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Finance Exam

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Question;1. Which;of the following is the fundamental accounting equation?;Top of Form;?;Current;assets + Current liabilities = Owners' equity?;Assets;+ Owners' equity = Liabilities?;Cash;= Debts + Common stock?;Assets;= Liabilities + Owners' equity;?;?;2. On;December 31, 2004, Track Record Inc.'s sales people have firm outstanding;orders totaling $1.66 million, which, it has guaranteed its customers, will be;fulfilled during the month of January 2005.;If Track Record includes the $1.66 million in its sales figures for 2004, it;will be violating the:Materiality;conceptHistorical;cost conceptDual-aspect;conceptRealization;concept3. Which;one of the following best describes a balance sheet?A;description of the entity's operations over a period of timeA;snapshot at a point in time of an entity's assets, liabilities and owners;equityA;reconciliation of an entity's bank account balanceA;description of the company's cash flows over a period of time4. To;be recorded as an asset, an item must meet four specific conditions. Three of;them are: it must have been acquired at measurable cost, it must be obtained or;controlled by the entity, and it must have been obtained or controlled in a;past transaction.;Which one of the following is the fourth condition?Top of FormThe;item must have a measurable resale valueIt;must be expected to have future economic benefitsIt;must have been fully paid forThe;entity must have a legal document confirming ownership of the item5. Neura;Pharma, Inc. has purchased a drug patent with a remaining useful life of 13;years. How should this new asset be classified?A;current tangible assetA;non-current tangible assetA;non-current intangible assetA;current intangible asset6. June Smith, a process engineer, has sold her 15-year patent for a;new etching process to Silica Labs, Inc. In return, she has received $500,000;in cash and, based on its value on the sale date, $200,000 in common stock in;Silica Labs. The stock is forecasted to double in market value over the next;two months.;How would this transaction be recorded by Silica Labs?Debit;patent account $700,000, credit cash $500,000, credit common stock $200,000Debit;cash $500,000, debit common stock $200,000, credit patent account $700,000Debit;cash $500,000, credit patent account $500,000Debit;patent account $500,000, credit cash $500,0007. Consider;the same scenario as in the previous question;June Smith, a process engineer, has sold her 15-year patent for a new etching;process to Silica Labs, Inc. In return, she has received $500,000 in cash and;based on its value on the sale date, $200,000 in common stock in Silica Labs.;The stock is forecasted to double in market value over the next two months.;Assuming that Silica Labs holds some long-term debt, which of the following;describes the effect of the transaction on Silica Labs?Top of FormCurrent;ratio will decrease and total debt to equity ratio will increaseCurrent;ratio will increase and total debt to equity ratio will decreaseCurrent;ratio will increase and total debt to equity ratio will increaseCurrent;ratio will decrease and total debt to equity ratio will decreaseBottom of Form8. Lucky;Lee, a video-game store in New York city, purchases a game machine directly;from Taiwan for $30,000. In the U.S., the same machine will probably cost at;least $36,000. Pick the most appropriate accounting action for Lucky Lee:Record;the machine at $36,000Record;the machine at $30,000Record;the machine for [($30,000+$36,000)/2] = $33,000Have;the machine examined by an independent appraiser and record it at the appraised;value9. Which;one of the following is an item of owners' equity?Bank;loanSuppliers;monetary claimsPrepaid;expensesEarnings;generated by the entity10. Complete;the following sentence: The Conservatism Concept directs an entity to consider;recognizing a liability when it is __________________.absolutely;certain economic resources may be sacrificed in the futureremotely;possible economic resources may be sacrificed in the futurereasonably;possible economic resources may be sacrificed in the futurereasonably;certain economic resources may be sacrificed in the future11. The;realization concept states that revenue is recorded