I. (12 points) Determine whether each of the following is true or false. 1. If the period revenues are less than the period expenses, and there are no gains or losses, then Retained Earnings must decrease during the period. 2. In a pre-closing trial balance, revenue and expense accounts must have a zero balance.. 3. If debits equal credits on the trial balance, you know with certainty that your records are correct. 4. At the end of the first year of ownership of a long-term asset, if straight-line depreciation is used, the net book value of the asset will always be equal to or greater than the market value of the asset. 5. If prices are increasing then LIFO, compared with FIFO, will show a higher net income for the period. 6. At the end of the second year of ownership of a long-term asset, the balance in the accumulated depreciation account must be equal to or greater than the balance in the depreciation expense account II. (16 points) For each numbered item place the letter(s) that best describes its category from the following possibilities: (A)Assets, (L)Liabilities, (SE)Stockholders Equity, (R)Revenue, and (E)Expense. 1. Cash 5. Retained Earnings 2. Patents 6. Unearned revenue 3. Interest payable 7. Inventory 4. Supplies expense 8. Cost of Goods Sold III. (16 points) Sarah Jones started a new business in January, 2008. The following are selected events that occurred in the business during the first year of business. Please provide journal entries for these events (explanations are not necessary). 1. Sarah invested $500,000 to start the business, SaJon Inc. and received 200 shares of stock from the business. 2. Purchased inventory of $80,000 on account. 3. Signed a lease for three years for $36,000. The company paid $3,000 immediately; this was one month's rent in advance plus a security deposit. 4. Sold inventory, costing $50,000, on account for $90,000 (recognize both the revenue and the expense). 5. Paid for the inventory purchased in 2). 6. Received payment for the amount billed in 4). 7. Paid $40,000 in salaries. 8. Recognized the rent expense for the first month. IV. (18 points) The ABC Company has the following inventory records. 2/1 Beginning balance 5@ $20 $ 100 2/5 Purchase 15@ 10 150 2/10 Sale 18@ 100 1800 2/17 Purchase 20@ 30 600 2/23 Sale 17@ 100 1700 2/25 Purchase 10@ 40 400 3/10 Purchase 40@ 10 400 3/15 Sale 10@ 100 1000 3/19 Purchase 53@ 20 100 Required For the above data set please answer the following multiple choice questions. Use the periodic inventory method. 1. For the month of February, using FIFO, the ending inventory would be a) 200 b) 450 c) 550 d) 600 2. For the month of March, using FIFO, the ending inventory would be a) 200 b) 550 c) 600 d) 700 3. For the month of February, using LIFO, the ending inventory would be a) 200 b) 450 c) 550 d) 600 4. For the month of March, using LIFO, the ending inventory would be a) 200 b) 550 c) 600 d) 700 5. For the month of February, using Weighted-average, the ending inventory would be a) 375 b) 475 c) 575 d) 600 6. For the month of March, using Weighted-average, the ending inventory would be a) 471 b) 548 c) 620 d) 729 V. (18 points) Assume the following events for the year 2008. 1. Credit sales $400,000 2. Cash sales 100,000 3. Accounts receivable balance 1/1/08 100,000 4. Accounts written off during the year were 3,600 5. Allowance for Uncollectibles balance 1/1/08 3,000 6. Seventy percent (70%) of this year's credit sales are collected during the year. Scenario One Use the above data set. Assume that the company estimates its annual bad debt expense at 2% of total sales. 1. The adjusting entry to recognize the bad debt expense would be a) Bad debt ex 10,000 Allow for bad debts 10,000 b) Allow for bad debts 3,000 A/R 3,000 c) Bad debt ex 3,600 Allow for bad debts 3,600 d) Bad debt ex 6,200 Allow for bad debts 6,200 2. The write-off of delinquent accounts would be a) A/R 3,000 Allow for bad debts 3,000 b) Allow for bad debts 3,600 A/R 3,600 c) Bad debt ex 3,600 Allow for bad debts 3,600 d) Allow for bad debts 5,000 Bad debt ex 5,000 3. The net accounts receivable figure at the end of the year would be a) 207,000 b) 216,400 c) 220,000 d) 292,000 Scenario Two Use the above data set. Ignore Scenario One. Assume that the company estimates that 3% of its accounts receivable will not get collected. 4. The adjusting entry to recognize the bad debt expense would be a) Bad debt ex 6,492 Allow for bad debts 6,492 b) Allow for bad debts 7,092 A/R 7,092 c) Bad debt ex 8,562 Allow for bad debts 8,562 d) Bad debt ex 9,142 Allow for bad debts 9,142 5. The write-off of delinquent accounts would be a) A/R 3,000 Allow for bad debts 3,000 b) Allow for bad debts 3,600 A/R 3,600 c) Bad debt ex 3,600 Allow for bad debts 3,600 d) Allow for bad debts 5,000 Bad debt ex 5,000 6. The net accounts receivable figure ate the end of the year would be a) 209,308 b) 209,908 c) 216,400 d) 220,500 VI. (12 points) The ABC Company, located in Boston, purchases a piece of equipment from a dealer in Chicago for $650,000. The cost of shipping the equipment, $70,000, will be paid for by ABC Co. It is estimated that the asset will last five years and at the end of its useful life will have a salvage value of $15,000. When the equipment arrives it has to be set up and adjusted, at a cost of $45,000. 1. Assume the company uses straight-line depreciation. The depreciation expense for year one and year two would be a) 375,000; 375,000 b) 153,000; 153,000 c) 150,000; 150,000 d) 131,000; 131,000 2. Assume the company uses double declining balance (DDB) depreciation. The depreciation expense for year one and year two would be a) 306,000; 183,600 c) 300,000; 180,000 b) 316,000; 206,400 d) 260,000; 156,000 3. Assume the company uses sum-of-the-years-digits (SYD) depreciation. The depreciation expense for year one and year two would be a) 50,000; 100,000 c) 250,000; 200,000 b) 300,000; 150,000 d) 150,000; 100,000 4. This part is independent of parts one through three. Assume that a company purchased an asset for $800,000. This asset has an estimated salvage value of $150,000. At the end of four years the balance in the accumulated depreciation account is $260,000, at which time the asset is sold for $600,000. Required Provide the journal entry for the sale of the asset. VII. (8 points). Consider each of the following scenarios independently. 1. If the ending balance in Salaries Payable was $9,300, during the year the cash paid for salaries (earned both last year and this year) was $100,000, and the Salary Expense for the year was $87,000, what was the beginning balance in Salaries Payable? 2. On April 1, 2002 a five year insurance policy was purchased for $60,000. By mistake this entire cost was expensed immediately and this error was never corrected. Ignore taxes. At the end of 2005 is the Retained Earnings correctly stated and, if not, is it overstated or understated and by how much? 3. Assume the following. Net assets (assets minus liabilities) at the beginning of the year were $450,000 and at the end of the year they were $750,000; common stock increased (some were issued) during the year by $40,000; and dividends declared for the year were $120,000. What must have been the net income for the year? 4. The MNH Company had cost of goods sold equal to $600,000. If the beginning balance in inventory was $34,000 and the ending balance in inventory was $64,000, what were the purchases of inventory during the year