35. (I) Compute the purchase price of the transaction.

Transcription

1 35. Wesellit, Inc. sold some land to WePayLater, Inc. The agreed price was $1,000,000 payable in $700,000 cash and a $300,000 0% note due in 2 years. Had WePayLater gone out to a bank to borrow the money, the bank would have charged a rate of 8% to lend them the $300,000 for two years with interest compounding monthly. The net book value of the equipment on NoFreeLunch's books on the date of the transaction was $550,000. The present value factors below should be useful in answering the questions: Present value of a lump sum of $1: Period Rate PV factor % NOTE: CIRCLE THE FACTOR YOU USED FOR PART. CREDIT % % (I) Compute the purchase price of the transaction. (II) Record the journal entry required on the date of the transaction for the seller (Wesellit). (III) Assuming your journal entries are the only ones booked, record the journal entries required at the end of MONTH 1, and MONTH 2 (again for the seller).

2 35. Wesellit, Inc. sold some land to WePayLater, Inc. The agreed price was $1,000,000 payable in $700,000 cash and a $300,000 0% note due in 2 years. Had WePayLater gone out to a bank to borrow the money, the bank would have charged a rate of 8% to lend them the $300,000 for two years with interest compounding monthly. The net book value of the equipment on NoFreeLunch's books on the date of the transaction was $550,000. The present value factors below should be useful in answering the questions: Present value of a lump sum of $1: Period Rate PV factor Note Gross % % % (I) Compute the purchase price of the transaction. PV of cash 700,000 PV of note 246,030 ($247,933.88) 946,030 (II) Record the journal entry required on the date of the transaction for the seller (Wesellit). Cash 700,000 Note receivable 300,000 may be combined- but Def. financing/ Imputed int. 53,970 (300, ,030) part iii treatment should match Land 550,000 Gain on sale 396,030 (946, ,000) - (III) Assuming your journal entries are the only ones booked, record the journal entries required at the end of year one and year two (again for the seller). MONTH ONE =246,030*.83% PV OF NOTE * Def. financing/ Imputed int. 2,042 REVISED Interest income 2, ,072 MONTH TWO =248,072*.83% * Deferred financing 2,059 Interest income 2, ,131 * If showed note receivable net (318,880) in part ii then this debit should be to "note receivable", will accept accrued interest. IF COMBINED IN PART II, THEN MONTH ONE Note receivable or interest rec. 2,042 Interest income 2,042 MONTH 2 Note receivable or interest rec. 2,059 Interest income 2,059

3 36. XYZ, Inc. experienced the following activity for the year ended December 31, 2008: - XYZ's effective income tax rate is 35% 1 Common stock was $100,000 at the beginning of the year and there was no common stock activity during the year 2 Retained earnings was $205,000 at the beginning of the year. 3 Dividends were declared and paid in the amount of $10,000 An accounting principle changed and the cumulative effect through the beginning of the year was to 4 increase inventory by $20,000 5 XYZ discovered that they had made a material error in 1975 which was never rectified. The impact was to overstate 1975 income and fixed assets by $100, Accumulated other comprehensive income at the beginning of the year was $325,000. During the year, $50,000 of unrealized gains (pre-tax) were recorded on "available for sale" securities. 7 Net income for the year was $200,000, excluding any adjustments required as a result of any of the above items. For Items 4, 5 and 6 above, show the journal entry required to reflect the activity of that item. Just like in class, use "tax effect" when appropriate. Based on this information, prepare the combined "statement of stockholders equity and comprehensive income" for XYZ for the year ended December 31, 2008.

