MULTIPLE CHOICE
1. A contingent loss should be reported in a footnote to the financial statements rather than being accrued if: (Points : 1)
2. Which of the following investment securities held by Zoogle Inc. may be classified as held-to-maturity securities in its balance sheet? (Points : 1)
3. Large, highly rated firms sometimes sell commercial paper: (Points : 1)
4. Which of the following increases the investment account under the equity method of accounting? (Points : 1)
5. When the equity method of accounting for investments is used by the investor, the investment account is increased when: (Points : 1)
6. Which of the following is a contingency that would most likely require accrual? (Points : 1)
7. When a product or service is delivered for which a customer advance has been previously received, the appropriate journal entry includes: (Points : 1)
8. Other things being equal, most managers would prefer to report liabilities as noncurrent rather than current. The logic behind this preference is that the long-term classification permits the company to report: (Points : 1)
9. The key accounting considerations relating to accounts payable are: (Points : 1)
10. The investment category for which the investor's "positive intent and ability to hold" is important is: (Points : 1)
Click here for the solution: 1. A contingent loss should be reported in a footnote to the financial statements rather than being accrued if: (Points : 1)
Showing posts with label reported. Show all posts
Showing posts with label reported. Show all posts
Wednesday, April 13, 2016
1. Nu Company reported the following pretax data for its first year of operations
MULTIPLE CHOICE
1. Nu Company reported the following pretax data for its first year of operations.
Net sales 2,800 Cost of goods available for sale 2,500 Operating expenses 880 Effective tax rate 40% Ending inventories: If LIFO is elected 820 If FIFO is elected 1,060
What is Nu's gross profit percentage if it elects LIFO? (Points : 1)
2. The use of LIFO during a long inflationary period can result in: (Points : 1)
3. The primary reason for the popularity of LIFO is that it gives: (Points : 1)
4. In determining the cost-to-retail percentage for the current year,: (Points : 1)
5. Inventory does not include: (Points : 1)
6. So. California Inc., through no fault of its own, lost an entire plant due to an earthquake on May 1, 2006. In preparing their insurance claim on the inventory loss, they developed the following data: Inventory January 1, 2006, $300,000; sales and purchases from January 1, 2006, to May 1, 2006, $1,300,000 and $875,000, respectively. So. California consistently reports a 40% gross profit. The estimated inventory on May 1, 2006, is: (Points : 1)
7. In a period when prices are falling and inventory quantities are stable, the lowest taxable income would be reported by using the inventory method of: (Points : 1)
8. To determine the value of a LIFO layer, using dollar-value LIFO retail: (Points : 1)
9. When using the gross profit method to estimate ending inventory, it is not necessary to know: (Points : 1)
10. The inventory method that will always produce the same amount for cost of goods sold in a periodic inventory system as in a perpetual inventory system would be: (Points : 1)
Click here for the solution: 1. Nu Company reported the following pretax data for its first year of operations
1. Nu Company reported the following pretax data for its first year of operations.
Net sales 2,800 Cost of goods available for sale 2,500 Operating expenses 880 Effective tax rate 40% Ending inventories: If LIFO is elected 820 If FIFO is elected 1,060
What is Nu's gross profit percentage if it elects LIFO? (Points : 1)
2. The use of LIFO during a long inflationary period can result in: (Points : 1)
3. The primary reason for the popularity of LIFO is that it gives: (Points : 1)
4. In determining the cost-to-retail percentage for the current year,: (Points : 1)
5. Inventory does not include: (Points : 1)
6. So. California Inc., through no fault of its own, lost an entire plant due to an earthquake on May 1, 2006. In preparing their insurance claim on the inventory loss, they developed the following data: Inventory January 1, 2006, $300,000; sales and purchases from January 1, 2006, to May 1, 2006, $1,300,000 and $875,000, respectively. So. California consistently reports a 40% gross profit. The estimated inventory on May 1, 2006, is: (Points : 1)
7. In a period when prices are falling and inventory quantities are stable, the lowest taxable income would be reported by using the inventory method of: (Points : 1)
8. To determine the value of a LIFO layer, using dollar-value LIFO retail: (Points : 1)
9. When using the gross profit method to estimate ending inventory, it is not necessary to know: (Points : 1)
10. The inventory method that will always produce the same amount for cost of goods sold in a periodic inventory system as in a perpetual inventory system would be: (Points : 1)
Click here for the solution: 1. Nu Company reported the following pretax data for its first year of operations
Tuesday, April 12, 2016
International Reporting Case: Sepracor, Inc., a U.S. drug company, reported the following information
International Reporting Case
Sepracor, Inc., a U.S. drug company, reported the following information. The company prepares its financial statements in accordance with U.S. GAAP.
2007 (,000)
Current Liabilities $ 554,114
Convertible Subordinated Debt 648,020
Total Liabilities 1,228,313
Stockholders’ Equity 176,413
Net Income 58,333
Analysts attempting to compare Sepracor to international drug companies may face a challenge due to differences in accounting for convertible debt under iGAAP. Under IAS 32, Financial Instruments, convertible bonds, at issuance, must be classified separately into their debt and equity components based on estimated fair value.
INSTRUCTIONS:
(a) Compute the following rations for Sepracor, Inc. (assume that year-end balances approximate annual averages.)
(1) Return on assets.
(2) Return on stockholders’ equity
(3) Debt to asset ratio
(b) Briefly discuss the operating performance and financial position of Sepracor. Industry averages for these ratios in 2007were: ROA 3.5%; return on equity 16%; and debt to assets 75%. Based on this analysis would you make an investment in the company's 5% convertible bonds? Explain.
(c) Assume you want to compare Sepracor to an international company, like Bayer (which prepares its financial statements in accordance with iGAAP). Assuming that the fair value of the equity components of Sepracor's convertible bonds is $150,000, how would you adjust the analysis above to make valid comparisons between Sepracor and Bayer
Click here for the solution: International Reporting Case: Sepracor, Inc., a U.S. drug company, reported the following information
Sepracor, Inc., a U.S. drug company, reported the following information. The company prepares its financial statements in accordance with U.S. GAAP.
