ACCT+2101+Quiz+5+Version+2+SOLUTION

ACCT+2101+Quiz+5+Version+2+SOLUTION - W 9% f {5’ (5 (...

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Unformatted text preview: W 9% f {5’ (5 ( Name ACCT 2101 Quiz #5 —- Version 2 Solution Spring Semester, 2009 Section (please print clearly) Pledge: On my honor, I have neither given nor received any unauthorized help on this quiz. (signed) Instructions: 1. You may not ask questions during the quiz. However, all notes you write to the instructor will be read and considered during the grading process. 2. This quiz is comprised of numerous SHORT problems and questions. Please use your time wisely. Remember: Perfect answers are not required to get most of the points. 3. Only the approved calculators may be used during the quiz. 4. You must write legibly or your answers will not be graded. 5. Do NOT pull this quiz apart under any circumstances. 6. Make sure you have 7 numbered pages plus the Microsoft financial statements (two pages without page numbers). 7. Good luck! Point Allocation: Source Problem 1: 2.5 Spring 08 Quiz 4 Problem 2 Problem 2: 1.5 Spring 08 Quiz 4 Problem 5 Problem 3: 1.0 Spring 08 Quiz 4 Problem 6 Problem 4: 1.5 Spring 08 Quiz 5 Problem 4 Problem 5: 1.5 Right out of class discussion — you were told to expect these topics. Problem 6: 2.0 Class Exercise from 3—9-09 (and a ACCTQIOI 01117 5 — Vprtinn 7. second chance at Problem 6 from last quiz) TOTAL POINTS = 1;) points 10f7 PROBLEM 1. The data below are related to a product of the Hanson Company for the year 2008. The company employs a calendar year-end. Units Unit Cost Merchandise Inventory, January 1 2,100 @ $12.60 $ 26,460 Purchases: March 10 1,500 @ 12.00 18,000 May 24 3,000 @ 11.20 33,600 July 15 1,800 @ 10.50 18,900 September 20 2,100 @ 9.00 18,900 December 1 2 700 @ 10.00 27,000 Goods available for sale 13,200 $142,860 Sales (all at a price of $40): 7,600 units REQUIRED: Assuming the use of the periodic inventory procedure, compute the following items under the LIFO inventory method. You must show all of your work to receive credit. (a) Ending Inventory (c) Gross Margin (b) Cost of Goods Sold (d) Gross Margin Percentage Ending Inventory = 13,200 — 7,600 = 5,600 units (a) Ending Inventory: 1/1 2,100 units @ $12.60 $26,460 3/10 1,500 @ $12.00 18,000 5/24 2000 units @ $11.20 22400 5,600 units $66,860 4-w- .'1 ‘3 (b) Cost of Goods Sold: Goods Available for Sale $142,860 Ending Inventory (66,860) ,1 3 Cost of Goods Sold $ 76,000 5 ' (c) Gross Margin: Sales (7,600 units @ $40) $304,000 Cost of Goods Sold 76,000 Gross Margin $228,000 4M ~ (5 (d) Gross Margin Percentage = $228,000 / $304,000 = 75% 41W“ . ‘3 ACCTZIOI Quiz 5 — Version 2 2 of7 PROBLEM 2. The Turner Mining Company purchased a tract of land containing ore for $630,000. The company then spent $90,000 developing the site. The company has determined that 600,000 tons of ore exist on the tract, but only 500,000 tons can be economically removed. When the company finishes with the tract, it estimates the land will be worth $180,000. REQUIRED: (a) Compute the depletion cost per ton of ore. (b) Prepare the journal entry to record depletion costs in the first year assuming that 75,000 tons of ore are removed. (c) Prepare the journal entry to allocate depletion costs assuming that 65,000 tons of ore are sold. (a) Compute the depletion cost per ton of ore. ($630,000 + $90,000 — $180,000) / 500,000 tons = $1.08 per ton g i 9 (b) Prepare the journal entry to record depletion costs in the first year assuming that 75,000 tons of ore are removed. Depletion (75,000 @ $1 8 81,000 i 5 Accum. Depletion — Natural Resource 81,000 « (c) Prepare the journal entry to allocate depletion costs assuming that 65,000 tons of ore are sold. Depletion Expense (65,000 @ $1.08) 70,200 6 Inventory (10,000 @ $1.08) 10,800 ' Depletion 81,000 ACCTZIO] Quiz 5 — Version 2 3 0f7 PROBLEM 3. The Hanson Company spent $249,900 to purchase a patent on January 2, 2006. Management assumes that the patent’s finite useful life is 17 years. In January 2007, the company hired an outside law firm and successfully defended the patent in a lawsuit at a cost of $48,000. Also, in January 2007, the company paid $72,000 to obtain patents that could, if used by competitors, make the earlier Hanson Company patent useless. The purchased patents will never be used. REQUIRED: Prepare the journal entry to record patent amortization as of December 31, 2007 (assuming the last time amortization was recorded was December 31, 2006). If you would like the possibility of partial credit, you must show all work. ' Original cost $249,900 2006 amortization ($249,900 / 17) (14700) Book value 1/1/07 $235,200 Add: Successful patent defense 48,800 Competing patent 72,000 Amount to amortize over remainder of life (16 years) $355,300 / 16 years = $22,200 Patent Amortization Expense 22,200 i Patent 22,200 Notes: Allow "pour—Hod Cred/6+ "For COMPomen/ts W“ compwl'nj‘ifih . C COLLid [at It A4501 (90 ?oc+en+ Wmori-I-Lar'fim Expat/6 Cotiléiri "Amortizmflw’m Exaemse. (Z7 H flcwmulm+gcl fimorfizmfim " instead 23C ma Q direct credirt +0 ?0L+eh+ is NOT «deep 6.. A (IT 2101 01m 5 _ Versinn£ 4 0f 7 PROBLEM 4. On March 31, 2008, Hanson issued $400,000 of 10-year, 9% bonds, at face value. The bonds are dated December 31, 2007, call for semiannual interest payments on June 30 and December 31, and mature on December 31, 2017. Record the journal entries at each of the following dates. (HINT: You do NOT need to compute the market price using the Present Value tables for this problem.) (a) On date of issuance, March 31, 2008: Cash 409,000 S Bond Interest Payable * 9,000 ' Bonds Payable 400,000 * $400,000 * 9% * 3/12 2 $9,000. (b) On the first interest date, June 30, 2008: Bond Interest Expense * 9,000 . 