J & K, Inc.

1 Accounts Payable 12,000 12 Advertising Expense 2,000

Cash 12,000 Cash 2,000
To record payments to suppliers. To record payment of advertising for 2005.

2 Cash 35,000 13 Retained Earnings 3,600

Accounts Receivable 35,000 Cash 3,600
To record payments received from customers. To record payment of $1.00 dividend on 12/31/05.

3 Inventory 40,000 14 Interest Expense 6,400

Cash 10,000 Note Payable 20,000
Accounts Payable 30,000 Cash 26,400
To record purchase of 10 @ $4,000 each. To record payment on note payable.

4 Cash 126,000 15 Land 50,000

Accounts Receivable 54,000 Cash 10,000
Sales 180,000 Mortgage Payable-Land 40,000
To record sales of 18 @ $10,000 each. To record purchase of land on 12/31/05.

5 Cost of Goods Sold 57,000 16 Wage Expense 10,000

Inventory 57,000 Wages Payable 10,000
To record cost of sales. (15@$3,000+3@$4,000) To record wages owed at 12/31/05.

6 Taxes Payable 5,000 17 Insurance Expense 2,500

Cash 5,000 Prepaid Insurance 2,500
To record payment of 2004 taxes. To record 2005 insurance expense.

7 Wages Payable 7,000 18 Depreciation Expense 5,000

Wage Expense 18,000 Accumulated Depreciation-Furn. & Fixt. 5,000
Cash 25,000 To record 2005 depreciation expense.
To record cash paid for wages. ($110,000-$10,000)/20

8 Cash 20,000 19 Tax Expense 16,530

Accounts Receivable 20,000 Cash 8,265
To record payments from customers. Taxes Payable 8,265
To record 2005 tax expense and payments.
9 Rent Expense 24,000
Rent Payable 2,000 20 Sales 180,000
Cash 28,000 Cost of Goods Sold 57,000
Prepaid Rent 2,000 Wage Expense 28,000
To record 2005 rent expense and payments. Rent Expense 24,000
Advertising Expense 2,000
10 Accounts Payable 10,000 Interest Expense 6,400
Cash 10,000 Insurance Expense 2,500
To record payments to creditors. Depreciation Expense 5,000
Tax Expense 16,530
11 Cash 6,000 Retained Earnings 38,570
Common Stock 6,000 To close 2005 Revenues & Expenses.
To record issuance of 600 shares of common stock.
J & K, Inc.
Assets = Liabilities + Owners' Equity + ( Revenues - Expenses )
Cash Accounts Payable Common Stock Sales Cost of Goods Sold
BB 50,000 12,000 1 1 12,000 12,000 BB 30,000 BB 180,000 4 5 57,000
2 35,000 10,000 3 10 10,000 30,000 3 6,000 11 20 180,000 57,000 20
4 126,000 5,000 6 20,000 36,000
8 20,000 25,000 7
11 6,000 28,000 9 Wages Payable Retained Earnings Wage Expense
10,000 10 7 7,000 7,000 BB 13 3,600 90,000 BB 7 18,000
2,000 12 10,000 16 38,570 20 16 10,000
3,600 13 3,600 128,570 28,000 28,000 20
26,400 14 124,970
10,000 15 Rent Payable Rent Expense
8,265 19 9 2,000 2,000 BB 9 24,000
237,000 140,265 24,000 20
96,735

Accounts Receivable Taxes Payable Advertising Expense

BB 35,000 35,000 2 6 5,000 5,000 BB 12 2,000
4 54,000 20,000 8 8,265 19 2,000 20
34,000
Note Payable
Inventory 14 20,000 80,000 BB Interest Expense
BB 45,000 57,000 5 60,000 14 6,400
3 40,000 6,400 20
85,000 57,000 Mortgage Payable-Land
28,000 0 BB
40,000 15 Insurance Expense
Prepaid Insurance 17 2,500
BB 5,000 2,500 17 2,500 20
2,500