2007 (,000)
Current Liabilities $ 554,114
Convertible Subordinated Debt 648,020
Total Liabilities 1,228,313
Stockholders’ Equity 176,413
Net Income 58,333
Analysts attempting to compare Sepracor to international drug companies may face a challenge due to differences in accounting for convertible debt under iGAAP. Under IAS 32, Financial Instruments, convertible bonds, at issuance, must be classified separately into their debt and equity components based on estimated fair value.
INSTRUCTIONS:
(a) Compute the following rations for Sepracor, Inc. (assume that year-end balances approximate annual averages.)
(1) Return on assets.
(2) Return on stockholders’ equity
(3) Debt to asset ratio
(b) Briefly discuss the operating performance and financial position of Sepracor. Industry averages for these ratios in 2007were: ROA 3.5%; return on equity 16%; and debt to assets 75%. Based on this analysis would you make an investment in the company's 5% convertible bonds? Explain.
(c) Assume you want to compare Sepracor to an international company, like Bayer (which prepares its financial statements in accordance with iGAAP). Assuming that the fair value of the equity components of Sepracor's convertible bonds is $150,000, how would you adjust the analysis above to make valid comparisons between Sepracor and Bayer
Click here for the solution: International Reporting Case: Sepracor, Inc., a U.S. drug company, reported the following information
Thursday, January 14, 2016
Sherrod, Inc., reported pretax accounting income of $76 million for 2011
P16-7 Multiple differences; calculate taxable income; balance sheet classification
Sherrod, Inc., reported pretax accounting income of $76 million for 2011. The following information relates to differences between pretax accounting income and taxable income:
Income from installment sales of properties included in pretax accounting income in 2011 exceeded that reported for tax purposes by $3 million. The installment receivable account at year-end had a balance of $4 million (representing portions of 2010 and 2011 installment sales), expected to be collected equally in 2012 and 2013.
Sherrod was assessed a penalty of $2 million by the Environmental Protection Agency for violation of a federal law in 2011. The fine is to be paid in equal amounts in 2011 and 2012. Sherrod rents its operating facilities but owns one asset acquired in 2010 at a cost of $80 million. Depreciation is reported by the straight-line method assuming a four-year useful life. On the tax return, deductions for depreciation will be more than straight-line depreciation the first two years but less than straight-line depreciation the next two years ($ in millions):
Income Statement Tax Return Difference
2010 $20 $26 ($6)
2011 20 35 (15)
2012 20 12 8
2013 20 7 13
$80 $80 $0
4. Bad debt expense of $3 million is reported using the allowance method in 2011. For tax purposes, the expense is deducted when accounts prove uncollectible (the direct write-off method): $2 million in 2011. At December 31, 2011, the allowance for uncollectible accounts was $2 million (after adjusting entries). The balance was $1 million at the end of 2010.
5. In 2011, Sherrod accrued and expense and related liability for estimated paid future absences of $7 million relating to the company’s new paid vacation program. Future compensation will be deductible on the tax return when actually paid during the next two years ($4 million 2012; $3 million in 2013).
6. During 2010, accounting income included as estimated loss of $2 million from having accrued a loss contingency. The lost is paid in 2011 at which time it is tax deductible. Balances in the deferred tax asset and deferred tax liability accounts at January 1, 2011, were $1.2 million and $2.8 million, respectively. The enacted tax rate is 40% each year.
Required:
1. Determine the amounts necessary to record income taxes for 2011 and prepare the appropriate journal entry.
2. What is the 2011 net income?
3. Show how deferred tax amounts should be classified and reported in the 2011 balance sheet.
Click here for the solution: Sherrod, Inc., reported pretax accounting income of $76 million for 2011
Sherrod, Inc., reported pretax accounting income of $76 million for 2011. The following information relates to differences between pretax accounting income and taxable income:
Income from installment sales of properties included in pretax accounting income in 2011 exceeded that reported for tax purposes by $3 million. The installment receivable account at year-end had a balance of $4 million (representing portions of 2010 and 2011 installment sales), expected to be collected equally in 2012 and 2013.
Sherrod was assessed a penalty of $2 million by the Environmental Protection Agency for violation of a federal law in 2011. The fine is to be paid in equal amounts in 2011 and 2012. Sherrod rents its operating facilities but owns one asset acquired in 2010 at a cost of $80 million. Depreciation is reported by the straight-line method assuming a four-year useful life. On the tax return, deductions for depreciation will be more than straight-line depreciation the first two years but less than straight-line depreciation the next two years ($ in millions):
Income Statement Tax Return Difference
2010 $20 $26 ($6)
2011 20 35 (15)
2012 20 12 8
2013 20 7 13
$80 $80 $0
4. Bad debt expense of $3 million is reported using the allowance method in 2011. For tax purposes, the expense is deducted when accounts prove uncollectible (the direct write-off method): $2 million in 2011. At December 31, 2011, the allowance for uncollectible accounts was $2 million (after adjusting entries). The balance was $1 million at the end of 2010.
5. In 2011, Sherrod accrued and expense and related liability for estimated paid future absences of $7 million relating to the company’s new paid vacation program. Future compensation will be deductible on the tax return when actually paid during the next two years ($4 million 2012; $3 million in 2013).
6. During 2010, accounting income included as estimated loss of $2 million from having accrued a loss contingency. The lost is paid in 2011 at which time it is tax deductible. Balances in the deferred tax asset and deferred tax liability accounts at January 1, 2011, were $1.2 million and $2.8 million, respectively. The enacted tax rate is 40% each year.
Required:
1. Determine the amounts necessary to record income taxes for 2011 and prepare the appropriate journal entry.
2. What is the 2011 net income?
3. Show how deferred tax amounts should be classified and reported in the 2011 balance sheet.
Click here for the solution: Sherrod, Inc., reported pretax accounting income of $76 million for 2011
Wednesday, November 25, 2015
Sepracor, Inc., a U.S. drug company, reported the following information
International Reporting Case
Sepracor, Inc., a U.S. drug company, reported the following information. The company prepares its financial statements in accordance with U.S. GAAP.
