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Accounting Practice Exam


(Fall 2015)
Compiled From LC, Notes and Quizzes
(Ch. 5,6,7,9,10,11)
Chapter 5
Question 1 (in class)
May Co. prepared an aging of its accounts receivable at December 31, 2006 and determined that the
net realizable value of the receivables was $290,000. Additional information is available as follows:
Allowance for uncollectible accounts at 1/1/06 (credit balance)
Accounts written off as uncollectible during 2006
Accounts receivable at 12/31/06
Uncollectible accounts recovered during 2006

$ 34,000
$ 23,000
$ 320,000
$ 5,000

For the year ended December 31, 2006, May's bad debt expense would be
A. $14,000.
B. $20,000.
C. $23,000.
D. $19,000.
E. $16,000.
Question 2 (in class)
A debit balance in the Allowance for Uncollectible accounts
A. indicates that actual bad debt write-offs have exceeded previous provisions for bad debts.
B. indicates that actual bad debt write-offs have been less than what was estimated.
C. the allowance for uncollectible accounts cannot have a debit balance because it has a normal credit
balance.
D. is the normal balance for that account.
E. cannot occur if the percentage of receivables method of estimating bad debts is used.
Question 3 (in class)
Which of the following is a generally accepted method of determining the amount of
the adjustment to bad debts expense?
A. A percentage of accounts receivable not adjusted for the balance in the allowance
B. An amount derived from aging accounts receivable and not adjusted for the balance in the allowance
C. A percentage of sales not adjusted for the balance in the allowance
D. A percentage of sales adjusted for the balance in the allowance
E. None of the above
Question 4 (in class)
Bad debt losses on accounts receivable:
A. Are reported as extraordinary items if collected a number of years after their write-off.
B. Can be reported in all situations by using either the allowance method or the specific write off
method.
C. Include cash and trade discounts forfeited.
D. Are considered a normal business expense under the matching principle.
E. None of the above.

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Question 5 (in class)


Cortez Co. had accounts receivable totaling $450,000 and an allowance for doubtful
accounts with a credit balance of $5,000 on June 1, 2006. On June 2 Cortez wrote off
$2,400 of uncollectible accounts. The net carrying value of accounts receivable before
and after the write-off was:
(written as: Before, After)
A. $450,000, $447,600
B. $445,000, $445,000
C. $445,000, $442,600
D. $447,600, $450,000
Question 6 (in class)
When is it acceptable to use the direct write-off method to account for uncollectible accounts?
A. When the expected bad debts are significant
B. When the company factors its accounts receivables
C. When the company uses the percentage of sales method
D. When the expected bad debts are not significant
Question 7 (LC)
Kazungu Corp. makes all sales on credit. The following information is available for the company
for January:
Credit Sales
Cash collections during the period
Beg. Bal. in Accounts Receivable
Accounts written off as uncollectible
Beg. Bal. in allowance account

$ 2,000,000
$ 2,300,000
$ 1,000,000
$ 30,000
$ 20,000 (Debit)

Question 7a)
Calculate the ending balance in the Allowance Account and the Net Realizable Value of Accounts
Receivable if Kazungu estimates that 4% of sales will be uncollectible (income statement method or
% of sales method).
Question 7b)
If instead, Kazungu used the aging method (balance sheet method) and had the following
schedule of outstanding accounts as at the end of January:
Due within 30 days
Past due 30-90 days
Past due more than 90 days

Amount
$500,000
$150,000
$ 20,000

Percent
1%
5%
50%

Calculate the Bad Debt Expense for January and the N.RV. of Accounts Receivable.
Question 10 (LC)
Under the direct write-off method, the entry to record the estimated bad debts:
A. is not done
B. includes a credit to Allowance for Uncollectible Accounts
C. includes a debit to Allowance for Uncollectible Accounts
D. includes a debit to Bad Debt Expense

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Practice Exam - Page 3 of 19

Question 11 (LC)
Under the allowance method for estimating uncollectible accounts, the entry to write off an
account:
A. reduces total assets
B. reduces net income
C. increases net income
D. has no effect on total assets
Question 12 (LC)
When an account is written off using the direct write-off method, total assets will:
A. remain the same
B. increase
C. decrease
D. cannot be determined
Question 13 (LC)
Smart-T Corporation uses the aging-of-accounts-receivable method to estimate uncollectible
receivables. At year end Smart-T estimates that $4,750 of its accounts receivable will be
uncollectible. Prior to adjustment, the Allowance for Uncollectible Accounts has a credit balance of
$200. Bad debt expense to be reported on the income statement is:
A. $4,750
B. $4,550
C. $4,950
D. $200
Chapter 6
Question 14 (Ch 5 in class)
Sebstu made a purchase with the terms 3/10, n/45. What is the annual interest rate if Sebstu does
not take advantage of the discount?
Question 15 (in class)
Which of the following statements pertaining to inventory errors is correct?
A.
B.
C.
D.

