1. What are the missing numbers for the below income statement? Revenues 100 Cost of Goods Sold ? Gross Margin 60 SG&A Expense ? Pre-tax Income 20 Tax Expense (40% of...

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1. What are the missing numbers for the below income statement?

Revenues	100
Cost of Goods Sold	?
Gross Margin	60
SG&A Expense	?
Pre-tax Income	20
Tax Expense (40% of Pre-tax Income)	?
Net Income	?

2. What is the missing number from the below cash flow statement?

Beginning

Balance

Operating Cash Flow

Investing Cash Flow

Financing Cash Flow

Ending

Balance

- 20

100

3. What are the missing numbers for the below balance sheet?

Assets
Cash	15
Accounts Receivable	?
Inventory	60
Total Current Assets	97
Property, Plant, and Equipment, net	?
Intangible Assets	20
Total Assets	257

Liabilities
Accounts Payable	40
Accrued Operating Expenses	50
Total Current Liabilities	?
Notes Payable	?
Total Liabilities	190
Owners’ Equity
Stock	20
Retained Earnings	?
Total Liabilities and Owners’ Equity	?

4. Given the following data, what is net income? (Note: Not all items shown below will be included in income.)

Cost of Goods Sold	8
Accounts Payable	22
Taxes Payable	6
Tax Expense	8
Revenues	40
SG&A Expense	2
Interest Payable	14
Accumulated Depreciation	11
Depreciation Expense	6
Interest Expense	4
Dividends	3

5. What is the missing number in the below Retained Earnings account. (Provide both the amount and the name.)

Beginning Balance	Net Income (Loss)	?	Ending Balance
100	21	?	98

6. What is the correct journal entry for the purchase of office supplies for $10 cash, if the supplies are capitalized?

Assets	Liabilities	Owners' Equity	Debit	Credit	$	$

7. What are the effects on current income and on future income, if a firm incorrectly capitalizes an expenditure that it should have expensed? State your answer for both current income and future income as “overstated” or “understated”.

Overstated or

Understated?

Current Income

Future Income

8. What is the correct journal entry for the following transaction. A firm sells a car for $40 cash. The cost of the car is

$30. The firm is a car dealer, and the car is therefore classified as inventory.

Assets	Liabilities	Owners' Equity	Debit	Credit	$	$

9. Refer to the above. If the firm had not been a car dealer and had classified the car as property, plant, and equipment (PP&E), rather than inventory, which of the below would be correct?. (Circle your answer.)

a. Net Income would be unaffected.

b. A gain would be reported instead of revenues and COGS. c. PP&E would be reduced, instead of Inventory.

d. All of the above.

e. None of the above.

10. Provide the closing entry, given the following temporary accounts, with amounts in parentheses: Revenues (80), COGS (25), SG&A Expense (15), Interest Expense (10), and Tax Expense (8).

Assets	Liabilities	Owners' Equity	Debit	Credit	$	$

11. Indicate by check mark (“9”) or “X” which accounts are found on the income statement and which accounts are found on the balance sheet.

Account Name	Income Statement	Balance Sheet
Allowance for Bad Debt
Bad Debt Expense
Prepaid Expense
Unearned Revenue
Revenue

12. What is insurance expense for the year 2012, given the following set of facts? The firm prepays two years of insurance premiums on 7/1/12. The amount paid is $24. The firm's fiscal yearend (FYE) is 12/31.

13. What are the journal entries to recognize the following two, related transactions?

a. On January 1, 2010, the firm sells a gift card for $100.

Assets	Liabilities	Owners' Equity	Debit	Credit	$	$

b. On March 15, 2010, the gift card is used by a customer to buy merchandise for $80. The cost of the merchandise sold was $60.

Assets	Liabilities	Owners' Equity	Debit	Credit	$	$

14. What are the journal entries to recognize the following two, related transactions?

a. A firm prepays $7 in insurance premiums.

Assets	Liabilities	Owners' Equity	Debit	Credit	$	$

b. A firm expenses $6 of previously prepaid insurance premiums.