2007 (,000)
Current Liabilities $ 554,114
Convertible Subordinated Debt 648,020
Total Liabilities 1,228,313
Stockholders’ Equity 176,413
Net Income 58,333
Analysts attempting to compare Sepracor to international drug companies may face a challenge due to differences in accounting for convertible debt under iGAAP. Under IAS 32, Financial Instruments, convertible bonds, at issuance, must be classified separately into their debt and equity components based on estimated fair value.
INSTRUCTIONS:
(a) Compute the following rations for Sepracor, Inc. (assume that year-end balances approximate annual averages.)
(1) Return on assets.
(2) Return on stockholders’ equity
(3) Debt to asset ratio
(b) Briefly discuss the operating performance and financial position of Sepracor. Industry averages for these ratios in 2007were: ROA 3.5%; return on equity 16%; and debt to assets 75%. Based on this analysis would you make an investment in the company's 5% convertible bonds? Explain.
(c) Assume you want to compare Sepracor to an international company, like Bayer (which prepares its financial statements in accordance with iGAAP). Assuming that the fair value of the equity components of Sepracor's convertible bonds is $150,000, how would you adjust the analysis above to make valid comparisons between Sepracor and Bayer.
Click here for the solution: Sepracor, Inc., a U.S. drug company, reported the following information
Sepracor, Inc., a U.S. drug company, reported the following information. The company prepares its financial statements in accordance with U.S. GAAP.
2007 (,000)
Current Liabilities $ 554,114
Convertible Subordinated Debt 648,020
Total Liabilities 1,228,313
Stockholders’ Equity 176,413
Net Income 58,333
Analysts attempting to compare Sepracor to international drug companies may face a challenge due to differences in accounting for convertible debt under iGAAP. Under IAS 32, Financial Instruments, convertible bonds, at issuance, must be classified separately into their debt and equity components based on estimated fair value.
INSTRUCTIONS:
(a) Compute the following rations for Sepracor, Inc. (assume that year-end balances approximate annual averages.)
(1) Return on assets.
(2) Return on stockholders’ equity
(3) Debt to asset ratio
(b) Briefly discuss the operating performance and financial position of Sepracor. Industry averages for these ratios in 2007were: ROA 3.5%; return on equity 16%; and debt to assets 75%. Based on this analysis would you make an investment in the company's 5% convertible bonds? Explain.
(c) Assume you want to compare Sepracor to an international company, like Bayer (which prepares its financial statements in accordance with iGAAP). Assuming that the fair value of the equity components of Sepracor's convertible bonds is $150,000, how would you adjust the analysis above to make valid comparisons between Sepracor and Bayer.
Click here for the solution: Sepracor, Inc., a U.S. drug company, reported the following information
Wednesday, October 14, 2015
Indicate (by letter) the way each of the items listed below should be reported in a balance sheet at December 31, 2011
Indicate (by letter) the way each of the items listed below should be reported in a balance sheet at December 31, 2011.
1. Commercial paper.
2. Noncommitted line of credit.
3. Customer advances.
4. Estimated warranty cost.
5. Accounts payable.
6. Long-term bonds that will be callable by the creditor in ther upcoming year unless an existing violation is not corrected (there is a reasonable possibility the violation will be corrected within the grace period).
7. Note due March 3, 2012.
8. Interest accrued on note, Dec. 31, 2011.
9. Short-term bank loan to be paid with proceeds of sale of common stock.
10. A determinable gain that is contingent on a future event that appears extremely likely to occur in three months.
11. Unasserted assessment of back taxes that probably will be asserted, in which case there would probably be a loss in six months.
12. Unasserted assessment of back taxes with a reasonable possibility of being asserted, in which case there would probably be a loss in 13 months.
13. A determinable loss from a past event that is contingent on a future event that appears extremely likely to occur in three months.
14. Bond sinking fund.
15. Long-term bonds callable by the creditor in the upcoming year that are not expected to be called.
Click here for the solution: Indicate (by letter) the way each of the items listed below should be reported in a balance sheet at December 31, 2011
1. Commercial paper.
2. Noncommitted line of credit.
3. Customer advances.
4. Estimated warranty cost.
5. Accounts payable.
6. Long-term bonds that will be callable by the creditor in ther upcoming year unless an existing violation is not corrected (there is a reasonable possibility the violation will be corrected within the grace period).
7. Note due March 3, 2012.
8. Interest accrued on note, Dec. 31, 2011.
9. Short-term bank loan to be paid with proceeds of sale of common stock.
10. A determinable gain that is contingent on a future event that appears extremely likely to occur in three months.
11. Unasserted assessment of back taxes that probably will be asserted, in which case there would probably be a loss in six months.
12. Unasserted assessment of back taxes with a reasonable possibility of being asserted, in which case there would probably be a loss in 13 months.
13. A determinable loss from a past event that is contingent on a future event that appears extremely likely to occur in three months.
14. Bond sinking fund.
15. Long-term bonds callable by the creditor in the upcoming year that are not expected to be called.
Click here for the solution: Indicate (by letter) the way each of the items listed below should be reported in a balance sheet at December 31, 2011
White Lightning Inc. reported income from continuing operations before income taxes of $626,000 for the year ended December 31, 2004
1. White Lightning Inc. reported income from continuing operations before income taxes of $626,000 for the year ended December 31, 2004. During October of 2004, White Lightning elected to phase out a segment of its business. That segment reported a net loss prior to the measurement date of $74,000. White Lightning expects to incur additional losses of $35,000 during the phase out period. Management estimates a loss on the sale of the assets associated with the segment of $85,000. The income tax rate for White Lightning is 30 percent. Prepare the portion of the income statement beginning with "income from continuing operations before income tax" for the year ended December 31, 2004.
Click here for the solution: White Lightning Inc. reported income from continuing operations before income taxes of $626,000 for the year ended December 31, 2004
Click here for the solution: White Lightning Inc. reported income from continuing operations before income taxes of $626,000 for the year ended December 31, 2004
The following differences between financial and taxable income were reported by Dider Corporation for the current year
2. The following differences between financial and taxable income were reported by Dider Corporation for the current year.
