MOCK EXAM 2

6-123. Stech Co. is issuing $9 million 12% bonds in a private placement on July 1, 2017. Each $1,000 bond pays interest semi-annually on December 31 and June 30 of each year. The bonds mature in ten years. At the time of issuance, the market interest rate for similar types of bonds was 8%. What is the expected selling price of the bonds? a. $11,446,288. b. $13,500,000. c. $11,415,597. d. $11,507,486.

a. $11,446,288.

*7-105. If the estimate of uncollectible accounts is made by taking 10% of gross account receivables, the amount of the adjustment is a. $14,160. b. $17,200. c. $16,896. d. $20,240.

a. $14,160.

*8-111. Checkers uses the periodic inventory system. For the current month, the beginning inventory consisted of 7,200 units that cost $12 each. During the month, the company made two purchases: 3,000 units at $13 each and 12,000 units at $13.50 each. Checkers also sold 12,900 units during the month. Using the average cost method, what is the amount of cost of goods sold for the month? a. $167,055. b. $173,700. c. $161,850. d. $167,700.

a. $167,055.

6-93. Pearson Corporation makes an investment today (January 1, 2017). They will receive $15,000 every December 31st for the next six years (2017 - 2022). If Pearson wants to earn 12% on the investment, what is the most they should invest on January 1, 2017? a. $61,671. b. $69,072. c. $130,060. d. $136,335.

a. $61,671.

5-90. During 2017 the DLD Company had a net income of $85,000. In addition, selected accounts showed the following changes: Accounts Receivable $3,000 increase Accounts Payable 1,000 increase Buildings 4,000 decrease Depreciation Expense 1,500 increase Bonds Payable 8,000 increase What was the amount of cash provided by operating activities? a. $84,500 b. $85,000 c. $86,500 d. $94,500

a. $84,500

During 2017, which was the first year of operations, Oswald Company had merchandise purchases of $985,000 before cash discounts. All purchases were made on terms of 2/10, n/30. Three-fourths of the items purchased were paid for within 10 days of purchase. All of the goods available had been sold at year end. 56. Which of the following recording procedures would result in the highest cost of goods sold for 2017? 1. Recording purchases at gross amounts 2. Recording purchases at net amounts, with the amount of discounts not taken shown under "other expenses" in the income statement a. 1 b. 2 c. Either 1 or 2 will result in the same cost of goods sold. d. Cannot be determined from the information provided.

a. 1

*7-91. AG Inc. made a $25,000 sale on account with the following terms: 2/10, n/30. If the company uses the NET method to record sales made on credit, what is/are the debit(s) in the journal entry to record the sale? a. Debit Accounts Receivable for $24,500. b. Debit Accounts Receivable for $24,500 and Sales Discounts for $500. c. Debit Accounts Receivable for $25,000. d. Debit Accounts Receivable for $25,000 and Sales Discounts for $500.

a. Debit Accounts Receivable for $24,500.

63. An inventory pricing procedure in which the oldest costs incurred rarely have an effect on the ending inventory valuation is a. FIFO. b. LIFO. c. base stock. d. weighted-average.

a. FIFO.

8-80. Which of the following statements is not true as it relates to the dollar-value LIFO inven¬tory method? a. It is easier to erode LIFO layers using dollar-value LIFO techniques than it is with specific goods pooled LIFO. b. Under the dollar-value LIFO method, it is possible to have the entire inventory in only one pool. c. Several pools are commonly employed in using the dollar-value LIFO inventory method. d. Under dollar-value LIFO, increases and decreases in a pool are determined and measured in terms of total dollar value, not physical quantity.

a. It is easier to erode LIFO layers using dollar-value LIFO techniques than it is with specific goods pooled LIFO.

75. What is a LIFO reserve? a. The difference between the LIFO inventory and the amount used for internal reporting purposes. b. The tax savings attributed to using the LIFO method. c. The current effect of using LIFO on net income. d. Change in the LIFO inventory during the year.

a. The difference between the LIFO inventory and the amount used for internal reporting purposes.

LIFO LIQUIDATION *8-120. Nichols Company had 600 units of "Dink" in its inventory at a cost of $12 each. It purchased 900 more units of "Dink" at a cost of $18 each. Nichols then sold 1,050 units at a selling price of $30 each. The LIFO liquidation overstated normal gross profit by a. $ -0- b. $ 900. c. $1,800. d. $2,700.

b. $ 900.

