Reference no: EM131777755

Questions -

Q1. The following information is taken from the records of Crab Co.

Basic Data Regarding Purchases and Sales:

Date	Activity	Units	Unit Cost
2/1	Begin Invent	800	3.00
2/9	Purchase	1,600	3.10
2/15	Purchase	1,200	3.20
2/24	Purchase	900	3.24

During the month the company sold 3,400 units.

a) Calculate the cost of goods available for sale.

b) What is ending inventory under the LIFO method?

c) What is ending inventory under the LIFO method?

Q2. Assume that on 1-1-10, Star Co. Issued $500,000 of 8%, ten-year bond for a yield of 6%. The bonds pay interest each June 30 and December 31.

a) What will be the sale (issue) price of the bonds?

b) Prepare an amortization schedule under the effective interest method for the first two years of the bond's life.

Q3. On January 1, 2010, Hershey Co. leased a machine for 5 years at an annual rental of $64,000, payable on the date of signing the lease and each December 31 thereafter. The machine has an estimated useful life of 8 years and no salvage value. Hershey Co. has an option to purchase the machine for $1at the end of the lease. The market value of the machine is not known. Hershey's incremental borrowing rate is 8%.

a) What is the present value of the lease?

b) What is the impact of the lease on 2010 income statement and year-end balance sheet?

Q4. Martini Co. purchased the following investments during 2010:

Date	Stock	Cost
Feb 1	Cmga	$30,000
Mar 15	Solo	$40,000
Jun 10	Techee	$70,000
Sep 12	Rust Co.	$20,000

The company classifies investments in Cmga and Rust Co. as trading securities and the others as available for sale securities. At year-end the stocks has the following market value: Cmga- $32,000, Solo - 48,000, Techee - $75,000, and Rust Co.-$16,000.

In addition to the above, on January 1, Martini purchased 30% of Olive Co. for $900,000. This purchase gave Martini significant influence over Olive. During the year Olive reported net income of $300,000 and they paid dividends of $60,000. Martini uses the equity method to account for this investment.

Indicate how the above investment would:

a) Affect the income statement for the year. (Be specific and give dollar amounts).

b) Be reported (How classified?), and at what value, in the balance sheet.

Q5. Magellan Co. purchased a new machine to use in operations on January 2, 2010. The machine purchase price was $140,000. The company also paid shipping charges and insurance in transit totaling $2,500. The company also signed a maintenance contract with the manufacturer for the first year that cost $2,400. The machine is estimated to have a five-year life and salvage value of $4,500. Consider the following two as independent of each other.

a) Calculate the annual depreciation under the straight line method.

b) Calculate the second year, 2011, depreciation under the double declining balance method.

Questions -

Q1. How is the dollar amount of goodwill determined? How does GAAP account for goodwill after it is recognized?

Q2. A two for one stock split and a %100 stock dividend both result in doubling of the outstanding shares. Do they both have the same impact on the stockholder's equity section of the balance sheet? Explain fully.

Q3. Criticize current accounting for research and development. Can GAAP lead to misleading financial statements in this area? Explain.

Q4. Under current GAAP, what criteria are used to determine if a lease is an operating or a financing type lease?

Q5. What determine whether a deferred tax item is an asset or a liability? Be specific.

Q6. According to GAAP, under what conditions are gain and loss contingencies accrued?

Q7. How does a defined benefit pension plan differ from a defined contribution plan? In a defined benefit plan what is the projected benefit obligation?

Q8. Mr. Money, CEO of Growing Co, said to Board of Directions "We have significant investments in stocks of other companies and haven't done well on these investments in the past five year. I think we need to have our company invest in our own company's shares of stock. Our stock price has doubled every three years in the past nine years. If we did this, we could increase our net income when we sell our shares for more than we paid for them." DO you agree? Discuss.

Q9. What is the significance or par value for common stock?

Q10. What are consolidated financial statements and why do they have to be reported?