(a) Excess of tax depreciation over book depreciation $60,000
(b) Interest revenue on municipal bonds $9,000
(c) Excess of estimated warranty expense over actual expenditures $54,000
(d) Unearned rent received $12,000
(e) Amortization of goodwill $30,000
(f) Excess of income reported under percentage-of-completion accounting for financial reporting over competed-contract accounting used for tax reporting $45,000
(g) Interest on indebtedness incurred to purchase tax-exempt securities $3,000
(h) Unrealized losses on marketable securities recognized for financial reporting $18,000
Assume that Dider corp. had pretax accounting income [before considering items (a) through (h)] of $900,000 for the current year. Compute the taxable income for the current year. Write your figures in the form attached and show all your work
Click here for the solution: The following differences between financial and taxable income were reported by Dider Corporation for the current year
(a) Excess of tax depreciation over book depreciation $60,000
(b) Interest revenue on municipal bonds $9,000
(c) Excess of estimated warranty expense over actual expenditures $54,000
(d) Unearned rent received $12,000
(e) Amortization of goodwill $30,000
(f) Excess of income reported under percentage-of-completion accounting for financial reporting over competed-contract accounting used for tax reporting $45,000
(g) Interest on indebtedness incurred to purchase tax-exempt securities $3,000
(h) Unrealized losses on marketable securities recognized for financial reporting $18,000
Assume that Dider corp. had pretax accounting income [before considering items (a) through (h)] of $900,000 for the current year. Compute the taxable income for the current year. Write your figures in the form attached and show all your work
Click here for the solution: The following differences between financial and taxable income were reported by Dider Corporation for the current year
Tuesday, September 8, 2015
Assume that you recently graduated with a degree in finance and have just reported to work as an investment advisor at the brokerage firm of Balik and Kiefer Inc
Assume that you recently graduated with a degree in finance and have
just reported to work as an investment advisor at the brokerage firm of
Balik and Kiefer Inc. One of the firm’s clients is Michelle Dellatorre, a
professional tennis player who has just come to the United States from
Chile. Dellatorre is a highly ranked tennis player who would like to
start a company to produce and market apparel that she designs. She also
expects to invest substantial amounts of money through Balik and
Kiefer. Dellatorre is also very bright, and, therefore, she would like
to understand, in general terms, what will happen to her money. Your
boss has developed the following set of questions which you must ask and
answer to explain the U.S. financial system to Dellatorre.
a.Why is corporate finance important to all managers?
b. Describe the organizational forms a company might have as it evolves from a start-up to a major corporation. List the advantages and disadvantages of each form.
c. How do corporations go public and continue to grow?
d.What should be the primary objective of managers?
e.What three aspects of cash flows affect the value of any investment?
f. What are free cash flows
g. What is the weighted average cost of capital?
AND SO ON
p. Briefly explain mortgage securitization and how it contributed to the global economic crisis.
Click here for the solution: Assume that you recently graduated with a degree in finance and have just reported to work as an investment advisor at the brokerage firm of Balik and Kiefer Inc
a.Why is corporate finance important to all managers?
b. Describe the organizational forms a company might have as it evolves from a start-up to a major corporation. List the advantages and disadvantages of each form.
c. How do corporations go public and continue to grow?
d.What should be the primary objective of managers?
e.What three aspects of cash flows affect the value of any investment?
f. What are free cash flows
g. What is the weighted average cost of capital?
AND SO ON
p. Briefly explain mortgage securitization and how it contributed to the global economic crisis.
Click here for the solution: Assume that you recently graduated with a degree in finance and have just reported to work as an investment advisor at the brokerage firm of Balik and Kiefer Inc
Sunday, August 23, 2015
The balance sheet of Lennox Health Foods, at December 31, 2011 reported 120,000 shares of no-par common stock authorized
P13-25A Journalizing dividend and treasury stock transactions, and preparing stockholders' equity
The balance sheet of Lennox Health Foods, at December 31, 2011 reported 120,000 shares of no-par common stock authorized, with 25,000 shares issued and a Common stock balance of $190,000. Retained earnings had a balance of $115,000. During 2012, the company completed the following selected transactions:
Mar 15 - Purchased 9,000 shares of treasury stock at $8 per share.
Apr 30 - Distributed a 10% stock dividend on the outstanding shares of common stock. The market value of common stock was $9 per share.
Dec 31 - Earned net income of $110,000 during the year. Closed net income to Retained
Requirements:
Record the transactions in the general journal. Explanations are not required. Prepare the stockholders' equity section of Lennox Health Foods' balance sheet at December 31, 2012.
Click here for the solution: The balance sheet of Lennox Health Foods, at December 31, 2011 reported 120,000 shares of no-par common stock authorized
The balance sheet of Lennox Health Foods, at December 31, 2011 reported 120,000 shares of no-par common stock authorized, with 25,000 shares issued and a Common stock balance of $190,000. Retained earnings had a balance of $115,000. During 2012, the company completed the following selected transactions:
Mar 15 - Purchased 9,000 shares of treasury stock at $8 per share.
Apr 30 - Distributed a 10% stock dividend on the outstanding shares of common stock. The market value of common stock was $9 per share.
Dec 31 - Earned net income of $110,000 during the year. Closed net income to Retained
Requirements:
Record the transactions in the general journal. Explanations are not required. Prepare the stockholders' equity section of Lennox Health Foods' balance sheet at December 31, 2012.
Click here for the solution: The balance sheet of Lennox Health Foods, at December 31, 2011 reported 120,000 shares of no-par common stock authorized
Staley Watch Company reported the following income statement data for a 2-year period
E6-12 Staley Watch Company reported the following income statement data for a 2-year period.
2008 2009
Sales $210,000 $250,000
Cost of goods sold
Beginning inventory 32,000 44,000
Cost of goods purchased 173,000 202,000
Cost of goods available for sale 205,000 246,000
Ending inventory 44,000 52,000
Cost of goods sold 161,000 194,000
Gross profit $ 49,000 $ 56,000
Staley uses a periodic inventory system. The inventories at January 1, 2008, and December 31, 2009, are correct. However, the ending inventory at December 31, 2008, was overstated $5,000.
Instructions
(a) Prepare correct income statement data for the 2 years.
(b) What is the cumulative effect of the inventory error on total gross profit for the 2 years?
(c) Explain in a letter to the president of Staley Company what has happened—i.e., the nature of the error and its effect on the financial statements.
