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ACCT 212 Final Exam Solution

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ACCT 212 Final Exam Solution

ACCT 212 Final Exam Solution

1. (TCO 3) At the end of the period it is necessary to close all temporary accounts. (1) Explain why this process is required and (2) provide an example of the closing of an expense account, Salary Expense in the form of a journal entry.

2. (TCO 2) As required to complete Course Project 1, one must follow the cycle that includes 10 steps to complete the accounting cycle. (1) Explain how the debit/credit rules are used when developing journal entries  and (2) provide an example of the application of the debit/credit rules in the form of a journal entry.

3. (TCO 5) Internal Control Procedures are required to safeguard company assets and to ensure ethical operation of the business. (1) Explain how limited access can satisfy the purpose of internal control  and (2) provide an example of how this control could be implemented.

4. (TCO 4) Inventory valuation methods determine the cost of goods sold and the inventory balance. (1) Explain how the First in First out (FIFO) method is applied  and (2) provide an example of the impact that this method of inventory valuation will have on Gross Profit.

5. (TCO 1) To evaluate the financial operation and health of a business ratio analysis is used. (1) Provide the formula for the Current Ratio and explain how it is computed  and (2) provide an example of how this ratio can be used in decision-making in business.

1. (TCO 6) BagODonuts Company bought a used delivery truck on January 1, 2010, for \$19,200. The van was expected to remain in service 4 years (30,000 miles). BagODonuts’ accountant estimated that the truck’s residual value would be \$2,400 at the end of its useful life. The truck traveled 8,000 miles the first year, 8,500 miles the second year, 5,500 miles the third year, and 8,000 miles in the fourth year.

1. Calculate depreciation expense for the truck for each year (2010-2013) using the:

a. Straight-line method.

b. Double-declining balance method.

c. Units of Production method.

(For units-of-production and double-declining balance, round to the nearest two decimals after each step of the calculation.)

2. Which method best tracks the wear and tear on the van?

3. Which method would BagODonuts prefer to use for income tax purposes? Explain in detail why BagODonuts prefers this method.

2. (TCO 7) ABC Inc. was incorporated on 1/15/12. Their corporate charter authorized the following capital stock: Preferred Stock: 7%, par value \$100 per share, 100,000 shares. Common Stock: \$1 par value, 500,000 shares.

The following transactions occurred during the year:

1/19/12 – Issued 100,000 shares of common stock for \$17 cash per share.

1/31/12 – Issued 3,000 shares of preferred stock for \$115 cash per share.

11/1/12 – Repurchased 30,000 shares of common stock for \$22 cash per share.

12/1/12 – Declared and paid a total dividend of \$95,000.

Required:

1. Prepare the journal entry for each transaction listed above.

2. In your own words, explain the main differences between common and preferred stock.

(Points : 25)

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