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comp_exame - COMPREHENSIVE EXAMINATION E PART 5(Chapters...

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COMPREHENSIVE EXAMINATION E PART 5 (Chapters 18-21) Approximate Problem Topic Time E-I Long-Term Contracts. 15 min. E-II Installment Sales Method. 20 min. E-III Deferred Income Taxes. 25 min. E-IV Pensions. 35 min. E-V Leases. 25 min. 120 min.
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Test Bank for Intermediate Accounting, Eleventh Edition Problem E-I — Long-Term Contracts. Sloane Company contracted on 4/1/03 to construct a building for $2,700,000. The project was completed in 2005. Additional data follow: 2003 2004 2005 Costs incurred to date $ 600,000 $1,200,000 $1,860,000 Estimated cost to complete 1,000,000 600,000 Billings to date 500,000 1,900,000 2,700,000 Collections to date 400,000 1,400,000 2,350,000 Instructions (a) Calculate the income recognized by Sloane under the percentage-of-completion method of accounting in each of the years 2003, 2004, and 2005. (b) Prepare all necessary entries for the year 2004. (c) Present the balance sheet disclosures at December 31, 2004. Proper headings or subheadings must be indicated. Problem E-II — Installment Sales Method. Ruxton, Inc. accounts for all sales of its merchandise on the installment basis. Following is the unadjusted trial balance at 12/31/05: Cash $ 90,200 Installment Accounts Receivable—2003 180,000 Installment Accounts Receivable—2004 400,000 Installment Accounts Receivable—2005 720,000 Inventory, 1/1/05 77,800 Repossessed Merchandise 22,000 Accounts Payable $ 136,000 Deferred Gross Profit—2003 84,000 Deferred Gross Profit—2004 196,000 Capital Stock 600,000 Retained Earnings 384,000 Installment Sales 1,000,000 Purchases 756,000 Loss on Repossession 4,000 Operating Expenses 150,000 $2,400,000 $2,400,000 Additional Data: 2003 Gross Profit Rate = 30%; Inventory 12/31/05 = $158,600; Repossessed merchandise 12/31/05 = $17,200; Merchandise sold in 2004 was repossessed in 2005 and the following entry was prepared (assume correctly): Deferred Gross Profit—2004 ................................. 14,000 Repossessed Merchandise ................................... 22,000 Loss on Repossession ......................................... 4,000 Installment Accounts Receivable—2004 .... 40,000 E - 2
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Comprehensive Examination E Problem E-II (cont.) Instructions (a) Determine collections during 2005 on Installment A/R for each of the years 2003, 2004, and 2005. (b) Without prejudice to your answer in Part (a), assume that total collections on Installment Accounts Receivable during 2005 were $1,060,000; $220,000 from 2003, $310,000 from 2004, and $530,000 from 2005. Prepare all necessary adjusting and closing entries at 12/31/05. Problem E-III — Deferred Income Taxes. In 2004, the initial year of its existence, Garner Company's accountant, in preparing both the income statement and the tax return, developed the following list of items causing differences between accounting and taxable income: 1. The company sells its merchandise on an installment contract basis. In 2004, Garner elected, for tax purposes, to report the gross profit from these sales in the years the receivables are collected. However, for financial statement purposes, the company recognized all the gross profit in 2004. These procedures created a $320,000 difference between book and taxable incomes. The future collection of the installment contracts receivables are expected to result in taxable amounts of $160,000 in each of the next two years. (Note: the company treats installment contracts receivable as a current asset on its balance sheet.) 2. The company has also chosen to depreciate all of its depreciable assets on an accelerated basis for tax purposes but on a straight-line basis for accounting purposes. These procedures
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