Question 1.1. (TCO 3) At the end of the period it is necessary to close all temporary accounts. (1) Explain why this process is required (15 points) and (2) provide an example of the closing of an expense account, Salary Expense in the form of a journal entry. (10 points) (Points : 25)
2.(TCO 2) If the two columns of a trial balance are equal, does it mean that there are no errors in the accounting records? Explain. (15 points) If the totals of the trial balance columns do not equal, what are some corrective actions that might be taken to find the error? (10 points) (Points : 25)
3.(TCO 5) Discuss the various components of Internal Control (10 points). (2) Explain management’s role in establishing a good internal control environment (10 points). (3) What role does internal auditors and external auditors have in the internal control process? (5 points) (Points : 25)
4.(TCO 1) If you want to evaluate a company’s liquidity and short-term debt paying ability, what ratio would you compute? What is the formula for that ratio? If the result of this ratio is 2, what does that tell you about the company? (Points : 25)
5.(TCO 4) ABC company has the following record for inventory: On June 1, beginning inventory was 14 units @ $42, a purchase was made June 2 for 4 units @ $69, a sale was made on June 7 for 7 units @ $111, and a final sale was made on June 13 for 5 units at $111. What amounts should the company report for ending inventory and cost of goods sold under the FIFO method and the LIFO method? (15 points) Which method would result in the lowest net income and tax if everything else is equal? How did you determine the method that would result in the lowest net income and tax? (10 points) (Points : 25)
1. (TCO 6) BagODonuts Company bought a used delivery truck on January 1, 2010, for $19,200. The van was expected to remain in service 4 years (30,000 miles). BagODonuts’ accountant estimated that the truck’s residual value would be $2,400 at the end of its useful life. The truck traveled 8,000 miles the first year, 8,500 miles the second year, 5,500 miles the third year, and 8,000 miles in the fourth year. 1. Calculate depreciation expense for the truck for each year (2010-2013) using the:a. Straight-line method.b. Double-declining balance method.c. Units of Production method. (For units-of-production and double-declining balance, round to the nearest two decimals after each step of the calculation.)2. Which method best tracks the wear and tear on the van? 3. Which method would BagODonuts prefer to use for income tax purposes? Explain in detail why BagODonuts prefers this method. (Points : 25)
2. (TCO 7) ABC Inc. was incorporated on 1/15/12. Their corporate charter authorized the following capital stock: Preferred Stock: 7%, par value $100 per share, 100,000 shares. Common Stock: $1 par value, 500,000 shares.The following transactions occurred during the year:1/19/12 – Issued 100,000 shares of common stock for $17 cash per share.1/31/12 – Issued 3,000 shares of preferred stock for $115 cash per share.11/1/12 – Repurchased 30,000 shares of common stock for $22 cash per share.12/1/12 – Declared and paid a total dividend of $95,000. Required: 1. Prepare the journal entry for each transaction listed above.2. In your own words, explain the main differences between common and preferred stock.(Points : 25)
3.(TCO 5) Internal Control Procedures are in place to protect the assets of every business as mentioned in the textbook and our discussions. Of the seven internal control procedures, list five of these controls and describe how each procedure is implemented. (5 points each with 2 points for listing and 3 points for a description) (Points : 25)
4. (TCO 2) Below are the accounts of Super Pool Service, Inc. The accounts have normal balances on June 30, 2012. The accounts are listed in no particular order.
Account Balance Common stock $5,100 Accounts payable $4,400 Service revenue $17,100 Land $28,800 Note payable $9,500 Cash $5,200 Dividends $6,100 Utilities expense $2,100 Accounts receivable $10,600 Delivery expense $700 Retained earnings $25,600 Salary expense $8,200
Prepare the company’s trial balance as of June 30, 2012, listing accounts in proper sequence, as illustrated in the chapter. For example, Accounts Receivable comes before Land. List the expense with the largest balance first, the expense with the next largest balance second, and so on.
(Points : 25)
5.
(TCO 4) Linda’s Lampshades started business on Jan. 1, 2001. They had the following inventory transactions:
Journals – Jan. 2001
Purchases
Supplier Date Received Quantity Unit Cost Amount
Donna 01/10/01 110 12.00 1320.00
Thomas 01/15/01 160 14.00 2240.00
Cindy 01/18/01 150 15.00 2250.00
Sales
Customer Date shipped Quantity Sel. Price Amount
Norilene 01/16/01 200 25.00 5000.001. Calculate the ending inventory, using the perpetual inventory method: A. Using FIFOB. Using LIFO
C. Using Average Cost
2. Prepare the following statement Using
FIFO LIFO Average Cost
Sales
Cost of Sales Gross Profit
(Points : 25)
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