Accounting 303 Exam 2, Chapters 4, 6, and 18A Fall 2014

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1 Accoutg 303 Exam 2, Chapters 4, 6, ad 18A Fall 2014 Name Row I. Multple Choce Questos. (2 pots each, 34 pots total) Read each questo carefully ad dcate your aswer by crclg the letter precedg the oe best aswer. 1. Whch of the followg s a example of maagg eargs up? a. Decreasg estmated salvage value of equpmet. b. Wrtg off obsolete vetory. c. Uderestmatg warraty expese. d. Accrug a lablty for wages. 2. I order to be classfed as a extraordary tem the come statemet, a evet or trasacto should be a. uusual ature, frequet, ad materal amout. b. uusual ature ad frequet, but t eed ot be materal. c. frequet ad materal amout, but t eed ot be uusual ature. d. uusual ature ad materal, but t eed ot be frequet. 3. Whch of the followg s true of accoutg for chages estmates? a. A compay recogzes a chage estmate by restatg the pror years facal statemets beg reported upo. b. A compay accouts for chages estmates the perod of chage ad future perods. c. Chages estmates are adjustmets to the begg balace of retaed eargs. d. Chages estmates are classfed as ether errors or extraordary tems. 4. How should a uusual evet ot meetg the crtera for a extraordary tem be dsclosed the facal statemets? a. Show as a separate tem operatg reveues or expeses f materal ad combed wth other tems f ot materal amout. b. Show operatg reveues or expeses f materal but ot show as a separate tem. c. Show et of come tax after ordary et eargs but before extraordary tems. d. Show et of come tax after extraordary tems but before et eargs. 5. Whch of the followg s a requred dsclosure the come statemet whe reportg o the dsposal of a dscotued compoet of a busess? a. The ga or loss o dsposal of the compoet should be reported as a extraordary tem. b. Results of the year s operatos of a dscotued compoet should be dsclosed mmedately below extraordary tems. c. Eargs per share from cotug operatos, dscotued operatos, ad et come should be dsclosed o the face of the come statemet. d. The ga or loss o dsposal should be reported separately ad reported the results of cotug operatos secto of the come statemet. 1

2 6. Whch of the followg tems would be reported et of tax o the face of the come statemet? a. Pror perod adjustmet b. Uusual ga c. Chage the method of accoutg for vetory d. Dscotued operatos 7. 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. 8. Dole Compay, wth a applcable come tax rate of 30%, reported et come of $350,000. Icluded come for the perod was a extraordary loss from flood damage of $80,000 before deductg the related tax effect. The compay's come before come taxes ad extraordary tems was a. $406,000. b. $430,000. c. $500,000. d. $580, 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 eargs (et come) of a frm at a pot tme. d. et eargs (et come) of a frm for a perod of tme. 10. A seres of equal recepts at equal tervals of tme whe each recept s receved at the ed of each tme perod s called a a. ordary auty. b. auty arrears. c. auty due. d. ueared recept. 11. What s the prmary dfferece betwee a ordary auty ad a auty due? a. The tmg of the perodc paymet. b. The terest rate. c. Auty due oly relates to preset values. d. Ordary auty oly relates to preset values. 12. The frst step the process for reveue recogto s to a. determe the trasacto prce. b. detfy the cotract wth customers. c. allocate trasacto prce to the separate performace oblgatos. d. detfy the separate performace oblgatos the cotract. 2

3 13. 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. 14. Whe a cotract modfcato does ot result a separate performace oblgato, the addtoal products are prced at the a. stadaloe prce of the product. b. bleded prce of orgal cotract ad cotract modfcato. c. average sellg prce of orgal sellg prce ad stadaloe prce. d. sellg prce specfed cotract modfcato 15. Trasacto prce for multple performace oblgatos should be allocated a. based o sellg prce from the compay s compettors. b. based o what the compay could sell the goods for o a stadaloe bass. c. based o forecasted cost of satsfyg performace oblgato. d. based o total trasacto prce less resdual value. 16. Whe a customer purchases a product but s ot yet ready for delvery, ths s referred to as a. a repurchase agreemet. b. a cosgmet. c. a prcpal-aget relatoshp. d. a bll-ad-hold arragemet 17. How should the balaces of progress bllgs ad costructo process be show at reportg dates pror to the completo of a log-term cotract? a. Progress bllgs as deferred come, costructo progress as a deferred expese. b. Progress bllgs as come, costructo process as vetory. c. Net balace, as a curret asset f debt balace, ad curret lablty f credt balace. d. Net balace, as come from costructo f credt balace, ad loss from costructo f debt balace. 3