Assets	Liabilities	Owners' Equity	Debit	Credit	$	$

15. What, if any, is the journal entry to recognize a possible contingent liability (for example, resulting from a lawsuit)

of $20.

Assets	Liabilities	Owners' Equity	Debit	Credit	$	$

16. What, if any, is the proper journal entry for a firm to recognize the increase in the value of its own stock from $40 to $50?

Assets	Liabilities	Owners' Equity	Debit	Credit	$	$

17. What is the formula for the ratio that would answer the following questions:

Question	Formula for Ratio to Answer Question
How long does it take a firm to pay its bills (on average)?
How long does it take a firm to sell its inventory (on average)?

18. What was the amount of cash a firm collected from its customers, given the following fact set?

The firm's balance sheets at the beginning and end of the year show gross accounts receivable of $32 and $28, respectively. Also, the firm's beginning and ending allowance for uncollectible accounts are -$4 and -$5, respectively. Bad debt expense was $4, which was 2% of credit sales. The firm makes all sales on account.

19. What is bad debt expense, using the aging method (also called the “percentage of receivables” method), given the following set of facts?

x A firm has $80 of gross accounts receivable.

x The firm estimates that for $20 of the receivables, 10% are expected to be uncollectible.

x The firm estimates that for the remaining $60 of the receivables, 50% are expected to be uncollectible.

x The opening balance in the allowance account was $45 and write-offs for the period were $20. Thus, the amount in the allowance account, after write-offs, but before bad debt expense was $25.

20. Given the below information, what are the values for COGS and ending inventory for each costing method below?

	Number of Units	Price per Unit
Beginning inventory	10	2
Purchases	20	3
Sales	15
Ending inventory	15

Goods Available for

Sale

COGS

Ending Inventory

FIFO

20 + 60 = 80

LIFO

20 + 60 = 80

21. Given the below information, what is the dollar amount that the LIFO liquidation added to gross margin?

	Number of Units	Price per Unit
Beginning inventory	10	1
Purchases	12	3
Sales	15
Ending inventory	7

22. What inventory costing method gives the lowest inventory valuation in inflationary periods?

a. FIFO

b. LIFO

c. Average d. LILO

e. FILO

23. What inventory costing method gives the lowest net income in inflationary periods?

a. FIFO

b. LIFO

c. Average d. LILO

e. FILO

24. What is the effect on net income if inventory is overstated?

a. Net income will also be overstated. b. Net income will be understated.

c. Net income will be unaffected.

d. It depends on whether the firm is using LIFO for FIFO. e. None of the above.

25. What are the journal entries to recognize each of the below events.

a. The firm records bad debt expense of 5% of credit sales, which were $300. The firm uses the Percentage of

Credit Sales Method. Journalize bad debt expense.

Assets	Liabilities	Owners' Equity	Debit	Credit	$	$

b. The firm subsequently writes-off $10 of receivables. Record the write-off.

Assets	Liabilities	Owners' Equity	Debit	Credit	$	$

26. Given the following set of facts, what is the net amount of cash received by the seller?

The seller records a credit sale for $1,000. Shortly after the sale, the buyer returns $250 and the seller credits the receivable by this amount. The seller also grants a further allowance to the buyer for $100. Finally, the buyer pays within the discount period to take advantage of a 2% discount.

27. Refer to the data in the above problem. With respect to the above purchase, what is the amount that the buyer

will show as inventory on its balance sheet after all returns, discounts, and allowances?

28. What is the proper journal entry for a firm that factors a $100 receivable at a bank, which charges a 1% fee.

Assets	Liabilities	Owners' Equity	Debit	Credit	$	$

29. With respect to “factoring,” what is the difference between “with recourse” and “without recourse”?

a. With recourse means that the bank ultimately bears the credit risk.

b. Without recourse means that the bank ultimately bears the credit risk.

c. With recourse means that the firm that factored the receivable ultimately bears the credit risk.

d. Without recourse means that the firm that factored the receivable ultimately bears the credit risk. e. Both b and c.

