Final Exam Review SheetAccounting 284 – Spring 20101. What is the primary purpose of financial reporting?a. To provide useful economic information for decision making for internal managers and auditors.b. To provide useful economic information for internal decision makers.c. To provide useful economic information for internal and external decision makers and for assessing future cash flows.d. To provide useful financial data to the government for reporting purposes.2. Which of the following fulfills the cost principle?a. A truck is recorded at its fair market value rather than its cost at the date of transaction.b. A truck is recorded at its cost at the date of its transactionc. A truck is recorded at its cost at the date of its transaction, only if fair market value is above its costd. A truck is recorded at its cost at the date of its transaction, only if fair market value is below its cost.3. Which of the following is a principle of conservatism?a. Use the least optimistic measures when uncertainty exists about the value of an assetb. Record the asset at its fair market value determined by the accounting department when uncertainty existsc. Value the asset based on the personal judgment of the company’s managementd. Do not record the asset if uncertainty exists regarding its value.4. All of the following would fulfill the balance sheet equation, except?a. Cash +50,000 & Accounts Payable +$50,000b. Equipment +50,000 & Notes Payable +50,000c. Inventory +20,000 & Cash -$20,000d. Inventory +20,000 & Accounts Receivable +20,0005. Prepaid Insurance is what type of an account and what is it used for?a. A current liability used to record insurance that is owedb. A current asset used to record insurance paid upfrontc. A current asset used to record insurance that will be received in the futured. A current liability used to signify that insurance would become an expense in the near future6. Unearned Service Revenue is what type of an account and what does it represent?a. Current liability account that represents cash received but revenue not performed.b. Current liability account that represents revenue performed but cash not received.c. Current asset account that represents revenue performed but cash not received.d. Current asset account that represents unearned revenue that would be earned in less than a year.7. Under the accrual basis of accounting..a. Revenues are recognized when cash is receivedb. Expenses are expensed when cash is paidc. Revenue is recognized when earned and expenses recognize when incurred.d. Revenue and expenses are both recognized when cash is collected or paid.8. On November 1st, 2010 Sam paid $2,400 for insurance that would cover 2 years. What is his insurance expense in 2010?a. $2,400b. $1,200c. $200d. $1009. Assuming the same information from Question 8, what would the asset/liability forSam at the end of 2010?a. Asset – Prepaid Insuranceb. Liability – Prepaid Insurancec. Asset – Unearned Insurance revenued. Liability – Prepaid expense10. Sophia received cash amounting to $4,000 for services yet to be performed on September 31st, 2010. The services would be performed over the 12 months beginning October 01, 2010. What is the asset / liability for Sophia at the end of December 31, 2010?a. Liability of $4,000b. Liability of $3,000c. Asset of $3,000d. Asset of $1,00011. Cyclone Inc. has $15,000 in credit sales. The beginning balance in the Allowance for Doubtful Accounts is $100. Assuming cyclone Inc uses the Income Statement method of estimating bad debt expense, and estimates 2% of all credit sales to be bad debt, what would its bad debt expense be?a. $200b. $300c. $100d. $40012. Assume Hawkeye Inc uses the Allowance method (Balance sheet method) for estimating its bad debt expense. Its sales amounted to $400,000 of which $200,000are cash sales. The beginning balance in its Allowance for Doubtful accounts is$2,000. If Hawkeye estimates bad debt expense to be 5% of credit sales, what is the amount of bad debt expense to be recorded?a. $10,000b. $8,000c. $2,000d. $200,00013. Beginning Inventory for C-Corporation is $20,000. It had purchases amounting to $40,000 Ending Inventory was $10,000. Determine the amount of cost of goods sold.a. $60,000b. $50,000c. $10,000d. $30,00014. Micah sells goods worth $650,000 to James with terms 2/10, n30 on January 1st, 2010. OnJanuary 15th, James returns damaged goods to Micah amounting to $200,000. Subsequently, on January 20th, James paid the balances due to Micah. What was the amount of net sales for Micah?a. $441,000b. $450,000c. $437,000d. $600,00015. March 1 – Inventory balance on hand is $10,000 (1000 units of inventory) 6 – Purchased 200 units @ $10.00 each 7 – Sold 500 units @ $12.00 each 8 – Purchased 200 units @ $11 each 19 – Sold 300 units @ $15.00 eachAssuming the LIFO inventory method, what is cost of goods sold?a. $8000b. $8,200c. $8,400d. $7,80016. Assuming the LIFO inventory method in the above question, what would gross profit be?a. $2000b. $2300c. $2400d. $280017. Which inventory method would generally produce the lowest cost of goods sold?a. FIFOb. LIFOc. Weighted averaged. Specific identification18. A machine was purchased for $100,000 and its estimated life was 5 years with a salvage value at the end of its life of $2,000. If the straight-line method is used, what would the book value of the machine be at the end of the 2nd year?a. $60,000b. $60,200c. $58,000d. $60,80019. Equipment is depreciated using the double declining balance method, its salvage value is $2,000 and its estimated useful life is 10 years . Assume the book value of the equipmentis $128,000 at the end of its 2nd year’s life. Calculate depreciation expense for the third year. a. $12,600b. $25,600c. $40,000d. Cannot be determined with the provided information20. Jim Corporation issued bonds with face value of $200,000 at 210,000 with interest payable at the end of the year. The coupon rate was 6% while the market rate for bonds were 5%. The bonds are dated January 1st 2010, and are due in 5 years. What is interest expense on the bond in the 2nd year?a. $10,500b. $1,575c. $10,425d. $$12,60021. On January 1st, 2010 Sams Corporation purchased bonds with a face value of $550,000 at 76. The bonds have a stated rate of 2% that is due in 5 years with interest payable annualy. Interest rate in the market at that time was 8%. What is the carrying value of thebond at the end of the first year?a.