4 II. Problems (66 pots total) Show all work where approprate! 1. (16 pots) Wlcox Corporato had come from cotug operatos of $750,000 (before taxes) I addto, the followg formato, whch s ot cluded the $750,000 amout above, s as follows. 1. I 2014, Wlcox expereced a usured earthquake loss (extraordary) the amout of $290, A mache was sold for a $140,000 ga. The compay ofte sells machery of ths type. 3. Wlcox decded to dscotue ts pat dvso Durg 2014, the loss o the dsposal of ths compoet of the busess was $180,000 before taxes. Requred: Prepare the come statemet of Wlcox Corporato for 2014 startg wth come from cotug operatos before taxes. Assume that Wlcox's tax rate s 30% ad 200,000 shares of commo stock were outstadg durg the year. Omt the statemet headg. 4

5 2. (9 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. a. What terest rate must Charle Beett ear o a $225,000 vestmet made today so that he wll have $575,000 after 12 years? (Show the terest rate wth oe decmal pot, e.g., 14.6%) b. Lor wats to set asde fuds today so she ca sped oe year travelg aroud the world. She plas to start her travels te years from today. Lor expects that she wll eed $32,000 to fud her travel plas. If she s able to ear 8% 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? c. Vlad Specer, CPA, must pay $20,000 every December 31 st for the years for the purchase of a CPA frm he s takg over. How much moey must Specer set asde o Jauary 1, 2015 to have suffcet fuds to make the paymets f the fud where he makes the tal depost wll ear a 5% retur? What type of auty s ths? (crcle your aswer) Ordary Auty Auty Due PMT 5

6 3. (12 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. a. If $9,000 s deposted aually every Jauary 1, wth the frst paymet made o Jauary 1, 2014, ad the fuds ear 8%, what wll be the balace o December 31, 2021? What type of auty s ths? (crcle your aswer) Ordary Auty Auty Due PMT b. Keea Cola Compay s purchasg ew bottlg equpmet wth a cash cost of $250,000 for ts plat. The maufacturer of the equpmet has offered to accept $57,400 paymets at the ed of each of the ext sx years for ths purchase. What s the terest rate that Keea wll be payg? What type of auty s ths? (crcle your aswer) Ordary Auty Auty Due PMT _ c. O Jauary 15, 2014, Dola Corp. adopted a pla to accumulate fuds for evrometal mprovemets begg July 1, 2018, at a estmated cost of $6,000,000. Dola plas to make four equal aual deposts a fud that wll ear terest at 10% compouded aually to accumulate the $6,000,000. What s the amout of the deposts f the frst depost s made o July 1, 2014? What type of auty s ths? (crcle your aswer) Ordary Auty Auty Due PMT _ 6

7 4. (19 pots) MCFC Costructo Compay was awarded a cotract to upgrade the stadum at UNO s football ptch. The cotract prce was $1,200,000, MCFC estmates ts total cost for the project s $900,000, ad the project started o November 1, 2014 ad was fshed February 6, MCFC uses the percetage-of-completo method of accoutg for ths cotract. Other data s as follows: Cotract Prce $ 1,200,000 $1,200,000 $1,200,000 Costs Icurred ths Year 162, , ,500 Costs Icurred to Date Estmated Costs to Complete 738, ,500 0 Total Estmated Costs Percetage Completed Progress Bllgs 30, , ,000 Cash Collectos 20, , ,000 Requred: a. For 2014: 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 c. If MCFC had stead used the completed cotract method to accout for ths project, how much reveue would be recogzed for each of the years: 2014: 2015: 2016: 7

8 5. (10 pots) O July 1, 2014, Ellsbury Ic. etered to a cotract to delver oe of ts specalty maches to Evergree Ladscapg Co. The cotract requres Evergree to pay the cotract prce of $2,500 advace o July 15, Evergree pays Ellsbury o July 15, 2014, ad Ellsbury delvers the mache (wth a cost of $1,600) o July 31, If o etry s eeded o ay date, wrte No Etry. Requremets a. Prepare the joural etry o July 1, 2014, for Ellsbury. b. Prepare the joural etry o July 15, 2014, for Ellsbury. c. Prepare the joural etry o July 31, 2014, for Ellsbury. 8

