Zicklin School of Business, Baruch College
ACC 3000 – Financial Accounting 1
Fall 2004
Sample Final Exam
Instructor:
Office:
Phone:
E-mail:
Prof. Donal Byard
VC 12-264
(646) 312-3187
[email protected]
Name:______________________
Last 4 Digits of SSN:__________
General Instructions: This is a closed book, closed notes, closed discussion exam. Your exam must
reflect only your work. Please verify that you have all eight pages of the exam booklet. You may
bring an ordinary non-memory programmable calculator into the exam.
There are 400 points for this exam and you 2 hours to complete. The exam points are divided as
follows:
16 Multiple-choice questions (5 points each)
80 points
4 Numerical Problem questions (80 points each)
320 points each
400
You must return the entire exam book when you are complete. There are no extra credit options
available for this exam.
For the multiple choice questions, circle your choice of answer on the exam paper. For the
discussion question and the numerical problem questions, provide your answers in the spaces
provided on this exam.
For numerical problems you must show all your supporting
calculations/explanations, where appropriate. All supporting calculations and schedules must be
legible and in good form. Be neat with your answers.
Cheating Policy:
You must honor Baruch College’s standards regarding integrity, honesty, and
cheating at all times; sharing of information during this exam in any form is strictly forbidden.
Any breach of these standards will be dealt with in accordance with Baruch College’s Code of
Academic Integrity and will be reported to the Office of the Dean of Students.
Re-grade Policy:
If, after reviewing the answers posted on Blackboard after the exams have
been returned, you feel there was a mistake grading your exam you should: write a brief
explanation of the problem on a cover sheet, attach the cover sheet to your exam, and re-submit the
exam to be regarded. Under no circumstance should you write anything on the exam. This will be
viewed as attempted cheating and reported to the Office of the Dean of Students. Your exam will
be re-graded. Keep in mind that grades can increase on decrease when they are re-graded. This
policy applied to all students. No exceptions.
1
Part A -- Multiple Choice Questions [16 questions, 4 points each]
Question 1
If a corporation purchases a lot and building and subsequently tears down the
building and uses the property as a parking lot, the proper accounting treatment
of the cost of the building would depend on
a. the significance of the cost allocated to the building in
relation to the combined cost of the lot and building.
b. the length of time for which the building was held prior to its
demolition.
c. the contemplated future use of the parking lot.
d. the intention of management for the property when the building
was acquired.
Question 2.
Assets that qualify for interest cost capitalization include
a. assets under construction for a company's own use.
b. assets that are ready for their intended use in the earnings of
the company.
c. assets that are not currently being used because of excess capacity.
d. All of these assets qualify for interest cost capitalization.
Question 3.
The period of time during which interest must be capitalized ends when
a. the asset is substantially complete and ready for its intended use.
b. no further interest cost is being incurred.
c. the asset is abandoned, sold, or fully depreciated.
d. the activities that are necessary to get the asset ready for its
intended use have begun.
Question 4.
For income statement purposes, depreciation
depreciation method used is
a. units-of-production.
b. straight-line.
c. sum-of-the-years'-digits.
d. declining-balance.
is
a
variable
Question 5.
When using a perpetual inventory system,
a. no Purchases account is used.
b. a Cost of Goods Sold account is used.
c. two entries are required to record a sale.
d. all of these.
Question 6.
Depreciation is normally computed on the basis of the nearest
a. half year.
b. full month.
c. day and to the nearest cent.
d. day and to the nearest dollar.
2
expense
if
the
Question 7.
Goods in transit which are f.o.b.
a. included in the inventory
b. included in the inventory
c. included in the inventory
d. none of these.
destination should be
of the seller.
of the buyer.
of the shipping company.
Question 8.
Which of the following methods of amortization is normally used for intangible
assets?
a. Sum-of-the-years'-digits
b. Straight-line
c. Units of production
d. Double-declining-balance
Question 9.
Factors considered in determining an intangible asset's useful life include all
of the following except
a. the expected use of the asset.
b. any legal or contractual provisions that may limit the useful life.
c. any provisions for renewal or extension of the asset's legal life.
d. the amortization method used.
Question 10.
The cost of purchasing patent rights for a product that might otherwise have
seriously competed with one of the purchaser's patented products should be
a. charged off in the current period.
b. amortized over the legal life of the purchased patent.
c. added to factory overhead and allocated to production of the purchaser's
product.
d. amortized over the remaining estimated life of the original patent
covering the product whose market would have been impaired by
competition from the newly patented product.
Question 11.
Which of the following is a current liability?
a. A long-term debt maturing currently, which is to be paid using
funds in a sinking fund
b. A long-term debt maturing currently, which is to be retired with
proceeds from a new debt issue
c. A long-term debt maturing currently, which is to be converted
into common stock
d. None of these
Question 12.
