ACC203 Financial Accounting

Review problems for Final (Ch8, 9, 10, 11, 12 not including appendices)
Questions in the Midterm exam will be based on materials covered in (1)
this review problems set, (2) power point slides, (3) in-class notes.
There will be one multiple choice question in the final on the difference
between US GAAP and IFRS coved in the last several slides of Ch12 PP
slides. You need to know that much on this topic.
The final exam includes four parts: Part 1: 6 multiple choice problems;
Part 2: 8 Short calculation and Part 3: problem set on operating cash flow
section Part 4: 3 problems on (1) warranty; (2) bonds; (3) treasury stocks.
Choose 2 out of the 3 problems in Part 4. If you do all three the third one
will be considered extracredit. Correct answers without supporting
calculations will get zero.
Part A: Multiple choices
1.When a cash dividend is declared,
a. a liability account increases and an equity account decreases
b. there is no change in total stockholders equity.
c. an asset account decreases and an equity account decreases.
d. there is no change in total liabilities.
A

On declaration date:
Retained earnings
xx
Dividend payable
xx
Use the following information for questions 2 3.
On October 1, Steve's Carpet Service borrows $50,000 from National
issuing a 6-month, 8%, $50,000, 8% note.
2.The entry made by Steve's Carpet Service on October 1 to record the
and issuance of the note is
a. Interest Expense ......................................................
4,000
Cash..........................................................................
Notes Payable ...................................................
b. Cash..........................................................................
Notes Payable ...................................................
c. Cash ......................................................................... 50,000
Interest Expense ...............................................
Notes Payable ...................................................
d. Cash..........................................................................
Interest Expense ......................................................
4,000
Notes Payable ...................................................
Interest Payable ................................................
B

Bank by
proceeds
46,000
50,000
50,000
50,000
4,000
46,000
50,000
50,000
4,000

3.What entry must Steve's Carpet Service make on December 31 before financial
statements are prepared?
a. Interest Payable .......................................................
1,000
Interest Expense ...............................................
1,000
b. Interest Expense ......................................................
4,000

Interest Payable ................................................

c. Interest Expense
.....
Interest Payable ................................................
d. Interest Expense ......................................................
Notes Payable ...................................................
c. Interest expense = $50,000 * 8% * 3/12 = $1,000

4,000
1,000
1,000
1,000
1,000

Part B: Short questions

1. Schick Company reported cost of goods sold of $172,000 on its 2015 income
statement. The companys beginning inventory was $35,000. The ending
inventory was valued at $40,000. All inventory purchases are made on credit.
The Accounts Payable balance at January 1 was $25,000. The December 31
balance in Accounts Payable was $22,000. Compute cash payments to suppliers.
Changes in inventory (end. Inventory $40,000 beg. Inventory $35,000) = credit
purchase COGS $172,000
Credit purchase = $5,000 + $172,000 = $177,000
Changes in A/P (end. A/P $22,000 beg. A/P $25,000) = credit purchase $177,000
cash payment to suppliers
Cash payment to suppliers = $177,000 + $3,000 = $180,000

2.On January 1, 2015, Superfuzz Company purchased equipment for $30,000. The
companys accumulated depreciation for the equipment as of December 31,
2013 is $7,500. How much is the book value of the equipment at December 31,
2015?
$22,500=30,000 7,500
3.On January 1, 2013, $1,000,000, 5-year, 10% bonds, were issued at 103. Interest
is paid semiannually on January 1 and July 1. If the issuing corporation uses the
straight-line method to amortize premium on bonds payable, the semiannual
amortization amount of the premium is:
Total premium 30,000/ 10 semiannual periods = 3,000.
4.On January 1, 2013, $1,000,000, 5-year, 10% bonds, were issued at 103. Interest
is paid semiannually on January 1 and July 1. If the issuing corporation uses the
straight-line method to amortize premium on bonds payable, the semiannual
interest expense is
Semiannual interest payment $1,000,000 * 10% * 6/12 - semiannual amortization
of premium $3,000
= $47,000
At interest payment: Interest expense
$47,000
Premium on Bonds payable
$3,000

