COMPREHENSIVE EXAMINATION F

PART 6
(Chapters 22-24)

Problem
F-I F-II F-III F-IV F-V

Topic
Multiple Choice Questions. Statement of Cash Flows. Accounting Changes, Error Corrections, and Prior Period Adjustments. *Analysis of Financial Statements. Segment Reporting.

Approximate Time
25 min. 25 min. 30 min. 25 min. 15 min. 120 min.

*This topic is dealt with in an Appendix to the chapter.

Which of the following transactions would be considered a financing activity in preparing a statement of cash flows? a. 2012 Proceeds from borrowings in 2013 Payments made in 2013 Balance at December 31.000 (500.000.000.575.000 45.000 2.000.346. Additional information is as follows: Capital expenditures Depreciation on plant assets Cash dividends paid on common stock Increase in noncurrent deferred tax liability Amortization of patents $1.250.000) $400. what should be the net cash provided by operating activities in the statement of cash flows for the year ended December 31. for Cole Company. 2013 $525.F-2 Test Bank for Intermediate Accounting.391.000 $9.256.000 450. for Tax Consultants INC. was $920. b.000 In preparing a statement of cash flows for the year ended December 31.000 21.000.000 2. Selling common stock d. 2013.000. 3. Amortizing a discount on bonds payable b.000) (1.000 325. $2. Based on the information given above. Purchasing inventory The net income for the year ended December 31.000) $ 900. c. cash flows from financing activities would reflect Outflow a.000) $9. d. $1. 2013? a. $1.200.000 d.436. 2012 Transfers from caption "Long-Term Debt" Payments made in 2013 Balance at December 31.250. $1. 2012 Proceeds from borrowings in 2013 Transfers to caption "Current Portion of Long-Term Debt" Payments made in 2013 Balance at December 31.500. $2.000 500.000 180. Information concerning the debt of Cole Company is as follows: Short-term borrowings: Balance at December 31.250. 2013 Current portion of long-term debt: Balance at December 31.000 (450. 2013 Long-term debt: Balance at December 31.000 b. Recording net income from operations c. $2. 1.000 (1. Fourteenth Edition Problem F-I — Multiple Choice Questions.000 c.000.000 $1. $1.225. $3.625.000.175. 2013.000 .

As a "special" type of reporting that need not follow generally accepted accounting principles. with no residual value. Net loss from operations d. As reporting for an integral part of an annual period. $ 12. $800. Which of the following items represents a potential use of cash? a. $300.000 b.000 d. for $4. At the beginning of 2013. $210.000. F-3 In considering interim financial reporting. What amount of depreciation expense should be reported in Worthington’s income statement for the year ended December 31. Sale of plant assets at a loss c.Comprehensive Examination F Problem F-I — (cont. Assuming a 30% tax rate.000 20. Patent amortization b.000 .000.000 2. As useful only if activity is evenly spread throughout the year so that estimates are unnecessary. $300.000 66. Yoder Corporation acquired machinery at a cost of $1. that the machine had an estimated useful life of eight years from the date of acquisition with no salvage.000 c.000 $150. 2013. Declaration of a stock dividend Worthington Company purchased a machine on January 1.000 50.000.800.) 4. The machine is being depreciated on a straight-line basis. Worthington determined. the machine had an estimated useful life of six years with no salvage. An accounting change was made to reflect this additional information. $600.000 c.000 On January 7. 7. 2011. 2013? a. *8.000 Information from Collins Company’s balance sheet is as follows: Current assets: Cash Short-term investments Accounts receivable Inventories Prepaid expenses Total current assets 5. as a result of additional information. d.000. Yoder adopted the sum-of-the-years’-digits method of depreciation for this machine and had been recording depreciation over an estimated life of five years.000. a decision was made to change to the straight-line method of depreciation for this machine. is a. the cumulative effect of this accounting change.000. 6. c.000. 2010. $480.000 d. b. how did the Accounting Principles Board conclude that such reporting should be viewed? a. $0 b. At the date of acquisition. $200. On January 1. net of tax. As reporting for a basic accounting period.000.500.