Click here for the solution: Staley Watch Company reported the following income statement data for a 2-year period
2008 2009
Sales $210,000 $250,000
Cost of goods sold
Beginning inventory 32,000 44,000
Cost of goods purchased 173,000 202,000
Cost of goods available for sale 205,000 246,000
Ending inventory 44,000 52,000
Cost of goods sold 161,000 194,000
Gross profit $ 49,000 $ 56,000
Staley uses a periodic inventory system. The inventories at January 1, 2008, and December 31, 2009, are correct. However, the ending inventory at December 31, 2008, was overstated $5,000.
Instructions
(a) Prepare correct income statement data for the 2 years.
(b) What is the cumulative effect of the inventory error on total gross profit for the 2 years?
(c) Explain in a letter to the president of Staley Company what has happened—i.e., the nature of the error and its effect on the financial statements.
Click here for the solution: Staley Watch Company reported the following income statement data for a 2-year period
Friday, August 21, 2015
At December 31, 2010, Dill Imports reported the following information on its balance sheet
P8-1B At December 31, 2010, Dill Imports reported the following information on its balance sheet.
Accounts receivable $250,000
Less: Allowance for doubtful accounts 15,000
During 2011, the company had the following transactions related to receivables.
1. Sales on account $2,400,000
2. Sales returns and allowances 45,000
3. Collections of accounts receivable 2,250,000
4. Write-offs of accounts receivable deemed uncollectible 12,000
5. Recovery of bad debts previously written off as uncollectible 3,000
Instructions
(a) Prepare the journal entries to record each of these five transactions. Assume that no cash discounts were taken on the collections of accounts receivable.
(b) Enter the January 1, 2011, balances in Accounts Receivable and Allowance for Doubtful Accounts. Post the entries to the two accounts (use T accounts), and determine the balances.
(c) Prepare the journal entry to record bad debts expense for 2011, assuming that an aging of accounts receivable indicates that estimated bad debts are $22,000.
(d) Compute the accounts receivable turnover ratio for the year 2011.
Click here for the solution: At December 31, 2010, Dill Imports reported the following information on its balance sheet
Accounts receivable $250,000
Less: Allowance for doubtful accounts 15,000
During 2011, the company had the following transactions related to receivables.
1. Sales on account $2,400,000
2. Sales returns and allowances 45,000
3. Collections of accounts receivable 2,250,000
4. Write-offs of accounts receivable deemed uncollectible 12,000
5. Recovery of bad debts previously written off as uncollectible 3,000
Instructions
(a) Prepare the journal entries to record each of these five transactions. Assume that no cash discounts were taken on the collections of accounts receivable.
(b) Enter the January 1, 2011, balances in Accounts Receivable and Allowance for Doubtful Accounts. Post the entries to the two accounts (use T accounts), and determine the balances.
(c) Prepare the journal entry to record bad debts expense for 2011, assuming that an aging of accounts receivable indicates that estimated bad debts are $22,000.
(d) Compute the accounts receivable turnover ratio for the year 2011.
Click here for the solution: At December 31, 2010, Dill Imports reported the following information on its balance sheet
The cost of inventory reported on the balance sheet may include the cost of all the following EXCEPT
MULTIPLE CHOICE
1. The cost of inventory reported on the balance sheet may include the cost of all the following EXCEPT: (Points : 2)
2. The one cost that would be classified as part of both prime cost and conversion cost would be: (Points : 2)
3. Which of the following is NOT one of the three major customer value propositions discussed in the text? (Points : 2)
4. Which of the following is NOT a period cost? (Points : 2)
5. A plant manufactures several different products. The wages of the maintenance staff in the plant can be classified as a (an): (Points : 2)
6. Consider the following costs incurred in a recent period:
Direct materials $33,000
Depreciation on factory equipment $12,000
Factory janitor's salary $23,000
Direct labor $28,000
Utilities for factory $9,000
Selling expense $16,000
Production supervisor's salary $34,000
Administrative expenses $21,000
What was the total amount of the period costs listed above for the period?
(Points : 2)
7. Which of the following statements refers to management accounting information? (Points : 2)
8. The Institute of Management Accountants (IMA): (Points : 2)
9. Financial accounting: (Points : 2)
10. All of the following are characteristics of a pull production system EXCEPT: (Points : 2)
11. Conversion costs consist of: (Points : 2)
12. ____________ is an example of a line position. (Points : 2)
13. The accounting process is constrained by mandated reporting requirements by all of the following organizations EXCEPT the: (Points : 2)
14. The person MOST likely to use management accounting information is a(n): (Points : 2)
15. Which of the following types of information are used in management accounting? (Points : 2)
16. The Institute of Management Accountants' Standards of Ethical Conduct contains a policy regarding confidentiality that requires that management accountants: (Points : 2)
17. Manufacturing costs include: (Points : 2)
18. Which of the following groups would be LEAST likely to receive detailed management accounting reports? (Points : 2)
19. Which of the following is NOT one of the Institute of Management Accountants' five Standards of Ethical Conduct? (Points : 2)
20. Management accounting information can be used for all of the following except: (Points : 2)
Click here for the solution: The cost of inventory reported on the balance sheet may include the cost of all the following EXCEPT
1. The cost of inventory reported on the balance sheet may include the cost of all the following EXCEPT: (Points : 2)
2. The one cost that would be classified as part of both prime cost and conversion cost would be: (Points : 2)
3. Which of the following is NOT one of the three major customer value propositions discussed in the text? (Points : 2)
4. Which of the following is NOT a period cost? (Points : 2)
5. A plant manufactures several different products. The wages of the maintenance staff in the plant can be classified as a (an): (Points : 2)
6. Consider the following costs incurred in a recent period:
Direct materials $33,000
Depreciation on factory equipment $12,000
Factory janitor's salary $23,000
Direct labor $28,000
Utilities for factory $9,000
Selling expense $16,000
Production supervisor's salary $34,000
Administrative expenses $21,000
What was the total amount of the period costs listed above for the period?
