MULTIPLE CHOICE – THEORY

1. D
2. A
3. D
4. B
5. A
6. D
7. C
8. A
9. A
10. B

MULTIPLE CHOICE – COMPUTATIONAL

1. A – The currently maturing notes are classified as current liabilities.

2. B (1M x 80%) = 800,000 noncurrent; (1M – 800K) = 200,000 current

3. D
Solution:
Accounts payable-trade 750,000
Short-term borrowings 400,000
Bank loan (breach of loan covenant) 3,500,000
Other bank loan, matures June 30, 20x2 1,000,000
Total current liabilities 5,650,000

4. D
Solution:
Unearned revenue
ignored beg.
Redemptions - prior yr. ignored 250,000 Sales - 20x3
Redemptions - 20x3 175,000
Estimate of sales not to be
redeemed 25,000
end. 50,000

The gift certificates sold in 20x2 and their related redemptions are ignored because they have
expired during the current year. Hence, they do not affect the year-end liability.

5. C (125,000 + 200,000 expiring in 20x4) + 140,000 expiring in 20x5 = 465,000 balance of unearned
subscription revenue on Dec. 31, 20x3

6. B
Solution:
Two equal installments of real estate tax 12,000
 Multiply by: No. of installments in a year 2
Annual real estate tax 24,000
Divide by: 12
Real estate tax expense per month 2,000

Accrued tax on warehouse - July and Aug. (2,000 x 2) 4,000

Accrued tax - Sept. and Oct. (2,000 x 2) 4,000
Real estate tax payable 8,000

7. B
Solution:
Advances from customers
  118,000 1/1/x0
Advances applied 164,000 184,000 Advances - 20x0
Advances cancelled 50,000  
12/31/x0 88,000  

8. C
Solution:
Liability for escrow account
700,000 1/1/x9
Taxes paid 1,720,000 1,580,000 Escrow received
45,000 Interest, net (50K x 90%)
12/31/x0 605,000

9. A
Solution:
Accounts payable, unadjusted 360,000
Add back: Debit balance 50,000
Add back: Undelivered check 100,000
Accounts payable, adjusted 510,000

10. C
Solution:

Liability for deposits

  ignored 2004 deposits
2004 returns ignored 430,000 2005 deposits
2005 returns 250,000 780,000 2006 deposits
2006 returns 286,000  
end 674,000