ACC 422 35 Questions

Question 1

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Kraft Enterprises owns the following assets at December 31, 2012.

	Cash in bank–savings account	67,755		Checking account balance	19,521
	Cash on hand	9,899		Postdated checks	889
	Cash refund due from IRS	32,089		Certificates of deposit (180-day)	93,014

What amount should be reported as cash?

$ IS THIS CORRECT?

Question 2

Presented below is information related to Rembrandt Inc.'s inventory.

	(per unit)	Skis	Boots	Parkas
	Historical cost	$255.17		$142.36		$71.18
	Selling price	291.43		194.74		99.05
	Cost to distribute	25.52		10.74		3.36
	Current replacement cost	272.63		141.02		68.49
	Normal profit margin	42.98		38.95		28.54

Determine the following:

(a)	the two limits to market value (e.g., the ceiling and the floor) that should be used in the lower of cost or market computation for skis; (Round answers to 2 decimal places, e.g. 20.25.)

Ceiling	$
Floor	$

(b)	the cost amount that should be used in the lower of cost or market comparison of boots; (Round answer to 2 decimal places, e.g. 20.25.)

Cost amount

$

(c)	the market amount that should be used to value parkas on the basis of the lower of cost or market. (Round answer to 2 decimal places, e.g. 20.25.)

Market amount	$
Question 3

Matlock Company uses a perpetual inventory system. Its beginning inventory consists of 66 units that cost $40 each. During June, the company purchased 199 units at $40 each, returned 8 units for credit, and sold 166 units at $66 each. Journalize the June transactions.

Description/Account	Debit	Credit
(To record inventory purchased.)
(To record inventory returned.)
(To record inventory sold.)
(To record cost of goods sold.)

Question 4

Amsterdam Company uses a periodic inventory system. For April, when the company sold 700 units, the following information is available.

		Units	Unit Cost	Total Cost
	April 1 inventory	250		$15		$3,750
	April 15 purchase	400		18		7,200
	April 23 purchase	350		19		6,650
		1,000				$17,600

Compute the April 30 inventory and the April cost of goods sold using the average cost method. (Round computations for cost per unit to 2 decimal places, e.g. 10.25 and answers to 0 decimal places, e.g. 2,250.)

Inventory	$
Cost of goods sold	$

Question 5

Amsterdam Company uses a periodic inventory system. For April, when the company sold 600 units, the following information is available.

		Units	Unit Cost	Total Cost
	April 1 inventory	250		$14		$3,500
	April 15 purchase	400		16		6,400
	April 23 purchase	350		18		6,300
		1,000				$16,200

Compute the April 30 inventory and the April cost of goods sold using the FIFO method.

Inventory	$
Cost of goods sold	$
Question 6

(FIFO, LIFO, Average Cost Inventory)

Esplanade Company was formed on December 1, 2011. The following information is available from Esplanade's inventory records for Product BAP.

		Units	Unit Cost
	January 1, 2012 (beginning inventory)	768		$8.00
	Purchases:
	January 5, 2012	1,536		9.00
	January 25, 2012	1,664		10.00
	February 16, 2012	1,024		11.00
	March 26, 2012	768		12.00

A physical inventory on March 31, 2012, shows 2,048 units on hand.

Prepare schedules to compute the ending inventory at March 31, 2012, under each of the following inventory methods. Assume Esplanade Company uses the periodic inventory method.

(a)

FIFO

	ESPLANADE COMPANY
	Computation of Inventory for Product BAP
	BAP under FIFO Inventory Method
	March 31, 2012
		Units	Unit Cost	Total Cost
	March 26, 2012		$	$
	February 16, 2012
	January 25, 2012
	March 31, 2012, inventory			$

(b)

LIFO

	ESPLANADE COMPANY
	Computation of Inventory for Product BAP
	BAP under LIFO Inventory Method
	March 31, 2012
		Units	Unit Cost	Total Cost
	Beginning inventory		$	$
	January 5, 2012
	March 31, 2012, inventory			$

(c)	Weighted average (Round weighted average cost to 2 decimal places, e.g. 2.25 and use this rounded amount for future calculations. Round the inventory on March to 0 decimal places, e.g. 1,250.)

