PART I ? MULTIPLE CHOICE (7.5 points) Instructions: Designate the best answer for each of the following questions. 1. A corporation issued $600,000 of 8%, 5-year bonds on January 1, at 102. Interest is paid semiannually on January 1 and July 1. If the corporation uses the straight-line method of amortization, the amount of bond interest expense to be recognized on July 1 is a. $48,000. b. $24,000. c. $25,200. d. $22,800. 2. A prior period adjustment a. appears on the income statement as an extraordinary item. b. is a correction of an error, made directly to retained earnings. c. is made when preferred dividends in arrears are finally paid. d. is made to reverse an adjusting entry. 3. Fenway Company sells 1,000 shares of treasury stock for $32,000. The shares had been previously acquired for $24,000. The $8,000 received over cost should be credited to a. an asset account. b. a paid-in capital account. c. a revenue account. d. retained earnings. 4. Equipment was purchased for $100,000 and has a book value of $44,000 and a depreciable cost of $76,000. The estimated salvage value is a. $44,000. b. $56,000. c. $32,000. d. $24,000. 5. Inventory turnover is computed by dividing the average inventory into a. net sales. b. total assets. c. cost of goods sold. d. stockholders' equity. 6. Appier Company reported net income of $40,000 for the year ended December 31, 2003. During the year, inventories decreased by $14,000, accounts payable decreased by $16,000, depreciation expense was $20,000 and a gain on disposal of equipment of $13,000 was recorded. Net cash provided by operations in 2003 using the indirect method was a. $103,000. b. $21,000. c. $77,000. d. $45,000. 7. Which one of the following transactions does not affect cash? a. Acquisition and retirement of bonds payable b. Write-off of an uncollectible accounts receivable c. Acquisition of treasury stock d. Payment of cash dividend 8. The purchase of office equipment for $15,000 cash a. is a cash outflow from financing activities. b. is a cash outflow from operating activities. c. is a cash outflow from investing activities. d. does not affect cash flows. 9. Which one of the following payroll taxes does not result in a payroll tax expense for the employer? a. FICA tax b. Federal income tax c. Federal unemployment tax d. State unemployment tax 10. Lisa Ball's regular rate of pay is $12 per hour with one and one-half times her regular rate for any hours which exceed 40 hours per week. She worked 48 hours last week. Therefore, her gross wages were a. $576. b. $480. c. $624. d. $864. 11. The tax that is paid equally by the employer and employee is the a. federal income tax. b. federal unemployment tax. c. state unemployment tax. d. FICA tax. 12. All of the following are necessary to compute the future value of a single amount except the a. interest rate. b. number of periods. c. principal. d. maturity value. 13. If $4,000 is deposited in a savings account at the end of each year and the account pays interest of 5% compounded annually, what will be the balance of the account at the end of 10 years? a. $6,515.57 b. $42,000.00 c. $50,311.57 d. $60,000.00 14. A subsidiary ledger is a. used in place of the general ledger if the general ledger is destroyed or stolen. b. a group of accounts used by branches and subsidiaries of a corporate business. c. a group of accounts with a common characteristic that provides detailed information about a control account in the general ledger. d. used to post excess transactions if a general ledger account becomes full during an accounting period. 15. Which of the following is not a special journal? a. Sales journal b. Purchases journal c. General journal d. Cash receipts journal PART II -COMPLETION STATEMENTS (5.0 points) 1. A current liability is a debt that can be expected to be paid within ____________ year(s) or the ______________, whichever is longer. 2. Liabilities are classified on the balance sheet as being short term liabilities or long term liabilities. 3. The relationship between current liabilities and ______________ is useful in evaluating a company's liquidity. 4. The three primary accounting problems associated with accounts receivable are (1) ______________, (2) _______________, and (3) ______________ of accounts receivable. 5. In order to encourage prompt payment of a trade receivable, companies often offer a ______________ to customers. 6. The two methods of accounting for uncollectible accounts are the ____________ method and the ______________ method. 7. A finance company or bank that purchases receivables from businesses is known as a ______________. 8. Equipment with an invoice price of $20,000 was purchased and freight costs were $900. The cost of the equipment would be $______________. 