University Extension MGMT-E100 Dr. M. HaselkornHarvard University Mid-term Exam Spring, 2010I. (12 points)Determine whether each of the following is true or false.1.If the period revenues are less than the period expenses,then Retained Earningsmustdecrease during the period.2.In a pre-closing trial balance, revenue and expense

accountsmusthave a zero balance.

3. Even if debits equal credits on the trial balance, youstill cannot know with certainty that your records are

correct.

4.At the end of the first year of ownership of a long-termasset, if double-declining balance depreciation is used,the net book value of the asset will always be less 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 third year of ownership of a long-termasset, the balance in the accumulated depreciation accountmust be greater than the balance in the depreciation expenseaccountII. (16 points)For each numbered item place the letter(s) that bestdescribes its category from the following possibilities:(A)Assets, (L)Liabilities, (SE)Stockholders Equity,(R)Revenue, and (E)Expense.1. Cash5. Retained Earnings

2. Salary expense6. Unearned revenue3.Inventory7. Interest payable4. Common stock8. Cost of Goods SoldIII. (16 points)Sarah Jones started a new business in January, 2010. Thefollowing are selected events that occurred in the businessduring the first year of business. Please provide journalentries for these events (explanations are not necessary).1.Sarah invested $400,000 to start the business, Sarah, Inc.and received 100 shares of stock from the business.2.Purchased inventory of $80,000 on account.3.Signed a lease for three years for $72,000. The companypaid $6,000 immediately; this was one month's rent in

advance plus a security deposit.

4.Sold inventory, costing $40,000, 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 $60,000 in salaries.8.Recognized the rent expense for the first month.

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IV. (18 points)The ABC Company has the following inventory records.2/1 Beginning balance9@ $10$ 902/5 Purchase12@ 121442/10 Sale 20@ 204002/17 Purchase15@ 111652/23 Sale 11@ 202202/25 Purchase10@ 131303/10 Purchase17@ 81363/15 Sale 25@ 205003/19 Purchase3@ 6 18RequiredFor the above data set please answer the following multiplechoice questions. Use theperiodicinventory method.1.For the month ofFebruary, usingFIFO, theending

inventorywould be

a) 226b) 162c) 185d) 198

2.For the month ofMarch, usingFIFO, theending inventorywould bea) 74b) 260c) 88d) 1603.For the month ofFebruary, usingLIFO, theending

inventorywould be

a) 226b) 162c) 150d) 198

4.For the month ofMarch, usingLIFO, theending inventorywould bea) 184b) 165c) 198d) 1025.For the month ofFebruary, usingWeighted-average, the

ending inventorywould be

a) 11.50b) 172.50c) 529.00d) 356.506. For the month ofMarch, usingWeighted-average, theending inventorywould bea) 93.29b) 233.21c) 91.97d) 137.00

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V. (18 points)Assume the following events for the year 2008.1.Creditsales$800,0002.Cashsales 100,0003.Accounts receivable balance 1/1/0815,0004.Accounts written off during the year were 5,0005.Allowance for Uncollectibles balance 1/1/08 4,0006.Sixty percent (60%) of this year's credit sales are

collected during the year.

Scenario One

Use the above data set. Assume that the company estimatesits annual bad debt expense at 3% of credit sales. 1.The adjusting entry to recognize the bad debt expense

would be

a) Bad debt ex8,000Allow for bad debts8,000b) Allow for bad debts5,000A/R5,000c) Bad debt ex27,000Allow for bad debts27,000d) Bad debt ex24,000Allow for bad debts24,000

2.The write-off of delinquent accounts would bea)A/R5,000Allow for bad debts5,000

b) Allow for bad debts 5,000A/R5,000c) Bad debt ex5,000Allow for bad debts5,000d) Allow for bad debts5,000Bad debt ex5,000

3.The net accounts receivable figure at the end of the

year would be

a) 307,000b) 330,000c) 296,000d)292,000

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Scenario Two

Use the above data set. Ignore Scenario One. Assume thatthe company estimates that 5% of its accounts receivable

will not get collected.

4.The adjusting entry to recognize the bad debt expense

would be

a) Bad debt ex16,500Allow for bad debts16,500b) Allow for bad debts17,500A/R17,500c) Bad debt ex17,500Allow for bad debts17,500d) Bad debt ex15,500Allow for bad debts15,5005. The write-off of delinquent accounts would be

a)A/R5,000

Allow for bad debts5,000b) Allow for bad debts 5,000A/R5,000c) Bad debt ex4,000Allow for bad debts4,000d) Allow for bad debts4,000A/R 4,000

6.The net accounts receivable figure ate the end of theyear would be

a) 297,000b) 329,000c) 312,500d)313,500

VI. (12 points)The ABC Company, located in Boston, purchases a piece ofequipment from a dealer in Chicago for $700,000. The cost ofshipping the equipment, $50,000, will be paid for by ABC Co. Itis estimated that the asset will last four years and at the endof its useful life will have a salvage value of $30,000. Whenthe equipment arrives it has to be set up and adjusted, at acost of $40,000.1.Assume the company uses straight-line depreciation.The depreciation expense for year one and year two

would be

a)190,000; 190,000b)190,000; 95,000c)95,000; 190,000

5d)136,667; 136,667

2.Assume the company uses double declining balance (DDB)depreciation. The depreciation expense for years one

and year two would be

a)304,000; 228,000c)300,000; 200,000b)316,000; 237,000d)395,000; 197,500

3.Assume the company uses sum-of-the-years-digits (SYD)depreciation. The depreciation expense for year one

and year two would be

a)316,000; 237,000c)300,000; 200,000b)304,000; 228,000d)76,000; 152,000

4.This part is independent of parts one through three.Assume that a company purchased an asset for $700,000.This asset has an estimated salvage value of $50,000.At the end of three years the balance in theaccumulated depreciation account is $80,000, when the

asset is sold for $610,000.

Required

Provide the journal entry for the sale of the asset.VII. (8 points). Consider each of the following scenarios independently.1. If the beginning balance in Salaries Payable was $7,700, theending balance was $8,500, and during the year the cash paid forsalaries (earned both last year and this year) was $90,000, whatmust have been the Salary Expense for the year?2. On October 1, 1998 a six year insurance policy was purchasedfor $30,000. By mistake this entire cost was expensedimmediately and this error was never corrected. Ignore taxes.At the end of 2001 is the Retained Earnings correctly statedand, 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 $600,000 and at the end of theyear they were $450,000; common stock increased (some wereissued) during the year by $50,000; and dividends declared forthe year were $120,000. What must have been the net income forthe year?4. The XYZ Company had Supplies Expense for the year of$32,000. The ending balance in the Supplies account was 5,600.If the supplies purchased during the year amounted to $20,000,what must have been the beginning balance in the supplies account?

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