	ESPLANADE COMPANY
	Computation of Inventory for Product BAP
	BAP under Weighted Average Inventory Method
	March 31, 2012
		Units	Unit Cost	Total Cost
	Beginning inventory		$	$
	January 5, 2012
	January 25, 2012
	February 16, 2012
	March 26, 2012
				$

	Weighted Average cost	$
	March 31, 2012, inventory	$

Question 7

Floyd Corporation has the following four items in its ending inventory.

	Item	Cost	Replacement Cost	Net Realizable Value (NRV)	NRV Less Normal Profit Margin
	Jokers	$2,910		$2,983		$3,056		$2,328
	Penguins	7,275		7,421		7,202		5,966
	Riddlers	6,402		6,620		6,729		5,384
	Scarecrows	4,656		4,350		5,573		4,467

Determine the final lower of cost or market inventory value for each item.

Jokers	$
Penguins	$
Riddlers	$
Scarecrows	$

Question 8

Kumar Inc. uses a perpetual inventory system. At January 1, 2013, inventory was $224,700 at both cost and market value. At December 31, 2013, the inventory was $300,300 at cost and $282,450 at market value. Prepare the necessary December 31 entry under:

(a)	the cost of goods sold method

Description/Account	Debit	Credit

(b)	the loss method

Description/Account	Debit	Credit

Question 9

Boyne Inc. had beginning inventory of $15,360 at cost and $25,600 at retail. Net purchases were $153,600 at cost and $217,600 at retail. Net markups were $12,800; net markdowns were $8,960; and sales were $200,960. Compute ending inventory at cost using the conventional retail method. (Round computation for cost-to-retail ratio percentage and answer to 0 decimal places, e.g. 25,250.)

Ending inventory

$

Question 10

(Gross Profit Method)

Astaire Company uses the gross profit method to estimate inventory for monthly reporting purposes. Presented below is information for the month of May.

	Inventory, May 1	$187,200
	Purchases (gross)	748,800
	Freight-in	35,100
	Sales	1,170,000
	Sales returns	81,900
	Purchase discounts	14,040

(a)	Compute the estimated inventory at May 31, assuming that the gross profit is 25% of sales.

Inventory

$

(b)	Compute the estimated inventory at May 31, assuming that the gross profit is 25% of cost.

Inventory	$

Question 11

Previn Brothers Inc. purchased land at a price of $27,230. Closing costs were $2,360. An old building was removed at a cost of $14,110. What amount should be recorded as the cost of the land?

$

Question 12

Garcia Corporation purchased a truck by issuing an $97,600, 4-year, zero-interest-bearing note to Equinox Inc. The market rate of interest for obligations of this nature is 10%. Prepare the journal entry to record the purchase of this truck. (Round answers to 0 decimal places, e.g. 15,510. List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2. Hint: Use tables in text.)

Description/Account	Debit	Credit

Question 13

Mohave Inc. purchased land, building, and equipment from Laguna Corporation for a cash payment of $381,150. The estimated fair values of the assets are land $72,600, building $266,200, and equipment $96,800. At what amounts should each of the three assets be recorded? (Note: Do not round the computation of the % of total.)

	Recorded Amount
Land	$
Building	$
Equipment	$

Question 14

Fielder Company obtained land by issuing 2,000 shares of its $13 par value common stock. The land was recently appraised at $111,350. The common stock is actively traded at $54 per share. Prepare the journal entry to record the acquisition of the land. (List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2.)

Description/Account	Debit	Credit

Question 15

Navajo Corporation traded a used truck (cost $23,000, accumulated depreciation $20,700) for a small computer worth $4,255. Navajo also paid $1,150 in the transaction. Prepare the journal entry to record the exchange. (The exchange has commercial substance.) (List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2.)

Description/Account	Debit	Credit

Question 16

Mehta Company traded a used welding machine (cost $11,520, accumulated depreciation $3,840) for office equipment with an estimated fair value of $6,400. Mehta also paid $3,840 cash in the transaction. Prepare the journal entry to record the exchange. (The exchange has commercial substance.) (List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2.)

