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1. Choco has been using LIFO inventory costing method and starting this year, Choco wants to switch to FIFO. Choco should make __________________ (retrospective, prospective) adjustment. (3 points) 2. Choco Company switched from the accelerated depreciation method to straight-line depreciation in 1/1/2016 for its equipment purchased on 1/1/2014 at the cost of $72,000. On 1/1/2016, the accumulated depreciation balance was $23,000. The equipment has an estimated life of 5 years and estimated residual value of $1,000. a. Because of this change, Choco should make __________________ (retrospective, prospective) adjustment. (3 points) b. What is the annual depreciation that Choco will record on 12/31/2016 after changing to straight-line depreciation method? (5 points) 3. In 1/1/2016, internal auditor discovered that Choco has debited an expense account for the $92,000 cost of a machine purchased on 1/1/2014. The machine's useful life was expected to be 5 years with $2,000 residual value. Straight line depreciation is used by Choco. Because of this error, for each of the following accounts, identify whether they are under/overstated (pick one) by how much during the period from 1/1/2014 to 12/31/2015. a. Expense: under/overstated by $__________________ (4 points) b. Accumulated depreciation - machine: under/overstated by $_________________ (4 points) c. Machine: under/overstated by $__________________ (4 points) 4. Choco acquired an equipment in 1/1/2013 for $400,000 and depreciated it $40,000 each year for 3 years on straight-line depreciation method (no residual value). During 2016, Choco decided to reduce the equipment's life from 10 years to 7 years. a. Regarding the change in the useful life of an equipment, Choco should make (retrospective, prospective) adjustment. (3 points) b. What is the amount of depreciation expense will Choco report on 12/31/2016? (5 points) 5. During 2016, Choco reported net cash inflow (outflows) as follows: operating activities $12,000, investing activities $(30,000), and financing activities $450,000. The beginning cash balance was $200,000. What is the ending cash balance at the end of 2016? (5 points) 6. During 2016, Choco has 450,000 shares of $1 par common stock and 20,000 shares of 6%, $10 par preferred stock outstanding. The preferred stock does not have cumulative or convertibility features. Choco declared and paid cash dividends of $220,000 during 2016. 9/1/2016, 60,000 shares of common stock were reacquired as a treasury stock. Executive stock options granted in 2010, exercisable after 2015 for 100,000 common shares at an exercise price of $15 (the average market price of the common stock during 2016 was $20/share) On 1/1/2014, Choco issued $2,000,000 of convertible 5% bonds at a face value. Each $1,000 bond is convertible into 5 common shares in 2016. Choco's net income for the year ended 12/31/2016 was $916,000. The income tax rate is 40%. a. Calculate basic EPS in 12/31/2016. (6 points) (round your number to the nearest cents) b. Calculate diluted EPS in 12/31/2016. (10 points) (round your number to the nearest cents) 7. The following is the Choco Company's balance sheet and income statement as of 12/31/2016. Balance Sheet Assets Cash Accounts receivable Inventory Long-term investments Total assets Liabilities and stockholders' equity 2015 2016 $ 120,000 105,000 225,000 60,000 $510,000 $ 21,500 195,000 180,000 0 $396,500 Accounts payable Salary payable Bonds payable Common stock Retained earnings Total liabilities and stockholders' equity Income statement Revenue: Sales Loss on sales of long-term investment Expenses: Cost of goods sold Salary expense Net income (loss) $120,000 15,000 100,000 125,000 150,000 $510,000 $ 75,000 24,000 70,000 125,000 102,500 $396,500 2016 $560,000 (7,500) $(375,000) (180,000) $(2,500) During 2016, following transactions were made: 1) Sold long-term investment for a loss of $7,500 (sold for $52,500). 2) $30,000 of bonds payable matured in 2016. 3) Paid cash dividends of $45,000. a. What is the amount of cash inflow/outflow/ from their customers? (assume Sales are all credit sales) (6 points) b. What is the amount of cash inflow/outflow from the loss on the sales of long-term investment? (2 points) c. What is the amount of cash inflow/outflow from their suppliers? (8 points) d. What is the amount of cash inflow/outflow from their employees? (6 points) e. What is the amount of cash inflow/outflow from their long-term investment? (6 points) f. What is the amount of cash inflow/outflow regarding the maturity of their bonds payable? (4 points) g. What is the amount of cash inflow/outflow regarding the cash dividends? (4 points) h. Using the above balance sheet, income statement and information from a to g, prepare the entire cash flow statement using the direct method. (12 points) Choco Company Statement of Cash Flows For the year ended December 31, 2016 Cash flows from operating activities: Cash inflows: Cash outflows: Net cash flows from operating activities Cash flows from investing activities: Net cash flows from investing activities Cash flows from financing activities: Net cash flows from financing activities Cash balance, 12/31/2016