5 to 1. 3. net income plus income taxes and interest expense by annual interest expense. Inc.000.64 to 1 c.000 Accounts receivable at end of year 130.000 13. d. $ 11. b. 1. 13. Fargo.000 18. 6.000 Fargo’s receivables turnover is a. b. Fourteenth Edition Problem F-I (cont. 7.5 to 1.000.) Current liabilities: Notes payable Accounts payable Accrued expenses Income taxes payable Current portion of long-term debt Total current liabilities What is the acid-test (quick) ratio? a.000 Net credit sales 900.000 5. 1.000 $ 50. 12. net income by annual interest expense.000 Accounts receivable at beginning of year 110. net income plus income taxes by annual interest expense. 2013: Net cash sales 600.000.68 to 1 d.000 Net income 30.000.000 . none of the above.000.000 Inventory at end 150. *10.000.6 to 1. c. c. disclosed the following information as of and for the year ended December 31.9 to 1.000 3.000 Inventory at beginning 100.F-4 Test Bank for Intermediate Accounting.00 to 1 *9. 1:24 to 1 b. The calculation of the number of times interest is earned involves dividing a. d.

000 284. $10 par Retained earnings Additional Data: 1.000 and had accumulated depreciation of $90. 2.000 Sharp sold equipment. Cash dividends were paid amounting to 4% of par value.000 (177.000 1.500. net Inventory Land Building Accumulated depreciation Equipment Accumulated depreciation Accounts payable Bonds payable Capital stock.061. 4.000 53.000 123.000 161.000.000 180.000. for $105.000 $2.000 57. Sharp Company Comparative Balance Sheet F-5 Cash Accounts receivable. Instructions Prepare a statement of cash flows using the indirect method.000) (60.125.000 -01.000 300.Comprehensive Examination F Problem F-II — Statement of Cash Flows.000 450.000 $ 202.000.125.565.000 285. Land was sold for $120.000) $2.000) (141.000 $ 36.000) 1.500. .000.000 $1. which cost $225.000 $1.000 300.000 900.000 $ 150. December 31 2013 2012 $ 54. 3.000 225.000 (75. Net income for the year amounted to $104.061.

(a) (b) 3. Instructions (a) For each of the six accounting changes.000 salvage value. Ignore income taxes. If no entry is required. error corrections.000 $95. write “none. prepare the year-end adjusting entry for December 31.000 is now estimated to continue in use until December 31. Molina recorded its 2013 depreciation at the end of 2013.000 2013’s net income was properly determined after giving effect to the following accounting changes.000 with a $5. Molina determined that equipment purchased in January.F-6 Test Bank for Intermediate Accounting.000 in 2012 owing to the fact that an adjusting entry did not get recorded.000. (a) (b) . The company debited an expense account and credited cash on the purchase date. Molina Company’s reported net incomes for 2013 and the previous two years are presented below. The incomes for 2011 and 2012 do not take these items into account and are stated at the amounts determined in those years. If no entry. Molina bought a truck January 1. prepare the journal entry or entries Molina Company should record during 2013. errors. and Prior Period Adjustments. with an estimated life of 5 years and salvage value of $45. which took place during the year. 2017 and will have a $15. 1. Molina uses straightline depreciation for its trucks. 2010 for $50.000 estimated salvage value and a six-year life. 2013 2012 2011 $105. The truck is expected to be traded at the end of 2015. or prior period adjustment situations described below. Molina determined that it had understated its depreciation by $20. etc. 2013. Fourteenth Edition Problem F-III — Accounting Changes.” Early in 2013. Error Corrections.” (b) After recording the situation in part (a) above. 2011 at a cost of $645. write “none.000 $70. (a) (b) 2.

Comprehensive Examination F Problem F-III (cont. respectively. F-7 During 2013.000 $67.000 $200. in reviewing its provision for uncollectibles during 2013. The company had used 1% as its rate in 2012 and 2011 when the expense had been $20.000 2011 $100. Straight-line Double-declining 2013 $100.000 2011 $42.000 $48. (a) (b) 6. 4.000 (a) (b) 5. Molina changed from the straight-line method of depreciating its cement plant to the double-declining-balance method. 2013 under the old rate.000 $160. Molina decided to change from the LIFO method of valuing inventories to average cost.000 and $14.000 $200.000 $63. During 2013. The following calculations present depreciation on both bases.000 2012 $59.).000 of bad debt expense on December 31. Molina.000 2012 $100.) The 2013 amount applies double-declining balance to the 1/1/13 carrying amount after straight-line was used.000 Assume no difference between LIFO and average cost inventory values in years prior to 2011. The net incomes involved under each method were as follows: LIFO Average cost 2013 $51. (a) (b) .000. The company would have recorded $50. has determined that 1/2 of 1% is the appropriate amount of bad debt expense to be charged to operations. (Ignore income taxes.