Over a two year period, inventory errors have no effect on cumulative earnings
Inventory errors are irreversible and can only be corrected through a Retained Earnings adjustment
Inventory errors do not have any effect on a company's Income Tax Expense during a specific period
Inventory errors have no effect on earnings because only Balance Sheet accounts are affected

Question 16 (in class)


Use the information below to answer the next 3 questions
Insurance Expense
$4,000
Freight out
$3,000
Freight in
$6,000
Sales returns and allowances
$15,000
Sales discounts
$6,000
Sales
$170,000
Cost of goods sold
$77,000
Dividend declared
$10,000
Interest revenue
$12.000
Interest expense
$13,000
Income tax expense
$11,000

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Practice Exam - Page 4 of 19

Question 16a) (in class)


Gross profit would be
A. $72,000
B. $86,000
C. $83,000
D. $64,000
Question 16b) (in class)
The amount of net sales on the statement of earnings would be
A. $164,000
B. $185,000
C. $149,000
D. $155,000
Question 16c) (in class)
Operating income would be
A. $54,000
B. $59,000
C. $65,000
D. $68,000
Question 17 (in class)
Westcom Corporation's goods in transit at December 31 include:
(1) sales made FOB destination
(2) sales made FOB shipping point
(3) purchases made FOB destination
(4) purchases made FOB shipping point
Which items should be included in Westcom's inventory at December 31?
(2) and (4)
(1) and (3)
(2) and (3)
(1) and (4)
Question 18 (in class)
Milhouse Sales Inc. makes credit sales under the term 3/10, n/30. In 2013, credit customers
paid Milhouse Sales Inc. $50,000 during the discount period to take advantage of the sales
discount. What is the sales discount reported on the income statement for 2013?
$1,500
$1,546
$1,000
$1,020

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Practice Exam - Page 5 of 19

Question 19 (in class)


Buyer Inc.s inventory physical count shows inventory of $600,000. Upon examination of records,
the accountant discovered the following:
I. Buyer Inc. shipped $30,000 of goods on December 23 to a customer. Shipping terms are FOB
destination. Expected delivery date is January 4. Thus, Buyer Inc. should include $30,000 in
inventory count because they own it until it is delivered.
II. Buyer Inc. purchased $20,000 of goods from Seller Inc. Seller Inc. shipped these goods on
December 28, FOB shipping point. Expected delivery date is January 7. Buyer Inc. should
include these in inventory count because they owned them on December 28.
III. Goods held on consignment, such as magazines on consignment held by a convenience store,
should not be included in the inventory count of the convenience store. Rather they should be
included in the inventory count of the publishing house even though the magazines are
physically with the convenience store.
Which of the statements are true?
A.
B.
C.
D.

Statement I
Statement II
Statement III
All the statements I,II, and III, are true

Question 20 (LC)
The following information is available for Nour Corp for 2015.
Date

Transaction

01-Jan

Beginning Balance

07-Jan

Sale

14-Jan

Purchase

05-Mar

Purcahse

06-Apr

Sale

07-Jun

Purchase

14-Sep

Sale

(Totals)

Units

Cost

8,000

Total

$5.50

$44,000.00

2,000

$12.00

$24,000.00

6,000

$14.00

$84,000.00

4,000

3,000
6,000

15.00 $90,000
6,000

22,000 13,000

$242,000.00

Question 20a)
What is the ending inventory for 2015 under FIFO?
Question 20b)
What is the ending inventory for 2015 using the Static Average method (periodic Weighted
Average)?

