BUS 337 / Intermediate Accounting I Chap 5-6 Exam Student: ___________________________________________________________________________ 1. When using the Percentage Completion method of accounting for long term construction, how do the profit recognizing procedures differ between a periodic loss for a profitable project vs when a loss is projected on the entire project? Missoula Inc. reported the following selected financial statement data: 2. Its receivables turnover ratio for 2011. Round your answer to 1 decimal place. 3. Its inventory turnover ratio for 2011. Round your answer to 1 decimal place. 4. Its asset turnover ratio for 2011. Round your answer to 2 decimal places. 5. Its average collection period for 2011. Round your final answer to 1 decimal place. 6. Its average days in inventory for 2011. Round your final answer to 1 decimal place. 7. Its return on assets for 2011. Round your answer to 1 decimal place, e.g., .1234 as 12.3%. 8. Its return on stockholders' equity for 2011. Round your answer to 1 decimal place, e.g., .1234 as 12.3%. 9. Beck Construction Company began work on a new building project on January 1, 2010. The project is to be completed by December 31, 2012, for a fixed price of $108 million. The following are the actual costs incurred and estimates of remaining costs to complete the project that were made by Beck's accounting staff: Required:What amount of gross profit (or loss) would Beck record on this project in each year under the percentage-of-completion method? Place answers in the spaces provided below and show supporting computations. On December 15, 2011, Rigsby Sales Co. sold a tract of land that cost $3,600,000 for $4,500,000. Rigsby appropriately uses the installment sale method of accounting for this transaction. Terms called for a down payment of $500,000 with the balance in two equal annual installments payable on December 15, 2012, and December 15, 2013. Ignore interest charges. Rigsby has a December 31 year-end. 10. In 2011, Rigsby would recognize realized gross profit of: 11. In 2012, Rigsby would recognize realized gross profit of: 12. In its December 31, 2011, balance sheet, Rigsby would report: A. Realized gross profit of $100,000. B. Deferred gross profit of $100,000. C. Installment receivables (net) of $3,200,000. D. Installment receivables (net) of $4,000,000. 13. At December 31, 2012, Rigsby would report in its balance sheet: A. Realized gross profit of $500,000. B. Deferred gross profit of $400,000. C. Realized gross profit of $400,000. D. Cost of installment sales $1,600,000. Reliable Enterprises sells distressed merchandise on extended credit terms. Collections on these sales are not reasonably assured and bad debt losses cannot be reasonably predicted. It is unlikely that repossessed merchandise will be in salable condition. Therefore, Reliable uses the cost recovery method. Merchandise costing $30,000 was sold for $55,000 in 2010. Collections on this sale were $20,000 in 2010, $15,000 in 2011, and $20,000 in 2012. 14. In 2010, Reliable would recognize gross profit of: 15. In 2011, Reliable would recognize gross profit of: 16. In 2012, Reliable would recognize gross profit of: 17. In its 2010 year-end balance sheet, Reliable would report installment receivables (net) of: 18. In its 2011 year-end balance sheet, Reliable would report installment receivables (net) of: 19. Today Thomas deposited $100,000 in a three-year, 12% CD that compounds quarterly. What is the maturity value of the CD? 20. Carol wants to invest money in a 6% CD account that compounds semiannually. Carol would like the account to have a balance of $50,000 five years from now. How much must Carol deposit to accomplish her goal? 21. Bill wants to give Maria a $500,000 gift in seven years. If money is worth 6% compounded semiannually, what is Maria's gift worth today? 22. Monica wants to sell her share of an investment to Barney for $50,000 in three years. If money is worth 6% compounded semiannually, what would Monica accept today? 23. Shelley wants to cash in her winning lottery ticket. She can either receive ten, $100,000 semiannual payments starting today, or she can receive a lump-sum payment now based on a 6% annual interest rate. What is the equivalent lump-sum payment? 24. On January 1, 2011, you are considering making an investment that will pay three annual payments of $10,000. The first payment is not expected until December 31, 2013. You are eager to earn 3%. What is the present value of the investment on January 1, 2011? 25. Debbie has $368,882 accumulated in a 401K plan. The fund is earning a low, but safe, 3% per year. The withdrawals will take place annually starting today. How soon will the fund be exhausted if Debbie withdraws $30,000 each year? How many years? 26. Polo Publishers purchased a multi-color offset press with terms of $50,000 down and a noninterest-bearing note requiring payment of $20,000 at the end of each year for five years. The interest rate implicit in the purchase contract is 11%. Polo would record the asset at: 27. An investor purchases a 20-year, $1,000 par value bond that pays semiannual interest of $40. If the semiannual market rate of interest is five percent, what is the current market value of the bond? 28. Simpson Mining is obligated to restore leased land to its original condition after its excavation activities are over in three years. The cash flow possibilities and probabilities for the restoration costs in three years are as follows: The Company’s credit-adjusted risk-free interest rate is 5%. The liability that Simpson must record at the beginning of the project for the restoration costs is: 29. Davenport Inc. offers a new employee a lump sum signing bonus at the date of employment. Alternatively, the employee can take $30,000 at the date of employment and another $50,000 two years later. Assuming the employee's time value of money is 8% annually, what lump sum at employment date would make her indifferent between the two options? 30. Chancellor Ltd. sells an asset with a $1 million fair value to Sophie Inc. Sophie agrees to make 6 equal payments, one year apart, commencing on the date of sale. The payments include principal and 6% annual interest. Compute the annual payments. 31. DON Corp. is contemplating the purchase of a machine that will produce net after-tax cash savings of $20,000 per year for 5 years. At the end of five years, the machine can be sold to realize after-tax cash flows of $5,000. Interest is 12%. Assume the cash flows occur at the end of each year. Required: Calculate the total present value of the cash savings. 32. Under the MLB deferred compensation plan, payments made at the end of each year accumulate up to retirement and then retirees are given two options. Option 1 allows the retiree to select the amount of the annual payment to be received and option 2 allows the retiree to specify over how many years payments are to be received. Assume Sosa has had $5,000 deposited at the end of each year for 40 years, and that the long-term interest rate has been 7%. Required: a. How much has accumulated in Sosa's deferred compensation account? b. How much will Sosa be able to withdraw at the beginning of each year if he elects to receive payments for twenty years? c. For how many years will Sosa be able to receive payments if he chooses to receive $115,000 per year at the beginning of each year?