Kaplan AC 501 Unit 3 Midterm Exam with Correct Solutions

AC501: Financial Accounting and ReportingUnit 3 Midterm ExamP3-3(Adjusting Entries)A review of the ledger of Oklahoma Company at December 31, 2008, produces the following data pertaining to the preparation of annual adjusting entries.(1) Salaries Payable $0. There are eight salaried employees. Salaries are paid every Friday for the current week. Five employees receive a salary of $700 each per week, and three employees earn $500 each per week. December 31 is a Tuesday. Employees do not work weekends. All employees worked the last 2 days of December.(2) Unearned Rent Revenue $ 369,000. The company began subleasing office space in its new building on November 1. Each tenant is required to make a $ 5,000 security deposit that is not refundable until occupancy is terminated. At December 31, the company had the following rental contracts that are paid in full for the entire term of the lease.Date Term(in months) Monthly Rent Number ofLeasesNov. 1 6 $ 4,000 5Dec. 1 6 $ 8,500 4(3) Prepaid Advertising $ 13,200. This balance consists of payments on two advertising contracts. The contracts provide for monthly advertising in two trade magazines. The term of the contracts are shown at the top of page 135.Contract Date Amount Number ofA650 May 1 $ 6,000 12B974 Oct. 1 $ 7,200 24The first advertisement runs in the month in which the contract is signed.(4) Notes Payable $ 80,000. This balance consists of a note for one year at an annual interest rate of 12%, dated June 1.InstructionsPrepare the adjusting entries at December 31, 2008. (Show all computations).P4-2(Balance Sheet Preparation)Presented below are a number of balance sheet items for Letterman Inc., for the current year, 2008.Goodwill $ 125,000 Accumulated depreciation-equipment $ 292,000Payroll taxes payable 177, 591 Inventories 239,800Bonds payable 300,000 Rent payable—short-term 45,000Discount on bonds payable 15,000 Taxes payable 98,362Cash 360,000 Long-term rental obligations 480,000Land 480,000 Common stocks, $ 1 par value 200,000Notes receivable 545,700 Preferred stock, $ 10 par value 150,000Notes payable to banks 265,000 Prepaid expenses 87,920Accounts payable 590,000 Equipment 1,470,000Retained earnings ? Trading securities 121,000Income taxes receivable 97,630 Accumulated depreciation-building 170,200Unsecured notes payable (long-term) 1,600,000 Building 1,640,000InstructionsPrepare a classified balance sheet in good form. Common stock authorized was 400,000 shares, and preferred stock authorized was 20,000 shares. Assume that notes receivable and notes payable are short-term, unless stated otherwise. Cost and fair value of trading securities are the same.P5-1(Multiple-Step Income, Retained Earnings)Presented below is information related to P. J. Harvey Company for 2008.Retained earnings balance, January 1, 2008 $ 980,000Sales for the year 25,000,000Cost of goods sold 17,000,000Interest revenue 70,000Selling and administrative expense 4,700,000Write-off of goodwill (not tax deductible) 820,000Income taxes for 2008 905,000Gain on the sale of investments (normal recurring) 110,000Loss due to flood damage-extraordinary item (net of tax) 390,000Loss on the disposition of the wholesale division (net of tax) 440,000Loss on operations of the wholesale division (net of tax) 90,000Dividends declared on common stock 250,000Dividends declared on preferred stock 70,000InstructionsPrepare a multiple-step income statement and a retained earnings statement. P. J. Harvey Company decided to discontinue its entire wholesale operations and to retain its manufacturing operations. On September 15, P. J. Harvey sold the wholesale operations to Rogers Company. During 2008, there were 300,000 shares of common stock outstanding all year.P8-2 (Bad-Debt Reporting)Presented below are a series of unrelated situations.(1) Spock Company’s unadjusted trial balance at December 31, 2008, included the following accounts.Debit CreditAllowance for doubtful accounts $ 4,000 Net Sales $ 1,5000,000Spock Company estimates its bad debt expense to be 1 ½% of net sales. Determine its bad debt expense for 2008.(2) An analysis and aging of Scotty Corp. accounts receivable at December 31, 2008, disclosed the following:Amounts estimated to be uncollectible $ 180,000Accounts receivable 1,750,000Allowance for doubtful accounts (per Books) 125,000What is the net realizable value of Scotty’s receivable at December 31, 2008?(3) Uhura Co. provides for doubtful account based on 3% of credit sales. The following data are available for 2008.Credit sales during 2008 $ 2,100,000Allowance for doubtful accounts 1/1/08 17,000Collection of accounts written off in prior years(customer credit was reestablished) 8,000Customer accounts written off as uncollectible during 2008 30,000What is the balance in the Allowance for Doubtful Accounts at December 31, 2008?(4) At the end of the first year of operations, December 31, 2008, Chekov Inc. reported the following information.Accounts receivable, net of allowance for doubtful accounts $ 950,000Customer accounts written off as uncollectible during 2008 24,000Bad debt expense for 2008 84,000What should be the balance in accounts receivable at December 31, 2008, before subtracting the allowance for doubtful accounts?(5) The following accounts were taken from Chappel Inc.’s trial balance at December 31, 2008.Debit CreditNet credit sales $ 750,000Allowance for doubtful accounts $ 14,000 Accounts receivable 410,000If doubtful accounts are 3% of accounts receivable, determine the bad debt expense to be reported for 2008.InstructionsAnswer the questions related to each of the five independent situations as requested.P9-6 (Dollar-Value LIFO)Falcon’s Televisions Produces television sets in three categories: portable, mid-size, and flatscreen. On January 1, 2007, Falcon adopted dollar-value LIFO and decided to use a single inventory pool. The company’s January 1 inventory consists of:Category Quantity Cost per Unit Total CostPortable 6,000 $ 100 $ 600,000Midsize 8,000 250 2,000,000Flatscreen 3,000 400 1,200,00017,000 $ 3,800,000During 2007, the company had the following purchases and sales.Category QuantityPurchased Cost per Unit QuantitySold Selling PricePer UnitPortable 15,000 $ 120 14,000 $ 150Midsize 20,000 300 24,000 405Flatscreen 10,000 460 6,000 60045,000 44,000Instructions(Round to four decimals.)(a) Compute ending inventory, cost of goods sold, and gross profit.(b) Assume the company uses three inventory pools instead of one, Repeat instruction (a).

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