accounting 221

ACCT 221 Final Exam Sp13 VerA

1

Final Examination
Principles of Accounting lI

ACCT 221
Spring 2013

Administrative Notes:

 You may use a calculator, your textbook, WileyPLUS resources, and
anything posted in our WebTycho classroom.

 There are multiple versions of the final exam. You must complete the exam
attached in the private message sent to you.

 The exam period is 4 days, but the exam must be completed and submitted
within 3 hours of the time you open the private message that contains your
exam.

 Type all answers on the Answer Sheet, which is also attached to the Private
Message.

 Attach your completed Answer Sheet in your assignment folder in
WebTycho.

 Late submissions will be penalized 10% per hour and any portion of an hour.

ACCT 221 Final Exam Sp13 VerA 2

Multiple Choice: 2 points each

1. On January 1, 2013, Daniels Corporation issued $5,000,000, 10-year, 8% bonds

at 103. Interest is payable semiannually on January 1 and July 1. The journal
entry to record this transaction on January 1, 2013 is

a. Cash …………………………………………………………………. 5,000,000
Bonds Payable …………………………………………….. 5,000,000

b. Cash …………………………………………………………………. 5,150,000
Bonds Payable …………………………………………….. 5,150,000

c. Premium on Bonds Payable …………………………………. 150,000
Cash …………………………………………………………………. 5,000,000
Bonds Payable …………………………………………….. 5,150,000

d. Cash …………………………………………………………………. 5,150,000
Bonds Payable …………………………………………….. 5,000,000
Premium on Bonds Payable ………………………….. 150,000

2. Levin Company issued 500 shares of no-par common stock for $5,500. Which of

the following journal entries would be made if the stock has a stated value of
$2 per share?

a. Cash 5,500
Common Stock 5,500

b. Cash 5,500
Common Stock 1,000
Paid-in Capital in Excess of Par 4,500

c. Cash 5,500
Common Stock 1,000
Paid-in Capital in Excess of Stated Value 4,500

d. Common Stock 5,500
Cash 5,500

ACCT 221 Final Exam Sp13 VerA 3

3. Motes industries owns 45% of Newton Company. For the current year, Newton
reports net income of $250,000 and declares and pays a $60,000 cash
dividend. Which of the following correctly presents the journal entries to
record Motes’ equity in Newton’s net income and the receipt of dividends
from Newton?

a. Dec. 31 Stock Investments …………………….. 112,500
Revenue from Stock Investments 112,500
Dec. 31 Cash ………………………………………… 27,000
Stock Investments ……………….. 27,000

b. Dec. 31 Stock Investments ……………………… 112,500
Revenue from Stock Investments 112,500

Dec. 31 Cash …………………………………………. 60,000
Stock Investments ………………… 60,000

c. Dec. 31 Stock Investments …………………….. 85,500
Revenue from Stock Investments 85,500
Dec. 31 Cash …………………………………………. 27,000
Stock Investments ………………… 27,000

d. Dec. 31 Revenue from Stock Investments 112,500
Stock Investments …………………………………….. 112,500
Dec. 31 Stock Investments ……………………… 27,000
Cash …………………………………. 27,000

4. Talbot, Inc. has the following income statement (in millions):

Wilkinson, INC.
Income Statement
For the Year Ended December 31, 3
Net Sales $300
Cost of Goods Sold 120
Gross Profit 180
Operating Expenses 44
Net Income $136

Using vertical analysis, what percentage is assigned to Cost of Goods Sold?

a. 30%
b. 40%
c. 100%
d. None of the above

ACCT 221 Final Exam Sp13 VerA 4

5. Mah, Inc. completed Job No. B14 during 2013. The job cost sheet listed the

following:
Direct materials $55,000
Direct labor $30,000
Manufacturing overhead applied $20,000
Units produced 3,000 units
Units sold 1,800 units

How much is the cost of the finished goods on hand from this job?

a. $105,000
b. $63,000
c. $42,000
d. $51,000

6. In the month of June, a department had 20,000 units in beginning work in
process that were 70% complete. During June, 80,000 units were transferred
into production from another department. At the end of June there were
10,000 units in ending work in process that were 40% complete. Materials
are added at the beginning of the process, while conversion costs are
incurred uniformly throughout the process. The equivalent units of production
for materials for June were

a. 90,000 equivalent units.
b. 100,000 equivalent units.
c. 104,000 equivalent units.
d. 80,000 equivalent units.

