(20 POINTS)

This question relates to the following presentation in the balance sheets of Criss Co. at March 31, 2014 and 2013:

3/31/14 3/31/13

Equipment, less accumulated depreciation of $76,000 and

$57,000, respectively $104,000 $98,000

If the cost of new equipment purchased during the year totaled $32,000, what was the cost of equipment sold?

If the accumulated depreciation on equipment sold (in part a) totaled $5,000, what was the amount of depreciation expense for the year?

If there was a gain of $1,000 from the sale of equipment (in part a), how much cash was received in the sale transaction? (Hint: Prepare the journal entry to record transaction).

(15 POINTS)

For the month ended February 28, 2014, a company capitalized a $3,000 expenditure that should have been expensed. Depreciation expense for the full month, using the straight?line method, was recorded

for $120 in February with respect to this item. Reported operating income for February was $11,700.

a. Calculate the amount of net income that should have been reported for February.

b. If this error is not corrected, what will be the impact on operating income for the ten?month period from March 1, 2014 through December 31, 2014?

(15 POINTS)

Congratulations! You have won a prize of $48,000. But, you must decide whether to receive $8,000 at the end of every year for 6 years, or to receive $4,000 at the end of every 6 months for 6 years. Assume an annual interest rate of 16%. Calculate the present value of each alternative, and indicate which alternative you would prefer.

(25 POINTS)

On January 1, 2014, Simon, Inc. issued $500,000 of 9%, 10?year bonds at 101. Interest is payable every June 30 and December 31. Premium is amortized on a straight?line basis.

Was the market interest rate on January 1, 2014 equal to, more than, or less than the stated interest rate of the bonds? Explain your answer.

How much interest will be paid on these bonds during 2014?

How much interest expense will Simon, Inc. report in its 2014 income statement with respect to these bonds?

• (25 POINTS)

This question relates to the following presentation in the balance sheets of Asriel, Inc. at December 31, 2014 and 2013:

Current liabilities: 12/31/14 12/31/13

Accounts payable $ 18,400 $ 16,750

Accrued wages payable 3,800 4,430

Accrued property taxes payable 2,200 2,000

Accrued interest payable 1,800 0

a. If wages expense during 2014 totaled $137,600, how much cash was paid for wages?

b. If property taxes paid during 2013 totaled $27,350, how much property tax expense was

accrued during 2014?

c. If the interest payable at 12/31/14 had not been accrued at that date, by how much and in what

direction (too high or too low) would net income for 2014 have been misstated?

d. Why are expenses accrued?

EXTRA CREDIT (1 POINT EACH)

1.

The net book value of a depreciable asset is:

A.	the fair value of the asset.

B.	the amount for which the asset should be insured.

C.	the difference between the asset's cost and accumulated depreciation.

D.	the difference between the asset's cost and depreciation expense.

2.

Moped, Inc. purchased machinery at a cost of $44,000 on January 1, 2017. The expected useful life is 5 years and the asset is expected to have salvage value of $4,000. Moped depreciates its assets using the double-declining balance method. What is the firm's depreciation expense for the year ended December 31, 2017?

A.

$4,000

B.

$8,800

C.

$12,000

D.

$17,600

3.

Bonner's, Inc. borrowed $36,000 for 4 months on a discount basis. The lender used an interest rate of 8% to calculate the discount. The amount of cash Bonner's, Inc. actually had available to use from this loan was:

A.

$33.120

B.

$35,040

C.

$36,000

D.

$36,960

4.

The amortization of bond discount:

