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Exam 2B Sp 2010 - Form B Second Examination Acct 3110 Br B...

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Unformatted text preview: Form B Second Examination Acct 3110 April 13, 2010 Br. B. D. Merino Name(PRINT) Student ID FORM B I 1. Fill in the information on this page and your Scantron now (i.e., name, test form) 2. The examination consists of 11 pages, including this cover page. Be certain you have a complete copy before starting. 3. Points will be awarded ONLY if the appropriate computations are included in your answer and neatly and clearly shown. Use the back of each previous page to show work if more room and cross reference the work. No work shown, NO credit. 4. You will have 85 minutes to complete the exam. Spend your time wisely; try to allocate time based on the value of the problem. POINTS POSSIBLE YOU'RE SCORE I. MULTIPLE CHOICE 45 II. REVENUE RECOGNITION l9 _ III. DOLLAR VALUE LIFO 8 IV. RETAIL INVENTORY METHODS 20 V. INVENTORY ERRORS _§ Total 100 Extra Credit (4 Points) TOTAL Form B 1. Multiple Choice (45 points) 5 points each -~ Record your answer on the SCANTRON. 1. The percentage of Accounts Receivable method used to estimate bad debt expense emphasizes: a. The income statement and accurate valuation of the Net Realizable Value of Accounts Receivable. Ll?) The balance sheet and accurate valuation of the Net Realizable Value of Accounts ' Receivable c. The income statement and the matching principle. d. The balance sheet and the matching principle. e. b and d are emphasized 2. Which of the following statements is correct with respect to inventories? a. The FIFO method results 1n the lowest amount of income tax in a period of generally rising prices b The FIFO method assumes the earliest goods acquired are the last goods that are sold 1 c. The LIFO method puts the valuation of the earliest goods acquired on the balance sheet at year end d. The LIFO method puts the valuation of the earliest goods acquired on the income. statement at year end e. The LIFO method results in a lower cash flow due to increased taxes. 3. On July 2, a fire destroyed the entire merchandise inventory on hand of Lacunas Wholesale Corporation. The following information is available: W M 01 ‘ 3% €1,101 ‘ Adi \WUQA “mini ,. Inventory January $ 200,000 Purchases, January 1 through July 2 $ 875,000 Sales, January 1 through May l $1,200,000 Gross profit ratio 30% 9/ a. 7 ""7 1 "a $235,000 ‘ “3,7; 5,. 13:21 . $395,000 ”7e 2, 69“” 0. $225,000 gm“ 5/ d. $360,000 e. none of the above Form B E. Multipie Choice 4-6. Use the information below, related to the Beat Company’s Accounts Receivables and Sales for 2009, to answer questions 4~ 6. Real company provides you with the following information for the year 2009: Accounts Receivable $ 940,000 Allowance for Uncollectibie Accounts b__cfore adjustment at 12/31/09: $ 20,000 CR Credit Sales from 1/1/09-12/31/09 . $ 3,225,000 4. If Beal Company estimated bad debt expense as 2% of credit sales, then bad debt expense for 2009 will be: a. $84,500 1 W ,1. E) $64, 500 $3 2, 55%;“, 0. $44, 500 Mania mud—Wifwyf mfffimgflif££ (Lag-cl. ( {1" é (43‘15 e. none of the above 5 If Beal Company estimated bad debt expense using the 5% of accounts receivable, then bad debt ex ense for 2009 will be: a. $47,000 Q’s/51:9 {3:5 b $27,000 ”(”30 0. $65,000 #7 a? (1. $67, 000 6. none of the above 6. Assume that Beal Company reported the following data before adjustment for bad debts on 12/31/09. Accounts Receivable $ 960,000 Allowance for Uncollectible Accounts b_e_fore adjustment at 12/31/09: $ 12,000 DR Credit Sales from 1/1/09- 12/31/09 . $ 3,200,000 Batané If the company used 6% of accounts receivable to estimate bad debts, then 1__ y in the Allowance for Uncollectible Accounts, after adjustment at year en '11 be“. W fines 600 t? ELEV: ' j 0. $45 600 " d. $37, 600 e. none of the above Form B 1. Multiple Choice The A & D Brothers operate a retail ski equipment and supplies store; management provided the following data related to each line of inventory. Use the data, below, to answer both question 7 and question 8. Skis Boots Historical cost $75,000 $57,000 Replacement cost 65,000 59,000 Selling price 90,000 60,000 Disposal costs 12,000 4,000 Normal profit 10,000 6,000 7. In applying the lower of cost or market (lcm) rule, the inventory of skis would be valued at: a?