4 36. SOLUTION JE item 4 Inventory 20,000 Retained earnings 13,000 Tax effect 7,000 JE item 5 Retained earnings 65,000 Tax effect 35,000 Fixed assets 100,000 JE item 6 Investments 50,000 OCI 32,500 Tax effect 17,500 XYZ, INC. COMBINED STATEMENT OF STOCKHOLDERS EQUITY & COMPREHENSIVE INCOME YEAR ENDED DECEMBER 31, 2008 Comp. Retained Accum. Other Income Com. Stock Earnings Comp. Income Total Balance at 12/31/07, as previously reported 100, , , ,000 Change in accounting principle, net of $7,000 tax effect 13,000 13,000 Restatement, net of $35,000 tax provision (65,000) (65,000) Balance st 12/31/07, as restated 100, , , ,000 Net income 200, , ,000 OCI- Unrealized gains, net of $17,500 tax effect 32,500 32,500 32,500 Comprehensive income 232,500 - Dividends (10,000) (10,000) Balance at 12/31/08 100, , , ,500

5 37. Record the journal entries required assuming all of the following activity below is for one company and that company employs 3% of gross credit sales as their estimated bad debts. As for discounts (not to be confuised with bad debts!) on credit sales, XYZ uses the gross method. Any discounts taken by customers are reflected in an account "sales discounts taken" Purchase goods from suppliers for $300,000 on account (no discounts offered). Sell goods to customers for $250,000, which cost $150,000, on credit with terms 2/10 n 30. Collect $61,250 in cash from customers within the discount period related to the sales in (2) above. Collect an additional $185,000 Management determines that the allowance for doubtful accounts should be increased by $2,500. Management writes off all accounts receivable which have not been collected. After writing off all of the allowance, XYZ collects $1,000 from a customer whose balance was written off.

6 37. SOLUTION 1 Inventory (or purchases) 300,000 Accounts payable 300,000 2 Acconts receivable 250,000 Sales 250,000 2a COS 150,000 Inventory 150,000 2b Bad debt expense 7,500 Allowance for DA's 7,500 3 Cash 61, ,000 Accounts receivable 62,500 (62,500) Sales discounts taken 1,250 4 Cash 185,000 Accounts receivable 185,000 (185,000) 5 Bad debt expense 2,500 Allowance for DA's 2,500 (2,500) 6 Allowance for DA's 2,500 - Accounts receivable 2,500 7 Cash 1,000 Bad debt expense 1,000 OR Accounts receivable 1,000 Bad debt expense 1,000 Cash 1,000 Accounts receivable 1,000

7 v. 1 July 13, 2009 Anderson_Econ 136A_EXAM 1 Name Complete the multiple choice questions on green scantron. Complete all problems/ short answers in your blue book. 1. Which of the following is reflected at fair value on the balance sheet: a. Trading securities b. Available for sale securities c. Both available for sale securities and trading securities d. Held to maturity securities 2. When a business acquires a real estate asset, what are they purchasing? a. Building b. Land c. Future cash flows d. Land and building 3. Green Company's account balances at December 31, 2004 for Accounts Receivable and the related Allowance for Doubtful Accounts are $460,000 debit and $700 credit, respectively. From an aging of accounts receivable, it is estimated that $18,000 of the December 31 receivables will be uncollectible. The necessary adjusting entry would include a credit to the allowance account for a. $18,700. b. $17,300. c. $18,000. d. $ If there is a change in accounting estimate which would have resulted in an additional charge to a prior year expense, which of the following statements is true: a. It should be reflected as a cumulative effect of a change in accounting treatment, net of tax on the statement of income. b. It should have no impact to the prior year, and would be accounted for on a "current and forward" basis. c. It should be reflected as a correction of an error in the statement of stockholder's equity, net of tax and captioned "restatement". d. It should be reflected only in the statement of cash flows. 5. A company employs the percentage of sales method for estimating the allowance for doubtful accounts. Using this method, they estimated during the year that the bad debt expense is $100,000. Also during the year, the Company dertermined that the uncollectible accounts to be written-off are $20,000. The proper amount for them to include as bad debt expense during the year is: a. $120,000 b. $ 80,000 c. $100,000

