Practice Exam 2 - Fall 2024_Student.docx

**[ACCT 20103 -- EXAM \#2 PRACTICE EXAM]** **NOTE: THIS PRACTICE EXAM IS A RESOURCE FOR THE STUDENT TO USE WHEN STUDYING FOR THE EXAM. IT IS *[NOT MEANT TO BE THE ONLY RESOURCE]*. STUDENTS SHOULD NOT ASSUME THAT THE MATERIAL ON THIS PRACTICE EXAM IS EXCLUSIVELY THE MATERIAL ON THE ACTUAL EXAM.** 1...

**[ACCT 20103 -- EXAM \#2 PRACTICE EXAM]** **NOTE: THIS PRACTICE EXAM IS A RESOURCE FOR THE STUDENT TO USE WHEN STUDYING FOR THE EXAM. IT IS *[NOT MEANT TO BE THE ONLY RESOURCE]*. STUDENTS SHOULD NOT ASSUME THAT THE MATERIAL ON THIS PRACTICE EXAM IS EXCLUSIVELY THE MATERIAL ON THE ACTUAL EXAM.** 1. **The quick ratio, although similar to the current ratio, is more conservative.** a. true b. false 2. **The percent of receivables method to estimate uncollectible accounts expense is also known as the:** A. income statement approach. B. direct write-off approach. C. credit sales approach. D. balance sheet approach. 3. **The Miller Company recognized \$190,000 of service revenue earned on account during Year 2. There was no beginning balance in the accounts receivable and allowance accounts. During Year 2, Miller collected \$136,000 of cash from accounts receivable. The company estimates that it will be unable to collect 3% of its sales on account.\ ** E. \$54,000. F. \$49,920. G. \$59,700. H. \$48,300. 4. **Rosewood Company made a loan of \$16,000 to one of the company\'s employees on April 1, Year 1. The one-year note carried a 6% rate of interest. The amount of interest revenue that Rosewood would report during the years ending December 31, Year 1 and Year 2, respectively, would be:** I. \$960 and \$0. J. \$0 and \$960. K. \$240 and \$720. L. \$720 and \$240. 5. **Anton Company uses the perpetual inventory method. Anton purchased 400 units of inventory that cost \$12.00 each. At a later date the company purchased an additional 600 units of inventory that cost \$16.00 each. If Anton uses the FIFO cost flow method and sells 700 units of inventory, the amount of cost of goods sold will be:** M. \$11,200. N. \$10,400. O. \$8,400. P. \$9,600. 6. **Chase Company uses the perpetual inventory method. The inventory records for Chase reflected the following** Q. \$1,020. R. \$1,005. S. \$1,045. T. \$340. 7. **Harding Corporation acquired real estate that contained land, building and equipment. The property cost Harding \$1,900,000. Harding paid \$350,000 and issued a note payable for the remainder of the cost. An appraisal of the property reported the following values: Land, \$374,000; Building, \$1,100,000 and Equipment, \$726,000.\ ** U. \$175,000 V. \$950,000 W. \$800,000 X. \$1,100,000 8. **Which of the following would most likely not be expensed using the straight-line method?** Y. A copyright Z. Equipment A. A timber stand B. A patent 9. **On March 1, Bartholomew Company purchased a new stamping machine with a list price of \$34,000. The company paid cash for the machine; therefore, it was allowed a 5% discount. Other costs associated with the machine were: transportation costs, \$550; sales tax paid, \$1,360; installation costs, \$450; routine maintenance during the first month of operation, \$500. The cost recorded for the machine was:** C. \$34,210. D. \$32,300. E. \$35,160. F. \$34,660. 10. **On January 1, Year 1, Mike Moving Company paid \$27,000 to purchase a truck. The truck was expected to have a four-year useful life and \$3,000 salvage value. If Mike uses the straight-line method, the Year 3 depreciation and Year 3 book value would be:** G. Depreciation \$6,000, Net Book Value \$21,000 H. Depreciation \$6,000, Net Book Value \$ 9,000 I. Depreciation \$6,750, Net Book Value \$20,250 J. Depreciation \$6,750, Net Book Value \$6,750 11. **Emir Company purchased equipment that cost \$110,000 cash on January 1, Year 1. The equipment had an expected useful life of six years and an estimated salvage value of \$8,000. Assuming that Emir depreciates its assets under the straight-line method, the amount of depreciation expense shown on the income statement prepared for Year 4 and the amount of accumulated depreciation shown on the balance sheet prepared as of December 31, Year 4, respectively, would be:** **Depreciation expense** **Accumulated depreciation** -------- -------------------------- ------------------------------ **A.** \$17,000 \$17,000 **B.** \$17,000 \$68,000 **C.** \$68,000 \$17,000 **D.** \$17,000 \$51,000 K. Option A. L. Option B. M. Option C. N. Option D. 12. **Issuing a note payable is a(n):** O. claims exchange transaction. P. asset source transaction. Q. asset use transaction. R. asset exchange transaction. 