1. Cash proceeds from a stock issuance are reflected in the cash flows from financing activities. (3 points)

A)  True

B)  False

2. Sales returns and allowances is a contra-revenue account. (3 pts) /*NOT COVERED IN 2024*/

A)  True

B)  False

3. An understatement of ending inventory results in an overstatement of net income. (3 points)

A)  True

B)  False

4. Ordinary repairs and maintenance costs are incurred to maintain a long-lived productive asset and are expensed as incurred. (3 points)

A)  True

B)  False

5. The depreciation method chosen for financial reporting purposes (US GAAP) must also be utilized for income tax reporting (IRS). (3 points)

A)  True

B)  False

6. If sales revenue was $1,800,000 and accounts receivable decreased $40,000 during the year, then cash collected from customers equals $1,760,000 in that year. (3 points)

A)  True

B)  False

7. Chegg Unlimited began business on January 1, 2019. The company manufactures and sells commercial cleaning equipment. The  company provides a warranty on its units, whereby the company will replace any defective part for three years after the sale, at no additional cost to the customer. During 2019, the Company had sales of $800,000. The company estimates that the  cost  of the warranties will be 3% of sales. No warranty claims were made in 2019. During 2020, warranty claims of $13,250 are made. All warranty claims are satisfied and paid for in cash. What entry, if any, is necessary for 2020? (3 points)

A)  Dr Prepaid Warranty         24,000

Cr Warranty Accrual              24,000

B)  Dr Warranty Expense       24,000

Cr Warranty Accrual              24,000

C)  Dr Warranty Accrual         13,250

Cr Cash                                    13,250

D)  Dr Warranty Accrual        24,000

Warranty Expense                 24,000

E)  None of the above.

8. Continuing with the information provided in the previous question, suppose the ending balance on the warranty accrual as at end of 2020 was 52,000. What is the warranty expense recognized in the year 2020 for sales that occurred in 2020? (3 points)

A)  13,250

B)  41,250

C)  24,000

D)  65,250

E)  None of the above.

Part II: Longer questions (19 points = about 20 minutes)

9. Keeping all else equal, explain in one sentence each what effect this news has on the following (higher/lower/no effect) and why? (8 points)