when:It;has been earned and realized or realizableAll;the associated costs have been paid in cashIt;has been received in cash12. On;its June 30, 2005 balance sheet, Barrows Corporation has total assets of;$100,000, current liabilities of $40,000, and owners' equity of $60,000.;Which one of the following statements must be true on June 30, 2005?It;has current assets of $40,000It;has no long-term liabilitiesIt;has a cash balance of $40,000 raised through short-term debtNone;of the above13. Turnadot;Sons is a small wholesaler of decorative cast iron objects. The following;events, related to a special customer order, occur as described below:August 5, 2005: Turnadot receives the special;order for 200 outdoor planters at a selling price of $50 each, including;delivery at a future convenient time and location. The customer, with whom;Turnadot has had a long-term, trouble-free relationship, pays $3,000 as a;deposit and agrees to pay the rest on delivery. Turnadot immediately orders;$4,000 worth of planters from its supplier and pays a $1,000 deposit for them.August 27, 2005: Turnadot pays $3,000 balance;due to the supplier upon delivery of the planters to its warehouse.September 5, 2005: The customer calls for;delivery of the planters, and pays the balance of $7,000 when they arrive at the;customer site.On August 5, 2005, which one of the following;accounting entries, related to the $10,000 special order, should be recorded in;Turnadot's financial accounting system?Debit;accounts receivable $10,000, credit revenues $10,000Debit;cash $3,000, credit revenues $3,000Debit;cash $3,000, credit a liability 'advances from customers' $3,000Debit;cash $3,000, debit accounts receivable $7,000, credit revenues $10,00014. Turnadot & Sons is a small wholesaler of decorative cast iron;objects. The following events, related to a special customer order, occur as;described below:August 5, 2005: Turnadot receives;the special order for 200 outdoor planters at a selling price of $50 each, including;delivery at a future convenient time and location. The customer, with whom;Turnadot has had a long-term, trouble-free relationship, pays $3,000 as a;deposit and agrees to pay the rest on delivery. Turnadot immediately orders;$4,000 worth of planters from its supplier and pays a $1,000 deposit for them.August 27, 2005: Turnadot pays;$3,000 balance due to the supplier upon delivery of the planters to its;warehouse.September 5, 2005: The customer;calls for delivery of the planters, and pays the balance of $7,000 when they;arrive at the customer site.On August 5, 2005, which one of;the following accounting entries, related to the $1,000 deposit paid to the;supplier for the planters, should be recorded in Turnadot's financial;accounting system?Debit;the current asset 'advances to suppliers' $1,000, credit cash $1,000Debit;inventory $1,000, credit cash $1,000Debit;cost of goods sold $4,000, credit cash $1,000, credit accounts payable $3,000Debit;cost of goods sold $1,000, credit revenues $1,00015. Turnadot & Sons is a small wholesaler of decorative cast iron;objects. The following events, related to a special customer order, occur as;described below:August 5, 2005: Turnadot receives;the special order for 200 outdoor planters at a selling price of $50 each;including delivery at a future convenient time and location. The customer, with;whom Turnadot has had a long-term, trouble-free relationship, pays $3,000 as a;deposit and agrees to pay the rest on delivery. Turnadot immediately orders;$4,000 worth of planters from its supplier and pays a $1,000 deposit for them.August 27, 2005: Turnadot pays;$3,000 balance due to the supplier upon delivery of the planters to its;warehouse.September 5, 2005: The customer;calls for delivery of the planters, and pays the balance of $7,000 when they;arrive at the customer site.On August 27, 2005, upon delivery;of planters to Turnadot's warehouse and payment of $3,000 balance due to the;supplier, which one of the following journal entries best reflects the economic;impact of the transaction?Debit;inventory $3,000, credit cash $3,000Debit;inventory $4,000, credit the current asset 'advances to suppliers' $1,000;credit cash $3,000Debit;cost of goods sold $4,000, credit cash $3,000, credit accounts payable $1,000Debit;inventory $4,000, credit revenues $4,00016. Turnadot & Sons