ACCT221 Final Exam Fall 2015

Final Examination
Principles of Accounting lI
ACCT 221
Fall 2012
Administrative Notes:
• You may
use a calculator, your textbook, Wiley PLUS resources, and anything posted in
our Web Tycho 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
Web Tycho.
• Late
submissions will be penalized 10% per hour or any portion of an hour.

Problem 1: 10 points
Johnson Manufacturing incurs unit costs of $7.88 ($ 5.09
variable and $ 2.79 fixed) in making a sub-assembly part for its finished
product. A supplier offers to make 12,600 of the assembly part at $5.54 per
unit. If the offer is accepted, Johnson will save all variable costs but no
fixed costs.
Instructions: Prepare an analysis showing the total cost
savings, if any, Johnson will realize by buying the part. Explain why Johnson
Company should continue to make or buy the part.
Place your answer on the Answer Sheet.
Problem 2: 4 points
Willis Company has a unit-selling price of $442, variable
costs per unit of $263, and fixed costs of $267,605.
Instructions: Compute the break-even point in units using
either (a) the mathematical equation or (b) contribution margin per unit.
Place your answer on the Answer Sheet.
Problem 3: 6 points
For Litz Company, variable costs are 68% of sales, and fixed
costs are $209,470.
Management’s net income goal is $68,610.
Instructions: Compute the required sales needed to achieve
management’s target net income of $68,610. Use the mathematical equation
approach.
Place your answer on the Answer Sheet.
Problem 4: 4 points
Reyes Corporation has 72,650 shares of common stock
outstanding. It declares a $2.2 per share cash dividend on November 1 to
stockholders of record on
December 1. The dividend is paid on December 31.
Instructions: Prepare the entries on the appropriate dates
to record the declaration and payment of the cash dividend.
Place your answer on the Answer Sheet.
Problem 5: 5 points
On July 1, Talbot Corporation purchases 533 shares of its $5
par value common stock for the treasury at a cash price of $8 per share. On
September 1, it sells
256 shares of the treasury stock for cash at $13 per share.
Instructions: Journalize the two treasury stock
transactions.
Place your answer on the Answer Sheet.

Problem 6: 10 points
Levin Corporation has the following cost records for June
2012.
Indirect factory labor $
4,372 Factory utilities$ 301
Direct materials used 21,922 Depreciation, factory equipment 1,596
Work in process, 6/1/12 2,628 Direct labor 30,377
Work in process, 6/30/12 3,633 Maintenance, factory equipment 1,793
Finished goods, 6/1/12 4,609 Indirect materials 2,258
Finished goods, 6/30/12 7,429 Factory manager’s salary 3,305
Instructions: Prepare a cost of goods manufactured schedule
for June 2012.
Place your answer on the Answer Sheet.
Problem 7: 10 points
Nemani Corporation is projecting a cash balance of $31,408
in its December 31,
2011, balance sheet. Nemani schedule of expected collections
from customers for the first quarter of 2012 shows total collections of
$179,886. The schedule of expected payments for direct materials for the first
quarter of 2012 shows total payments of $40,850. Other information gathered for
the first quarter of 2012 is: sale of equipment $3,389; direct labor $70,181,
manufacturing overhead $34,598, selling and administrative expenses $45,116;
and purchase of securities $12,246. Nemani wants to maintain a balance of at
least $25,400 cash at the end of each quarter.
Instructions: Complete the cash budget for the first
quarter.
Place your answer on the Answer Sheet.
Problem 8: 10 points
Doherty 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 $209,240. This machine will have a 4-year useful life with no salvage
value. The new machine will lower annual variable manufacturing costs from
$634,920 to $419,540.
Instructions: Prepare an analysis showing whether the old
machine should be retained or replaced. Explain why the machine should be
retained or replaced. Place your answer on the Answer Shee3

Problem 9: 15 points
Here are comparative balance sheets for Sharp Company.
Sharp Company
Comparative Balance Sheets
December 31
Assets 2012 2011

Cash $72,961$22,409

Accounts receivable 86,139 76,398

Inventories 170,386188,715

Land 75,260 101,000

Equipment 259,990200,170

Accumulated depreciation—Equipment (66,053) (32,436)

Total $598,683 $556,256

Liabilities and Stockholder’s Equity

Accounts payable $39,209$46,951

Bonds payable 151,550203,890

Common stock ($1 par)216,060175,180

Retained earnings 191,864130,235

Total $598,683 $556,256

Additional information:
1. Net
income for 2012 was $101,700.
2. Cash
dividends of $40,071 were declared and paid.
3. Bonds
payable amounting to $52,340 were redeemed for cash $52,340.
4. Common
stock was issued for $40,880 cash.
5. No
equipment was sold during 2012 but land was sold at cost.
Instructions: Prepare a statement of cash flows for 2012
using the indirect method. Place your answer on the Answer Sheet.