Niles Co. has the following data related to an item of inventory: Inventory, March 1 400 units @ $2.10 Purchase, March 7 1,400units @ $2.20 Purchase, March 16 280 units @ $2.25 Inventory, March 31 520 units *8-100. The value assigned to ending inventory if Niles uses LIFO is a. $1,160. b. $1,104. c. $1,092. d. $1,168.

b. $1,104.

Dollar Value: Gross Profit RF Company had January 1 inventory of $300,000 when it adopted dollar-value LIFO. During the year, purchases were $1,800,000 and sales were $3,000,000. December 31 inventory at year-end prices was $430,080, and the price index was 112. *8-122. What is RF Company's gross profit? a. $1,248,000. b. $1,294,080. c. $1,330,380. d. $2,605,920.

b. $1,294,080.

7-94. David Company uses the gross method to record sales made on credit. On June 10, 2017, it sold goods worth $250,000 with terms 2/10, n/30 to Charles Inc. On June 19, 2017, David received payment for 1/2 of the amount due from Charles Inc. David's fiscal year end is on June 30, 2017. What amount will be reported in the financial statements for the accounts receivable due from Charles Inc.? a. $122,500. b. $125,000. c. $250,000. d. $245,000.

b. $125,000.

5-94. Packard Corporation reports the following information: Net cash provided by operating activities $335,000 Average current liabilities 150,000 Average long-term liabilities 100,000 Dividends paid 60,000 Capital expenditures 110,000 Payments of debt 35,000 Packard's free cash flow is a. $130,000. b. $165,000. c. $225,000. d. $275,000.

b. $165,000.

6-74. Mordica Company will receive $400,000 in 7 years. If the appropriate interest rate is 10%, the present value of the $400,000 receipt is a. $204,000. b. $205,264. c. $604,000. d. $779,488.

b. $205,264.

*7-127. On February 1, 2017, Henson Company factored receivables with a carrying amount of $700,000 to Agee Company. Agee Company assesses a finance charge of 3% of the receivables and retains 5% of the receivables. Relative to this transaction, you are to determine the amount of loss on sale to be reported in the income statement of Henson Company for February. Assume that Henson factors the receivables on a without recourse basis. The loss to be reported is a. $0. b. $21,000. c. $35,000. d. $56,000.

b. $21,000.

*7-128. On February 1, 2017, Henson Company factored receivables with a carrying amount of $700,000 to Agee Company. Agee Company assesses a finance charge of 3% of the receivables and retains 5% of the receivables. Relative to this transaction, you are to determine the amount of loss on sale to be reported in the income statement of Henson Company for February. Assume that Henson factors the receivables on a with recourse basis. The recourse obligation has a fair value of $3,500. The loss to be reported is a. $21,000. b. $24,500. c. $35,000. d. $59,500.

b. $24,500.

110. Vasguez Corporation had a 1/1/17 balance in the Allowance for Doubtful Accounts of $40,000. During 2017, it wrote off $28,800 of accounts and collected $8,400 on accounts previously written off. The balance in Accounts Receivable was $800,000 at 1/1 and $960,000 at 12/31. At 12/31/17, Vasguez estimates that 5% of accounts receivable will prove to be uncollectible. What is Bad Debt Expense for 2017? a. $8,000. b. $28,400. c. $36,800. d. $48,000.

b. $28,400.

5-89. Keisler Corporation reports: Cash provided by operating activities $280,000 Cash used by investing activities 110,000 Cash provided by financing activities 140,000 Beginning cash balance 90,000 What is Keisler's ending cash balance? a. $370,000. b. $400,000. c. $530,000. d. $620,000.

b. $400,000.

6-112. On January 2, 2017, Wine Corporation wishes to issue $6,000,000 (par value) of its 8%, 10-year bonds. The bonds pay interest annually on January 1. The current yield rate on such bonds is 10%. Using the interest factors below, compute the amount that Wine will realize from the sale (issuance) of the bonds. Present value of 1 at 8% for 10 periods 0.4632 Present value of 1 at 10% for 10 periods 0.3855 Present value of an ordinary annuity at 8% for 10 periods 6.7101 Present value of an ordinary annuity at 10% for 10 periods 6.1446 a. $6,000,000 b. $5,262,408 c. $6,000,036 d. $6,636,156

b. $5,262,408

7-115. Equestrain Roads sold $120,000 of goods and accepted the customer's $120,000 10%, 1-year note receivable in exchange. Assuming 10% approximates the market rate of return, what would be the debit in this journal entry to record the sale? a. No journal entry until cash is collected. b. Debit Notes Receivable for $120,000. c. Debit Accounts Receivable for $120,000. d. Debit Notes Receivable for $108,000.

b. Debit Notes Receivable for $120,000.

