ACC 715 Midterm | Course Paper

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If your bank gives you a $2,000 loan at 8% per year, but deducts the interest in advance,

is 8% the “real” rate of interest that you will pay?

a. Yes.

b. No. The interest rate is actually lower than 8 percent.

c. No. The interest rate is actually higher than 8 percent.

d. There is not enough information to answer this question accurately.

Which of the following statements is true?

a. If a debit entry is made to an account in the general journal, the same account will

receive a credit entry when the amount is posted to the general ledger.

b. If all transactions are correctly posted to the general ledger, the sum of the accounts

with debit balances should be equal to the sum of the accounts with credit balances.

c. Posting occurs when numbers in the general ledger accounts are transferred to the

general journal.

d. If the sum of the debit balances equals the sum of the credit balances then there were

no mistakes made in the posting process.

Verilux Company sold merchandise to Flight Corp. on November 1, 2014, for $10,000.

Verilux accepted a promissory note from Flight Corp. for $10,000. The note has a term

of 5 months and a stated interest rate of 7%. Verilux’s accounting period ends on

December 31, 2014. What amount should Verilux recognize as interest revenue on

December 31, 2014?

a. $ -0-

b. $ 116.67

c. $ 291.67

d. $ 280.00

[APPPENDIX] When an individual wishes to form a sole proprietorship, he or she does

so by

a. filing a petition with the IRS.

b. purchasing stock in the proprietorship.

c. filing corporate paperwork with the state.

d. contributing cash or other assets.

Farley River Inc. Use the information presented below for Farley River, Inc. for 2015

and 2014 to answer the questions that follow. Farley River uses the straight-line

depreciation method.

Refer to the information for Farley River Inc. Using the 2015 data, what is the average

age of Farley River’s property, plant, and equipment?

a. 1.60 years

b. 2.50 years

c. 4.00 years

d. 10.00 years

For each of the following items, indicate whether it would appear on a statement of

cash flows prepared using the Direct method (a) or the Indirect method (b).

a. Direct

b. Indirect

Gain on early retirement of bonds

Bing’s Export Co. Bing’s Export Co. purchased a new delivery truck at the beginning of

2015. The truck has a cost of $37,000, an estimated life of 5 years, and an estimated

residual value of $7,000. A full year’s depreciation expense is to be recorded in 2015.

The truck was driven 20,000 miles during 2015 and 24,000 miles during 2016. The

number of expected miles over five years is 100,000.

Refer to information for Bing’s Export Co. What is the amount by which

double-declining-balance depreciation exceeds straight-line depreciation over the

5-year life of the truck?

a. $ -0-

b. $ 7,000

c. $37,000

d. $ 6,000

Webb Company

Selected data from the accounting records of Webb Company are listed below:

Read the information about Webb Company. By what amount will net income on a

single-step income statement differ from net income on a multi-step income statement if

Webb Company prepares both formats?

a. $ 800

b. $ 600

c. $ 200

d. $ -0-

Flannery Company uses a worksheet to prepare its statement of cash flows. The

company also uses the indirect method for the Operating Activities section of its

statement. For each of the following changes in the balance sheet, indicate what activity

it affects and whether it is an addition or deduction.a. Deducted from Operating activity

b. Added to Operating activity

c. Deducted from Investing activity

d. Added to Investing activity

e. Deducted from Financing activity

f. Added to Financing activity

Accounts Receivable increased

When a company declares a 2-for-1 stock split,

a. stockholders’ equity is doubled.

b. there is no effect on total stockholders’ equity.

c. a shareholder who previously held 100 shares will have 300 shares after the split.

d. the price of each share will be one third of what it was before the stock split.

