This is not an actual test. We were just not given the answers and I want to check if mine are right.

I. (20 points)

The following are sections of classified financial statements:

A. Current Assets M. Operating Revenues

B. Investments N. Operating Expenses

C. Plant & Equipment O. Other Revenues & Gains

D. Natural Resources P. Other Expenses & Losses

E. Intangibles Q. Discontinued Operations

F. Other Assets & Deferred Charges R. Extraordinary Items

G. Current Liabilities S. Adjustment to Beginning

H. Long-Term Liabilities Retained Earnings

I. Capital Stock T. Footnotes to Financial

J. Additional Paid-in Capital Statements

K. Retained Earnings U. Item does not appear in Financial

L. Deduction from total stockholders equity Statements

For each of the following accounts write in the space provided the letter corresponding to the correct classification of the account.

___ 1. Treasury Stock

___ 2. Income Tax Assessment of a Prior Year

___ 3. Capital Expenditures Budget for the coming year

___ 4. Disclosures regarding the terms of the Bonds Payable

___ 5. Timber Tract

___ 6. Loss from Operating Discontinued Segment

___ 7. Discount on Notes Receivable

___ 8. Deposits with a trustee for Plant Expansion

___ 9, Gain on Sale of Marketable Securities

___ 10. Correction for Understatement of Salaries Payable at the end of last year

___ 11. An unusual and infrequent gain

___ 12. Premium from the issuance of Common Stock

___ 13. Fully depreciated machinery still in use

___ 14. Bonds Payable to be retired from a Sinking Fund

___ 15. Accrued Interest Receivable

___ 16. Bad Debts Expense

___ 17. Cash Surrender Value of Life Insurance

___ 18. Additional depreciation resulting from shortening the useful life of equipment

___ 19. Available for Sale Securities

___ 20. Material write-off of Receivables

II. (16 points)

Answer the following independent questions:

1.Peter bought a new house and signed a $60,000 mortgage payable in monthly installments over the next 25 years with payments beginning at the end of the month following the date of purchase. The mortgage carries an interest rate of 3.5% compounded monthly. Calculate the monthly payment. (3 points)

2.John made a loan of $150,000 to his friend Jack. The agreement calls for Jack to make the following payments in settlement of the loan:

End of Year 1 $10,000

End of Year 2 30,000

End of Year 3 50,000

End of Year 4 60,000

End of Year 5 60,000

Calculate the interest rate on this loan. (3 points)

3.On January 1, 2014, the Furniture Co. sold a machine that has a cost of $200,000 with accumulated depreciation of $135,000 by receiving a cash payment of $10,000 and a 4 year non-interest bearing note in the amount of $90,000. Interest on similar notes is at 8% compounded annually. Give the journal entry to record the sale of the old machine.(2 points)

Give the necessary adjusting entry on December 31, 2014. (2 points)

4.Leslie Steven bought 20 bonds with a face value of $1,000 each. The bonds carry an interest rate of 6% per year payable semi-annually and the bonds mature in 10 years. These bonds were acquired to yield 5% compounded semi-annually. Calculate the purchase price of the bonds. (3 points)

Mrs. Smiths daughter will start a 4-yesr program in college 6 years from now. Mrs. Smith wants to have $40,000 available at the beginning of each college year to cover tuition and other incidental expenses and wants to accumulate these funds by making 6 equal annual payments beginning immediately. If Mrs. Smith can earn 6% per year on her savings, calculate the amount of each annual payment. (3 points)

III. (34 points)

The Allegany Co. closes its books annually on December 31. For each of the following situations, give the journal entry to adjust and correct the books as of December 31, 2013:

On January 1, 2011, the company purchased a machine at a cost of $90,000 and charged it to the Maintenance Expense account. Machinery of this nature is normally depreciated by the straight line method with no residual value and over an estimated life of 5 years.

On May 1, 2013 the company paid an annual premium of $28,800 to renew its insurance policy that expired on that day. The premium paid this year was 20% higher than the premium paid on May 1 last year. All premiums are charged to the Prepaid Insurance account when paid.

