Accounting 303 Exam 2, Chapters 5, 6, 7 Fall 2015

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1 Accoutg 303 Exam 2, Chapters 5, 6, 7 Fall 2015 Name Row I. Multple Choce Questos. (2 pots each, 30 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 ot a drawback of the sgle-step come statemet? a. It does ot separate operatg ad o-operatg tems. b. It combes reveues ad gas wthout classfcato. c. It does ot classfy expeses by fucto. d. It msrepresets the amout of et come. 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 May 1, Joso Idustres decded to dscotue ts prepackaged busess segmet. At the ed of the year, the compay s stll holdg the busess segmet for dsposal, ad s expectg to sell t early the followg year. O ts year-ed come statemet, Joso Idustres wll report as come from dscotued operatos the profts geerated by the prepackaged busess segmet a. for the etre year, before taxes. b. for the etre year, et of taxes. c. sce May 1, before taxes. d. sce May 1, et of taxes. 4. Whch of the followg s true about traperod tax allocato? a. It arses because certa reveue ad expese tems appear the come statemet ether before or after they are cluded the tax retur. b. It s requred for pror perod adjustmets but ot for dscotued operatos. c. Its purpose s to allocate come tax expese evely over a umber of accoutg perods. d. Its purpose s to relate the come tax expese o the come statemet to the tems whch affect the amout of tax. 5. Whch of the followg s true regardg chages accoutg prcples? a. a compay accouts for the chage the perod of the chage ad future perods. b. a compay reports the effect of the chage by adjustg the begg balace of retaed eargs for the curret perod. c. a compay reports the effect of the chage by restatg the pror years facal statemets beg reported upo. d. a compay accouts for the chage as a extraordary tem ad reports t below dscotued operatos. 1

2 6. Whch of the followg s a example of maagg eargs up? a. Decreasg estmated lfe of equpmet. b. Wrtg off obsolete vetory. c. Recordg two days of ext year s sales the curret year. d. Accrug a lablty for utlty expese. 7. A curret asset s a asset that a. wll be coverted to cash wth oe year or oe operatg cycle, whchever s shorter. b. wll be coverted to cash wth oe year or oe operatg cycle, whchever s loger. c. wll be coverted to cash wth oe year or oe operatg cycle, whchever s shorter, ad wll be used to pay a curret lablty. d. wll be coverted to cash wth oe year or oe operatg cycle, whchever s loger, ad wll be used to pay a curret lablty. 8. Whch of the followg valuato methods s ot curretly used U.S. GAAP? a. Hstorcal cost b. Curret market value c. Prce level adjusted reportg d. Net realzable value 9. Whch of the followg statemets about subsequet evets s true? a. If a subsequet evet relates to a codto that exsted at the balace sheet date, the the facal statemets should be adjusted. b. A subsequet evet s oe that takes place after a compay s year-ed ad after the facal statemets are ssued. c. The facal statemets must be adjusted for all subsequet evets. d. Whether a subsequet evet s reported as a adjustmet to the facal statemets or as a footote to the facal statemets s based o the judgmet of the accoutat. 10. Whch of the followg s classfed as a vestg actvty o a statemet of cash flows? a. purchase of lad b. ssuace of bods c. purchase of a surace polcy d. purchase of treasury stock 11. Moore Corporato reported et come of $210,000 for the curret year eded Jue 30. Accouts recevable had a begg balace of $35,000 ad a edg balace of $39,000. Accouts payable had a begg balace of $29,000 ad a edg balace of $32,000. Assumg that ths s all of the relevat formato, Moore's cash flows from operatg actvtes are a. $203,000. b. $209,000. c. $211,000. d. $217,000. 2

3 12. I the tme dagram below, whch cocept s beg depcted? 0 1 $1 2 $1 3 $1 4 $1 a. Preset value of a ordary auty b. Preset value of a auty due c. Future value of a ordary auty d. Future value of a auty due 13. What s the term that descrbes the value today of a cash flow or seres of cash flows to be receved or pad the future? a. preset value b. compoud value c. dscout value d. temporal value 14. What s the prmary dfferece betwee a ordary auty ad a auty due? a. the terest rate b. auty due oly relates to future values c. ordary auty oly relates to future values d. the tmg of the perodc paymets 15. If you vest $50,000 a accout that wll ear 8% terest, whch of the followg compoudg approaches would retur the lowest amout after oe year? a. Daly. b. Mothly. c. Quarterly. d. Aually. 3

4 II. Problems (70 pots total) Show all work where approprate! 1. (26 pots) Below s show selected accouts from Margot Shppg Compay s adjusted tral balace at December 31, Prepare a mult-step combed come statemet ad comprehesve come statemet o the ext page. Assume a 30% come tax rate. Margot Shppg Compay Partal Tral Balace (Selected Accouts) December 31, 2015 Accouts Debt Credt Sales $845,300 Dvded Icome 19,470 Iterest Icome 25,420 Ga o Dsposal of Dscotued Operatos 34,860 Urealzed Ga o Avalable-for-Sale Ivestmets 17,260 Loss o Sale of Equpmet 43,270 Loss o Dscotued Operatos Asset Dsposal 46,730 Cost of Goods Sold 320,900 Offce Supples Expese 34,560 Sales Salares Expese 68,740 Sellg Supples Expeses 11,210 Accoutg ad Legal Fees 12,400 Advertsg Expese 32,780 Offce Salares Expese 41,390 Iterest Expese 7,570 Retaed Eargs 231,330 4

