I
I Multiple Choice ( @ 3 point, 30%)
1. On January 1,2007, Scissors Corp. issues $200,000,5-year, 7%
bonds at face value. The entry to record the issuance of the bonds
would include a :
(a) credit to bonds payable for $200,000.
(b) debit to bonds payable for $200,000.
(c) debit to cash for $14,000.
(d) credit to bond interest expense of $14,000.
f*
%
2. In a recent year Day Corporation had net income of $150,000,
interest expense of $30,000, and tax expense of $20,000. What
was Day Corporation's times interest earned ratio for the year?
(a) 7.50.
(b) 6.67.
(c) 5.00
(d) 4.00
3. Frail Company's ending inventory is understated by $4,000. The
effects of this error on the current year's cost of goods sold and
net income, respectively, are:
(a) understated and overstated.
(b) understated and understated.
(c) overstated and understated.
(d) overstated and overstated.
4. The lower of cost or market rule for inventory is an example of
the application of:
(a) the conservatism constraint.
(b) the historical cost principle.
(c) the materiality constraint.
(d) the economic entity assumption.
5. Additions to plant assets:
(a)
(b)
(c)
(d)
are revenue expenditures.
are capital expenditures.
increase a Repair Expense account.
increase a Purchase account.
Pierce Company incurred $150,000 of research and developnlent
costs in its laboratory to develop a new product. It spent $20,000
in legal fees for a patent granted on January 2,2007. On July 3 1,
2007, Pierce paid $15,000 for legal fees in a successful defense
of the patent. What is the total amount that should be debited to
Patents through July 3 1,2007?
(a) $185,000
(b) $150,000
(c) $35,000
(d) Some other amount
Cash dividends paid to stockholders are classified on the
statement of cash flows as:
(a) Operating activities.
(b) investing activities.
(c) a combination of (a) and (b).
(d) financing activities.
8. A check is written to replenish a $100 petty cash fund when the
fi~ndcontains receipts of $94 and $3 in cash. In recording the
check:
(a) Petty Cash should be debited for $94.
(b) Petty Cash should be credited for $3.
(c) Cash should be credited for $94.
(d) Cash Over and Short should be debited for $3.
9. Which is an example of a cash flow fiom a financing activity?
(a) Receipt of cash from sale of land.
(b) Issuance of debt for cash.
(c) Purchase of equipment for cash.
(d) None of the above.
10. When there is a change in estimated depreciation:
(a) previous depreciation should be corrected.
(b) Current and future years' depreciation should be revised.
(c) Only future years' depreciation should be revised.
(d) None of the above.
For a recent 2-year period, the balance sheet of Santana Dotson Company
showed the following stockholders' equity data at December 3 1 in
~nillions.
2007
- 2006
$ 931
$ 817
Additional paid-in capital
Common stock-par
545
Retained earnings
7,167
Treasury stock
1,564
Total stockholders' equity, $7,079
Coimlon stock shares issued
218
500
Common stoclc shares authorized
Treasury stock shares
34
lnslr~~ctions
(a) Answer the following questions.
(1) What is the par value of the common stock'?
(2) What is the cost per share of treasury stock at December 31,
2007, and at December 3 1,2006?
(b) Prepare the stockholders' equity section at December 3 1, 2007.
,
Parent Co. invested $1,000,000 in Sub Co. for 25% of its outstanding
stoclc. Sub Co. pays out 40% of net income in dividends each year.
111strl~ctiolls
Use the infoimation in the following T-account for the investment in sub
to answer the following questions.
Investrrlent in Sub Co.
110,000
(a)
(b)
(c)
(d)
(e)
44,000
How much was Parent Co.3 share of Sub Co.'s net income for the
year'?
How much was Parent Co.'s share of Sub (20.3 dividend for the
year?
~ n the
e year?
What was Sub Co.'s total net i ~ ~ c o for
What was Sub Co.'s total dividends for the year?
'Ilarent Co. $$j Sub Co.i?t$7!je@
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85
P
Q
IV (24 %)
Presented l~ereis an aging schedule for West Beach Company.
.-
Customer
Total
Aaron
Brett
Car?
Dustin
Others
Estimated percen tiage
uncollectible
Total estimated bad
debts
At Decerrlber 31, 2007, the unadjusted balance in Allowance for Doubtful
Accounts is a debit of $1 1,700.
Instructions
(a) Journalize the adjusting entry for bad debts at December 31,2007
(b) Journalize the allowance account these 2008 events and transactions:
1. March 3 1, a $500 customer balance originating in 2007 is judged
uncollectible.
2. May 3 1, a check for $300 is received from the customer whose
account was written off as uncollectible on Marcli 3 1.
(c) Journalize the adjusting entry for bad debts on December 31, 2008,
assuming that the unadjusted balance in Allowance for Doubtful
Accounts is a credit of $800 and the aging schedule indicates that
total estimated bad debts will be $33,300.
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