NAME TA FALL OF 04 FINAL ECON 111A On December 15, 2003, Quinn Land Sales sold a tract of land that cost $3,600,000 for $4,500,000. Quinn appropriately uses the installment sale method of accounting for this transaction, Terms called for a down payment of $500,000 with the balance in two equal annual installments payable on December 15, 2004, and December 15, 2005. Ignore interest charges. Quinn has a December 31 year-end. @ 64. 1n 2003, Quinn would recognize realized gross profit of: ‘A) $500,000, B) $0. C) $900,000. D) $100,000. Answer: D Rationale: Gross profit % = ($4,500,000 - 3,600,000)'$4,500,000 = 20% 2000: 20% x $500,000 = $100,000 © 65. In 2004, Quinn would recognize realized gross profit of: A) $0. B) $450,000. C) $300,000. D) $400,000. Answer: D Rationale: Gross profit % = ($4,500,000 - 3,600,000)/$4,500,000 = 20% 2003: 20% x $500,000 = $100,000 2004: 20% x {($4,500,000 - 500,000y/2] = $400,000 A) Items in transit sold f.0.b. shipping point. B) Purchases in transit f.0.b. destination. C) Items in transit sold f.0.b. destination D) None of the above. i) CG 51. Ending inventory is equal to the cost of items on hand plus: edayy Inventory records for Cyclops Herbicide revealed the following: March 1, 2003, inventory - 1,000 gallons @ $7.20 = $7,200 Purchases: Sales: Mar. 10 600 gals @ $7.25 Mar.5 400 gals Mar. 16 800 gals @ $7.30 Mar. 14 700 gals Mar. 23 600 gals @ $7.35 Mar. 20 500 gals Mar. 26 800 gals 83. Ending inventory assuming LIFO in‘a perpetual inventory system would be: Date Purchased Sold Balance Beginning Inv. 1,000 @ $7.20 = $7,200 1,000 @ $7.20, Mar. 5 400 @ $7.20 = $2,880 600 @ $7.20 Mar. 10 600 @ $725 = $4,350 600 @ $7.20 600 @ $7.25 Mar. 14 600 @ $7.25 500 @ $7.20 100 @ $7.20 = $5,070 Mar. 16 800 @ $7.30 = $5,840 500 @ $7.20 800 @ $7.30 Mar. 20 500 @ $7.30 = $3,650 500 @ $7.20 300 @S7.30 Mar. 23 600 @ $7.35 = $4,410 500 @ $7.20 300 @ $7.30 600 @ $7.35 Mar. 26 600 @ $7.35 500 @ $7.20 200 @ $7.30=$5,870 100 @ $7.30 $7,200 $4,320 $8,670 $3,600 $9,440 $5,790 $10,200 i $4,330 (On January 3, 2003, Spireton Co. began construction of a new warehouse. The building was finished and ready for use ‘on September 30, 2004. Expenditures on the project were as follows: January 3, 2003 $300,000 September 1, 2003 $450,000 December 31, 2003 $450,000 ‘March 31, 2004 $450,000 September 30, 2004 $300,000 Spireton had $5,000,000 in 12% bonds outstanding through both years. 2 89. Spireton’s average accumulated expenditures for 2003 was: 90. A) $300,000. B) $430,000. ©) $525,000. D) $600,000. Answer: B Rationale: January 3, 2003, $300,000 September 1, 2003 450,000 December 31, 2003 450,000 $1,200,000 Spireton’s capitalized interest in 2003 was: A) $72,000. B) $63,000, C) $54,000. D) $36,000. Answer: C Rationale: $450,000 (determined above) x 12% = $34,000D 99. On September 15, 2003, Spicer Inc. purchased all of the outstanding common stock of Landon Ine. paying $7,200,000 cash. The book values and fair values of Landon's assets and liabilities are listed below: Book Value Fair Value Accounts receivable $1,080,000 $975,000 Inventories 1,620,000 2,400,000 Property, plant, and equipment 5,400,000 6,975,000 Accounts payable 1,800,000 1,800,000 Bonds payable 2,700,000 2,475,000 Required: wil Prepare the journal entry to record the acquisition by Spicer Inc. ¢ al Answer: Accounts receivable 975,000 Inventory 2,400,000 Property, plant, and equipment 6,975,000 Goodwill 1,125,000 Accounts payable 1,800,000 Bonds payable 2,475,000 Cash 7,200,000 116. On January 1, 2003, Wildcat Company purchased $93,000 of 10% bonds at face value. The bond market value was $98,000 on December 31, 2003. Required: Prepare the appropriate journal entry on December 31, 2003, to properly value the bonds assuming the bonds are classified as (ignore premium or discount amortization): (1,) Trading securities. 1) (2) Securities available for sale. ut \\ (3.) Held-to-maturity securities. Answer: ws ir (1) Investment in bonds ($98,000 - $93,000) 5,000 Unrealized holding gain on investments 5,000 (2.) Same as above. (3.)_ Changes in FMV of held-to-maturity securities are ignored, ()} a. On May 1, Santa Fe received 30 months of rent in advance totaling $16,500 for a building. The tenant immediately occupied the building. Santa Fe credited the $16,500 to rent revenue. b. On February 1, Santa Fe issued 10 percent bonds with , u a face value of $400,000 at par. The interest Payment dates are February 1 and August 1. Interest was last paid on August. 