(ACCT2010)[2018](sum)midterm2~=3z73a3^_51885.pdf downloaded by cykim from http://petergao.net/ustpastpaper/down.php?course=ACCT2010&id=19 at 2019-10-07 01:02:04. Academic use within HKUST only.

1. On August 1, Red Company purchased an equipment for $10,000 cash and also gave
100 shares of White common stock that Red Company held as an investment. The
White common stock cost Red Company $5,000 and on August 1 had a fair value of
$4,200. The installation costs for the equipment were $700 and shipping costs were
$500. What should be the total amount debited to the equipment account?

A. $14,200.
B. $15,000.
C. $15,400.
D. $16,200.

2. On January 1, 2016, Woodstock, Inc. purchased a machine costing $40,000. Woodstock

also paid $1,000 for transportation and installation. The expected useful life of the
machine is 6 years and the residual value is $5,000. If Woodstock uses the straight-line
depreciation method, which of the following statements is incorrect?

A. The annual depreciation expense is $6,000.

B. The December 31, 2016 book value was $35,000.
C. The December 31, 2018 accumulated depreciation balance was $18,000.
D. The December 31, 2017 book value was $24,000.

3. Which of the following statements about fixed asset turnover is false?

A. Selling off long-lived, productive assets while maintaining sales will lead to a
lower fixed asset turnover.
B. Shortening the estimated useful lives of depreciable assets will lead to a higher
fixed asset turnover.
C. Using an accelerated depreciation method instead of the straight-line depreciation
method will lead to reporting a higher fixed asset turnover during the earlier years
of an asset's life.
D. Acquiring more long-lived, productive assets when a company is growing will
lead to a lower fixed asset turnover.

4. If an expenditure related to a depreciable asset is incorrectly treated as a capital

expenditure, instead of as repairs and maintenance expense, which of the following
statements is true?

A. The current year's net income will be lower and future depreciation expense will
be higher.
B. The current year's net income will be higher and future depreciation expense will
be higher.
C. The current year's net income will be higher and future depreciation expense will
be lower.
D. The current year's net income will be lower and future depreciation expense will
be lower.

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(ACCT2010)[2018](sum)midterm2~=3z73a3^_51885.pdf downloaded by cykim from http://petergao.net/ustpastpaper/down.php?course=ACCT2010&id=19 at 2019-10-07 01:02:04. Academic use within HKUST only.

5. Warren Company plans to depreciate a new building using the double declining-balance
depreciation method. The building cost $800,000. The estimated residual value of the
building is $50,000 and it has an expected useful life of 25 years. Assuming the first
year's depreciation expense was recorded properly, what would be the amount of
depreciation expense for the second year?

A. $30,720.
B. $32,000.
C. $58,880.
D. $64,000.

6. On 1/1/2016, Pyle Company purchased an asset that cost $50,000 and had no estimated
residual value. The estimated useful life of the asset is 8 years and straight-line
depreciation is used. An error was made in 2016 because the total amount of the asset's
cost was debited to an expense account for 2016 and no depreciation was recorded.
Pretax income for 2016 was $42,000. How much is the correct 2016 pretax income?

A. $35,750.
B. $48,250.
C. $85,750.
D. $92,000.

7. On January 1, 2016, Wasson Company purchased a delivery vehicle costing $40,000.

The vehicle has an estimated 6-year life and a $4,000 residual value. Wasson uses the
units-of-production depreciation method and Wasson estimates that the vehicle will be
driven 100,000 miles. What is the vehicle's book value as of December 31, 2017
assuming the vehicle was driven 10,000 miles during 2016 and driven 18,000 miles
during 2017?

A. $29,920.
B. $28,800.
C. $24,800.
D. $25,920.

8. Amanda Company purchased a computer that cost $10,000. It had an estimated useful
life of five years and a residual value of $1,000. The computer was depreciated by the
straight-line method and was sold at the end of the third year of use for $5,000 cash.
Which of the following statements correctly describes the computer sale?

A. Assets and stockholders' equity both increase by $5,000.

B. Assets decrease $5,000 and stockholders' equity is not affected.
C. Assets and stockholders' equity both decrease by $400.
D. Assets and stockholders' equity both increase by $400.

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(ACCT2010)[2018](sum)midterm2~=3z73a3^_51885.pdf downloaded by cykim from http://petergao.net/ustpastpaper/down.php?course=ACCT2010&id=19 at 2019-10-07 01:02:04. Academic use within HKUST only.

9. During 2016, a company purchased a mine at a cost of $3,000,000. The company spent
an additional $600,000 getting the mine ready for its intended use. It is estimated that
300,000 tons of mineral can be removed from the mine and the residual value of the
mine will be $600,000. During 2016, 45,000 tons of mineral were removed from the
mine and 35,000 tons were sold. Which of the following statements is incorrect with
respect to the accounting for the mine?