30. What is the name of the accounting method that is used when the level of ownership in an equity investment rises to the level of significant influence?

a. fair value method

b. mark-to-market method c. control method

d. equity method e. cost method

31. What is the main attribute of an intangible asset that is used to determine whether or not it will be amortized?

32. What is the main attribute of a repair or maintenance expenditure that determines whether or not it will be capitalized?

33. Given the below facts, what is the total income effect for the year for an investor for its passive-level, trading investment? (Note: the investment is not sold during the year.)

Type of Investment: Passive Ownership, Trading
Cost of Investment	$80
Fair value of investment at end of the year	$60
Dividends received from investment over the year	$10
Total income effect for the year

34. Given the below facts, what is the total income effect for the year for an investor for its passive-level, available-for- sale security? (Note: the investment is not sold during the year.)

Type of Investment: Passive Ownership, Available for Sale
Cost of Investment	$80
Fair value of investment at end of the year	$60
Dividends received from investment over the year	$10
Total income effect for the year

35. Given the below facts, what is the total income effect for the year for an investor for its equity-method investment?

Type of Investment: Equity Method
Cost of Investment	$80
Fair value of investment at end of the year	$90
Total dividends received from investment over the year	$10
Total Net income of investee over the year	$200
Percentage of voting shares of investee owned by investor	20%
Income for the year

36. What is depreciation expense for an asset’s first year, using the double declining balance method, given the following information? The cost of the asset is $800, the expected useful life is 5 years, and the salvage value is estimated to be $160.

37. What is the journal entry to record the sale of a depreciable asset (PP&E) that costs $100 and has accumulated depreciation of $40, assuming a selling price of $40. Assume that the PP&E is sold for cash.

Assets	Liabilities	Owners' Equity	Debit	Credit	$	$

38. What is the journal entry to record a $1,000 (cash) expenditure on ordinary repairs and maintenance?

Assets	Liabilities	Owners' Equity	Debit	Credit	$	$

39. What is the amount of a) interest capitalized and b) interest expensed, given the following information? The firm spends $100 to self-construct a building for its own use. The firm has debt of $500 that has an interest rate of

6%.

40. What is the journal entry, if any, given the following set of facts? A firm has equipment with a book value (cost minus accumulated depreciation) of $380. However, the fair value of the equipment is only $200 and is not likely to recover.

Assets	Liabilities	Owners' Equity	Debit	Credit	$	$

41. What is the amount of goodwill recognized where an acquirer buys 100% of the below target firm by paying $50 of cash to the target firm’s shareholders. Note: all items below are at market value.

Balance Sheet Items of Target Firm
Cash	$10
Inventory	20
Property, Plant, and Equipment	30
Total Assets	$60
Liabilities	20

42. What is the main purpose of the closing entry?

43. What is one perceived deficiency of the fundamental equation of accounting (Assets = Liabilities + Owners’ Equity)?

44. Which of the below cash flows is classified as an operating cash flow?

a. Cash paid to investors as a dividend. b. Cash received in a loan from a bank c. Cash paid to suppliers for inventory

d. Cash paid to suppliers for property, plant, and equipment e. None of the above

45. Which of the below is a temporary account?

a. Selling, General, and Administrative Expenses b. Prepaid Expenses

c. Retained Earnings

d. Unearned Revenues e. Stock

46. What is the main distinction between a revenue and a gain?

a. Gains are from a firm’s central and ongoing operations b. Revenues are from a firm’s peripheral activities

c. Gains are always realized, but revenues are not d. Gains result from a sale of inventory

e. None of the above.

47. What does NCI stand for and when is this account used in a firm’s financial statements?

48. How much cash did the following firm pay its vendors, given the below information about its accounts payable account (amounts are in parentheses):

Beginning balance of accounts payable ($16); credit purchases of inventory ($20); ending balance of accounts payable ($6).

49. What is the amount of compensation expense recognized for stock options for each year of the vesting period, given the following information?

x A firm awards stock options at-the-money when the stock is trading at $18 per share.

x The Black-Scholes value of the options is $6.

x The vesting period is two years.

x Upon vesting, the stock is trading at $20 per share.

