*****ONLY QUESTIONS 8,9,10,11,14,17, AND 18 NEED TO BE ANSWERED*****

ACC 201: INTERMEDIATE ACCOUNTING I

EXAM# 2 SPRING 2015

Multiple Choice: Select the best answer and place it on the line next to the question number.

_____ 1. Bud Lime has $368,882 accumulated in a 401K plan. The fund is earning a low, but safe, 3% per year. Bud Lime plans to take annual withdrawals starting today. Assuming each withdrawal is for $30,000; how many payments will Bud Lime receive before the fund is depleted?

A) 15

B) 16

C) 14

D) 12.3

_____ 2. Micro Brewery borrows $300,000 to be repaid in three years. The loan is to be repaid with six semiannual payments and the first payment due in six months. The annual interest rate on the loan is 6%. The amount of each payment is?

A) $55,379

B) $106,059

C) $30,138

D) $60,276

_____ 3. Tecate wants to invest money in a 6% certificate of deposit that compounds interest semiannually. Tecate would like the account to have a balance of $50,000 five years from now. How much must Tecate deposit now to accomplish their goal?

A) $35,069

B) $43,131

C) $37,205

D) $35,000

_____ 4. At the end of each quarter, Sol deposits $500 into an account that pays an annual interest rate of 12% with interest compounded quarterly. How much will Sol have in the account in three years?

A) $7,096

B) $7,213

C) $7,129

D) $8,880 Page 2 of 5

Use the following information to answer questions 5 through 9:

On December 15, 2014, Absolute Sales Co. sold a tract of land that cost $3,600,000 for $4,500,000. Absolute uses the installment sale method of accounting for this transaction. Terms called for a down payment of $500,000 with the balance to be paid in two equal annual installments of $2,000,000 payable on December 15, 2015, and December 15, 2016. Absolutes year-ends December 31st. Assume the annual installments were received when due.

_____ 5. In their 2014 income statement, Absolute would recognize realized gross profit of: A) $500,000

B) $ 0

C) $900,000

D) $100,000

_____ 6. In their 2015 income statement, Absolute would recognize realized gross profit of: A) $ 0

B) $450,000

C) $300,000

D) $400,000

_____ 7. In their December 31, 2014 balance sheet, Absolute would report net installment receivable of:

A) $3,200,000

B) $4,000,000

C) $ 0

D) $3,100,000

_____ 8. Suppose Absolute uses cost recovery to account for this sale. In their 2014 income statement, Absolute would recognize realized gross profit of: A) $500,000

B) $ 0

C) $900,000

D) $100,000

_____ 9. Suppose Absolute uses cost recovery to account for this sale. In their December 31, 2014 balance sheet, Absolute would report net installment receivable of:

A) $3,200,000

B) $4,000,000

C) $ 0

D) $3,100,000 Page 3 of 5

Use the following information to answer questions 10 and 11:

In early 2014, Beertender Company entered into a long term contract to construct a bridge for Notsosober County for $10 million. The bridge will take three years to complete. In 2014, Beertender spent $2.8 million on the project, recognized $3.5 million in revenue and $.7 million in profit. In 2015, Beertender spent $4.2 million on the project, recognized $3.8 million in revenue and a $0.4 million loss. Beertender billed Notsosober $3.0 million in 2014 and $4.5 million in 2015. Notsosober paid Beertender $2.6 million in 2014 and $4.3 million in 2015. Beertender Company uses the percentage of completion method to account for all contracts.

_____ 10. When preparing its December 31, 2014 balance sheet, Beertender would report the following with regards to this contract:

A) Current Assets of $3.9 million, and Current Liabilities of $3.0 million.

B) Current Assets of $6.5 million, and no Current Liabilities.

C) Current Assets of $3.9 million, and no Current Liabilities.

D) Current Assets of $0.9 million, and no Current Liabilities.

_____ 11. When preparing its December 31, 2015 balance sheet, Beertender would report the following with regards to this contract:

A) Current Assets of $7.9 million, and Current Liabilities of $7.5 million.

B) Current Assets of $0.6 million, and Current Liabilities of $0.2 million.

C) Current Assets of $7.3 million, and Current Liabilities of $7.5 million.

D) Current Assets of $0.4 million, and no Current Liabilities.

Use the following information to answer questions 12 through 14:

Heineken Co. began a construction project in 2014 at a total contract price of $150 million. The project is scheduled for completion by 2016. During 2014, Heineken incurred $36 million of costs and estimates an additional $84 million of costs to complete the project. In 2015, Heineken incurred costs of $58.5 million and estimated an additional $40.5 million in costs to complete the project. Heineken uses the percentage-of-completion method to account for its projects.