000.000.000 shares.000. The market value of Farmington Corp.000.500. $100 liquidating value.000 2.'s common shares was quoted at $54 per share at December 31.000.000 3.000.000.000. Balance Sheet December 31 2013 2012 Assets: Current assets: Cash Short-term investments Accounts receivable (net) Inventories.000 2. plant.000.000.400.000.000 12.000 Total liabilities and stockholders' equity $643. par value $100.000 65.000 shares.500.000 180.800.000 20.000.200.000. Planetarium 's balance sheet at December 31.000 110.000 $274.000.000.000 $643.000 8.000 10.000 9.000. Fourteenth Edition Problem F-IV — Analysis of Financial Statements.000 190.000 117.000.000 15.000 111. 2013.000 140.000 $ 5.000.000 6.000 15.000 30.500.000.F-8 Test Bank for Intermediate Accounting. 2013.000.000 55.000. and 2012.000.000 Retained earnings 141.000 365.000 254. and 2012.000.200.000 $629.000. lower of cost or market Prepaid expenses Total current assets Property. issued and outstanding 12.000 101.000 Stockholders' equity: Common stock.000 4.000.000.000 17.000 $ 7.000.100.000. and statement of income and retained earnings for the years then ended are presented below: Farmington Corp.000 $ 17.000.000 15.000.000 315.000 Total stockholders' equity 278.000 .000 Additional paid-in capital 119.800.500.000.000.000 52.000 119.000 shares 12. authorized 20.000.000.000.000 9.000.000.000 109.000 6.000 122.000 $261.000.000 27.000.000. at equity Long-term receivables Copyrights and patents (net) Other assets Total assets Liabilities and Stockholders' Equity: Current liabilities: Notes payable Accounts payable Accrued expenses Income taxes payable Current portion of long-term debt Total current liabilities Long-term debt Deferred income taxes Other liabilities Total liabilities $ 9. authorized 100.000 375. par value $1.000. issued and outstanding 60.000 7.500.000 2.000 350.000.400.000 9. and equipment (net) Investments.000.200.000 $629.500.000.000 10% cumulative preferred shares.000 69.000 1.000 shares 6.

general.000 9. Statement of Income and Retained Earnings F-9 Net sales Cost and expenses: Cost of goods sold Selling.).600.) (a) Current ratio.100. and administrative expenses Other.000 6.000.000.000 17.000 29.000. net Total costs and expenses Income before income taxes Income taxes Net income Retained earnings at beginning of period Dividends on common stock Dividends on preferred stock Retained earnings at end of period Instructions Year ended December 31 2013 2012 $540.000 $500.000 113. (h) Payout ratio on common stock.000 21.000 70.000.000.Comprehensive Examination F *Problem F-IV (cont.400. Farmington Corp. (f) Earnings per share on common stock.000.000) $141.000 70. (b) Acid-test (quick) ratio.000.000 471.000.400.000 390.000 470.000.100.000.000.000 49. compute the following (for the year 2013 only): (Show supporting computations in good form.000 65.000.000 Based on the above information.000) (600. (e) Book value per share of common stock.000) $117.900.000. (g) Price-earnings ratio on common stock.000. (d) Inventory turnover.000.000 400.000 11.000) (600.900. (c) Receivables turnover.000 117.000 (24.000 (12. .

000 1.800.10 Test Bank for Intermediate Accounting.000 $1.600. c.000 480.F .900.000 Operating profit (loss) Identifiable assets (270.000) 3.000 Instructions Identify which segments are significant enough to warrant disclosure in accordance with FASB No.000 $ 300.000 (10." by applying the following quantitative tests: a. Baden Company is a diversified company which has developed the following information about its five segments: SEGMENTS A B C D E Total sales $ 600.000 5. b. Revenue test Operating profit or loss test Identifiable assets test .000 (300.000 40.600.000 $ 580.000) 5.000) 1. "Reporting Disaggregated Information about a Business Enterprise. 131.200. Fourteenth Edition Problem F-V — Segment Reporting.000 $ 320.700.