9. ______________ is the process of allocating the cost of a plant asset to expense over its service life in a rational and systematic manner. 10. The book value of a plant asset is obtained by subtracting ______________ from the ______________ of the plant asset. PART III ? Stockholders? Equity Entries (4 points) Catt Corporation stockholders' equity consisted of the following on January 1, 2003: Stockholders' Equity Paid-in capital Capital stock 5% Preferred stock, $100 par value, cumulative, 50,000 shares authorized, 30,000 shares issued and outstanding $ 3,000,000 Common stock, no par, $25 stated value, 1,000,000 shares authorized, 400,000 shares issued and outstanding 10,000,000 Total capital stock 13,000,000 Additional paid-in capital In excess of par value?preferred $300,000 In excess of stated value?common 600,000 900,000 Total paid-in capital 13,900,000 Retained earnings (Note A) 4,100,000 Total stockholders' equity $18,000,000 Note A: Preferred dividends are in arrears for 2002. Instructions Prepare the appropriate journal entries, if any, for the following transactions in 2003. You may omit journal entry explanations but you should show computations. 1/25/03 Issued 60,000 shares of common stock for $42 per share. 2/18/03 The Board of Directors declared a cash dividend on preferred and common stock totaling $700,000, payable on March 15, to stockholders of record on February 28. (Record dividends payable on preferred and common stock in separate accounts.) 2/28/03 Date of record for cash dividends on preferred and common stock. 3/15/03 Paid the cash dividend to preferred and common stockholders. 5/20/03 Declared a 10% stock dividend on the common stock, payable on June 15, to stockholders of record on May 31. The market value of Catt Corporation's common stock was $45 per share. 7/10/03 Purchased 50,000 shares of Catt Corporation's common stock for $49 per share to be held in the company's treasury. 8/13/03 Sold 12,000 shares of treasury stock for $52 per share. 11/12/03 Sold 20,000 shares of treasury stock for $25 per share. PART IV ? Statement of Cash Flows (5 points) The comparative balance sheets for Logan Company appear below: LOGAN COMPANY Comparative Balance Sheet Dec. 31, 2003 Dec. 31, 2002 Assets Cash $61,000 $12,000 Accounts receivable 5,000 8,000 Inventory 11,000 7,000 Prepaid expenses 2,000 3,000 Equipment 20,000 20,000 Accumulated depreciation?equipment (3,000) (2,000) Total assets $96,000 $48,000 Liabilities and Stockholders' Equity Accounts payable $ 2,000 $ 4,000 Long-term note payable 13,000 14,000 Common stock 38,000 18,000 Retained earnings 43,000 12,000 Total liabilities and stockholders' equity $96,000 $48,000 The income statement for the year is as follows: LOGAN COMPANY Income Statement For the Year Ended December 31, 2003 Sales (all on credit) $310,000 Expenses and losses Cost of goods sold $202,000 Operating expenses, exclusive of depreciation 44,300 Depreciation expense 1,000 Interest expense 1,200 Loss on sale of land 2,500 Income taxes 9,000 Total expenses and loss 260,000 Net income $ 50,000 Cash dividends of $19,000 were paid during the year. Land costing $20,000 was acquired by the issuance of common stock. The property was subsequently sold for $17,500 cash. Instructions Prepare a statement of cash flows for the year ended December 31, 2003 using the indirect method. PART V ? PAYROLL (2 points) Oates Company's payroll for the week ending January 15 amounted to $50,000 for Office Salaries and $100,000 for Store Wages. None of the employees has reached the earnings limits specified for federal or state employer payroll taxes. The following deductions were withheld from employees' salaries and wages: Federal Income Tax $30,300 State Income Tax 6,600 FICA Taxes 12,000 Union Dues 1,800 United Fund 1,200 Federal unemployment tax (FUTA) rate is 6.2% less a credit equal to the rate paid for state unemployment taxes. The state unemployment tax (SUTA) rate is 5.4%. Instructions Prepare the journal entries to record the weekly payroll ending January 15 and also the employer?s payroll tax expense on the payroll. PART VI ? DEPRECIATION (1.5 Points) Wichita Clinic purchased a new surgical laser for $84,000. The estimated salvage value is $4,000. The laser has a useful life of five years and the clinic expects to use it 10,000 hours. It was used 1,600 hours in year 1; 2,100 hours in year 2; 2,400 hours in year 3; 1,900 hours in year 4; 2,000 hours in year 5. Instructions (a) Compute the annual depreciation for each of the five years under each of the following methods: (1) straight-line. (2) units-of-activity.
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