week 7 accounting exam 3 questions

EXAM #3 WEEK 7 (Chapters 8-12)

Should be completed by Sunday at 11:59 p.m. ET.

Question 1: On January 1, a machine costing $260,000 with a 4-year life and an estimated $5,000 salvage value was purchased. It was also estimated that the machine would produce 500,000 units during its life. The actual units produced during its first year of operation were 110,000. Determine the amount of depreciation expense for the first year under each of the following assumptions: (15 points)
1. The company uses the straight-line method of depreciation.
2. The company uses the units-of-production method of depreciation.
3. The company uses the double-declining-balance method of depreciation.

Question 2: A company sold for $40,000 cash a machine that originally cost $90,000. The accumulated depreciation on this machine was $47,000 at the time of the sale. What was the company’s gain or loss on this sale? (10 points)

Question 3: On September 15, SportsWorld borrowed $75,000 cash from FirstBank on a 12%, 60-day note payable.
a. Prepare SportsWorld’s general journal entry to record the issuance of the note payable
b. Prepare SportsWorld’s general journal entry to record the payment of the note at maturity. (15 points)

Question 4: A company issued 10-year, 9% bonds, with a par value of $500,000 when the market rate was 9.5%. The issuer received $484,087 in cash proceeds. Prepare the issuer’s journal entry to record the issuance of the bonds. (10 points)

Question 5: A company has $200,000 par value, 10% bonds outstanding. Prepare the company’s journal entry to retire the bonds at the date of maturity. (5 points)

Question 6: On July 31, a company declared a cash dividend of $0.25 per common share to the shareholders of record on August 15. The cash dividend will be paid on August 25. This company has 500,000 shares authorized and 100,000 shares outstanding. Prepare the journal entries required on July 31, August 15 and August 25. (10 points)

Question 7: A company is authorized to issue 750,000 shares of $5 par value common stock. Prepare journal entries to record the following selected transactions that occurred during the company’s first year of operations: (15 points)

Jan. 10

Sold 102,000 shares of common stock for $8 cash per share.

15

Exchanged 10,000 shares of common stock for equipment with a market value of $80,000.

Feb. 1

Exchanged 500 shares of common stock for $3,000 of legal services, Incurred during the company’s organization.

Question 8: Based on the following income statement and balance sheet for Rashid Corporation, determine the cash flows from operating activities using the indirect method. (20 points)

Rashid Corporation

Income Statement

For Year Ended December 31, 2010

Sales

$504,000

Cost of goods sold

$327,600

Depreciation expense

42,000

Other operating expenses

125,500

(495,100)

Other gains (losses):

Gain on sale of equipment

7,200

Income before taxes

$ 16,100

Income tax expense

(4,800)

Net income

$ 11,300

Rashid Corporation

Balance Sheets

At December 31

Assets

2010

2009

Cash

$ 64,650

$ 55,800

Accounts receivable

21,000

29,000

Inventory

58,000

52,100

Equipment

240,000

222,000

Accumulated depreciation

(106,000)

( 96,000)

Total assets

$277,650

$262,900

Liabilities:

Accounts payable

$ 28,400

$ 23,700

Income taxes payable

1,050

1,200

Total liabilities

$ 29,450

$ 24,900

Equity

Common stock

$106,000

$106,000

Contributed Capital in excess of par value

18,000

18,000

Retained earnings

124,200

114,000

Total equity

$248,200

$238,000

Total liabilities and equity

$277,650

$262,900