A. The book value of the mine on December 31, 2016 was $2,640,000.
B. The book value of the mine decreased $450,000 during 2016.
C. The inventory of minerals was $100,000 at December 31, 2016.
D. The 2016 cost of goods sold was $350,000.

10. Augie Corporation purchased a truck at a cost of $60,000. It has an estimated useful life
of 5 years and estimated residual value of $5,000. At the beginning of year 3, Augie's
managers concluded that the total useful life would be 4 years, rather than 5 years.
There was no change in the estimated residual value. What should the amount of
depreciation be recorded for year 3 under the straight-line depreciation method?

A. $15,500.
B. $8,250.
C. $11,000.
D. $16,500.

11. Which of the following journal entries is correct when a company owns its office
building for many years and now sells the building?

A. Cash xxx
Accumulated depreciation xxx
Loss on sale xxx
Building xxx

B. Cash xxx
Building xxx
Gain on sale xxx
Accumulated depreciation xxx

C. Cash xxx
Accumulated depreciation xxx
Loss on sale xxx
Building xxx

D. Cash xxx
Gain on sale xxx
Building xxx

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(ACCT2010)[2018](sum)midterm2~=3z73a3^_51885.pdf downloaded by cykim from http://petergao.net/ustpastpaper/down.php?course=ACCT2010&id=19 at 2019-10-07 01:02:04. Academic use within HKUST only.

12. Which of the following properly describes the accounting for goodwill?

A. Goodwill is recorded when it is internally generated.

B. Goodwill is amortized over its useful life.
C. Goodwill is the difference between the amount paid for a company relative to the
book value of the acquired company's net assets.
D. Goodwill is written down when it has been determined to be impaired.

13. Which of the following is incorrect?

A. Current liabilities are those that will be satisfied within one year or the operating
cycle, whichever is longer.
B. Liquidity is the ability of the company to meet its total obligations.
C. Current liabilities impact a company's liquidity.
D. Working capital is equal to current assets minus current liabilities.

14. Which of the following transactions will decrease the accounts payable turnover ratio?

A. Using cash to pay an accounts payable balance.

B. Selling inventory on account.
C. Selling inventory for cash.
D. A customer returning inventory sold on account.

15. On October 1, 2016, Donna Equipment signed a one-year, 8% interest-bearing note

payable for $50,000. Assuming that Donna Equipment maintains its books on a
calendar year basis, how much interest expense should be reported in the 2017 income
statement?

A. $1,000.
B. $2,000.
C. $3,000.
D. $4,000.

16. Purdum Farms borrowed $10 million by signing a five-year note on December 31,
2015. Repayments of the principal are payable annually in installments of $2 million
each. Purdum Farms makes the first payment on December 31, 2016 and then prepares
its balance sheet. What amount will be reported as current and long-term liabilities,
respectively, in connection with the note at December 31, 2016, after the first payment
is made?

A. $2 million in current liabilities and $8 million in long-term liabilities.

B. $2 million in current liabilities and $6 million in long-term liabilities.
C. Zero in current liabilities and $8 million in long-term liabilities.
D. Zero in current liabilities and $10 million in long-term liabilities.

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(ACCT2010)[2018](sum)midterm2~=3z73a3^_51885.pdf downloaded by cykim from http://petergao.net/ustpastpaper/down.php?course=ACCT2010&id=19 at 2019-10-07 01:02:04. Academic use within HKUST only.

17. Melanie Corp. borrowed $100,000 cash on September 1, 2016, and signed a one-year
6%, interest-bearing note payable. The interest and principal are both due on August 31,
2017. Assume that the appropriate adjusting entry was made on December 31, 2016 and
that no adjusting entries have been made during 2017. Which of the following would be
the required journal entry to pay the note on August 31, 2017?

A. Interest expense 6,000

Cash 6,000

B. Interest expense 4,000

Interest payable 2,000
Notes payable 100,000
Cash 106,000

C. Notes payable 100,000

Interest expense 6,000
Cash 106,000

D. Interest payable 2,000

Notes payable 100,000
Cash 102,000

18. Rice Corporation's attorney has provided the following summaries of three lawsuits
against Rice:
• Lawsuit A: The loss is probable, but the loss cannot be reasonably estimated.
• Lawsuit B: The loss is reasonably possible, but the loss cannot be reasonably estimated.
• Lawsuit C: The loss is reasonably possible and can be reasonably estimated.
Which of the following statements is correct?

A. A disclosure note is required for each of the three lawsuits.

B. A disclosure note is required only for lawsuits A & C.
C. A disclosure note is required only for lawsuit A.
D. A disclosure note is required only for lawsuits B & C.

19. Smith Corporation entered into the following transactions:

• Purchased inventory on account.
• Collected an account receivable.
• Purchased equipment using cash.
Which of the following statements about Smith's transactions is correct?

A. The inventory purchase on account increased working capital.

B. Collecting an account receivable increases working capital.
C. The equipment purchase decreases working capital.
D. The inventory purchase on account decreases working capital.