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Question 21 (LC)
When prices are rising, which method gives a higher Cost of Goods Sold?
A. FIFO periodic
B. FIFO perpetual
C. WAC periodic
D. WAC perpetual
E. Cannot be determined from the information given
Question 22 (LC)
When prices are rising, which method gives a higher Ending Inventory cost?
A. FIFO periodic
B. FIFO perpetual
C. WAC periodic
D. WAC perpetual
E. Both FIFO periodic and FIFO perpetual
Question 23 (LC)
When prices are rising, which method gives a higher Cost of Goods Sold?
WAC periodic
WAC perpetual
Either WAC periodic or WAC perpetual
Both WAC periodic and WAC perpetual
Cannot be determined from the information given
Question 24 (LC)
Tusker Inc., has a fiscal year end on December 31. On May 16, 2015, a flood damaged the entire
inventory. Since Tusker Inc. uses the periodic system, they need to estimate the cost of damaged
inventory. The following information was available:
Beginning Inventory $33,000
Sales $400,000
Purchases $300,000
Historical gross profit percentage 30%
The balance of inventory on the books of Tusker Inc. as of May 16, 2015 is:
Question 25 (LC)
The following information is available for Diamond Plaza Inc.:
Insurance Expense $4,000
Freight out $3,000
Ending inventory $17,000
Beginning inventory $14,000
Freight in $6,000
Sales returns and allowances $15,000
Purchase discounts $4,000
Purchase returns and allowances $10,000
Sales discounts $6,000
Sales $170,000
Cost of goods sold $77,000
Dividend declared $10,000
Interest revenue $12,000
Interest expense $13,000
Income tax expense $11,000

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Practice Exam - Page 7 of 19

Question 25a) (LC)


Gross Profit is:
Question 25b) (LC)
Net sales is:
Question 25c) (LC)
Cost of Goods Purchased is:
Question 25d) (LC)
Cost of Goods Available for Sale is:
Question 25e) (LC)
Net purchases is:
Question 25f) (LC)
Gross Purchases is:
Question 25g) (LC)
Operating Income is:
Question 25h) (LC)
Net Income is:
Question 26 (LC)
Yaya Centre makes credit sales under the term 3/10, n/50. In 2015, credit customers paid Yaya
Centre $9,700 during the discount period to take advantage of the sales discount.
What is the sales discount reported on the income statement for 2015?
Question 27 (LC)
Milhouse Sales Inc. makes credit sales under the term 3/10, n/30. In 2013, credit customers paid
Milhouse Sales Inc. $50,000 during the discount period to take advantage of the sales discount.
What is the sales discount reported on the income statement for 2013?
Question 28 (LC)
Fagiyo Corporation has just completed a physical inventory count at year end, December 31,
2015. The inventory amounted to $500,000. During the audit, the independent Professional
Accountant discovered the issues listed below. State the adjustment required, if any.
Question 28a) (LC)
On December 27, 2015, a regular customer purchased goods for cash amounting to $5,000 and
left them for pickup on January 4, 2016. Fagiyo Corporation had paid $2,000 for the goods and,
because they were on hand, included them in the physical inventory count.
Question 28b) (LC)
Fagiyo Corporation, on the date of the inventory count, received notice from a supplier that
goods ordered earlier, at a cost of $10,000, had been delivered to the transportation company on
December 28, 2015; the terms were FOB shipping point. Because the shipment had not arrived
on December 31, 2015, it was excluded from the physical inventory.

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Question 28c) (LC)


Fagiyo Corporation, as the consignor, had shipped goods on consignment that cost $15,000.
Because these goods were not on hand as of December 31, 2015, they were excluded in the
physical inventory count.
Question 28d) (LC)
Fagiyo Corporation, as the consignee for Village Market Inc., had goods on consignment from
Village Market Inc. that cost $18,000. As of December 31, 2015, they were excluded in the
physical inventory count.
Question 29 (LC)
Bhan Corporation has just completed a physical inventory count at year end, December 31, 2006.
Only the items on the shelves, in storage, and in the receiving area were counted and costed using
FIFO. The inventory amounted to $97,000. During the audit, the independent C.A. discovered the
following additional information:
(a) There were goods in transit on December 31, 2006, from a supplier with terms FOB
destination, costing $10,000. Because the goods had not arrived, they were excluded from the
physical inventory count.
(b) On December 27, 2006, a regular customer purchased goods for cash amounting to $1,000 and
left them for pickup on January 4, 2007. Bhan Corporation had paid $500 for the goods and,
because they were on hand, included them in the physical inventory count.
(c) Bhan Corporation, on the date of the inventory count, received notice from a supplier that
goods ordered earlier, at a cost of $4,000, had been delivered to the transportation company on
December 28, 2006; the terms were FOB shipping point. Because the shipment had not arrived on
December 31, 2006, it was excluded from the physical inventory.
(d) On December 31, 2006, there were goods in transit to customers, with terms FOB shipping
point, amounting to $800 (expected delivery on January 8, 2007). Because the goods had been
shipped, they were excluded from the physical inventory count.
(e) On December 31, 2006, Bhan Corporation shipped $2,500 worth of goods to a customer, FOB
destination on January 5, 2007. Because the goods were not on hand, they were not included in the
physical inventory count.
(f) Bhan Corporation, as the consignee, had goods on consignment that cost $5,000. Because these
goods were on hand as of December 31, 2006, they were included in the physical inventory count.
Instructions
Analyze the above information and calculate a corrected amount for the ending inventory