5 Margot Shppg Compay Comprehesve Icome Statemet For the Year Eded December 31,

6 2. (22 pots) Show below s the post closg tral balace of Grad Case Mara as of September 30, O the ext page prepare Grad Case s classfed balace sheet as of September 30, Debt Accouts Recevable trade $895 Buldg ad Equpmet 1625 Cash ad Cash Equvalets 196 Iterest Recevable 60 Merchadse Ivetory 112 Lad 600 Notes recevable Log term 475 Prepad Isurace 46 Supples 28 Patet 85 Credt Accouts Payable Trade 710 Accumulated Deprecato-Buldg & Equpmet 375 Addtoal Pad Captal 725 Dvdeds Payable 50 Commo Stock $1 par value 90 Icome tax payable 105 Notes payable due Jue 30, Retaed Eargs 885 Ueared Reveues (wll be eared durg ext year) 120 Accumulated Other Comprehesve Icome 62 TOTALS $4122 $4122 6

7 Grad Case Mara Balace Sheet September 30,

8 3. (10 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. Jala wll receve $80,000 o December 31, 2022, from a trust fud establshed by her gradmother. Assumg the approprate terest rate for dscoutg s 6% (compouded semaually), what s the preset value of ths amout as of Jauary 1, 2017? FV b. Mchelle wats to set asde fuds today so she ca sped oe year travelg aroud the world. She plas to start her travels fve years from today at the completo of her master s degree. Mchelle expects that she wll eed $27,000 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? FV c. Each quarter for the ext 10 years, Evdoka wll depost $1,000 to a vestmet fud that pays 8% terest compouded quarterly. How much wll Evdoka have at the ed of 10 years f the 40 quarterly deposts are made at the begg of each quarter? What type of auty s ths? (crcle your aswer) Ordary Auty Auty Due PMT FV 8

9 4. (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. Each year for the ext 10 years, Vasl wll depost $4,000 to a vestmet fud that pays 8% terest compouded aually. What s the preset 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 b. Cogratulatos, you just wo the lottery wth a jackpot of $77 mllo. You choose the lottery payout that wll pay you $3,080,000 per year for 25 years wth the frst paymet today. If you beleve 6% s the approprate terest rate, what s the preset value of ths payout? What type of auty s ths? (crcle your aswer) Ordary Auty Auty Due N PMT _ c. Le Pett Hotel, Ic. s plag to ssue bods wth a prcple amout of $10,000,000. The bods wll pay semaual terest the amout of 6% of prcple ad mature 10 years. What s the amout of proceeds Le Pett wll receve from the sale of the bods f the prevalg market terest rate s 4%? 9

10 Solutos Multple Choce Questo Number Aswer 1. d 2. c 3. b 4. d 5. c 6. c 7. b 8. c 9. a 10. a 11. b 12. a 13. a 14. d 15. d 10

11 Problem 1 11

12 12

13 Problem 2 13

14 3. (10 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. Jala wll receve $80,000 o December 31, 2022, from a trust fud establshed by her gradmother. Assumg the approprate terest rate for dscoutg s 6% (compouded semaually), what s the preset value of ths amout as of Jauary 1, 2017? FV 12 3% 80,000 56,110 b. Mchelle wats to set asde fuds today so she ca sped oe year travelg aroud the world. She plas to start her travels fve years from today at the completo of her master s degree. Mchelle expects that she wll eed $27,000 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? FV 10 4% 18,240 27,000 c. Each quarter for the ext 10 years, Evdoka wll depost $1,000 to a vestmet fud that pays 8% terest compouded quarterly. How much wll Evdoka have at the ed of 10 years f the 40 quarterly deposts are made at the begg of each quarter? What type of auty s ths? (crcle your aswer) Ordary Auty Auty Due _40 2% PMT _1,000_ FV _61,610_ 14

15 4. (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. Each year for the ext 10 years, Vasl wll depost $4,000 to a vestmet fud that pays 8% terest compouded aually. What s the preset 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 8% PMT _4,000 26,840 b. Cogratulatos, you just wo the lottery wth a jackpot of $77 mllo. You choose the lottery payout that wll pay you $3,080,000 per year for 25 years wth the frst paymet today. If you beleve 6% s the approprate terest rate, what s the preset value of ths payout? What type of auty s ths? (crcle your aswer) Ordary Auty Auty Due N _25 6% PMT 3,080,000 41,735,101 c. Le Pett Hotel, Ic. s plag to ssue $10,000,000 of bods that wll pay 6% semaual terest ad mature 10 years. What s the amout of proceeds Le Pett wll receve from the sale of the bods f the prevalg market terest rate s 4%? of Prcple (=20, =2, FV= ) 6,729,713 of terest paymets (=20, =2, PMT=300000) 4,905,430 11,635,143 Or 1 step: -20, -2, PMT=300000, FV= , CPT = 11,635,143 15