16.05_ Hourly Exam 2 Fall 2015 VA

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University of Illinois, Urbana Champaign *

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102

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Accounting

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Apr 3, 2024

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NAME: Do NOT open your exam until you are told to do so! BEFORE STARTING : Without opening your exam, pull out your scantron and fill it in as follows (bubble carefully & avoid losing class administration points):  your last name & first initial (use your legal name per the University system).  your net id (this is the same as your Enterprise ID & is the first part of your University email address)  your UIN number  Your section number (use “scantron entry” number below to bubble in to scantron).  Make sure the exam version on your scantron is bubbled as Version A. Section Start TA Scantron # Time Name Entry AD1 8:00 Mike Shanahan 100 AD2 9:00 Mike Shanahan 150 AD3 10:00 Tessa Grembowski 200 AD4 11:00 Tessa Grembowski 250 AD5 12:00 Brandon Stieren 300 AD6 1:00 Brandon Stieren 350 DURING THE EXAM  There should be no communication between students in any manner during the entire exam period. This means no talking, whispering or signaling to each other and no electronic communication.  Bubble your scantron as you are working . Time will not be allowed for bubbling after the exam has ended.  Use the table attached to your assigned seat. You cannot lean over and use the adjacent table!  It is your job to keep your scantron/exam booklet hidden from wandering eyes . Keep your test FLAT on your desk at all times! If you are allowing your exam/scantron to be visible to other students it will be assumed that YOU are cheating.  All books and papers & cell phones must be securely placed in a back-pack or other case and placed completely under the student’s seat. Please turn off your cell phone before putting it away!  Baseball hats, headphones and/or sunglasses may not be worn during an exam. All extra wearing apparel and parcels must be on the floor, under the student’s desk or seat during quizzes, tests or exams.  By enrolling in this course students agree to abide by the rules & regulations stated in Article 4 of the Student Code. If academic dishonesty is evident your exam will be confiscated and turned over to the Accountancy Department Head for resolution. In this event, I will recommend a penalty of an “F” for the course. In especially serious cases, the Department Head may impose hars her penalties such as expulsion from the University. Please keep in mind that expulsion for cheating becomes part of your permanent academic record which will follow you for the rest of your academic career. AFTER THE EXAM 1. Double check that your test version is properly bubbled on your scantron. You can see your test version on the last page of the exam or above in the the last bullet under the “before starting” section above. 2. When turning in your exam, bring your exam booklet (so we can see the color), photo ID and scantron. 3. Turn in your scantron & show a photo i.d. if asked to do so.

1. A company made no adjusting entry on December 31 for $28,000 of December wages which were paid in January. This oversight would: A. Understate December 31 net income by $28,000. B. Overstate December 31 net income by $28,000. C. Have no effect on December 31 net income. D. Overstate December 31 liabilities by $28,000. E. Both B and D 2. As of December 31, 2015, Gill Co. reported accounts receivable of $216,000 and an allowance for uncollectible accounts of $8,400. During 2016, accounts receivable increased by $22,000, and $7,800 of bad debts were written off. An analysis of Gill Co.'s December 31, 2016, accounts receivable suggests that the allowance for uncollectible accounts should be 3% of accounts receivable. Bad debt expense for 2016 would be: A. $6,540. B. $7,800. C. $7,140. D. $7,740 E. None of the above 3. Arrow Company sells computers at a selling price of $3,500 each. Each computer has a 36 month warranty that covers replacement of defective parts. During 2012, Arrow sold 38,000 computers and as indicated below, projects that 4,385 computers (of the 38,000 sold in 2012) will eventually be returned for future warranty work. Arrow projects that the future warranty work related to these 4,385 units will cost on average $200 per warranty claim. Projected Future Warranty Work (in units) Total Within 0-12 Within 13-24 Within 25-36 Units Sold months of sale months of sale months of sale Total 2010 30,000 900 1,165 1,400 3,465 2011 35,000 1,050 1,360 1,630 4,040 2012 38,000 1,140 1,475 1,770 4,385 3,090 4,000 4,800 11,890 Arrow began 2012 with a Warranty Liability account balance of $645,000 and during 2012 Arrow serviced warranty claims costing $743,000. What value did Arrow report as Warranty Liability on its 12/31/2012 Balance Sheet? A. $779,000 B. $877,000 C. $743,000 D. $618,000 E. None of the above