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Chapter 7
Question 30 (LC)
Simba Trailers specializes in assembling containers for trucks. They use heavy machinery in an
assembly plant with the following history:
January 1, 2007: Bought heavy duty equipment for $100,000 with a useful life of 10 years and a
salvage value of $10,000
September 1, 2010: Annual inspection this year indicates that the total useful life of the
equipment must be revised to 8 years due to heavy usage and the salvage value reduced to
$3,000
October 1, 2012: Simba Trailers decide to sell this equipment for $40,000 cash
Question 30a) (LC)
If Simba Trailers used the double declining balance of Depreciation, what is the depreciation
rate?
Question 30b) (LC)
What is the book value of the asset for the year ending December 31, 2007 under this
method?
For all remaining parts, assume Simba Trailers uses the Straight Line method of
depreciation
Question 30c) (LC)
What is the depreciation expense and the adjusting entry for the year ending December
31, 2007?
Question 30d) (LC)
What is the depreciation expense for 2010 and the adjusting entry to record it
Question 30e) (LC)
Show the journal entry to record the sale of the asset
Question 31 (LC)
Purchased Land and Building for $500,000 paid half in cash and half through issuance of a note
payable. Separately, the land had a market value of $150,000 and building had a market value of
$450,000.
What is the journal entry to record the purchase?
Question 32a) (LC)
Shamba Inc. purchased Equipment on 1/1/2000 for $80,000 and with a salvage value of
$20,000. The useful life of the asset is 20 years. What is the Book Value of the asset on
1/1/2020 under the double declining amortization method?
Question 32b) (LC)
B. Simba Inc. purchased Equipment on 1/1/2010 with a useful life of 10 years. What should the
cost of the asset be multiplied by to get the Book Value at 31/12/2013 under the double
declining amortization method?

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Question 33 (LC)
Which of the following statements is True:
A. Amortization Expense over the useful life of the asset will not differ amongst the different methods of
depreciation
B. Accumulated Amortization over the useful life of the asset will not differ amongst the different
methods of depreciation
C. Net Income over the useful life of the asset will not differ amongst the different methods of
depreciation
D. Capital expenditures lead to deferred depreciation expense
E. All of the above statements are True
Question 34 (LC)
Which of the following is an accelerated method of depreciation:
A. Straight Line
B. Double-Declining Balance
C. Sum Of Years Digits
D. All of the above are accelerated methods of depreciation
E. Both B and C above are accelerated methods of depreciation
Question 35 (LC)
Which of the following methods results in deferred tax savings for the company:
A. Straight Line
B. Double-Declining Balance
C. Sum Of Years Digits
D. All of the above result in deferred tax savings for the company
E. Both B and C result in deferred tax savings for the company
Question 36 (LC)
When the Useful Life of an asset in use increases, which of the following statements is True:
A. The Amortizable Cost of the asset will remain unchanged
B. The Historical Cost of the asset will remain unchanged
C. The Accumulated amortization over its useful life will decrease
D. All of the above statements are true
E. None of the above
Question 37 (LC)
For tax purposes in Canada, the CRA requires that company use:
A. Double-Declining method of depreciation
B. Straight Line method of depreciation
C. SYD method of depreciation
D. The units-of-activity method of depreciation
E. The CRA allows different methods of depreciation based on the classification and type of asset
Question 38 (LC)
Which of the following statements is True
A. Depreciation is reduction in the value of the asset while impairment is the reduction in the cost of the
asset
B. A gain on disposal of an asset arises when the Accumulated Depreciation of the asset is less than its
selling price
C. Depreciation is the spread of the amortizable cost of the asset over its useful life whereas impairment
reflects a permanent reduction in the fair market value of the asset
D. Depreciation is a special example of the application of the revenue recognition principle in IFRS
E. Both C and D above are correct

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Question 39 (Quiz #6 Q1)