5 Bond Interest Payable 9,000 Cash ** 18,000 * $400,000 * 9% * 3/12 2 $9,000. ** $400,000 * 9% * 6/12 2 $18,000. (c) On the maturity date, December 31, 2017: A) Bond Interest Expense ’t 18,000 ’ s Bonds Payable 400,000 Cash 418,000 * $400,000 * 9% * 6/12 2 $18,000. ACCTZIOI Quiz 5 ~ Version 2 5 0f'7 PROBLEM 5. (a) What is a line of credit? How is a line of credit reported in the annual report of a company? .isg ' ‘xsi ' A line of credit is a negotiated financing arrangement where a company will be allowed to borrow money as needed (up to a prearranged amount). Lines of credit are described in the footnotes as commitments. (b) What does the term ofl-balance—sheet financing mean? Provide xample of off- balance—sheet financing. Off—balance-sheet financing is any type of arrangement where a company obtains non—owner financing without a liability being recorded in the balance sheet. The two types of off-balance—sheet arrangements we discussed in class were (1) operating leases and (2) special purpose entities (as with Enron). (c) Explain the difference in the accounting treatment between an operating lease and a capital lease. Why do companies generally prefer that their leases be treated as operating leases? kg - Ki ' (d) Operating leases are essentially long-term rental arrangements whereas capital leases are treated as being equivalent to purchases. Most companies prefer operating lease treatment to keep the obligation (liability) associated with capital leases off their balance sheets. Explain two ways that bonds differ from stock. We discussed the following ways that bonds differ from stock (pick two): eadfl ' ‘6 &60V“ r2“ . We)!” A bond is a debt while a share of stock is a unit of ownership. A bond has a maturity date when it must be paid. There is no maturity date connected with stock. A bond usually requires periodic interest payments. There are no required payments on stock (dividends are only payable after declaration). Interest on bonds is deductible in computing both net income and taxable income. Dividends are not deductible in either computation. (e) From an accounting perspective, what is a toxic asset? What is toxic about these assets? a A9 a Af‘f‘T’)1/iln,.:- C A toxic asset is an asset that has a book value that is believed to be much greater than its fair market value. However, since there is no active trading in the asset, there is no good way to determine the true market value. These assets are “toxic” because the uncertainty surrounding them keeps investors from correctly assessing their value. This problem keeps their owners from benefitting from holding them. inflow?) 6nf‘7 PROBLEM 6. Using the Microsoft financial statements that follow, answer the following questions. (a) Compute the Profit Margin Percentage for both 2007 and 2008. Profit Margin Percentage = Net Income / Sales 2007: 14,065 / 51,122 = 27.51% S 2008: 17,681 / 60,420 = 29.26% (b) Compute the Asset Turnover Ratio for both 2007 and 2008. Asset Turnover Ratio = Sales / Average Total Assets 2007: 51,122/ [(69,597+ 63,171) / 2] = 51,122/66,384 = 0.77 times 5 2008: 60,420 / [(63,171, +72,793)/2] = 60,420 /67,982 = 0.889 times (c) Compute the Return on Assets Ratio for both 2007 and 2008. Return on Assets Ratio = Net Income / Average Total Assets OR = Profit Margin Percentage * Asset Turnover Ratio 2007: 14,065 / 66,384 = 21.18% OR 27.51% * 0.77 times = 21.18% 5 2008: 17,681 / 67,982 = 26.01% OR 29.26% * 0.889 times = 26.01% ((1) What can you say about Microsoft’s effective use of its asset base as a result of these ratios? Be specific. Microsoft was able to improve its return on assets by increasing its margin on each .6 sale from 27.51% to 29.26% and by increasing its asset turnover from 0.77 times to 0.889 times. The combination of these two improvements brought about the significant increase in return on assets from 21.18% to 26.01%. APPT7I/Hnu1'7 8...Vorcinnq ...
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This note was uploaded on 02/08/2011 for the course ACCT 2101 taught by Professor Turner during the Spring '08 term at Georgia Institute of Technology.

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ACCT+2101+Quiz+5+Version+2+SOLUTION - W 9% f {5’ (5 (...

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