Accounting 303 Exam 2, Chapters 4, 5, 6 Fall 2016

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1 Accoutg 303 Exam 2, Chapters 4, 5, 6 Fall 2016 Name Row I. Multple Choce Questos. (2 pots each, 24 pots total) Read each questo carefully ad dcate your aswer by crclg the letter precedg the oe best aswer. 1. The dstcto betwee operatg ad ooperatg come relates to the a. cotuty of come. b. prmary actvtes of the reportg etty. c. cosstecy of come stream. d. relablty of measuremets. 2. Whch of the followg s ot cluded the determato of come from cotug operatos? a. come tax expese b. o-operatg tems c. other comprehesve come d. admstratve expeses 3. O October 19, 2016, Mercedes Compay commtted to a pla to sell a dvso that qualfed as a compoet of the etty accordg to GAAP regardg dscotued operatos ad was properly classfed as held for sale o December 31, 2016, the ed of the compay's fscal year. The dvso's loss from operatos for 2016 was $2,000,000. The dvso's book value ad far value less cost to sell o December 31 were $3,000,000 ad $2,500,000, respectvely. What before-tax amout(s) should Mercedes report as a loss o ts 2016 come statemet? a. $2,000,000 loss from dscotued operatos. b. $2,500,000 loss from dscotued operatos. c. No loss would be reported aywhere o the come statemet. d. $500,000 mparmet loss cluded cotug operatos ad a $2,000,000 loss from dscotued operatos. 4. Comprehesve come cludes all of the followg except a. dvded reveue. b. losses o dsposal of assets. c. vestmets by owers. d. urealzed holdg gas. 1

2 5. O August 1, 2016, Buckle Retalers adopted a pla to dscotue ts catalog sales dvso, whch qualfes as a separate compoet of the busess accordg to GAAP regardg dscotued operatos. The dsposal of the dvso was expected to be cocluded by Jauary 15, O Jauary 31, 2017, Rocket's fscal year-ed, the followg formato relatve to the dscotued dvso was accumulated: Operatg loss February 1, Jauary 15, 2017 $115,000 Loss o dsposal of dvso's assets at Jauary 15, ,000 I ts come statemet for the year eded Jauary 31, 2017, Buckle would report a before-tax loss o dscotued operatos of: a. $115,000. b. $195,000. c. $65,000. d. $125, The statemet of cash flows reports cash flows from the actvtes of a. operatg, purchasg, ad vestg. b. borrowg, payg, ad vestg. c. facg, vestg, ad operatg. d. usg, vestg, ad facg. 7. The come statemet reveals a. resources ad equtes of a frm at a pot tme. b. resources ad equtes of a frm for a perod of tme. c. et come of a frm at a pot tme. d. et come of a frm for a perod of tme. 8. The sgle-step come statemet emphaszes a. the gross proft fgure. b. total reveues ad total expeses. c. dscotued operatos ad accoutg chages more tha these are emphaszed the multplestep come statemet. d. the varous compoets of come from cotug operatos. 9. The thrd step the process for reveue recogto s to a. determe the trasacto prce. b. detfy the separate performace oblgatos the cotract. c. allocate trasacto prce to the separate performace oblgatos. d. recogze reveue whe each performace oblgato s satsfed. 2

3 10. Boomerag Computer Compay sells computers wth a ucodtoal rght to retur the computer f the customer s ot satsfed. Boomerag has a log hstory sellg these computers uder ths retur polcy ad ca provde precse estmates of the amout of returs assocated wth each sale. Boomerag should recogze reveue a. whe Boomerag delvers a computer to a customer, gorg potetal returs. b. whe Boomerag delvers a computer to a customer, a amout that s reduced by the expected returs. c. whe Boomerag receves cash from the customer. d. whe a customer returs a computer. 11. Jg Statstcal Servces operates a webste that lks expereced statstcas wth busesses that eed data aalyzed. Statstcas post ther rates, qualfcatos, ad refereces o the webste, ad Jg receves 25% of the fee pad to the statstcas exchage for detfyg potetal customers. VetMed Assocates cotacts Jg ad arrages to pay a cosultat $1,500 exchage for aalyzg some data. Jg's come statemet would clude the followg wth respect to ths trasacto: a. reveue of $1,500 b. reveue of 1,500 ad cost of servces of $1,125. c. reveue of $375 d. reveue of 1,875 ad cost of servces of $1, What s the prmary dfferece betwee a ordary auty ad a auty due? a. The tmg of the cash flows. b. The terest rate. c. Auty due oly relates to preset values. d. Ordary auty oly relates to preset values. 3

