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Exam III, Part II Instructions: Complete the problems on the spreadsheet. Use formulas to calculate all cells that require a numeric answer. Repond to the essay questions directly below the questions. Problem 1 Problem 2 Problem 3 Problem 4 Problem 5 # Points 10 13 7 6 14 50 Topic Covered in the Problem Accounting Changes and Error Corrections Accounting for Income Taxes Accounting for Pensions Revenue Recognition Statement of Cash Flows Total Possible Points CAVEATS: Posting this exam in part or in total on any Website outside of the UMUC Website is a violation of academic integrity the MS Accounting degree programs. Posting your answers to part or all of this exam on any Website outside of UMUC is a violation of academic integrity the MS Accounting degree programs. Speaking to any other person or entity about the content of this exam or answers in any way is a violation of UMUC's Policy on Academic Integrity. All suspected violations of academic integrity in the MS Accounting degree programs and or UMUC Policy 150.25 wil be turned into the graduate Dean's office for review. The minimum penalty for violating Policy 150.25 on this exam is failing the exam. The maximum penalty for violating Policy 150.25 is expulsion from UMUC's graduate school. Your professor is required to report all suspected cases of academic integrity violations in the MS Accounting degree programs and or UMUC's Policy 150.25. You are strongly advised to review Policy 150.25 and the Graduate Accounting and Financial Manage Academic Integrity Pledge in advance of taking this exam. preadsheet. s that require a numeric answer. irectly below the questions. ered in the Problem ng Changes and Error Corrections ng for Income Taxes ng for Pensions Recognition t of Cash Flows sible Points tal on any Website outside of the UMUC Website is a violation of academic integrity in ams. all of this exam on any Website outside of UMUC is a violation of academic integrity in ams. entity about the content of this exam or answers in any way is a violation of UMUC's mic integrity in the MS Accounting degree programs and or UMUC Policy 150.25 will n's office for review. ng Policy 150.25 on this exam is failing the exam. ng Policy 150.25 is expulsion from UMUC's graduate school. ort all suspected cases of academic integrity violations in the MS Accounting degree 150.25. w Policy 150.25 and the Graduate Accounting and Financial Manage Academic king this exam. Problem 1-Accounting Changes and Correction of Errors (10 points) Possible Your Points Points 1 1. If a Company changes from an inappropriate accounting principle to an appropriate accounting principle in the preparation of its latest financial statements, is this change a change in accounting principle or a correction of an accounting error? Why? 2 2. Provide 3 specific examples of changes in accounting principle. 1 3. There are two approaches acceptable under US GAAP to reporting accounting changes. When is the prospective approach to reporting an accounting change allowable? Be specific and provide an example requiring the use of the prospective approach to reporting an accounting change. 4. The Robinson Company purchased a piece of equipment on January 1, 2018 for ... The accountant improperly expensed this purchase as operating expenses during 2018. The equipment has no salvage value and a useful life of (in years)........... Robinson Company operates has a corporate average income tax rate ....... Robinson Company and reports its effective financial statements on aof calendar year. $75,000 10 35% After the 2018 financial statements are issued and after Robinson Company has closed its books for 2018, the Company discovered the above error. 3 a) Prepare the first journal entry Robinson Company would record during 2019 on its books to correct this error? 1 b) How much depreciation expense would Robinson Company record during 2019 for this piece of equipment? 1 c) Would Robinson Company report this correction of an error on a retrospective or a prospective basis? Why? 1 5. If there has been a change in the Reporting Entity, how are these changes reported under US GAAP-on a Retrospective or a Prospective Basis? 10 0 Total Points Problem 2-Accounting for Income Taxes (13 points) Possible Your Points Points 1 1. Explain in detail the two alternative methods a company may use to report a net operating loss Be specific and detailed in your answer. 2. The Williams Corporation, which operates on a calendar year, started its operations on January Williams pay corporate income taxes at the rate o 35% Williams Corporation has no permanent or timing differences (no differences between reported a Below is Williams Corporation GAAP (Accounting) Income Before Taxes for the following calendar 2015 $100,000 2016 $500,000 2017 ($400,000) 2018 ($300,000) 2019 $300,000 2 a) Prepare the 2017 year end journal entry for income tax expenses (benefit). 