Question 1

In considering interim financial reporting, how did the Accounting Principles Board conclude that such reporting should be viewed?
A) As a "special" type of reporting that need not follow generally accepted accounting principles.
B) As useful only if activity is evenly spread throughout the year so that estimates are unnecessary.
C) As reporting for a basic accounting period.
D) As reporting for an integral part of an annual period.

Accepted Answer

The Accounting Principles Board concluded that interim financial reporting should be viewed as reporting for an integral part of an annual period. This means that the interim period financial statements should be prepared in a way that allows them to be integrated into the annual financial statements at the end of the year. Therefore, they should follow generally accepted accounting principles and provide reliable and relevant information to users for decision-making purposes.

Question 2

Installment Sales Method.Garber, Inc. accounts for all sales of its merchandise on the installment basis. Following is the unadjusted trial balance at 12/31/16:   
Instructions
(a) Determine collections during 2016 on Installment A/R for each of the years 2014, 2015, and 2016.
(b) Without prejudice to your answer in Part 
(a), assume that total collections on Installment Accounts Receivable during 2016 were $1,060,000; $220,000 from 2014, $300,000 from 2015, and $540,000 from 2016. Prepare all necessary adjusting and closing entries at 12/31/16.

Accepted Answer

The answer of Installment Sales Method.Garber, Inc. accounts for all...

Question 3

Segment Reporting.Baden Company is a diversified company which has developed the following information about its five segments:  
InstructionsIdentify which segments are significant enough to warrant disclosure in accordance with FASB No. 131, "Reporting Disaggregated Information about a Business Enterprise," by applying the following quantitative tests: 
a. Revenue test
b. Operating profit or loss test
c. Identifiable assets test

Accepted Answer

a. Revenue test - a segment is reportable if its total sales are $370,000 or more
(10% × $3,700,000). Segments A, B, and E satisfy the revenue test.
b. Operating profit or loss test - a segment's absolute profit or loss must be $58,000 or more [10% of the absolute greater of $520,000 or ($580,000)]. Segments A, B, and D satisfy the operating profit or loss test.
c. Identifiable assets test - a segment's identifiable assets must be $1,910,000 or more (10% × $19,100,000). Segments B, D, and E satisfy the identifiable test.
Segments A, B, D, and E are identified as significant and therefore reportable because they passed at least one of the significance tests.

Question 4

Statement of Cash Flows.  Additional Data:
1. Net income for the year amounted to $109,000.
2. Cash dividends were paid amounting to 4% of par value.
3. Land was sold for $120,000."
4. Sharp sold equipment, which cost $225,000 and had accumulated depreciation of $90,000, for $115,000.
InstructionsPrepare a statement of cash flows using the indirect method."

Accepted Answer

The answer of Statement of Cash Flows.  Additional Data:
1....

Question 5

Long-Term Contracts.Edwards Company contracted on 4/1/14 to construct a building for $2,400,000. The project was completed in 2016. Additional data follow:  
Instructions
(a) Calculate the income recognized by Edwards under the percentage-of-completion method of accounting in each of the years 2014, 2015, and 2016.
(b) Prepare all necessary entries for the year 2015.
(c) Present the balance sheet disclosures at December 31, 2015. Proper headings or subheadings must be indicated.

Accepted Answer

The answer of Long-Term Contracts.Edwards Company contracted on 4/1/14 to...

Question 6

Treasury StockThe stockholders' equity section of Carey Co.'s balance sheet at December 31, 2014, was as follows:  
InstructionsPrepare journal entries (1, 2, and 4) and show proper disclosure (3) to reflect the following treasury stock transactions showing how each is accounted for under the cost method. (Show computations.)

Accepted Answer

The answer of Treasury StockThe stockholders' equity section of Carey...

Question 7

The net income for the year ended December 31, 2015, for Tax Consultants INC. was $990,000. Additional information is as follows: $\begin{array}{lr}
\text { Capital expenditures } & \$ 1,200,000 \
\text { Depreciation on plant assets } & 450,000 \
\text { Cash dividends paid on common stock } & 180,000 \
\text { Increase in noncurrent deferred tax liability } & 45,000 \
\text { Amortization of patents } & 21,000
\end{array}$ Based on the information given above, what should be the net cash provided by operating activities in the statement of cash flows for the year ended December 31, 2015?
A) $1,326,000.
B) $1,416,000.
C) $1,461,000.
D) $1,506,000.

Accepted Answer

The answer of The net income for the year ended...