(Points : 2)
7. Which of the following statements refers to management accounting information? (Points : 2)
8. The Institute of Management Accountants (IMA): (Points : 2)
9. Financial accounting: (Points : 2)
10. All of the following are characteristics of a pull production system EXCEPT: (Points : 2)
11. Conversion costs consist of: (Points : 2)
12. ____________ is an example of a line position. (Points : 2)
13. The accounting process is constrained by mandated reporting requirements by all of the following organizations EXCEPT the: (Points : 2)
14. The person MOST likely to use management accounting information is a(n): (Points : 2)
15. Which of the following types of information are used in management accounting? (Points : 2)
16. The Institute of Management Accountants' Standards of Ethical Conduct contains a policy regarding confidentiality that requires that management accountants: (Points : 2)
17. Manufacturing costs include: (Points : 2)
18. Which of the following groups would be LEAST likely to receive detailed management accounting reports? (Points : 2)
19. Which of the following is NOT one of the Institute of Management Accountants' five Standards of Ethical Conduct? (Points : 2)
20. Management accounting information can be used for all of the following except: (Points : 2)
Click here for the solution: The cost of inventory reported on the balance sheet may include the cost of all the following EXCEPT
Monday, August 17, 2015
Permtemp Corporation formed in 2008 and, for that year, reported the following book income statement and balance sheet
C:3-65 Permtemp Corporation formed in 2008 and, for that year, reported the following book income statement and balance sheet, excluding the federal income tax expense, deferred tax assets, and deferred tax liabilities:
AND SO ON
Required for 2008:
a. Prepare page 1 of the 2008 Form 1120, computing the corporations NOL.
b. Determine the corporations deferred tax asset and deferred tax liability situation, and then complete the income statement and balance sheet to reflect proper GAAP accounting under ASC 740. Use the balance sheet information to prepare Schedule L of the 2008 Form 1120.
c. Prepare the 2008 Schedule M-3 for Form 1120.
d. Prepare a schedule that reconciles the corporations effective tax rate to the statutory 34% tax rate.
Check Figures for Project:
2008 - Form 1120, line 30 taxable income has a net operating loss of ($887,500). Schedule L has lines 15 and 28 of $16,920,750. Schedule M-2 has a line 8 balance at the end of the year of negative ($393,250). The problem does not tell you to do the M-2 but I want you try it. M-3 line 4a should be $negative ($393,250), Part II, line 26 negative ($14,950,000), line 30 negative ($852,500) and Part III, line 30 $2,047,500 in column (d).
2009 - Form 1120, line 30 taxable income of $1,836,760. Remember that you had a net operating loss in 2008 and you should have special deductions. Line 31 total tax should be $624,498. Schedule L should have a rollover beginning balance from the 2008 ending balance above and the 2009 ending balance should be $20,578,000. Schedule M-2 should have a line 8 number of $2,568,502. Schedule M-3 should have a line 4a of $2,961,752, Part II, line 26 of negative ($21,945,000), line 30 of $2,762,760, and Part III, line 36 of $3,617,240 in column (d).
Click here for the solution: Permtemp Corporation formed in 2008 and, for that year, reported the following book income statement and balance sheet
AND SO ON
Required for 2008:
a. Prepare page 1 of the 2008 Form 1120, computing the corporations NOL.
b. Determine the corporations deferred tax asset and deferred tax liability situation, and then complete the income statement and balance sheet to reflect proper GAAP accounting under ASC 740. Use the balance sheet information to prepare Schedule L of the 2008 Form 1120.
c. Prepare the 2008 Schedule M-3 for Form 1120.
d. Prepare a schedule that reconciles the corporations effective tax rate to the statutory 34% tax rate.
Check Figures for Project:
2008 - Form 1120, line 30 taxable income has a net operating loss of ($887,500). Schedule L has lines 15 and 28 of $16,920,750. Schedule M-2 has a line 8 balance at the end of the year of negative ($393,250). The problem does not tell you to do the M-2 but I want you try it. M-3 line 4a should be $negative ($393,250), Part II, line 26 negative ($14,950,000), line 30 negative ($852,500) and Part III, line 30 $2,047,500 in column (d).
2009 - Form 1120, line 30 taxable income of $1,836,760. Remember that you had a net operating loss in 2008 and you should have special deductions. Line 31 total tax should be $624,498. Schedule L should have a rollover beginning balance from the 2008 ending balance above and the 2009 ending balance should be $20,578,000. Schedule M-2 should have a line 8 number of $2,568,502. Schedule M-3 should have a line 4a of $2,961,752, Part II, line 26 of negative ($21,945,000), line 30 of $2,762,760, and Part III, line 36 of $3,617,240 in column (d).
Click here for the solution: Permtemp Corporation formed in 2008 and, for that year, reported the following book income statement and balance sheet
Thursday, August 13, 2015
Wynn Sheet Metal reported an operating loss of $160,000 for financial reporting and tax purposes in 2011
E 16-22 Operating loss carryback and carryforward
(This exercise is based on the situation described in the previous exercise, modified to include a carryforward in addition to a carryback.)
Wynn Sheet Metal reported an operating loss of $160,000 for financial reporting and tax purposes in 2011. The enacted tax rate is 40%. Taxable income, tax rates, and income taxes paid in Wynn's first four years of operation were as follows:
Taxable income Tax rates Income taxes paid
2007 60,000 30% 18,000
2008 70,000 30% 21,000
2009 80,000 40% 32,000
2010 60,000 45% 27,000
Required:
1. Prepare the journal entry to recognize the income tax benefit of the operating loss. Wynn elects the carryback option.
2. Show the lower portion of the 2011 income statement that reports the income tax benefit of the operating loss.
Click here for the solution: Wynn Sheet Metal reported an operating loss of $160,000 for financial reporting and tax purposes in 2011
(This exercise is based on the situation described in the previous exercise, modified to include a carryforward in addition to a carryback.)
Wynn Sheet Metal reported an operating loss of $160,000 for financial reporting and tax purposes in 2011. The enacted tax rate is 40%. Taxable income, tax rates, and income taxes paid in Wynn's first four years of operation were as follows:
Taxable income Tax rates Income taxes paid
2007 60,000 30% 18,000
2008 70,000 30% 21,000
2009 80,000 40% 32,000
2010 60,000 45% 27,000
Required:
1. Prepare the journal entry to recognize the income tax benefit of the operating loss. Wynn elects the carryback option.