2 b) Assume that Williams is unable to determine if the firm will be profitable in the future when Prepare the 2018 year end journal entry (entries) for income tax expenses (benefit) . 2 c) Prepare the 2019 year end journal entry (entries) for income tax expenses. 3. Your firm has been conducting tax research by looking at cases settled in federal courts as a me Based upon the outcome of existing tax law cases, and after consulting with the firm's auditors an this tax position when it files its US tax return, the firm will be successful if the IRS challenges this 1 year is material to the Balance Sheet and Income Statement. The tax benefit is an all or nothing t Each of the tax law cases to date have also upheld 100% of the tax benefit claimed by other firms a) With specific reference to the ASC for uncertain tax positions, summarize the accounting rule 1 b) Would the firm be able to recognize the entire tax benefit from this tax position in the curren 4. Assume the following information for Robert Corporation for the year ended December 31, 2 Accounting Income Before Income Taxes Permanent Differences-Income Items Included in the above Accounting Income Before Income Taxes Which Are Not Taxable under the Income Tax rules 2 a) Record the journal entry for income tax expense and income taxes payable under US GAAP, a US Corporate Income Tax Rate is for the year ended December 31, 2016. 5. Assume the following information for Robert Corporation for the year ended December 31, 2 Accounting Income Before Income Taxes Permanent Differences-Income Items Included in the above Accounting Income Before Income Taxes Which Are Not Taxable under the Income Tax rules Timing Differences: Robert Corporation uses accelerated depreciation methods for income tax purposes. For 2016, income tax depreciation expense using the accelerated method was greater than accounting (book) depreciation expense by 2 13 a) Record the journal entry for income tax expense, income taxes payable, and deferred income US Corporate Income Tax Rate is for the year ended December 31, 2016. Assume this is the first year that Robert Corporation has been in operation. 0 Total Points ort a net operating loss (reports a Loss Before Income Taxes). operations on January 1, 2015. es between reported accounting profits and taxable income) in any calendar year. the following calendar year ends: ble in the future when preparing the 2018 journal entry (entries) s (benefit) . n federal courts as a means to decide what position to take when reporting this year's taxes. h the firm's auditors and attorney's, you feel there is a 75% chance that if your firm takes the IRS challenges this tax position. The potential benefit from taking this position in the current fit is an all or nothing tax benefit. claimed by other firms related to this tax position. ize the accounting rules that apply. position in the current year's income statement? ended December 31, 2016: ### $100,000 able under US GAAP, assuming that the 35% ended December 31, 2016: ### $100,000 $100,000 , and deferred income taxes payable under US GAAP, assuming that the 35% Problem 3-Pensions (7 points) Possible Your Points Points 1 1. Explain in several concise sentences the main differences between a Defined Benefit Pensi 1 2. There are three methods or approaches firms can use to calculate their Pension Benefit Ob is most preferable according to the FASB, explain how that method for calculating the liability to be the most preferable of the three methods according to the FASB? 3. The following information is available for the Pension Plan of Robinson Company for the 2 Actual and expected return on plan assets for 2016 Benefits paid to retirees Contributions to the fund made by the Company Prior service cost amortization Projected benefit obligation, January 1, 2016 Interest/discount rate Service cost 3 Calculate the pension expense for 2016 for the Robinson Company. Show your calculation in 2 Record the journal entry to record the pension expense for 2016 based upon the information 7 Total Points n a Defined Benefit Pension Plan and a Defined Contribution Pension Plan. their Pension Benefit Obligations (Liability). Which of the three methods or calculating the liability is calculated, and why is this method deemed inson Company for the 2016 Calendar Year: $12,000 $40,000 $90,000 $10,000 $500,000 10% $60,000 Show your calculation in a tabular format below. ed upon the information you are provided above. Problem 4-Revenue Recognition (6 points) Possible Points 1 Your Points 1. List in summary form the FASBs 5-Step Revenue Recognition Model prescribed in ASC606. 2. Given the following scenarios, can/should a firm recognize revenues? Yes or No, and why o Refer, when possible, to the FASBs 5-Step Revenue Recognition Model from Question 1. 