Question 8

Information from Collins Company's balance sheet is as follows: $\text { Current assets: }$
$\begin{array}{lr}
\text { Cash } & 12,000,000 \
\text { Short-term investments } & 20,000,000 \
\text { Accounts receivable } & 50,000,000 \
\text { Inventories } & 66,000,000 \
\text { Prepaid expenses } & 2,000,000 \
\text { Total current assets } & \$ 150,000,000
\end{array}$ $\begin{array}{lr}\text { Current liabilities: }\
\text { Notes payable } & 21,000,000 \
\text { Accounts payable } & 18,000,000 \
\text { Accrued expenses } & 13,000,000 \
\text { Income taxes payable } & 3,000,000 \
\text { Current portion of long-term debt } & 5,000,000 \
\hline\text { Total current liabilities }&\$60,000,000
\end{array}$ What is the acid-test (quick) ratio?
A) 1.03 to 1
B) 1.37 to 1
C) 1.40 to 1
D) 2.50 to 1

Accepted Answer

The acid-test (quick) ratio is calculated as (Cash + Short-term investments + Accounts receivable) / Current liabilities. Therefore, (12,000,000 + 20,000,000 + 50,000,000) / 60,000,000 = 82,000,000 / 60,000,000 = 1.37 to 1.

Question 9

Analysis of Financial Statements.The market value of Farmington Corp.'s common shares was quoted at $54 per share at December 31, 2015, and 2014. Planetarium 's balance sheet at December 31, 2015, and 2014, and statement of income and retained earnings for the years then ended are presented below:   
InstructionsBased on the above information, compute the following (for the year 2015 only): (Show supporting computations in good form.)
(a) Current ratio.
(b) Acid-test (quick) ratio.
(c) Receivables turnover.(d) Inventory turnover.(e) Book value per share of common stock.(f) Earnings per share on common stock.(g) Price-earnings ratio on common stock.(h) Payout ratio on common stock.

Accepted Answer

The answer of Analysis of Financial Statements.The market value of...

Question 10

On January 7, 2013, Yoder Corporation acquired machinery at a cost of $2,100,000. Yoder adopted the sum-of-the-years'-digits method of depreciation for this machine and had been recording depreciation over an estimated life of five years, with no residual value. At the beginning of 2015, a decision was made to change to the straight-line method of depreciation for this machine. Assuming a 30% tax rate, the cumulative effect of this accounting change, net of tax, is
A) $0
B) $280,000
C) $294,000
D) $420,000

Accepted Answer

The change from sum-of-the-years'-digits to straight-line depreciation is a change in accounting estimate effected by a change in accounting principle, which is handled prospectively. There is no adjustment to prior periods, and thus, no cumulative effect to be reported. The effect of the change will be seen in the depreciation expense calculated for 2015 and future years, not as a cumulative effect adjustment.

Question 11

Deferred Income Taxes.In 2015, the initial year of its existence, Dexter Company's accountant, in preparing both the income statement and the tax return, developed the following list of items causing differences between accounting and taxable income:1. The company sells its merchandise on an installment contract basis. In 2015, Dexter elected, for tax purposes, to report the gross profit from these sales in the years the receivables are collected. However, for financial statement purposes, the company recognized all the gross profit in 2015. These procedures created a $500,000 difference between book and taxable incomes. The future collection of the installment contracts receivables are expected to result in taxable amounts of $250,000 in each of the next two years. (Note: the company treats installment contracts receivable as a current asset on its balance sheet.)2. The company has also chosen to depreciate all of its depreciable assets on an accelerated basis for tax purposes but on a straight-line basis for accounting purposes. These procedures resulted in $60,000 excess depreciation for tax purposes over accounting depreciation. The temporary difference due to excess tax depreciation will reverse equally over the three year period from 2016-2018.3. Dexter leased some of its property to Baker Company on July 1, 2015. The lease was to expire on July 1, 2017 and the monthly rentals were to be $60,000. Baker, however, paid the first year's rent in advance and Dexter reported this entire amount on its tax return. These procedures resulted in a $360,000 difference between book and taxable incomes. (Note: this lease was an operating lease and Dexter classified the unearned rent as a current liability on its balance sheet.)4. Dexter owns $200,000 of bonds issued by the State of Oregon upon which 5% interest is paid annually. In 2015, Dexter showed $10,000 of income from the bonds on its income statement but did not show any of this amount on its tax return. (Note: these bonds are classified as long-term investments on Dexter's balance sheet.)"5. In 2015, Dexter insured the lives of its chief executives. The premiums paid amounted to $12,000 and this amount was shown as an expense on the income statement. However, this amount was not deducted on the tax return. The company is the beneficiary.
InstructionsAssuming that the income statement of Dexter Company showed ""Income before income taxes"" of $1,500,000; that the enacted tax rates are 30% for all years; and that no other differences between book and taxable incomes existed, except for those mentioned above:
(a) Compute the income taxes payable.
(b) Prepare a schedule of future taxable and (deductible) amounts at the end of 2015.
(c) Prepare a schedule of deferred tax (asset) and liability at the end of 2015.(d) Compute the net deferred tax expense (benefit) for 2015.(e) Make the journal entry recording income tax expense, income taxes payable, and deferred income taxes for 2015.(f) Indicate how income tax expense and any deferred income taxes should be disclosed on the financial statements under generally accepted accounting principles. Show the amounts for these items and indicate specifically where they would be disclosed."