A.	increases the cash paid to bondholders for interest.

B.	results in bond interest expense being greater than the interest paid to bondholders.

C.	results in bond interest expense being less than the interest paid to bondholders.

D.	reduces the carrying value of bonds payable on the balance sheet.

PRINCIPLES OF ACCOUNTING QUIZ 3 - CHAPTERS 6 & 7 NAME: DUE NO LATER THAN SATURDAY, APRIL 24 @ MIDNIGHT 1. (20 POINTS) This question relates to the following presentation in the balance sheets of Criss Co. at March 31, 2014 and 2013: 3/31/14 3/31/13 Equipment, less accumulated depreciation of $76,000 and $57,000, respectively $104,000 $98,000 a. If the cost of new equipment purchased during the year totaled $32,000, what was the cost of equipment sold? b. If the accumulated depreciation on equipment sold (in part a) totaled $5,000, what was the amount of depreciation expense for the year? c. If there was a gain of $1,000 from the sale of equipment (in part a), how much cash was received in the sale transaction? (Hint: Prepare the journal entry to record transaction). PRINCIPLES OF ACCOUNTING QUIZ 3 - CHAPTERS 6 & 7 NAME: DUE NO LATER THAN SATURDAY, APRIL 24 @ MIDNIGHT 2. (15 POINTS) For the month ended February 28, 2014, a company capitalized a $3,000 expenditure that should have been expensed. Depreciation expense for the full month, using the straight-line method, was recorded for $120 in February with respect to this item. Reported operating income for February was $11,700. a. Calculate the amount of net income that should have been reported for February. b. If this error is not corrected, what will be the impact on operating income for the ten-month period from March 1, 2014 through December 31, 2014? 3. (15 POINTS) Congratulations! You have won a prize of $48,000. But, you must decide whether to receive $8,000 at the end of every year for 6 years, or to receive $4,000 at the end of every 6 months for 6 years. Assume an annual interest rate of 16%. Calculate the present value of each alternative, and indicate which alternative you would prefer. 4. (25 POINTS) On January 1, 2014, Simon, Inc. issued $500,000 of 9%, 10-year bonds at 101. Interest is payable every June 30 and December 31. Premium is amortized on a straight-line basis. a. Was the market interest rate on January 1, 2014 equal to, more than, or less than the stated interest rate of the bonds? Explain your answer. b. How much interest will be paid on these bonds during 2014? c. How much interest expense will Simon, Inc. report in its 2014 income statement with respect to these bonds? PRINCIPLES OF ACCOUNTING QUIZ 3 - CHAPTERS 6 & 7 NAME: DUE NO LATER THAN SATURDAY, APRIL 24 @ MIDNIGHT 5. (25 POINTS) This question relates to the following presentation in the balance sheets of Asriel, Inc. at December 31, 2014 and 2013: Current liabilities: Accounts payable Accrued wages payable Accrued property taxes payable Accrued interest payable 12/31/14 $ 18,400 3,800 2,200 1,800 12/31/13 $ 16,750 4,430 2,000 0 a. If wages expense during 2014 totaled $137,600, how much cash was paid for wages? b. If property taxes paid during 2013 totaled $27,350, how much property tax expense was accrued during 2014? c. If the interest payable at 12/31/14 had not been accrued at that date, by how much and in what direction (too high or too low) would net income for 2014 have been misstated? d. Why are expenses accrued? PRINCIPLES OF ACCOUNTING QUIZ 3 - CHAPTERS 6 & 7 NAME: DUE NO LATER THAN SATURDAY, APRIL 24 @ MIDNIGHT EXTRA CREDIT (1 POINT EACH) 1. The net book value of a depreciable asset is: A. the fair value of the asset. B. the amount for which the asset should be insured. C. the difference between the asset's cost and accumulated depreciation. D. the difference between the asset's cost and depreciation expense. 2. Moped, Inc. purchased machinery at a cost of $44,000 on January 1, 2017. The expected useful life is 5 years and the asset is expected to have salvage value of $4,000. Moped depreciates its assets using the double-declining balance method. What is the firm's depreciation expense for the year ended December 31, 2017? A. $4,00 0 B. $8,80 0 C. $12,00 0 D. $17,60 0 3. Bonner's, Inc. borrowed $36,000 for 4 months on a discount basis. The lender used an interest rate of 8% to calculate the discount. The amount of cash Bonner's, Inc. actually had available to use from this loan was: A. $33.12 0 B. $35,04 0 C. $36,00 0 D. $36,96 0 4. The amortization of bond discount: A. increases the cash paid to bondholders for interest. B. results in bond interest expense being greater than the interest paid to bondholders. C. results in bond interest expense being less than the interest paid to bondholders. D. reduces the carrying value of bonds payable on the balance sheet