“ 68,000 M ,6 9‘: 65,000 “i” c. $ 75,000 :3; g; d. $ 78,000 K a“ 0. none of the above 8. In applying the lower of cost or market (lam) rule, the inventory of boots would be valued at: a: $ 59,000 3/7 :; 5': ”His 56,000 ' @j . $ 57,000 ,5 d. $ 50,000 50 0. none of the above 9. Cathy‘s Sporting Goods began operations in 2008; the store sells jet skis and other sporting equipment. Jet ski customers pay 1/3 of the price when they buy a jet ski and agree to pay 1/3 of the sales price during each of the next two years. The company uses the installment method for recording revenue due to the uncertainty about collectibility; the store manager provides the following information related to 2008, 2009, ”and 2010: 2008 2009 2010 Sales of ski jets sales $ 1,000,000 $1,600,000 2,100,000 Cash Collected: '- 2008 sales 400,000 400,000 200,000 2009 sales 700,000 400,000 2010 sales 700,000 Gross profit ratio 40% 30% 30% In 2009, Cathy's Sporting Goods would recognize realized gross profit of: a. $ 440,000 b. $385,000 , ._ ,r, ;::- ’ '23 c $450000 455% ”a” {If}, d $330, 000 yea it 5% nit: (iv) none ofthe above 3:; ’7 6 Form B it. Revenue Recognitionw-Long term Construction ( 19 points) Denton Construction entered into a construction contract with KDNT on October 1, 2008 to construct a new television tower. The fixed fee contracted price for construction of the tower was $3 600 000. The tower was completed on Feb 1, 2011. Contract costs incurred during each year, estimated remaining costs to complete the contract, billings during the year and cash collections during the year were as follows: 2009 2010 201 1 551,4- If? Total costs incurred each year $ 540,000 $ 1,260,000 $ 650,000 f 795913 Year end estimate of remaining / 5' , (L? p costs to complete proj ect ........ 1,620,000 600,000 0 flag Kiwi”; 5"? Amounts billed to KDNT during ,2 1; year ............................. 350,000 1,500,000 1,750,000 Amounts collected during year ..... 507,000 930,000 1,800,000 Show all your work, no credit witl be given for answers in any section of this question not supported by calculations. Round all percentages to three decimal places, i.e., .5557 =55.6%, and dollar amounts to the nearest cent. A (8 points) ASSUME Denton Construction uses the percentage of completion n1ethod.' Calculate each of the items, below. “a 1. Calculate the % complete at the end of 2009 p5 ’79 % 5"”?‘9 p .eWn /@Z‘fi w...» rue" 2,12%? ‘Q/érél 2 Calculate the amount of gross profit recognized for 2009: 2009 Gross Profit: if; 6 (if/€93 gas . . M, . .. a} .. a u :1. .z (- I .»-_~,;.. .i’ {it} 6“ flnga W20 Mt (’ . W?) . " ' i fa 3. Calculate the amount of revenue recognized for 2009: 2009 Revenue Form B 540 0. 11. Revenue Recognition——Long term Construction ( Continued) B. (6 points) ASSUME Denton Construction uses the percentage of completion method. Calculate each of the items, below. Show all your work, no credit will be given for answers that are not supported by calculations! {if ,1 ,0 1 Calculate the amount of gross profit recognized in 2010: "7""? if} ’ fl? (4&3 2010 Gross Profit: eméfifigfi' - / ‘ “I ’1 . in ngnge) 3« em? 5""? . 9% WW “ ii» We. W . . ’W'TWT'M‘ V ‘53 new 9W 0:5ij 29967 7g“? ”733??l gnu—£00 2. Calculate the amount of revenue recognized in 2010: 2010 Revenue I]; 35575 .5! (fig 3 255;”??? t; 0Z9 (3, (13001} 0'0 1;?) 3. Calculate the ending balance in Construction in Progress at the end of 2010. Ending Balance, Construction in Progress, 2010 W? 7590 a??? r 75"“- ( 739(90):: C. (3 points) ASSUME Denton Construction uses the percentage of completion method, What would appear on the 2010 Balance Sheet, i.e., the account title, classification of the accounting and amount of the account? Account Title Classification of Account Amount _ .20 - 305:0 2? 7063 W / “9’5??me D. (2 points) ASSUME Denton Construction uses the completed contract method. What will be the balance in the Construction in Progress Account at the end of 2010? 