_____12. In their 2014 income statement, Heineken would:

A) Recognized no gross profit or loss on the project.

B) Recognized a $6 million loss on the project.

C) Recognized $9 million gross profit on the project.

D) Recognized $36 million loss on the project.

_____ 13. In their 2015 income statement, Heineken would:

A) Recognized $15 million gross profit on the project.

B) Recognized $13.5 million gross profit on the project.

C) Recognized $6 million gross profit on the project.

D) Recognized $1.5 million gross profit on the project.

_____ 14. Assume that Heineken incurred costs of $63.75 million in 2015 and estimated it would cost an additional $42.75 million to complete the project. In their 2015 income statement, Heineken would:

A) Recognize a $3.75 million loss on the project.

B) Recognize a $5.25 million gross profit on the project.

C) Recognize a $7.5 million gross profit on the project.

D) Recognize no gross profit or loss on the project. Page 4 of 5

_____ 15. Trade receivables would include:

A) Sales to customers.

B) Loans to employees.

C) Income tax refund receivable.

D) Advances to affiliated companies.

_____ 16. On April 1 of the current year, Rolling Rock Company factored receivables with a carrying value of $85,000 for $60,000 in cash. The sale was made without recourse. At the time of sale Rolling Rock would:

A) Credit deferred interest expense for $25,000.

B) Debit factored accounts receivable for $85,000.

C) Debit discount on liability for $25,000.

D) Debit loss on sale of receivables for $25,000.

_____ 17. At December 31, 2014, Bacardi Company had $500,000 in Accounts Receivable and $20,000 in the Allowance for Doubtful Accounts. All sales made by Bacardi are on account. During 2015, Bacardi recorded the following transactions: $2,000,000 in sales; $2,100,000 collected from customers; $27,000 in accounts were written off as uncollectible; and bad debt expense for the year ended December 31, 2015 was $31,000. The net realizable value of Bacardis accounts receivable reported on their December 31, 2015 balance sheet is:

A) $373,000

B) $400,000

C) $349,000

D) $369,000

_____ 18. On December 31, 2014, Captain Morgan Companys total accounts receivable was $57,800. Captain Morgan Company uses an aging schedule to determine the required allowance for doubtful accounts. A summary of the December 31, 2014, accounts receivable aging schedule indicates $40,000 in receivables are 0 to 60 days old and the estimated uncollectible percentage of this age group is 1%; $15,000 in receivables are 61 to 90 days old and the estimated uncollectible percentage of this age group is 2%; $2,000 in receivables are 91 to 120 days old and the estimated uncollectible percentage of this age group is 20%; and $800 in receivables are over 120 days old and the estimated uncollectible percentage of this age group is 50%. The allowance for uncollectible accounts had a balance of $1,100 at January 1, 2014. During 2014, $1,200 in accounts were written off, and $500 of previously written off accounts were subsequently collected. Bad debt expense for the year ended December 31, 2014 is:

A) $1,100

B) $1,500

C) $1,600

D) $1,900 Page 5 of 5

_____ 19. The following selected financial data was taken from Admiral Nelson Company's year end December 31, 2014 financial statements: net sales equaled $110 million; cost of goods sold equaled $60 million; net income equaled $22 million; accounts receivable turnover equaled 7.2; inventory turnover equaled 5.2; asset turnover equaled 0.515; and the equity multiplier was 2.36 for the year. Admiral Nelson's return on equity for 2014 is:

A) 22.0%

B) 24.3%

C) 17.4%

D) 9.0%

_____ 20. The Richards Red Company maintains a checking account at the Bank of the North. The bank statement for the month of October 2014 indicated the following: balance on October 1, 2014 was $32,690, deposits for October totaled $86,000, checks paid in October totaled $75,200, service charges for October totaled $350; October NSF checks totaled $1,600; a monthly loan payment deducted by the bank directly from the companys bank account totaled $3,400; and the ending balance on October 31, 2014 totaled $38,140. At the end of October 2014, Richards accounting records indicated a balance in its checking account of $42,544. Deposits in transit were $4,224 and outstanding checks totaled $5,620. In addition, a check for $500 to purchase office furniture was incorrectly recorded by the company as a $50 disbursement. The bank correctly processed the check during October. Assuming the company has no other cash, the amount Richards Red would report for cash as a current asset on its October 31, 2014 balance sheet is:

A) $38,140

B) $42,544

C) $36,744

D) $41,148