Accepted Answer

The answer of Deferred Income Taxes.In 2015, the initial year...

Question 12

Worthington Company purchased a machine on January 1, 2012, for $6,400,000. At the date of acquisition, the machine had an estimated useful life of six years with no salvage. The machine is being depreciated on a straight-line basis. On January 1, 2015, Worthington determined, as a result of additional information, that the machine had an estimated useful life of eight years from the date of acquisition with no salvage. An accounting change was made to reflect this additional information. What amount of depreciation expense should be reported in Worthington's income statement for the year ended December 31, 2015?
A) $1,066,667
B) $800,000
C) $640,000
D) $400,000

Accepted Answer

The answer of Worthington Company purchased a machine on January...

Question 13

Information concerning the debt of Cole Company is as follows:  In preparing a statement of cash flows for the year ended December 31, 2015, for Cole Company, cash flows from financing activities would reflectOutflow
A) $2,000,000
B) $2,250,000
C) $2,575,000
D) $3,175,000

Accepted Answer

The answer of Information concerning the debt of Cole Company...

Question 14

Which of the following transactions would be considered a financing activity in preparing a statement of cash flows?
A) Amortizing a discount on bonds payable
B) Recording net income from operations
C) Selling common stock
D) Purchasing inventory

Accepted Answer

Selling common stock would be considered a financing activity, as it involves obtaining funds from investors to finance the business. Amortizing a discount on bonds payable would be considered an operating activity, as it relates to the repayment of debt. Recording net income from operations would also be considered an operating activity, as it represents the profit generated from the company's core business operations. Purchasing inventory would be considered an investing activity, as it involves the acquisition of assets for the purpose of generating future income.

Question 15

The calculation of the number of times interest is earned involves dividing
A) net income by annual interest expense.
B) net income plus income taxes by annual interest expense.
C) net income plus income taxes and interest expense by annual interest expense.
D) none of these answers are correct.

Accepted Answer

The calculation of the number of times interest is earned, also known as the interest coverage ratio, involves dividing net income plus income taxes and interest expense by annual interest expense. This formula adds back interest expense and income taxes to net income because it aims to measure the company's ability to cover its interest obligations before these expenses.

Question 16

Fargo, Inc. disclosed the following information as of and for the year ended December 31, 2015: $$\begin{array} { l r } 
\text { Net cash sales } & 600,000 \
\text { Net credit sales } & 960,000 \
\text { Inventory at beginning } & 100,000 \
\text { Inventory at end } & 150,000 \
\text { Net income } & 30,000 \
\text { Accounts receivable at beginning of year } & 110,000 \
\text { Accounts receivable at end of year } & 130,000
\end{array}$$ Fargo's receivables turnover is
A) 7.4 to 1.
B) 8.0 to 1.
C) 12.0 to 1.
D) 13.0 to 1.

Accepted Answer

The receivables turnover ratio is calculated as Net Credit Sales / Average Accounts Receivable. Here, Net Credit Sales = $960,000, Average Accounts Receivable = ($110,000 + $130,000) / 2 = $120,000. Thus, Receivables Turnover = $960,000 / $120,000 = 8.0 to 1.