Which of the following is NOT true about the discount on short-term notes
payable?
a. The Discount on Notes Payable account has a debit balance.
b. The Discount on Notes Payable account should be reported as an
asset on the balance sheet.
c. When there is a discount on a note payable, the effective
interest rate is higher than the stated discount rate.
d. All of these are true.
3
Question 13.
Which of the following should NOT be included in the current liabilities section
of the balance sheet?
a. Trade notes payable
b. Short-term zero-interest-bearing notes payable
c. The discount on short-term notes payable
d. All of these are included
Question 14.
Designated market value
a. is always the middle value of replacement cost, net realizable
value, and net realizable value less a normal profit margin.
b. should always be equal to net realizable value.
c. may sometimes exceed net realizable value.
d. should always be equal to net realizable value less a normal
profit margin.
Question 15.
Lower of cost or market
a. is most conservative if applied to the total inventory.
b. is most conservative if applied to major categories of inventory.
c. is most conservative if applied to individual items of inventory.
d. must be applied to major categories for taxes.
Question 16.
Goods in consignment are
a. included in the consignee's inventory.
b. recorded in a Consignment Out account which is an inventory
account.
c. recorded in a Consignment In account which is an inventory
account.
d. all of these
4
Part B -- Numerical Problems [4 questions, 80 points each]
Question 17.
On August 1, Arna, Inc., exchanged productive assets with Bontemps, Inc. Arna’s
asset is referred to below as “Asset A,” and Bontemps’ is referred to as “Asset
B.” The following facts pertain to these assets:
Original cost
Accumulated depreciation (to date of exchange)
Fair market value at date of exchange
Cash paid by Arna, Inc. and
received by Bontemps, Inc.
Asset A
$96,000
45,000
60,000
Asset B
$110,000
52,000
75,000
15,000
Instructions
Assuming that Asset A and Asset B are similar assets, record the exchange for
both Arna, Inc. and Bontemps Inc. in accordance with GAAP.
5
Question 18.
MB Inc. purchases equipment for $212,000 on October 1, 2003.
It is estimated
that the equipment will have a useful life of 8 years and a salvage value of
$12,000. Estimated production is 40,000 units of output and estimated working
hours is 20,000.
During 2003, MB uses the equipment for 525 hours and the
equipment produces 1,000 units of output. Fiscal years correspond to calender
years for MB Inc.
Instructions
a) Calculate the 2003 depreciation expense using an activity method based
on the number of hours the equipment works;
b) Calculate the 2003, 2004 and 2005 annual depreciation for the equipment
if the sum-of-years’-digits method is used;
c) Calculate the 2003, 2004 and 2005 annual depreciation for the equipment
if the double-declining balance method.
6
Question 19.
AP Inc. sells machines for $7,400 under a 12-month warranty agreement that
requires the company to replace all defective parts and to provide repair labor
at no cost to the customer. Sales are distributed evenly throughout the year.
The company sells 650 machines in 2005 (warranty expenses are incurred half in
2005 and half in 2006). As a result of production testing, AP estimates that
the warranty cost is $370 per machine ($170 parts and $200 labor).
Instructions
Assuming that the actual warranty costs are as expected, what are the journal
entries to record:
a) The sale of machines in 2005;
b) Warranty expenses charged against 2005 revenues;
c) Warranty costs incurred in 2005; and
d) Warranty costs incurred in 2006.
7
Question 20.
Eller Company manufactures one product. On December 31, 2002, Eller adopted the
dollar-value LIFO inventory method. The inventory on that date using the dollarvalue LIFO inventory method was $200,000. Inventory data are as follows:
Year
————
2003
2004
2005
Inventory at
year-end prices
———————————————
$336,000
437,000
425,000
Price index
(base year 2002)
————————————————
1.05
1.15
1.25
Instructions
Compute the inventory at December 31, 2003, 2004, and 2005, using the dollarvalue LIFO method for each year.
8
Answer Key – Version A
Multiple Choice Questions
Part A: [16 Questions, 5 points each]
+-------+------+--------+------+--------+--------+--------+--------+------+
| Text | Bank | Exam |
|
| Ques | Diff | Lrng |
|
|Chapter| Ref |Question|Answer| Type | Cat
| Lvl
| Obj
| Page |
+-------+------+--------+------+--------+--------+--------+--------+------+
| 10
8
1
d
MChoice
C
2
|
| 10
13
2
a
MChoice
C
4
|
| 10
15
3
a
MChoice
C
4
|
| 11
6
4
a
MChoice
C
3
|
| 11
9
5
d
MChoice
C
3
|
| 11
14
6
b
MChoice
C
5
|
| 11
16
7
a
MChoice
C
5
|
| 12
2
8
b
MChoice
C
3
|
| 12
4
9
d
MChoice
C
3
|
| 12
5
10
d
MChoice
C
4
|
| 13
2
11
d
MChoice
C
1
|
| 13
5
12
b
MChoice
C
1
|
| 13
8
13
d
MChoice
C
1
|
| 17
1
14
a
MChoice
C
1
|
| 17
6
15
c
MChoice
C
1
|
| 17
8
16
b
MChoice
C
3
|
+-------------------------------------------------------------------------+
11. A long-term debt maturing currently to be paid with current assets
is a current liability.