8 v. 1--Page 2 d. $ 40, When converting from cash basis to accrual basis accounting, which of the following adjustments should be made to cash receipts from customers to determine accrual basis service revenue? a. Subtract beginning unearned service revenue. b. Add ending accounts receivable. c. Subtract ending accounts receivable. d. Add cash sales. 7. The term financial flexibility is impacted by: a. The number of divisions an entity has. b. The willingness of management to accept risks; c. The degree of strecthing exercises performed before work by the finance department; d. The liquidity and solvency of an entity; 8. Another term for the balance sheet is: a. Statement of activity for the period b. Statement of financial position c. I have no idea d. Statement of sources and uses of cash 9. The category "trade receivables" includes a. none of these. b. income tax refunds receivable. c. claims against insurance companies for casualties sustained. d. advances to officers and employees. 10. A company employs the percentage of sales method for estimating and recording their bad debt expense. When they encounter a circumstance which results in "writing off" a customer balance, this should: a. Have no effect on the income statement. b. Result in an increase to the allowance for doubtful accounts. c. I wasn't paying attention to that part of the lecture (though this may be a true statement, it does not make it the correct answer!) d. Result in an expense on the income statement. 11. Real estate is sold for $1 million, payable as follows: $850,000 paid in cash on the day of sale and $150,000 due in five years, bearing interest at 0%. Would the seller compute their gain on the sale of that real estate using a sales price: a. less than $1 million b. more than $1 million c. none of the above d. equal to $1 million

9 v. 1--Page The income statement presents: a. the financial position as of a specific date, requiring the application of judgment (estimates) and is transaction based. b. the sources and uses of cash over a specified period of time, requiring the application of judgment (estimates) and is not transaction based. c. activities for a stated period of time, requiring the application of judgment (estimates), and is transaction based. d. is a pain in the neck to present because of various classification issues. 13. Which of the following is a recordable event or item? a. Changes in personnel b. The value of human resources c. None of these d. Changes in managerial policy 14. XYZ, Inc. has properly applied their percentage of sales consistently all year in recording bad debt expenses. At the end of the year, they note that the allowance for doubtful accounts balance is $150,000. Management reviews the accounts receivable aging and notes that there are very old balances and other items which lead them to estimate that the allowance needs to be $225,000. Given these facts, which of the following statements is accurate: a. Management should do nothing as the additional expense could result in negative comments from financial analysts; b. Management should report a restatement of $75,000; c. Management should record an additional bad debt expense of $75,000, reflecting a change in their estimate. d. Management should adjust the percentage of sales to increase the allowance on future transactions, but do nothing to adjust the bad debt expense now; 15. Which table would show the largest factor for an interest rate of 8% for five periods? a. Future value of an annuity due of 1 b. Present value of an ordinary annuity of 1 c. Present value of an annuity due of 1 d. Future value of an ordinary annuity of The debit and credit analysis of a transaction normally takes place a. when the trial balance is prepared. b. when the entry is posted to the ledger. c. at some other point in the accounting cycle. d. before an entry is recorded in a journal. 17. A trial balance a. is normally prepared three times in the accounting cycle. b. supplies a listing of open accounts and their balances that are used in preparing financial statements. c. all of these. d. proves that debits and credits are equal in the ledger.

10 v. 1--Page The income statement of Carsen Corporation for 2004 included the following items: Interest revenue $95,500 Salaries expense 75,000 Insurance expense 12,600 The following balances have been excerpted from Carsen Corporation's balance sheets: December 31 December Accrued interest receivable $9,100 $7,500 Accrued salaries payable 8,900 4,200 Prepaid insurance 1,100 1, The cash paid for salaries during 2004 was a. $70,300. b. $83,900. c. $79,700. d. $70, Under accounting principles generally accepted in the United States of America, which of the following statements are true: a. Revenue is recorded when the expense for the revenue has been paid. b. Revenue is recorded when estimable by the Company's management and expenses are recorded when it is reasonably determined. c. Revenue is recorded when it has been earned and expenses when the associated benefit has been received. d. Revenue is recorded when the payment has been received and expenses are recorded when paid. 20. Catt Company, with an applicable income tax rate of 30%, reported net income of $560,000. Included in income for the period was an extraordinary loss from flood damages of $80,000 before deducting the related tax effect. The company's income before income taxes and extraordinary items was a. $616,000. b. $880,000. c. $640,000. d. $800, The financial statement which summarizes operating, investing, and financing activities of an entity for a period of time is the a. statement of financial position. b. statement of cash flows. c. retained earnings statement. d. income statement.