4 II. Problems (76 pots total) Show all work where approprate! 1. (20 pots) The partal tral balace of Margot Compay s show below: Accout Debt Credt Sales reveue 6,100,000 Iterest reveue 40,000 Loss o sale of vestmets 110,000 Ga o sale of equpmet 60,000 Cost of goods sold 4,500,000 Sellg expese 400,000 Restructurg expese 80,000 Iterest expese 25,000 Geeral ad admstratve expese 305,000 The come tax rate for Margot s 30%. Calculate the followg ad show your work: Gross Proft Operatg Icome Other Reveue (Expese) Total Net Icome 4

5 2. (7 pots) Le Pett Hotel has sged a servce outsourcg cotract wth Deluxe Room Cleaers for $300,000, whch was receved by Deluxe cash o July 21, 2016, whch was the cepto of the cotract. Uder the agreemet, Deluxe Room Cleaers s oblgated to clea ad prepare hotels rooms for Le Pett o a daly bass from August 1, 2016 to July 31, Requred: Prepare ay joural etry that Deluxe would record o each of the followg dates. If o etry s ecessary, wrte Noe. (a) July 21, 2016 (b) August 1, 2016 (c) December 31, 2016 (d) July 31,

6 3. (6 pots) Bald Pao maufactures customzed paos for cocert halls. O July 1, 2016, Bald sged a cotract to delver a cocert pao for $150,000. Uder the cotract, Bald s also oblgated to provde a oe-year mateace servce o the pao. If sold separately, the pao ad the mateace servce would have cost $140,000 ad $20,000, respectvely. Requred: How much of the trasacto prce would be allocated to the pao ad how much to the mateace servce, assumg they are separate performace oblgatos? Show your work. 4. (6 pots) Prvacy Plus, Ic. specalzes shreddg offce documets ad destroyg computer hard drves. I Jue 2016, t eters to a oe-year cotract wth the U.S. govermet to properly dscard computer hard drves. The cotract specfes a fxed fee of $50,000 for up to 25,000 hard drves, ad a addtoal $5,000 for each cremetal 10,000 drves. The compay estmates a 65% chace of hadlg 25,000 drves or fewer, 30% chace of hadlg more tha 25,000 drves but fewer tha 35,000 drves, ad 5% chace of hadlg more tha 35,000 drves but fewer tha 45,000 drves. Requred: Assumg that the compay determes trasacto prce as the expected value of the cosderato, what s Prvacy Plus' estmate of the trasacto prce for ths cotract? Show your work. 6

7 5. (17 pots) St. Mart Yacht Compay (STMYC) maufactures luxury yachts. STMYC sged a cotract wth J. Smth to buld a yacht for $40 mllo. Costructo bega sprg 2016 ad was completed summer STMYC uses the percetage-of-completo method of accoutg for ths cotract. Other data s as follows (all amouts mllos): Cotract Prce $40 $40 $40 Costs Icurred ths Year Costs Icurred to Date Estmated Costs to Complete Total Estmated Costs Percetage Completed Progress Bllgs Cash Collectos Requred: a. For 2016: What s the percetage of completo? What s the amout of reveue recogzed? What s the amout of gross proft recogzed? b. Prepare all etres for ths project for

8 6. (20 pots) Aswer the urelated tme value of moey problems below. For each questo fll all the blaks ad crcle your aswers where dcated for autes. For the dollar amouts, roud all dollar amouts to the earest dollar. a. What s the future value 7 years of $27,000 deposted today f t ears 5.5% terest? PV b. What s the preset value of $172,800 to be receved 11 years at a dscout rate of 7%? PV c. Mchelle wats to set asde fuds today so she ca sped two years travelg aroud the world after she graduates wth her masters degree. She plas to start her travels fve years from today at the completo of her master s degree. Mchelle expects that she wll eed $36,000 to fud her travel plas. If she s able to ear 7% compouded sem-aually o a vestmet, how much wll she have to set asde today so that she wll have suffcet fuds avalable for her travels? PV 8