2. Show the lower portion of the 2011 income statement that reports the income tax benefit of the operating loss.
Click here for the solution: Wynn Sheet Metal reported an operating loss of $160,000 for financial reporting and tax purposes in 2011
Monday, August 3, 2015
At December 31, 2011, Jimenez Company reported the following as plant assets
P9-5A At December 31, 2011, Jimenez Company reported the following as plant assets
Land $ 4,000,000
Buildings $28,500,000
Less: Accumulated depreciation—buildings 12,100,000 16,400,000
Equipment 48,000,000
Less: Accumulated depreciation—equipment 5,000,000 43,000,000
Total plant assets $63,400,000
During 2012, the following selected cash transactions occurred.
April 1 Purchased land for $2,130,000.
May 1 Sold equipment that cost $780,000 when purchased on January 1, 2008. The equipment
was sold for $450,000.
June 1 Sold land purchased on June 1, 2002 for $1,500,000. The land cost $400,000.
July 1 Purchased equipment for $2,000,000.
Dec. 31 Retired equipment that cost $500,000 when purchased on December 31, 2002. No salvage value was received.
Instructions
(a) Journalize the above transactions. The company uses straight-line depreciation for buildings and equipment. The buildings are estimated to have a 50-year life and no salvage value. The equipment is estimated to have a 10-year useful life and no salvage value. Update depreciation on assets disposed of at the time of sale or retirement.
(b) Record adjusting entries for depreciation for 2012.
(c) Prepare the plant assets section of Jimenez’s balance sheet at December 31, 2012.
Click here for the solution: At December 31, 2011, Jimenez Company reported the following as plant assets
Land $ 4,000,000
Buildings $28,500,000
Less: Accumulated depreciation—buildings 12,100,000 16,400,000
Equipment 48,000,000
Less: Accumulated depreciation—equipment 5,000,000 43,000,000
Total plant assets $63,400,000
During 2012, the following selected cash transactions occurred.
April 1 Purchased land for $2,130,000.
May 1 Sold equipment that cost $780,000 when purchased on January 1, 2008. The equipment
was sold for $450,000.
June 1 Sold land purchased on June 1, 2002 for $1,500,000. The land cost $400,000.
July 1 Purchased equipment for $2,000,000.
Dec. 31 Retired equipment that cost $500,000 when purchased on December 31, 2002. No salvage value was received.
Instructions
(a) Journalize the above transactions. The company uses straight-line depreciation for buildings and equipment. The buildings are estimated to have a 50-year life and no salvage value. The equipment is estimated to have a 10-year useful life and no salvage value. Update depreciation on assets disposed of at the time of sale or retirement.
(b) Record adjusting entries for depreciation for 2012.
(c) Prepare the plant assets section of Jimenez’s balance sheet at December 31, 2012.
Click here for the solution: At December 31, 2011, Jimenez Company reported the following as plant assets
Saturday, August 1, 2015
Elizabeth Company reported the following amounts in the stockholders' equity section of its December 31, 2010, balance sheet
E15-18 (Dividends and Stockholders' Equity Section) Elizabeth Company reported the following amounts in the stockholders' equity section of its December 31, 2010, balance sheet.
Preferred stock, 8%, $100 par (10,000 shares authorized, 2,000 shares issued) $200,000
Common stock, $5 par (100,000 shares authorized, 20,000 shares issued) 100,000
Additional paid-in capital 125,000
Retained earnings 450,000
Total $875,000
During 2011, Elizabeth took part in the following transactions concerning stockholders' equity.
1. Paid the annual 2010 $8 per share dividend on preferred stock and a $2 per share dividend on common stock. These dividends had been declared on December 31, 2010.
2. Purchased 2,700 shares of its own outstanding common stock for $40 per share. Elizabeth uses the cost method.
3. Reissued 700 treasury shares for land valued at $30,000.
4. Issued 500 shares of preferred stock at $105 per share.
5. Declared a 10% stock dividend on the outstanding common stock when the stock is selling for $45 per share.
6. Issued the stock dividend.
7. Declared the annual 2011 $8 per share dividend on preferred stock and the $2 per share dividend on common stock. These dividends are payable in 2012.
Instructions
(a) Prepare journal entries to record the transactions described above.
(b) Prepare the December 31, 2011, stockholders' equity section. Assume 2011 net income was $330,000.
Click here for the solution: Elizabeth Company reported the following amounts in the stockholders' equity section of its December 31, 2010, balance sheet
Preferred stock, 8%, $100 par (10,000 shares authorized, 2,000 shares issued) $200,000
Common stock, $5 par (100,000 shares authorized, 20,000 shares issued) 100,000
Additional paid-in capital 125,000
Retained earnings 450,000
Total $875,000
During 2011, Elizabeth took part in the following transactions concerning stockholders' equity.
1. Paid the annual 2010 $8 per share dividend on preferred stock and a $2 per share dividend on common stock. These dividends had been declared on December 31, 2010.
2. Purchased 2,700 shares of its own outstanding common stock for $40 per share. Elizabeth uses the cost method.
3. Reissued 700 treasury shares for land valued at $30,000.
4. Issued 500 shares of preferred stock at $105 per share.
5. Declared a 10% stock dividend on the outstanding common stock when the stock is selling for $45 per share.
6. Issued the stock dividend.
7. Declared the annual 2011 $8 per share dividend on preferred stock and the $2 per share dividend on common stock. These dividends are payable in 2012.
Instructions
(a) Prepare journal entries to record the transactions described above.
(b) Prepare the December 31, 2011, stockholders' equity section. Assume 2011 net income was $330,000.
Click here for the solution: Elizabeth Company reported the following amounts in the stockholders' equity section of its December 31, 2010, balance sheet
Maher Inc. reported income from continuing operations before taxes during 2010 of $790,000
P4-3 (Irregular Items) Maher Inc. reported income from continuing operations before taxes during 2010 of $790,000. Additional transactions occurring in 2010 but not considered in the $790,000 are as follows.
1. The corporation experienced an uninsured flood loss (extraordinary) in the amount of $90,000 during the year. The tax rate on this item is 46%.
