ACCT 212 WEEK 8 FINAL EXAM
1. (TCO 3) At the end of the period it is necessary to close all temporary accounts. (1) Explain why this process is
required (10 points) and (2) provide an example of the closing of an expense account, Salary Expense in the
form of a journal entry. (10 points) (Points : 20)
1. We have to close temporary accounts at the end of a period because when the temporary accounts are closed,
it brings their balances back down to zero.
2. I would Debit Salary Expense and Credit to Payroll
Expenses
12/31 DR Salary Expense 1000
Cr Payroll 1000
2. (TCO 2) As required to complete Course Project 1, one must follow the cycle that includes 10 steps to
complete the accounting cycle. (1) Explain how the debit/credit rules are used when developing journal entries
(10 points) and (2) provide an example of the application of the debit/credit rules in the form of a journal entry.
(10 points)(Points : 20)
1. In accounting, a debit increases the balance and a credit decreases the balance. The accounts that have a
normal debit balance are assets, the owner's equity, expenses and losses. Normal credit balances are liabilities,
equity, revenue, and gains. When we debit an account, we raise the balance. When we credit the account, we
decrease the balance. Using a double entry system, we would debit one account and credit the other to get the
journal in balance.
2. An example would be debit rent expense and credit bank account.
DR Rent Expense 3000
CR Checking 3000
To record rent expense for the month of Jan.
3. (TCO 5) Internal Control Procedures are required to safeguard company assets and to ensure ethical
operation of the business. (1) Explain how limited access can satisfy the purpose of internal control (10 points)
and (2) provide an example of how this control could be implemented. (10 points) (Points : 20)
, 1. To complement segregation of duties, company policy should limit access to assets only to those persons or
departments that have custodial responsibilities. Only authorized persons should have access to certain records.
For example, access to cash should be limited to persons in the treasurer’s department. Cash receipts might be
processed through a lock-box system.
2. One way to limit access is to password protect computers. Only those with their own user name and password
can access certain files. Another thing we could do is to encrypt data files so they cannot be viewed or hacked
easily by anyone.
4. (TCO 4) Inventory valuation methods determine the cost of goods sold and the inventory balance. (1) Explain
how the First in First out (FIFO) method is applied (10 points) and (2) provide an example of the impact that this
method of inventory valuation will have on Gross Profit. (10 points) (Points : 20)
1. Fifo is an inventory costing method which assumes that the first items placed in inventory are the first sold.
The inventory at the end of a year contains the goods most recently placed in inventory. Under the FIFO method,
the first costs into inventory are the first costs assigned to cost of goods sold as well.
2. The Fifo method of valuation is likely to give you the highest profit because the first items bought are usually the
cheapest. Since prices increase with time we are assuming that the trend will continue.
5. (TCO 1) To evaluate the financial operation and health of a business ratio analysis is used. (1) Provide the
formula for the Current Ratio and explain how it is computed (10 points) and (2) provide an example of how this
ratio can be used in decision-making in business. (10 points) (Points : 20)
1. Current Ratio = Current Assets / Current Liabilities. The current ratio formula which measures the companys
ability to pay current liabilities with current assets is easily computed once you know their assets and liabilities.
For example a company like Starbucks has $1748 million dollars in assets but has $2190 million dollars in
liabilities would have a current ratio of .80 because 1748/2190 - .798.
2. Ratios are important in decision making of not only stockholders but those running the company as well. A
low current ratio indicates that the company has more liabilities than assets, and may have trouble paying their
bills in the future. Stockholders may want to stay away. For business owners a low ratio might mean having to
borrow money to cover expenses.
1. (TCO 6) BagODonuts Company bought a used delivery truck on January 1, 2010, for $19,200. The van was
expected to remain in service 4 years (30,000 miles). BagODonuts’ accountant estimated that the truck’s
residual value would be $2,400 at the end of its useful life. The truck traveled 8,000 miles the first year, 8,500
miles the second year, 5,500 miles the third year, and 8,000 miles in the fourth year.
1. Calculate depreciation expense for the truck for each year (2010-2013) using the:
a. Straight-line method.
b. Double-declining balance method.
c. Units of Production method.