is a small wholesaler of decorative cast iron;objects. The following events, related to a special customer order, occur as;described below:August 5, 2005: Turnadot receives;the special order for 200 outdoor planters at a selling price of $50 each;including delivery at a future convenient time and location. The customer, with;whom Turnadot has had a long-term, trouble-free relationship, pays $3,000 as a;deposit and agrees to pay the rest on delivery. Turnadot immediately orders;$4,000 worth of planters from its supplier and pays a $1,000 deposit for them.August 27, 2005: Turnadot pays;$3,000 balance due to the supplier upon delivery of the planters to its;warehouse.September 5, 2005: The customer;calls for delivery of the planters, and pays the balance of $7,000 when they;arrive at the customer site.On September 5, 2005, when the;planters are delivered and the balance of $7,000 due from the customer is;collected, which one of the following journal entries best reflects the full;economic impact of the special order on Turnadot's financial condition?Dr.;Cash 7,000, Cr.;Revenues 7,000 and;Dr. COGS 4,000, Cr. Inventory 4,000Dr.;Cash 7,000, Cr.;Revenues 7,000 and;Dr. Inventory 4,000, Cr. COGS 4,000Dr.;Cash 7,000, Dr. Advances from customers;(liability) 3,000, Cr.;Revenues 10,000 and;Dr. COGS 4,000, Cr. Inventory 4,00017. Turnadot;Sons is a small wholesaler of decorative cast iron objects. The following;events, related to a special customer order, occur as described below:August 5, 2005: Turnadot receives the special;order for 200 outdoor planters at a selling price of $50 each, including;delivery at a future convenient time and location. The customer, with whom;Turnadot has had a long-term, trouble-free relationship, pays $3,000 as a;deposit and agrees to pay the rest on delivery. Turnadot immediately orders;$4,000 worth of planters from its supplier and pays a $1,000 deposit for them.August 27, 2005: Turnadot pays $3,000 balance;due to the supplier upon delivery of the planters to its warehouse.September 5, 2005: The customer calls for;delivery of the planters, and pays the balance of $7,000 when they arrive at;the customer site.What is the dollar gross margin earned by;Turnadot on the special order for 200 planters?$2,000$7,000$9,000$6,00018. The;next 6 questions refer to Quentin Company's December 31, 2004 Balance Sheet.;Quentin began 2004 with the following non-current asset balances: Plant and equipment;(net) $59,000, Patent (net) $28,000. No long-term assets were purchased or sold;during the year. How much amortization and depreciation expense did Quentin;record during 2004?$3,000$4,000$7,000Cannot;be estimated19. Quentin's 2004 net income was $5,000. No;dividends were declared or paid during 2004. What was Quentin's retained;earnings balance on December 31, 2003?$39,000$49,000$34,000Cannot;be estimated20.Quentin's current ratio on December 31;2004 is:1.250.800.531.12521.Quentin's total debt to equity ratio on December 31, 2004 is:2.121.521.190.5322. Quentin Company's year-end 2004 total;assets equals its year-end 2004 total liabilities and owners' equity. This is;most likely the result of the company following the:Historical;Cost conceptDual-aspect;conceptMateriality;conceptMoney;measurement concept23. Quentin's December 31, 2003 inventory T-account debit balance was;also $56,000. During 2004, its inventory purchases amounted to $25,000, and;there were no inventory-related write-downs or losses. What was Quentin's 2004;cost of goods sold expense?Top of Form$5,000$67,000$20,000$45,00024. The next 6 questions refer to Carlita;Company's 2004 Income Statement.;Carlita's 2004 gross margin percentage is:Top of Form50%33%30%%.During 2004, Carlita's competitor Farside;had double the sales of Carlita, but it also earned a gross margin of $30,000.;Farside's 2004 gross margin percentage was:Top of Form25%50%12.5%Insufficient;information, cannot be calculated26.Carlita began 2004 with a retained earnings account balance of;$132,000. During 2004, it declared and paid dividends of $5,000. Its December;31, 2004 retained earnings account balance is:Top of Form$132,000$120,000$139,000Cannot;be calculated27. Carlita's 2004 return on sales percentage;is:Top of Form25%16.67%15%10%Bottom of Form28. Carlita began 2004 with an interest;payable account balance of $13,000. During 