Multiple choice

Use the following information for questions 1 and 2.

The following information was available from the inventory records of Rich Company for January:
Units Unit Cost Total Cost
Balance at January 1 3,000 $9.77 $29,310
Purchases:
January 6 2,000 10.30 20,600
January 26 2,700 10.71 28,917

Sales:
January 7 (2,500)
January 31 (4,000)
Balance at January 31 1,200

1. Assuming that Rich does not maintain perpetual inventory records, what should be the inventory at January 31, using the weighted-average inventory method, rounded to the nearest dollar?
a. $12,606.
b. $12,284.
c. $12,312.
d. $12,432.

2. Assuming that Rich maintains perpetual inventory records, what should be the inventory at January 31, using the moving-average inventory method, rounded to the nearest dollar?
a. $12,606.
b. $12,284.
c. $12,312.
d. $12,432.

Use the following information for questions 3 and 4..

Niles Co. has the following data related to an item of inventory:
Inventory, March 1 100 units @ $4.20
Purchase, March 7 350 units @ $4.40
Purchase, March 16 70 units @ $4.50
Inventory, March 31 130 units

3. The value assigned to ending inventory if Niles uses LIFO is
a. $579.
b. $552.
c. $546.
d. $585.

4. The value assigned to cost of goods sold if Niles uses FIFO is
a. $579.
b. $552.
c. $1,723.
d. $1,696.
5-Asset classification.
Below is a list of items. Classify each into one of the following balance sheet categories:

a. Cash c. Short-term Investments
b. Receivables d. Other

1. Compensating balances held in long-term borrowing arrangements

2. Savings account

3. Trust fund

4. Checking account

5. Postage stamps

6. Treasury bills maturing in six months

7. Post-dated checks from customers

8. Certificate of deposit maturing in five years

9. Common stock of another company (to be sold by December 31, this year)

10. Change fund

6.Allowance for doubtful accounts.
When a company has a policy of making sales for which credit is extended, it is reasonable to expect a portion of those sales to be uncollectible. As a result of this, a company must recognize bad debt expense. There are basically two methods of recognizing bad debt expense: (1) direct write-off method, and (2) allowance method.

Instructions
(a) Describe fully both the direct write-off method and the allowance method of recognizing bad debt expense.
(b) Discuss the reasons why one of the above methods is preferable to the other and the reasons why the other method is not usually in accordance with generally accepted accounting principles.

7.-Entries for bad debt expense.
A trial balance before adjustment included the following:
Debit Credit
Accounts receivable $80,000
Allowance for doubtful accounts 730
Sales $340,000
Sales returns and allowances 8,000

Give journal entries assuming that the estimate of uncollectibles is determined by taking (1) 5% of gross accounts receivable and (2) 1% of net sales.

8.-Present value of an investment in equipment. (Tables needed.)
Find the present value of an investment in equipment if it is expected to provide annual savings of $10,000 for 10 years and to have a resale value of $25,000 at the end of that period. Assume an interest rate of 9% and that savings are realized at year end.

9-Future value of an annuity due. (Tables needed.)
If $4,000 is deposited annually starting on January 1, 2010 and it earns 9%, how much will accumulate by December 31, 2019?

10.-Present value of an annuity due.(Tables needed.)
How much must be invested now to receive $20,000 for ten years if the first $20,000 is received today and the rate is 8%?

11.-Compute the annual rent. (Tables needed.)
Crone Co. has machinery that cost $80,000. It is to be leased for 15 years with rent received at the beginning of each year. Crone wants a return of 10%. Compute the amount of the annual rent.

12.-Calculate market price of a bond. (Tables needed.)
Determine the market price of a $200,000, ten-year, 10% (pays interest semiannually) bond issue sold to yield an effective rate of 12%.
13.-Definitions.
Provide clear, concise answers for the following.
1. What are assets?
2. What are liabilities?
3. What is equity?
4. What are current liabilities?
5. Explain what working capital is and how it is computed.
6. What are intangible assets?
7. What are current assets?

14.-Terminology.
In the space provided at right, write the word or phrase that is defined or indicated.

1. Obligations expected to be liquidated 1.
through use of current assets.

2. Statement showing financial condition at a 2.
point in time.

3. Events that depend upon future outcomes. 3.

4. Probable future sacrifices of economic 4.
benefits.

5. Resources expected to be converted to 5.
cash in one year or the operating cycle,
whichever is longer.

6. Resources of a durable nature used in 6.
operations.

7. Economic rights or competitive advantages 7.
which lack physical substance.

8. Probable future economic benefits. 8.

9. Residual interest in the net assets of an 9.
entity.

15.-Current assets.
Define current assets without using the word "asset."

16-Account classification.
ASSETS LIABILITIES AND CAPITAL
a. Current assets f. Current liabilities
b. Investments g. Long-term liabilities
c. Plant and equipment h. Preferred stock
d. Intangibles i. Common stock
e. Other assets j. Additional paid-in capital
k. Retained earnings
l. Items excluded from balance sheet

Using the letters above, classify the following accounts according to the preferred and ordinary balance sheet presentation.

1. Bond sinking fund
2. Common stock distributable
3. Appropriation for plant expansion
4. Bank overdraft
5. Bonds payable (due 2013)
6. Premium on common stock
7. Securities owned by another company which are collateral for that company's note
8. Trading securities
9. Inventory
10. Unamortized discount on bonds payable
11. Patents
12. Unearned revenue
17-Valuation of Balance Sheet Items.
Use the code letters listed below (a - l) to indicate, for each balance sheet item (1 - 13) listed below the usual valuation reported on the balance sheet.
1. Common stock 8. Long-term bonds payable
2. Prepaid expenses 9. Land (in use)
3. Natural resources 10. Land (future plant site)
4. Property, plant, and equipment 11. Patents
5. Trade accounts receivable 12. Trading securities
6. Copyrights 13. Trade accounts payable
7. Merchandise inventory

a. Par value
b. Current cost of replacement
c. Amount payable when due, less unamortized discount or plus unamortized premium
d. Amount payable when due
e. Market value at balance sheet date
f. Net realizable value
g. Lower of cost or market
h. Original cost less accumulated amortization
i. Original cost less accumulated depletion
j. Original cost less accumulated depreciation
k. Historical cost
l. Unexpired or unconsumed cost