13. **If a bond is sold at 101, its stated rate of interest would be:** S. equal to the market rate. T. unrelated to the market rate. U. higher than the market rate. V. lower than the market rate. 14. **Madison Company issued an interest-bearing note payable with a face amount of \$24,000 and a stated interest rate of 8% to the Metropolitan Bank on August 1, Year 1. The note carried a one-year term.\ The amount of cash flow from operating activities on the Year 1 statement of cash flows would be:** W. \$1,920. X. \$800. Y. \$24,000. Z. zero. 15. **Which of the following items is [not] classified as a current asset?** A. Office equipment. B. Merchandise inventory. C. Office supplies. D. Prepaid rent. 16. **Bonds payable are usually classified on the balance sheet as:** E. current liabilities. F. long-term liabilities. G. investments and funds. H. other assets. 17. **Which of the following statements regarding ratio analysis is incorrect?** I. Ratio analysis is a specific form of horizontal analysis. J. There are many different ratios available for evaluating a firm\'s performance. K. Some ratios involve an account from the balance sheet and one from the income statement. L. Ratio analysis involves making comparisons between different accounts in the same set of financial statements. 18. **Which of the following statements is generally [incorrect f]rom an investor\'s perspective?** M. A 1:1 current ratio is generally preferred over a 1.5:1 current ratio. N. A 20-day average collection period for accounts receivable is generally preferred over a 30-day average collection period. O. A 5% dividend yield is generally preferred over a 3% dividend yield. P. A 10% net margin is generally preferred over an 8% net margin. 19. **Accrual accounting requires the use of many estimates, including:** Q. uncollectible accounts expense. R. warranty costs. S. assets\' useful lives. T. All of these answers are correct. 20. **In vertical analysis, each item is expressed as a percentage of:** U. total expenses on the income statement. V. net income on the income statement. W. sales on the income statement. X. None of these answers are correct. **[CH05 -- Short Exercise]** **LIFO/FIFO/WA -- TMBC's Eraser Bikes** **Assume:** **Qty** **\$/per unit** **Total Costs** --------------------------- --------- ----------------- ----------------- Jan 1 -- Beg Inventory 10 \$200 \$2,000 Mar 18 -- First purchase 20 \$220 \$4,400 Aug 21 -- Second Purchase 25 \$250 \$6,250 Aug 22 -- Bikes Sold 43 \$350 **Requirements: What is the Gross Margin using LIFO / FIFO / WA** **LIFO** **FIFO** **Weighted Average (WA)** ---------------------- ---------- ---------- --------------------------- Sales Qty Sales Price **Income Statement** Sales COGS GM **Answer the following:** 1. The Cost of Goods Sold using LIFO is \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ 2. The Cost of Goods Sold using FIFO is \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ 3. The Cost of Goods Sold using WA is \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ 4. The Weighted Average cost of a bike is \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ 5. Which inventory method produced the highest gross margin? \_\_\_\_\_\_\_\_\_\_\_ **[CH06 -- Short Exercise]** **Straight Line Depreciation and Net Book Value** **Assume:** Big Red Delivery Company paid \$120,000 cash to purchase a customized van. The van was expected to have a five-year useful life and a \$50,000 salvage value. If Big Red uses the straight-line method of depreciation, the amount of depreciation for Year 2 and the net book value for Year 2 would be? **Straight Line Depreciation Formula:** **(Asset Cost -- Salvage Value) ÷ Useful Life=Depreciation Exp per year** **(Asset Costs -- Salvage)** **÷** **Useful Life** **=** **Depreciation** ------------------------------ ------- ----------------- ------- ------------------ **Yearly Deprecation** **Accumulated Depreciation** **Net Book Value** ------------ ------------------------ ------------------------------ -------------------- **Year 1** **Year 2** **Year 3** **Year 4** **Year 5** **Answer the following:** 1. How much is the net book value of the van at the end of five years? \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ 2. The depreciation in year 2 is \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ 3. The net book value at the end of year 2 is \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ **[CH07- Short Exercise]** **Interest Calculation (Notes Payable & Bonds)** In calculating interest remember the acronym **I=PRT.