5.000 278.000) 30.000 $ 54.000 36.000 405.000 (15. 1.000) 450. c a b b c Problem F-II — Solution.000 126.000 (890. December 31. *10. 3.000 15.000 120. January 1. *9. 4. 2.Comprehensive Examination F F .000) (45. 2013 Cash flows from operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities: Decrease in accounts receivable Increase in inventory Increase in accounts payable Gain on sale of land Loss on sale of equipment Depreciation expense—building Depreciation expense—equipment Net cash provided by operating activities Cash flows from investing activities Sale of land Sale of equipment Purchase of equipment Net cash used by investing activities Cash flows from financing activities Payment of cash dividends Issuance of bonds Net cash provided by financing activities Net increase in cash Cash.000 174.000 $ 4. 7. c d d d c 6. Sharp Company Statement of Cash Flows For the Year Ended December 31.000 105. 2013 Cash.000) 52.11 Solutions — Comprehensive Examination F Problem F-I — Solution.000 18.000 . 2013 $104. *8.000) (665.000 (38.

.................................34 to 1 Total current liabilities $101..500 78............000 78.....000 = —————— = 2........................................... (a) (b) *Problem F-IV — Solution.. (a) (b) 3.......000.....500 7............. (a) Current ratio: Total current assets —————————— Total current liabilities (b) Acid-test (quick) ratio: Total quick assets $135.... (a) (b) 6...000 – $240.................000 200.................................000 – $15.......59 to 1 $101....................... Allowance for Doubtful Accounts.................000 14.................200....000 —————————— = ——————— = 1.000 .....000 20.... Fourteenth Edition Problem F-III — Solution........000) ÷ 5] Retained Earnings.... None Truck............................................................ Accumulated Depreciation..... Accumulated Depreciation................................. Accumulated Depreciation........... Depreciation Expense...........F ......................................000 14.................. (a) (b) 4...... (a) (b) 5.......000. Inventory (Beginning)...................000 20.............................. Retained Earnings. 1.000 200..... Retained Earnings. (a) (b) None Depreciation Expense...............................................500 27...........................................500 7.......................... Accumulated Depreciation...............000 25...................... Accumulated Depreciation..............200.. None Bad Debt Expense................................12 Test Bank for Intermediate Accounting......... None Depreciation Expense............................................ [($645......000 $261.............000 2.............................. None 25.........................000 50.............000 22....................

03 (h) Payout ratio on common stock: Dividends on common stock $24.00 ————————————————— = ———— = 13.000 ———————————————————————————— = —————— = $22.400.000 + $111.000.000 ————————— = —————— = 2.000 .000) ÷ 2] (d) Inventory turnover: Cost of goods sold $390.000.4 Earnings per share on common stock $4.03 Average common shares issued and outstanding during 2013 12.4% Net income – dividends on preferred stock $48.000 ————————————— = ————————————————– = 4.67 Common shares issued and outstanding at December 31.000 ——————————————————————————— = —————— = $4.400.91 times Average accounts receivable [($109.400.000 (e) Book value per share of common stock: Total stockholders' equity – liquidating value of preferred stock $272.13 Net sales $540.) (c) Receivables turnover: F .000 (g) Price-earnings ratio on common stock: Market value of common stock $54. 2013 12.Comprehensive Examination F *Problem F-IV — Solution (cont.000.000 (f) Earnings per share on common stock: Net income – dividends on preferred stock $48.000.000.900.000.000.98 times Average inventories $131.000 ——————————————————— = —————— = 50.

Segments A.000)]. B. B.100. . and E satisfy the revenue test.000).810. B.000 or more [10% of the absolute greater of $520. and E satisfy the identifiable test.000 or ($580. Identifiable assets test — a segment's identifiable assets must be $1.000).14 Test Bank for Intermediate Accounting. b. Segments A. D. c. Fourteenth Edition Problem F-V — Solution. and D satisfy the operating profit or loss test.000 or more (10% × $18. a. Revenue test — a segment is reportable if its total sales are $350.000 or more (10% × $3.500. D. Operating profit or loss test — a segment's absolute profit or loss must be $58. Segments A. and E are identified as significant and therefore reportable because they passed at least one of the significance tests.F . Segments B.