Part 1: Multiple Choice [60 points]
[3 points each, 60 points total]
Circle one answer only.
1. On June 30, 2017, Edelman Enterprises purchased a 5-year insurance policy on its equipment for $4,000,000. This is the only insurance policy Edelman has in place. As of December 31, 2018, what would be the balance for Edelman Enterprise’s prepaid insurance?
A) $2,100,000
B) $2,400,000
C) $2,800,000
D) $1,000,000
E) $4,000,000
2. Belichick Inc. paid Company X for services to be performed in the following year. What effect would this transaction have on Company X’s balance sheet?
A) Assets Increase; Liabilities Increase
B) Assets Increase; Assets Decrease
C) Liabilities Increase; Shareholders’ Equity Increase
D) Assets Increase; Shareholders’ Equity Increase
E) Assets Decrease; Liabilities Decrease
3. On October 1, 2016, SM Co. signed a two-year contract to provide handyman services to OU Associates, with the contract to start immediately. OU agreed to pay SM $12,000 for the two-year period. SM is confident that OU will pay that amount, but payment is not scheduled to occur until 2017. How much revenue should SM recognize in 2016?
A) $0
B) $6,000
C) $10,500
D) $12,000
E) $1,500
4. For the year ended December 31, 2018, Bennett Beauty Co. earned net income of 1,000,000 and had comprehensive income of 1,100,000. During 2018, Bennett had 50,000 shares of common stock outstanding and convertible bonds as of December 31, 2018 that could be converted into 25,000 shares of common stock. Bennett did not have dividends of any kind during 2018. What was Bennett’s Basic EPS?
A) 16.67
B) 18.18
C) 20.00
D) 18.33
E) 42.00
5. J. Develin sold machinery for $10,000 that was originally purchased for $20,000. J. Develin had already recorded depreciation of $18,000 associated with this machinery. The fair value of the machinery at the date of sale was $12,000. What is the amount of J. Develin’s gain/loss on disposal?
A) $2,000 gain
B) $2,000 loss
C) $8,000 loss
D) $8,000 gain
E) $10,000 gain
6. Under what circumstances are research and development (R&D) costs capitalized on the balance sheet?
A) Under no circumstances
B) R&D purchased in a business acquisition
C) R&D related to internally developed software
D) R&D expected to be sold
E) Both B and C
7. J. Gordon paid $1,200 for a 6-month ceramics course starting on June 1, 2018 with Ceramics R Us. For this transaction, as of August 1, 2018, the accounting records of Ceramics R Us would indicate:
A) $400 of revenue; $800 of accounts receivable
B) $400 of revenue; $800 of deferred revenue
C) $1,200 of revenue; $1,200 of cash
D) $800 of revenue; $400 of accounts receivable
E) $0 of revenue; $1,200 of cash
8. Brady Inc. reported FIFO ending inventory of $114,000 and FIFO beginning inventory of $110,000 for 2018. Inventory purchases for 2018 were $237,500 and the change in the LIFO reserve from 2017 was an increase in the LIFO reserve of $675. Calculate the value of COGS LIFO for Brady Inc. in 2018 (Assume that there are no inventory write-downs).
A) $234,175
B) $232,825
C) $234,575
D) $236,900
E) $237,500
9. If a bond sells for less than its face value, the market rate of interest is:
A) Higher than the coupon rate
B) Dependent on the coupon rate
C) Equal to the coupon rate
D) Lower than the coupon rate
E) Not enough information to answer
10. Which of the following is not an example of a contingent liability?
A) Warranty Accrual
B) Pending Litigation
C) Asbestos Reserve
D) Environmental Liability
E) Accounts Payable
11. What are the three sections of the statement of cash flows?
A) Financing, Borrowing, Operating
B) Operating, Investing, Financing
C) Investing, Operating, Equity
D) Selling, Investing, Financing
E) Selling, Investing, Borrowing
12. What is the accumulated depreciation of equipment sold during the year if opening accumulated depreciation is $20,000, depreciation expense is $10,000 and closing accumulated depreciation is $10,000 (Assume that there are no asset write-downs)?
A) $5,000
B) $10,000
C) $15,000
D) $20,000
E) $30,000
13. The Income Statement for J. White Company shows Cost of Sales of $60,000, Administrative Expenses of $30,000, Rental Expenses of $10,000, Interest Revenue of $20,000, Interest Expense of $15,000, and Net Income after Taxes of $60,000. Assuming there are no other items to be considered and that the Income Taxes are 25% of Net Income before Taxes, what is sales revenue?
A) $150,000
B) $125,000
C) $175,000
D) $180,000
E) $160,000
14. In order for a liability to be recognized, which of the following must be true?
A) Liability represents a probable future sacrifice of economic values
B) Amount of the liability must be estimable (measurable)
C) Liability is due to past transactions or events
D) All of the above
E) None of the above
15. A firm with 25,000 shares outstanding pays $3 per share as dividends. What would be the impact of this entry?
A) Decrease Cash $75,000; Decrease Retained Earnings $75,000
B) Decrease Cash $75,000; Increase Retained Earnings $75,000
C) Decrease Cash $25,000; Decrease Retained Earnings $25,000
D) Decrease Cash $25,000; Increase Retained Earnings $25,000
E) Decrease Cash $75,000; Decrease Net Income $75,000
16. Which of the following items does not demonstrate the concept of conservatism?
A) Revenues are recognized only when they are earned
B) Losses are recognized even when there is uncertainty for the losses to happen
C) Provision accounts reduce the value of assets or create a liability
D) Inventory is recorded at the lower of cost or market
E) Gains are recognized even when there is uncertainty for the gains to happen
17. Thomas Technologies issued 10% bonds with a face amount of $80 million on January 1, 2011. The bonds mature on December 31, 2020 (10 years). The market rate is 12%. Interest is paid semi-annually on June 30 and December 31. What is the present value of the bonds on January 1, 2011?
A) $71,926,088
B) $88,526,412
C) $82,987,389
D) $24,944,378
E) $70,824,063
18. How much cash was received from customers during the year based on the following information?
Net Sales: $12,000
Ending Net Receivables: $3,000
Beginning Net Receivables: $2,000
A) $11,000
B) $12,000
C) $15,000
D) $13,000
E) $10,000
19. Which of the following items would be included in the Investing Activities section of the Statement of Cash Flows under the Indirect Method?
A) Equity issuance
B) Purchases of Property and Equipment
C) Bank loan repayment
D) Changes in Accounts Payable
E) Purchases of Treasury Stock
20. Which of the following fundamental accounting concepts calls for revenues and associated expenses to be recorded in the same period?
A) Accruals
B) Matching
C) Consistency
D) Going concern
E) Revenue recognition
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