fair value for purposes of valuing crops 6 : Lower of cost or market is used to value inventories 7 : Revenue is recorded at point of sale 8 : The use of consolidated statements is justified 9 : Reporting must be done at defined time intervals 10 Question 2. (TCO B) Adjusting Entries: Minnie Smile, D.D.S. opened a dental practice on January 1, 201X. During the first month of operations the following transactions occurred: paid one year's rent in advance for $12,000. Collected $700 from a client that had previously charged the amount that was owed for the work done. Purchased a desk on account for $1,000. You are to prepare the missing adjusting entry. For each journal entry write Dr. for debit and Cr. for credit. (Points : 10) Question 3. (TCO B) Adjusting Entries: Seymor Stars is the new owner of Night Computer Services. At the end of August 201X, his first month of ownership, Seymor is trying to prepare monthly financial statements. At August 31, Seymor owed his employees $2,900 in wages that will be paid on September 1. At the end of the month he had not yet received the month's utility bill. Based on past experience, he estimated that the bill would be approximately $600. A telephone bill in the amount of $117 covering August charges is unpaid at August 31. You are to provide the missing adjusting entries that must be made. For each journal entry write Dr. for debit and Cr. for credit. (Points : 10) Question 4. (TCO B) Adjusting Entries: When the accounts of Upside Down Inc. are examined, the adjusting data listed below are uncovered on December 31, the end of annual fiscal period. The prepaid insurance account shows a debit of $6,000, representing the cost of a 2-year fire insurance policy dated August 1 of the current year. On November 1, Rental Revenue was credited for $3,600, representing revenue from a sub-rental for a 3-month period beginning on that date. Interest of $770 has accrued on notes payable. You are to prepare the missing adjusting entry. For each journal entry write Dr. for debit and Cr. for credit. (Points : 10) Question 5. (TCO B) Adjusting Entries: On April 1, 201X, Joker's Company assigns $500,000 of its accounts receivable to the First National Bank as collateral for a $300,000 loan due July 1, 201X. The assignment agreement calls for Joker's Company to continue to collect the receivables. First National Bank assesses a finance charge of 2% of the accounts receivable, and interest on the loan is 10% (a realistic rate of interest for a note of this type.) On July 1, 201X, Joker's paid First National Bank all that was due from the loan it secured on April 1, 201X. Prepare the journal entry to record this payment. You are to prepare the missing adjusting entry. For each journal entry write Dr. for debit and Cr. for credit. (Points : 10) Question 6. (TCO B) Adjusting Entries: Wizard Industries purchase $12,000 of merchandise on February 1, 2010, subject to a trade discount of 10% and with credit terms of 3/15/, n/60. It returned $3,000 (gross price before trade or cash discount) on February 4. The invoice was paid on February 13. Assuming that Wizard uses the perpetual method for recording merchandise transactions, prepare the necessary journal entries to record the purchase, return, and payment using the gross method. For each journal entry write Dr. for debit and Cr. for credit. (Points : 10) Question 7. (TCO B) Adjusting Entries: Shabbona Corporation operates a retail computer store. To improve delivery services to customers, the company purchased a new truck on April 1, 2010. The terms for the acquisition of the truck are that it has a list price of $14,000. It is acquired in exchange for 1,000 shares of common stock in Shabbona Corporation. The stock has a par value per share of $10 and a market value of $13 per share. Write the journal entry to record the purchase of the truck. Write Dr. for debit and Cr. for credit. (Points : 10) Question 8. (TCO D) The adjusted trial balance of Cavamanlis Co. as of December 31, 2011 contains the following. Account Titles Dr Cash $18,972 Accounts Receivable 9,920 Prepaid Rent 2,280 Equipment 18,050 Cr Accumulated Depreciation $4,895 Notes Payable 5,700 Accounts Payable 4,472 Common Stock 20,000 Retained Earnings 11,310 Dividends Service Revenue 3,000 15,590 Salaries Expense 6,840 Rent Expense 2,760 Depreciation Expense 145 Interest Expense 83 Interest Payable 83 $62,050 $62,050 Instructions Prepare in good form a balance sheet for the year ended December 31, 2011. (Points : 15) Question 9. (TCO C) Flynn Design Agency was founded by Kevin Flynn in January 2009. Presented below is the adjusted trial balance as of December 31, 2010. Flynn Design Agency Adjusted Trial Balance December 31, 2010 Account Titles Dr Cash $10,000 Accounts Receivable 21,500 Art Supplies 5,000 Prepaid Insurance 2,500 Printing Equipment 60,000 Cr Accumulated Depreciation $35,000 Accounts Payable 8,000 Interest Payable 150 Notes Payable 5,000 Unearned Advertising Revenue 5,600 Salaries Payable 1,300 Common Stock 10,000 Retained Earnings 3,500 Advertising Revenue 58,500 Salaries Expense 12,300 Insurance Expense 850 Interest Expense 500 Depreciation Expense 7,000 Art Supplies Expense 3,400 Rent Expense 4,000 Total $127,050 $127,050 Prepare a single-step income statement for the year ending December 31, 2010. (Points : 15) Question 10. (TCO C) Two accountants for the firm of Allen and Wright are arguing about the merits of presenting an income statement in a multiple-step versus a single-step format. The discussion involves the following 2010 information related to Webster Company. Administrative expense Officers' salaries $4,900 Depreciation of equipment 3,960 Cost of Goods Sold 63,570 Rental revenue 17,230 Selling Expense Transportation-out 2,690 Sales commission 7,980 Depreciation of equipment 6,480 Sales 96,500 Income tax 7,580 Interest expense 1,860 Prepare a single-step income statement for the year ended December 31, 2010. (Points : 20) Question 11. (TCO D) Bruno Company has decided to expand its operations. The bookkeeper recently completed the balance sheet presented below in order to obtain additional funds for expansion. Bruno Company Balance Sheet December 31, 2010 Current Assets Cash Accounts