1 a. The Craig Corporation delivers on consignment 100 new state-of-the-art J-Phones to a consig Craig Corporation invoices the consignee $100 for each J-Phone upon delivery and the consigne The consignee takes title to the J-Phones immediately upon delivery from Craig Corporation; the 1 b. The Craig Corporation signs a contract with the Williams Corporation to provide them with va Craig Corporation invoices Williams Corporation in advance $100,000 for these consulting servic Williams Corporation pays Craig Corporation for this invoice within 30 days of invoicing. At the e provided by Craig to Williams, and any overpayment is refunded at that time by Craig to William 1 c. The Craig Corporation signs a contract with the Roberts Corporation and delivers to Roberts a Craig Corporation also provides Roberts Corporation with a 90-day warranty for any defects any from Roberts. 2 d. Paul Jones, CPA, prepares the corporate income tax returns of a local furniture manufacture The local furniture manufacturer pays Paul Jones by supplying his office with furniture with a no receipt of the furniture both take place on April 1, 2017. How will Paul Jones record providing the tax return services and the receipt of the office furnit If the value of the furniture was not known (for example, it was discontinued furniture sitting 6 0 Total Points el prescribed in ASC606. es? Yes or No, and why or why not? And discuss any journal entries required in each case. el from Question 1. e-art J-Phones to a consignee; the consignee has the right to return any unsold J-Phones to Craig after 90 days. delivery and the consignee immediately pays Craig Corporation upon delivery of the 100 J-Phones. om Craig Corporation; the consignee maintains and pays for insurance on the J-Phones while they are in the consignee's posses on to provide them with various consulting services on an ad-hoc basis over the next 12 months. for these consulting services which are estimated at 500 hours at $200 per hour. days of invoicing. At the end of the 12 month period, both parties reconcile the consulting services at time by Craig to Williams, or Craig invoices Williams for any services provided in excess of the original advance. n and delivers to Roberts and invoices Roberts for 500 J-Phones at the price of $100 per J-Phone on December 31, 2016. rranty for any defects any customers of Robert's has with the J-Phones from the date of their purchase of the J-Phone cal furniture manufacturer for which Paul would normally have charged a client $5,000 to prepare. e with furniture with a normal retail selling of $6,000. The delivery of the tax returns by Paul and Paul's receipt of the office furniture on April 1, 2017 on his books? ontinued furniture sitting in manufacturer's warehouse from years ago), how would Paul record this transaction? e in the consignee's possession. al advance. ecember 31, 2016. e of the J-Phone transaction? Problem 5: Statement of Cash Flows (14 points) The March 2016 and 2017 comparative Balance Sheet for UMUC Corporation is shown below UMUC Corporation Comparative Balance Sheets 31-Mar 2017 2016 Current assets: Cash Accounts receivable Inventories Prepaid expenses Long-term investment Equipment, net Land Current liabilities: Notes payable, short-term Accounts payable Income tax payable Accrued liabilities Interest payable Salary payable Long-term note payable Common stock Retained earnings $28,300 60,000 69,200 1,500 11,000 74,200 43,100 $287,300 $8,700 33,200 61,400 2,800 6,500 73,800 95,600 $282,000 $14,200 44,100 14,200 23,900 5,100 3,500 57,000 68,000 -9,100 $220,900 $19,200 42,600 16,800 28,500 9,200 2,800 104,400 52,600 5,900 $282,000 Additional information: Transaction data for the year ended March 31, 2017 a. Net income $ 66,400 b. Depreciation expense on equipment 13,700 c. Purchased long-term investment d. Sold land for cash Loss on sale of land Acquired equipment by issuing longterm note payable Paid long-term note payable Received cash for issuance of common stock e. f. g. 4,500 45,400 7,100 14,100 61,500 10,400 h. i. Possible Points 1 Your Points Paid cash dividends Paid short-term note payable by issuing common stock 5,000 Requirement 1 Prepare the statement of cash flows of UMUC Corporation for the year ended March 3 Title Cash flow from Operations 5 15,000 Net cash flow from Operating Activities Cash Flows from Investing Activities 3 Net cash flow from Investing Activities Financing Cash Flows 3 1 Net Cash Flows from financing activities Net Increase (decrease in Cash) Requirement 2: Prepare the notes related to non-cash investing and financing activities. Non-cash investing and financing activities: 1 14 0 Total Points UC Corporation is shown below: Increase (Decrease) $19,600 $26,800 $7,800 ($1,300) $4,500 $400 ($52,500) $5,300 ($5,000) $1,500 ($2,600) ($4,600) ($4,100) $700 ($47,400) $15,400 ($15,000) ($61,100) tion for the year ended March 31, 2017 using the indirect method to report operating activities g activities