11 v. 1--Page The statement "risk is commensurate with reward" means that the higher the perceived risk, the: a. Lower the interest rate b. More likely an investor is to abstain from investment. c. No impact on the interest rate d. Higher the interest rate 23. If you pay 12 months of an insurance policy on April 1 for $240,000 and record the following journal entry: Insurance expense $200,000 Prepaid insurance $40,000 Cash $240,000 The journal entry required at the end of the year would: a. Debit insurance expense for 180,000 and credit prepaid insurance for the same amount. b. Have no impact on prepaid insurance, but increase insurance expense by $180,000 c. Have no impact on insurance expense, but increase prepaid insurance by $20,000. d. Debit prepaid insurance for $20,000 and credit insurance expense for the same amount. 24. The approach most companies use to provide information related to the components of other comprehensive income is a a. second separate income statement. b. separate column in the statement of changes in stockholders' equity. c. combined income statement of comprehensive income. d. footnote disclosure. 25. Travel advances should be reported as a. cash because they represent the equivalent of money. b. none of these. c. investments. d. supplies. 26. Present value is a. the amount that must be invested now to produce a known future value. b. all of these. c. always smaller than the future value. d. the value now of a future amount. 27. A general description of the depreciation methods applicable to major classes of depreciable assets a. is not essential to a fair presentation of financial position. b. should be included in corporate financial statements or notes thereto. c. is needed in financial reporting when company policy differs from income tax policy. d. is not a current practice in financial reporting.

12 v. 1--Page The following is an example of a limitation of a balance sheet prepared under generally accepted accounting principles: a. It presents assets on an historical-cost basis, which may be very different from their fair value; b. All of the above. c. A balance sheet is transaction-based, and consequently, important assets, such as the value of human resources, are not reflected as assets; d. It relies in part upon estimates made by management and which consequently introduces subjectivity to the presentation; 29. In order to be classified as an extraordinary item in the income statement, an event or transaction should be a. unusual in nature and material, but it need not be infrequent. b. infrequent and material in amount, but it need not be unusual in nature. c. unusual in nature, infrequent, and material in amount. d. unusual in nature and infrequent, but it need not be material. 30. Which of the following items is presented on a "net of tax" basis in the financial statements? a. all of these b. restatements of retained earnings c. discontinued operations d. other comprehensive income 31. Which one of the following types of losses is excluded from the determination of net income in income statements? a. Material losses resulting from correction of errors related to prior periods. b. Material losses resulting from the write-off of intangibles. c. Material losses resulting from transactions in the company's investments account. d. Material losses resulting from unusual sales of assets not acquired for resale. 32. Which of the following is a limitation of the balance sheet? a. All of these b. Current fair value is not reported. c. Many items that are of financial value are omitted. d. Judgments and estimates are used. 33. Forbes Company paid $7,200 on June 1, 2004 for a two-year insurance policy and recorded the entire amount as Insurance Expense. The December 31, 2004 adjusting entry is a. debit Prepaid Insurance and credit Insurance Expense, $5,100. b. debit Prepaid Insurance and credit Insurance Expense, $2,100 c. debit Insurance Expense and credit Prepaid Insurance, $2,100. d. debit Insurance Expense and credit Prepaid Insurance, $5,100.

13 v. 1--Page Which of the following transactions would require the use of the present value of an annuity due concept in order to calculate the present value of the asset obtained or liability owed at the date of incurrence? a. A ten-year, 8% bond is issued on January 2 with interest payable semiannually on July 1 and January 1 yielding 9%. b. A ten-year, 8% bond is issued on January 2 with interest payable semiannually on July 1 and January 1 yielding 7%. c. A capital lease is entered into with the initial lease payment due upon the signing of the lease agreement. d. A capital lease is entered into with the initial lease payment due one month subsequent to the signing of the lease agreement.

