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Intermediate Accounting 7e Practice Exam Chapters 1-8

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Intermediate Accounting 7e Practice Exam Chapters 1-8

    Practice Exam Chapters 1-8

Problem I

    During the course of your examination of the financial statements of the Haley Sporting Goods Corporation for the year ended December 31, 2013, you discover the following: a. Net income reported in the 2013 income statement is $42,000 before reflecting any

    of the following items.

    b. On November 1, 2013, $6,000 was paid for rent on the company's office building.

    The payment covered the three-month period ending January 31, 2014. The entire

    amount was debited to rent expense and no adjusting entry was made for this item. c. During 2013, the company received a $5,000 cash advance from a customer for

    merchandise to be manufactured and shipped in 2014. The $5,000 was credited to

    sales revenue. No entry was made for the cost of the merchandise. d. Haley borrowed $30,000 from a local bank on September 1, 2013. Principal and

    interest at 10% will be paid on August 31, 2014. No accrual was made for interest. e. There were no supplies listed in the balance sheet under assets. However, you

    discover that supplies costing $1,200 were on hand at December 31.

Required:

    Determine the proper amount of net income for 2013. Ignore income taxes.

Problem II

    For the year ending December 31, 2013, the Castansa Corporation had income from continuing operations before income taxes of $2,000,000 before considering the

    following transactions and events. All of the items described below are before taxes and the amounts should be considered material:

1. During 2013, an earthquake caused $400,000 of damage to one of Castansa’s

    factories. The earthquake loss was considered unusual and infrequent. 2. In November 2013, Castansa sold its restaurant chain that qualified as a separate

    component of the entity. The company had adopted a plan to sell the chain in June of

    2013. The operating income of the chain from January 1, 2013, through June of 2013

    was $40,000. The operating income from June until November was $50,000 and the

    loss on sale of the chain’s assets was $250,000.

    3. In 2013, Castansa sold some land that it was holding as an investment for $1,300,000.

    At the time of the sale, the land had a book value of $1,400,000.

    4. In 2011, Castansa’s accountant omitted the annual adjustment for patent amortization

    expense of $300,000. The error was not discovered until 2013.

Required:

    Prepare Castansa’s 2013 income statement, beginning with income from continuing

    operations before taxes. Assume an income tax rate of 30%. Ignore EPS disclosures. Use the following page for your answer.

Problem II (Answers)

Problem III

    Eastern Digital Corporation began 2013 with accounts receivable of $1,240,000 and a credit balance in allowance for uncollectible accounts of $36,000. During 2013, credit sales totaled $5,190,000 and cash collected from customers totaled $5,380,000. Also, actual write-offs of accounts receivable in 2013 were $33,000. At end of the year, an accounts receivable aging schedule indicated a required allowance of $32,300. No accounts receivable previously written off were collected.

Required:

1. Determine the balance in accounts receivable at the end of 2013.

    2. Prepare the entry to record the write-off of accounts receivable during the year and

    the year-end adjusting entry to record bad debt expense.

Problem IV Short Exercises

    1. The Simpson Construction Company uses the percentage-of-completion

    method of accounting for long-term construction contracts. In 2013, Simpson

    began work on a construction contract. Information on this contract at the

    end of 2013 is as follows:

     Cost incurred during the year $1,500,000

     Estimated cost to complete 6,000,000

     Gross profit recognized in 2013 250,000

     What is the contract price (total revenue) on this contract?

    2. Sanfillipo, Inc., had 800 units of inventory on hand at March 1, 2013,

     costing $20 each. Purchases and sales of inventory during the month of

     March were as follows:

     Date Purchases Sales

     March 8 600 units

     15 400 units @ $22 each

     22 400 units @ $24 each

     27 400 units

     Sanfillipo uses the periodic inventory system. According to a physical

     count, 600 units were on hand at the end of March.

    Calculate the cost of inventory at the end of March applying the LIFO

    method.

    3. On December 31, 2013, the Charlie Company adopted the dollar-value LIFO

     inventory method. Inventory at the end of 2013 for its only inventory pool

     was $500,000 under the dollar-value LIFO method. At the end of 2014

     inventory at year-end cost is $672,000 and the cost index is 1.05.

     Calculate inventory at the end of 2014 using the dollar-value LIFO method.

Problem V

    Perasso Construction entered into a fixed-price contract with Santos Associates on April 1, 2013, to construct an office building. The total contract price for construction of the building is $5,000,000. The building was completed in 2015. Cost information for 2013 and 2014 were as follows:

     2013 2014

    Costs incurred during the year $ 400,000 $2,200,000

    Estimated costs to complete 3,600,000 2,600,000

Required:

    1. Compute the gross profit or loss to be recognized during 2013 and 2014 applying the

    completed contract method.

    2. Compute the gross profit or loss to be recognized during 2013 and 2014 applying the

    percentage-of-completion method.

    3. Applying the percentage-of-completion method, how much revenue and cost of

    construction would the company report in the 2014 income statement?

Problem VI

    The Baldwin Wholesale Company began 2013 with inventory of $400,000 and ended the year with inventory of $500,000. The company’s gross profit ratio is 25%, inventory turnover ratio is 2, and receivables turnover ratio is 4. Accounts receivable at the beginning of 2013 totaled $250,000.

Required:

Determine the following for 2013:

     Sales revenue

     Cost of goods sold

     Gross profit

     Accounts receivable, end of year

Problem VII

    The following are the typical classifications used in a balance sheet:

     a. Current assets f. Current liabilities

     b. Investments and funds g. Long-term liabilities

     c. Property, plant, and equipment h. Paid-in-capital

     d. Intangible assets i. Retained earnings

     e. Other assets j. Not reported in the balance sheet

REQUIRED:

    For each of the following balance sheet items, use the letters above to indicate the appropriate classification category. If the item is a contra account (valuation account),

    place a minus sign before the chosen letter.

     1. Cost of goods sold 6. Inventories

     2. Accrued interest payable 7. Copyright

     3. Allowance for uncollectible accounts 8. Land, in use

     4. Rent revenue collected in advance 9. Common stock

     5. Note payable, due in 6 months 10. Salaries payable

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