Reference no: EM13337564

Part -A

1. 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. 31Ac€¦ 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? 

$973,333

$1,640,000

$2,093,333

$3,140,000

2. 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? 

$727,000

$826,000

$915,000

$1,073,000

3. Presented below is pension information related to Amazing Goods, Inc. for the year 2013.

Service cost $96,000

Interest on projected benefit obligation $53,000

Interest on vested benefits $25,000

Amortization of prior service cost due to increase in benefits $10,000

Expected return on plan assets $19,000

The amount of pension expense to be reported for 2013 is 

$130,000.

$140,000.

$165,000.

$184,000.

4. 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 

$275,000.00

$384,000.00

$320,000.00

$599,000.00

5. Animal, Inc. leased equipment from Zoo Enterprises under a 4-year lease requiring equal annual payments of $48,000, 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 4-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 

0

$16,559

$12,719

$15,332

6. 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 a $600,000 increase in the beginning inventory at January 1, 2013. Assume a 30% income tax rate. The cumulative effect of this accounting change on beginning retained earnings is 

$600,000.

$420,000.

$-.

$180,000.

7. Which of the following is not a change in accounting estimate?

Change in amortization period for an intangible asset.

Change from straight-line to sum-of-the-years'-digits method of depreciation.

Change because of understatement of inventory.

Change in residual value of a depreciable plant asset.

8. Amazing Glory, Inc. recognized a net income of $95,000 including $20,500 in depreciation expense.

Additional changes from the balance sheet are as follows.

Accounts Receivable $800 decrease

Prepaid Expenses $14,000 decrease

Inventory $25,000 increase

Accrued Liabilities $6,500 decrease

Accounts Payable $12,000 increase

Compute the net cash from operating activities based on the above information. 

$79,000

$50,700

$110,800

$132,000

9. Items that affect the realizability of accounts receivable that are revealed after the balance sheet date but before the financial statements are issued should be 

disclosed only in the Notes to the Financial Statements.

discussed only in the MD&A (Management's Discussion and Analysis) section of the annual report.

used to record an adjustment to Bad Debt Expense for the year ending December 31, 2013.

used to record an adjustment directly to the retained earnings account.

10. 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 $9,000 $2,000 $60,000

B $32,000 $(14,000) $65,000

C $65,500 $130,000 $525,000

D $21,000 $8,000 $38,000

Required:

For which of the segments would information have to be disclosed in accordance with professional pronouncements? 

Segments B, C, and D

Segments A, B, and C

Segments A and B

Segments C and D

Part -B

1. Adam's Adorable Creations Company

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 $2,500,000

Cost of goods sold on installment basis $2,000,000

Repossessed merchandise: Estimated value $32,000

Repossessed merchandise: Unpaid balances $45,000

Payments by customers $1,600,000

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.

2. The Accent Corporation shows the following information.

On January 1, 2012, Accent purchased a donut machine for $900,000.

A) Pretax financial income is $2,000,000 in 2012 and $2,500,000 in 2013.

B) Taxable income is expected in future years with an expected tax rate of 40%.

C) The company recognized an extraordinary gain of $250,000 in 2013 (which is fully taxable).

D) Tax-exempt municipal bonds yielded interest of $50,000 in 2013.

E) Half-year convention for 8 years for financial reporting (See Appendix 11A.)

F) Straight-line basis depreciation for 5 years for tax purposes.

Required:

1) Compute taxable income and income taxes payable for 2013.

2) Prepare the journal entries for income tax expense, income taxes payable, and deferred taxes for 2013.

3) Prepare the deferred income taxes presentation for December 31, 2013 balance sheet.

3. Absolute Leasing, Inc. agrees to lease equipment to Allen, Inc. on January 1, 2012. They agree on the following terms:

1) The normal selling price of the equipment is $600,000 and the cost of the asset to Absolute Leasing, Inc. was $475,000.

2) 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%.

3) The lease is noncancelable with no renewal option. The lease term is 10 years (the same as the estimated economic life).

4) 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.

5) The lease begins on January 1, 2012 and payments will be in equal annual installments.

6) 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.

4. Cash flows from operating activities (indirect and direct methods).

Presented below is the income statement of Angola, Inc.

Sales $324,000

Cost of goods sold $214,000

Gross profit $110,000

Operating expenses $67,000

Income before income taxes $43,000

Income taxes $17,200

Net income $25,800

In addition, the following information related to net changes in working capital is presented.

Debit Credit

Cash $10,600

Accounts receivable $2,400

Inventories $3,600

Salaries payable (operating expenses) $12,000

Accounts payable $15,000

Income taxes payable $1,400

Depreciation expense for the year was $14,700

Deferred tax liability account increased $1,800

Required:

Prepare a schedule computing the net cash flow from operating activities that would be shown on a statement of cash flows

-(a) using the indirect method.

-(b) using the direct method.

5. 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 $365,000

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

6. Please describe the requirements for a change in accounting principle and at least four reasons why companies might implement a change in accounting principle.