中级会计1Exam 3a solution SP 2010 UTA 3311.doc

ACCT 3311 Name_Spring 2010Exam 3 Version ASignature_Part 1: Multiple Choice (3.5 points each), circle the best answer:1.Which of the following does not describe the main actions and responsibilities of the Financial Accounting Foundationa.Selects members of the FASB.b.Funds the activities of the FASB.c.Consults on major policy issues of the FASB.d.Exercises general oversight of the FASB.2.The Concepts Statement No. 6 defines ten interrelated elements. The “Period of Time” elements that are described include all of the following except:a.Assets.b.Losses.c.Distribution to ownersd.Revenue.3.Gibson Company paid $3,600 on June 1, 2007 for a two-year insurance policy and initially recorded the entire amount as a debit to Insurance Expense and a credit to cash. Given this initial entry, the December 31, 2007 adjusting entry that is required to correctly record the balance sheet and income statement accounts is:a.debit Insurance Expense and credit Prepaid Insurance, $1,050.b.debit Insurance Expense and credit Prepaid Insurance, $2,550.c.debit Prepaid Insurance and credit Insurance Expense, $1,050d.debit Prepaid Insurance and credit Insurance Expense, $2,550.4.Adjusting entries categorized as Unearned Revenues area.Revenues incurred but not yet received in cash or recorded.b.Revenues received in cash and recorded as assets before they are earned.c.Revenues received in cash and recorded as liabilities before they are earned.d. Revenues received in cash and earned in the current period5.Dole Corporation adopted the dollar-value LIFO method of inventory valuation on December 31, 2005. Its inventory at that date was $220,000 and the relevant price index was 100. Information regarding inventory for subsequent years is as follows: Inventory at CurrentDateCurrent PricesPrice IndexDecember 31, 2006$230,000108December 31, 2007290,000125What is the cost of the ending inventory at December 31, 2007 under dollar-value LIFO?a.$212,963.b.$236,759.c.$232,000.d.$248,400.6.Plane Co. uses the retail inventory method. The following information is available for the current year. Cost RetailBeginning inventory$ 78,000$122,000Purchases295,000415,000Freight-in5,000Employee discounts2,000Net markups15,000Net Markdowns20,000Sales390,000If the ending inventory is to be valued using the LIFO retail inventory method, one calculation of the cost-to-retail ratio should be based on cost and retail amounts ofa.$300,000 cost and $430,000 retail.b.$300,000 cost and $410,000 retail.c.$373,000 cost and $550,000 retail.d.$378,000 cost and $552,000 retail.7.Black Company calculates the Selling Price of product 1909NL to be $60 per unit. Estimated selling costs are calculated to be $10. The cost of one unit of 1909NL is $38, and the replacement cost is $39. The normal profit margin is $12. At what amount per unit should product 1909NL be reported, applying lower-of-cost-or-market?a.$38.b.$39.c.$40.d.$50.8. On December 31, 2006 it was discovered that a plant asset purchased in 2005 had been expensed completely in that year. This asset cost $35,000 and has a useful life of 5 years and $5,000 salvage value. Management has decided to use the sum-of-years-digits method for this asset, which can be referred as “Asset A”. Ignore any tax implications. The journal entry to adjust the prior period would include which of the following entries:a.Debit the Asset A account for $30,000.b.Credit Accumulated Depreciation on Asset A for $10,000.c.Credit Depreciation Expense for $30,000 d.Credit Retained Earnings for $20,000 e.Debit Depreciation Expense for $35,0009.In 2010, Ed Corporation incurred research and development costs as follows:Equipment$ 90,000Personnel120,000Indirect costs 150,000$360,000These costs relate to a product that will be marketed in 2011. It is estimated that these costs will be recouped by December 31, 2013. The equipment has an alternative future use and a useful life of 5 years. The company uses a straight line depreciation method for all of its Equipment. What is the amount of research and development costs that should be expensed in 2010?a.$210,000.b.$270,000.c.$288,000.d.$360,000.10.Stain, Inc. issued bonds with a maturity amount of $2,500,000 and a maturity forty years from date of issue. If the bonds were issued at a discount, this indicates thata.the effective yield or market rate of interest exceeded the stated (nominal) rate.b.the stated rate of interest exceeded the market rate.c.the market and nominal rates are the same.d.there is not enough information available to determine.11.Which of these is not included in an employers payroll tax expense?a.Federal income taxes b.Federal unemployment taxesc.State unemployment taxesd.F.I.C.A. (social security) taxes12.Shang Company incurred $1,500,000 in costs in 2010 to develop a computer software product. $500,000 of this amount was expensed before technological feasibility was established. The product is expected to earn future revenues of $4,000,000 over its 5-year life, as follows: 2010 $400,000; 2011 $1,000,000; 2012 $1,000,000; 2013 $800,000; and 2014 $400,000. What portion of the $1,500,000 computer software costs should be amortized in 2012?a.