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University of Maryland University College Final Examination Acct310: Intermediate Accounting I For this exam, omit all general journal entry explanations. Ensure to include correct dollar signs, underlines & double underlines, when required. Ensure to use proper financial document format details such as blank lines where required. Question 1: 10% points: Frick Corporation's capital structure consists of 50,000 shares of common stock. At December 31, 2014 an analysis of the accounts and discussions with company officials revealed the following information: Sales revenue Earthquake loss (net of tax) (extraordinary item) Selling expenses Cash Accounts receivable Common stock Cost of goods sold Accumulated depreciation-machinery Dividend revenue Unearned service revenue Interest payable Land Patents Retained earnings, January 1, 2014 Interest expense Administrative expenses Dividends declared Allowance for doubtful accounts Notes payable (maturity 7/1/17) Machinery Materials Accounts payable $1,200,000 56,000 128,000 60,000 90,000 200,000 701,000 180,000 8,000 4,400 1,000 370,000 100,000 290,000 17,000 170,000 24,000 5,000 200,000 450,000 40,000 60,000 The amount of income taxes applicable to ordinary income was $57,600, excluding the tax effect of the earthquake loss, which amounted to $24,000. Instructions: Prepare a multiple-step income statement. Question 2: 10% points: Selected financial statement information and additional data for Frack Co. is presented below. Prepare a statement of cash flows for the year ending December 31, 2014. All balances are normal. Account Cash 12/31/13 12/31/14 $42,000 $65,000 84,000 144,200 168,000 206,600 58,800 21,000 504,000 789,600 $856,800 $1226,400 $84,000 $115,600 Accounts Payable 50,400 86,000 Notes Payable - Short Term 67,200 29,400 Notes Payable - Long Term 168,000 302,400 Common Stock 420,000 487,200 67,200 205,800 Accounts Receivable (net) Inventory Land Equipment Totals Accumulated Depreciation Retained Earnings Totals $856,800 $1226,400 Additional data for 2014: a. Net income was $220,200. b. Depreciation was $31,600. c. Land was sold at its original cost. d. Dividends of $81,600 were paid. e. Equipment was purchased for $84,000 cash. f. A long-term note for $201,600 was used to pay for an equipment purchase. g. Common stock was issued to pay a $67,200 long-term note payable. Question 3: 10% points: On December 31, 2014, Flip Company finished consultation services and accepted in exchange a promissory note with a face value of $600,000, a due date of December 31, 2017, and a stated rate of 5%, with interest receivable at the end of each year. The fair value of the services is not readily determinable and the note is not readily marketable. Under the circumstances, the note is considered to have an appropriate imputed rate of interest of 10%. Use factor tables (from chapter 6) provided in our LEO class. Instructions: a. Determine the present value of the note. b. Prepare a Schedule of Note Discount Amortization for Flip Company under the effective interest method. (Round to whole dollars.) Question 4: 8% points: Flop Company adopted the dollar-value LIFO inventory method on 12/31/13. On this date, its inventory consisted of the following items. Item X Y Number of Units 200 600 Additional information: 1. 2. 3. 4. Units of X in inventory Cost of each X unit Units of Y in inventory Cost of each Y unit Cost Per Unit $2.50 4.50 Total Cost $ 500 2,700 $3,200 December 31 2014 2015 300 400 $3.00 $3.25 800 1,200 $5.50 $6.00 Instructions a. Compute the price index for 2014. Round to 2 decimal places. b. Calculate the 12/31/14 inventory. c. Compute the price index for 2015. Round to 2 decimal places. d. Calculate the 12/31/15 inventory. Question 5: 9% points: Flim Variety Store uses the LIFO retail inventory method. Information relating to the computation of the inventory at December 31, 2014, follows: Cost Retail Inventory, January 1, 2014 $146,000 $220,000 Purchases 480,000 700,000 Freight-in 80,000 Sales 770,000 Net markups 160,000 Net markdowns 60,000 Instructions: Assuming that there was no change in the