Midterm Exam Review Questions PDF

**Midterm Exam Review Questions** **PART 1: SHORT PROBLEMS** **Problem 1: asset utilization (total asset turnover)** **AA 10-2 Comparative Analysis LO A1** Comparative figures for Apple and Google follow. **Required:** 1. Compute total asset turnover for the most recent two years for Apple...

**Midterm Exam Review Questions** **PART 1: SHORT PROBLEMS** **Problem 1: asset utilization (total asset turnover)** **AA 10-2 Comparative Analysis LO A1** Comparative figures for Apple and Google follow. **Required:** 1. Compute total asset turnover for the most recent two years for Apple and Google using the data shown. 2. In the current year, which company is more efficient in generating net sales given total assets? 3. Does asset turnover underperform or outperform the 0.5 industry asset turnover for (*a*) Apple and (*b*) Google? **Problem 2: debt vs. equity financing** **Exercise 14-1 (Static) Debt versus equity financing LO A1** Green Foods currently has \$200,000 of equity and is planning an \$80,000 expansion to meet increasing demand for its product. The company currently earns \$50,000 in net income, and the expansion will yield \$25,000 in additional income before any interest expense. The company has three options: (1) do not expand, (2) expand and issue \$80,000 in debt that requires payments of 8% annual interest, or (3) expand and raise \$80,000 from equity financing. For each option, compute (*a*) net income and (*b*) return on equity (Net Income ÷ Equity). Ignore any income tax effects. **Note: Round \"Return on equity\" to 1 decimal place.** **PART 2: MULTIPLE-CHOICE QUESTIONS** **Chapter 9** 1\. Gideon Company uses the allowance method of accounting for uncollectible accounts. On May 3, the Gideon Company wrote off the \$2,000 uncollectible account of its customer, A. Hopkins. The entry or entries Gideon makes to record the write off of the account on May 3 is: A) ---------------------------------- ------- ------- Accounts Receivable---A. Hopkins 2,000   Allowance for Doubtful Accounts   2,000 ---------------------------------- ------- ------- B) --------------------------------- ------- ------- Allowance for Doubtful Accounts 2,000   Bad debts expense   2,000 --------------------------------- ------- ------- C) ---------------------------------- ------- ------- Accounts Receivable---A. Hopkins 2,000   Bad debts expense   2,000 Cash 2,000   Accounts Receivable---A. Hopkins   2,000 ---------------------------------- ------- ------- D) ---------------------------------- ------- ------- Allowance for Doubtful Accounts 2,000   Accounts Receivable---A. Hopkins   2,000 ---------------------------------- ------- ------- E) ---------------------------------- ------- ------- Cash 2,000   Accounts Receivable---A. Hopkins   2,000 ---------------------------------- ------- ------- 2\. A company ages its accounts receivables to determine its end of period adjustment for bad debts. At the end of the current year, management estimated that \$15,750 of the accounts receivable balance would be uncollectible. Prior to any year-end adjustments, the Allowance for Doubtful Accounts had a credit balance of \$375. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense? A) --------------------------------- -------- -------- Bad Debts Expense 15,750   Allowance for Doubtful Accounts   15,750 --------------------------------- -------- -------- B) --------------------------------- -------- -------- Bad Debts Expense 16,125   Allowance for Doubtful Accounts   16,125 --------------------------------- -------- -------- C) --------------------------------- -------- -------- Bad Debts Expense 15,375   Allowance for Doubtful Accounts   15,375 --------------------------------- -------- -------- D) --------------------- -------- -------- Accounts Receivable 15,750   Bad Debts Expense 375   Sales   16,125 --------------------- -------- -------- E) --------------------------------- -------- -------- Accounts Receivable 16,125   Allowance for Doubtful Accounts   16,125 --------------------------------- -------- -------- 3\. On December 31 of the current year, the unadjusted trial balance of a company using the percent of receivables method to estimate bad debt included the following: Accounts Receivable, debit balance of \$95,250; Allowance for Doubtful Accounts, credit balance of \$921. What amount should be debited to Bad Debts Expense, assuming 6% of outstanding accounts receivable at the end of the current year are estimated to be uncollectible? A\) \$5,715. B\) \$6,636. C\) \$4,794. D\) \$5,770. E\) \$5,660. 4\. The interest accrued on \$7,500 note at 6% for 90 days is: **(Use 360 days a year.)** A\) \$450.00. B\) \$37.50. **C) \$112.50. \$7,500x0.06x(90/360) = \$112.50** D\) \$11.25. E\) \$1,800.00. **Chapter 10** 11\. The relevant factors in computing depreciation do not include: A\) Cost. B\) Salvage value. C\) Useful life. D\) Depreciation method. **E) Market value.** 12\. Wickland Company installs a manufacturing machine in its production facility at the beginning of the year at a cost of \$87,000. The machine\'s useful life is estimated to be 5 years, or 400,000 units of product, with a \$7,000 salvage value. During its second year, the machine produces 84,500 units of product. Determine the machines\' second year depreciation under the straight-line method. A\) \$16,900. **B) \$16,000.** C\) \$17,400. D\) \$18,379. E\) \$20,880. 13\. Wickland Company installs a manufacturing machine in its production facility at the beginning of the year at a cost of \$87,000. The machine\'s useful life is estimated to be 5 years, or 400,000 units of product, with a \$7,000 salvage value. During its second year, the machine produces 84,500 units of product. Determine the machines\' second year depreciation under the double-declining-balance method. A\) \$16,900. B\) \$16,000. C\) \$17,400. D\) \$18,379. **E) \$20,880.