68. Tanner Corporation's inventory on its balance sheet was lower using first-in, first-out than it would have been using last-in, first-out. Assuming no beginning inventory, in what direction did the cost of purchases move during the period? a. Up b. Down c. Steady d. Cannot be determined

b. Down

7-119. Jones Company has notes receivable that have a fair value of $950,000 and a carrying amount of $1,250,000. Jones decides on December 31, 2017, to use the fair value option for these recently-acquired receivables. Which of the following entries will be made on December 31, 2017 to record the unrealized holding gain/loss? a. Unrealized Holding Gain or LossEquity 300,000 Notes Receivable 300,000 b. Unrealized Holding Gain or LossIncome 300,000 Notes Receivable 300,000 c. Notes Receivable 300,000 Unrealized Holding Gain or LossIncome 300,000 d. Notes Receivable 300,000 Unrealized Holding Gain or LossEquity 300,000

b. Unrealized Holding Gain or LossIncome 300,000 Notes Receivable 300,000

*7-99. Wellington Corp. has outstanding accounts receivable totaling $6 million as of December 31 and sales on credit during the year of $30 million. There is also a debit balance of $24,000 in the allowance for doubtful accounts. If the company estimates that 8% of its outstanding receivables will be uncollectible, what will be the balance in the allowance for doubtful accounts after the year-end adjustment to record bad debt expense? a. $2,400,000. b. $ 456,000. c. $ 480,000. d. $ 504,000.

c. $ 480,000.

6-76. Milner Company will invest $800,000 today. The investment will earn 6% for 5 years, with no funds withdrawn. In 5 years, the amount in the investment fund is a. $800,000. b. $1,040,000. c. $1,070,584. d. $1,072,232.

c. $1,070,584.

*7-129. Maxwell Corporation factored, with recourse, $200,000 of accounts receivable with Huskie Financing. The finance charge is 3%, and 5% was retained to cover sales discounts, sales returns, and sales allowances. Maxwell estimates the recourse obligation at $4,800. What amount should Maxwell report as a loss on sale of receivables? a. $ -0-. b. $6,000. c. $10,800. d. $20,800.

c. $10,800.

EI:FIFO 113. Checkers uses the periodic inventory system. For the current month, the beginning inventory consisted of 7,200 units that cost $12 each. During the month, the company made two purchases: 3,000 units at $13 each and 12,000 units at $13.50 each. Checkers also sold 12,900 units during the month. Using the FIFO method, what is the ending inventory? a. $120,438. b. $111,600. c. $125,550. d. $113,700.

c. $125,550.

*7-103. The following information is available for Murphy Company: Allowance for doubtful accounts at December 31, 2016 $ 24,000 Credit sales during 2017 $1,200,000 Accounts receivable deemed worthless and written off during 2017 $27,000 As a result of a review and aging of accounts receivable in early January 2018, it has been determined that an allowance for doubtful accounts of $16,000 is needed at December 31, 2017. What amount should Murphy record as "bad debt expense" for the year ended December 31, 2017? a. $13,000 b. $16,000 c. $19,000 d. $40,000

c. $19,000

*8-85. Lawson Manufacturing Company has the following account balances at year end: Office supplies $ 4,000 Raw materials 27,000 Work-in-process 59,000 Finished goods 109,000 Prepaid insurance 6,000 What amount should Lawson report as inventories in its balance sheet? a. $109,000. b. $113,000. c. $195,000. d. $199,000.

c. $195,000.

LIFO RESERVE *8-117. Black Corporation uses the FIFO method for internal reporting purposes and LIFO for external reporting purposes. The balance in the LIFO Reserve account at the end of 2017 was $280,000. The balance in the same account at the end of 2018 is $420,000. Black's Cost of Goods Sold account has a balance of $2,100,000 from sales transactions recorded during the year. What amount should Black report as Cost of Goods Sold in the 2018 income statement? a. $1,960,000. b. $2,100,000. c. $2,240,000. d. $2,520,000.

c. $2,240,000.

*7-97. Wellington Corp. has outstanding accounts receivable totaling $1.27 million as of December 31 and sales on credit during the year of $6.4 million. There is also a debit balance of $6,000 in the allowance for doubtful accounts. If the company estimates that 2% of its accounts receivable will be uncollectible, what will be the balance in the allowance for doubtful accounts after the year-end adjustment to record bad debt expense? a. $19,400. b. $31,400. c. $25,400. d. $25,280.

c. $25,400.