Question 17

Accounting Changes, Error Corrections, and Prior Period Adjustments.Molina Company's reported net incomes for 2015 and the previous two years are presentedbelow. $$\frac { 2015 } { \$ 105,000 } \quad \frac { 2014 } { \$ 95,000 } \quad \frac { 2013 } { \$ 70,000 }$$ 2015's net income was properly determined after giving effect to the following accounting changes, error corrections, etc. which took place during the year. The incomes for 2013 and 2014 do not take these items into account and are stated at the amounts determined in those years. Ignore income taxes.
Instructions
(a) For each of the six accounting changes, errors, or prior period adjustment situations described below, prepare the journal entry or entries Molina Company should record during 2015. If no entry is required, write "none."(b) After recording the situation in part 
(a) above, prepare the year-end adjusting entry for December 31, 2015. If no entry, write "none.""1. Early in 2015, Molina determined that equipment purchased in January, 2013 at a cost of $1,075,000, with an estimated life of 5 years and salvage value of $75,000 is now estimated to continue in use until December 31, 2019 and will have a $25,000 salvage value. Molina recorded its 2015 depreciation at the end of 2015.
(a)(b)""2. Molina determined that it had understated its depreciation by $20,000 in 2014 owing to the fact that an adjusting entry did not get recorded.
(a)(b)""3. Molina bought a truck January 1, 2012 for $60,000 with a $6,000 estimated salvage value and a six-year life. The company debited an expense account and credited cash on the purchase date. The truck is expected to be traded at the end of 2017. Molina uses straight-line depreciation for its trucks.
(a)(b)""4. During 2015, Molina changed from the straight-line method of depreciating its cement plant to the double-declining-balance method. The following calculations present depreciation on both bases. (Ignore income taxes.) The 2015 amount applies double-declining balance to the 1/1/15 carrying amount after straight-line was used. $\begin{array}{llll}&2015&2014&2013\
\text { Straight-line } & \$ 100,000 & \$ 100,000 & \$ 100,000 \
\text { Double-declining } & \$ 200,000 & \$ 160,000 & \$ 200,000
\end{array}$ 
(a)(b)""5. Molina, in reviewing its provision for uncollectibles during 2015, has determined that 1/2 of 1% is the appropriate amount of bad debt expense to be charged to operations. The company had used 1% as its rate in 2014 and 2013 when the expense had been $20,000 and $14,000, respectively. The company would have recorded $60,000 of bad debt expense on December 31, 2015 under the old rate.
(a)(b)""6. During 2015, Molina decided to change from the LIFO method of valuing inventories to average cost. The net incomes involved under each method were as follows: $\begin{array}{llll}&2015&2014&2013\
\text { LIFO } & \$ 51,000 & \$ 59,000 & \$ 42,000 \
\text { Average cost } & \$ 63,000 & \$ 67,000 & \$ 48,000
\end{array}$ Assume no difference between LIFO and average cost inventory values in years prior to 2013.
(a)(b)"

Accepted Answer

The answer of Accounting Changes, Error Corrections, and Prior Period...

Question 18

Leases.On January 1, 2015, Foley Company (as lessor) entered into a noncancelable lease agreement with Pinkley Company for machinery which was carried on the accounting records of Foley at $6,795,000 and had a market value of $7,200,000. Minimum lease payments under the lease agreement which expires on December 31, 2024, total $10,650,000. Payments of $1,065,000 are due each January 1. The first payment was made on January 1, 2015 when the lease agreement was finalized. The interest rate of 10% which was stipulated in the lease agreement is the implicit rate set by the lessor. The effective interest method of amortization is being used. Pinkley expects the machine to have a ten-year life with no salvage value, and be depreciated on a straight-line basis. Collectibility of the rentals is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor.
Instructions
(a) From the lessee's viewpoint, what kind of lease is the above agreement? From the lessor's viewpoint, what kind of lease is the above agreement?
(b) What should be the income before income taxes derived by Foley from the lease for the year ended December 31, 2015?
(c) Ignoring income taxes, what should be the expenses incurred by Pinkley from this lease for the year ended December 31, 2015?(d) What journal entries should be recorded by Pinkley Company on January 1, 2015?(e) What journal entries should be recorded by Foley Company on January 1, 2015?

Accepted Answer

The answer of Leases.On January 1, 2015, Foley Company (as...

Question 19

Which of the following items represents a potential use of cash?
A) Patent amortization
B) Sale of plant assets at a loss
C) Net loss from operations
D) Declaration of a stock dividend

Accepted Answer

The answer of Which of the following items represents a...

Question 20

Pensions.Presented below is information related to Stage Department Stores, Inc. pension plan for 2015. $\begin{array}{lr}
\text { Service cost } & \$ 550,000 \
\text { Funding contribution for } 2015 & 530,000 \
\text { Settlement rate used in actuarial computation } & 10 \% \
\text { Expected return on plan assets } & 9 \%\
\text { Amortization of PSC (due to benefit increase) } & 90,000 \
\text { Amortization of unrecognized net gains } & 48,000 \
\text { Projected benefit obligation (at beginning of period) } & 540,000 \
\text { Fair value of plan assts (at beginning of period) } & 360,000
\end{array}$ 
Instructions
(a) Compute the amount of pension expense to be reported for 2015. (Show computations.)(b) Prepare the journal entry to record pension expense and the employer's contribution for 2015.

Accepted Answer

The answer of Pensions.Presented below is information related to Stage...

Quiz 25: Appendix

In considering interim financial reporting, how did the Accounting Principles Board conclude that such reporting should be viewed?

Information concerning the debt of Cole Company is as follows: In preparing a statement of cash flows for the year ended December 31, 2015, for Cole Company, cash flows from financing activities would reflectOutflow

Which of the following transactions would be considered a financing activity in preparing a statement of cash flows?

The calculation of the number of times interest is earned involves dividing

Which of the following items represents a potential use of cash?