Exam 8: Operating Activities

Upton Company has consistently used the percentage-of-completion method of recognizing income. In 2010, Upton started on an $18,000,000 construction contract that was completed in 2012. The following information was taken from Upton's 2010 accounting records: Progress billing \6 ,600,000 Costsincured. \5 ,400,000 Collections \4 ,200,000 Estimated cost sto complete \1 0,800,000 What amount of revenue should Upton recognize on the contract in 2010?

Derivative instruments acquired to hedge exposure to variability in expected future cash are _________________________ hedges.

A contractor would not use ________________________________________ method of income recognition when there is substantial uncertainty regarding the total costs it will incur in completing the project.

Deferred tax assets result in future tax ____________________ when temporary differences reverse.

Presented below is pension information related to Power Corp. for the year 2012: Service cost \2 4,000 Interest on projected benefit obligation 18,000 Amortization of prior se1vice cost che to increase in benefits 4,000 Expected return on plan assets 6,000 The amount of pension expense to be reported for 2012 is

Regarding actuarial assumptions, firms must disclose in notes to the financial statements all of the following except:

The following information is taken from Satin financial statements (amounts in thousands): 12/31/2010 12/31/2009 Inventory at LIFO \ 219,686 \ 241,154 Cost of goods sold 754,661 675,138 Stockholders' Equity 242,503 242,712 Net Income 31,185 64,150 Tax rate 37\% 37\% Inventory Footnote: If the first-in, first-out method of accounting for inventory had been used, inventory would have been approximately $26.9 million and $25.1 million higher than reported at 12/31/2010 and 12/31/2009, respectively. Required: a. Calculate what inventory would have been at $12 / 31 / 2010$ and $12 / 31 / 2009$ had the FIFO inventory method be en used. b. Whatwould net income for the year ended $12 / 31 / 2010$ , have been if the FIFO inventory method been used? c. Calculate what stockholders equity would have been at $12 / 31 / 2010$ and $12 / 31 / 2009$ had the FIFO irventory method been used.

Magnum Construction contracted to construct a factory building for $545,000. The company started during 2012 and was completed in 2013. Information relating to the contract is as follows: 2012 2013 Costs incurred during the year \ 310,000 \ 170,000 Estimated additional cost to complete 165,000 - Billings during the year 280,000 285,000 Cash collections during the year 260,000 305,000 Required: Record the preceding transactions in Magnum's books under completed-contract and the percentage of completion methods. Determine amounts that will be reported on the balance sheet at the end of 2012. Conpleted-Contract Method DR Construction in progress \3 10,000 CR Cash, payables, materials, etc. \3 10,000 DR Accounts receivable \2 80,000 CR Billings on contract \2 80,000 DR Cash \2 60,000 CR Accountsreceivable \2 60,000 Since the project is incomplete, no revenue is recogrized for the year 2012 Percentige-of-Conpletion Method DR Construction in progress \3 10,000 CR Cash, payables, materials, etc. \3 10,000 DR Accounts receivable \2 80,000 CR Billings on contract \2 80,000 DR Cash \2 60,000 CR Accountsreceivable \2 60,000 DR Construction in progress' \4 5,684 CR Income onlong-term construction contracts \4 5,684 DR Construction in progress \4 5,68 DR Construction expense 4 CR Construction revenue* 310,000 \3 55,684 "Contract price \5 45,000 - Actual coststo date ( \3 10,000) - Estimated costs to complete Total estimated costs of project Estimated total grossmargin \7 0,000

A derivative has one or more ____________________, which are a specified interest rate, commodity price, foreign exchange rate, or other variable.

One sign that a company may be recognizing sales too early is that it has unusually large amounts of ______________________________.

If Parnell Industries is uncertain that it will collect all four payments from Ranger Inc. and uses the cost recovery method of accounting for revenue recognition what amount of gross profit should Parnell recognize in 2012 from the sale?

All of the following are true regarding accrual accounting except:

Falcon Networks is a leading semiconductor company with operations in 17 different countries. Information about the company's taxes appears below: $\text {Falcon Not works}$ $\text {Components of Income Tax Expense}$ $\text {(in millions)}$ 2012 2011 Current - Federal \5 5.65 \4 7.52 - Foreign 83.85 78.95 - State and Local Total Current \1 54.19 \1 38.97 Deferred - Federal \3 0.28 \4 2.90 - Foreign Total Deferred \5 4.17 \5 7.48 Total Income Tax Expense Note: Falcon Networks has no curent liability at year-end withrespect to total current taxes. Components of Income before Taxes 2012 2011 United States \2 56.35 \2 53.68 Foreign Total - Using the information provided by Falcon Networks determine the combined effective tax rate for 2012.

Which of the following will most likely help identify an increasing proportion of uncollectible sales?

Bower Construction Comp. has consistently used the percentage-of-completion method for recognizing revenue on its long-term contracts. During 2010 Bower entered into a fixed-price contract to construct an office building for $8,000,000. Information relating to the contract is as follows: Percent Complete 25\% 70\% 100\% Estimated Total Cost at Completion \ 5,600,000 \ 6,400,000 \ 6,500,000 GrossProfit Recognized to date 600,000 1,120,000 ? Required (Show Calculations): 1. Compute contract cost $s$ incurre d duing 2010,2011 and 2012 . 2. Determine how much gross profit Bower should recognize in 2012. 3. Under what conditions would it not be reasonable for a company to use the percentage of completionmethod of recogizing revenue onlong-term contracts? 4. If Bower had used the completed contract method of accounting for this long-term contract how much gross profit would it have earned in 2010,2011 and $2012 ?$

Which of the following would not be suggestive of a company recognizing sales too early?

Derivative instruments acquired to hedge exposure may be classified as either a fair value hedge or a cash flow hedge. Distinguish between the two types of hedges.

Global, Inc. provides consulting services throughout the world. The company pays taxes to the nation where revenues are earned. Information about the company's taxes are presented below: Global, Inc. Conponents of Incone Tax Expense (in millions) Current - Federal - Foreigr - State andLocal Total Curent Deferred - Federal - Foreign Total Deferred Total Income Tax Expense Coniponents of Income before Taxes UnitedStates Foreign Total 2012 \ 35.60 53.86 \ 106.61 \ 10.56 \1 3.84 2012 \ 155.45 \ 298.30 2011 \ 29.80 65.85 \ 110.93 \ 8.54 \1 5.11 2011 \ 150.29 \ 284.79 Required: a. Using the information provided for Global, prepare the comp any s jounal entiy to record income taxes for 2012 and 2011 b. Using the information provided for Global, determine the company's effective tax rate for 2012 and 2011.

____________________ differences result from including revenues and expenses in income before taxes in a different period than those items affect taxable income.

All of the following are considered by analysts when assessing the quality of accounting except: