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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

     Adjustments:

     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

     Adjusted net income $39,200

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

     Add: Credit sales 5,190,000

     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

To record bad debt expense:

    Bad debt expense ..................................................... 29,300

     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)

     Year-end adjustment $29,300

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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