** I = Interest --- --- ----------- P = Principal R = Rate T = Time **[Problem \#1: ]** **1-Notes Payable:** On May 1^st^, Year 1 Little Red Retail (LRR) borrowed \$100,000 from First Security Bank. LRR issued a note payable that had a one-year term and an annual interest rate of 8%. P = --- --- -- R = T = **Answer the following:** 1. How much accrued interest expense would LRR recognize in Year 1? \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ 2. How much accrued interest expense would LRR recognize in Year 2? \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ 3. How much total interest expense will LRR recognize for the term of the note payable? \_\_\_\_\_\_\_\_\_\_ **2-Notes Payable:** On November 1^st^, Year 1 Little Red Retail (LRR) borrowed \$120,000 from First Security Bank. LRR issued a note payable that had a one-year term and an annual interest rate of 6%. P = --- --- -- R = T = **Answer the following:** 1. How much accrued interest expense would LRR recognize in Year 1? \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ 2. How much accrued interest expense would LRR recognize in Year 2? \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ 3. How much total interest expense will LRR recognize for the term of the note payable? \_\_\_\_\_\_\_\_\_\_ **[Problem \#2: ]** **1-Bonds Payable:** Little Red Retail (LRR) issued bonds of \$100,00 for cash. The bonds had a stated interest rate of 7%. The terms specified making interest payments in cash on Dec 31of each year, a five-year term to maturity. LRR issued the bonds on Jan 1, year 1. P = --- --- -- R = T = **Answer the following:** 1. How much interest expense would LRR recognize in Year 1? \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ 2. How much interest expense would LRR recognize in Year 2? \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ **2-Bonds Payable:** Little Red Retail (LRR) issued bonds of \$100,00 for cash. The bonds had a stated interest rate of 7%. The terms specified making interest payments in cash on Dec 31of each year, a five-year term to maturity. LRR issued the bonds on Sept 1, year 1. P = --- --- -- R = T = **Answer the following:** 1. How much interest expense would LRR recognize in Year 1? \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ 2. How much interest expense would LRR recognize in Year 2? \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ **Other Questions:** 1. If the available market rate of interest is 8% on the day LRR sells the bonds, then LRR will most likely sell those bonds at a \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_. 2. If the available market rate of interest is 4% on the day LRR sells the bonds, then LRR will most likely sell those bonds at a \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_. **[CH09 -- Short Exercise]** **Financial Analysis** Answer the following questions: What are the three methods of financial analysis. 1. \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ 2. \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ 3. \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Liquidity Ratios are used to: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Solvency Ratios are used to: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Profitability Ratios are used to: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Stock Market Ratios are used to: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ **Calculating Ratios:**  A screenshot of a document Description automatically generated Calculate the following Ratios: **Liquidity:** **Working Capital** **Current Ratio** **Inventory Turnover** **Average Days to sell Inventory** --------------------- ------------------- ------------------------ ------------------------------------ **Profitability:** +-----------------------------------+-----------------------------------+ | **Net Margin** | **Return on Investment** | | | | | | **(ROI)** | +===================================+===================================+ | | | +-----------------------------------+-----------------------------------+ [https://echo360.org/media/53a117fd-bd60-4316-a557-bfc30c414d08/public](https://nam11.safelinks.protection.outlook.com/?url=https%3A%2F%2Fecho360.org%2Fmedia%2F53a117fd-bd60-4316-a557-bfc30c414d08%2Fpublic&data=05%7C02%7CTHayes%40walton.uark.edu%7Ce5668543dc1a4bc7268e08dce0ec2187%7C79c742c4e61c4fa5be89a3cb566a80d1%7C0%7C0%7C638632553085542355%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C0%7C%7C%7C&sdata=pTCgKIWzrY7fDsEVCbfWdO2cjGtOAzA6azcvk6y11GQ%3D&reserved=0)