Description/Account	Debit	Credit

Question 17

Depreciation is normally computed on the basis of the nearest

full month and to the nearest cent.

full month and to the nearest dollar.

day and to the nearest cent.

day and to the nearest dollar.

Question 18

Fernandez Corporation purchased a truck at the beginning of 2012 for $52,500. The truck is estimated to have a salvage value of $2,500 and a useful life of 200,000 miles. It was driven 28,750 miles in 2012 and 38,750 miles in 2013. Compute depreciation expense for 2012 and 2013. (Round answers to 0 decimal places, i.e. 2,250.)

2012	$
2013	$

Question 19

Lockhard Company purchased machinery on January 1, 2012, for $67,800. The machinery is estimated to have a salvage value of $6,780 after a useful life of 8 years.

(a)	Compute 2012 depreciation expense using the double-declining balance method.
	$

(b)	Compute 2012 depreciation expense using the double-declining balance method assuming the machinery was purchased on October 1, 2012. (Round answer to 0 decimal places, i.e. 2,250.)
	$

Question 20

Jurassic Company owns machinery that cost $1,175,400 and has accumulated depreciation of $470,160. The expected future net cash flows from the use of the asset are expected to be $653,000. The fair value of the equipment is $522,400. Prepare the journal entry, if any, to record the impairment loss.

Description/Account	Debit	Credit

Question 21

Everly Corporation acquires a coal mine at a cost of $514,400. Intangible development costs total $128,600. After extraction has occurred, Everly must restore the property (estimated fair value of the obligation is $102,880), after which it can be sold for $205,760. Everly estimates that 5,144 tons of coal can be extracted. If 900 tons are extracted the first year, prepare the journal entry to record depletion.

Description/Account	Debit	Credit

Question 22

Francis Corporation purchased an asset at a cost of $65,400 on March 1, 2012. The asset has a useful life of 8 years and a salvage value of $6,540. For tax purposes, the MACRS class life is 5 years. Compute tax depreciation for each year 2012–2017. (Round answers to 0 decimal places.)

2012	$
2013	$
2014	$
2015	$
2016	$
2017	$

Question 23

Celine Dion Corporation purchases a patent from Salmon Company on January 1, 2012, for $57,370. The patent has a remaining legal life of 16 years. Celine Dion feels the patent will be useful for 10 years. Prepare Celine Dion's journal entries to record the purchase of the patent and 2012 amortization.

Account/Description	Debit	Credit
(To record purchase of patent.)
(To record amortization.)

Question 24

Karen Austin Corporation has capitalized software costs of $865,200, and sales of this product the first year totaled $429,450. Karen Austin anticipates earning $1,002,050 in additional future revenues from this product, which is estimated to have an economic life of 5 years. Compute the amount of software cost amortization for the first year.

(a)	Compute the amount of software cost amortization for the first year using the percent of revenue approach.
	$

(b)	Compute the amount of software cost amortization for the first year using the straight-line approach.
	$

Question 25

Jeff Beck is a farmer who owns land which borders on the right-of-way of the Northern Railroad. On August 10, 2012, due to the admitted negligence of the Railroad, hay on the farm was set on fire and burned. Beck had had a dispute with the Railroad for several years concerning the ownership of a small parcel of land. The representative of the Railroad has offered to assign any rights which the Railroad may have in the land to Beck in exchange for a release of his right to reimbursement for the loss he has sustained from the fire. Beck appears inclined to accept the Railroad's offer. The Railroad's 2012 financial statements should include the following related to the incident:

recognition of a loss and creation of a liability for the value of the land.

recognition of a loss only.

creation of a liability only.

disclosure in note form only.

Question 26

Roley Corporation uses a periodic inventory system and the gross method of accounting for purchase discounts. On July 1, Roley purchased $67,000 of inventory, terms 2/10, n/30, FOB shipping point. Roley paid freight costs of $1,220. On July 3, Roley returned damaged goods and received credit of $6,700. On July 10, Roley paid for the goods. Prepare all necessary journal entries for Roley. (For multiple debit/credit entries, list amounts from largest to smallest, e.g. 10, 8, 6.)

