Mid-term exam for Intermediate Accounting

PART I. TRUE-FALSE. If the statement is false, correct the statement. (15=5 * 3pt)
1. The major objective of financial reporting is to provide information that is useful to present
and potential equity investors, lenders, and other creditors in making decisions. True
2. The IASB’s conceptual framework provides the quantitative thresholds of every accounts that
make accounting information useful. ratio Rise
3. Comprehensive income includes all changes in equity during a period except those resulting
from distributions to owners. The
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4. When a sales transaction involves a significant financing component, revenue is determined

either by discounting the payment using an imputed interest rate.
True

basis for revenue recognition. Tea

5. The new revenue recognition standard adopts a match-of-income and expense approach as the

SS다 t.abir.tn approach

PART II. Fill the blanks with appropriate words or phrases. (15=5 * 3pt)

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6. (________________) and (_________________) are the two fundamental qualities that make
accounting information useful for decision making.

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7. (__________) is the quality of information that is capable of making a difference in a decision.
8. The income statement is useful for (______________________).
Peter to Page 2 of PPT.ch -4
Page 4 of PI Ch 5
9. The statement of financial position is useful for (______________________). -

( KID10. When a company cannot reasonably estimate percentage of completion, (_______________)

recoveymihod.CO
cost
is used to recognize revenue.

PART III. Multiple choice (40=5 * 4pt)

11. Company A issuing its annual financial reports within one month of the end of the year is an
example of which enhancing quality of accounting information?

① Comparability.
② Timeliness.
③ Understandability.
④ Verifiability.
12. When should an expenditure be recorded as an asset rather than an expense?

① Never.
② Always.
③ If the amount is material.
④ When future benefit exists.
○

13. When multiple performance obligations exist in a contract, they should be accounted for as a
single performance obligation when In His ex am ,

① each service is interdependent and interrelated. I Will Give a

○ >
② both performance obligations are distinct but interdependent.
○ Multi Choice problem
③ the product is distinct within the contract. that has Only One

④ determination cannot be made. Come of Answer

14. A transaction price for multiple performance obligations should be allocated.

① based on selling price from the company’s competitors.

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② based on what the company could sell the goods for on a standalone basis.
③ based on forecasted cost of satisfying performance obligation.
④ based on total transaction price less residual value.

15. Roche Pharmaceuticals entered into a licensing agreement with Zenith Lab for a new drug
under development. Roche will receive $8,100,000 if the new drug receives FDA approval.
Based on prior approval, Roche determines that it is 85% likely that the drug will gain
approval. The transaction price of this arrangement should be
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① $8,100,000.
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② $6,885,000.
③ $1,215,000.
④ $0 until approval is received.
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 PART IV. Computational problems
Write down the procedure of your solution clearly on the answer sheet.

16. Chekov Corporation’s statement of financial position at the end of 2019 included the
following items: (4pt)
Land $ 30,000 Bonds payable $ 100,000
Buildings 120,000 Current liabilities 150,000
Equipment 90,000 Share capital-ordinary 180,000
Accumulated (30,000) Retained earnings 44,000
depreciation-buildings
Accumulated (11,000)
depreciation-
equipment
Patents 40,000
Current assets 235,000
Total $ 474,000 Total $ 474,000

 Net income was $55,000.

 Depreciation expense was $4,000 on the building and $9,000 on equipment.
 Current assets other than cash increased by $5,000.
 Current liabilities increased by $13,000.
 A long-term investment in securities was purchased for $16,000.
 Cash dividends of $25,000 were declared and paid.

(Question) What is net operating cash flows?

-
17. Space Odyssey, Inc., rents a communications satellite for 4 years with annual rental payments
of $100,000 to be made at the beginning of each year. If the relevant annual interest rate is
5%. (4pt)
(Question) What is the present value of the rental obligations? Draw a timeline and develop
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the equation to answer the question.

iii_ilb.net?ncome
55.000 7.
loo.co 100.000 100.000 100.000
(f) 매개이시해 에2 13.000

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f) incre.ae of 5000
current its pv.ioo.cat
13000
A) increase t =
372,324.8
liabilities_CASNF.ws
current

from O RationS 76.000

 18. Jeff Heun, president of Concrete Corporation., agrees to construct a concrete cart path at
Dakota Golf Club. Concrete Corporation enters into a contract with Dakota to construct the
path for $200,000. In addition, as part of the contract, a performance bonus of $40,000 will

-
be paid based on the timing of completion. The performance bonus will be paid fully if
completed by the agreed-upon date. The performance bonus decreases by $10,000 per week
for every week beyond the agreed-upon completion date. Jeff has involved in a number of
contracts that had performance bonuses as part of the agreement in the past. As a result, he is
confident that he will receive a good portion of the performance bonus. Jeff estimates, given
the constraints or his schedule related to other jobs, that there is 55% probability that he will
complete the project on time, a 30% probability that he will be 1 week late, and a 15%
probability that he will be 2 weeks late. (4pt)
(Question) Determine the transaction price that Concrete Corporation should compute for this
agreement. 200.000t
40.000×0,55 + 30.000 × 0.30 t 20.000 X 0.15

