Professional Documents
Culture Documents
Version A
Rules:
No Cheating
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Instructor:
Circle
____________________________
PID or SSN
____________________________
Days &Time of Your Class
Balance
Balance
12/31/04 12/31/05
Cash
15,000 45,000
Accounts Receivable 40,000
75,000
Allowance for Doubtful Accounts 5,000 10,000
Inventory 50,000
70,000
Equipment
200,000
250,000
Accumulated Depreciation 20,000
30,000
Land
60,000
Accounts Payable 40,000
64,000
Wages Payable 10,000
6,000
Note Payable 100,000
80,000
Common Stock ($1 each) 50,000 110,000
Retained Earnings 80,000 200,000
Sales
1,000,000
Cost of Goods Sold
500,000
Wage Expense 200,000
Rent Expense
36,000
Office Expenses
22,000
Depreciation Expense
20,000
Bad Debt Expense
10,000
Interest Expense 8,000
Income Tax Expense
60,000
Loss on Sale of Equipment
4,000
The land was acquired on October 1, 2005 by exchanging 40,000 shares of common stock worth $40,000 and
cash for the balance of the purchase price. The additional common stock (other than that issued for the purchase
of the land) was sold on April 1, 2005 for $1 per share. The company sold only one piece of equipment during
the year. The equipment which was sold originally cost $20,000 and had accumulated depreciation of $10,000
at the date of the sale. All equipment purchased during the year was purchased for cash. The retained earnings
balance for both years is after all closing entries have been made. The market price per share at December
31, 2005 was $25. The Note Payable requires payments of $20,000 principal plus interest at 10% on December
31st of each year.
Prepare, in good form, an Income Statement for Bella Corporation. (60 points)
Prepare, in good form, a Statement of Cash Flows using the indirect method for Bella Corporation.
(100 points)
Multiple Choice Circle answer on exam AND bubble in on scan sheet. (5 points each)
The next 6 questions refer to Bella Corporation. Where appropriate, use a 365 day year.
4) For 2005, the average collection period was (for this question, ignore the allowance for doubtful accounts)
A. 17 days
B. 23 days
C. 25 days
D. 20 days
E. 32 days
8) J D Co. had a beginning balance (12/31/x4 )in Accounts Receivable of $400,000 and a beginning credit
balance in the Allowance for Doubtful Accounts of $10,000. During 20x5 she sold $800,000 of goods
on credit and collected $700,000. If J D estimates that 3% of his ending accounts receivable will
eventually not be collected, his adjusting journal entry for the bad debt expense will include a credit to
allowance for doubtful accounts of:
A. $ 2,000
B. $ 15,000
C. $ 5,000
D. $ 4,000
E. None of the above
9) Still J D Co. - The ending balance in the Allowance for Doubtful Accounts at December 31, 20x5 would
be:
A. $ 12,000
B. $ 15,000
C. $ 5,000
D. $ 4,000
E. None of the above
10) Still J D Co. - If J D Co. had written off $5,000 of accounts receivable during 20x5, the debit to bad
debt expense would have been:
A. $ 4,850
B. $ 10,000
C. $ 9,850
D. $ 15,000
E. $ 5,000
11) If a customer=s account is written off by the company and then the customer comes back and pays what
they owe,
A. you would debit bad debt expense for the amount
B. you would only debit the accounts receivable for the amount
C. you would both debit and credit accounts receivable for the amount
D. you would debit both bad debt expense and the allowance for doubtful accounts for the amount
E. you would debit accounts receivable and credit cash for the amount
12) The Dariko Company prepares annual financial statements at December 31 of each year. On April 1,
20x5 the Company borrowed $100,000 from the bank. The Dariko Company must pay interest of 8%
on the unpaid balance plus $10,000 on the principal on April 1 of each year. The journal entry on
December 31, 20x5 is:
A. Debits = Credits
B. Assets = Liabilities + Owners= Equity
C. Revenues - Cost of Goods Sold = Gross Margin
D. Recording all expenses incurred in generating the revenues of the period
E. The same as the book value
15) Kylie will sell you a Doodlebop for $30,000. The deal is you pay for the Doodlebop in three equal
annual payments that include interest at 6%. You put no money down and the first payment is not due
until one year from today!! You called the bank and they said that they would charge you 10% for a
similar loan.
A. $ 12,063.21
B. $ 10,000 + interest at 6%
C. $ 10,000 + interest at 10%
D. $ 11,223.34
E. None of the above
16) How much are you really paying for the Doodlebop under Kylie=s deal?
A. $ 27,015.42
B. $ 32,244.96
C. $ 30,000.00
D. $ 27,911.34
E. None of the above
17) If you amortize the Kylie deal properly, the interest for the first year would be
A. $ 2,701.54
B. $ 3,000.00
C. $ 3,224.50
D. $ 2,791.13
E. None of the above
18) You are preparing a bid for a note that has exactly five years to go. It was originally for $100,000
payable in 10 equal annual payments which included interest at 10%. Current interest rates are 8%.
How much do you offer for the note so that you will earn 8%?
A. $ 107,987.00
B. $ 105,326.07
C. $ 64,979.00
D. $ 56,493.95
E. None of these is close to the correct number
19) Cory=s Corporation is buying all the assets and assuming all the liabilities of Dan=s, Inc. The
following information is available for Dan=s at the date of the purchase:
The inventory is worth $60,000, the land is worth $400,000 and the equipment is worth $300,000.
Everything else is worth its book value. Cory=s Corporation will pay $1,000,000 for Dan=s, Inc. How
much of the purchase price will Cory=s Corporation debit to goodwill?
A. $ 330,000
B. $ 240,000
C. $ 90,000
D. $ 390,000
E. Some other number which is not here
21) On a statement of cash flows, depreciation expense is treated as an adjustment to net income
because depreciation expense:
On January 1, 20x5 Daryl=s Company had 12 cases which cost him $10 each in his inventory. During
the year, the following transactions occurred:
A. $ 580
B. $ 320
C. $ 280
D. $ 370
E. None of the above
A. $ 50
B. $ 90
C. $ 370
D. $ 70
E. None of the above
26) On July 10, Mark=s Company made a $10,000 credit sale under the terms 2/10, n/30. If Mark
receives full payment of the account on July 19, the amount of cash received is:
A. $ 9,800
B. $ 9,000
C. $ 9,990
D. $10,200
E. $10,000
Question 27 is on material not covered before the second exam during the Winter 2006
27) Rajni, Inc. is buying all the assets and assuming all the liabilities of Feijie, Inc. for $500,000.
The following information is available for Feijie, Inc. at the date of purchase:
The accounts receivable are worth $60,000, the inventory is worth $70,000 and the equipment is
worth $70,000. Additionally, the Note Payable debt is payable interest only at 12% per year for the next
5 years and then the principal is due. The current interest rate for similar debt is 9%. How much of the
purchase price will Rajni, Inc. debit to goodwill?
A. $390,000
B. $420,000
C. $431,666.40
D. $427,903.35
E. $409,183.20
28) The major difference on the income statement between a retail operation and a service company
is: