ACCTG 215 Autumn 2013 1 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: _________________________________ Date: _____________________ (Signature required) Multiple Choice Answers: 1 B 2 E 3 D 4 A 5 D 6 C 7 A 8 D 9 E 10 D Quantitative Answers: 11 $75,000 12 7.0% 13 $112,500 14 $18,000ACCTG 215 Autumn 2013 2ACCTG 215 Autumn 2013 3 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 12,000 Cash 12,000 B. Interest Expense 1,000 Interest Payable 2,000 Cash 3,000 C. Interest Expense 1,000 Interest Payable 11,000 Cash 12,000 D. Interest Expense 3,000 Cash 3,000 E. Interest Expense 1,500 Interest Payable 1,500 Cash 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. At least remotely possible and the amount of the gain is known. B. Probable and the amount of the gain can be reasonably estimated. C. At least reasonably possible and the amount of the gain is known. D. 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: EACCTG 215 Autumn 2013 4 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. 1 only B. 3 only C. 1 & 3 only D. 2 & 3 only E. 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. No impairment loss should be recorded. B. $900 C. $5,500 D. $1,100 E. $6,500 Answer: AACCTG 215 Autumn 2013 5 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 $75,000 Groundbreaking ceremony to boost employee morale $12,000 Proceeds from sale of demolition scrap $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 $350,000 Demolition costs 75,000 Sale of scrap (10,000) Total cost of land $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. A decrease in Husky’s working capital B. No effect on Husky’s accounts payable turnover ratio C. An increase in Husky’s accounts payable turnover ratio D. A decrease in Husky’s fixed asset turnover ratio E. 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 increasesACCTG 215 Autumn 2013 6 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. $24,920 B. $29,920 C. $ 8,520 D. $ 5,000 E. Cardinal Inc. did not record any goodwill. Answer: A Purchase price $103,520 Less: Fair value of net assets Assets: $95,000 Less: Liabilities assumed (16,400) (78,600) Goodwill $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.