ACCT 601
Fall Semester, 2013
Mid-Term Exam

Problem 1 – 100 Points

Earnest T. Bass, Inc., had the following debit general ledger balances as of January 1, 2012: Cash – $173,500; Short-term Investments – $20,000; Accounts Receivable – $32,500; Prepaid Insurance – $8,000; Inventory – $55,000; Land – $75,000; Buildings -$175,000; and Equipment – $80,000.

They had the following credit general ledger balances as of January 1, 2012: Accounts Payable – $48,500; Salaries Payable – $32,500; Property Taxes Payable – $35,000; Short-Term Notes Payable – $0; Income Taxes Payable – $25,000; Interest Payable – $20,000; Long-Term Notes Payable – $187,500; Common Stock (4,000 shares outstanding) – $80,000; and Retained Earnings – Unknown…..the server on the computer system crashed and this was lost.

Earnest T. Bass, Inc. sells t-shirts retail. That is, they buy t-shirt inventory and sell them at a profit. Occasionally a customer will place a special order and the company will embroider custom made t-shirts.

In addition, the company has a line of credit with their bank. Anytime their cash balance falls below zero, they borrow money in $10,000 increments at an annual interest rate of 12%. For example, if their cash balance was -$500, they would borrow $10,000. If their cash balance was -$12,000, they would borrow $20,000. These short-term notes payable are paid off in $10,000 increments, including interest, when there is adequate cash on hand. For example, assume they have borrowed $20,000 on their line of credit. If they had a cash balance of $11,000, they could pay off $10,000 plus interest. The cash balance must be zero or positive at all times. For purpose of interest calculations, assume a 365 day year and assume the dollars are borrowed at the end of the business day and any repayments occur at the end of the business day.

During the month of January, 2012, Earnest T. Bass, Inc. had the following transactions:

On January 2nd,…