14 v. 1--Page 8 July 13, 2009 ANSWER KEY Anderson_Econ 136A_EXAM Text Bank Exam Ques Diff Lrng Chapter Ref Question Answer Type Cat Lvl Obj Page c MChoice c MChoice b MChoice P b MChoice c MChoice b MChoice C d MChoice b MChoice a MChoice C a MChoice a MChoice c MChoice c MChoice C c MChoice a MChoice C d MChoice C c MChoice C a MChoice P c MChoice b MChoice P b MChoice C d MChoice d MChoice b MChoice C b MChoice C b MChoice C b MChoice C b MChoice c MChoice C a MChoice a MChoice C a MChoice C a MChoice P c MChoice C * Multiple Choice Foils are Jumbled * Test Questions are Scrambled

15 v. 1--Page 9 July 13, $18,000 - $700 = $17, Open accounts resulting from short-term extensions of credit to customers. 13. Many answers are possible. 18. $4,200 + $75,000 - $8,900 = $70, $560,000 + ($80,000 x.7) = $616,000 $616,000.7 = $880, As receivables /24 x $7,200 = $5,100.

16 v. 2 July 13, 2009 Anderson_Econ 136A_EXAM 1 Name Complete the multiple choice questions on green scantron. Complete all problems/ short answers in your blue book. 1. Which of the following is reflected at fair value on the balance sheet: a. Trading securities b. Both available for sale securities and trading securities c. Available for sale securities d. Held to maturity securities 2. The statement "risk is commensurate with reward" means that the higher the perceived risk, the: a. Lower the interest rate b. More likely an investor is to abstain from investment. c. Higher the interest rate d. No impact on the interest rate 3. Present value is a. the amount that must be invested now to produce a known future value. b. all of these. c. the value now of a future amount. d. always smaller than the future value. 4. Another term for the balance sheet is: a. Statement of activity for the period b. I have no idea c. Statement of sources and uses of cash d. Statement of financial position 5. Which of the following is a limitation of the balance sheet? a. Judgments and estimates are used. b. All of these c. Many items that are of financial value are omitted. d. Current fair value is not reported. 6. A company employs the percentage of sales method for estimating and recording their bad debt expense. When they encounter a circumstance which results in "writing off" a customer balance, this should: a. Have no effect on the income statement. b. I wasn't paying attention to that part of the lecture (though this may be a true statement, it does not make it the correct answer!) c. Result in an expense on the income statement. d. Result in an increase to the allowance for doubtful accounts.

17 v. 2--Page 2 7. If you pay 12 months of an insurance policy on April 1 for $240,000 and record the following journal entry: Insurance expense $200,000 Prepaid insurance $40,000 Cash $240,000 The journal entry required at the end of the year would: a. Debit insurance expense for 180,000 and credit prepaid insurance for the same amount. b. Have no impact on prepaid insurance, but increase insurance expense by $180,000 c. Debit prepaid insurance for $20,000 and credit insurance expense for the same amount. d. Have no impact on insurance expense, but increase prepaid insurance by $20, The term financial flexibility is impacted by: a. The willingness of management to accept risks; b. The number of divisions an entity has. c. The liquidity and solvency of an entity; d. The degree of strecthing exercises performed before work by the finance department; 9. Which table would show the largest factor for an interest rate of 8% for five periods? a. Present value of an ordinary annuity of 1 b. Present value of an annuity due of 1 c. Future value of an ordinary annuity of 1 d. Future value of an annuity due of If there is a change in accounting estimate which would have resulted in an additional charge to a prior year expense, which of the following statements is true: a. It should be reflected as a cumulative effect of a change in accounting treatment, net of tax on the statement of income. b. It should be reflected only in the statement of cash flows. c. It should be reflected as a correction of an error in the statement of stockholder's equity, net of tax and captioned "restatement". d. It should have no impact to the prior year, and would be accounted for on a "current and forward" basis. 11. The debit and credit analysis of a transaction normally takes place a. when the entry is posted to the ledger. b. at some other point in the accounting cycle. c. before an entry is recorded in a journal. d. when the trial balance is prepared.