An aging schedule typically categorizes the various accounts by the length of time each

invoice is outstanding.

a. True

b. False

Which one of the following types of inventory accounts would be used by a wholesaler

or retailer?

a. Raw materials inventory

b. Work in process inventory

c. Finished goods inventory

d. Merchandise inventory

If a bank discounts a note, then the borrower needs to only pay the cash received and

not the face value of the note.

a. True

b. False

Fennel Flooring purchased office supplies for its showroom during the month of April

for $2,600. The supplies were paid for during April. On April 1, the Supplies account

had a balance of $350. On April 30, supplies on hand amounted to $200. A) What is the

effect on the accounting equation of the adjusting journal entry necessary at April 30th?

B) How much will be reported on the balance sheet at April 30 for Supplies? C) How

much will be reported on the income statement for the month of April for supplies

expense? D) If the adjustment in part A is not recorded, by what amount will net income

be over or understated at April 30?

Which the following organizations is primarily responsible for establishing GAAP

today?

a. Financial Accounting Standards Board (FASB)

b. Securities and Exchange Commission (SEC)

c. Internal Revenue Service (IRS)

d. Federal Government

All of the following statements are true regarding the use of a work sheet at the end of

an accounting period except:

a. all companies use a ten-column work sheet.

b. the net income of the period is extended from the income statement debit column to

the balance sheet credit column.

c. the beginning balance in the Retained Earnings account is entered initially on the

work sheet on the unadjusted trial balance.

d. cash is always carried over from the unadjusted trial balance columns of the work

sheet to the balance sheet columns without any adjustment.

A 15% stock dividend will increase the number of shares outstanding but the book

value per share will decrease.

a. True

b. False

Paulson Transport Company On January 1, 2015, Paulson Transport Company

purchased a ship for $2,000,000. It has a ten-year useful life and a residual value of

$50,000. The company uses the double-declining-balance method.

What was the depreciation expense for Paulson Transport for the year ended December

31, 2015? a. $ -0-

b. $195,000

c. $390,000

d. $400,000

A firm’s year ends on December 31. Its tax is computed and submitted to the U.S.

Treasury on March 15 of the

following year. When should the taxes be reported as a liability?

Assume that Banker Company purchased a new machine on January 1, 2014, for

$96,000. The machine has an estimated useful life of nine years and a residual value of

$6,000. Banker has chosen to use the straight-line method of depreciation. On January

1, 2016, Banker discovered that the machine would not be useful beyond December 31,

2019, and estimated its value at that time to be $4,000. REQUIRED:

1> Calculate the depreciation expense, accumulated depreciation, and book value of the

asset for each year 2014 to 2019. 2> Was the depreciation recorded in 2014 and 2015

wrong? If so, why was it not corrected?

Park Avenue Toys reported the following information at December 31, 2015:

Answer the following questions for Park Avenue Toys. 1> Would the book value per

share increase, decrease, or remain the same, if the company declared a 3-for-1 stock

split on December 31, 2015? Explain. 2> If cash dividends were declared on January

10, 2016, at $1 per share, by how much would retained earnings decrease as a result?

(Assume that the 3-for-1 stock split occurred.)

Share, Inc. The following data is available for one of the products sold by Share, Inc.,

which uses a perpetual inventory system.

Refer to the data for Share, Inc.

If the LIFO method is used, how much is cost of goods sold for May?

The concept that assumes that assets are recorded at the amount to acquire them is

called the

_________________________.

You have just taken a job as the accountant for a stucco repair firm whose accounting

year ends on December 31. As part of the management team, you receive a yearÂend

bonus directly related to the firm’s earnings for the year. One of your duties is to review

the journal entries recorded by the bookkeepers. A new bookkeeper prepared the

following journal entry:

You notice that the explanation for the journal entry refers to the amount as a deposit,

and the bookkeeper explains to you that the firm plans to provide the services to the

client in March of the following year.Required1> Did the bookkeeper prepare the

correct journal entry to account for the client’s deposit? Explain your answer.

2> What is your responsibility in this situation as the new accountant for the firm?

Explain your answer.

What do profitability ratios measure? Explain.