2010 Construction in Progress Balance: at; 537-05? 95%) Form E III. Dollar Value LIFG (8 pts) On January 1, 2009, the National Furniture Company adopted the dollar-value LIFO method of computing inventory. An internal cost index is meet to convert ending inventory to base year. Inventory on January 1, 2009 was $200,000. Year—end inventories at year—end costs and cost indexes for its one inventory pool were as follows: ' Inventory at Cost Index Year Ended Year —End (Relative to December 31 Costs Base Year) 2009 $247 .500 1.10 2010 $264500 1.15 2011 $295 000 1.18 Required: Calculate the ending inventory, dollar value LIFO method, at year end for each item, below. You must Show your supporting calculations to receive any credit. Round all dollar amount to the nearest dollar. 1. (4 Points) Dollar Value Inventory Valuation at 12/31/09: :4.» DVL Inventory @ 12/ 31/09 .12 [$2 2‘ .2 Q" 0 “g? a of (591967 /'/(/”' :2 .9" 5’ ‘90— ‘ Efi 1, 9;; an 2. (4 Points) Dollar Value Inventory Valuation at 12/31! 10 [email protected]/31/10 " Mtg} 1,; J :Magfi-I .1: :2 gay 5mg; 51 1.1., 6:? (:3 dig; ,, / I “W ”2 aw w 5:2. ”7421/73 2a a)?“ s“ 719/5; w/ ,flwfl . 5 1 1 ,1 5.; 0‘ Form B IV. Retail Inventory Methods (20 Points) Use the information below, related to the RaffleJCompany’s inventory for 2009, for the four parts of this question (A through D) Beginning Inventory Purchases (net) Net Additional Markups Cost $ 65,000 m 52%, we Net Markdowns Sales Retail $100,000 645,000 MW 7W; 5290 43,178 (, a? / Vie”) ,., .4 632,000 WMaZMTW gar; I792- “ $72; $3 Round to three decimal places, i.e., .5561 = 55.6% for ratios and to nearest cent for dollar amounts A. ( 8 points) Conventional (LCM) Retail Inventory Method Calculate each of the items, below, using the conventional retail method. Show all you work, N0 credit will be given for answers not supported by work. I. 2. 3. Cost to retail percentage Ending inventory at Cost ’75? s“ a 5i; 7%“; as £0, 0 “22% 7%” B. (5 Points) Average Retail Inventory Method Calculate each of the items, below, using the average retail method. Show ail you work, NO Form B W. Retail Inventory Methods (continued) C. (7 points) LIFO Retail Inventory Method Calculate each of the items, below, using the LIFO retail method. Show all you work NO credit will be given for answers not supported by work. 1. Cost to retail percentage ~_§L 2 Cost to retail percentage "r 2 , ” f/fi’n'a"? £322 (9%}; 3. Ending inventory at Cost 52‘ .5; 5-4/4, 901 $50 7g ya r of; Form B V. Inventory Errors (8 Points) for each of the inventory errors that occurred in 2010, determine the effect of the error on cost of goods available for sale, cost of goods sold, net income and retained earnings. Assume that the error is not discovered until 2011 and that a periodic inventory system is used. Ignore income taxes and use the letters, below, to classify the effect of each error. U=understated; O = overstated; NE= no effect Cost ef Goods Cost of Net Retained Avaiiaiale Goods Said Income Earnings EX: . Overstaternent of ending inventory NB U 0 O 3%? Overstatement of ending inventory it {E (,5 fly {I} if ’—“—‘_ —"f'”m _ 2. Freight—in charges are overstated 6S $5” (Fr) 5 {/5 3. Overstatement of purchases + [j 33 [U 5 Mg Ag 23/ overstatement of ending inventory by The same amount 4. Understatement of beginning inventory 5/35 A?) 5 W5 ' fij g" EXTRA CREDIT (4 Points} Income Statement and Balance Sheet information abstracted from the recent annual report of XION Technologies appear below: BALANCE SHEET ($ in thousands) @ Year End 2009 2008 INVENTORIES (LIFO) $ 825 $ 679 From the notes to the financial Statements Inventory is valued at last—in-first-out (LIFO) BASIS. The LIFO reserve is $146 thousand at year end 2009 and $122 thousand at year end 2008. 3233 " p H c.» (1) What is the estimate ($ amount) of FIFO ending inventory at 12/31/09? Show calculation of amount to receive credit. (2) What effect (increase/deer ease) would it nave on working capital if the company changed from LIFO to FIFO? “Mi/C“ {5:76.21}? (3) What effect would a change to FIFO have" on cash flow? Explain Why there is an effect” Mfr? 10 ...
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