price index during the year, compute the inventory at December 31, 2014, using the LIFO retail inventory method. Question 6: 10% points: Flam Co. had a sheet metal cutter that cost $120,000 on January 5, 2010. This old cutter had an estimated life of ten years and a salvage value of $20,000. On April 3, 2015, the old cutter is exchanged for a new cutter with a fair value of $60,000. The exchange lacked commercial substance. Flam also received $15,000 cash. Assume that the last fiscal period ended on December 31, 2014, and that sum-of-the-years digit depreciation method is used. Instructions: a. What amount of the gain or loss will be recognized by Flam Co. b. Prepare all entries that are necessary on April 3, 2015. Question 7: 9% points: A truck was acquired on July 1, 2012, at a cost of $162,000. The truck had a six-year useful life and an estimated salvage value of $18,000. The double-declining balance method of depreciation was used. On January 1, 2015, the truck was overhauled at a cost of $15,000, which extended the useful life of the truck for an additional two years beyond that originally estimated (salvage value is still estimated at $18,000). In computing depreciation for annual adjustment purposes, expense is calculated for each month the asset is owned. Instructions: Prepare the appropriate entries for January 1, 2015 and December 31, 2015. Question 8: 9% points: Floozy Corporation purchases a patent from Durler Company on January.1, 2014, for $72,000. The patent has a remaining legal of 16 years. Floozy feels the patent will be useful for 10 years. Assume that at January 1, 2016, the carrying amount of the patent on Floozy's books is $64,800. In January, Floozy spends $20,000 successfully defending a patent suit. Floozy still feels the patent will be useful until the end of 2023. Instructions: Prepare Floozy's journal entries to record the amortization for 2014 and 2016. Multiple choice questions allocated 1% point each. Make your selection by recording the letter in the answer box provided. Question 9: Floozy Corp.'s trial balance of income statement accounts for the year ended December 31, 2014 included the following: Debit Credit Sales revenue $280,000 Cost of goods sold $150,000 Administrative expenses 40,000 Loss on disposal of equipment 18,000 Sales commission expense 16,000 Interest revenue 10,000 Freight-out 6,000 Loss due to earthquake damage 24,000 Bad debt expense 6,000 Totals $260,000 $290,000 Other information: Floozy's income tax rate is 30%. Finished goods inventory: January 1, 2014 $160,000 December 31, 2014 140,000 On Floozy's multiple-step income statement for 2014, Cost of goods manufactured is a. $176,000. b. $170,000. c. $136,000. d. $130,000. Question 10: Which of the following should be reported as a prior period adjustment? Change in Estimated Lives of Depreciable Assets a. Yes b. No c. Yes d. No Mistakes in the Application of Accounting Principles Yes Yes No No Question 11: The following trial balance of Floozy Corp. at December 31, 2014 has been properly adjusted except for the income tax expense adjustment. Floozy Corp. Trial Balance December 31, 2014 Dr. Cr. Cash $ 775,000 Accounts receivable (net) 2,695,000 Inventory 2,085,000 Property, plant, and equipment (net) 7,566,000 Accounts payable and accrued liabilities $ 1,701,000 Income taxes payable 654,000 Deferred income tax liability 85,000 Common stock 2,350,000 Additional paid-in capital 3,680,000 Retained earnings, 1/1/14 3,450,000 Net sales and other revenues 13,560,000 Costs and expenses 11,180,000 Income tax expenses 1,179,000 $25,480,000 $25,480,000 Other financial data for the year ended December 31, 2014: Included in accounts receivable is $1,200,000 due from a customer and payable in quarterly installments of $150,000. The last payment is due December 29, 2016. The balance in the Deferred Income Tax Liability account pertains to a temporary difference that arose in a prior year, of which $20,000 is classified as a current liability. During the year, estimated tax payments of $525,000 were charged to income tax expense. The current and future tax rate on all types of income is 30%. In Floozy's