(For units-of-production and double-declining balance, round to the nearest two decimals after each step of the
1. (TCO 3) At the end of the period it is necessary to close all temporary accounts. (1) Explain why this process is
required (10 points) and (2) provide an example of the closing of an expense account, Salary Expense in the
form of a journal entry. (10 points) (Points : 20)
1. We have to close temporary accounts at the end of a period because when the temporary accounts are closed,
it brings their balances back down to zero.
2. I would Debit Salary Expense and Credit to Payroll
Expenses
12/31 DR Salary Expense 1000
Cr Payroll 1000
2. (TCO 2) As required to complete Course Project 1, one must follow the cycle that includes 10 steps to
complete the accounting cycle. (1) Explain how the debit/credit rules are used when developing journal entries
(10 points) and (2) provide an example of the application of the debit/credit rules in the form of a journal entry.
(10 points)(Points : 20)
1. In accounting, a debit increases the balance and a credit decreases the balance. The accounts that have a
normal debit balance are assets, the owner's equity, expenses and losses. Normal credit balances are liabilities,
equity, revenue, and gains. When we debit an account, we raise the balance. When we credit the account, we
decrease the balance. Using a double entry system, we would debit one account and credit the other to get the
journal in balance.
2. An example would be debit rent expense and credit bank account.
DR Rent Expense 3000
CR Checking 3000
To record rent expense for the month of Jan.
3. (TCO 5) Internal Control Procedures are required to safeguard company assets and to ensure ethical
operation of the business. (1) Explain how limited access can satisfy the purpose of internal control (10 points)
and (2) provide an example of how this control could be implemented. (10 points) (Points : 20)
, 1. To complement segregation of duties, company policy should limit access to assets only to those persons or
departments that have custodial responsibilities. Only authorized persons should have access to certain records.
For example, access to cash should be limited to persons in the treasurer’s department. Cash receipts might be
processed through a lock-box system.
2. One way to limit access is to password protect computers. Only those with their own user name and password
can access certain files. Another thing we could do is to encrypt data files so they cannot be viewed or hacked
easily by anyone.
4. (TCO 4) Inventory valuation methods determine the cost of goods sold and the inventory balance. (1) Explain
how the First in First out (FIFO) method is applied (10 points) and (2) provide an example of the impact that this
method of inventory valuation will have on Gross Profit. (10 points) (Points : 20)
1. Fifo is an inventory costing method which assumes that the first items placed in inventory are the first sold.
The inventory at the end of a year contains the goods most recently placed in inventory. Under the FIFO method,
the first costs into inventory are the first costs assigned to cost of goods sold as well.
2. The Fifo method of valuation is likely to give you the highest profit because the first items bought are usually the
cheapest. Since prices increase with time we are assuming that the trend will continue.
5. (TCO 1) To evaluate the financial operation and health of a business ratio analysis is used. (1) Provide the
formula for the Current Ratio and explain how it is computed (10 points) and (2) provide an example of how this
ratio can be used in decision-making in business. (10 points) (Points : 20)
1. Current Ratio = Current Assets / Current Liabilities. The current ratio formula which measures the companys
ability to pay current liabilities with current assets is easily computed once you know their assets and liabilities.
For example a company like Starbucks has $1748 million dollars in assets but has $2190 million dollars in
liabilities would have a current ratio of .80 because 1748/2190 - .798.
2. Ratios are important in decision making of not only stockholders but those running the company as well. A
low current ratio indicates that the company has more liabilities than assets, and may have trouble paying their
bills in the future. Stockholders may want to stay away. For business owners a low ratio might mean having to
borrow money to cover expenses.
1. (TCO 6) BagODonuts Company bought a used delivery truck on January 1, 2010, for $19,200. The van was
expected to remain in service 4 years (30,000 miles). BagODonuts’ accountant estimated that the truck’s
residual value would be $2,400 at the end of its useful life. The truck traveled 8,000 miles the first year, 8,500
miles the second year, 5,500 miles the third year, and 8,000 miles in the fourth year.
1. Calculate depreciation expense for the truck for each year (2010-2013) using the:
a. Straight-line method.
b. Double-declining balance method.
c. Units of Production method.
(For units-of-production and double-declining balance, round to the nearest two decimals after each step of the