9
Question 17 [80 points]
Arna Inc.’s Books
Asset B ($75,000 – $9,000)
Accumulated Depreciation—Asset A
Asset A
Cash
[20 pts]
66,000*
45,000
*Computation of gain deferred:
Fair value
Book value
Gain deferred
$60,000
(51,000)
$ 9,000
96,000
15,000
[10 pts]
Bontemps Inc.’s Books
Cash
Asset A
Accumulated Depreciation—Asset B
Asset B
Gain on Disposal of Plant Assets
15,000
46,400*
52,000
Computation of total gain:
Fair value of Asset B
Book value of Asset B
Total gain
*Fair value of asset
acquired
Less gain deferred
($17,000 – $3,400)
Basis of Asset A
**Gain recognized =
$75,000
(58,000)
$17,000
$60,000
13,600
$46,400
OR
Book value of
Asset B
Portion of book
value sold
$15,000
$15,000 + $60,000
10
110,000
3,400**
[25 pts]
$58,000
(11,600)
$46,400
X $17,000 = $3,400
[15 pts]
Question 18. [80 points]
(a)
2003
$212,000 – $12,000
20,000
Working hours
525 hours X $10.00 = $5,250
(b)
= $10.00/hour
[20 pts]
n (n + 1)
8 + 7 + 6 + 5 + 4 + 3 + 2 + 1 = 36 OR
2
8(9)
=
2
= 36
Allocated to
Sum-of-the-years’-digits
Year 1
2
3
8/36 X $200,000 =
7/36 X $200,000 =
6/36 X $200,000 =
Total
2003
2004
2005
$44,444
$38,889
$33,333
$11,111
$33,333
9,722
_______
$43,055
$29,167
8,333
$37,500
_______
$11,111
[3 x 10 pts]
2005: $37,500 = (9/12 of 2nd year of machine’s life plus 3/12 of 3rd year
of machine’s life)
(c)
Double Declining Balance
st
1 Year
2nd Year
212,000 x 25% =
(212,000 – 53,000) x 25%
53,000
39,750
3rd Year
(212,000 – (53,000 + 39,750)) x 25%
29,812.50
(c)
st
1 Year
2nd Year
3rd Year
[give partial
credit
Allocate To:
2003
13,250
53,000
39,750
29,812.50
13,250
[3 x 10 pts]
11
2004
39,750
9,937.50
49,687.50
2005
29,812.50
7,453.13
37,265.63
Question 19 [Total of 80 points]
1.
2.
3.
4.
Cash or Accounts Receivable
Sales (650 X $7,400)
[20 pts]
4,810,000
4,810,000
Warranty Expense
Parts Inventory ($170 X 650 X 1/2)
Accrued Payroll ($200 X 650 X 1/2)
($120,250 = 650 X $370)
2
[20 pts]
120,250
Warranty Expense
Estimated Liability Under Warranties
(650 machines X $370) – $120,250
[20 pts]
120,250
Estimated Liability Under Warranties
Parts Inventory
Accrued Payroll
[20 pts]
120,250
12
55,250
65,000
120,250
55,250
65,000
Question 20 [80 points]
Eller Company
Dollar-Value LIFO Computations
At December 31, 2003, 2004, and 2005
Ending Inventory at BaseYear Price
—————————————
At 12/31, $336,000/1.05
2003:
= $320,000
Layers at
Base-Year
Prices
—————————
$200,000
$120,000
x
x
Price
Index
—————
1.00 =
1.05 =
At 12/31, $437,000/1.15
2004:
= $380,000
$200,000
$120,000
$ 60,000
x
x
x
1.00
1.05
1.15
=
=
=
$200,000
126,000
69,000
————————
$395,000 [30 pts]
At 12/31, $425,000/1.25
2005:
= $340,000
$200,000
$120,000
$ 20,000
x
x
x
1.00
1.05
1.15
=
=
=
$200,000
126,000
23,000
————————
$349,000 [30 pts]
13
Ending Inventory
at Dollar-Value
LIFO
————————————————
$200,000
126,000
————————
$326,000 [20 pts]