4. Calistoga Produce estimates bad debt expense at ½% of credit sales. The company reported accounts receivable and allowance for uncollectible accounts of $471,000 and $1,900, respectively, at December 31, 2015. During 2016, Calistoga's credit sales and collections were $315,000 and $519,000, respectively, and $1,720 in accounts receivable were written off. Calistoga's 2016 bad debt expense is: A. $2,175 B. $1,720 C. $1,575 D. $1,395 E. None of the above 5. A check that was outstanding on last period's bank reconciliation was not among the checks shown as clearing the bank in the current period. As a result, in preparing this period's reconciliation, the amount of this check should be: A. Added to the book balance of cash. B. Added to the bank balance of cash. C. Deducted from the bank balance of cash. D. Deducted from the book balance of cash. E. Ignored in preparing the current period bank reconciliation. 6. Dillon Company's bad debts are material in dollar amount and can be estimated. Dillon accordingly uses the U.S. GAAP method required for these conditions. Which of the following entries would be made by Dillon to record the write off of a customer account balance? A. Bad Debt Expense (Debit) Accounts Receivable (Credit) B. Allowance for Doubtful Accounts (Debit) Accounts Receivable (Credit) C. Bad Debt Expense (Debit) Allowance for Doubtful Accounts (Credit) D. Sales Revenue (Debit) Accounts Receivable (Credit) E. None of the above

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7. Before making any month-end adjustments, Bobwhite Company reported $265,000 of unadjusted net income as of March 31, 2013. Adjusting entries are necessary for the following items: (i) Depreciation for the month of March: $4,200. (ii) Effective March 1, 2013, Bobwhite took out a 7 month loan totaling $200,000. The loan charges a 6% interest rate (APR) and the principle and interest are both due at maturity. (iii) During March 2013 Bobwhite purchased $1,800 of supplies. The supplies were counted at the end of the month and it was noted that $300 of supplies were remaining. The March entry to record the purchase was debited entirely to the income statement, and no additional entries have been made since this time. (iv) Fees collected in advance during February 2013 and earned in March 2013: $3,600. The February entry to record the cash collection was credited entirely to the balance sheet, and no additional entries have been made since this time. (v) March 1,2013 Bobwhite paid $21,000 for three months of rent on the office building ($7,000 per month). The March 1 entry to record the cash payment was debited entirely to the income statement, and no additional entries have been made since this time. (vi) March 1, 2013 Bobwhite paid $21,250 for 85, 60 second radio spots. Bobwhite debited the entire payment to the balance sheet and has made no additional entries. As of March 31, 2013, 55 of the radio spots were used. After recording items (i) through (vi) as necessary, Bobwhite's adjusted net income for March is: A. $263,950 B. $262,700 C. $261,686 D. $256,400 E. None of the above Continued on next page.

8. Continue with the facts provided in Q#7 for Bobwhite and consider that during Module 2B we learned to classify adjusting entries into 3 categories: Category 1: (a) Adjustments to an existing deferred revenue account balance or (b) adjustments to an existing deferred expense account balance. Category 2: (a) Adjustments to accrue additional revenue or (b) adjustments to accrue additional expense. Category 3: Adjustments to correct an error. Consider the journal entry you proposed in the prior question for situation (ii) and classify this adjusting journal entry into one of the above 3 categories. A. Category 1 (a) B. Category 1 (b) C. Category 2 (a) D. Category 2 (b) E. Category 3 9. A company purchased new computers at a cost of $14,000 on September 30. The computers are estimated to have a useful life of 4 years and a residual value of $2,000. The company uses the straight- line method of depreciation. How much depreciation expense will be recorded for the computers for the first year ended December 31? (Do not round intermediate calculations. Do round final answers, as applicable, to the nearest $1). A. $250 B. $750 C. $875 D. $3,000 E. None of the above Continued on next page.

