ACCT 200 Final Exam Review PDF

Your Name: Your TA’s Name Lab Section Time: ACCT 200: FINAL EXAM REVIEW – KEY PART ONE: COMPREHENSIVE PROBLEM Prepare th...

Your Name: Your TA’s Name Lab Section Time: ACCT 200: FINAL EXAM REVIEW – KEY PART ONE: COMPREHENSIVE PROBLEM Prepare the entries for the following transactions using the t-accounts below for Red Berry Industries (RBI). The transactions below are not all-inclusive for the year. Only select transactions have been shown for the company. Arrange all t-accounts in the proper asset, liability or equity column to receive credit for your answer. Round all amounts to the nearest whole dollar. A. January 1 – RBI issued 20,000 shares of $1 par value common stock for $5 per share to investors. 20,000 * $5 = $100,000 cash 20,000 * $1 = $20,000 to C/S 20,000 * ($5 - $1) = $80,000 to APIC B. January 1 – RBI issued $200,000 of 5% 10-year bonds that pay interest annually on December 31 each year. The market rate of interest on this date was 4%. Record the bond issuance. The following time value of money factors may be useful to you. 4% 5% Present Value of Single Sum for 10 periods 0.67556 0.61391 Present Value of Annuity for 10 periods 8.11090 7.72173 $200,000 * 0.67556 = $135,112 $200,000 *.05 = $10,000 * 8.11090 = $81,109 Issue Price = $216,221 C. January 10 – RBI issued 10,000 shares of 10%, $3 par value cumulative preferred stock for $3 per share to investors. 10,000 * $3 = $30,000 10% * $3 = $0.30 dividend per share D. February 1 – RBI purchased land for $250,000 in cash, paying an additional $30,000 to tear down an unusable building. 250,000 + $30,000 = $280,000 total acquisition cost “Prepare asset for intended use!” E. March 12 – Purchased 200 units of product for $13 per unit on account with terms 1/10, n/60. The purchased goods will be resold to RBI’s customers. 200 units * $13 = $2,600 (addition to inventory) F. March 14 – When the goods arrived from the March 12 purchase, some were damaged. RBI returned 10 units. 10 units * $13 cost per unit = $130 (reduction to inventory) G. March 20 – RBI paid for the goods purchased on March 12 in full. Accounts Payable Balance = $2,600 - $130 return = $2,470 Purchase Discount = $2,470 *.01 discount = $25 (rounded) because paid within 10 days Cash paid = $2,470 - $25 = $2,445 H. April 1 – Received $70,000 cash from a customer to perform services over the next year. Deferred/ Unearned Revenue = Adjusting Entries ACCT 200 | FUNDAMENTALS OF FINANCIAL ACCOUNTING FINAL EXAM REVIEW | PAGE 1 I. September 3 – RBI purchased a piece of machinery for $75,000 cash to help with the assembly of inventory packaging. It estimates that the machine will be able to assemble 80,000 units of inventory over its useful life and it will have a salvage value of $15,000. Record the purchase. J. September 30 – At the end of the month, the machine purchased in letter I. above assembled 2,000 units of inventory. Record the asset’s depreciation assuming the units of activity method is used. ($75,000 – $15,000) 80,000 units = $0.75 depreciation cost per unit * 2,000 units assembled = $1,500 depreciation for September K. October 1 – RBI received an offer from another company to purchase the machine acquired in letter I. above for $74,000. RBI accepted the offer. Record the entry for the disposal of the asset. Selling Price: $74,000 NBV = $75,000 cost – $1,500 Accumulated Depreciation = $73,500 Gain or Loss? = $74,000 – $73,500 = $500 gain L. October 15 – Performed $25,000 worth of services for a new customer. The customer plans to pay in the next 60 days. M. October 31 – RBI estimates that 4% of all receivables will become uncollectible. Record the entry for bad debt expense assuming the percentage of receivables method is used. Allowance for Doubtful Accounts has a $0 balance at the beginning of October. Accounts