Date	Description/Account	Debit	Credit
July 1
	Freight-in
July 3
July 10

Question 27

Takemoto Corporation borrowed $86,400 on November 1, 2012, by signing a $88,344, 3-month, zero-interest-bearing note. Prepare Takemoto's November 1, 2012, entry; the December 31, 2012, annual adjusting entry; and the February 1, 2013, entry. (For multiple debit/credit en tries, list amounts from largest to smallest, e.g. 10, 8, 6. Round all answers to 0 decimal places, e.g. 11,150.)

Date	Description/Account	Debit	Credit
11/1/12
12/31/12
2/1/13
	Cash

Question 28

Whiteside Corporation issues $611,000 of 9% bonds, due in 16 years, with interest payable semiannually. At the time of issue, the annual market rate for such bonds is 10%. Compute the issue price of the bonds. (Use the present value tables in the text. Round your answer to zero decimal places, e.g. 2,510.)

$

Question 29

Indiana Jones Company enters into a 7-year lease of equipment on January 1, 2012, which requires 7 annual payments of $38,370 each, beginning January 1, 2012. In addition, the lessee guarantees a residual value of $20,300 at lease-end. The equipment has a useful life of 7 years. Assume that for Lost Ark Company, the lessor, collectibility is reasonably predictable, there are no important uncertainties concerning costs, and the carrying amount of the machinery is $210,474. Prepare Lost Ark's January 1, 2012, journal entries.

Description	Debit	Credit
	$
		$
(To record the lease)
	$
		$
(To record first lease payment)

Question 30

On January 1, 2012, Irwin Animation sold a truck to Peete Finance for $28,900 and immediately leased it back. The truck was carried on Irwin's books at $21,850. The term of the lease is 5 years, and title transfers to Irwin at lease-end. The lease requires five equal rental payments of $8,217 at the end of each year. The appropriate rate of interest is 13%, and the truck has a useful life of 5 years with no salvage value. Prepare Irwin's 2012 journal entries. (Round your answer to the nearest dollar eg 58,591.  For multiple debit/credit entries, list amounts from largest to smallest eg 10, 5, 3, 2.)

Date	Description	Debit	Credit
Jan. 1		$
			$
			$
	(To record the sale )
Jan. 1		$
			$
	(To record the leaseback)
Dec. 31		$
			$
	(To record depreciation)
Dec. 31		$
			$
Dec. 31		$
		$
			$
	(To record first lease payment)

Question 31 Sycamore Candy Company offers a CD single as a premium for every 5 candy bar wrappers presented by customers together with $3.25. The candy bars are sold by the company to distributors for 30 cents each. The purchase price of each CD to the company is $3.00; in addition, it costs 50 cents to mail each CD. The results of the premium plan for the years 2012 and 2013 are as follows. (All purchases and sales are for cash.) 2012 2013 CDs purchased 392,500 518,100 Candy bars sold 2,978,300 2,837,300 Wrappers redeemed 1,884,000 2,355,000 2012 wrappers expected to be redeemed in 2013 455,300 2013 wrappers expected to be redeemed in 2014 549,500 (a) Prepare the journal entries that should be made in 2012 and 2013 to record the transactions related to the premium plan of the Sycamore Candy Company. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) No. Account Titles and Explanation Debit Credit 2012 1. (To record the pemium inventory.) 2. (To record the sales.) 3. (To record the expense associated with the sale.) 4. (To record the premium liability.) 2013 5. (To record the pemium inventory.) 6. (To record the sales.) 7. (To record the expense associated with the sale.) 8. (To record the premium liability.) (b) Indicate the amounts for each accounts, and classifications of the items related to the premium plan that would appear on the balance sheet and the income statement at the end of 2012 and 2013. Amount Account 2012 2013 Classification Inventory of Premiums $ $ Premiums Liability Premium Expense

