ACCTG 215 Autumn 2013 Quiz 3 Name Student Number TA Quiz Section Time Instructions There are 10 multiple choice questions and 4 quantitative questions on the following pages Your final answers must be entered in the spaces provided on this cover page in order to be graded Code of Conduct By signing below you acknowledge that you are a member of a learning community at the Foster School of Business that is committed to the highest academic standards and that you adhered to these standards while completing this quiz Specific to this quiz by signing below you acknowledge that you did not receive or give help to others nor did you witness others receiving or giving help to others during the quiz By signing below I affirm that I have not received assistance from any other student that I have not provided assistance to any other students and that I have not witnessed any students acting unethically during the administration of this quiz Signature Signature required Date Multiple Choice Answers 1 2 B 3 E 6 D 7 C 4 8 A 5 A 9 D D 10 E D Quantitative Answers 11 12 75 000 13 7 0 14 112 500 18 000 1 ACCTG 215 Autumn 2013 2 ACCTG 215 Autumn 2013 Multiple Choice Questions 1 point each Be sure to record your answers in the spaces provided on the cover sheet 1 On February 1 2011 Sun Devil Inc borrows 100 000 cash from the Beaver Bank on a four year 12 stated annual rate note payable The interest is payable quarterly on May 1 August 1 November 1 and February 1 Sun Devil has a December 31st year end What journal entry will Sun Devil Inc make when it pays the interest due to Beaver Bank on February 1 2012 A Interest Expense Cash 12 000 B Interest Expense Interest Payable Cash 1 000 2 000 C Interest Expense Interest Payable Cash 1 000 11 000 D Interest Expense Cash 3 000 E Interest Expense Interest Payable Cash 1 500 1 500 12 000 3 000 12 000 3 000 3 000 Answer B Interest accrued but not paid as of 12 31 11 0 12 100 000 2 12 2 000 Interest expensed and paid on 2 1 12 0 12 100 000 1 12 1 000 Total cash paid on 2 1 12 0 12 100 000 3 12 3 000 2 Under U S GAAP a gain contingency should be recognized in a company s financial statements only if the likelihood that an asset will be earned is A B C D At least remotely possible and the amount of the gain is known Probable and the amount of the gain can be reasonably estimated At least reasonably possible and the amount of the gain is known At least reasonably possible and the amount of the gain can be reasonably estimated E None of the above We recognize gains when they are realized Answer E 3 ACCTG 215 Autumn 2013 3 Which of the following statements are true 1 All else equal a company that classifies a lease agreement as an operating lease will have more debt recorded on its balance sheet relative to a company that classifies the same lease agreement as a capital lease 2 If the lease term is 75 or more of the asset s expected economic life then the lease should be recorded as a capital lease 3 If ownership of the asset is transferred to the lessee at the end of the lease term then the lease should be recorded as a capital lease A B C D E 1 only 3 only 1 3 only 2 3 only 1 2 3 Answer D 4 Buffalo Circus circus tent was originally purchased for 10 000 After recording depreciation for the year the balance in accumulated depreciation related to the circus tent is 5 600 Also at year end Buffalo Circus determines that the circus tent had estimated future cash flows of 4 500 and a fair value of 3 500 Should Buffalo Circus realize any impairment loss If so in what amount A B C D E No impairment loss should be recorded 900 5 500 1 100 6 500 Answer A 4 ACCTG 215 Autumn 2013 5 On July 1 2010 Wildcat Co spent 350 000 on land that is intended to be the site of a new office complex Wildcat hopes to occupy the land for the next 20 years Wildcat incurred additional costs and realized salvage proceeds during 2010 as follows Demolition of existing building on site Groundbreaking ceremony to boost employee morale Proceeds from sale of demolition scrap 75 000 12 000 10 000 What would be the balance in the land account as of December 31 2010 A 425 000 B 437 000 C 427 000 D 415 000 E There is not enough information to answer this question Answer D Purchase price Demolition costs Sale of scrap Total cost of land 350 000 75 000 10 000 415 000 6 On the last day of the year Husky Hardware sold inventory that cost 50 000 for 100 000 cash All else equal this transaction has the following effect A B C D E A decrease in Husky s working capital No effect on Husky s accounts payable turnover ratio An increase in Husky s accounts payable turnover ratio A decrease in Husky s fixed asset turnover ratio No effect on Husky s working capital Answer C Current assets increase by 50 000 no change in current liabilities increase in working capital Sales Revenue increases Fixed Asset Turnover ratio increases COGS increases accounts payable turnover ratio increases 5 ACCTG 215 Autumn 2013 7 The balance sheet of Cougar Company shows assets of 90 000 and liabilities of 16 400 The fair market value of the assets is 95 000 and the fair market value of the liabilities is 16 400 Cardinal Inc paid Cougar Company 103 520 to acquire it Cardinal Inc recorded goodwill on this purchase of A B C D E 24 920 29 920 8 520 5 000 Cardinal Inc did not record any goodwill Answer A Purchase price Less Fair value of net assets Assets 95 000 Less Liabilities assumed 16 400 Goodwill 103 520 78 600 24 920 8 Ducks Co spends resources each period on researching and developing intangible assets R D Under U S GAAP Ducks Co should A Expense research costs but capitalize measurable costs of developing intangible assets B Expense all costs of researching and developing intangible assets in the period the R D efforts are determined to be unsuccessful C Capitalize all costs of researching and developing intangible assets D Expense all costs of researching and developing intangible assets E Expense all costs of researching and developing intangible assets that are unsuccessful capitalize R D costs of intangible assets that are successful Answer D 6 ACCTG 215 Autumn 2013 9 On December 31 2011 Rose Bowl Gardening bought new gardening supplies Rose Bowl elected to finance the purchase with a note payable to be paid off in four years in annual installments …