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ACCT 240 EXAM 3 REVIEW PACKET

1.Exam Instructions

•   Exam 3 covers Chapters 9, 10, and 11.

•   It is a 75-minute closed book and closed notes” test administered through Connect.

•   Laptops are required on exam day to take the test.

2.Exam Format

Part 1. Multiple Choice (20 questions, 2 points each)

There will be roughly 6-7 questions from each chapter.

40 points

Part 2. Chapter 9 Liability Problems

A. Record a Note Payable (10 points)

B. Determine Contingent Liabilities (5 points)

15 points

Part 3. Chapter 10 Bond Problems

A. Price a Bond (15 points)

B. Amortize a Bond (15 points)

30 points

Part 4. Chapter 11 Equity Problems

A.  Calculate Earnings Per Share (5 points)

B. Record Treasury Stock Transactions (10 points)

15 points

TOTAL

100 points

3.Exam Coverage

Topics on the exam may include, but not be limited to, the following:

Reporting and Interpreting Liabilities (Chapter 9)

•   Report notes payable

•   Interpret contingent liabilities and working capital

•   Compute present values

Bond Securities (Chapter 10)

•   Define and explain bond terminology

•   Price bonds issued at par, discount and premium

•   Amortize bond discount or premium

Reporting and Interpreting Stockholders Equity (Chapter 11)

•   Describe characteristics of common stock and report common stock transactions

•   Record treasury stock transactions

•   Calculate earnings per share ratio

To help prepare for the exam, you should review the following items:

•   PPT slides by chapter

•   Class problems and exercises

•   Completed HW assignments

4. Practice Problems-Multiple Choice

1) Potepa Company borrowed $25,000 cash on October 1, 2019, and signed a nine-month, 8%    interest-bearing note payable with interest payable at maturity. The amount of interest expense to be reported during 2020 is which of the following?

A) $1,000.

B) $300.

C) $500.

D) $750.

2) Synn Company issued $5 million of bonds with a 10% coupon rate of interest. At the time the bonds were issued, the market rate of interest was 11%. Which of the following statements is     correct?

A) The bonds were issued at a premium.

B) Annual interest expense will exceed the company's actual cash payments for interest.

C) Annual interest expense will be $500,000.

D) The book value of the bond will decrease as the bond matures.

3) On October 1, 2017, Spector Company acquired 1,000 shares of its $1 par value stock for $44 per share and held these shares in treasury. On March 1, 2019, Spector resold all the treasury      shares for $40 per share. Which of the following entries would be recorded when Spector Company resells the shares of treasury stock?

A)

Cash

40,000

Additional paid-in capital

4,000

Treasury Stock

44,000

B)

Cash

40,000

Loss on sale of treasury stock

4,000

Treasury Stock

44,000

C)

Cash

40,000

Additional paid-in capital

4,000

Common Stock

44,000

D)

Cash

40,000

Common Stock

1,000

Additional paid-in capital

39,000

5. Practice Problems--CH 9 Liability Problems

A.Record a Note Payable

Fisher Corporation borrowed $500,000 on October 1, 2019. The note carried a 9% interest rate with the principal and interest payable on May 1, 2020. Prepare the journal entries for October 1 and December 31, 2019.


B.Determine Contingent Liabilities

Read the situation and chose one of the following three answers for the decision box—

(1) Report a liability on balance sheet,

(2) Disclose in footnotes,

OR

(3) Do nothing

Situation

Decision

A healthcare company introduces a new piece of  equipment. Past experience demonstrates that      lawsuits will be filed as soon as the new                  equipment is involved in any accidents. The           company believes it is highly probable that at least one jury will award damages to people injured in   an accident, but it is unable to estimate the            amount of any payout.

As part of manufacturing a new product, your       company has polluted a natural lake. Under state law, you must clean up the lake once you             complete development. The development project will take five to eight years to complete. Current   estimates indicate that it will cost $3 million to      clean up the lake.