=
234000
19. Shaw LTd. delivers goods that cost $350,000 to Ricard Company for $540,000 on January 2,
2019. The sales price includes and installation fee, which has a standalone selling price of
$100,000. The standalone selling price of the goods is $500,000. The installation is considered

540.00t450.000
a separate performance obligation and is expected to take 6 months to complete. (6pt)
(Question) What is the revenue recognized in January, 2019? Revenge for Jan

; 450.000
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PART V. Journal entries (32=4 * 8pt)

theinstallat.im
: 540-000XE아 =
90.000 70.000 xf
Service = 465.000
Write down the procedure of your solution clearly on the answer sheet. You do not need to enter
the solution in Ecampus.

20. Nelba Manufacturing ships merchandise costing $36,000 on consignment to Best Value Stores.
Nelba pays $3,750 of freight costs, and Best Value pays $2,250 for local advertising costs that
are reimbursable form Nelba. By the end of the period, Best Value has sold two-thirds of the
consigned merchandise for $40,000 cash. Best Value notifies Nelba of the sales, retains a 10%
commission, and remits the cash due Nelba.
(Question) What are the journal entries that the consignee (Best Value) make to record this
-

transaction?

Hearts Race: vabk 2250 ( Cash 2250

Cash 40.000 / Accountspayal.de 40000

ACC0MB Receivabk4.co/sa1esRevenue 4000 F40000X10%)

6250
Acouutspayableqo.co/AccountsReceivable
Cash 33.750 .
 .mx#Rage 21. Organic Growth Company is presently testing a number of new agricultural seeds that it has
recently harvested. To stimulate interest, it has decided to grant to five of its largest customers
the unconditional right of return to these products if not fully satisfied.
 The right of return extends for 4 months. Organic Growth estimates returns of 20%.
 Organic Growth sells these seeds on account for $1,500,000 (cost $750,000) on January
2, 2019 and customers pay cash for their purchases.
 One customer returns the seeds on March 1, 2019, due to unsatisfactory performance.
Assume this customer purchased $100,000 of seeds from Organic Growth. Organic
Growth Company returns cash for $100,000.
 Organic Growth Company prepares financial statements quarterly and believes the
original estimate is correct.
(Question) Prepare journal entries for Organic Growth Company in January,
픃 2019.

Reed Page
22. Maverick Company sold 1,000 Rollomatics on October 1, 2019, at total price of $6,000,000,
with a warranty guarantee that the product was free of defects. The cost of the Rollomatics is
$4,000,000. The term of this assurance warranty is 2 years, with an estimated cost of $80,000.
an other
In addition, Maverick sold extended warranties related to 400 Rollomatics for 3 years beyond
-
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the 2-year period for $18,000. On November 22, 2019, Maverick incurred labor costs of
sa para $3,000 and part costs of $25,000 related to the assurance warranties. Maverick prepares
Performance financial statements on December 31, 2019. It estimates that its future assurance warranty
obligat.im costs will total $44,000 at December 31, 2019.
(Question) What are the journal entries that Maverick Company should make in 2019 related
to the sale of the Rollomatics and the assurance and extended warranties?

SKP23. Hardhat Construction Company has a contract to construct a £4,500,000 bridge at an estimated
cost of £4,000,000. The contract is to start in July 2019, and the bridge is to be completed in
October 2021. The following data pertain to the construction period.

(Question 1) Compute the cumulative percent complete of each year.

(Question 2) Compute the revenue of each year.
(Question 3) Compute the profit or loss of each year.
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pvi 5.324/1.13=4.000
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24. (Bonus. Extra points will be given) On January 1, 2019, Grill Master sold
deluxe combination gas/charcoal grills to a local builder. The builder plans to install it in one
of its “Parade of Homes” houses. Grill Master accepted 3-year,.zero-interest-bearing note with
face amount of $5,324. The grill has an inventory cost of $2,700. An interest rate o CO
10% is an
appropriate market rate of interest for this customer. ⇒
di S Count rate

(Question) Prepare the journal entries on January 1, 2019 and December 31, 2019.
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Notes
2700 / 2700 Mw가에
1431 Notes Receivat.ie 400 / lnterestir.com 400

E4000X10%)

지 ( 500000
Cash 1500000 / Sa ( es Re ve na
Y2 .

750000 / ( 750000
Cost of Gods H
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memory
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100.000
Sol es Return 100000 ( Cash
" 50.000
Reformed match 50.000 / CO .GS

Gates Return 200000 / Return 1대bit

ity 200.000 .

긱, 100.000
Estimatedinventomloaooolco.GS
remms

6.000-000
22 ' AcconntsReciwat.ie
6.018.000 / Series Revenge
이
Une and 18.000
Woman) Avenue

4000000 / Ment y 4000.000 .

Co .GS

28.000
lbwarrantqexpenc.es
28.000 / Cash

44000
삐
warrantyexpenses44.co/WarranMIiabi1ity