2. At the beginning of 2008, the corporation purchased a machine for $54,000 (salvage value of $9,000) that had a useful life of 6 years. The bookkeeper used straight-line depreciation for 2008, 2009, and 2010 but failed to deduct the salvage value in computing the depreciation base.
3. Sale of securities held as a part of its portfolio resulted in a loss of $57,000 (pretax).
4. When its president died, the corporation realized $150,000 from an insurance policy. The cash surrender value of this policy had been carried on the books as an investment in the amount of $46,000 (the gain is nontaxable).
5. The corporation disposed of its recreational division at a loss of $115,000 before taxes. Assume that this transaction meets the criteria for discontinued operations.
6. The corporation decided to change its method of inventory pricing from average cost to the FIFO method. The effect of this change on prior years is to increase 2008 income by $60,000 and decrease 2009 income by $20,000 before taxes. The FIFO method has been used for 2010. The tax rate on these items is 40%.
Instructions
Prepare an income statement for the year 2010 starting with income from continuing operations before taxes.
Compute earnings per share as it should be shown on the face of the income statement. Common shares outstanding for the year are 120,000 shares. (Assume a tax rate of 30% on all items, unless indicated otherwise.)
Click here for the solution: Maher Inc. reported income from continuing operations before taxes during 2010 of $790,000
1. The corporation experienced an uninsured flood loss (extraordinary) in the amount of $90,000 during the year. The tax rate on this item is 46%.
2. At the beginning of 2008, the corporation purchased a machine for $54,000 (salvage value of $9,000) that had a useful life of 6 years. The bookkeeper used straight-line depreciation for 2008, 2009, and 2010 but failed to deduct the salvage value in computing the depreciation base.
3. Sale of securities held as a part of its portfolio resulted in a loss of $57,000 (pretax).
4. When its president died, the corporation realized $150,000 from an insurance policy. The cash surrender value of this policy had been carried on the books as an investment in the amount of $46,000 (the gain is nontaxable).
5. The corporation disposed of its recreational division at a loss of $115,000 before taxes. Assume that this transaction meets the criteria for discontinued operations.
6. The corporation decided to change its method of inventory pricing from average cost to the FIFO method. The effect of this change on prior years is to increase 2008 income by $60,000 and decrease 2009 income by $20,000 before taxes. The FIFO method has been used for 2010. The tax rate on these items is 40%.
Instructions
Prepare an income statement for the year 2010 starting with income from continuing operations before taxes.
Compute earnings per share as it should be shown on the face of the income statement. Common shares outstanding for the year are 120,000 shares. (Assume a tax rate of 30% on all items, unless indicated otherwise.)
Click here for the solution: Maher Inc. reported income from continuing operations before taxes during 2010 of $790,000
Sunday, July 19, 2015
In its 2010 income statement, Cohen Corp. reported depreciation of $1,110,000 and interest revenue on municipal obligations of $210,000
In its 2010 income statement, Cohen Corp. reported depreciation of $1,110,000 and interest revenue on municipal obligations of $210,000. Cohen reported depreciation of $1,650,000 on its 2010 income tax return. The difference in depreciation is the only temporary difference, and it will reverse equally over the next three years. Cohen's enacted income tax rates are 35% for 2010, 30% for 2011, and 25% for 2012 and 2013. What amount should be included in the deferred income tax liability in Hertz's December 31, 2010 balance sheet?
Click here for the solution: In its 2010 income statement, Cohen Corp. reported depreciation of $1,110,000 and interest revenue on municipal obligations of $210,000
Click here for the solution: In its 2010 income statement, Cohen Corp. reported depreciation of $1,110,000 and interest revenue on municipal obligations of $210,000
Wednesday, July 15, 2015
For each individual situation, determine the amount that should be reported as cash
E7-2 (Determine Cash Balance) Presented below are a number of independent situations.
Instructions
For each individual situation, determine the amount that should be reported as cash. If the item(s) is not reported as cash, explain the rationale.
1. Checking account balance $925,000; certificate of deposit $1,400,000; cash advance to subsidiary of $980,000; utility deposit paid to gas company $180.
2. Checking account balance $600,000; an overdraft in special checking account at same bank as normal checking account of $17,000; cash held in a bond sinking fund $200,000; petty cash fund $300; coins and currency on hand $1,350.
3. Checking account balance $590,000; postdated check from customer $11,000; cash restricted due to maintaining compensating balance requirement of $100,000; certified check from customer $9,800; postage stamps on hand $620.
4. Checking account balance at bank $37,000; money market balance at mutual fund (has checking privileges) $48,000; NSF check received from customer $800.
5. Checking account balance $700,000; cash restricted for future plant expansion $500,000; short-term Treasury bills $180,000; cash advance received from customer $900 (not included in checking account balance); cash advance of $7,000 to company executive, payable on demand; refundable deposit of $26,000 paid to federal government to guarantee performance on construction contract.
Click here for the solution: At the end of 2010 Sorter Company has accounts receivable of $900,000 and an allowance for doubtful accounts of $40,000
Instructions
For each individual situation, determine the amount that should be reported as cash. If the item(s) is not reported as cash, explain the rationale.
1. Checking account balance $925,000; certificate of deposit $1,400,000; cash advance to subsidiary of $980,000; utility deposit paid to gas company $180.
2. Checking account balance $600,000; an overdraft in special checking account at same bank as normal checking account of $17,000; cash held in a bond sinking fund $200,000; petty cash fund $300; coins and currency on hand $1,350.
3. Checking account balance $590,000; postdated check from customer $11,000; cash restricted due to maintaining compensating balance requirement of $100,000; certified check from customer $9,800; postage stamps on hand $620.
4. Checking account balance at bank $37,000; money market balance at mutual fund (has checking privileges) $48,000; NSF check received from customer $800.
5. Checking account balance $700,000; cash restricted for future plant expansion $500,000; short-term Treasury bills $180,000; cash advance received from customer $900 (not included in checking account balance); cash advance of $7,000 to company executive, payable on demand; refundable deposit of $26,000 paid to federal government to guarantee performance on construction contract.
Click here for the solution: At the end of 2010 Sorter Company has accounts receivable of $900,000 and an allowance for doubtful accounts of $40,000
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