ACCT 212 Financial Accounting Final Exam Answer
ACCT 212 Financial Accounting Final Exam Answer
1. (TCO 3) At the end of the period it is necessary to close all temporary accounts. (1) Explain why this process is required (10 points) and (2) provide an example of the closing of an expense account, Income Tax Expense in the form of a journal entry (10 points). (Points : 20)
2. (TCO 2) As required to complete Course Project 1, one must follow the cycle that includes 10 steps to complete the accounting cycle. (1) Explain which financial reports can be generated (10 points) and (2) provide an example of information that those financial reports would provide. (10 points) (Points : 20)
3. (TCO 5) Internal Control Procedures are required to safeguard company assets and to ensure ethical operation of the business. (1) Explain how comparisons and compliance monitoring can satisfy the purpose of internal control (10 points) and (2) provide an example of how this control could be implemented (10 points). (Points : 20)
4. (TCO 4) Inventory valuation methods determine the cost of goods sold and the inventory balance. (1) Explain how the Last in First out (LIFO) method is applied (10 points) and (2) provide an example of the impact that this method of inventory valuation will have on Cost of Goods Sold (COGS). (10 points) (Points : 20)
5. (TCO 1) To evaluate the financial operation and health of a business, ratio analysis is used. (1) Provide the formula for Accounts Receivable Turnover and explain how it is computed (10 points) and (2) provide an example of how this ratio can be used in decision-making in business. (10 points) (Points : 20)
6. (TCO 6) Depreciation is a process to allocate the cost of long-life assets to each period’s income statement and adjusts the value of the asset on the balance sheet. (1) Explain how the straight-line method is computed (10 points) and (2) provide an example of how this method could be used on a new delivery truck purchased for $25,000 to be used for 4 years with a salvage value of $0 for year one only. (15 points) (Points : 25) 2-
7. (TCO 6) To raise capital, companies might sell bonds. This allows them to bypass lenders such as banks and go directly to the investing public. Your company is planning to sell bonds with a face amount of $10,000 and paying 5% annual interest. (1) The day the bonds hit the market, the bond price is quoted at 101.5. What is the bond’s selling price? (10 points) and (2) how does the company record this sale in its accounting information system? Use journal entries to support your answer. (15 points) (Points : 25) 3-
8. (TCO 1) Financial statement analysis is used by investors, creditors, and managers of business to evaluate the operation and health of the business. This information is in part the basis for decision-making. (1) Identify ratios used to evaluate the profitability of a company (10 points) and (2) provide an example of how the results of this analysis could be used to make business decisions. (15 points) (Points : 25) 1-
9. (TCO 7) There are three different forms of business; sole-proprietor, partnership, and corporation. (1) Explain why a corporation’s government regulations may be a disadvantage (10 points) and (2) as a stockholder explain why a stockholder would want to own preferred stock. (15 points) (Points : 25) 2-
10. (TCO 4) Inventory valuation methods allow management to select a method that best fits their business model. Given the following data, what is the value of the cost of goods sold as determined by the First in First out (FIFO) method? Show all computations. (25 points) Sales revenue 300 units at $15 per unit Purchases 240 units at $10 per unit Beginning inventory 120 units at $8 per unit 3-
11. (TCO 5) Most businesses extend credit to other businesses as a way of increasing sales. The risk is that some of the accounts may not pay the amount due. In these cases, we have to account for uncollectible receivables. (1) Explain how the percent-of -sales method works (10 points) and (2) provide an example of a journal entry that would adjust accounts for the loss.
1. (TCO 6) BagODonuts Company bought a used delivery truck on January 1, 2010, for $19,200. The van was expected to remain in service 4 years (30,000 miles). BagODonuts’ accountant estimated that the truck’s residual value would be $2,400 at the end of its useful life. The truck traveled 8,000 miles the first year, 8,500 miles the second year, 5,500 miles the third year, and 8,000 miles in the fourth year.
1. Calculate depreciation expense for the truck for each year (2010-2013) using the:
a. Straight-line method.
b. Double-declining balance method.
c. Units of Production method.
(For units-of-production and double-declining balance, round to the nearest two decimals after each step of the calculation.)
2. Which method best tracks the wear and tear on the van?
3. Which method would BagODonuts prefer to use for income tax purposes? Explain in detail why BagODonuts prefers this method. (Points : 25)A. 6400
B. 16800
C.2. (TCO 7) ABC Inc. was incorporated on 1/15/12. Their corporate charter authorized the following capital stock:
Preferred Stock: 7%, par value $100 per share, 100,000 shares.
Common Stock: $1 par value, 500,000 shares.The following transactions occurred during the year:
1/19/12 – Issued 100,000 shares of common stock for $17 cash per share.
1/31/12 – Issued 3,000 shares of preferred stock for $115 cash per share.
11/1/12 – Repurchased 30,000 shares of common stock for $22 cash per share.
12/1/12 – Declared and paid a total dividend of $95,000.Required:
1. Prepare the journal entry for each transaction listed above.
2. In your own words, explain the main differences between common and preferred stock.
(Points : 25)3. (TCO 5) Fraud is an intentional misrepresentation of facts, made for the purpose of persuading another party to act in a way that causes injury or damage to that party. In our readings and discussions we have seen several examples of fraud in business. Using that experience (1) provide an example of a common fraudulent practice in business with an explanation of how the practice works and (2) name and describe each of the elements of the Fraud Triangle.
