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Intermediate Accounting 7e Practice Exam solution Chapters 1-8

By Beatrice Evans,2015-01-08 21:17
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Intermediate Accounting 7e Practice Exam solution Chapters 1-8

Practice Exam Chapters 1-8

Solutions

Problem 1

Net income as reported \$42,000

Only \$4,000 of rent should be expensed + 2,000

5,000 Sales revenue overstated -

4 Interest expense understated (\$30,000 x 10% x/) - 1,000 12

Supplies expense overstated + 1,200

Problem II

Castansa Corporation

PARTIAL INCOME STATEMENT

For the Year Ended December 31, 2013

Income from continuing operations before

income taxes (1) \$1,900,000

Income tax expense (570,000)

Income from continuing operations 1,330,000 Discontinued operations:

Loss from operations of discontinued component

(including loss on disposal of \$250,000) \$(160,000)

Income tax benefit 48,000

Loss from discontinued operations (2) (112,000)

Income before extraordinary item 1,218,000 Loss from earthquake, net of \$120,000 tax benefit (280,000)

Net income \$ 938,000

(1) \$2,000,000 less \$100,000 loss from sale of factory = \$1,900,000

(2) Operating income(\$40,000 + 50,000) \$ 90,000

Deduct: Loss on sale of land (250,000)

Loss, before tax (160,000)

48,000 Tax benefit (30% x \$160,000)

Loss, net \$(112,000)

Problem III

1.

Beginning balance \$1,240,000

Less: Cash collections (5,380,000)

Write-offs (33,000)

Ending balance \$1,017,000

2.

To record the write-off of accounts receivable:

Allowance for uncollectible accounts ..................... 33,000

Accounts receivable ............................................. 33,000

Allowance for uncollectible accounts (below) ...... 29,300

Required allowance \$32,300

Allowance account:

Beginning balance \$36,000

Less: Write-offs (33,000)

Balance before year-end adjusting entry (3,000)

Problem IV

1.

\$1,500,000 ? \$7,500,000 = 20% complete

\$250,000 ? .20 = \$1,250,000 total gross profit anticipated on contract

\$7,500,000 + \$1,250,000 = \$8,750,000 contract price

2.

600 @ \$20 = \$12,000

3.

\$672,000 ? 1.05 = \$640,000

Ending inventory:

\$500,000 x 1.00 = \$500,000

140,000 x 1.05 = 147,000

Total \$647,000

Problem V

1.

2013 - 0 -

2014 \$200,000 loss (\$400,000 + 2,200,000 + 2,600,000 = \$5,200,000 in costs)

2.

2013 \$400,000 ? \$4,000,000 = 10% complete x \$1,000,000

= \$100,000

2014 \$300,000 loss (\$200,000 loss to date plus \$100,000 of

gross profit recognized in 2013)

3.

2013 revenue = 10% x \$5,000,000 = \$500,000

2014 revenue:

50% x 5,000,000 = \$2,500,000 - \$500,000 = \$2,000,000

2014 Cost of construction:

Revenue + loss

\$2,000,000 + \$300,000 = \$2,300,000

Problem VI

Average inventory = \$450,000

\$450,000 x 2(inventory turnover ratio) = \$900,000 cost of goods sold

Therefore, sales revenue = \$1,200,000 (\$900,000 ? .75)

Gross profit = \$300,000

Accounts receivable, end of year:

\$1,200,000 ? 4(receivables turnover ratio)=\$300,000=average receivables

Therefore, since beginning receivables = \$250,000, ending accounts receivable must be \$350,000

Problem VII

J 1. A 6.

F 2. D 7.

-A 3. C 8.

F 4. H 9.

F 5. F 10.

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