Exam 25: Appendix

A contingent liability which is normally accrued is

Lower of Cost or MarketPresented below is data relative to the 12/31/14 inventory of Lance Company: Additional Data:Selling price is $2.00/unit for all items. Disposal costs amount to 10% of selling price and a "normal" profit is 35% of selling price. InstructionsComplete the last four columns above.

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.

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

Reversing entries are most commonly used in relation to year-end adjusting entries that

Problem D-III — Stock Dividends and Stock Splits Stock dividends and stock splits are common forms of corporate stock distribution to stockholders. Consider each of the numbered statements. You are to decide whether it: -There is no change in the total stockholders' equity of the issuing corporation.

Earnings Per Share ComputationsJones, Inc. has net income (30% tax rate) of $1,400,000 for 2015, and an average number of shares outstanding during the year of 500,000 shares. The corporation issued $2,000,000 par value of 10-year, 9% convertible bonds on January 1, 2013 at a $180,000 discount. The convertible bonds are convertible into 70,000 shares of common stock. Assume the company uses the straight-line method for amortizing bond discount. InstructionsCompute the earnings per share data, excluding any notes if required.

Use the following data for questions 10 through 17. Each question is independent of the other questions. Sawyer Corporation has a machine (Machine A) that it acquired on 1/1/14 for $540,000. On 12/31/14 such machines have a selling price and fair value of $621,000. When used in production, such machines have an estimated useful life of 10 years with no salvage value. Use the straight-line method. Brown Corporation has a machine (Machine B) that it acquired on 1/1/14 for $729,000. On 12/31/14 such machines have a selling price and fair value of $540,000. When used in production, such machines have an estimated useful life of 10 years with no salvage value. Use the straight-line method. On 12/31/14 Brown gave Machine B plus $81,000 cash to Sawyer in return for Machine A. -Given the assumptions in 10 above, at what amount will Machine B be recorded on Sawyer's books?

Problem D-I — Treasury Stock The stockholders' equity section of Carey Co.'s balance sheet at December 31, 2014, was as follows: Instructions Prepare 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.) -On March 4, Carey sold 5,000 of these reacquired shares at $24 per share.

Pensions.Presented below is information related to Stage Department Stores, Inc. pension plan for 2015. Service cost \ 550,000 Funding contribution for 2015 530,000 Settlement rate used in actuarial computation 10\% Expected return on plan assets 9\% Amortization of PSC (due to benefit increase) 90,000 Amortization of unrecognized net gains 48,000 Projected benefit obligation (at beginning of period) 540,000 Fair value of plan assts (at beginning of period) 360,000 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.

Wade Company estimates the cost of its physical inventory at March 31 for use in an interim financial statement. The rate of markup on cost is 25%. The following account balances are available: Inventory, March 1 \ 2,000,000 Purchases during March 1,000,000 Purchase returns 52,000 Sales during March 1,700,000 The estimate of the cost of inventory at March 31 would be

Which of the following methods of accounting for uncollectible accounts does not properly match costs with revenues?

Year-end Inventory Cutoff.Abel Company's business year ends on December 31. Listed below are purchase transactions which occurred during the last few days of 2014 or during the first few days of 2015. The inventory, determined by physical count, was taken after the close of business on December 31, 2014. The only adjusting entry recorded to date has been to enter the December 31 physical inventory on the books and to remove the beginning inventory. Instructions (a) On the accompanying chart, indicate the effect of each of these transactions on the ending inventory and on reported net income for 2014, by writing the words overstated, understated, or no effect in the appropriate column. Both columns must be answered for each transaction. (b) Prepare all necessary correcting entries for 2014. (c) Indicate which of the correcting entries must be reversed in 2013 by preparing the necessary reversing entries.

Problem D-III — Stock Dividends and Stock Splits Stock dividends and stock splits are common forms of corporate stock distribution to stockholders. Consider each of the numbered statements. You are to decide whether it: -Subsequent per-share earnings, if any, are decreased.

Kramer Company values its inventory by using the retail method (LIFO basis, stable prices). The following information is available for the year 2014. At what amount would Kramer Company report its ending inventory?

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.)

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. 2015 2014 2013 Straight-line \ 100,000 \ 100,000 \ 100,000 Double-declining \ 200,000 \ 160,000 \ 200,000 (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: 2015 2014 2013 LIFO \ 51,000 \ 59,000 \ 42,000 Average cost \ 63,000 \ 67,000 \ 48,000 Assume no difference between LIFO and average cost inventory values in years prior to 2013. (a)(b)"

Use the following data for questions 10 through 17. Each question is independent of the other questions. Sawyer Corporation has a machine (Machine A) that it acquired on 1/1/14 for $540,000. On 12/31/14 such machines have a selling price and fair value of $621,000. When used in production, such machines have an estimated useful life of 10 years with no salvage value. Use the straight-line method. Brown Corporation has a machine (Machine B) that it acquired on 1/1/14 for $729,000. On 12/31/14 such machines have a selling price and fair value of $540,000. When used in production, such machines have an estimated useful life of 10 years with no salvage value. Use the straight-line method. On 12/31/14 Brown gave Machine B plus $81,000 cash to Sawyer in return for Machine A. -Given the assumption in 12 above except that the fair values of Machines A and B are $504,000 and $675,000, respectively, at what amount will Brown record Machine A?

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.

Use the following data for questions 10 through 17. Each question is independent of the other questions. Sawyer Corporation has a machine (Machine A) that it acquired on 1/1/14 for $540,000. On 12/31/14 such machines have a selling price and fair value of $621,000. When used in production, such machines have an estimated useful life of 10 years with no salvage value. Use the straight-line method. Brown Corporation has a machine (Machine B) that it acquired on 1/1/14 for $729,000. On 12/31/14 such machines have a selling price and fair value of $540,000. When used in production, such machines have an estimated useful life of 10 years with no salvage value. Use the straight-line method. On 12/31/14 Brown gave Machine B plus $81,000 cash to Sawyer in return for Machine A. -Research and Development.Identify (in accordance with FASB Statement No. 2) each of the following activities as:1. Testing in search for, or evaluation of, product or process alternatives.2. Cost of marketing research to promote new product.3. Adaptation of an existing capability to a particular requirement or customer's need.4. Design, construction, and testing of pre-production prototypes and models.5. Routine, on-going efforts to refine, enrich, or improve the qualities of an existing product.6. Engineering activity required to advance the design of a product to the manufacturing stage.7. Searching for applications of new research findings.8. Laboratory research aimed at discovery of new knowledge.9. Conceptual formulation and design of possible product or process alternatives.10. Trouble-shooting break-downs during production.11. Periodic design changes to existing products.12. Quality control during commercial production including routine testing.13. Costs of testing prototype and design modifications.14. Engineering follow-through in an early phase of production.15. Design, construction, and operation of a pilot plant not useful for commercial production. a. Research and development b. Not research and development