ACCT 557 Week 8 Final Exam

ACCT 557 Intermediate Accounting III

(DeVry Keller- Winter 2016)

Date Taken: ……..2016

Question Type:      # Of Questions

Multiple Choice           10                           

Essay                              6

Question 1.Question : (TCO A) Amazon Building, Inc. won a bid for a new warehouse

building contract.

Below is information from the project

accountant.

Total Construction Fixed Price $10,000,000

Construction Start Date June 13, 2012

Construction Complete Date December 16,

2013

As of Dec.

31… 2012 2013

Actual cost

incurred $4,500,000 $2,360,000

Estimated remaining costs $2,250,000 $-

Billed to

customer $6,000,000 $4,000,000

Received from

customer $5,000,000 $3,500,000

Assuming Amazon Building, Inc. uses the completed contract

method, what amount of gross profit would be recognized in 2013?

Question 2.Question : (TCO B) At the beginning of 2012, Annie, Inc. has a deferred tax

asset of $7,500 and deferred tax liability of $10,500. In 2012, pretax

financial income was $826,000 and the tax rate was

35%.

Pretax income included:

Interest income from municipal

bonds $15,000

Accrued warranty costs, estimated to be used in

2013 $74,000

Prepaid rent expense, will be used in

2013 $31,000

Installment sales revenue, to be collected in

2013 $56,000

Operating loss

carryforward $71,000

What is taxable income for 2012?

Question 3.Question : (TCO C) Presented below is pension information related to

Amazing Goods, Inc. for the year 2013.

Service

cost $105,000

Interest on projected benefit

obligation $65,000

Interest on vested

benefits $14,000

Amortization of prior service cost due to increase in

benefits $17,000

Expected return on plan

assets $23,000

The amount of pension expense to be reported for 2013 is

Question 4.Question : (TCO C) Apple Dumpling Inc. sponsors a defined-benefit pension

plan. The following data relates to the operation of the plan for the

year 2013.

Service cost $320,000

Contributions to the plan $285,000

Actual return on plan assets $215,000

Projected benefit obligation (beginning of year) $3,100,000

Fair value of plan assets (beginning of year) $3,600,000

The expected return on plan assets and the settlement rate were

both 9%. The amount of pension expense reported for 2013 is

Question 5.Question : (TCO D) Animal, Inc. leased equipment from Zoo Enterprises

under a 5-year lease requiring equal annual payments of $63,000,

with the first payment due at lease inception. The lease does not

transfer ownership, nor is there a bargain purchase option. The

equipment has a 5-year useful life and no salvage value. Animal,

Inc.’s incremental borrowing rate is 10% and the rate implicit in the

lease (which is known by Pisa, Inc.) is 8%. Assuming that this lease

is properly classified as a capital lease, what is the amount of

interest expense recorded by Animal, Inc. in the first year of the

asset’s life?

PV Annuity Due PV Ordinary

Annuity

8%, 5 periods 4.31213 3.99271

10%, 5 periods 4.16986 3.79079

Question 6.Question : (TCO E) On December 31, 2013, Bob's Trucking, Inc.

appropriately changed its inventory valuation method from

weighted-average cost to FIFO method for financial statement and

income tax purposes. The change will result in an $800,000

increase in the beginning inventory at January 1, 2013. Assume a

40% income tax rate. The cumulative effect of this accounting

change on beginning retained earnings is

Question 7.Question : (TCO E) Which of the following is not a change in accounting

estimate?

Question 8.Question : (TCO F) Amazing Glory, Inc. recognized a net income of $55,000

including $8,000 in depreciation expense.

Additional changes from the balance sheet are as follows.

Accounts Receivable $1,200 decrease

Prepaid Expenses $600 decrease

Inventory $14,600 increase

Accrued Liabilities $1,000 decrease

Accounts Payable $2,100 increase

Compute the net cash from operating activities based on the above

information.

Question 9.Question : (TCO G) Which of the following events that occurred after the

balance sheet date but before issuance of the financial statements

would require adjustment of the accounts before issuance of the

financial statements?

Question 10.Question : (TCO G) Adventure, Inc. is a company that operates in four

different divisions. The following information relating to each

segment is available for 2013.

Sales revenue Operating profit (loss) Identifiable assets

A $85,000 $31,000 $56,000

B $105,000 $(16,000) $82,000

C $250,000 $112,000 $640,000

D $20,000 $4,000 $35,000

Required:

For which of the segments would information have to be disclosed

in accordance with professional pronouncements?

Question 11.Question : (TCO A) Adam's Adorable Creations Company provided the

following financial information for its installment sales for the

current year.