9 d. Ja establshed a savgs accout for her so's college educato by makg aual deposts of $9,000 at the begg of each of te years to a vestmet accout earg 8% terest. What was the balace of the vestmet at the ed of the teth year? What type of auty s ths? (crcle your aswer) Ordary Auty Auty Due PMT e. Each year for the ext 10 years, Mara wll depost $14,000 to a vestmet fud that ears 9% terest compouded aually. What s the future value of those vestmet paymets f the 10 deposts are made at the ed of each year? What type of auty s ths? (crcle your aswer) Ordary Auty Auty Due PMT f. Cogratulatos, you just wo the lottery wth a jackpot of $729 mllo. The lottery offers you two paymet optos. Opto 1 wll pay you $215,080,000 ow, ad Opto 2 wll pay you $14,500,000 per year for 25 years wth the frst paymet ow. If you beleve 5% s the approprate terest rate, whch opto s better? Base your aswer oly o tme value of moey aalyss ad do ot cosder taxes or ay other cosderatos. What type of auty s Opto 2? (crcle your aswer) Ordary Auty Auty Due PV (Opto 1) PV (Opto 2) Whch opto s better? (crcle your aswer) Opto 1 Opto 2 Why? 9

10 Solutos Multple Choce Questo Number Aswer 1. b 2. c 3. b 4. c 5. d 6. c 7. d 8. b 9. a 10. b 11. c 12. a 10

11 Problem 1 Gross Proft = Operatg Icome ( ) = Other Reveue (Expese) Total <35000> <110000> <25000> = <35000> Net Icome = Tax Expese: x.30 = = Problem 2 (a) July 21, 2016 Cash Deferred Reveue (b) August 1, 2016 Noe (c) December 31, 2016 Deferred Reveue Reveue ( x 5/12 = ) (d) July 31, 2017 Deferred Reveue Reveue

12 3. Pao / = x.875 = Servce / = x.125 = Total Drves x.65 = >25000 to x.30 = >35000 to x.05 =

13 5. (17 pots) St. Mart Yacht Compay (STMYC) maufactures luxury yachts. STMYC sged a cotract wth J. Smth to buld a yacht for $40 mllo. Costructo bega sprg 2016 ad was completed summer STMYC uses the percetage-of-completo method of accoutg for ths cotract. Other data s as follows (all amouts mllos): Cotract Prce $40 $40 $40 Costs Icurred ths Year Costs Icurred to Date Estmated Costs to Complete Total Estmated Costs Gross Proft Percetage Completed 20% 80% 100% Progress Bllgs Cash Collectos Requred: a. For 2016: What s the percetage of completo? _20% What s the amout of reveue recogzed? 40 x.2 = 8 What s the amout of gross proft recogzed? 4 x.2 =.8 b. Prepare all etres for ths project for Costructo Progress 22.4 Cash Acc. Rec. 16 Progress Bllgs Cash 16 Acc. Rec Costructo Expese 22.4 Costructo Progress 1.6 Reveue 24 Reveue: 40 x.8 = = 24 GP: 3 x.8 = =

14 6. (20 pots) Aswer the urelated tme value of moey problems below. For each questo fll all the blaks ad crcle your aswers where dcated for autes. For the dollar amouts, roud all dollar amouts to the earest dollar. a. What s the future value 7 years of $27,000 deposted today f t ears 5.5% terest? PV _ b. What s the preset value of $172,800 to be receved 11 years at a dscout rate of 7%? PV _ c. Mchelle wats to set asde fuds today so she ca sped two years travelg aroud the world after she graduates wth her masters degree. She plas to start her travels fve years from today at the completo of her master s degree. Mchelle expects that she wll eed $36,000 to fud her travel plas. If she s able to ear 7% compouded sem-aually o a vestmet, how much wll she have to set asde today so that she wll have suffcet fuds avalable for her travels? PV

15 d. Ja establshed a savgs accout for her so's college educato by makg aual deposts of $9,000 at the begg of each of te years to a vestmet accout earg 8% terest. What was the balace of the vestmet at the ed of the teth year? What type of auty s ths? (crcle your aswer) Ordary Auty Auty Due _10 8 PMT _ e. Each year for the ext 10 years, Mara wll depost $14,000 to a vestmet fud that ears 9% terest compouded aually. What s the future value of those vestmet paymets f the 10 deposts are made at the ed of each year? What type of auty s ths? (crcle your aswer) Ordary Auty Auty Due _10 9 PMT f. Cogratulatos, you just wo the lottery wth a jackpot of $729 mllo. The lottery offers you two paymet optos. Opto 1 wll pay you $215,080,000 ow, ad Opto 2 wll pay you $14,500,000 per year for 25 years wth the frst paymet ow. If you beleve 5% s the approprate terest rate, whch opto s better? Base your aswer oly o tme value of moey aalyss ad do ot cosder taxes or ay other cosderatos. What type of auty s Opto 2? (crcle your aswer) Ordary Auty Auty Due _25 5 PV (Opto 1) PV (Opto 2) Whch opto s better? (crcle your aswer) Opto 1 Opto 2 Why? larger PV 15