50. What are the missing amounts for the below amortization table, given the following information?

x A firm borrows $100,000 from a bank.

x The terms of the loan require the firm to make equal, yearly payments, at the end of each year, over the next five years.

x The bank charges 4% interest.

Cash	Interest	Principal Adjustment	Principal Balance
	4%		100,000
	4,000	18,463	81,537

	2,493	19,969	42,367
	1,695	20,768	21,599
	864	21,599	0

51. Refer to the previous question.

What is the journal entry, from the borrower’s perspective, to recognize the second payment to the bank.

Assets	Liabilities	Owners' Equity	Debit Credit $ $

52. Refer to the previous question.

Under U.S. GAAP, how much of the cash payment is classified as operating cash flow?

53. Given the below, partial bond accretion table, what was the market rate of interest when the bond was issued?

Cash

Interest

Principal

Adjustment

Principal

Balance

803.637

60.000

807.928

54. Refer to the above problem. What is the proper journal entry to recognize the first coupon payment?

Assets	Liabilities	Owners' Equity	Debit Credit $ $

55. A firm (a lessee) leases equipment from a lessor. The lease is an operating lease. The yearly lease payment is

$1,000. Journalize the first lease payment.

Assets	Liabilities	Owners' Equity	Debit Credit $ $

56. A firm (a lessee) leases equipment from a lessor. The lease is a capital lease. The yearly (end of year) lease payment is $1,000 and the appropriate interest rate is 10%. The lease's duration is 2 years. Journalize the first lease payment.

Assets	Liabilities	Owners' Equity	Debit Credit $ $

57. How many shares of stock would be classified as issued and outstanding, given the following fact set?

x The board authorized 1,000 shares.

x The firm sold 400 shares in its IPO

x The firm subsequently repurchased 100 shares.

58. How much of a dividend would be allocated to a firm’s preferred shareholders and to its common shareholders, given the following set of facts?

x The firm declares a $10,000 dividend.

x The firm has 100,000 shares of 6%, $1 par value preferred stock issued and outstanding. x The firm also has 200,000 shares of $1 par value common stock issued and outstanding. x The firm has 2,000 shares of common stock in treasury.

Class of Stock	Total Amount of Dividend
Preferred
Common

59. What is the cash flow category for a firm’s initial sale of its own stock (Operating, Investing, Financing)?

a. Operating b. Investing c. Financing

d. Both b and c.

60. What is the cash flow category for a firm’s repurchase of its own stock (Operating, Investing, Financing)?

a. Operating b. Investing c. Financing

d. Both a and b.

61. What is the cash flow category for a firm’s payment of a dividend to its investors (Operating, Investing, Financing)?

a. Operating b. Investing c. Financing

d. Both a and c.

62. What are the journal entries for the following two transactions?

a. A firm buys back two shares of its own stock for $40 per share.

Assets	Liabilities	Owners' Equity	Debit Credit $ $

b. The firm sells one of the above treasury shares for $50 per share.

Assets	Liabilities	Owners' Equity	Debit Credit $ $

63. What is the formula for calculating operating cash flows using the indirect method?

a. Net Income + Gains – Losses + Changes in Operating Assets – Changes in Operating Liabilities b. Net Income – Gains + Losses + Changes in Operating Assets – Changes in Operating Liabilities c. Net Income + Gains – Losses – Changes in Operating Assets + Changes in Operating Liabilities d. Net Income – Gains + Losses – Changes in Operating Assets + Changes in Operating Liabilities

64. True / False: Cash paid for equipment that is purchased by a firm would be classified as an investing cash flow if the equipment is classified as PP&E, but operating cash flow if the equipment is classified as inventory.

65. True / False: Under U.S. GAAP, the payment of interest is classified as a financing cash flow, but the receipt of interest is classified as an investing cash flow.

66. True / False: Under U.S. GAAP, the receipt of a cash dividend is classified as an investing cash flows, but the payment of a dividend is classified as a financing cash flow.

67. True / False: Under U.S. GAAP, both the cash paid to purchase PP&E and cash received from the sale of

PP&E are classified as investing cash flows.