Multiple Choice: 2 points each. Place your answers on the
Answer Sheet.
1. All of
the following statements regarding changes in accounting principles are true
except:
a. Changes in accounting principles are allowed when new
principles are preferable to old ones.
b. Consistency is one of the biggest concerns when a change
in accounting principle is undertaken.
c. Most changes in accounting principles are retroactively
reported.
d. Most changes in accounting principles are only reported
in current periods when the principle change takes place.
2. Jax, Inc.
has 10,000 shares of 5%, $100 par value, noncumulative preferred stock and
100,000 shares of $1 par value common stock outstanding at
December 31, 2012, and December 31, 2013. The board of
directors declared and paid a $50,000 dividend in 2012. In 2013, $110,000 of
dividends are declared and paid. What are the dividends received by the
preferred and common shareholders in 2013?
Preferred Common
a. $50,000 $60,000
b. $70,000 $40,000
c. $55,000 $55,000
d. $0 $110,000
3. A company assigned overhead to work in process. At
year-end, what does the amount of over-applied overhead mean?
a. The
overhead assigned to work in process is less than the actual overhead.
b. The
overhead assigned to work in process is greater than the overhead incurred.
c. The
overhead assigned to work in process is less than the estimated overhead costs.

d. The
overhead assigned to work in process is greater than the estimated overhead
costs.

4. Motes industries owns 45% of Naz Company and has
significant influence over the financial and operating activities of Naz
Company. For the current year, Naz 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 Naz’s net income and the receipt of
dividends from Naz?
a. Dec. 31 Stock Investments 85,500
Revenue from Stock Investments 85,500
b. Dec. 31 Revenue from Stock Investments 112,500
Stock Investments 112,500
Dec. 31 Stock Investments 27,000
Cash 27,000
c. Dec. 31 Stock Investments 112,500
Revenue from Stock Investments 112,500
Dec. 31 Cash 27,000
Stock Investments 27,000
d. Dec. 31 Stock Investments 112,500
Revenue from Stock Investments 112,500
Dec. 31 Cash 60,000
Stock Investments 60,000
5. Short-term
investments are securities that are readily marketable and intended to be
converted into cash within the next
a. year or operating cycle, whichever is shorter. b. two
years.
c. year or operating cycle, whichever is longer. d. year.
6. Which one
of the following would not be classified as a short-term investment? a.
marketable stock securities
b. equity method investments c. marketable debt securities
d. short-term paper

7. Which one
of the following is not a direct material? a. Lubricant for a ball-bearing
joint for a large crane. b. A tire used for a lawn mower.
c. Steel used in the manufacturing of steel-radial tires. d.
Plastic used in the covered case for a home PC.
8. Whelan
Company spent $14,000 to produce Product X, which can be sold as is for
$15,000, or processed further incurring additional costs of $11,500 and then
sold for $17,000. Which amounts are relevant to the decision about Product X?
a. $14,000, $15,000, $17,000 b. $14,000, $11,500, $17,000 c.
$15,000, $11,500, $17,000
d. $14,000, $15,000, $11,500, and $17,000
9. A company
uses 8,400 pounds of materials and exceeds the standard by 300 pounds. The
quantity variance is $1,800 unfavorable. What is the standard price?
a. $2 b. $4 c. $6
d. Cannot be determined from the data provided
10. Kathleen,
Inc. has the following income statement (in millions)
Kathleen, Inc.
Income Statement
For the Year Ended December 31, 2013
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 Net
Income?
a. 100%
b. 75.6%
c. 45.3%
d. None of
the above

Essay Question: 6 points
Million Dollar Mills is a textile-manufacturing firm located
in the southern United States. The company carefully prepares all financial
statements in accordance with GAAP, and gives a copy of all financial
statements to each department. In addition, the company keeps records on
quality control, safety, and environmental pollution by the company. It then
prepares “scorecards” for each department indicating their
performance. Recently, the financial impact of the second set of information
was added, and the information has been used in the evaluation of employees for
merit pay and promotions.
At the most recent employee meeting, Tyler Hanes, marketing
manager, expressed his discomfort with the system. He said there was no
guarantee that the second set of information was fair, since there were no
generally accepted principles for this kind of information. He also said that
it was kind of like keeping two sets of books—one following all legal
requirements, and the other one actually used by the company.
Required:
1. Is it
ethical to evaluate managers in the way described? Explain briefly. Place your
answer on the Answer Sheet.
2. Name at
least two safeguards the company could build into its system to ensure the
ethical treatment of employees.
Place your answer on the Answer Sheet.