10. Tremendous Tree Company purchases 100% of its office supplies from Bark Supply Company. During January 2016, Tremendous paid $2,125 of cash to Bark as "payment on account" and reported the following normal account balances* on its December 31st and January 31st Balance Sheet: Dec. 31, 2015 Jan. 31, 2016 Office Supplies $1,200 $375 Accounts Payable-Bark $1,400 $350 What amount of Office Supply Expense did Tremendous report on its Income Statement for the one month ended, January 31, 2016? * A "normal account balance" means the account balance is on the expected side (i.e. debit or credit) of the T account. A. $2,950 B. $2,125 C. $1,900 D. $1,075 E. None of the above 11. On February 12th, 2015 Lazer Company sells a medical device for $200,000 with a three year warranty that covers parts and labor. Warranty expense is projected to be 10% of sales. On February 28, 2016, the device requires repairs. The cost of the parts for the repair is $8,000 and Lazer pays their technician $3,500 to perform the repair. What amount of warranty expense should Lazer record related to this item? A. $20,000 in 2015 B. $11,500 in 2016 C. $31,500 prorated evenly between 2015 and 2016 D. $31,500 in 2016 E. Both A and B 12. On January 1 a company purchased a five-year insurance policy for $1,800 with coverage starting immediately. If the January 1 purchase was recorded with a debit to a Deferred Expense, and the company records adjustments only at year-end, the adjusting entry at the end of the first year is: A. Debit Insurance Expense, $360; credit Prepaid Insurance, $360. B. Debit Insurance Expense, $1,440; credit Prepaid Insurance, $1,440. C. Debit Prepaid Insurance, $360; credit Insurance Expense, $360. D. Debit Prepaid Insurance, $1,440; credit Insurance Expense, $1,440. E. None of the above

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13. When preparing a bank reconciliation, which of the following would be subtracted from the company's cash balance on the reconciliation? A. Interest income paid by the bank. B. The dollar amount of deposits in transit. C. The dollar amount of outstanding checks. D. The bank service charges included on the bank statement. E. Both C and D 14. At the end of 2013, Blaze Company reported $570,000 of Accounts Receivable (net of a $45,000 Allowance for Doubtful Accounts). During 2014, Blaze recorded the following activity: Credit Sales $3,650,000 Customer Payments "on account" $2,892,500 Actual Write Offs of Customer Accounts Receivable balances $65,000 Blaze prepares bad debt adjustments once per year on December 31 and utilizes an aging report when doing so. Blaze has asked you to prepare the year end bad debt accrual entry and provides you the following incomplete aging report to assist you with your calculations: # Days $ Estimated Portion Outstanding Amount Uncollectible 0-30 $325,000.00 2.00% 31-60 $680,000.00 5.00% 61-120 $262,500.00 8.00% Over 120 ? 25.00% Total ? Utilize the above information to determine the amount of Bad Debt Expense reported by Blaze in 2014. A. $91,500 B. $51,500. C. $71,500. D. $65,000. E. None of the above

15. Alex Company rents space to a tenant for $2,200 per month. The tenant currently owes two months rent, November and December. The tenant has agreed to pay the November, December, and January rents in full on January 15 and has agreed not to fall behind again. The adjusting entry needed on December 31 is: A. Debit Rent Receivable, $6,600; credit Rent Earned, $6,600. B. Debit Unearned Rent, $4,400; credit Rent Earned, $4,400. C. Debit Unearned Rent, $2,200; credit Rent Earned, $2,200. D. Debit Rent Receivable, $4,400; credit Rent Earned, $4,400. E. None of the above 16. Tranquil Company purchased the following assets on October 1, 2014: Cost Residual Value Method Useful Life Building $600,000 25% Straight Line 25 years Machinery $200,000 10% Sum of the Years 6 Years Equipment $300,000 25% Double Declining Balance 8 years $1,100,000 Utilize the above information to calculate Tranquil's 2015 Depreciation Expense. Rounding: Do not round your Sum-of-the-years-digit factor when utilizing it within your calculations. Do round your final answers (for all calculations) to the nearest $1. A. $173,706 B. $148,527 C. $117,107 D. $127,353 E. $137,599 Additional space provided on next page.