1 REQUIRE 1. Prepare the adjusting entries related to the above transactions as of December 31, 1992. : 1, a. Rent revenue 12,100 Unearned rent revenue 12,100 ($550 x 22 mos. = $12,100) b. Interest expense 16,667 ‘ Interest payable 16,667 ($400,000 x .1 x 5/12 = $16,667)@ 25, On January 1, 1986, Poe Company adopted the dollar-value LIFO inventory method. Poe's entire inventory constitutes a single pool. Inventory data for 1986 and 1987 are as follows: Inventory Inventory Relevant at Current- at Base- Price Date Year Gost Year Cost Index 1/1/86 $150,000 $150,000 1,00 12/31/86 220,000 200000 1.10 G 121/67 276,000 230,000 1.20 < Z Poe's LIFO inventory value giPecember 31, 1987 Is, ‘A, $230,000 A B.) $241,000 Qa! ©. $246,000 D. $276,000 Base layer $150,000 x1.0 = $150,000 1986 layer 50,000 x14 155,000 1987 layer 30,000 x12 36,000 $241,000 12, The following information applied to Fenn, inc, Z for 1989: Merchandise purchased for resale + $400,000 Freight in * 10,000 Freight out 5,000 Purchase returns - 2,000 Fenn's 1989 inventoriable cost was oo ‘A. $400,000 AON? B. $403,000 © 408,000 D. $413,000 QO The correct answer is (A). (CPA 1191 T-27) REQUIRED: The Inventory system that maximizes the inventory carrying amount at year-end. DISCUSSION: The weighted-average inventory pricing system is applicable to a periodic inventory system. The weighted-average unit cost is equal to the total cost of goods available for sale divided by the number of units available for sale. The moving-average system is only applicable to per- petual inventories. it requires that a new weighted average be computed after every purchase. This moving average is based on remaining inventory held and the new inventory purchased. In a period of rising prices, the moving-average method results in a higher unit and total inventory cost because the most recent purchases are given greater weight in the calculation. ARB 43, Chap. 4 permits application of the lower of cost or market rule either to each item in the inventory or to the inventory as a whole. Applying the LOM rule to the total inventory will maximize the carrying amount because the reduction in the inventory will equal only the excess of aggregate cost over aggregate market. LCM applied on an individual item basis recognizes all of the inventory declines but none of the gains. “Answers (B), (C), and (D) are incorrect because the moving-average method and applying the LCM rule to the total inventory result in a higher inventory amount. Ss 31, Which of the following methods of inve N ntor valuation is allowable at interim dates but not af Year: de {den ‘A. Weighted average. Estimated gross profit rates. C._ Retall method. me folowing information is available for the company for the 3 mont! Sie Co ihs ended March 31 of D. Specitic identification. Merchandise inventory, January 1 of this year Purchases § oon Freightin pied Sales 4,800,000 The gross margin recorded was 25% of sales. What should be the merchandise inventory at March 31? A. $700,000 ) $900,000 Beginning inventory $ 900,000 Purchases 3,400,000 Freight-in 200,000 Goods available for sale $4,500,000 CGS (1 — .25) x ($4,800,000) (3,600,000) Ending inventory 200.000 18. During periods of rising prices, a perpetual inventory system would result in the same dollar amount of ending inventory as a periodic inventory system under which of the following inventory flow methods? ie FIFO LEO p @ Yes No al B. Yes Yes Cc. No Yes D. No No 17, Thread Co. is selecting ts invento preparation for is frst year of operations, Thead intends to use elther the periodic weighted.average ‘method or the perpetual moving-average method, and to apply the lower of cost or market rule either to individual items or to the total inventory. Inventory prices are expected to generally increase throughout 1991, although a few individual prices will decrease, wa inventory system should Thread select i . aximize the i wants to maximize the inventory carrying amount at sme gu @ Perpetual Total inventory B. Perpetual individual Item ©. Periodic Total inventory D. Periodic Individual item Tht A flovl Eacr meer Alp AreecaTIn~ WORKS2g Questions 18 and 19 are based on the folowing ‘information. Dur iuary:1993, Métro Co,, -which maintains @ ‘perpetual inventory system, ‘recorded the followin “its inventory: Unit Unite Coet 1000 $f 600 3. “Baanes on 8 x Purchased on 1/7) 18. Under the moving-average method, what amount should Metro report as inventory at January 31, 19937 A. $1,300 Le B. $2,640 ©) 83225 D. $3,900 ‘information pertaining to Moving-Average Units Cost/Unit Total Cost Balance 1/1 1,000 $1.00 $1,000 Purchase 1/7 _ 600 3.00 4,800 Lene SL $2800 1602 -9goz 70x = agar Pitty ‘/astas Lovo Answer: Gaais 2003: an Contract price —— Actual cost to date $1,500,000 Estimated costs to complete 1,200,000 Total estimated project costs. Estimated loss, recognized in 2003 2004: Contract price Cost incurred: in 2003, $1,500,000 in 2004, 1,300,000 Total cost Total loss Recognized in 2003 Recognized in 2004 Katz Contractors received a contract to construct a mental health facility for $2,500,000, Construction was begun in 2003 and completed in 2004, Cost and other data are presented below: 2003 2004 Costs incurred during the year $1,500,000 ‘$1,300,000 Estimated costs to complete 1,200,000 0 Billings during the year 1,200,000 1,300,000 Cash collections during the year 1,000,000 1,500,000 90. Assume that Katz uses the percentage-of-completion method for revenue recognition, Required: ‘Compute the amount of gross profit recognized during 2003 and 2004. — 92. Assume that Katz uses the completed contract method for revenue recognition. Rete ‘Compute the amount of gross profit recognized by Katz during 2003 and 2004. Answer: 2003: $200,000) Due to projected loss. 2004: Contract price Cost incurred: 2003 2004 Total cost Total loss on contract Loss recognized in 2003 Loss recognized in 2004 $2,500,000 $1,500,000 1,300,000 2,800,000 $ (300,000) (200,000) $100,000) $2,500,000 2,700,000 $200,000) $2,500,000 2,800,000 $ (300,000) (200,000) $100,000)