$200,000b.$100,000c.$250,000d.$400,00013.Rivera Company purchased a tooling machine on January 3, 2004 for $500,000. The machine was being depreciated on the straight-line method over an estimated useful life of 10 years, with no salvage value. At the beginning of 2011, the company paid $125,000 to overhaul the machine. As a result of this improvement, the company estimated that the useful life of the machine would be extended an additional 5 years (15 years total from the date of purchase). What should be the depreciation expense recorded for the machine in 2011?a.$34,375b.$41,667c.$50,000d.$55,00014.Cleming Corporation acquired Sight Products on January 1, 2008 for $4,000,000, and recorded goodwill of $750,000 as a result of that purchase. At December 31, 2008, the Sight Products Division had a fair value of $3,600,000 and a carrying value (including goodwill) of 3,500,000. The net identifiable assets of the Division (excluding goodwill) had a fair value of $2,900,000 at that time. What amount of loss on impairment of goodwill should Cleming record in 2008?a.$300,000b.$50,000c.$200,000d.$150,000e.$ -0-15.A company buys an oil rig for $1,000,000 on January 1, 2010. The life of the rig is 10 years and the expected cost to dismantle the rig at the end of 10 years is $200,000 (present value at 10% is $77,110). 10% is an appropriate interest rate for this company. What expense should be recorded for 2010 as a result of these events?a.Depreciation expense of $120,000b.Depreciation expense of $100,000 and interest expense of $7,711c.Depreciation expense of $100,000 and interest expense of $20,000d.Depreciation expense of $107,710 and interest expense of $7,71116.Glyn Inc. and Arm Co. have an exchange with no commercial substance. The asset given up by Glyn Inc. has a book value of $12,000 and a fair market value of $15,000. The asset given up by Arm Co. has a book value of $18,000 and a fair market value of $19,000. Boot (cash) of $4,000 is received by Armstrong Co. What amount should Arm Co. record for the asset received?a.$15,000b.$14,789c.$14,211d.$14,000e.$16,00017.May Co. inadvertently overstates its 2006 beginning inventory by $5,000 and overstates its 2007 ending inventory by $10,000. Which of the following correctly reflect the effect of these errors in 2007?a. net income is $15,000 overstated and Cost of Goods Sold are $15,000 understated.b. net income is $15,000 understated and current assets are $10,000 overstated.c. Cost of Goods Sold is $10,000 understated and current assets are $15,000 understated.d. Cost of goods sold is $5,000 overstated and current assets are $10,000 overstated.e. net income is $10,000 overstated and COGS are $10,000 understated.18.On January 1, 2010, East Co. exchanged equipment for a $300,000 zero-interest-bearing note due on January 1, 2014. The prevailing rate of interest for a note of this type at January 1, 2010 was 5%. What is the correct journal entry to record interest revenue in Easts 2011 income statement (answer rounded to the nearest dollar)?a.No journal entry requiredb.Credit Interest Revenue for 12,341c.Debit Premium on note receivable for $12,341d.Debit Premium on note receivable for $12,958e.Debit discount on note receivable for $12,95819.Dave Corporation reports the following information:Net income$400,000Depreciation expense 35,000Gain on sale of equipment 20,000Decrease in Accounts Receivable 40,000Increase in Equipment 90,000Pete should report cash provided by operating activities ofa.$575,000.b.$545,000.c.$555,000.d.$465,000. e.$455,000.20.White Printing Company determines that a printing press that is used in the operations of the business has suffered a permanent impairment in value because of technological changes. Which of the following statements is correct regarding the generally accepted accounting procedures relating to this item?a.An impairment loss should be recorded for the period.b.Future recovery of any impairment loss recorded is not allowed for this item.c.both a and b are correct statements.d.answers a, b, and c are incorrect.21.On December 31, 2006, Fry Co. has $2,000,000 of short-term notes payable due on February 14, 2007. On February 1, 2007, Fry Co. issued common stock for $3,000,000 and used the proceeds from the issuance to pay off the notes payable. The amount of the short-term notes payable that should be reported as current liabilities on the December 31, 2006 balance sheet which is issued on March 5, 2007 isa.$0.b.$2,000,000.c.$500,000.d.$1,500,00022.For Gold Company, the following information is available:Cost of goods sold$ 60,000Extraordinary loss (net of taxes)2,500Income tax expense6,000Operating expenses20,000Interest revenue5,000Sales100,000In Golds multiple-step income statement, income from continuing operationsa.should be reported at $20,000. b.should be reported at $14,000.c.should be reported at $16,500.d.should be reported at $19,000.23.Hart Company purchased a depreciable asset for $360,000. The estimated salvage value is $24,000, and the estimated useful life is 8 years. The double-declining balance method will be used for depreciation. What is the depreciation expense for the second year on this asset?a.