December 31, 2014 balance sheet, the current assets total is a. $6,080,000. b. $5,555,000. c. $5,405,000. d. $4,955,000. Question 12: The following trial balance of Floozy Corp. at December 31, 2014 has been properly adjusted except for the income tax expense adjustment. Floozy Corp. Trial Balance December 31, 2014 Dr. Cr. Cash $ 775,000 Accounts receivable (net) 2,695,000 Inventory 2,085,000 Property, plant, and equipment (net) 7,566,000 Accounts payable and accrued liabilities $ 1,701,000 Income taxes payable 654,000 Deferred income tax liability 85,000 Common stock 2,350,000 Additional paid-in capital 3,680,000 Retained earnings, 1/1/14 3,450,000 Net sales and other revenues 13,560,000 Costs and expenses 11,180,000 Income tax expenses 1,179,000 $25,480,000 $25,480,000 Other financial data for the year ended December 31, 2014: Included in accounts receivable is $1,200,000 due from a customer and payable in quarterly installments of $150,000. The last payment is due December 29, 2016. The balance in the Deferred Income Tax Liability account pertains to a temporary difference that arose in a prior year, of which $20,000 is classified as a current liability. During the year, estimated tax payments of $525,000 were charged to income tax expense. The current and future tax rate on all types of income is 30%. In Floozy's December 31, 2014 balance sheet, the current liabilities total is a. $1,850,000. b. $1,915,000. c. $2,375,000. d. $2,440,000. Question 13: The following trial balance of Floozy Corp. at December 31, 2014 has been properly adjusted except for the income tax expense adjustment. Floozy Corp. Trial Balance December 31, 2014 Dr. Cr. Cash $ 775,000 Accounts receivable (net) 2,695,000 Inventory 2,085,000 Property, plant, and equipment (net) 7,566,000 Accounts payable and accrued liabilities $ 1,701,000 Income taxes payable 654,000 Deferred income tax liability 85,000 Common stock 2,350,000 Additional paid-in capital 3,680,000 Retained earnings, 1/1/14 3,450,000 Net sales and other revenues 13,560,000 Costs and expenses 11,180,000 Income tax expenses 1,179,000 $25,480,000 $25,480,000 Other financial data for the year ended December 31, 2014: Included in accounts receivable is $1,200,000 due from a customer and payable in quarterly installments of $150,000. The last payment is due December 29, 2016. The balance in the Deferred Income Tax Liability account pertains to a temporary difference that arose in a prior year, of which $20,000 is classified as a current liability. During the year, estimated tax payments of $525,000 were charged to income tax expense. The current and future tax rate on all types of income is 30%. In Floozy's December 31, 2014 balance sheet, the final retained earnings balance is a. $4,651,000. b. $4,736,000. c. $5,176,000. d. $5,105,000. Question 14: Floozy Co. prepared an aging of its accounts receivable at December 31, 2014 and determined that the net realizable value of the receivables was $600,000. Additional information is available as follows: Allowance for uncollectible accounts at 1/1/14credit balance Accounts written off as uncollectible during 2014 Accounts receivable at 12/31/14 Uncollectible accounts recovered during 2014 $ 68,000 46,000 650,000 10,000 For the year ended December 31, 2014, Floozy's uncollectible accounts expense would be a. $50,000. b. $46,000. c. $32,000. d. $18,000. Question 15: On January 1, 2014, Floozy Co. exchanged equipment for a $600,000 zero-interest-bearing note due on January 1, 2017. The prevailing rate of interest for a note of this type at January 1, 2014 was 10%. The present value of $1 at 10% for three periods is 0.75. What amount of interest revenue should be included in Floozy's 2015 income statement? a. $0 b. $45,000 c. $49,500 d. $60,000 Question 16: Which of the following is a method to generate cash from accounts receivable? a. b. c. d. Assignment Yes Yes No No Factoring No Yes Yes No Question 17: The balance in Floozy Co.'s accounts payable account at December 31, 2014 was $950,000 before any necessary year-end adjustments relating to the following: Goods were in transit to Floozy from a vendor on December 31, 