Cash

$50,000

5.Rader Company had the beginning accounts receivable balance was $40,000 and
the ending accounts receivable balance was $140,000. Rader collected $700,000
from customers during the period. What were the credit sales during the period?
Accounts Receivable
Beg.
$40,000
Credit sales Cash collection $700,000
??
End.
$140,000
Beg $40,000 + Credit sales cash collection $700,000 = End $140,000
Credit sales = $140,000 - $40,000 + $700,000 = $800,000
6.Lyman Company had the beginning balance of accumulated depreciation $3,000
and the ending balance $2,000 for year 2016. During the year Lyman sold a
property with cost $11,000 and book value $6,000 for $7,000 cash. Depreciation
expense for the year was:
Accumulated depreciation for the property sold = $11,000 $6,000 = $5,000.
Depreciation expense = $2,000 + $5,000 - $3,000 = $4,000
Part C: corporation
Journalize the stock transactions of Carman Company in 2015.
(1) On January 1, 2015, Miranda Company issued 10,000 shares of $0.25 par value
common stock for $220,000.
Jan.1 Cash..........................................................................
220,000
Common Stock ($.25*10,000 shares)................
2,500
Additional Paid-In Capital in Excess of Par Value
217,500
(2) On May 19, 2015, the company purchased 2,000 shares of its common stock for
$17 per share for the treasury.
May19 Treasury Stock ($17 * 2,000 shares)......................... 34,000
Cash..................................................................
34,000
(3) On July 16, 2015, 1,000 of the treasury shares are sold for $21 per share.
July16 Cash..........................................................................($21 * 1000 shares)
21,000
Treasury Stock ($17 * 1,000 shares)..................
17,000
Additional Paid-In Capital from Treasury Stock. .
4,000

Part E: Bonds
On January 1, 2015, Larkspur Corporation issued $500,000, 10%, 5-year bonds, at
98. The bonds pay semiannual interest on January 1 and July 1. The company uses
the straight-line method of amortization and has a calendar year end. Prepare all
the journal entries that Larkspur Corporation would make related to this bond issue
on (1) 1/1/2015, (2) 7/1/2015 (3) 12/31/2015 and (4) 1/1/2016.
(1) January 1, 2015
Cash ...............................................................................
Discount on Bonds Payable ..............................................
Bonds Payable ..........................................................
(To record sale of bonds at a discount)

490,000
10,000
500,000

(2) July 1, 2015

Total discount = $500,000 - $500,000 * 98% = $10,000
Semiannual discount amortization = $10,000 / 10 = $1,000
Semiannual interest payment = $500,000 * 10% * 6/12 = $25,000
Semiannual interest expense = $26,000
Bond Interest Expense .....................................................
Discount on Bonds Payable ......................................
Cash .........................................................................
(To record semiannual payment of interest and
amortization of discount)

26,000
1,000
25,000

(3) December 31, 2015

Bond Interest Expense ..................................................... 26,000
Discount on Bonds Payable ......................................
Bond Interest Payable ..............................................
(To record accrued bond interest and amortization of
bond discount)
(4) January 1, 2016
Bond Interest Payable ......................................................
Cash .........................................................................
(To record payment of bond interest liability)

1,000
25,000

25,000
25,000

Part F: PPE
Vance Company purchased equipment in 2013 for $75,000 and estimated a
$15,000 salvage value at the end of the equipment's 6-year useful life. At
December 31, 2016, there was $40,000 in the Accumulated Depreciation account
for this equipment using the straight-line method of depreciation. Prepare the
appropriate journal entries under the two scenarios.
(1) On September 30, 2017, the equipment was sold for $30,000. Prepare the
appropriate journal entries to update the company accounts and to remove the
equipment from the books of Vance Company on September 30, 2017.
Annual S-L depreciation expense = ($75,000 - $15,000)/6 years=$10,000
Depreciation Expense.......................................................
7,500
Accumulated DepreciationEquipment....................
(To record depreciation expense for the first 3 months of
2017 :$10,000 9/12 = $7,500)