9 Solutos Multple Choce Questo Number Aswer 1. c 2. a 3. b 4. a 5. c 6. d 7. c 8. d 9. d 10. a 11. a 12. b 13. a 14. b 15. b 16. d 17. c Problem 1 Icome From Cotug Operatos Before Tax 890,000 Tax Expese 267,000 EPS Icome from Cotug Operatos 623, Dscotued Operatos Loss (et of $54,000 tax) 126,000 <.63> Icome Before Extraordary Item 497,000 Extraordary Loss (et of $87,000 tax) 203,000 <1.02> Net Icome 294,

10 2. (9 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. a. What terest rate must Charle Beett ear o a $225,000 vestmet made today so that he wll have $575,000 after 12 years? (Show the terest rate wth oe decmal pot, e.g., 14.6%) % 575, ,000 b. Lor wats to set asde fuds today so she ca sped oe year travelg aroud the world. She plas to start her travels te years from today. Lor expects that she wll eed $32,000 to fud her travel plas. If she s able to ear 8% 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? _20 4% 14,604 32,000_ c. Specer Corporato must pay $20,000 every December 31st for the years for the purchase of a CPA frm he s takg over. How much moey must Specer set asde o Jauary 31, 2015 to have suffcet fuds to make the paymets f the fud where he makes the tal depost wll ear a 5% retur? What type of auty s ths? (crcle your aswer) Ordary Auty Auty Due _6 5% PMT _20, ,514_ 10

11 3. (12 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. a. If $9,000 s deposted aually every Jauary 1, wth the frst paymet made o Jauary 1, 2014, ad the fuds ear 8%, what wll be the balace o December 31, 2021? What type of auty s ths? (crcle your aswer) Ordary Auty Auty Due _8 8% PMT _9, ,388 b. Keea Cola Compay s purchasg ew bottlg equpmet wth a cash cost of $250,000 for ts plat. The maufacturer of the equpmet has offered to accept $57,400 paymets at the ed of each of the ext sx years for ths purchase. What s the terest rate that Keea wll be payg? What type of auty s ths? (crcle your aswer) Ordary Auty Auty Due _ % PMT _57,400 _250,000 c. O Jauary 15, 2014, Dola Corp. adopted a pla to accumulate fuds for evrometal mprovemets begg July 1, 2018, at a estmated cost of $6,000,000. Dola plas to make four equal aual deposts a fud that wll ear terest at 10% compouded aually to accumulate the $6,000,000. What s the amout of the deposts f the frst depost s made o July 1, 2014? What type of auty s ths? (crcle your aswer) Ordary Auty Auty Due _4 10% PMT _1,175,295 _6,000,000 11

12 Problem Cotract Prce $ 2,100,000 $120,000 $120,000 Costs Icurred ths Year 162, , ,500 Costs Icurred to Date 162, , ,000 Estmated Costs to Complete 738, ,500 0 Total Estmated Costs 900, , ,000 Est GP 300, , ,000 Percetage Completed 18% 89% 100% Progress Bllgs 30, , ,000 Cash Collectos 10, , ,000 Requred: a. For 2014: What s the percetage of completo? 18% What s the amout of reveue recogzed? _1,200,000 x.18 = 216,000 What s the amout of gross proft recogzed? _300,000 x.18 = 54,000 b. Prepare all etres for ths project for Costructo Progress 683,500 Varous 683, A/R 900,000 Progress Bllgs 900, Cash 905,000 A/R 905, Costructo Expese 683,500 Costructo Progress 168,500 Reveue 852, x.89 = ; = x.89 = ; = c. If ZFD had stead used the completed cotract method to accout for ths project, how much reveue would be recogzed for each of the years: 2014: : : 1,200,000 12

13 Problem 5 (a) July 1, 2014 No etry ether party has performed o July 1, (b) July 15, 2014 Cash... 2,500 Ueared Sale Reveue... 2,500 (c) July 31, 2014 Ueared Sales Reveue... 2,500 Sales Reveue... 2,500 Cost of Goods Sold... 1,600 Ivetory... 1,600 13