2014. The invoice cost was $40,000. The goods were shipped f.o.b. shipping point on December 29, 2014 and were received on January 4, 2015. Goods shipped f.o.b. destination on December 21, 2014 from a vendor to Floozy were received on January 6, 2015. The invoice cost was $25,000. On December 27, 2014, Floozy wrote and recorded checks to creditors totaling $30,000 that were mailed on January 10, 2015. In Floozy's December 31, 2014 balance sheet, the accounts payable should be a. $ 980,000. b. $ 990,000. c. $1,015,000. d. $1,020,000. Question 18: Floozy Co.'s accounts payable balance at December 31, 2014 was $1,400,000 before considering the following transactions: Goods were in transit from a vendor to Floozy on December 31, 2014. The invoice price was $70,000, and the goods were shipped f.o.b. shipping point on December 29, 2014. The goods were received on January 4, 2015. Goods shipped to Floozy, f.o.b. shipping point on December 20, 2014, from a vendor were lost in transit. The invoice price was $50,000. On January 5, 2015, Floozy filed a $50,000 claim against the common carrier. In its December 31, 2014 balance sheet, Floozy should report accounts payable of a. $1,520,000. b. $1,470,000. c. $1,450,000. d. $1,400,000. Question 19: Floozy Co. recorded the following data pertaining to raw material X during January 2014: Units Date Received Cost Issued On Hand 1/1/14 Inventory $6.00 3,200 1/11/14 Issue 1,600 1,600 1/22/14 Purchase 4,000 $7.05 5,600 The moving-average unit cost of X inventory at January 31, 2014 is a. $6.52. b. $6.63. c. $6.75. d. $7.05. Question 20: Floozy Co. had 150 units of product A on hand at January 1, 2014, costing $21 each. Purchases of product A during January were as follows: Date Units Unit Cost Jan. 10 200 $22 18 250 23 28 100 24 A physical count on January 31, 2014 shows 200 units of product A on hand. The cost of the inventory at January 31, 2014 under the LIFO method is a. $4,700. b. $4,450. c. $4,250. d. $4,100. Question 21: Floozy Company's accounting records indicated the following information: Inventory, 1/1/14 $ 1,200,000 Purchases during 2014 6,000,000 Sales during 2014 7,600,000 A physical inventory taken on December 31, 2014, resulted in an ending inventory of $1,400,000. Floozy's gross profit on sales has remained constant at 25% in recent years. Floozy suspects some inventory may have been taken by a new employee. At December 31, 2014, what is the estimated cost of missing inventory? a. $100,000. b. $300,000. c. $400,000. d. $500,000. Question 22: Floozy, a chain of candy stores, purchases its candy in bulk from its suppliers. For a recent shipment, the company paid $1,500 and received 8,500 pieces of candy that are allocated among three groups. Group 1 consists of 2,500 pieces that are expected to sell for $0.15 each. Group 2 consists of 5,500 pieces that are expected to sell for $0.36 each. Group 3 consists of 500 pieces that are expected to sell for $0.72 each. Using the relative sales value method, what is the cost per item in Group 2? a. $0.19. b. $0.30. c. $0.18. d. $0.20. Question 23: The following information is available for October for Floozy Company. Beginning inventory Net purchases Net sales Percentage markup on cost $300,000 900,000 1,800,000 66.67% A fire destroyed Floozy's October 31 inventory, leaving undamaged inventory with a cost of $18,000. Using the gross profit method, the estimated ending inventory destroyed by fire is a. $102,000. b. $462,000. c. $480,000. d. $600,000. Question 24: On January 1, 2014, the merchandise inventory of Floozy, Inc. was $1,200,000. During 2014 Floozy purchased $2,400,000 of merchandise and recorded sales of $3,000,000. The gross profit rate on these sales was 25%. What is the merchandise inventory of Floozy at December 31, 2014? a. $600,000. b. $750,000. c. $1,350,000. d. $2,250,000. Question 25: On December 1, 2014, Floozy Co. purchased a tract of land as a factory site for $750,000. The old building on the property was razed, and salvaged materials resulting from demolition were sold. Additional costs incurred and salvage proceeds realized during December 2014 were as follows: Cost to raze old building