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(ACCT2010)[2018](sum)midterm2~=3z73a3^_51885.pdf downloaded by cykim from http://petergao.net/ustpastpaper/down.php?course=ACCT2010&id=19 at 2019-10-07 01:02:04. Academic use within HKUST only.

20. Rusty Corporation purchased a rust-inhibiting machine by paying $50,000 cash on the
purchase date and agreeing to pay $10,000 every three months during the next two
years. The first payment is due three months after the purchase date. Rusty's incremental
borrowing rate is 8%. The machine reported on the balance sheet as of the purchase date
is closest to:

A. $123,255.
B. $130,000.
C. $80,000.
D. $73,255.

21. Your goal is to be able to withdraw $10,000 for each of the next nine years beginning
one year from today and also to withdraw $50,000 ten years from today. The return on
the investment is expected to be 6%. The amount that needs to be invested today is
closest to:

A. $68,017.
B. $95,937.
C. $78,176.
D. $132,075.

22. Which of the following statements is correct?

A. A secured bond has specific assets pledged as collateral to secure it.

B. An unsecured bond can be paid at the option of the issuer.
C. A bond trustee is appointed to represent the issuing company.
D. The bond indenture specifies the market rate of interest the investors will earn.

23. Which of the following is not a reason that a company would want to issue bonds
instead of stock?

A. Interest payments can be deducted for income tax purposes.

B. Stockholders maintain control.
C. The impact on earnings from using borrowed money may be positive.
D. There is less risk associated with a bond issue.

24. During 2016, Patty's Pizza reported net income of $4,212 million, interest expense of
$167 million and income tax expense of $1,372 million. During 2015, Patty's reported
net income of $3,568 million, interest expense of $163 million and income tax expense
of $1,424 million. The times interest earned ratios for 2016 and 2015, respectively, are
closest to:

A. 32.2 and 29.4 times.

B. 28.4 and 23.8 times.
C. 34.4 and 31.6 times.
D. 34.1 and 26.6 times.

6
(ACCT2010)[2018](sum)midterm2~=3z73a3^_51885.pdf downloaded by cykim from http://petergao.net/ustpastpaper/down.php?course=ACCT2010&id=19 at 2019-10-07 01:02:04. Academic use within HKUST only.

25. Assuming no adjusting journal entries have been made, the journal entry to record the
cash interest payment on the due date for bonds issued at a discount results in which of
the following?

A. An increase in expenses and a decrease in liabilities.

B. An increase in expenses and an increase in liabilities.
C. A decrease in both liabilities and stockholders' equity.
D. A decrease in both assets and liabilities.

26. Zero coupon bonds are bonds that are issued:

A. With a zero effective interest rate.

B. At a rate that provides a large discount at issuance.
C. At a rate that has zero difference between the coupon rate and the market rate of
interest.
D. As bonds that will have zero amortization recorded over the life of the bond.

27. On January 1, 2016, Tonika Company issued a four-year, $10,000, 7% bond. The
interest is payable annually each December 31. The issue price was $9,668 based on an
8% effective interest rate. Tonika uses the effective-interest amortization method.
Rounding calculations to the nearest whole dollar, which of the following journal
entries correctly records the 2016 interest expense?

A. Interest expense 700

Cash 700

B. Interest expense 883

Bond discount 183
Cash 700

C. Interest expense 773

Bond discount 73
Cash 700

D. Interest expense 676

Bond discount 24
Cash 700

28. On January 1, 2016, Broker Corp. issued $3,000,000 par value 12%, 10-year bonds
which pay interest each December 31. If the market rate of interest was 14%, what was
the issue price of the bonds?

A. $3,339,084.
B. $2,843,172.
C. $3,000,000.
D. $2,686,896.
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(ACCT2010)[2018](sum)midterm2~=3z73a3^_51885.pdf downloaded by cykim from http://petergao.net/ustpastpaper/down.php?course=ACCT2010&id=19 at 2019-10-07 01:02:04. Academic use within HKUST only.

29. Which of the following statements regarding the debt-to-equity ratio is correct?

A. A high ratio means that the company is primarily financed through stockholder
investments.
B. A higher ratio is preferred.
C. The debt-to-equity ratio is a measure of a company's ability to pay its debt.
D. The debt-to-equity ratio is a measure of investor and creditor risk.

30. If a bond is issued at a price of 106, the coupon rate was

A. higher than the market rate of interest.

B. lower than the market rate of interest.
C. equal to the market rate of interest.
D. not related to the market rate of interest.

- The End -

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(ACCT2010)[2018](sum)midterm2~=3z73a3^_51885.pdf downloaded by cykim from http://petergao.net/ustpastpaper/down.php?course=ACCT2010&id=19 at 2019-10-07 01:02:04. Academic use within HKUST only.
(ACCT2010)[2018](sum)midterm2~=3z73a3^_51885.pdf downloaded by cykim from http://petergao.net/ustpastpaper/down.php?course=ACCT2010&id=19 at 2019-10-07 01:02:04. Academic use within HKUST only.