** 14\. Wickland Company installs a manufacturing machine in its production facility at the beginning of the year at a cost of \$87,000. The machine\'s useful life is estimated to be 5 years, or 400,000 units of product, with a \$7,000 salvage value. During its second year, the machine produces 84,500 units of product. Determine the machines\' second year depreciation under the units-of-production method. **A) \$16,900.** B\) \$16,000. C\) \$17,400. D\) \$18,379. E\) \$20,880. 15\. An asset\'s book value is \$18,000 on December 31, Year 5. The asset has been depreciated at an annual rate of \$3,000 on the straight-line method. Assuming the asset is sold on December 31, Year 5 for \$15,000, the company should record: A\) A loss on sale of \$12,000. B\) A gain on sale of \$12,000. C\) A gain on sale of \$3,000. D\) A loss on sale of \$3,000. **Chapter 11** 21\. If a company has advance ticket sales totaling \$2,000,000 for the upcoming football season, the receipt of cash would be journalized as: A\) Debit Sales, credit Unearned Revenue. B\) Debit Unearned Revenue, credit Sales. C\) Debit Cash, credit Unearned Revenue. D\) Debit Unearned Revenue, credit Cash. 22\. On November 1, Alan Company signed a 120-day, 8% note payable, with a face value of \$9,000. What is the adjusting entry for the accrued interest at December 31 on the note? **(Use 360 days a year.)** A\) No adjusting entry is required. B\) Debit interest payable, \$120; credit interest expense, \$120. **C) Debit Interest Expense, \$120; credit Interest Payable, \$120.** D\) Debit Interest Expense, \$720; credit Interest Payable, \$720. E\) Debit Interest Payable, \$240; credit Interest Expense, \$240. 23\. On November 1, Alan Company signed a 120-day, 8% note payable, with a face value of \$9,000. What is the maturity value of the note on March 1? **(Use 360 days a year.)** A\) \$9,000 B\) \$720 C\) \$9,120 D\) \$9,720 **E) \$9,240** 24\. Portia Grant is an employee who is paid monthly. For the month of January of the current year, she earned a total of \$8,260. The FICA tax for social security is 6.2% of the first \$118,500 of employee earnings each calendar year and the FICA tax rate for Medicare is 1.45% of all earnings. The FUTA tax rate of.6% and the SUTA tax rate of 5.4% are applied to the first \$7,000 of an employee\'s pay. The amount of federal income tax withheld from her earnings was \$1,325.17. Her net pay for the month is: **(Round your intermediate calculations to two decimal places.)** A\) \$6,422.71 B\) \$6,246.94 C\) \$6,302.94 D\) \$5,868.94 E\) \$7,194.11 **Chapter 14** 31\. Amounts received in advance from customers for future products or services: A\) Are revenues. B\) Increase income. **C) Are liabilities.** D\) Are not allowed under GAAP. E\) Require an outlay of cash in the future. 32\. On January 1, a company issued and sold a \$400,000, 7%, 10-year bond payable, and received proceeds of \$396,000. Interest is payable each June 30 and December 31. The company uses the straight-line method to amortize the discount. The journal entry to record the first interest payment is: A\) Debit Bond Interest Expense \$14,000; credit Cash \$14,000. B\) Debit Bond Interest Expense \$28,000; credit Cash \$28,000. C\) Debit Bond Interest Expense \$14,000; debit Discount on Bonds Payable \$200; credit Cash \$14,200. D\) Debit Bond Interest Expense \$13,800; debit Discount on Bonds Payable \$200; credit Cash \$14,000. E\) Debit Bond Interest Expense \$14,200; credit Cash \$14,000; credit Discount on Bonds Payable \$200. 33\. On January 1, a company issued and sold a \$400,000, 7%, 10-year bond payable, and received proceeds of \$396,000. Interest is payable each June 30 and December 31. The company uses the straight-line method to amortize the discount. The carrying value of the bonds immediately after the first interest payment is: A\) \$400,000. B\) \$399,800. C\) \$400,200. D\) \$395,800. E\) \$396,200. 34\. On January 1, a company issues bonds dated January 1 with a par value of \$300,000. The bonds mature in 5 years. The contract rate is 9%, and interest is paid semiannually on June 30 and December 31. The market rate is 8% and the bonds are sold for \$312,177. The journal entry to record the first interest payment using straight-line amortization is: A\) Debit Interest Payable \$13,500; credit Cash \$13,500.00. B\) Debit Bond Interest Expense \$12,282.30; debit Discount on Bonds Payable \$1,217.70; credit Cash \$13,500.00. C\) Debit Bond Interest Expense \$14,717.70; credit Premium on Bonds Payable \$1,217.70; credit Cash \$13,500.00. D\) Debit Bond Interest Expense \$14,717.70; credit Discount on Bonds Payable \$1,217.70; credit Cash \$13,500.00. E\) Debit Bond Interest Expense \$12,282.30; debit Premium on Bonds Payable \$1,217.70; credit Cash \$13,500.00. 35\. On January 1, Parson Freight Company issues 7%, 10-year bonds with a par value of \$2,000,000. The bonds pay interest semiannually. The market rate of interest is 8% and the bond selling price was \$1,864,097. The bond issuance should be recorded as: A\) Debit Cash \$2,000,000; credit Bonds Payable \$2,000,000. B\) Debit Cash \$1,864,097; credit Bonds Payable \$1,864,097. C\) Debit Cash \$2,000,000; credit Bonds Payable \$1,864,097; credit Discount on Bonds Payable \$135,903. D\) Debit Cash \$1,864,097; debit Discount on Bonds Payable \$135,903; credit Bonds Payable \$2,000,000. E\) Debit Cash \$1,864,097; debit Interest Expense \$135,903; credit Bonds Payable \$2,000,000.