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Intermediate Accounting 7e Practice Exam solution Chapters 9-12

By Samuel Hicks,2015-01-08 21:12
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Intermediate Accounting 7e Practice Exam solution Chapters 9-12

Practice Exam Chapters 9-12

Solutions

Problem I

Cost Retail Beginning inventory \$138,860 \$262,000 Plus: Net purchases 239,000 413,020

Net markups 12,000 Less: Net markdowns (4,000) Goods available for sale (excluding beginning inventory) 239,000 421,020 Goods available for sale (including beginning inventory) 377,860 683,020

\$138,860 Base year cost-to-retail percentage: ------------ = 53%

\$262,000

\$239,000

2013 cost-to-retail percentage: ------------- = 56.77%

\$421,020

Less: Net sales (390,000)

Normal shortage (5,000) Estimated ending inventory at current year retail prices \$288,020

Estimated ending inventory at cost (below) (147,682) Estimated cost of goods sold \$230,178

Step 1 Step 2 Step 3

Ending Ending Inventory Inventory

Inventory Inventory Layers Layers at Year-end at Base Year at Base Year Converted to Retail Prices Retail Prices Retail Prices Cost

\$288,020

\$288,020 ------------ = \$276,942 \$262,000 (base) x 1.00 x 53% = \$138,860

(above) 1.04 14,942 (2013) x 1.04 x 56.77% = 8,822

Total ending inventory at dollar-value LIFO retail cost ................... \$147,682

Problem II

Average accumulated expenditures:

Date of payment

(expenditure)

12 Start of contract \$200,000 x / = \$200,000 12

9 March 31 250,000 x / = 187,500 12

6 June 30 250,000 x / = 125,000 12

3 September 30 250,000 x / = 62,500 12

December 31 250,000 x 0 = - 0 -

Average accumulated expenditures \$575,000

\$500,000 x 12% = \$60,000

75,000 x 7.5%* = 5,625

\$575,000 \$65,625 = Capitalized interest

Calculated interest is less than actual annual interest of \$360,000 (\$60,000 + 300,000).

Weighted-average interest rate of nonconstruction debt:

\$1,500,000 x 10% = \$150,000

2,500,000 x 6% = 150,000

\$4,000,000 \$300,000

\$ 300,000

------------- = 7.5%*

\$4,000,000

Problem III

Year Straight-line SYD DDB

2013 \$6,750 \$11,250 \$14,400

2014 9,000 12,750 13,440

Computations:

Straight line:

(\$48,000 - 3,000)

9 -------------------------- = \$9,000 per year x / for 2011 = \$6,750 12

5 years

SYD:

592013: \$45,000 x / = \$15,000 x / = \$11,250 1512

532014: \$45,000 x / = \$15,000 x / = \$ 3,750 1512

49 + 45,000 x / = \$12,000 x / = 9,000 1512

Total 2014 depreciation \$12,750

DDB:

92013: \$48,000 x 40%* = \$19,200 x / = \$14,400 12

2014: (\$48,000 - 14,400) x 40%* = \$13,440

1*2 times the straight-line rate of 20% (/5)

Problem IV

Hardaway purchases the Penny House shares.

(\$ in millions) Investment in Penny House shares ......................................................... 48

Cash .................................................................................................. 48 Penny House reports net income. Investment in Penny House shares (30% x \$40 million) ....................... 12

Investment revenue ............................................................................ 12 Penny House pays cash dividends. Cash (6 million shares x \$1) ................................................................... 6

Investment in Penny House shares .................................................... 6

Depreciation:

Investment revenue (\$6 million [calculation below] ? 6 years) ........... 1

Investment in Penny House shares .................................................... 1 Goodwill:

No entry. Goodwill is not amortized.

Calculations:

Investee Net Assets Difference

Net Assets Purchased Attributed to:

; ; ;

Cost \$48

Goodwill:\$15

*Fair value: \$110 x 30% = \$33

Undervaluation

Book value: \$90 x 30% = \$27 of assets: \$6

*[\$90 + 20] = \$110

Increase in fair value of shares: No entry; equity method investments are not adjusted to fair value.

Multiple Choice

1. c.

2. b.

3. d.

4. b.

5. c. 6. b.

7. b.

8. c.

9. a.

10. b. 11. d.

12. b.

13. b.

14. a.

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