Receivable (net) Inventories at lower of average cost or market Trading securities - at cost (fair value $120,000) Property, plant and equipment Building (net) Office equipment (net) Land held for future use Intangible assets Goodwill Cash surrender value of life insurance Prepaid expenses Current liabilities Accounts payable Notes payable (due next year) Pension obligation Rent payable Premium on bonds payable Long-term liabilities Bonds payable Stockholders' Equity Common stock, $1.00 par, authorized 400,000 shares, issued 290,000 Additional paid-in capital Retained earnings Prepare a revised balance sheet given the available information. Assume that the accumulated depreciation balance for the buildings is $160,000 and for the office equipment, $105,000. The allowance for doubtful accounts has a balance of $17,000. The pension obligation is considered a long-term liability. (Points : 20) 0 1405985777 Essay 30 Question 12. (TCO F) Determine the cash account balance. If the item described is not reported as cash, explain the rationale. Checking account balance $500,000; and overdraft in special checking account at same bank as normal checking account of $17,000; cash held in a bond sinking fund $200,000; petty cash fund $300; and coins and currency on hand $1,350. (Points : 20) Question 13. (TCO F) At the end of 2010 Sorter Company has accounts receivable of $900,000 and an allowance for doubtful accounts of $40,000. On January 16, 2011, Sorter Company determined that its receivable from Ordonez Company of $8,000 will not be collected, and management authorized its write-off. What is the net realizable value of Sorter Company's accounts receivable after the write-off of the Ordonez receivable? (Points : 20) 0 1405985779 Essay 34 Question 14. (TCO G) In your audit of Garza Company, you find that a physical inventory on December 31, 2010, showed merchandise with a cost $541,000 was on hand at that date. You also discover the following items were all excluded from the inventory count. Merchandise of $71,000, which is held by Garza on consignment. The consignee is the Bontemps Company. Merchandise costing $33,000, which was shipped by Garza f.o.b. shipping point to a customer on December 31, 2010. The customer was expected to receive the merchandise on January 6, 2011. Merchandise costing $46,000, which was shipped by Garza f.o.b. destination to a customer on December 29, 2010. The customer was scheduled to receive the merchandise on January 2, 2011. Merchandise costing $73,000 shipped by a vendor f.o.b. shipping point on December 30, 2010, and received by Garza on January 4, 2011. Merchandise costing $51,000 shipped by a vendor f.o.b. destination on December 31, 2010, and received by Garza on January 5, 2011. Based on the above information, calculate the amount that should appear on Garza's balance sheet at December 31, 2010, for inventory. (Points : 20) 0 1405985780 Essay 38 Question 15. (TCO G) Werth Company asks you to review its December 31, 2010 inventory values and prepare the necessary adjustments to the books. The following information is given to you. Werth uses the periodic method of recording inventory. A physical count reveals $234,890 of inventory on hand at December 31, 2010. Not included in the physical count of inventory is $10,420 of merchandise purchase on December 15 from Browser. This merchandise was shipped f.o.b. shipping point on December 29 and arrived in January. The invoice arrived and was recorded on December 31. Included in inventory is merchandise sold to Bubby on December 30, f.o.b. destination. This merchandise was shipped after it was counted. The invoice was prepared and recorded as a sale on account for $12,800 on December 31. The merchandise cost $7,350, and Bubby received it on January 3. Included in inventory is merchandise received from Dudley on December 31 with an invoice price of $15,630. The merchandise was shipped f.o.b. destination. The invoice, which has not yet arrived, has not been recorded. Not included in inventory is $8,540 of merchandise purchased from Minsky Industries. This merchandise was received on December 31 after the inventory had been counted. The invoice was received and recorded on December 30. Determine the proper inventory balance for Werth Company at December 31, 2010. (Points : 20) 0 1405985782 Essay 41 Question 16. (TCO H) Pollachek Co. purchased land as a factory site for $450,000. The process of tearing down two old buildings on the site and constructing the factory required 6 months. The company paid $51,000 to tear down the old buildings and sold salvaged lumber and brick for $10,300. Legal fees of $3,750 were paid for title investigation and drawing the purchase contract. Pollachek paid $2,200 to an engineering firm for a land survey, and $65,000 for drawing the factory plans. The land survey had to be made before definitive plans could be drawn. Title insurance on the property cost $1,500, and a liability insurance premium paid during construction was $1,900. The contractor's charge for construction was $2,740,000. The company paid the contractor in two installments: $1,200,000 at the end of 3 months and $1,540,000 upon completion. Interest costs of $170,000 were incurred to finance the construction. Determine the cost of the land and the cost of the building as they should be recorded on the books of Pollachek Co. Assume that the land survey was for the building. (Points : 30) 0 1405985783 Essay 44 Question 17. (TCO E) Asphalt Inc. lays asphalt in parking lots and roadways. This year they were awarded the state roadway contract and decided to purchase new equipment. Asphalt purchased a new piece of equipment with a cost of $43,600 and a $6,000 salvage value, and placed it into service on April 1, Year 1. The equipment was installed at an additional cost of $3,400. The estimated life of the equipment is 8 years. Required: 1. Calculate depreciation expense for year 1 using the straight-line method. 2. Calculate depreciation expense for year 2 using the double-declining balance method 3. Calculate depreciation expense for year 1 using the straight-line method Calculate depreciation expense for year 2 using the double-declining balance method (Points : 30) 0 1405985784 Essay 47