Depreciation Expense
Prepaid Rent 18 5,000
BB 0 5,000 20
9 2,000

Furniture & Fixtures Tax Expense

BB 110,000 19 16,530
16,530 20

Accumulated
Depreciation-Furn & Fixt
20,000 BB
5,000 18
25,000

Land
BB 0
15 50,000

Security Deposit
BB 1,000
 J & K, Inc.
Balance Sheet
December 31, 2005

Assets Liabilities
Current Assets Current Liabilities
Cash $ 96,735 Accounts Payable $ 20,000
Accounts Receivable 34,000 Wages Payable 10,000
Inventory 28,000 Taxes Payable 8,265
Prepaid Rent 2,000 Current Portion of Long-Term Debt 20,000
Prepaid Insurance 2,500 Total Current Liabilities 58,265
Total Current Assets 163,235 Long-Term Debt
Fixed Assets Note Payable $ 40,000
Furniture & Fixtures $ 110,000 Mortgage Payable-Land 40,000
Less: Accumulated Total Long-Term Debt 80,000
Depreciation (25,000) Total Liabilities 138,265
Subtotal 85,000
Land 50,000 Owners' Equity
Net Fixed Assets 135,000 Common Stock 36,000
Other Assets Retained Earnings 124,970
Security Deposit 1,000 Total Owners' Equity 160,970
Total Assets $ 299,235 Total Liabilities and Owners' Equity $ 299,235

J & K, Inc.
Income Statement
For the Year Ended December 31, 2005

Sales $ 180,000
Cost of Goods Sold 57,000
Gross Margin 123,000

Operating Expenses
Wage Expense $ 28,000
Rent Expense 24,000
Depreciation Expense 5,000
Insurance Expense 2,500
Advertising Expense 2,000
Total Operating Expenses 61,500
Operating Income 61,500

Other Revenues & <Expenses>

Interest Expense < 6,400 >
Income Before Taxes 55,100
Tax Expense 16,530
Net Income $ 38,570

Earnings Per Share $ 12.24

$38,570/((3,000*9/12)+(3,600*3/12))
$38,570/3,150

J & K, Inc.
Statement of Owners' Equity
For the Year Ended December 31, 2005

Common Retained
Stock Earnings Totals

Beginning Balance, 12/31/04 $ 30,000 $ 90,000 $ 120,000

Issuance of Stock 6,000 6,000
Net Earnings for the Year 38,570 38,570
Dividends Declared (3,600) (3,600)
Ending Balance, 12/31/05 $ 36,000 $ 124,970 $ 160,970
Multiple Choice: Please mark your answer on the Bubble sheet AND on this test. (5 points each)

1) Darby wants to have $100,000 in his savings account 5 years from today. His account earns 8% and is compounded quarterly. How much does he
need to deposit today?

A) $ 69,440.00
B) $ 6,115.68 20per 2%
C) $ 65,453.59 PV = 100,000 ( .6730 )
D) $ 67,300.00 PV = 67,300
E) None of the above

2) How much do you need to put in the bank today if you want to withdraw $ 20,000 per
year for the next 7 years? The bank pays interest at 5% compounded annually and you
will make your first withdrawal exactly 1 year from today.

A) $ 82,004 7 per 5%
B) $ 115,728 PVA = 20,000 ( 5.7864 )
C) $ 140,000 PVA = 115,728
D) $ 127,562
E) None of the above

3) How much will you have 1 year from today if you invest $100 at 24% compounded monthly?

A) $ 124.00 12 per 2%
B) $ 126.82 100 = FV ( .7885 )
C) $ 102.00 FV = 100 / .7885
D) $ 112.00 FV = 126.82
E) None of the above

4) How much do you need to invest today at 10% compounded annually in order to have $1,000,000 20 years from today?
20 per 10%
A) $ 161,500 PV = 1,000,000 ( .1486 )
B) $ 117,459
C) $ 148,600
D) $ 238,521
E) None of the above

5) Which of the following financial statements reports as of a specific date?

A) Income Statement
B) Balance Sheet
C) Statement of Journal Entries
D) Statement of Owners Equity
E) None of these

6) Which of the following changes describes the receipt of $1,000 as payment on a customers account?

A) Assets and owners' equity increase by $1,000

B) Assets and owners' equity decrease by $1,000
C) Assets and liabilities increase by $1,000
D) Assets and liabilities decrease by $1,000
E) No changes in total assets, liabilities, nor owners' equity

7) If the beginning and ending balances in retained earnings are $10,000 and $18,000, respectively, and dividends during the year are $20,000, then
net income for the year is

A) $ 8,000 Retained Earnings Retained Earnings

B) $30,000 10,000 BB 10,000
C) $28,000 Dividends 20,000 ? Net Income 20,000 28,000
D) $38,000 20,000 ? 20,000 38,000
E) Indeterminable from the data given 18,000 18,000
8) Which account will NEVER be included in a closing journal entry?

A) Sales
B) Retained Earnings
C) Cost of Sales
D) Wages Payable
E) Depreciation Expense

9) The accounting equation is

A) Debits = Credits
B) Assets = Liabilities + Owners= Equity
C) Revenues - Cost of Goods Sold = Gross Margin
D) Recording all expenses incurred in generating the revenues of the period
E) Having the same number of asset accounts on the balance sheet as the prior year

10) A revenue account

A) Is increased with a credit

B) Ultimately increases retained earnings
C) Is closed at the end of the accounting period
D) Is an income statement account
E) All of the above are correct

11) Kylie is buying a computer for $3,000, with $200 down and the balance to be paid in 4 equal annual payments which include interest at 10%. How
much are the payments?

A) $ 700.00 4 per 10%

B) $ 946.40 3,000 - 200 = A ( 3.1699 )
C) $ 802.88 2,800 = A ( 3.1699 )
D) $ 883.31 A = 2,800 / 3.1699
E) None of the above A = 883.31

12) On January 1, 20x5 your company purchased a new piece of equipment for $40,000. You estimate that you will use the equipment for 5 years
and then sell it for $10,000. Using the straight-line method, depreciation expense for 20x7 would be:

A) $ 8,000 ( 40,000 - 10,000 ) / 5 = Depreciation Expense per year

B) $ 6,000 30,000 / 5 = 6,000
C) $ 5,000
D) $ 4,000
E) Some other number

13) For the equipment in problem 12, the accumulated depreciation account at the end of 20x6 (the second year) would have a balance of:

A) $ 8,000 Accumulated Depreciation

B) $16,000 6,000 20x5
C) $10,000 6,000 20x6
D) $12,000 12,000
E) Some other number

14) Debit means

A) asset
B) liability
C) right side
D) left side
E) can be either right or left side

15) Use the balances for J & K, Inc. at December 31, 2004. What was J & Ks book value per share at 12/31/04?

A) $36.36 120,000 / 3,000 = 40.00

B) $38.10
C) $40.00
D) $33.33
E) None of these

16) Assume that the earnings per share for J & K, Inc. for 2005 is $5.00. What is J & Ks P/E ratio?

A) 80 80 / 5 = 16
B) 5
C) 6.25%
D) 16
E) None of these

17) Josh is purchasing a big, big truck for $100,000, with 20% down and the balance to be
paid in 5 equal annual payments which include interest at 8%. How much will the interest expense be for year 3?
5 per 8%
A) $ 4,130.87 100,000 - 20,000 = A ( 3.9927 )
B) $ 5,163.59 A = 80,000 / 3.9927
C) $ 5,405.30 A = 20,036.57
D) $ 4,876.53 Applied To Ending
E) None of the above Year Payments Interest 8% Principal Principal Balance
Cost 100,000.00
Down 20,000.00 20,000.00 80,000.00
1 20,036.57 6,400.00 13,636.57 66,363.43
2 20,036.57 5,309.07 14,727.50 51,635.93
3 20,036.57 4,130.87
18) Still on Josh What will the ending principal balance be after the 2nd payment
Has been made?

A) $ 67,566.24
B) $ 64,566.24
C) $ 51,635.93
D) $ 47,829.66
E) None of the above

19) If you had a beginning inventory of 10 Things that cost you $10 each and you sold 1 for $30 in June and in July you bought 3 more for $20 each
and then sold 2 more in August for $40 each, what would your ending inventory be if you are using the LIFO method of inventory valuation?

A) $ 50 Inventory
B) $ 110 10 @ 10 June BB 100 10 June 1@10
C) $ 130 # left 9
D) $ 100
E) Some other number 3 @ 20 July 60 40 July 2@20
# left 1 160 50
110
20) Bella Company had wages payable at the beginning of the year of $1,000. During the year her company paid cash wages of $25,000 and at the
end of the year she owed wages of $ 3,000. Her income statement for the year will show wage expense of:

A) $ 24,000 25,000 - 1,000 = 24,000 cash paid for current year wages
B) $ 25,000 3,000 wages for current year still owed
C) $ 27,000 27,000 wage expense for the year
D) $ 28,000
E) $ 26,000

Extra Credit

21) According to the article AHow You Speak Shows Where You Rank,@ a person who feels confident and in control will

A) Be more inclined to ask numerous questions

B) Not make jokes
C) Encourage other speakers
D) Stave off interruptions
E) Avoid arguments