Legal fees for purchase contract and to record ownership Title guarantee insurance Proceeds from sale of salvaged materials In Floozy 's December 31, 2014 balance sheet, what amount should be reported as land? a. $776,000. b. $812,000. c. $838,000. d. $846,000. $70,000 10,000 16,000 8,000 Question 26: Floozy Football Co. had a player contract with Watts that is recorded in its books at $5,600,000 on July 1, 2014. Day Football Co. had a player contract with Kurtz that is recorded in its books at $7,000,000 on July 1, 2014. On this date, Floozy traded Watts to Day for Kurtz and paid a cash difference of $700,000. The fair value of the Kurtz contract was $8,400,000 on the exchange date. The exchange had no commercial substance. After the exchange, the Kurtz contract should be recorded in Floozy's books at a. $6,300,000. b. $7,000,000. c. $7,700,000. d. $8,400,000. Question 27: On September 10, 2014, Floozy Co. incurred the following costs for one of its printing presses: Purchase of attachment $45,000 Installation of attachment 5,000 Replacement parts for renovation of press 18,000 Labor and overhead in connection with renovation of press 7,000 Neither the attachment nor the renovation increased the estimated useful life of the press. However, the renovation resulted in significantly increased productivity. What amount of the costs should be capitalized? a. $0. b. $57,000. c. $68,000. d. $75,000. Question 28: Floozy Co. purchased a machine on July 1, 2014, for $800,000. The machine has an estimated useful life of five years and a salvage value of $160,000. The machine is being depreciated from the date of acquisition by the 150% declining-balance method. For the year ended December 31, 2014, Floozy should record depreciation expense on this machine of a. $240,000. b. $160,000. c. $120,000. d. $96,000. Question 29: A depreciable asset has an estimated 15% salvage value. At the end of its estimated useful life, the accumulated depreciation would equal the original cost of the asset under which of the following depreciation methods? Straight-line Productive Output a. Yes No b. Yes Yes c. No Yes d. No No Question 30: Floozy Company acquired a tract of land containing an extractable natural resource. Floozy is required by the purchase contract to restore the land to a condition suitable for recreational use after it has extracted the natural resource. Geological surveys estimate that the recoverable reserves will be 4,000,000 tons, and that the land will have a value of $600,000 after restoration. Relevant cost information follows: Land Estimated restoration costs $6,400,000 1,200,000 If Floozy maintains no inventories of extracted material, what should be the charge to depletion expense per ton of extracted material? a. b. c. d. $1.60 $1.75 $2.00 $1.90 Question 31: In January 2014, Floozy Mining Corporation purchased a mineral mine for $6,300,000 with removable ore estimated by geological surveys at 2,500,000 tons. The property has an estimated value of $600,000 after the ore has been extracted. Floozy incurred $1,725,000 of development costs preparing the property for the extraction of ore. During 2014, 390,000 tons were removed and 350,000 tons were sold. For the year ended December 31, 2014, Floozy should include what amount of depletion in its cost of goods sold? a. $798,000 b. $889,200 c. $1,039,500 d. $1,158,000 Question 32: Floozy Co. bought a patent from Flam Corp. on January 1, 2015, for $600,000. An independent consultant retained by Floozy estimated that the remaining useful life at January 1, 2015 is 15 years. Its unamortized cost on Flam's accounting records was $300,000; the patent had been amortized for 5 years by Flam. How much should be amortized for the year ended December 31, 2015 by Floozy Co.? a. $0. b. $30,000. c. $40,000. d. $60,000. Question 33: On January 1, 2011, Flam Company purchased a copyright for $1,500,000, having an estimated useful life of 16 years. In January 2015, Flam paid $225,000 for legal fees in a successful defense of the copyright. Copyright amortization expense for the year ended December 31, 2015, should be a. $0. b. $93,750. c. $107,812. d. $112,500