17. Continue with the Tranquil Company facts in question #16 and consider the Equipment. Assuming there are no disposals or capital improvements, in what year will this asset be fully depreciated? A. 2022 B. 2020 C. 2021 D. 2018 E. 2019 18. Alex Company has 10 employees, who earn a total of $1,800 in salaries each working day. Each Monday the company pays $9,000 for the five-day workweek ending on the previous Friday. Consider the 5 day payroll period paid on Monday, January 5th and assume that all 10 employees worked five full days during this pay-period. The adjusting entry needed on December 31 is: A. Debit Salaries Expense, $5,400; credit Salaries Payable, $5,400. B. Debit Salaries Expense, $3,600; credit Salaries Payable, $3,600. C. Debit Salaries Expense, $9,000; credit Cash $9,000. D. Debit Salaries Expense, $5,400; Debit Prepaid Salaries $3,600 credit Cash, $9,000. E. None of the above

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19. Contemporary Company most recently reconciled its bank statement and book balances of cash on November 30, 2015 and on this reconciliation it reported: * 3 Outstanding Checks totaling $4,375 (No. 6100 for $3,250 and No. 6110 for $675 and No. 6130 for $450) * A single Deposit in Transit of $3,650- representing a bank deposit made on November 30 th after 4 pm. The following information is available for the company ’ s December 31 , 2015 reconciliation. The December 31 st Bank Statement (received in the mail from the bank): From Contemporary Company ’ s accounting records: Additional Information Check No. 6157 was written for $2,785 and was issued to pay for computer equipment purchased in November on account; however, when recording the cash payment, the bookkeeper misread the amount and entered it in the accounting records with a debit to Accounts Payable and a credit to Cash of $2,875. The NSF check shown in the statement was originally collected from a customer, J. Buyer, in payment of her account. Utilize the above information and calculate Contemporary Company's reconciled cash balance as of December 31, 2015. (Additional space is provided on next page). A. $34,325 B. $34,955 C. $34,505 D. $34,825 E. None of the above

Additional space: 20. Please consider the facts for Contemporary Company in question #19 and the situation described related to Check No. 6157. Select the entry below that would be made as a result of this situation. A. Accounts Payable $90 Cash $90 B. Cash $90 Accounts Payable $90 C. Cash $90 Computer Equipment $90 D. Computer Equipment $90 Cash $90 E. None of the above

21. Banquet Company started 2014 with Accounts Receivable and Allowance for Doubtful (ADA) account balances of $330,000 and $24,000 respectively. Banquet employs a combination approach when accounting for bad debts and initially records a bad debt estimate at 1% of sales and then in December, prepares a final adjusting journal entry based on an aging. In December of 2015 Banquet determined (as a result of the aging) that an ADA of $26,000 would be appropriate. Additionally, Banquet reported the following activity during 2015: Credit Sales $3,250,000 Cash Collections from customers as payment on account: $3,150,000 Write offs of customer receivable balances $35,000 What is the dollar amount of bad debt expense that Banquet will report on its December 31, 2015 Income Statement? A. $32,500 B. $37,000 C. $35,000 D. $26,000 E. None of the above 22. Woodstock Company purchased equipment on February 1, 2010 for $80,280. Woodstock uses the Units of Production Method and at the time of purchase, estimated useful life of the equipment to be 5 years with total estimated hours of use of 10,035 hours. Woodstock does not anticipate that the equipment will have any value at the end of its life. Actual hours of use (as summarized below) was 10,550. What entry will Woodstock make in 2013 to record depreciation? (Do not round intermediate calculations. Round final answers, as necessary, to the nearest $1.) A. Depreciation Expense 13,088 Accumulated Depreciation 13,088 B. Depreciation Expense 13,760 Accumulated Depreciation 13,760 C. Depreciation Expense 16,056 Accumulated Depreciation 16,056 D. Depreciation Expense 12,480 Accumulated Depreciation 12,480 E. None of the above

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23. Continue with question #22. For purposes of this question only, assume that, after recording 2014 depreciation, Woodstock sold the equipment on December 31, 2014 for $650*. *please continue to assume that Woodstock estimated the residual value at zero, and utilized zero in all depreciation calculations. (Do not round intermediate calculations. Round final answers, as necessary, to the nearest $1.) What entry will Woodstock record to account for this sale? A. Cash $650 Equipment $80,280 Accumulated Depreciation $80,280 Gain on sale $650 B. Cash $650 Accumulated Depreciation $84,400 Equipment $80,280 Gain on sale $4,770 C. Cash $650 Accumulated Depreciation $80,280 Equipment $80,280 Gain on sale $650 D. Cash $650 Equipment $80,280 Loss on sale of equipment $3,470 Accumulated Depreciation $84,400 E. None of the above ***double check your exam scantron and make sure that it is coded as Version A ***