Professional Documents
Culture Documents
Answtest 2 B
Answtest 2 B
Version A
Rules:
No Cheating
No Marking on PV Table
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)
Bella Corporation
Income Statement
For the Year Ended December 31, 2005
Sales
$1,000,000
Cost of Sales
500,000
Gross Profit
500,000
Operating Expenses
Wage Expense $200,000
Rent Expense 36,000
Office Expenses 22,000
Depreciation Expense 20,000
Bad Debt Expense 10,000
Total Operating Expenses
288,000
Operating Income
212,000
Other Revenues & <Expenses>
Interest Expense < 8,000>
Loss on Sale of Equipment < 4,000>
Total Other Revenues & <Expenses> < 12,000>
Taxable Income
200,000
Income Tax Expense
60,000
Net Income
$
140,000
$140,000
(50,000)(3/12) + (70,000)(6/12) + (110,000)(3/12)
$140,000
12,500 + 35,000 + 27,500
$140,000
75,000
Bella Corporation
Comparative Balance Sheets
December 31,
2005 2004
Assets
Current Assets
Cash
$
45,000
$
15,000
Accounts Receivable $ 75,000
$ 40,000
Less: Allowance for
Doubtful Accounts 10,000
5,000
Net Accounts Receivable
65,000
35,000
Inventory
70,000
50,000
Total Current Assets
180,000
100,000
200,000
Less: Accumulated
Depreciation 30,000
20,000
Subtotal 220,000
180,000
Land
60,000
-0-
Net Plant, Property & Equipment
280,000
180,000
Other Assets
None
Total Assets
$460,000
$280,000
Liabilities
Current Liabilities
Accounts Payable
$
64,000
$
40,000
Wages Payable
6,000
10,000
Current Maturities of
Long-Term Debt
20,000
20,000
Total Current Liabilities
90,000
70,000
Long-Term Debt
Note Payable
60,000
80,000
Total Liabilities
150,000
150,000
Owners= Equity
Common Stock 110,000
50,000
Retained Earnings 200,000
80,000
Total Owners= Equity
310,00
0
130,00
0
Total Liabilities & Owners= Equity
$460,000
$280,000
Prepare, in good form, a Statement of Cash Flows using the indirect method for Bella Corporation.
(100 points)
Bella Corporation
Statement of Cash Flows
For the Period Ending December 31, 2005
Operating Activities
Net Income
$140,000
Adjustment to Net Income:
Add: Depreciation Expense
20,000
Add: Loss on Sale of Equipment
4,000
Changes in:
Increase in Net Accounts Receivable <
30,000>
Increase in Inventory
<
20,000>
Increase in Accounts Payable
24,000
Decrease in Wages Payable
<
4,000>
Net Cash Provided by Operating Activities
134,000
Investing Activities
Sale of Equipment $
6,000
Purchases of Equipment < 70,000>
Purchase of Land <
20,000>
Net Cash Used for Investing Activities
<
84,000>
Financing Activities
Issuance of Common Stock 20,000
Payment on Note Payable < 20,000>
Payment of Dividends < 20,000>
Net Cash Used for Financing Activities
<
20,000>
30,000
Beginning Cash Balance, December 31, 2004
15,000
Ending Cash Balance, December 31, 2005
$
45,000
Significant Noncash Transactions:
Exchanged 40,000 shares of Common Stock for
partial payment for land purchased
$
40,000
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 $1,000,000 $1,000,000 17.39 times
B. 23 days ($40,000 + $75,000) / 2 $57,500
C. 25 days
D. 20 days 365
E. 32 days 17.39
7) During periods of rising prices, the inventory system preferred for tax reporting is
A. FIFO
B. LIFO
C. NINO
D. Weighted Average
E. None of the above
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:
500,000 * 3% = 15,000
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:
Accounts Receivable Allowance for Doubtful Accounts
A. $ 4,850 BB 400,000 700,000 (2) (3) 5,000 10,000 BB
B. $ 10,000 (1) 800,000 5,000 (3) 5,000
C. $ 9,850 1,200,000 705,000 9,850 Bad
Debt Exp
D. $ 15,000 495,000 14,850
E. $ 5,000
495,000 * 3% = 14,850
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 PVA = A ( IF )
B. $ 10,000 + interest at 6% 30,000 = A ( 2.6730 )
C. $ 10,000 + interest at 10% A = 30,000 / 2.6730
D. $ 11,223.34 A = 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 PVA = A ( IF )
B. $ 32,244.96 PVA = 11,223.34 ( 2.4869 )
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
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%?
100,000 = A ( 6.1446 )
A. $ 107,987.00 A = 100,000 / 6.1446
B. $ 105,326.07 A = 16,274.45
C. $ 64,979.00
D. $ 56,493.95 PVA = 16,274.45 ( 3.9927 )
E. None of these is close to the correct number PVA = 64,979.00
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?
21) On a statement of cash flows, depreciation expense is treated as an adjustment to net income because
depreciation expense:
22) Which of the following would not be an adjustment in arriving at net cash flow from operations:
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:
Sales
Jan 1 Sold 5 cases for $30 each = 150
Feb 1 Bought 8 cases @ $20 each
Mar 1 Sold 6 cases @ $40 each = 240
Jun 1 Sold 7 cases for $50 each = 350
Sept 1 Bought 3 @ $30 each
Dec 1 Sold 2 @ $60 each = 120
860
Inventory (FIFO)
23) Cost of Goods Sold under FIFO would be 12 @ $10 BB 120 50 (1/1) 5 @ $10
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:
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?
100,000 * 12% = 12,000
A. $390,000 PVA = 12,000 ( 3.8897) = 46,676.40
B. $420,000 PV = 100,000 ( .6499 ) = 64,990.00
C. $431,666.40 111,666.40
D. $427,903.35
E. $409,183.20 Accounts Receivable 60,000.00
Inventory 70,000.00
Equipment 70,000.00
Accounts Payable 20,000.00
Note Payable 111,666.40
Cash 500,000.00
Goodwill 431,666.40
28) The major difference on the income statement between a retail operation and a service company is: