QUESTION 1

At the beginning of 2013, Angel Corporation began offering a two-year warranty on its products. The warranty program was expected to cost Angel 4% of net sales. Net sales made under warranty in 2013 were $180 million. Fifteen percent of the units sold were returned in 2013 and repaired or replaced at a cost of $5.3 million. The amount of warranty expense on Angel's 2013 income statement is: 

$5.3 million.

$7.2 million.

$10.6 million.

$27.0.

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QUESTION 2

Funzy Cereal includes one coupon in each package of Wheatos that it sells and offers a toy car in exchange for $1.00 and three coupons. The cars cost Funzy $1.50 each. Experience indicates that 40% of the coupons eventually will be redeemed. During the last month of 2013, the first month of the offer, Funzy sold 12 million boxes of Wheatos and 2.4 million of the coupons were redeemed. What amount should Funzy report as a promotional expense for coupons on its December 31, 2013, income statement? 

$0.

$400,000.

$800,000.

$1,200,000.
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QUESTION 3

Hotel Inc. borrowed $800,000 on October 1, 2013, and signed a 12-month note bearing interest at 6%. Interest is payable in full at maturity on September 30, 2014. In connection with this note, Hotel Inc. should report interest payable at December 31, 2013, in the amount of: 

$0.

$4,000

$12,000.

$48,000
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QUESTION 4

Peterson Photoshop sold $1,000 in gift cards on a special promotion on October 15, 2013, and sold $1,500 in gift cards on another special promotion on November 15, 2013. Of the cards sold in October, $100 were redeemed in October, $250 in November, and $300 in December. Of the cards sold in November, $150 were redeemed in November and $350 were redeemed in December. Peterson views the probability of redemption of a gift card as remote if the card has not been redeemed within two months. At 12/31/2013, Peterson would show an unearned revenue account for the gift cards with a balance of: 

$0.

$1,000.

$1,350.

$1,500.
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QUESTION 5

Clark's Chemical Company received customer deposits on returnable containers in the amount of $100,000 during 2013. Twelve percent of the containers were not returned. The deposits are based on the container cost marked up 20%. What is cost of goods sold relative to this forfeiture?

$0.

$2,000.

$10,000.

$14,400.
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QUESTION 6

During 2013, Deluxe Leather Goods sold 800,000 reversible belts under a new sales promotional program. Each belt carried one coupon, which entitles the customer to a $5.00 cash rebate. Deluxe estimates that 70% of the coupons will be redeemed, even though only 350,000 coupons had been processed during 2013. At December 31, 2013, Deluxe should report a liability for unredeemed coupons of: 

$560,000.

$1,050,000.

$1,225,000

$1,750,000.
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QUESTION 7

On June 1, 2013, Dirty Harry Co. borrowed cash by issuing a 6-month noninterest-bearing note with a maturity value of $500,000 and a discount rate of 6%. Assuming straight-line amortization of the discount, what is the carrying value of the note as of September 30, 2013?

$525,000

$300,000

$495,000

$475,000
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