ACCT 212 Final exam PDF

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ACCT 212 Final exam...

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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, Supplies Expense in the form of a journal entry. (10 points) (Points :

20)

year or, occasionally, at the end of each accounting period. 2)In order to close Utilities Expense, the follow ing journal entry is used: Debit (DR) Income Summary 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 how to construct an Unadjusted Trial Balance (10 points) and (2) provide an example of the application of the debit/credit rules in the development of the trial balance. (10 points) (Points : 20) * Credit all liabilities (like accounts payable, accrued expenses) * All assets should be debited and all liabilities and capital should be credited.

3. (TCO

5) Internal Control Procedures are required to safeguard company assets and to ensure ethical operation of the business. (1) Explain how limited access 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 Gross Profit. (10 points) (Points : 20) average cost to determine the value of COGS and ending inventory. 2)In our bakery example, the average cost for inventory w ould be $1.125 per unit, calculated as [(200 x $1) + (200 x $1.25)]/400.

5. (TCO

1) To evaluate the financial operation and health of a business ratio analysis is used. (1) Provide the formula for the Acid-test (or Quick) Ratio 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)

efficient. A low ratio implies the company should re-assess its credit policies in order to ensure the timely collection of imparted credit that is not earning interest for the firm.

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) 1a. Straight-line Method ($19200 - $2400)/ 4 = $5600 1b. Double-declining method: 1st = $9,600 2nd= $4,800 3rd = $2,400 1c. Depreciation Cost = Original Cost - Salavage Value = $16800 Depreciation per Unit = $16800 / 30000 miles = 0.56 Yr 1 - .56 x 8000 = 4480, Yr 2 .56 x 8500 = 4760, Yr 3 .56 x 5500 = 3080, Yr 4 .56 x 8000 = 4480 2. Which best tracks the w ear and tear on the van? Units of production method 3. Which method BagODonuts prefer to use for income tax purposes? Explain w hy BagODonuts chose this one: Double Declining Balance w ould be chosen because it provides the greatest reduction in taxable income. This w ill free up more money to grow the business and invest in more assets.

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)

(Issued preferred shares) 11/1

Stock Repurchase 660,000.00 Cash 660,000.00 Reacquired common shares

12/1

Dividends

95,000.00 Cash 95,000.00 Declared and paid cash dividends

2. Preferred stock is a type of capital stock w hich has specific dividends that is distributed first before common stockholders can receive any dividends declared and paid. In the event of liquidation, preferred stockholders are prioritized first before common stockholders can receive any remaining assets of the company. Common stock enjoys voting rights w hich preferred stock don't have. Common stock receives dividends only after the preferred dividends are satisfied first. And if the business is liquidated, it receives any remaining assets only after creditors and preferred shareholders have been paid or satisfied.

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)

1. Securities or investment fraud, is a deceptive practice that induces investors to make purchases or sale decisions on the basis of false information. This can include embezzlement, insider trading, misstatements on company financial records, and other illegal acts. 2. The three key elements in the fraud triangle are motive, rationalization, and opportunity. Motive is w hat causes the person to commit the fraud and usually results from either critical need or greed on the part of the person. Opportunity is w hat gives w ay to commit the fraud usually due to w eak internal controls, improper access or lax ethical practices. Finally rationalization, the person committing the fraud convinces themselves that they deserve this, or that they are doing it because no one treats them fairly or that simply everyone else does it.

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. (5 points each with 2 points for listing and 3 points for a description) (Points : 25)

Comparisons and Compliance Monitoring ensures that no person or department should be able to completely process a transaction from beginning to end w ithout being cross-checked by another person or department. This w ill reduce errors and establish a chain of command. Adequate Records provide the details of business transactions. The general rule is that all major groups of transactions should be supported by either hard copy documents or electronic records. This w ill create a traceable paper trail. Limited Access - complements segregation of duties, company policy should limit access to assets only to those persons or departments that have custodial responsibilities. For example, access to cash should be limited to persons in the treasurer’s department. Proper Approvals ensures no transaction should be processed w ithout management’s general or specific approval. The bigger the transaction, the more specific approval it should have. Checks and balances w ill keep mistakes and fraud to minimum.

5. (TCO 2) 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 Common stock Accounts payable Service revenue Land Note payable Cash Dividends Utilities expense Accounts receivable Delivery expense Retained earnings Salary expense

Balance $5,100 $4,400 $17,100 $28,800 $9,500 $5,200 $6,100 $2,100 $10,600 $700 $25,600 $8,200

Prepare 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. (Points : 25)

Super Pool Service, Inc. Trial balance 30-Jun-12 Cash DR Accounts receivable DR $10,600 Land DR Accounts payable CR Note payable CR Common stock CR Retained earnings CR Dividends DR $6,100 Service revenue CR Salary expense DR $8,200 Utilities expense DR $2,100 Delivery expense DR Total

Debit $5,200

Credit

$28,800 $4,400 $9,500 $5,100 $25,600 $17,100

$700 $61,700 $61,700

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

Donna

01/10/01

110

12.00

Thomas

01/15/01

160

14.00

Cindy

01/18/01

150

15.00

Amount 1320.00 2240.00 2250.00

Sales Customer

Date shipped

Quantity

Norilene

01/16/01

200

1.

25.00

Amount 5000.00

Calculate the ending inventory, using the perpetual inventory method:

A.

Using FIFO

B.

Using LIFO

C.

Using Average Cost

2.

Sel. Price

Prepare the following statement

Using

FIFO

LIFO

Average Cost

Sales Cost of Sales Gross Profit (Points : 25)

Wgt. Avg. Date 1.10.01 1.15.01

Purchases Cost of sales Ending Inventory Quantity Unit Cost Amount Quantity Unit Cost Amount Quantity Unit Cost Amount 110 12.00 1,320 110 12 1320 160 14.00 2,240 270 13 3,560

1.16.01

200

13

2,637 70

1.18.01

13 150 14

923 15.00 3,173

2,250

220...