Reference no: EM131805721

Accounting Final Exam Questions -

Q1. The balance sheets for Kinder Company showed the following information. Additional information concerning transactions and events during 2011 are presented below.

Kinder Company Balance Sheet
	December 31
	2011	2010
Cash	$30,900	$10,200
Accounts receivable (net)	43,300	20,300
Inventory	35,000	42,000
Long-Term investments	0	15,000
Property, plant & equipment	236,500	150,000
Accumulated depreciation	(37,700)	(25,000)
	$308,000	$212,500
Accounts payable	$17,000	$26,500
Accrued liabilities	21,000	17,000
Long-term notes payable	70,000	50,000
Common stock	130,000	90,000
Retained earnings	70,000	29,000
	$308,000	$212,500

Additional data:

1. Net income for the year 2011, $76,000.

2. Depreciation on plant assets for the year, $12,700.

3. Sold the long-term investments for $28,000 (assume gain or loss is ordinary).

4. Paid dividends of $35,000.

5. Purchased machinery costing $26,500, paid cash.

6. Purchased machinery and gave a $60,000 long-term note payable.

7. Paid a $40,000 long-term note payable by issuing common stock.

Instructions - Using the format provided on the next page, prepare a statement of cash flows (using the indirect method) for 2011 for Kinder Company.

Q2. Eubank Company, as lessee, enters into a lease agreement on July 1, 2010, for equipment. The following data are relevant to the lease agreement:

1. The term of the noncancelable lease is 4 years, with no renewal option. Payments of $422,689 are due on June 30 of each year.

2. The fair value of the equipment on July 1, 2010 is $1,400,000. The equipment has an economic life of 6 years with no salvage value.

3. Eubank depreciates similar machinery it owns on the sum-of-the-years'-digits basis.

4. The lessee pays all executory costs.

5. Eubank's incremental borrowing rate is 10% per year. The lessee is aware that the lessor used an implicit rate of 8% in computing the lease payments (present value factor for 4 periods at 8%, 3.31213; at 10%, 3.16986.

Instructions -

(a) Indicate the type of lease Eubank Company has entered into and what accounting treatment is applicable.

(b) Prepare the journal entries on Eubank's books that relate to the lease agreement for the following dates:

1. July 1, 2010.

2. December 31, 2010.

3. June 30, 2011.

4. December 31, 2011.

Q3. The accounting staff of Elias Inc. has prepared the following pension worksheet. Unfortunately, several entries in the worksheet are not readable. The company has asked your assistance in completing the worksheet and completing the accounting tasks related to the pension plan for 2011.

		General Journal Entries					Memo Record
Items	Annual Pension Expense	Cash	OCI -- Prior Service Cost	OCI - Gain/Loss	Pension Asset/Liability		Projected Benefit Obligation	Plan Assets
Balance, Jan. 1, 2011					1,700	Cr.	4,200	2,500
Service cost	(1)						600
Interest cost	(2)						420
Actual return	(3)							480
Unexpected gain	225			(4)
Amortization of PSC	(5)		85
Contributions		1,200						1,200
Benefits							300	300
Liability increase				(6)			545
Journal entry	(7)	(8)	(9)	(10)	(11)
Accumulated OCI, Dec. 31, 2010			1,700	0
Balance, Dec. 31, 2011			1,615	320	1,585		5,465	3,880

Instructions

(a) Determine the missing amounts in the 2011 pension worksheet, indicating whether the amounts are debits or credits.

(b) Prepare the journal entry to record 2011 pension expense for Elias Inc.

Q4. Farmer Inc. began business on January 1, 2010. Its pretax financial income for the first 2 years was as follows:

2010       $240,000

2011       560,000

The following items caused the only differences between pretax financial income and taxable income.

1. In 2010, the company collected $180,000 of rent; of this amount, $60,000 was earned in 2010; the other $120,000 will be earned equally over the 2011-2012 period. The full $180,000 was included in taxable income in 2010.

2. The company pays $10,000 a year for life insurance on officers.

3. In 2011, the company terminated a top executive and agreed to $90,000 of severance pay. The amount will be paid $30,000 per year for 2011-2013. The 2011 payment was made. The $90,000 was expensed in 2011. For tax purposes, the severance pay is deductible as it is paid.

The enacted tax rates existing at December 31, 2010 are:

2010       30%        2012       40%

2011       35%        2013       40%

Instructions -

(a) Determine taxable income for 2010 and 2011.

(b) Determine the deferred income taxes at the end of 2010, and prepare the journal entry to record income taxes for 2010.

(c) Prepare a schedule of future taxable and (deductible) amounts at the end of 2011.

(d) Prepare a schedule of the deferred tax (asset) and liability at the end of 2011.

(e) Compute the net deferred tax expense (benefit) for 2011.

(f) Prepare the journal entry to record income taxes for 2011.

(g) Show how the deferred income taxes should be reported on the balance sheet at December 31, 2011.