Receivable ending balance = $25,000 Estimated Ending Balance for Allowance for Doubtful Accounts = $25,000 *.04 = $1,000 Entry amount is $1,000 because Allowance for Doubtful Accounts beginning balance is 0. N. November 20 – RBI spent $33,000 researching and developing a new feature to enhance their current inventory product. They are hoping to patent their findings in the future. Record the entry related to these costs. Expense on all Research and Development costs! O. December 22 – RBI declared a $25,000 dividend to its shareholders. It is payable on January 15 next year. Dividends were not declared or paid in the previous year. Preferred Stock Dividend: $3 par * 10% = $0.30/ share * 10,000 shares = $3,000/ year $3,000 * 2 years = $6,000 to preferred $25,000 - $6,000 = $19,000 to common P. December 31 – Record the adjusting entry related to the interest accrued on the bond from letter B. above. $200,000 face value *.05 stated interest rate = $10,000 cash interest $216,221 carrying value *.04 market interest rate = $8,649 interest expense (rounded) Premium Amortization = $10,000 – $8,649 = $1,351 Q. December 31 – RBI verified it had performed nine-twelfths of the services for the customer mentioned in letter H. above. $70,000 deferred revenue * 9/12 = $52,500 earned revenue Adjusting entry! ACCT 200 | FUNDAMENTALS OF FINANCIAL ACCOUNTING FINAL EXAM REVIEW | PAGE 2  ASSETS = LIABILITIES + EQUITY Cash Bonds Payable Common Stock F A 100,000 280,000 D I 200,000 B 20,000 A F B 216,221 2,445 G O F C 30,000 75,000 I I O H 70,000 33,000 N O Premium on Bonds Payable Paid In Cap in Excess Par – C/S I K 74,000 10,000 P O P 1,351 16,221 B 80,000 A 14,870 BAL BAL 89,776 Land Accounts Payable Preferred Stock D 280,000 F 130 2,600 E 30,000 C 2,470 BAL G 2,470 Service Revenue Inventory Unearned Revenue 25,000 L E 2,600 130 F 70,000 H 52,500 Q 25 G Q 52,500 C1 77,500 77,500 BAL 17,500 BAL Depreciation Expense BAL 2,445 J 1,500 1,500 C2 Accounts Receivable Dividend Payable – P/S L 25,000 6,000 O Gain on Sale 500 K C3 500 Allowance for Doubtful Accounts Dividend Payable – C/S 0 BAL 19,000 O 1,000 M Bad Debt Expense 1,000 Bal M 1,000 1,000 C4 Machinery I 75,000 Research & Develop. Expense 75,000 K N 33,000 BAL 0 33,000 C5 Accumulated Depreciation – Machinery Dividends 1,500 J O 25,000 K 1,500 25,000 C8 0 BAL Interest Expense P 8,649 8,649 C6 Retained Earnings C8 25,000 33,851 C7 8,851 BAL ACCT 200 | FUNDAMENTALS OF FINANCIAL ACCOUNTING FINAL EXAM REVIEW | PAGE 3  ASSETS = LIABILITIES + EQUITY Income Summary C2 1,500 77,500 C1 C4 1,000 500 C3 C5 33,000 C6 8,649 33,851 BAL C7 33,851 Red Berry Industries Income Statement For the Year Ended 12/31/20Y1 REVENUES Service Revenue 77,500 Gain on Sale 500 Total Revenues $78,000 EXPENSES Depreciation Expense 1,500 Bad Debt Expense 1,000 R&D Expense 33,000 Interest Expense 8,649 Total Expenses ($44,149) NET INCOME A 33,851 Flows to R/E Red Berry Industries Retained Earnings Statement For the Year Ended 12/31/20Y1 Retained Earnings, Beginning Balance 0 Net Income A $33,851 Dividends ($25,000) Retained Earnings, Ending Balance B $8,851 Flows to B/S ACCT 200 | FUNDAMENTALS OF FINANCIAL ACCOUNTING FINAL EXAM REVIEW | PAGE 4  Red Berry Industries Balance Sheet December 31, 20Y1 ASSETS Cash C $89,776 Accounts Receivable, Net 24,000 Inventory 2,445 Land 280,000 TOTAL ASSETS $396,221 LIABILITIES AND STOCKHOLDERS’ EQUITY Liabilities Unearned Revenue $17,500 Dividends Payable 25,000 Bonds, Net of Premium 214,870 TOTAL LIABILITIES $257,370 Stockholders’ Equity Common Stock $20,000 Paid in Capital in Excess of Par, Common Stock 80,000 Preferred Stock 30,000 Retained Earnings B 8,851 TOTAL STOCKHOLDERS’ EQUITY $138,851 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $396,221 Red Berry Industries Statement of Cash Flows For the Year Ended 12/31/20Y1 CASH FLOWS FROM