*8-141. On June 1, 2017, Penny Corp. sold merchandise with a list price of $70,000 to Linn on account. Penny allowed trade discounts of 30% and 20%. Credit terms were 2/15, n/40 and the sale was made f.o.b. shipping point. Penny prepaid $1,000 of delivery costs for Linn as an accommodation. On June 12, 2017, Penny received from Linn a remittance in full payment amounting to a. $38,416. b. $39,788. c. $39,416. d. $39,186.

c. $39,416.

Dollar Value: EI RF Company had January 1 inventory of $300,000 when it adopted dollar-value LIFO. During the year, purchases were $1,800,000 and sales were $3,000,000. December 31 inventory at year-end prices was $430,080, and the price index was 112. *8-121. What is RF Company's ending inventory? a. $300,000. b. $384,000. c. $394,080. d. $430,080.

c. $394,080.

6-114. John won a lottery that will pay him $500,000 at the end of each of the next twenty years. Assuming an appropriate interest rate is 8% compounded annually, what is the present value of this amount? a. $5,301,800. b. $107,276. c. $4,909,075. d. $22,880,980.

c. $4,909,075.

5-91. Harding Corporation reports the following information: Net income $530,000 Depreciation expense 140,000 Increase in accounts receivable 60,000 Harding should report cash provided by operating activities of a. $330,000. b. $450,000. c. $610,000. d. $730,000.

c. $610,000.

COGS:LIFO 8-116. Chess Top uses the periodic inventory system. For the current month, the beginning inventory consisted of 480 units that cost $65 each. During the month, the company made two purchases: 720 units at $68 each and 360 units at $70 each. Chess Top also sold 1,200 units during the month. Using the LIFO method, what is the amount of cost of goods sold for the month? a. $81,048. b. $78,000. c. $81,960. d. $80,160.

c. $81,960.

6-83. What interest rate (the nearest percent) must Charlie earn on a $452,000 investment today so that he will have $1,140,000 after 12 years? a. 6%. b. 7%. c. 8%. d. 9%.

c. 8%.

*7-90. AG Inc. made a $25,000 sale on account with the following terms: 1/15, n/30. If the company uses the GROSS method to record sales made on credit, what is/are the debit(s) in the journal entry to record the sale? a. Debit Accounts Receivable for $24,750. b. Debit Accounts Receivable for $24,750 and Sales Discounts for $250. c. Debit Accounts Receivable for $25,000. d. Debit Accounts Receivable for $25,000 and Sales Discounts for $250.

c. Debit Accounts Receivable for $25,000.

6-59. Paula purchased a house for $300,000. After providing a 20% down payment, she borrowed the balance from the local savings and loan under a 30-year 6% mortgage loan requiring equal monthly installments at the end of each month. Which time value concept would be used to determine the monthly payment? a. Present value of one. b. Future value of one. c. Present value of an ordinary annuity. d. Future value of an ordinary annuity.

c. Present value of an ordinary annuity.

7-93. On April 2, Kelvin sold $40,000 of inventory items on credit with the terms 1/10, net 30. Payment on $24,000 sales was received on April 8 and the remaining payment on $16,000 sales was received on April 27. Assuming Kelvin uses the net method of accounting for sales discounts, the entry recorded on April 27 would include a: a. debit to Cash and credit to Accounts Receivable for $15,840. b. debit to Accounts Receivable and credit to Sales Revenue for $40,000. c. debit to Accounts Receivable and credit to Sales Discounts Forfeited for $160. d. debit to Cash and credit to Sales Discounts Forfeited for $400.

c. debit to Accounts Receivable and credit to Sales Discounts Forfeited for $160.

5-102. In a statement of cash flows, receipts from sales of property, plant, and equipment and other productive assets should generally be classified as cash inflows from a. operating activities. b. financing activities. c. investing activities. d. selling activities.

c. investing activities.

?8-107. Milford Company had 500 units of "Tank" in its inventory at a cost of $4 each. It purchased, for $2,800, 300 more units of "Tank". Milford then sold 400 units at a selling price of $10 each, resulting in a gross profit of $1,600. The cost flow assumption used by Milford a. is FIFO. b. is LIFO. c. is weighted average. d. cannot be determined from the information given.

c. is weighted average.

7-98. Wellington Corp. has outstanding accounts receivable totaling $6.5 million as of December 31 and sales on credit during the year of $24 million. There is also a credit balance of $12,000 in the allowance for doubtful accounts. If the company estimates that 6% of its outstanding receivables will be uncollectible, what will be the amount of bad debt expense recognized for the year? a. $ 402,000. b. $ 390,000. c. $1,440,000. d. $ 378,000.

d. $ 378,000.

