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ACCT 557 Final Exam Complete A+ Answer

ACCT 557 Final Exam Complete A+ Answer

ACCT 557 Final Exam Complete A+ Answer

1. (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 $15,000,000
Construction Start Date June 13, 2012
Construction Complete Date December 16, 2013
As of Dec. 31… 2012 2013
Actual cost incurred $6,500,000 $4,360,000
Estimated remaining costs $5,250,000 $-
Billed to customer $5,000,000 $7,000,000
Received from customer $4,500,000 $6,500,000
Assuming Amazon Building, Inc. uses the completed contract method, what amount of gross profit would be recognized in 2013? (Points : 5)


2. (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? (Points : 5)


3. (TCO C) 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 (Points : 5)


4. (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 $280,000
Contributions to the plan $270,000
Actual return on plan assets $260,000
Projected benefit obligation (beginning of year) $2,900,000
Fair value of plan assets (beginning of year ) $2,700,000
The expected return on plan assets and the settlement rate were both 10%. The amount of pension expense reported for 2013 is (Points : 5)


5. (TCO D) Animal, Inc. leased equipment from Zoo Enterprises under a 4-year lease requiring equal annual payments of $51,000, 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 (Points : 5)


6. (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 (Points : 5)


7. (TCO E) Which of the following is not a change in accounting estimate? (Points : 5)

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. (TCO F) 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. (Points : 5)


9. (TCO G) 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 (Points : 5)

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. (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

For which of the segments would information have to be disclosed in accordance with professional pronouncements? (Points : 5)

Segments A, B, C, and D
Segments A, B, and C
Segments A and B
Segments A and D

1. (TCO A) 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
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. (TCO B) The Accent Corporation shows the following information.
On January 1, 2012, Accent purchased a donut machine for $600,000.
A) Pretax financial income is $3,200,000 in 2012 and $3,500,000 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 $200,000 in 2013 (which is fully taxable).
D) Tax-exempt municipal bonds yielded interest of $240,000 in 2013.
E) Half-year convention for 6 years for financial reporting (See Appendix 11A.)
F) Straight-line basis depreciation for 4 years for tax purposes
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. (TCO D) 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

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.

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. (TCO F) 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

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. (TCO G) Selected financial ratios.
The following information pertains to Allbright, Inc.
Cash $75,000
Accounts receivable $190,000
Inventory $130,000
Plant assets (net) $650,000
Total assets $1,045,000

Accounts payable $140,000
Accrued taxes and expenses payable $32,000
Long-term debt $165,000
Common stock ($10 par) $265,000
Paid-in capital in excess of par $120,000
Retained earnings $495,000
Total equities $1,045,000

Net sales (all on credit) $1,800,000
Cost of goods sold $1,200,000
General & Admin Expenses $430,000
Net income $170,000

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. (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

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ACCT 557 Final Exam

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