Depreciation computed under double-declining-balance will decrease each year because:
A. the book value used in the computation each year decreases
B. the rate used in the computation each year decreases
C. the book value used in the computation each year increases
D. the rate used in the computation each year increases
Question 40 (Quiz #6 Q3)
At the end of an assets useful life, the balance in accumulated depreciation will:
A. be a lesser amount under double-declining-balance than under units of production depreciation
B. be the same under all the depreciation methods
C. be a greater amount under straight-line-depreciation than under double-declining-balance depreciation
D. be greater under units-of production than under straight-line depreciation
Question 41 (Quiz #6 Q5)
Trading on equity occurs when an organization earns more income on borrowed money than the
related interest expenses.
A. True
B. False
Question 42 (Quiz #6 Q6)
The Mash Tun Corp. purchased equipment on September 1, 2013 for $200,000. The residual value
is $20,000 and the estimated life is 5 years or 60,000 hours. Compute depreciation expense for the
year ending December 31, 2014, if the Mash Tun Corp. uses the double declining balance method of
depreciation.
A. $43,200
B. $62,400
C. $48,000
D. $69,333
Question 43 (Quiz #6 Q7)
Current Liabilities are obligations due within:
A. one year or within the companys normal operating cycle if it is shorter than one year
B. one month or within the companys normal operating cycle if it is longer than one month
C. one year or within the companys normal operating cycle if it is longer than one year
D. one month or within the companys normal operating cycle if it is shorter than one month
Question 44 (Quiz #6 Q8)
IFRS requires that financial liabilities other than those held for trading must be measured at
amortized cost
A. true
B. false
Question 45 (Quiz #6 Q10)
Sowthoveer Company sold some office furniture for $4,500 cash. The furniture cost $24,000 and
had accumulated depreciation through the date of sale totalling $21,700. The journal entry to
record the sale of the furniture will include a:
A. credit to Office Furniture for $2,300
B. credit to Accumulated Depreciation for $21,700
C. debit to Gain on Sale of furniture for $2,200
D. credit to Gain on Sale of furniture for $2,200

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Question 46 (Quiz #6 Q13)


Amortizable cost is defined as:
A. cost minus salvage value
B. cost minutes accumulated depreciation
C. book value
D. salvage value
Question 47 (Quiz #6 Q14)
To measure depreciation for a tangible long-lived asset, all of the following must be known except:
A. current market value
B. estimated residual value
C. estimated useful life
D. historical cost
Question 48 (Quiz #6 Q17)
Book value is determined by subtracting the salvage value from the cost of an asset.
A. True
B. False
Question 49 (Quiz #6 Q18)
Which of the following depreciation methods best applies to those assets that generate greater
revenue earlier in their useful lives?
A. double-declining-balance method
B. depletion method
C. straight-line method
D. units of production method
Question 50 (Quiz #6 Q19)
Which accounting principle directs the depreciation process?
A. matching
B. historical cost
C. going concern
D. full disclosure
Question 51 (Quiz #6 Q22)
Rhoundakona Corporation bought property, plant, and equipment on January 1, 2012 at a cost of
$35,000. Estimate residual value is $5,000 and the estimated useful life is 8 years. The company uses
straight-line depreciation. On January 1, 2015, Roundakonas management sells the asset for
$25,000. The balance in Accumulated Depreciation on January 1, 2015 is:
A. $11,250
B. $4,375
C. $13,125
D. $3,750
Question 52 (Quiz #6 Q31)
Rooster Ltd. trades in a printing press for a newer model. The cost of the old printing press was
$45,000, and accumulated depreciation up to the date of the trade in amounts to $33,000. Rooster
Ltd. also pays $38,500 cash for the newer printing press. The journal entry to acquire the new
printing press will require a :
A. debit to equipment for $50,500
B. debit to Equipment for $39,000
C. debit to Equipment for $45,000
D. credit to Accumulated Depreciation for $33,000

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Question 53 (Quiz #6 Q32)