68. How much cash did a firm pay for purchases of PP&E given the following fact set (and assuming that the firm pays cash for all “capex”)?

x The beginning and ending balances in the PP&E account are $100 and $80, respectively.

x The beginning and ending balances in accumulated depreciation are 50 and 20, respectively.

x Depreciation expense for the period is $10.

x The firm also sold PP&E with a cost of $60 and a book value of $20.

x Finally, the firm also recognized an impairment of PP&E of $40.

69. How much cash did a firm collect from its customers, given the following fact set? Beginning and ending accounts receivable were $50 and $60, respectively. Beginning and ending allowance for doubtful accounts were $8 and

$10, respectively. The firm had credit sales of $100. The firm also estimated bad debt expense to be $5. Finally, the firm wrote-off $3 of receivables as uncollectible.

70. Assume a lessee signs a lease agreement to lease property for 15 years. The lease is a capital lease. Assume the appropriate interest rate is 10% and the yearly lease payment is $1,000. The lessee has no other debt on its balance sheet and it has total Owners' Equity of $10,000. What is the lessee’s debt to capital ratio?

a. 0% b. 10% c. 25% d. 43% e. 62%

71. A firm has $1,000,000 in its bank account. The interest earned on the account is 5% per year. The firm needs to withdraw $100,000 per year over the next five years, at the end of each year. At the end of the fifth year, how much will the firm have in its bank account?

a. 750,000 b. 723,718 c. 500,689 d. 489,268

72. What is the issue price of a bond with the following terms:

x The bond matures in 10 years.

x The stated rate of interest on the bond is 6%.

x The market rate of interest is 4%.

x The bond pays interest every year (on a yearly basis).

x The par value of the bond is $1,000.

Consider the following consecutive balance sheets and income statement for a firm. In the space provided, derive the statement of cash flows, using the indirect method for operating cash flows. Note: The loss refers to the sale of the long term investment. Note: You must calculate the dividends (which are assumed to be paid).

	2012
Sales	250
COGS	-100
Depreciation Expense	-10
Interest Expense	-10
Loss	-5
Pre-tax Income	125
Income Tax Expense	-50
Net Income	75
Dividends Paid	?

	2012	2011	Change
Cash	105	86	19
Accounts Receivable	28	32	-4
Inventory	34	35	-1
Long term Investment	8	20	-12
PP&E	140	130	10
A/D	-60	-50	-10
Total Assets	255	253	2

Accounts Payable	32	30	2
Interest Payable	2	4	-2
Income Tax Payable	1	4	-3
Notes Payable	110	140	-30
Stock	40	40	0
Treasury Stock	-5	-5	0
Retained Earnings	75	40	35
Total Liabilities & O.E.	255	253	2

76. Given the below information, provide the journal entry to recognize tax expense. Assume taxes are paid immediately

(with cash). Note: the statutory rate is assumed to be 40%.

Assume the interest income is permanently non-taxable. You will have to decide whether there is any deferred tax position, given these facts.

	Income Statement	Tax Return	Difference: Permanent
Revenues	400	400
Cost of Goods Sold	- 150	- 150
SG&A Expense	- 50	- 50
Depreciation Expense	- 20	- 20
Interest Income	20	0	20
Pre-Tax Income	200
Taxable Income		180
Statutory Rate		40%	40%
Tax Expense	?
Taxes Paid (Cash)		?
Deferred Tax?			?

Tax Expense:

Assets	Liabilities	Owners' Equity	Debit Credit $ $

77. Refer to the previous problem. Calculate the effective tax rate:

78. Given the below information, calculate the amount of tax expense. Assume taxes are paid immediately (with cash).

Note: the statutory rate is assumed to be 35%. You will have to decide whether there is any deferred tax position, given

these facts.

	Income Statement	Tax Return	Difference: Temporary
Revenues	500	500
Expenses	- 100	- 100
Depreciation Expense	- 40	- 100	60
Pre-tax Income	360
Taxable Income		300
Statutory Tax Rate		35%	35%
Tax Expense	?
Taxes Paid (Cash)		?
Deferred Tax			?

79. What is the amount of tax expense?

80. Describe the controversy with respect to the recognition of deferred tax liabilities.

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