7. A company budgeted unit sales of 204,000 units for January, 2013 and 240,000

units for February, 2013. The company has a policy of having an inventory of
units on hand at the end of each month equal to 30% of next month’s
budgeted unit sales. If there were 61,200 units of inventory on hand on
December 31, 2013, how many units should be produced in January, 2013 in
order for the company to meet its goals?

a. 214,800 units
b. 204,000 units
c. 193,200 units
d. 276,000 units

ACCT 221 Final Exam Sp13 VerA 5

8. A company’s planned activity level for next year is expected to be 200,000

machine hours. At this level of activity, the company budgeted the following
manufacturing overhead costs:

Variable Fixed
Indirect materials $280,000 Depreciation $120,000
Indirect labor 400,000 Taxes 20,000
Factory supplies 40,000 Supervision 100,000

A flexible budget prepared at the 160,000 machine hours level of activity
would show total manufacturing overhead costs of

a. $576,000.
b. $720,000.
c. $768,000.
d. $816,000.

9. A company developed the following per-unit standards for its product: 2 pounds

of direct materials at $4 per pound. Last month, 1,500 pounds of direct
materials were purchased for $5,700. The direct materials price variance for
last month was

a. $5,700 favorable.
b. $300 favorable.
c. $150 favorable.
d. $300 unfavorable.

10. In incremental analysis,

a. costs are not relevant if they change between alternatives.
b. all costs are relevant if they change between alternatives.
c. only fixed costs are relevant.
d. only variable costs are relevant.

ACCT 221 Final Exam Sp13 VerA 6

Problem 1: 15 points

Here are comparative balance sheets for Doherty Company.

Doherty Company
Comparative Balance Sheets

December 31, 2013

Assets 2013 2012

Cash $ 33,000 $ 10,000

Accounts receivable 18,000 14,000

Inventories 25,000 18,000

Prepaid expenses 6,000 9,000

Long-term investments 0 18,000

Equipment 60,000 32,000

Accumulated depreciation—Equipment (20,000) (14,000)

Total assets $ 122,000 $ 87,000

Liabilities and Stockholder’s Equity

Accounts payable $ 17,000 $ 7,000

Bonds payable 37,000 47,000

Common stock ($1 par) 40,000 23,000

Retained earnings 28,000 10,000

Total liabilities and stockholder’s equity $ 122,000 $ 87,000

Additional information:
1. The 2013 Income Statement reported $6,000 in depreciation expense, a $4,000 loss on
sale of investments and Net income of $33,000.
2. Cash dividends of $15,000 were declared and paid.
3. Long-term investments that has a cost of $18,000 were sold for $14,000
4. Sales for 2013 were $120,000.

Instructions: Prepare a statement of cash flows for 2013 using the indirect method.

ACCT 221 Final Exam Sp13 VerA 7

Doherty Company
Statement of Cash Flows

For the Year Ended December 31, 2013

Adjustments to reconcile net income to net cash provided
by operating activities

ACCT 221 Final Exam Sp13 VerA 8

Problem 2: 10 points
Nemani Corporation is projecting a cash balance of $31,785 in its December 31,
2013, balance sheet. Nemani schedule of expected collections from customers for
the first quarter of 2013 shows total collections of $180,885. The schedule of
expected payments for direct materials for the first quarter of 2013 shows total
payments of $40,200. Other information gathered for the first quarter of 2013 is:
sale of equipment $3,392; direct labor $70,178, manufacturing overhead $34,583,
and purchase of securities $12,372. Selling and administrative expenses are
projected to be $45,117; this figure includes $1,117 in depreciation expense on the
office equipment. All costs and expenses will be paid in cash. Nemani wants to
maintain a balance of at least $25,000 cash at the end of each quarter.

Instructions: Complete the cash budget for the first quarter.