The double-declining-balance method of depreciation causes:
A. the same amount of depreciation in early years of an assets use as compared to other depreciation
methods
B. less depreciation in early years of an assets use as compared to other depreciation methods
C. more depreciation in early years of an assets use as compared to other depreciation methods
D. is not an acceptable depreciation method according to GAAP
Question 54 (Quiz #6 Q)
Carrying amount is defined as:
A. current market value less accumulated depreciation
B. cost less salvage value
C. current market value less salvage value
D. cost less accumulated depreciation
Question 55 (Quiz #6 Q35)
The accumulated depreciation account represents a source of cash to be used to replace the asset in
the future
A. true
B. false
Question 56 (Quiz #6 Q39)
Which of the following depreciation methods best fits those assets that tend to wear out before they
become obsolete?
A. units or production method
B. straight line method
C. depletion method
D. double-declining balance method
Question 57 (Quiz #6 Q44)
A revision of an estimate which extends the assets useful life:
A. increases depreciation expense and decreases owners equity
B. requires restatement of prior years financial statements
C. decreases depreciation expense and increases owners equity
D. is ignored until the last year of the assets life
Question 58 (Quiz #6 Q46)
Rhoundakona Corporation bought property plant and equipment on January 1, 2012, at a cost of
$35,000. Estimated residual value is $5,00 and the estimated useful life is 8 years. The company uses
straight line depreciation. On January 1, 2015, Rhoundakonas management sells the asset for
$25,000. The gain or loss on disposal:
A. $10,000 loss
B. $1,250 loss
C. $25,000 gain
D. $1,250 gain
Question 59 (Quiz #6 Q49)
Brock Corporation sold equipment costing $30,000 with $28,000 of accumulated depreciation for
$5,000 cash. Brocks journal entry to record this sale will involve a:
A. debit to accumulated depreciation for $28,000
B. debit to depreciation expense for $28,000
C. debit to gain on sale of equipment for $3,000
D. credit to equipment for $2,000

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Question 60 (Quiz #6 Q50)


Which of the following statements is true?
A. Accumulated depreciation represents a growing amount of cash to be used to replace the existing
asset
B. Depreciation means that a business sets aside cash to replace assets as they become fully amortized
C. Depreciation is a process of objective valuation
D. accumulated depreciation is that portion of property, plant, and equipments cost that has already been
recorded as an expense
Chapter 9
Question 61 (LC)
Loss contingencies such as lawsuits that have been filed against the company as of the balance
sheet date:
A. Must be accrued in the balance sheet
B. Must be accrued in the balance sheet if the loss is possible whether it is reasonably estimable or not.
C. Must be recorded only in the notes to the final statements if the probability of loss is not determinable
D. Must be accrued in the balance sheet if the loss is not probable as long as it can be reasonably
estimated.
E. Both b. and d. above are correct.
Question 62 (LC part I)
Liabilities:
a. are current if the obligation is due within one year or operating cycle, whichever is shorter
b. need to be reasonably estimable to be recorded on the balance sheet.
c. are current if they can be expected to be refinanced by other liabilities.
d. All of the above are correct.
e. Only a and b above are correct.
Question 63 (LC part I)
Recording of accrued liabilities:
a. Decreases assets and equity, and increases liabilities
b. Increases liability and expenses, and decreases asset
c. Decreases income and equity, and increases liabilities
d. Decreases assets and equity
e. Both a. and b. above are correct
Question 64 (LC part I)
On September 1, 2015 Zenat borrowed $10,000 on a note payable at an annual interest rate of
12%. The loan plus interest is payable after 6 months. Prepare all relevant journal entries for the
note.
Question 65 (LC part I)
On May 1, 2013 Kibaki Company issued a 5-year, 8% note payable for $ 50,000. The note
promises 10 equal blended payments of $6,165, beginning on November 1, 2013. Prepare the
journal entries from May 1, 2013 through November 1, 2014.
Prepare the relevant journal entries for the first year from May 1, 2013 to May 1, 2014.
Question 66 (in class part I)
On May 1, 2014, Uhuru Inc. signed a 1 year, $30,000 interest only, note payable with an interest rate
of 12%, payable semi-annually.
Prepare the necessary journal entries for Uhuru Inc. (the borrower) from May 1, 2014 to May
1, 2015

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Question 67 (in class part I)


2. On May 1, 2013 Kibaki Company issued a 5-year, 8% note payable for $ 50,000. The note
promises 10 equal blended payments of $6,165, beginning on November 1, 2013. Prepare
the journal entries from May 1, 2013 through November 1, 2014
The note amortization table is:
Date
5/1/2013
11/1/2013
5/1/2014
11/1/2014
5/1/2015
11/1/2015
5/1/2016
11/1/2016
5/1/2017
11/1/2017
5/1/2018

Payment
$ 50,000
$ 6,165
$ 6,165
$ 6,165
$ 6,165
$ 6,165
$ 6,165
$ 6,165
$ 6,165
$ 6,165
$ 6,165

Interest

Principal

CV

$ 2,000
$ 1,833
$ 1,660
$ 1,480
$ 1,293
$ 1,098
$ 895
$ 684
$ 465
$ 237

$ 4,165
$ 4,331
$ 4,504
$ 4,685
$ 4,872
$ 5,067
$ 5,269
$ 5,480
$ 5,699
$ 5,927

$ 45,835
$ 41,504
$ 37,000
$ 32,315
$ 27,443
$ 22,377
$ 17,107
$ 11,627
$ 5,927
$0

Question 68 (in class part I)


On October 1, 2014, Moi Inc. issued a $10,000, 6-month, non-interest bearing, note payable for
$9,400. Prepare the necessary journal entries.
Question 69 (in class part I)
On October 1, 2014, Jomo Inc. signed a $100,000, 5-year, 12%, fixed principal plus interest note
payable which promises 5 equal principal payments on the anniversary dates. Prepare the
necessary journal entries from October 1, 2014 to December 31, 2016.

