EXAM #3 WEEK 7 (Chapters 8-12)

Should be completed by Sunday at 11:59 p.m. ET.

Question 1: On January 1, a machine costing $260,000 with a 4-year life and an estimated
$5,000 salvage value was purchased. It was also estimated that the machine would produce
500,000 units during its life. The actual units produced during its first year of operation were
110,000. Determine the amount of depreciation expense for the first year under each of the
following assumptions: (15 points)
1. The company uses the straight-line method of depreciation.
2. The company uses the units-of-production method of depreciation.
3. The company uses the double-declining-balance method of depreciation. 

Question 2: A company sold for $40,000 cash a machine that originally cost $90,000. The
accumulated depreciation on this machine was $47,000 at the time of the sale. What was the
company's gain or loss on this sale? (10 points)

Question 3: On September 15, SportsWorld borrowed $75,000 cash from FirstBank on a

12%, 60-day note payable.
a. Prepare SportsWorld's general journal entry to record the issuance of the note payable
b. Prepare SportsWorld's general journal entry to record the payment of the note at
maturity. (15 points)

Question 4: A company issued 10-year, 9% bonds, with a par value of $500,000 when the
market rate was 9.5%. The issuer received $484,087 in cash proceeds. Prepare the issuer's
journal entry to record the issuance of the bonds. (10 points)

Question 5: A company has $200,000 par value, 10% bonds outstanding. Prepare the
company's journal entry to retire the bonds at the date of maturity. (5 points)

Question 6: On July 31, a company declared a cash dividend of $0.25 per common share to
the shareholders of record on August 15. The cash dividend will be paid on August 25. This
company has 500,000 shares authorized and 100,000 shares outstanding. Prepare the journal
entries required on July 31, August 15 and August 25. (10 points)
 Question 7: A company is authorized to issue 750,000 shares of $5 par value common
stock. Prepare journal entries to record the following selected transactions that occurred
during the company's first year of operations: (15 points)
 
Jan. 10 Sold 102,000 shares of common stock for $8 cash per share.
15 Exchanged 10,000 shares of common stock for equipment with a market value of
$80,000.
Feb. 1 Exchanged 500 shares of common stock for $3,000 of legal services, Incurred
during the company’s organization.
 Question 8: Based on the following income statement and balance sheet for Rashid
Corporation, determine the cash flows from operating activities using the indirect method.
(20 points)

 
Rashid Corporation
Income Statement
For Year Ended December 31, 2010
Sales $504,000
Cost of goods sold $327,600
Depreciation expense 42,000
Other operating expenses 125,500 (495,100)
Other gains (losses):
Gain on sale of equipment 7,200
Income before taxes $ 16,100
Income tax expense (4,800)
Net income $ 11,300
 

 
Rashid Corporation
Balance Sheets
At December 31
Assets 2010 2009
Cash $ 64,650 $ 55,800
Accounts receivable 21,000 29,000
Inventory 58,000 52,100
Equipment 240,000 222,000
Accumulated depreciation (106,000) ( 96,000)
Total assets $277,650 $262,900

Liabilities:
Accounts payable $ 28,400 $ 23,700
Income taxes payable 1,050 1,200
Total liabilities $ 29,450 $ 24,900
Equity
Common stock $106,000 $106,000
Contributed Capital in excess of par value 18,000 18,000
Retained earnings 124,200 114,000
Total equity $248,200 $238,000
Total liabilities and equity $277,650 $262,900