Practice Exam 3 - Solution

Accounting 3000
Practice Final Exam Solutions
1. B
$180 million

4% = $7.2 million

2. D
This inventory should be excluded because it had not yet reached its destination, where
title passes.
3. C
4. C
These treasury bonds would be classified in current assets as short-term investments. If
purchased within three months of their maturity, they could be classified as cash
equivalents. The land should be reported in PPE (non-current assets) at $40,000.
5. D

6. C
The insurance premiums of $30,000 were charged in error to insurance expense on the
2008 income statements. The premiums should have been allocated equally at $10,000
per year for 2008, 2009, and 2010. Therefore, the beginning retained earnings at 2009 are
understated by $20,000. The corrected retained earnings would be the beginning balance
plus correction of the error ($200,000 + 12,000 = $220,000).
7. B
2003 depreciation expense: $100,000 x 20% = 20,000 x 9/12 = 15,000
2004 depreciation expense: $85,000 x 20% = 17,000
2005 depreciation expense: $68,000 x 20% = 13,600
Accumulated depreciation at the beginning of 2006: $45,600
Book value at the beginning of 2006 = $54,400
Depreciation expense for 2006 = (54,400 10,000) / 4 = 11,100
Book value at 12/31/06: $43,300.

Practice Exam 3 - Solution

8. A
9. D
10. A
Impairment test for Goodwill:
Step 1: Compare FV and BV of reporting unit. FV = 700 and BV = 580.
An impairment loss must be recognized if book value of the reporting unit acquired
exceeds it fair value. In this case, it does not, so no impairment loss is recognized.
11. D
12. B
13. A
The lump-sum purchase price ($80,000) should be allocated based on the relative
fair market values of the machines.
Machine A = (15,000/120,000) x $80,000 = $10,000.
Machine B = (60,000/120,000) x $80,000 = $40,000.
14. C

15. A

16. B
17. D

Practice Exam 3 - Solution

Sum of the years digits = (8*9)/2 = 36

3rd year of the assets useful life:
($120,000 salvage value) x (6/36) = $18,000 depreciation expense
Salvage value = $12,000
18. A
Goodwill is not amortized.
19. A
20. C
150% declining balance rate = 1.5 x straight-line rate (5%) = 7.5%
2006 depreciation expense:
Beg BV x 0.075 x 10/12 = 11,875.
Beg BV = 190,000 = assets cost.
21. B
Depletion in 2009 = ($164,000

20,000) = $8.20 per ton

4,000 = $32,800

22. B
23. B
24. A

Ending inventory is assumed to consist of 700 gallons from beginning inventory:

700 x $7.20 = $5,040

25. D
26. D
27. B
COGS is understated by $55,000 and depreciation expense is understated by 10,000, so
net income is overstated by $65,000.
28. B

Practice Exam 3 - Solution

Retained earnings was understated by $33,000 at the end of 2007. Net income is
overstated by $65,000 in 2008 (see above), so retained earnings will be overstated by
$32,000 at the end of 2008.
29. C
30. D
31. B
Salaries Payable
40,000
Cash paid for wages
(Reduction in liability)

1/1 Balance

165,000
143,000

Wages expense
(solve for this)

18,000

12/31 Balance

Salaries expense = $143,000

32. A
1/1 Balance
Purchased
12/31 Balance

Prepaid Insurance
6,000
$5,000
2,000

Insurance used = expense

(solve for this)

3,000

Insurance expense = $5,000.

33. D
34. B
35. B
36. D
Total equity increased by $124,000 (178,000 54,000). If capital stock went up by
$132,000, then retained earnings must have decreased by $8,000. If $26,000 of
dividends were paid, then net income must have been $18,000.
37. A
38. B
4

Practice Exam 3 - Solution

[(6,000,000 20%) 900,000] / 3 = 100,000 puzzles

100,000 ($3.50 $2.00) = $150,000

39. A
Since the exchange does not have commercial substance, Valley should record the new
equipment at the BOOK value of the equipment given up.
Journal entry would be:
Accumulated depreciation (old)
Equipment (new)
Equipment (old)

20,000
30,000
50,000

40. B

41. B
42. A
43. A
Gain (loss) = FV asset given up BV as asset given up