$42,000b.$63,000c.$67,500d.$90,00024. A $100,000 semi-annual bond was issued by Ram Corp on 7/1/2000 for cash proceeds of $92,976. The journal entry provided by Ram on 12/31/2000 is given as follows:Interest expense $6,508Discount on B/P 508Cash 6,000 Based upon this information, the stated rate of interest on the bond is:a. 6%b. 6.5%c. 8%d. 12%e. 13% 25.On June 30, 2011, Omara Co. had outstanding 8%, $3,000,000 face amount, 15-year bonds maturing on June 30, 2021. Interest is payable on June 30 and December 31. The unamortized balances in the bond discount and deferred bond issue costs accounts on June 30, 2011 were $105,000 and $30,000, respectively. On June 30, 2011, Omara acquired all of these bonds at 94 and retired them. What is the gain or loss on this early extinguishment of debt?a.$45,000 gain.b.$45,000 loss.c.$15,000 gain.d.$15,000 loss.e.$0#26 (Factoring Accounts Receivable), 14 points.On May 1, Carter, Inc. factored $800,000 of accounts receivable with Rapid Finance on a without recourse basis. Under the arrangement, Carter was to handle disputes concerning service, and Rapid Finance was to make the collections, handle the sales discounts, and absorb the credit losses. Rapid Finance assessed a finance charge of 6% of the total accounts receivable factored and retained an amount equal to 2% of the total receivables to cover sales discounts.(a) Prepare the journal entry required on Carter s books on May 1.Cash736,000Due from Factor16,000*Loss on Sale of Receivables48,000*Accounts Receivable800,000*2% X $800,000 = $16,000*6% X $800,000 = $48,000 (b)Prepare the journal entry required on Rapid Finances books on May 1.Accounts Receivable800,000Due to Carter16,000Financing Revenue48,000Cash736,000(c)Assume Carter factors the $800,000 of accounts receivable with Rapid Finance on a with recourse basis instead. The recourse provision has a fair value of $14,000. Prepare the journal entry required on Carters books on May 1.Cash736,000Due from Factor16,000*Loss on Sale of Receivables62,000*Accounts Receivable800,000Recourse Obligation14,000*2% X $800,000 = $16,000*736000+16000-14000-800,000=62000 loss#27 (Capitalization of Interest), 14 pointsOn January 1, 2007 the Carter Manufacturing Co. began construction of a building to be used as its office headquarters. The building was completed on November 30,2008.Expenditures on the project were as follows:January 1, 2007 $1,000,000November 30, 2007 1,000,000December 31, 2007 1,000,000January 31, 2008 1,000,000October 31, 2008 1,000,000On January 1, 2007, the company obtained a $1 million, 5 year construction loan with a 10 % interest rate. The companys fiscal year-end is December 31.a) Prepare the journal entry recording the amount of interest that Carter should capitalize in 2007 using the specific interest method.b) Prepare the journal entry recording the amount of interest that Carter should capitalize in 2008 using the specific interest method.c) What is the total cost of the building? #28 (Premium Entries), 10 points Edmonds Company includes 1 coupon in each box of soap powder that it packs, and 5 coupons are redeemable for a premium (a kitchen utensil). In 2010, Edmonds Company purchased 10,000 premiums at 50 cents each and sold 55,000 boxes of soap powder at $3.75 per box; 28,000 coupons were presented for redemption in 2010. It is estimated that 60% of the coupons will eventually be presented for redemption.a) Prepare the journal entries to record the purchase of inventory and any sales during the period.Inventory of Premiums (10,000 X $0.50)5,000Cash5,000Cash (55,000 X $3.75)206,250Sales206,250b) Prepare the journal entries to record any related premium expense that should be recorded in 2010 based upon the premium plan details and information provided.Premium Expense2,800Inventory of Premiums (28,000 5) X $0.502,800Premium Expense500*Estimated Liability for Premiums500*(55,000 X 60%) 28,000 5 X $0.50 = $500(a)#29 Issuance of Bonds Payable (10 points) Ramsey Corp. issued a $2,000,000 of 4% bond to yield 6% (market rate). The bond was issued on 1/1/2000 to provide semi-annual payments and expected to mature in 4 years. The semi-annual payments are to be made every June 30 and December 31.a) Calculate the cash proceeds (price) of this bond on 1/1/2000.=PV principle+ PV interest payments = PV 2,000,000 * PVof 1 factor(i=3, n=8) + 40,000 * PVof OA factor(i=3, n=8)=$1,859,606.16 b) Prepare the journal entries to record interest expense recognized by Ramsey on 6/30/2000 and 12/31/2000.6/30=$1,859,606.16 * .03=55,788.1812/31=($1,859,606.16 + 15,788.18) * .03=56,261.83 c) Determine the book value (or carrying value) of the bond on 1/1/2003, i.e. after 6 semi-annual payments. =PV principle+ PV interest payments = PV 2,000,000 * PVof 1 factor(i=3,