Financial Data:

Installment sales for current year $2,400,000

Cost of goods sold on installment basis $1,800,000

Repossessed merchandise: Estimated value $56,000

Repossessed merchandise: Unpaid balances $90,000

Payments by customers $1,750,000

Required:

(a) Prepare journal entries for the end of the year based on

the information above.

(b) Prepare the entry to record the gross profit realized in the

current year.

Question 12.Question : (TCO B) The Accent Corporation shows the following

information.

On January 1, 2012, Accent purchased a donut machine for

$700,000.

(a) Pretax financial income is $2,300,000 in 2012 and

$2,400,000 in 2013.

(b) Taxable income is expected in future years with an

expected tax rate of 35%.

(c) The company recognized an extraordinary gain of

$150,000 in 2013 (which is fully taxable).

(d) Tax-exempt municipal bonds yielded interest of

$150,000 in 2013.

(e) Straight-line basis for 7 years for financial reporting

(See Appendix 11A.)

(f) Half-year convention basis depreciation for 4 years

for tax purposes.

Required:

(a) Compute taxable income and income taxes

payable for 2013.

(b) Prepare the journal entries for income tax

expense, income taxes payable, and deferred taxes for 2013.

(c) Prepare the deferred income taxes presentation for

December 31, 2013 balance sheet.

Question 13.Question : (TCO D) Absolute Leasing, Inc. agrees to lease equipment to Allen,

Inc. on January 1, 2012. They agree on the following terms:

(a) The normal selling price of the equipment is $600,000 and the

cost of the asset to Absolute Leasing, Inc. was $475,000.

(b) At the end of the lease, the equipment will revert to Absolute

Leasing, Inc. and have an unguaranteed residual value of $60,000.

Their implicit interest rate is 10%.

(c) The lease is noncancelable with no renewal option. The lease

term is 10 years (the same as the estimated economic life).

(d) Absolute Leasing, Inc. incurred costs of $10,000 in negotiating

and closing the lease. There are no uncertainties regarding

additional costs yet to be incurred and the collectability of the lease

payments is reasonably predictable.

(e) The lease begins on January 1, 2012 and payments will be in

equal annual installments.

(f) Allen will pay all maintenance, insurance, and tax costs directly

and annual payments of $65,000 on January 1 of each year.

Required:

(a) Determine what type of lease this would be for the lessee and

calculate the initial obligation.

(b) Prepare Allen, Inc.'s amortization schedule for the lease terms.

(c) Prepare all the journal entries for Allen, Inc. for 2012. Assume a

calendar year fiscal year.

Question 14.Question : (TCO F) Drexon Corp., which follows U.S. GAAP, uses the direct

method to report its cash flows. The CFO is assessing the impact on

cash flows of 12 events during the fiscal year. Specify which

category each event falls under (under the direct method) and note

whether it increases cash, decreases cash, or has no impact on cash:

# Event

1 Accounts payable decreases from $400,000 to $385,000.

2 An interest payment of $85,000 is made on a new debt

issuance.

3 Capital expenditures of $35,000 are made for equipment

used in day to day operations.

4 Dividends of $6,500 are received from a stock classified

as available for sale.

5 A gain of $8,200 is booked on the sale of an asset.

6 Depreciation and amortization expense totaling $50,000 is

booked.

7 Drexon purchases a trading security which it classifies as

non¬current.

8 Accrued liabilities increase from $245,000 to $250,000.

9 40,000 new shares of stock are issued near the close of the

fiscal year.

10 Drexon purchases 60% of a subsidiary company.

11 Accounts receivable decreases from $620,000 to

$610,000.

12 Dividends of $12,000 are paid on Drexon company stock.

.

Question 15.Question : (TCO G) Selected financial ratios.

The following information pertains to Allbright, Inc.

Cash $53,000

Accounts receivable $186,000

Inventory $82,000

Plant assets (net) $320,000

Total assets $641,000

Accounts payable $85,000

Accrued taxes and expenses payable $12,000

Long-term debt $268,000

Common stock ($10 par) $120,000

Paid-in capital in excess of par $6,000

Retained earnings $150,000

Total equities $641,000

Net sales (all on credit) $980,000

Cost of goods sold $760,000

General & Admin Expenses $160,000

Net income $60,000

Required

Compute the following: (It is not necessary to use averages for any

balance sheet figures involved.)

(a) Current ratio

(b) Inventory turnover

(c) Receivables turnover

(d) Book value per share

(e) Earnings per share

(f) Debt to total assets

(g) Profit margin on sales

(h) Return on common stock equity

Question 16.Question : (TCO E) Please describe the requirements for a change in

accounting principle and at least four reasons why companies might

implement a change in accounting principle.