Question 32

Presented below are three independent situations. Answer the question at the end of each situation. 1. During 2012, Maverick Inc. became involved in a tax dispute with the IRS. Maverick’s attorneys have indicated that they believe it is probable that Maverick will lose this dispute. They also believe that Maverick will have to pay the IRS between $800,000 and $1,400,000. After the 2012 financial statements were issued, the case was settled with the IRS for $1,200,000. What amount, if any, should be reported as a liability for this contingency as of December 31, 2012? 2. On October 1, 2012, Holmgren Chemical was identified as a potentially responsible party by the Environmental Protection Agency. Holmgren’s management along with its counsel have concluded that it is probable that Holmgren will be responsible for damages, and a reasonable estimate of these damages is $6,000,000. Holmgren’s insurance policy of $9,000,000 has a deductible clause of $500,000. How should Holmgren Chemical report this information in its financial statements at December 31, 2012? 3. Shinobi Inc. had a manufacturing plant in Darfur, which was destroyed in the civil war. It is not certain who will compensate Shinobi for this destruction, but Shinobi has been assured by governmental officials that it will receive a definite amount for this plant. The amount of the compensation will be less than the fair value of the plant but more than its book value. How should the contingency be reported in the financial statements of Shinobi Inc.?

Question 33

On December 31, 2012, the American Bank enters into a debt restructuring agreement with Barkley Company, which is now experiencing financial trouble. The bank agrees to restructure a 14%, issued at par, $3,184,000 note receivable by the following modifications:

1.		Reducing the principal obligation from $3,184,000 to $2,547,200.
2.		Extending the maturity date from December 31, 2012, to January 1, 2016.
3.		Reducing the interest rate from 14% to 10%.

Barkley pays interest at the end of each year. On January 1, 2016, Barkley Company pays $2,547,200 in cash to Firstar Bank. (a) Will the gain recorded by Barkley be equal to the loss recorded by American Bank under the debt restructuring?  (b) Can Barkley Company record a gain under the term modification mentioned above?  (c) Assuming that the interest rate Barkley should use to compute interest expense in future periods is 1.4276%, prepare the interest payment schedule of the note for Barkley Company after the debt restructuring. (Round answers to 0 decimal places, e.g. $38,548.)

BARKLEY COMPANY Interest Payment Schedule After Debt Restructuring Effective-Interest Rate
Date		Cash Paid		Interest Expense		Reduction of Carrying Amount		Carrying Amount of Note
12/31/12		$		$		$		$
12/31/13
12/31/14
12/31/15									*
Total		$		$		$

* Difference due to rounding (d) Prepare the interest payment entry for Barkley Company on December 31, 2014. (Round answers to 0 decimal places, e.g. $38,548. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Account Titles and Explanation	Debit	Credit

(e) What entry should Barkley make on January 1, 2016? (Round answers to 0 decimal places, e.g. $38,548. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Account Titles and Explanation	Debit	Credit

Question 34 On January 1, 2012, Palmer Company leased equipment to Woods Corporation. The following information pertains to this lease. 1. The term of the noncancelable lease is 6 years, with no renewal option. The equipment reverts to the lessor at the termination of the lease. 2. Equal rental payments are due on January 1 of each year, beginning in 2012. 3. The fair value of the equipment on January 1, 2012, is $238,800, and its cost is $195,816. 4. The equipment has an economic life of 8 years, with an unguaranteed residual value of $10,280. Woods depreciates all of its equipment on a straight-line basis. 5. Palmer sets the annual rental to ensure an 11% rate of return. Woods’s incremental borrowing rate is 12%, and the implicit rate of the lessor is unknown. 6. Collectibility of lease payments is reasonably predictable, and no important uncertainties surround the amount of costs yet to be incurred by the lessor. (Both the lessor and the lessee’s accounting period ends on December 31.)

(b) Calculate the amount of the annual rental payment. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971.) The amount of the annual rental payment $

Inventory

7960

Accounts payable

7960

Accounts receivable

320

Inventory

320

Accounts receivable

10956

Sales

10956

Cost of goods sold

Inventory

190189