18 v. 2--Page Which of the following items is presented on a "net of tax" basis in the financial statements? a. other comprehensive income b. all of these c. discontinued operations d. restatements of retained earnings 13. The approach most companies use to provide information related to the components of other comprehensive income is a a. combined income statement of comprehensive income. b. footnote disclosure. c. second separate income statement. d. separate column in the statement of changes in stockholders' equity. 14. Forbes Company paid $7,200 on June 1, 2004 for a two-year insurance policy and recorded the entire amount as Insurance Expense. The December 31, 2004 adjusting entry is a. debit Insurance Expense and credit Prepaid Insurance, $5,100. b. debit Prepaid Insurance and credit Insurance Expense, $5,100. c. debit Insurance Expense and credit Prepaid Insurance, $2,100. d. debit Prepaid Insurance and credit Insurance Expense, $2, The income statement of Carsen Corporation for 2004 included the following items: Interest revenue $95,500 Salaries expense 75,000 Insurance expense 12,600 The following balances have been excerpted from Carsen Corporation's balance sheets: December 31 December Accrued interest receivable $9,100 $7,500 Accrued salaries payable 8,900 4,200 Prepaid insurance 1,100 1, The cash paid for salaries during 2004 was a. $70,300. b. $83,900. c. $79,700. d. $70, When a business acquires a real estate asset, what are they purchasing? a. Building b. Future cash flows c. Land d. Land and building

19 v. 2--Page Green Company's account balances at December 31, 2004 for Accounts Receivable and the related Allowance for Doubtful Accounts are $460,000 debit and $700 credit, respectively. From an aging of accounts receivable, it is estimated that $18,000 of the December 31 receivables will be uncollectible. The necessary adjusting entry would include a credit to the allowance account for a. $18,700. b. $700. c. $18,000. d. $17, The financial statement which summarizes operating, investing, and financing activities of an entity for a period of time is the a. statement of financial position. b. statement of cash flows. c. retained earnings statement. d. income statement. 19. In order to be classified as an extraordinary item in the income statement, an event or transaction should be a. unusual in nature and material, but it need not be infrequent. b. infrequent and material in amount, but it need not be unusual in nature. c. unusual in nature, infrequent, and material in amount. d. unusual in nature and infrequent, but it need not be material. 20. Travel advances should be reported as a. none of these. b. investments. c. supplies. d. cash because they represent the equivalent of money. 21. XYZ, Inc. has properly applied their percentage of sales consistently all year in recording bad debt expenses. At the end of the year, they note that the allowance for doubtful accounts balance is $150,000. Management reviews the accounts receivable aging and notes that there are very old balances and other items which lead them to estimate that the allowance needs to be $225,000. Given these facts, which of the following statements is accurate: a. Management should record an additional bad debt expense of $75,000, reflecting a change in their estimate. b. Management should do nothing as the additional expense could result in negative comments from financial analysts; c. Management should adjust the percentage of sales to increase the allowance on future transactions, but do nothing to adjust the bad debt expense now; d. Management should report a restatement of $75,000;

20 v. 2--Page A company employs the percentage of sales method for estimating the allowance for doubtful accounts. Using this method, they estimated during the year that the bad debt expense is $100,000. Also during the year, the Company dertermined that the uncollectible accounts to be written-off are $20,000. The proper amount for them to include as bad debt expense during the year is: a. $ 40,000 b. $ 80,000 c. $100,000 d. $120, A trial balance a. proves that debits and credits are equal in the ledger. b. is normally prepared three times in the accounting cycle. c. all of these. d. supplies a listing of open accounts and their balances that are used in preparing financial statements. 24. The following is an example of a limitation of a balance sheet prepared under generally accepted accounting principles: a. It relies in part upon estimates made by management and which consequently introduces subjectivity to the presentation; b. A balance sheet is transaction-based, and consequently, important assets, such as the value of human resources, are not reflected as assets; c. All of the above. d. It presents assets on an historical-cost basis, which may be very different from their fair value; 25. Which of the following is a recordable event or item? a. Changes in managerial policy b. Changes in personnel c. None of these d. The value of human resources 26. Catt Company, with an applicable income tax rate of 30%, reported net income of $560,000. Included in income for the period was an extraordinary loss from flood damages of $80,000 before deducting the related tax effect. The company's income before income taxes and extraordinary items was a. $640,000. b. $880,000. c. $616,000. d. $800, Real estate is sold for $1 million, payable as follows: $850,000 paid in cash on the day of sale and $150,000 due in five years, bearing interest at 0%. Would the seller compute their gain on the sale of that real estate using a sales price: a. equal to $1 million b. more than $1 million c. none of the above d. less than $1 million