Winsor Co. records purchases at net amounts. On May 5 Winsor purchased merchandise on account, $80,000, terms 2/10, n/30. Winsor returned $6,000 of the May 5 purchase and received credit on account. At May 31 the balance had not been paid. 8-97. By how much should the account payable be adjusted on May 31? a. $ 0. b. $1,720. c. $1,600. d. $1,480.

d. $1,480.

EI:LIFO 8-115. Checkers uses the periodic inventory system. For the current month, the beginning inventory consisted of 7,200 units that cost $12 each. During the month, the company made two purchases: 3,000 units at $13 each and 12,000 units at $13.50 each. Checkers also sold 12,900 units during the month. Using the LIFO method, what is the ending inventory? a. $120,438. b. $111,600. c. $125,550. d. $113,700.

d. $113,700.

6-96. Tipson Corporation will invest $25,000 every January 1st for the next six years (2014 - 2022). If Tipson will earn 12% on the investment, what amount will be in the investment fund on December 31, 2022? a. $102,785 b. $115,120. c. $202,880. d. $227,225.

d. $227,225.

*8-112. Chess Top uses the periodic inventory system. For the current month, the beginning inventory consisted of 480 units that cost $65 each. During the month, the company made two purchases: 720 units at $68 each and 360 units at $70 each. Chess Top also sold 1,200 units during the month. Using the average cost method, what is the amount of ending inventory? a. $25,200. b. $81,048. c. $80,160. d. $24,314.

d. $24,314.

Niles Co. has the following data related to an item of inventory: Inventory, March 1 400 units @ $2.10 Purchase, March 7 1,400units @ $2.20 Purchase, March 16 280 units @ $2.25 Inventory, March 31 520 units 101. The value assigned to cost of goods sold if Niles uses FIFO is a. $1,160. b. $1,104. c. $3,448. d. $3,392.

d. $3,392.

Winsor Co. records purchases at net amounts. On May 5 Winsor purchased merchandise on account, $80,000, terms 2/10, n/30. Winsor returned $6,000 of the May 5 purchase and received credit on account. At May 31 the balance had not been paid. *8-96. The amount to be recorded as a purchase return is a. $5,400. b. $6,120 c. $6,000. d. $5,880.

d. $5,880.

*8-130. Willy World began using dollar-value LIFO for costing its inventory two years ago. The ending inventory for the past two years in end-of-year dollars was $300,000 and $450,000 and the year-end price indices were 1.0 and 1.2, respectively. Assuming the current inventory at end of year prices equals $645,000 and the index for the current year is 1.25, what is the ending inventory using dollar-value LIFO? a. $532,500. b. $559,200. c. $570,000. d. $566,250.

d. $566,250.

COGS:FIFO 114. Chess Top uses the periodic inventory system. For the current month, the beginning inventory consisted of 480 units that cost $65 each. During the month, the company made two purchases: 720 units at $68 each and 360 units at $70 each. Chess Top also sold 1,200 units during the month. Using the FIFO method, what is the amount of cost of goods sold for the month? a. $81,048. b. $78,000. c. $81,960. d. $80,160.

d. $80,160.

71. The acquisition cost of a certain raw material changes frequently. The book value of the inventory of this material at year end will be the same if perpetual records are kept as it would be under a periodic inventory method only if the book value is computed under the a. weighted-average method. b. moving average method. c. LIFO method. d. FIFO method.

d. FIFO method.

6-61. Which of the following is false? a. The future value of a deferred annuity is the same as the future value of an annuity not deferred. b. A deferred annuity is an annuity in which the rents begin after a specified number of periods. c. To compute the present value of a deferred annuity, we compute the present value of an ordinary annuity of 1 for the entire period and subtract the present value of the rents which were not received during the deferral period. d. If the first rent is received at the end of the sixth period, it means the ordinary annuity is deferred for six periods.

d. If the first rent is received at the end of the sixth period, it means the ordinary annuity is deferred for six periods.

*8-87. Malone Corporation uses the perpetual inventory and the gross method. On March 1, it purchased $80,000 of inventory, terms 2/10, n/30. On March 3, Malone returned goods that cost $8,000. On March 9, Malone paid the supplier. On March 9, Malone should credit a. purchase discounts for $1,600. b. inventory for $1,600. c. purchase discounts for $1,440. d. inventory for $1,440.

d. inventory for $1,440.