Midterm Revision

1. On December 31, 2010, Flint Corporation sold for $75,000 an old machine having an original cost of $135,000 and a book value of $60,000. The terms of the sale were as follows: $15,000 down payment $30,000 payable on December 31 each of the next two years The agreement of sale made no mention of interest; however, 9% would be a fair rate for this type of transaction. What should be the amount of the notes receivable net of the unamortized discount on December 31, 2010 rounded to the nearest dollar? (The present value of an ordinary annuity of 1 at 9% for 2 years is 1.75911.) a. b. c. d.

$52,773. $67,773. $60,000. $105,546.

2. Vasguez Corporation had a 1/1/10 balance in the Allowance for Doubtful Accounts of $20,000. During 2010, it wrote off $14,400 of accounts and collected $4,200 on accounts previously written off. The balance in Accounts Receivable was $400,000 at 1/1 and $480,000 at 12/31. At 12/31/10, Vasguez estimates that 5% of accounts receivable will prove to be uncollectible. What is Bad Debt Expense for 2010? a. b. c. d.

$4,000. $14,200. $18,400. $24,000.

$480,000 × .05 – [$20,000 – ($14,400 – $4,200)] = $14,200. Use the following information for questions 3 through 5. Jamison Corp.'s balance sheet accounts as of December 31, 2011 and 2010 and information relating to 2011 activities are presented below. December 31, 2011 2010 Assets Cash $ 440,000 $ 200,000 Short-term investments 600,000 — Accounts receivable (net) 1,020,000 1,020,000 Inventory 1,380,000 1,200,000 Long-term investments 400,000 600,000 Plant assets 3,400,000 2,000,000 Accumulated depreciation (900,000) (900,000) Patent 180,000 200,000 Total assets $6,520,000 $4,320,000 Liabilities and Stockholders' Equity Accounts payable and accrued liabilities $1,660,000 $1,440,000 Notes payable (nontrade) 580,000 — Common stock, $10 par 1,600,000 1,400,000 Additional paid-in capital 800,000 500,000 Retained earnings 1,880,000 980,000 Total liabilities and stockholders' equity $6,520,000 $4,320,000 Information relating to 2011 activities: • Net income for 2011 was $1,500,000. • Cash dividends of $600,000 were declared and paid in 2011. • Equipment costing $1,000,000 and having a carrying amount of $320,000 was sold in 2011 for $360,000. • A long-term investment was sold in 2011 for $320,000. There were no other transactions affecting longterm investments in 2011. • 20,000 shares of common stock were issued in 2011 for $25 a share. • Short-term investments consist of treasury bills maturing on 6/30/12. 3. Net cash provided by Jamison’s 2011 operating activities was a. $1,500,000. b. $2,120,000. c. $2,080,000. d. $2,160,000. c

$1,500,000 – $180,000 + ($900,000 – $900,000 + $680,000) - ($360,000 – $320,000) + $20,000 + $220,000 – ($320,000 – $200,000) = $2,080,000.

4. Net cash used in Jamison’s 2011 investing activities was a. $2,320,000. b. $1,820,000. c. $1,680,000. d. $1,720,000. a

$320,000 + $360,000 – ($3,400,000 + $1,000,000 – $2,000,000) – $600,000 = $2,320,000.

5. Net cash provided by Jamison’s 2011 financing activities was a. $480,000. b. $520,000. c. $1,080,000. d. $1,680,000. a

20,000 × $25 = $500,000 $500,000 + $580,000 – $600,000 = $480,000.

6. Foxx Corp.'s comparative balance sheet at December 31, 2011 and 2010 reported accumulated depreciation balances of $800,000 and $600,000, respectively. Property with a cost of $50,000 and a carrying amount of $38,000 was the only property sold in 2011. Depreciation charged to operations in 2011 was a. $188,000. b. $200,000. c. $212,000. d. $224,000. c

$800,000 – $600,000 + ($50,000 – $38,000) = $212,000. 7. Nagel Co.'s prepaid insurance was $90,000 at December 31, 2011 and $45,000 at December 31, 2010. Insurance expense was $36,000 for 2011 and $27,000 for 2010. What amount of cash disbursements for insurance would be reported in Nagel's 2011 net cash provided by operating activities presented on a direct basis? a. $99,000. b. $81,000. c. $54,000. d. $36,000. b

$90,000 + $36,000 – $45,000 = $81,000.