Nemani Corporation
Cash Budget

For the Quarter Ending March 31, 2013

ACCT 221 Final Exam Sp13 VerA 9

Problem 3: 10 points

Elias Corporation has the following cost records for February 2013.

Indirect factory labor $ 4,612 Factory utilities $ 401
Direct materials used 22,361 Depreciation, factory equipment 1,585
Work in process, 6/1/12 2,769 Direct labor 31,084
Work in process, 6/30/12 3,633 Maintenance, factory equipment 1,792
Finished goods, 6/1/12 4,609 Indirect materials 2,268
Finished goods, 6/30/12 7,429 Factory manager’s salary 3,315

Instructions: Prepare a cost of goods manufactured schedule for February 2013.

Elias Corporation
Cost of Goods Manufactured Schedule

For the Month Ended June 30, 2013

Manufacturing overhead:

ACCT 221 Final Exam Sp13 VerA 10

Problem 4: 4 points
Willis Corporation has 72,615 shares of common stock outstanding. It declares a
$2.20 per share cash dividend on August 1 to stockholders of record on September
15. The dividend is paid on October 31.

Instructions: Prepare the entries on the appropriate dates to record the declaration
and payment of the cash dividend.

Date Account Description Debit Credit

Problem 5: 10 points
Caballero Manufacturing incurs unit costs of $7.90 ($6.10 variable and $1.80 fixed)
in making a sub-assembly part for its finished product. A supplier offers to make
12,500 of the assembly part at $5.75 per unit. If the offer is accepted, Caballero will
save all variable costs but no fixed costs.

Instructions: Prepare an analysis showing the total cost savings, if any, Caballero
will realize by buying the part.

Make Buy

Total annual cost

Caballero Company should _______________ the part because total annual costs to
make are less than total costs to buy.

ACCT 221 Final Exam Sp13 VerA 11

Problem 6: 5 points
On July 1, Browning Corporation purchases 550,000 shares of its $6 par value
common stock for the treasury at a cash price of $10 per share. On September 1, it
sells 275,000 shares of the treasury stock for cash at $13 per share. The balance
in the retained earnings account is $6,345,000.

Instructions: Journalize the two treasury stock transactions.

Date Account Description Debit Credit

Problem 7: 4 points
Johnson Company has a unit-selling price of $450, variable costs per unit of $269,
and fixed costs of $265,580.

Instructions: Compute the break-even point in units using either (a) the
mathematical equation or (b) contribution margin per unit. Round answer up to the
next whole unit.

ACCT 221 Final Exam Sp13 VerA 12

Problem 8: 10 points
Holmes Company has a factory machine with a book value of $89,851 and a
remaining useful life of 4 years. A new machine is available at a cost of $315,275.
This machine will have a 4-year useful life with no salvage value. The new machine
will lower annual variable manufacturing costs from $630,925 to $425,840.

Instructions: Prepare an analysis showing whether the old machine should be
retained or replaced.

Retain Equipment Replace Equipment

Total costs

The equipment should be _______________ because total costs are lower than to
retain the machine.

Problem 9: 6 points
For Perez Company, variable costs are 68% of sales, and fixed costs are $215,000.
Management’s net income goal is $68,610.

Instructions: Compute the required sales needed to achieve management’s target
net income of $68,610.

ACCT 221 Final Exam Sp13 VerA 13

Essay Question: 6 points
Keller Company requires its marketing managers to submit estimated cost-volume-
profit data on all requests for new products, or expansions of a product line.
Gina Lamb is a new manager. Her calculations show a fixed cost for a new project
at $100,000 and a variable cost of $5. Since the selling price is only $15 for the
proposed product, 10,000 would need to be sold to break even. That is
approximately twice the volume estimate for the first year. She shares her dismay
with Anne Smythe, another manager.
Anne strongly advises her to revise her estimates. She points out that several of the
costs that had been classified as fixed costs could be considered variable, since
they are step costs and mixed costs. When the data has been revised classifying
those costs as variable costs, the project appears viable.

Required:
1. Who are the stakeholders in this decision?

2. Is it ethical for Gina to revise the costs as indicated? Briefly explain.

3. What should Gina do?