(Points : 25)4. (TCO 5) Internal Control Procedures are in place to protect the assets of every business as mentioned in the textbook and our discussions. Of the seven internal control procedures, list five of these controls and describe how each procedure is implemented (Points : 25)
5. (TCO2) Below are the accounts of Super Pool Service, Inc. The accounts have normal balances on June 30, 2012. The accounts are listed in no particular order.
Account Balance
Common stock $5,100
Accounts payable $4,400
Service revenue $17,100
Land $28,800
Note payable $9,500
Cash $5,200
Dividends $6,100
Utilities expense $2,100
Accounts receivable $10,600
Delivery expense $700
Retained earnings $25,600
Salary expense $8,200Prepare the company’s trial balance as of June 30, 2012, listing accounts in proper sequence, as illustrated in the chapter. For example, Accounts Receivable comes before Land. List the expense with the largest balance first, the expense with the next largest balance second, and so on.
6.
(TCO4) Linda’s Lampshades started business on Jan. 1, 2001. They had the following inventory transactions:
Journals – Jan. 2001
Purchases
Supplier Date Received Quantity Unit Cost Amount
Donna 01/10/01 110 12.00 1320.00
Thomas 01/15/01 160 14.00 2240.00
Cindy 01/18/01 150 15.00 2250.00
Sales
Customer Date shipped Quantity Sel. Price Amount
Norilene 01/16/01 200 25.00 5000.001. Calculate the ending inventory, using the perpetual inventory method:
A. Using FIFO
B. Using LIFO
C. Using Average Cost
2. Prepare the following statementUsing
FIFO LIFO Average Cost
Sales
Cost of Sales
Gross Profit
(Points : 25)7. Depreciation is a process to allocate the cost of long-life assets to each period’s income statement and adjusts the value of the asset on the balance sheet. (1) Explain how the Units-of-Production method is computed (10 points) and (2) provide an example of how this method could be used on a new delivery truck purchased for $25,000 to be used for 100,000 miles with a salvage value of $5,000 for year one only (25,000 miles driven in year one)
Set 2:
1. (TCO 3) At the end of the period it is necessary to close all temporary accounts. (1) Explain why this process is required (10 points) and (2) provide an example of the closing of an expense account, Income Tax Expense in the form of a journal entry.
2. (TCO 2) As required to complete Course Project 1, one must follow the cycle that includes 10 steps to complete the accounting cycle. (1) Explain which financial reports can be generated (10 points) and (2) provide an example of information that those financial reports would provide. (10 points) (Points : 20)
3. (TCO 5) Internal Control Procedures are required to safeguard company assets and to ensure ethical operation of the business. (1) Explain how comparisons and compliance monitoring can satisfy the purpose of internal control (10 points) and (2) provide an example of how this control could be implemented (10 points). (Points : 20)
4. (TCO 4) Inventory valuation methods determine the cost of goods sold and the inventory balance. (1) Explain how the Last in First out (LIFO) method is applied (10 points) and (2) provide an example of the impact that this method of inventory valuation will have on Cost of Goods Sold (COGS). (10 points) (Points : 20)
5. (TCO 1) To evaluate the financial operation and health of a business, ratio analysis is used. (1) Provide the formula for Accounts Receivable Turnover and explain how it is computed (10 points) and (2) provide an example of how this ratio can be used in decision-making in business. (10 points) (Points : 20)
6. (TCO 6) Depreciation is a process to allocate the cost of long-life assets to each period’s income statement and adjusts the value of the asset on the balance sheet. (1) Explain how the straight-line method is computed (10 points) and (2) provide an example of how this method could be used on a new delivery truck purchased for $25,000 to be used for 4 years with a salvage value of $0 for year one only. (15 points) (Points : 25)
7. (TCO 6) To raise capital, companies might sell bonds. This allows them to bypass lenders such as banks and go directly to the investing public. Your company is planning to sell bonds with a face amount of $10,000 and paying 5% annual interest. (1) The day the bonds hit the market, the bond price is quoted at 101.5. What is the bond’s selling price? (10 points) and (2) how does the company record this sale in its accounting information system? Use journal entries to support your answer. (15 points) (Points : 25)
8. (TCO 1) Financial statement analysis is used by investors, creditors, and managers of business to evaluate the operation and health of the business. This information is in part the basis for decision-making. (1) Identify ratios used to evaluate the profitability of a company (10 points) and (2) provide an example of how the results of this analysis could be used to make business decisions. (15 points) (Points : 25)
9. (TCO 7) There are three different forms of business; sole-proprietor, partnership, and corporation. (1) Explain why a corporation’s government regulations may be a disadvantage (10 points) and (2) as a stockholder explain why a stockholder would want to own preferred stock. (15 points) (Points : 25)
10. (TCO 4) Inventory valuation methods allow management to select a method that best fits their business model. Given the following data, what is the value of the cost of goods sold as determined by the First in First out (FIFO) method? Show all computations. (25 points) Sales revenue 300 units at $15 per unit Purchases 240 units at $10 per unit Beginning inventory 120 units at $8 per unit.
11. (TCO 5) Most businesses extend credit to other businesses as a way of increasing sales. The risk is that some of the accounts may not pay the amount due. In these cases, we have to account for uncollectible receivables. (1) Explain how the percent-of -sales method works (10 points) and (2) provide an example of a journal entry that would adjust accounts for the loss.
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