21 v. 2--Page Which one of the following types of losses is excluded from the determination of net income in income statements? a. Material losses resulting from transactions in the company's investments account. b. Material losses resulting from the write-off of intangibles. c. Material losses resulting from correction of errors related to prior periods. d. Material losses resulting from unusual sales of assets not acquired for resale. 29. A general description of the depreciation methods applicable to major classes of depreciable assets a. is not a current practice in financial reporting. b. is needed in financial reporting when company policy differs from income tax policy. c. should be included in corporate financial statements or notes thereto. d. is not essential to a fair presentation of financial position. 30. When converting from cash basis to accrual basis accounting, which of the following adjustments should be made to cash receipts from customers to determine accrual basis service revenue? a. Add ending accounts receivable. b. Subtract ending accounts receivable. c. Subtract beginning unearned service revenue. d. Add cash sales. 31. The category "trade receivables" includes a. claims against insurance companies for casualties sustained. b. advances to officers and employees. c. none of these. d. income tax refunds receivable. 32. Which of the following transactions would require the use of the present value of an annuity due concept in order to calculate the present value of the asset obtained or liability owed at the date of incurrence? a. A ten-year, 8% bond is issued on January 2 with interest payable semiannually on July 1 and January 1 yielding 7%. b. A capital lease is entered into with the initial lease payment due upon the signing of the lease agreement. c. A capital lease is entered into with the initial lease payment due one month subsequent to the signing of the lease agreement. d. A ten-year, 8% bond is issued on January 2 with interest payable semiannually on July 1 and January 1 yielding 9%. 33. Under accounting principles generally accepted in the United States of America, which of the following statements are true: a. Revenue is recorded when the expense for the revenue has been paid. b. Revenue is recorded when the payment has been received and expenses are recorded when paid. c. Revenue is recorded when it has been earned and expenses when the associated benefit has been received. d. Revenue is recorded when estimable by the Company's

22 v. 2--Page 7 management and expenses are recorded when it is reasonably determined. 34. The income statement presents: a. the sources and uses of cash over a specified period of time, requiring the application of judgment (estimates) and is not transaction based. b. the financial position as of a specific date, requiring the application of judgment (estimates) and is transaction based. c. activities for a stated period of time, requiring the application of judgment (estimates), and is transaction based. d. is a pain in the neck to present because of various classification issues.

23 v. 2--Page 8 July 13, 2009 ANSWER KEY Anderson_Econ 136A_EXAM Text Bank Exam Ques Diff Lrng Chapter Ref Question Answer Type Cat Lvl Obj Page b MChoice c MChoice b MChoice C d MChoice b MChoice C a MChoice c MChoice c MChoice d MChoice C d MChoice c MChoice C b MChoice d MChoice C b MChoice P a MChoice P b MChoice d MChoice P b MChoice C c MChoice C a MChoice C a MChoice c MChoice c MChoice C c MChoice c MChoice C b MChoice P d MChoice c MChoice C c MChoice C a MChoice C c MChoice C b MChoice C c MChoice c MChoice * Multiple Choice Foils are Jumbled * Test Questions are Scrambled

24 v. 2--Page 9 July 13, /24 x $7,200 = $5, $4,200 + $75,000 - $8,900 = $70, $18,000 - $700 = $17, As receivables. 25. Many answers are possible. 26. $560,000 + ($80,000 x.7) = $616,000 $616,000.7 = $880, Open accounts resulting from short-term extensions of credit to customers.