Sample Exam 2 Key Spring 07

1. a. Securitization
vest f. Capitalize

b. Leasehold (operating lease)

c. Copyright

d. Organization costs

e. Vested;

2. a.
FIFO: $342,450 LIFO: $337,200
b.
FIFO $342,450 x .25 = $85,612.50 LIFO $337,200 x .25 = $84,300.00 FIFO
c.
LIFO results in higher ROA (NI is greater given falling prices). FIFO yields greater protection for physical
capital maintenance. However, with falling prices, this is not a large an issue.
3. a.
b.
c.
4. a.

($7,350,000 100,000) x .0075

Bad debt exp $54,375
Allow D/Accts $54,375
A/R $640,000
Less: Allow 52,000 =$588,000
7,250/(572,000 + 588,000)/2
365/12.5 => 29.2 days
=> about as expected or better than expected
Yr 1NI: U$4,500. No EI error for yr 2; thus no NI error from yr 2. There is a yr 1 effect in yr. 2 NI: O$4,500

b.

Cash $50,000
N/P $50,000

c.

Truck new $58,000

Acc Dep
42,000
Trucks $60,000
Cash
40,000

8/31

N/P $50,000
Note: both dates should be 8/31.
int exp 616.44
Cash $50,616.44

d.

a) 325,000 350,000 = (25,000) negative == impaired

b) Loss = $310,000 - $350,000 = (40,000)
Impairment Loss $40,000
Patent
$40,000

5. a.

Trucks $83,390
N/P

c.
6.

Dep Exp
R&D exp
Cash

7. a.

Int exp $1667.80

N/P
3432.20
Cash $5,100

Patent
Cash

$45,000
$45,000

$27,796.67
Acc Dep
$27,796.67
$475,000
$475,000

Land $63,000
Bldg 357,000
Cash $420,000

**$420,000 = cost

b.

Dep Exp 21,062.50

Acc Dep
21,062.50

c.

Land amount: +$10,000 Building amount:

8. a.

b.
$83,390

Warranty exp $40,000

Est Warr. Liab

b.

Est Warr Liab $22,000

Cash, MI, etc. $22,000

c.

Estimate
Actual
Diff

Yr 1
40,000
43,000
($3,000)

($357,000 $20,000)/16 yrs

-0-

$40,000

Yr 2
40,500
43,000
($2,500)

Quality worse than estimate

$7,500 = amort exp