2004, it paid $5,000 in interest to;its lenders. On December 31, 2004, its interest payable account balance is:Top of Form$15,000$10,000$13,000Cannot;be calculated;29. Carlita began 2004 with a taxes payable;account balance of $3,000. On December 31, 2004, its taxes payable account;balance is $7,000. How much did Carlita pay to the tax authorities during the;year?Top of Form$2,000$6,000$4,000Cannot;be calculated30. On January 1, 2005, Jon Sports has a bond;payable of $200,000. During 2005, it pays off $20,000 of the outstanding bond;principal and issues a new $70,000 bond. There are no other transactions;related to the bond payable account.;What is Jon Sports' December 31, 2005 bond payable balance?Top of FormA;debit balance of $250,000A;credit balance of $150,000A;debit balance of $150,000A;credit balance of $250,00031. The next 7 questions are based on Panjim;Trading Company's cash T-account for 2005.;Based on Panjim's 2005 cash T-account, which one of the following statements;must be true?Top of FormDuring;2005, Panjim's total merchandise sales were $60,000During;2005, Panjim's total merchandise purchases were $44,000During;2005, Panjim issued $75,000 of debtPanjim;did not record any tax expense for 200532. Panjim began 2005 with salaries payable;balance of $75,000. It had 2005 salary expense of $80,000. Its 2005 ending;salaries payable balance must be:Top of Form$95,000$55,000$155,000$105,000Bottom of Form33.Panjim's 2005 cash flow from operations is:Top of FormA;net outflow of $90,000A;net inflow of $90,000A;net inflow of $85,000A;net outflow of $85,00034.Panjim's;2005 cash flow from investing activities is:Top of FormA;net outflow of $7,000A;net inflow of $3,000A;net inflow of $7,000A;net outflow of $3,000Bottom of Form35. Panjim's 2005 cash flow from financing;activities is:Top of FormA;net outflow of $91,000A;net inflow of $86,000A;net outflow of $86,000A;net inflow of $91,00036.Panjim recorded an interest expense of $6,000 for 2005. Which one;of the following line items would be included in the operating section of the;Panjim's 2005 indirect method statement of cash flows?Top of FormAdd;increase in interest payable...$1,000Subtract;increase in interest payable...($1,000)Add;increase in interest payable...$6,000Subtract;decrease in interest payable...($5,000)37.Panjim's prepaid expense account consists only of garage rental;prepayments. Its 2005 beginning and ending balance were the same. Which one of;the following statements must be true?Top of FormPanjim;had no garage rental expenses during 2005Panjim's;prepaid expense account balance never varied during 2005Panjim's;prepaid expense account balance varied during 2005None;of the above statements is true38. Juan Foods purchases a computer system in;2005 for $20,000. Its expected useful life is 5 years. At the end of 2005, it;has to record depreciation on the computer system of $2,000.;What is the correct journal entry to record the depreciation?Top of FormDebit;computer system $2,000, credit depreciation expense $2,000Debit;accumulated depreciation $2,000, credit computer system $2,000Debit;depreciation expense $2,000, credit accumulated depreciation $2,000Debit;computer system $2,000, credit accumulated depreciation $2,000Bottom of Form39. Jackie's Crafts is a successful retailer;of fabric by the yard and other sewing supplies. If Jackie were to shut down;the store, the bolts of fabrics and the bins of lace and trim, inventory valued;at $20,000, on average, at any point in time, would have to be sold for about;10% of that value. But, Jackie's accountant does not feel the need to reduce;the value of the inventory on the books.;This is a reflection of the:Top of FormConsistency;conceptMateriality;conceptHistorical;cost conceptGoing-concern;concept40. Weldon Engineering owes one of its;creditors $20,000. To settle the debt, Weldon pays $5,000 cash and also issues;common stock valued at $15,000 to the creditor.;How would this repayment of the $20,000 debt be recorded in Weldon's books?Top of FormDebit;debt owed $20,000, credit cash $5,000, credit common stock $15,000Debit;common stock $15,000, debit cash $5,000, credit debt owed $20,000Debit;common stock $15,000, debit debt owed $5,000, credit cash $20,000Debit;debt owed $5,000, credit cash $5,000

 

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