01/10/2014
01/10/2015
01/10/2016
01/10/2017
01/10/2018
01/10/2019

Total Pmt
$100,000
$32,000
$29,600
$27,200
$24,800
$22,400

Loan Amortization Table


Interest Pmt Principal Pmt

Loan

$12,000
$9,600
$7,200
$4,800
$2,400

$80,000.0
$60,000.0
$40,000.0
$20,000.0
$0.0

$20,000
$20,000
$20,000
$20,000
$20,000

Question 70 (LC part II)


Use the following information to answer the next 7 questions
Alpha Inc. issues 20 year, $5 million bonds with a coupon rate of 7% and yield of 8% on February
1, 2013. The bonds pay interest semi-annually. The partially completed amortization table is given
below:
Date
2013-02-01
2013-08-01
2014-02-01
2014-08-01
2015-02-01
2015-08-01

Interest Payment

Interest Expense

Bond Amortization

B
$ 180,415.49

$ 5,207.20

$ 180,857.39

Book Value
$ 4,505,180.00
$ 4,510,387.20
$ 4,515,802.69
$ 4,521,434.80
D
$ 4,533,383

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Question 70a)
What is the value of A:
A. $175,000
B. $180,207.20
C. $200,000
D. $180,415.50
Question 70b)
What is the value of B:
A. $175,000
B. $180,207.20
C. $200,000
D. $157,681.30
Question 70c)
What is the value of C:
A. $478,565.20
B. $5,857.39
C. $5,415.49
D. $5,632.11
Question 70d)
What is the value of D:
A. $4,527,292.19
B. $478,565.20
C. $4,714,718
D. $5,200,000
Question 70e)
Alpha Inc. redeemed the bonds on August 2, 2015 at 104. The amount of cash that Alpha Inc. paid
to redeem the bonds is (rounded to nearest dollar):
A. $4,714,718
B. $104
C. $4,685,387
D. $5,200,000
Question 70f)
6. Alpha Inc. redeemed the bonds on August 2, 2015 at 104. The effect of redemption is
(rounded to nearest dollar):
A. $666,616 gain
B. $666,616 loss
C. $6,090.81 gain
D. $6,090.81 loss
Question 70g)
Alpha Inc. redeemed the bonds on August 2, 2015 at 104. Which of the following is correct?
A. Bonds Payable will be debited $5,000,000
B. Cash will be credited $5,200,000
C. Discount on bonds payable will be credited $466,617
D. All of the above statements are true

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Question 71 (LC part II)


If a bond has a price of 102 and a market yield of 6%, the coupon rate is likely to be:
A. 7%
B. 2%
C. 5%
D. 6%
Question 72 (LC part II)
For the issuer of ten-year bonds, the amount of amortization using the straight-line method would
increase each year if the bonds were sold at a Discount/Premium?
A. Yes, No
B. No, No
C. Yes, Yes
D. No, Yes
E. Cannot be determined from the above information
Question 73 (LC part II)
On January 2, 2008, a calendar-year corporation sold 8% bonds with a face value of $900,000.
These bonds mature in five years, and interest is paid semi-annually on June 30 and December 31.
The bonds were sold for $830,400 to yield 10%. Using the effective interest method of calculating
interest, how much should be charged to interest expense in 2008?
Chapter 10
Question 74 (LC)
Mambo Vipi Inc. had the following transactions in 2014. Show all relevant journal entries.
Jan 1

Sold 50,000 common shares at $10 per share.

Mar 1

Reacquired 10,000 common shares that were sold on Jan 1 and paid $90,000

June 1

Reacquired a further 10,000 common shares that were sold on Jan 1 and paid $130,000

Aug 1

The board of directors declares a 10% common stock dividend. The current selling price of
the common shares is $20 per share.

