1. In order to be relevant, accounting information must a. be neutral. b. be verifiable. c. help predict future events. d. be a faithful representation. 2. Riodan Company sold old equipment for...

1. In order to be relevant, accounting information must
a. be neutral.
b. be verifiable.
c. help predict future events.
d. be a faithful representation.
2. Riodan Company sold old equipment for $35,000. The equipment had a cost of $70,000 and accumulated depreciation of $42,000. The entry to record the sale of the equipment would include a
a. loss on disposal of $35,000.
b. gain on disposal of $35,000.
c. loss on disposal of $7,000.
d. gain on disposal of $7,000.
3. The cost of intangible assets should be
a. amortized over the assets' estimated useful life, or legal life, whichever is shorter.
b. amortized over a period not exceeding 5 years.
c. amortized over the assets' estimated useful life.
d. charged to an expense account at acquisition.
4. On November 30, Thatcher Company issued a $6,000, 6%, 4-month note to the National Bank. The entry on Thatcher's books to record the payment of the note at maturity will include a credit to Cash for
a. $6,000.
b. $6,360.
c. $6,120.
d. $6,240.
5. Dividends received are credited to what account under the equity method and cost method, respectively?
Equity Method Cost Method
a. Stock Investments Dividend Revenue
b. Dividend Revenue Dividend Revenue
c. Stock Investments Stock Investments
d. Dividend Revenue Stock Investments
6. The assumption that assumes a company will continue in operation long enough to carry out its existing objectives is the
a. economic entity assumption.
b. going concern assumption.
c. monetary unit assumption.
d. time period assumption.
7. All of the following are intangible assets except
a. patents.
b. land improvements.
c. goodwill.
d. franchises.
8. Bates Company has a $300,000 balance in Accounts Receivable and a $2,000 debit balance in Allowance for Doubtful Accounts. Credit sales for the period totaled $1,800,000. What is the amount of the bad debt adjusting entry if Bates uses a
percentage of receivables basis (at 10%)?
a. $30,000
b. $28,000
c. $32,000
d. $30,400
9. The necessity of making adjusting entries relates mostly to the
a. economic entity assumption.
b. time period assumption.
c. going concern assumption.
d. monetary unit assumption.
10. Allowance for Doubtful Accounts is reported in the
a. balance sheet as a contra asset.
b. balance sheet as a contra liability account.
c. income statement under other expenses and losses.
d. income statement under other revenues and gains.

PART II (18 points)

Thomas Company purchased equipment for $640,000 cash on January 1, 2007. The estimated life is 5 years or
1,000,000 units; salvage value is estimated at $40,000. Actual activity was 180,000 units in 2007, and 200,000 units in 2008.

Instructions:

Compute the annual depreciation expense for 2007 and 2008, and book value at December 31, 2008, under the following depreciation methods: (a) units-of-activity, (b) straight-line, and (c) double-declining-balance.

(a) Units-of-activity
2007 depreciation = $_______________.
2008 depreciation = $_______________.
12/31/08 book value = $_______________.
(b) Straight-line
2007 depreciation = $_______________.
2008 depreciation = $_______________.
12/31/08 book value = $_______________.
(c) Double-declining-balance
2007 depreciation = $_______________.
2008 depreciation = $_______________.
12/31/08 book value = $_______________.

PART III (10 points)

The following selected transactions pertain to Linton Corporation:
Jan. 3 Issued 150,000 shares, $10 par value, common stock for $22 per share.
Feb. 10 Issued 8,000 shares, $10 par value, common stock in exchange for special purpose equipment. Linton Corporation's common stock has been actively traded on the stock exchange at $25 per share.

Instructions:

Journalize the transactions.


PART IV (18 points)

Milner Corporation had the following transactions pertaining to debt investments.
Jan. 1 Purchased 80, 8%, $1,000 Vanoy Company bonds for $80,000, plus brokerage fees of $800.
July 1 Sold 20 Vanoy Company bonds for $24,000, less $400 brokerage fees.

Instructions


Prepare journal entries for the purchase and sale of the Vanoy Company bonds.

PART V (24 points)

Garner Corporation is authorized to issue 1,000,000 shares of $5 par value common stock.
During 2008, its first year of operation, the company has the following stock transactions.
Jan. 1 Paid the state $2,000 for incorporation fees.
Jan. 15 Issued 500,000 shares of stock at $7 per share.
Jan. 30 Attorneys for the company accepted 500 shares of common stock as payment for legal services rendered in helping the company incorporate. The legal services are estimated to have a value of $8,000.
July 2 Issued 100,000 shares of stock for land. The land had an asking price of $900,000.
The stock is currently selling on a national exchange at $8 per share.
Sept. 5 Purchased 15,000 shares of common stock for the treasury at $10 per share.
Dec. 6 Sold 11,000 shares of the treasury stock at $11 per share.

Instructions

Journalize the transactions for Garner Corporation.