The Allowance for Doubtful Accounts was reported at $5,000 on December 31, 2012 balance sheet. During 2013, accounts receivable totaling $4,800 were written off while accounts previously written off in the amount of $700 were recovered. The company calculates its bad debts at 1% of sales which amounted to $520,000 during 2013.

A machine with a cost of $35,000 and accumulated depreciation of $25,000 was sold on January 1, 2012 for $6,000. The proceeds from sale were credited to the Sales account.

On April 1, 2012 the company received a 9% one year note receivable in the face amount of $10,000 in settlement of an account receivable. The companys bookkeeper failed to accrue interest on December 31, 2012. Interest on the note was all recognized upon the collection of the note on April 1 of the current year.

During 2013, the company changed its method of inventory valuation from FIFO to the Average Cost method. The effect of this change resulting in an increase in the earnings of prior years in the amount of $12,000 was not recognized. The December 31, 2013 inventory was correctly calculated using the Average Cost method.

A machine acquired at the beginning of 2011 at a cost of $100,000 was depreciated by the Double Declining Balance Method for 2011 and 2012 based on a useful life of 10 years. The company decided to change its method of depreciation to the straight line method beginning with 2013. This change was not recognized and depreciation on this machine was not recorded at the end of 2013.

The company failed to record accrued salaries in the amount of $2,300 at the end of 2011.

Accrued Rent Receivable in the amount of $6,000 was not recognized on December 31, 2012. This lease was not renewed when it expired on May 1 of this year.

IV. (10 points)

The information that follows relates to the Headway Co.

1.The December 31, 2013 balance sheet reported Retained Earnings in the amount of $875,000.

2.Net income for 2014 was reported at $230,000.

3.Depreciation on equipment in the amount of $60,000 was not recognized in 2013. The equipment is still in use.

4.Included in Net Income is $80,000 gain net of tax resulting from discontinued operations.

5.During 2014 the company changed its method of inventory valuation from FIFO to Weighted Average. This change resulted in reducing prior years income by $40,000. The weighted average method was used during 2014.

6.Dividends declared and paid amounted to $75,000.

7.The company is subject to a tax rate of 30%.

Required: Prepare a Statement of Retained Earnings in good form for the year ended December 31, 2014. .

V.(20 points)

Phoenix Co. reported income from continuing operations before taxes in the amount of $700,000 for the year ended December 31, 2013. The following were brought to your attention:

1.During 2013, a patent carried at $12,000 was sold for $20,000 and the entire proceeds from the sale were credited to the Patents account.

2.Equipment with a cost of $50,000 and accumulated depreciation of $38,000 was sold for $7,000 and the loss was recognized as an Extraordinary Item.

3.A lawsuit against the company alleging an infringement on a competitors patent was pending on December 31, 2013. The legal counsel of the company is of the opinion that the suit has no merit and will be dropped. The companys bookkeeper however recorded a litigation loss in the amount of $65,000 and this was reported among Other Expenses and Losses on the Income Statement.

4.During the year the company sold a major segment of its business at a gain of $120,000 before taxes and included it with Other Revenues and Gains.

5.Equipment acquired at the beginning of 2011 at a cost of $80,000 with an estimated life of 5 years and a residual value of $10,000 was depreciated in 2011, 2012, and 2013 (the current year) without consideration of the salvage value.

6.During the year the county condemned a polluted piece of land belonging to the company. The extra ordinary loss from condemnation in the amount of $40,000 was included with Other Expenses and Losses.

7.On December 1, 2013, a 6-months note receivable in the face amount of $20,000 and carrying interest at the rate of 6% matured and was collected. The entire proceeds (principal and interest) were credited to the Sales account.

8.The company is subject to an income tax rate of 30%.

Required:

1.Prepare a schedule IN GOOD FORM WITH EXPLANTIONS starting from Income from Continuing Operations before taxes as reported and arriving at Restated Income from Continuing Operations before taxes.

2.Prepare a partial income statement in good form starting with Restated Income from Continuing Operations before taxes and arriving at NET INCOME.