Exam_I_Sp_2006 - ACCOUNTANCY 321 Spring, 2006 EXAM I I....

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ACCOUNTANCY 321 Spring, 2006 EXAM I I. Selected account information is given below. Any item listed separately, below is NOT included in any other total. Advertising Expense $ 16,000 Accounts Payable, Dec. 31, 2005 170,000 Accounts Receivable, Dec. 31, 2005 260,000 Allowance for Doubtful Accounts 15,000 Cash 159,000 Change in Accounting Principle from LIFO to FIFO (cumulative increase in income) 40,000 Change in estimate - decrease in Manufacturing Depreciation Expense 6,000 Correction of Error – failed to record Depreciation Expense in 2003 30,000 Cost of Goods Sold 290,000 Depreciation Expense on Office Building 85,000 Dividends declared for 2005 92,000 Extraordinary Loss 72,000 Gain from selling Awning Division on Apr. 1, 2005 350,000 Goodwill (purchased) 290,000 Leased Equipment 140,000 Loss from Operating Awning Division for 3 months 145,000 Obligation under Capital Lease 140,000 Retained Earnings, Dec. 31, 2004 440,000 Sales 795,000 Sales Salaries 35,000 Unusual Gain on sale of L.T. Investments 45,000 Warranty Liability 37,000 A. On the following pages, you are to construct, in good form , a multi-step income statement and a retained earnings Statement for the year ended December 31, 2005. All items are before taxes. Assume a tax rate of 40% on all items. BE SURE TO LABEL ALL ITEMS. (25 points) INCOME STATEMENT RETAINED EARNINGS STATEMENT B. Compute the total Income Tax Expense for 2005. SHOW DETAILS OF YOUR CALCULATIONS. (6 points) C. Explain what is meant by interperiod income tax allocations and why they occur. (4 points) 1
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II. A. What is the Conceptual Framework which underlies accounting principles? (3 points) B. Explain the accounting element of Comprehensive Income. (3 points) C. Explain the accounting constraint of Conservatism. (3 points) D. Explain the accounting assumption of Monetary Unit. (3 points) E. Katherine Schipper’s PowerPoint presentation discussed the controversy of rule-based versus principle-based accounting standards (At the same time, the U.S. Congress, through the Sarbanes-Oxley Act, directed the SEC to study the feasibility of moving to Principle-based standards). This creates an issue regarding standard setting. Specifically, (1) what is the standard setting issue? and (2) give ONE
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Exam_I_Sp_2006 - ACCOUNTANCY 321 Spring, 2006 EXAM I I....

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