Sep 1

The common stock dividend of Aug 1 is distributed

Nov 1

The board of directors declares a cash dividend of $1 per share payable to shareholders of
record on that date, payable on December 20

Question 75 (LC)
Which of the following statements is false:
A. Sale of common stock in the secondary market does not affect the books of the issuing corporation
B. Preferred Shares owners have a right to vote over major corporate issues while Common Shares
owners do not
C. A stock split does not have any effect on retained earnings or shareholders equity
D. A cash dividend becomes a binding legal obligation on the declaration date

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Question 76 (LC)
Which of the following statements is false regarding cash dividends:
A. Declaration of cash dividends increases total liabilities
B. Payment of cash dividends decreases total liabilities and total assets
C. The cumulative effect of the declaration and payment of a cash dividend will decrease total assets and
shareholders equity on a companys financial statements
D. The cumulative effect of the declaration and payment of a cash dividend will decrease total liabilities
and shareholders equity on a companys financial statements
Chapter 11
Question 77 (Quiz #8 Q2)
On January 1, 2013, Bogie Corporation had 40,000 common shares outstanding issued at $16 each
during 2012. On June 1, 2013, Bogie Corporation issued 5,000 shares of its common shares at $15
per share. On September 30, 2013, Bogie Corporation repurchased 3,000 shares of its common
shares for $17 per share. On November 30, 2013, Bogie Corporation reissued 2,000 shares of
repurchased shares at $18 per share. The balance in Share Capital on December 31, 2013, as shown
on the statement of shareholders equity, is:
A. $640,000
B. $703,333
C. $756,000
D. $700,000
Question 78 (Quiz #8 Q3)
Earnings per share (EPS) is calculated by:
A. dividing the number of common shares outstanding at the end of the year by net income
B. dividing the average number of common shares outstanding throughout the year
C. dividing net income by the average number of common shares outstanding at the end of the year
D. dividing net income by the number of common shares outstanding at the end of the year
Question 79 (Quiz #8 Q4)
When a company sells a segment of its business, the gain or loss on the disposal of the segment is
shown as:
A. part of the discontinued operations section on the income statement
B. an adjustment to the beginning balance of retained earnings
C. an extraordinary item appearing on the income statement
D. other gains or losses on the income statement
Question 80 (Quiz #8 Q6)
C-Series Corporations net income for the year ending on December 31, 2013, was $365,000. At the
end of 2013, the corporation had outstanding 4,000 shares of $10 non-convertible preferred shares
and 10,000 common shares issued at $20. No shares were issued or retired during 2013. The
numerator to be used in the earnings-per-share calculation is:
A. $325,000
B. $750,000
C. $365,000
D. $350,000

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Question 81 (Quiz #8 Q7)


In what situation would a company have to calculate and report diluted EPS on the financial
statements?
A. a company that has both nonconvertible preferred and common shares issued and outstanding
B. a company that has only common shares used and outstanding
C. a company whose common shares fair market value has dropped 20% from the prior financial
statement reporting period
D. a company that has both convertible preferred and common shares issued and outstanding
Question 82 (Quiz #8 Q9)
Under IFRS, when income tax payable exceeds income tax expense:
A. a deferred tax asset is debited
B. prepaid income tax is credited
C. accumulated income tax is debited
D. deferred tax liability is credited
Question 83 (Quiz #8 Q10)
Which of the following would not be reported on the statement of shareholders equity?
A. interest expense
B. net income
C. repurchased share transactions
D. cash dividends declared but not paid
Question 84 (Quiz #8 Q11)
Gail Inc. has 100,000 common shares outstanding at the beginning of 2013. The company issued an
additional 50,000 common shares on July 1, 2013. Gail Incs net income for the year ended
December 31, 2013 was $300,000; its comprehensive income was $450,000. Gail Inc. paid dividends
of $50,000 during the year. What was Gail Incs basic EPS for 2013?
A. $2.00
B. $3.60
C. $2.40
D. $3.00
Question 85 (Quiz #8 Q15)
Preferred share dividends must be accounted for in the earnings-per-share calculation. preferred
dividends are:
A. added to common shares in the denominator of the EPS calculation
B. added to net income in the numerator of the EPS calculation
C. subtracted from common shares in the denominator of the EPS calculation
D. subtracted from net income in the numerator of the EPS calculation
Question 86 (Quiz #8 Q17)
Traxx Corporation reports net income for 2014 of $460,000. Traxx Corporation had 10,000 shares
of $10 preferred shares outstanding for all of 2014. Traxx Corporation also had 50,000 common
shares issued at $10 outstanding for all go 2014. EPS is:
A. $6.67
B. $8.00
C. $6.00
D. $7.20
Question 87 (Quiz #8 Q20)
Where is taxable income found?