OPERATING ACTIVITES Received from customers 70,000 Paid for inventory (2,445) Paid for research and development (33,000) Paid for interest (10,000) Total Cash Flows from Operating Activities $24,555 CASH FLOWS FROM INVESTING ACTIVITES Purchased land (280,000) Purchased machinery (75,000) Sold machinery 74,000 Total Cash Flows from Investing Activities $(281,000) CASH FLOWS FROM FINANCING ACTIVITES Sale of common stock 100,000 Sale of preferred stock 30,000 Issuance of bonds 216,221 Total Cash Flows from Financing Activities $346,221 NET CHANGE IN CASH $89,776 Cash at the beginning of the period $0 Cash at the end of the period C $89,776 ACCT 200 | FUNDAMENTALS OF FINANCIAL ACCOUNTING FINAL EXAM REVIEW | PAGE 5 PART TWO: MULTIPLE CHOICE 1. Which of the following accounts would be classified as an asset? A. Sales Revenue B. Accounts Receivable C. Interest Payable D. Common Stock 2. Which of the following statements related to the accounting cycle is false? A. The adjusted trial balance includes adjusting entries for the period. B. The general journal is only used for the accrual basis of accounting. C. Posting is the process of transferring transactions from the general journal to the general ledger. D. The accounting equation must always be in balance throughout the accounting cycle. 3. Which of the following statements related to financial accounting is false? A. Expenses should be recorded in the same period as the revenue they helped generate in the accrual basis of accounting. B. The objective of financial accounting is to provide information that is useful to users for decision making about capital allocation to the entity. C. The fundamental accounting equation is assets equals liabilities plus equity. D. The primary users of financial accounting information are internal users such as managers and company officers. 4. Which of the following transactions is an example of an accrual? A. Incurring an expense related to income taxes which will be paid the following year. B. Receiving cash in advance from customers for concert tickets. The concert will be performed in two months. C. Purchasing a warehouse building to store inventory. D. Prepaying for insurance and recording insurance expense at the end of the period. 5. Which of the following accounts is considered a temporary account? A. Sales Revenue B. Common Stock C. Inventory D. Notes Payable 6. Which of the following related to the financial statements is false? A. Adjusting entries must be recorded before the financial statements are prepared. B. The Retained Earnings Statement includes net income for the period and any dividends paid. C. The Balance Sheet lists assets, liabilities, equity, and expenses incurred throughout the period. D. The Statement of Cash Flows summarizes cash outflows and cash inflows during the period. 7. A company receives an advertising bill and pays it with cash immediately. As a result of this transaction, choose the option that best represents the net effect on the financial statements. A. Total equity increases B. Total equity decreases C. Total assets increase D. Total liabilities increase ACCT 200 | FUNDAMENTALS OF FINANCIAL ACCOUNTING FINAL EXAM REVIEW | PAGE 6 8. Barnett Bicycles is a local bicycle retailer. It had 8 town cruiser style bicycles in its inventory at the beginning of June. They were originally purchased at a cost of $320 each. Barnett’s purchase and sales transactions related to this bicycle model during the first week of June consisted of the following: Purchases Average Cost: 12 bicycles at $360 each on June 1 8 * $320 = $2,560 10 bicycles at $340 each on June 5 12 * $360 = $4,320 10 * $340 = $3,400 Sales (all bicycles were sold for $500 each) Total = 30 bicycles for $10,280 6 bicycles on June 2 5 bicycles on June 4 Average Cost = $10,280 8 bicycles on June 7 30 units = $342.67 / unit If Barnett uses the Average Cost method and periodic system for valuation of its inventory, what is the balance in Barnett’s Ending Inventory at the end of the first week of June? A. $3,769 B. $4,781 Ending Inventory: C. $6,102 30 bicycles available – 19 sold = 11 remaining on the balance sheet D. $5,423 $342.67 * 11 = $3,769 9. Which of the following statements regarding inventory systems is false? A. A periodic inventory system is less costly than a perpetual inventory system. B. Cost of goods sold is calculated at the end of the period only in a perpetual system. C. A perpetual system keeps track of detailed purchases and sales. D. Accounting records are continually updated in a perpetual inventory system. 10. When accounting for bad debt: A. An allowance method requires an estimate of uncollectible accounts receivable. B. Companies must use the direct write-off method since it complies with GAAP. C. The percentage of receivables method analyzes length of time the account has been outstanding. D. A liability is created due to the risk of uncollectability. 11. Crown acquired some land for the purpose of building a new storage facility for its equipment. The following costs related to these plant assets were incurred in in 20Y3. What value should Crown record for the land? Land purchase price - $150,000 Land Real estate broker’s commission on the purchase of the land - $4,000 Land Land title transfer fees - $500 Land Cost to remove an old building that existed on the land - $8,000 Land Construction costs related to the new building - $330,000 Building Installation of a sprinkler system around the new building - $5,000 Land Improvements Installation of a parking lot in front of the new building - $10,000 Land Improvements A. $338,000 B. $330,000 C. $162,500 D. $154,500 ACCT 200 | FUNDAMENTALS OF FINANCIAL ACCOUNTING FINAL EXAM REVIEW | PAGE 7 12. During the year, a company purchased a patent for $85,000 from another company. Additionally, the company spent $175,000 this year to internally develop a separate invention that they plan to patent once it is complete. Which of the following statements is true? A. $175,000 should be expensed as research and development B. $175,000 can be capitalized as a patent C. $260,000 can be capitalized as patents D. $260,000 should be expensed as research and development 13. Green Industries is saving money for a possible future expansion of its operating facilities. If Green is able to save $60,000 per year for the next 5 years, how much money would it have if it is able to earn a 4% rate of return compounded annually? The following time value of money factors may be useful: 4% Present Value of Single Sum for 5 periods 0.82193 Present Value of Annuity for 5 periods 4.45182 Future Value of Single Sum for 5 periods 1.21665 Future Value of Annuity for 5 periods 5.41632 A. $433,306 B. $514,550 C. $324,979 Future Value of an Annuity: D. $135,408 $60,000 * 5.41632 = $324,979 14. Assume a company issued $600,000 of 3%, 6-year bonds with interest paid annually. The bonds were sold for $577,000 in the market. Which of the following is true regarding these bonds? A. The company received $577,000 on the date of issuance. B. The market rate was less than the stated rate. C. The face value of the bonds is $577,000. D. The bond was issued at a premium. 15. Which of the following gives an owner the ability to maintain their share of the company when additional shares are issued to new owners? A. Preemptive right B. Residual claim C. Par value D. Authorized shares 16. Which of the following must be true for dividends to be paid? A. Sufficient retained earnings balance B. Adequate cash to be paid to stockholders C. Declaration by the Board of Directors D. All of the above ACCT 200 | FUNDAMENTALS OF FINANCIAL ACCOUNTING FINAL EXAM REVIEW | PAGE 8