7,500

BV=Cost $75,000-A.D.$47,500 = $27,500

FV=
$30,000
Gain on disposal=
$ 2,500
Cash..................................................................................
Accumulated DepreciationEquipment ($40,000 + $7,500)
Equipment.................................................................
Gain on Disposal.......................................................
(To record sale of equipment at a gain)

30,000
47,500
75,000
2,500

Part H: Douder Company Laundry

The comparative balance sheet for Douder Company appears below:
DOUDER COMPANY
Comparative Balance Sheet
Dec. 31, 2016 Dec. 31,
2015
Assets
Cash ...............................................................................
Accounts receivable .........................................................
Inventory .........................................................................
Prepaid expenses .............................................................
Equipment .......................................................................
Accumulated depreciationequipment ...........................
Total assets .................................................................

$53,000
6,000
11,000
2,000
20,000
(3,000)
$89,000

Liabilities and Stockholders' Equity

Accounts payable ............................................................. $ 1,000
Long-term note payable ...................................................
13,000
Common stock .................................................................
38,000
Retained earnings ............................................................
37,000
Total liabilities and stockholders' equity ..................... $89,000

$12,000
8,000
7,000
3,000
20,000
(2,000)
$48,000
$ 4,000
14,000
18,000
12,000
$48,000

Additional information:
Net income for year 2016 was $32,000.
Cash dividends of $7,000 were paid during the year.
In January, 2016, land costing $20,000 was acquired by the issuance of common
stock.
During the year, land purchased in January at $20,000 was subsequently sold for
$17,500 cash.
Prepare a statement of cash flows for the year ended December 31, 2016, using the
indirect method.

DOUDER COMPANY
Statement of Cash Flows
For the Year Ended December 31, 2006
(Indirect Method)
Cash flows from operating activities
Net income .....................................................................

$32,000

Add:
Depreciation expense ...............................................
Loss on sale of land .................................................
Decrease in accounts receivable ..............................
Decrease in prepaid expenses .................................
Less:
Increase in inventory ................................................
Decrease in accounts payable ..................................
(7,000)
Net cash provided by operating activities.........

$1,000
2,500
2,000
1,000
(4,000)
(3,000)

31,500

Cash flows from investing activities

Proceeds from sale of land ...............................................
Cash flows from financing activities
Payment of cash dividends ..............................................
Payment of long-term note ..............................................
Net cash used by financing activities .......................

6,500

17,500
(7,000)
(1,000)
(8,000)

Net increase in cash ................................................................

Cash at beginning of period .....................................................
Cash at end of period ..............................................................

41,000
12,000
$53,000

Noncash financing and investing activities

Acquired land through issuance of common stock ...........

$20,000

Part I
Hannah Company purchased equipment on January 1, 2015 for $66,000. It is
estimated that the equipment will have a $6,000 salvage value at the end of its 20year useful life. It is also estimated that the equipment will produce total 500,000
units over its 20-year life.
1. Assume the company uses the double-declining-balance method of depreciation.
1) The amount of depreciation expense for the year ended December 31, 2015 was
______________.
DDB rate =2/20 =10%
Depreciation expense (2011) = 66,000 * 10% * 5 /12 = 5,500 (2 point)
2) The book value of the equipment at December 31, 2015 was _______________.
Accumulated Depreciation at 12/31/2011 = 5,500
BV at 12/31/11 = 66,000-5,500=60,500
2. Assume the company uses the units-of-activity depreciation method. If 30,000
units of product were produced in 2015 and 70,000 units were produced in 2016,
the accumulated depreciation at December 31, 2016 was ____________.
Depreciation per unit produced = ($66,000 $6,000) /500,000 = $0.12 per unit
$0.12 * (30,000 + 70,000) = $12,000