Test bank intermediate accounting 14e by kieso comprehensive exam b

To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com COMPREHENSIVE EXAMINATION B PART (Chapters 7–9) Problem B-I — Multiple Choice — Cash and Receivables Choose the best answer for each of the following questions and enter the identifying letter in the space provided When should the loss on an uncollectible account receivable be recorded as an expense for accrual accounting purposes? a When it is determined that an account cannot be collected b In the same period in which the sale on account occurs c When the balance is past due for more than months d When a lawyer indicates that collection efforts would cost more than the account is worth How should unearned discounts, finance charges, and interest included in the face amount of installment accounts receivable be presented in the balance sheet? a As a current liability b As a deduction from the related installment accounts receivable c Within the net amount of installment accounts receivable d As an addition to the related installment accounts receivable Durler Company's account balances at December 31 for Accounts Receivable and the related Allowance for Doubtful Accounts are $800,000 and $13,000, respectively From an analysis of accounts receivable, it is estimated that $28,000 of the December 31 receivables will be uncollectible After adjustment for the above facts, the net realizable value of accounts receivable would be a $800,000 b $787,000 c $759,000 d $772,000 Which group of items listed below should be included in the cash account? a Silver coins, postage stamps, demand deposits, personal checks b Promissory notes, demand deposits, money orders, silver coins c Money orders, postdated checks, personal checks, time deposits d Silver coins, money orders, demand deposits, personal checks Which of the following methods of accounting for uncollectible accounts does not properly match costs with revenues? a Percentage of sales b Percentage of receivables c Direct write-off d Aging schedule To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Comprehensive Exam B B-2 Certain information relative to the 2012 operations of Ball Co follows: Accounts receivable, January 1, 2012 Accounts receivable collected during 2012 Cash sales during 2012 Inventory, January 1, 2012 Inventory, December 31, 2012 Purchases of inventory during 2012 Gross profit on sales $48,000 92,000 24,000 36,000 33,000 80,000 27,000 What is Ball's accounts receivable balance at December 31, 2012? a $36,000 b $42,000 c $48,000 d $66,000 Problem B-II — Lower of Cost or Market Presented below is data relative to the 12/31/12 inventory of Lance Company: Item A B C D E Total Item Number Units In Inventory 5,000 5,000 5,000 5,000 5,000 25,000 Upper Limit ("Ceiling") Original Cost Per Unit $1.09 1.30 1.50 1.60 1.80 Lower Limit ("Floor") Total Original Cost $5,450 6,500 7,500 8,000 9,000 $36,450 Designated Market Current Replacement Cost $1.08 1.15 1.05 1.65 1.70 Appropriate Inventory Valuation (Totals) A B C D E Total Additional Data: Selling price is $2.00/unit for all items Disposal costs amount to 10% of selling price and a "normal" profit is 35% of selling price Instructions Complete the last four columns above To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Comprehensive Exam B B-3 Problem B-III — Notes Receivable On December 31, 2011 Berry Corporation sold some of its product to Flynn Company, accepting a 3%, four-year promissory note having a maturity value of $500,000 (interest payable annually on December 31) Berry Corporation pays 6% for its borrowed funds Flynn Company, however, pays 8% for its borrowed funds The product sold is carried on the books of Berry at a manufactured cost of $310,000 Assume Berry uses a perpetual inventory system Instructions (a) Prepare the journal entries to record the transaction on the books of Berry Corporation at December 31, 2011 (Assume that the effective interest method is used Use the interest tables below and round to the nearest dollar.) (b) Make all appropriate entries for 2012 on the books of Berry Corporation (c) Make all appropriate entries for 2013 on the books of Berry Corporation For Use on Problem B-III Table Future Value of Periods 2% 1.02000 1.04040 1.06121 1.08243 1.10408 3% 1.03000 1.06090 1.09273 1.12551 1.15927 4% 1.04000 1.08160 1.12486 1.16986 1.21665 6% 1.06000 1.12360 1.19102 1.26248 1.33823 8% 1.08000 1.16640 1.25971 1.36049 1.46933 6% 0.94340 0.89000 0.83962 0.79209 0.74726 8% 0.92593 0.85734 0.79383 0.73503 0.68058 Table Present Value of Periods 2% 0.98039 0.96117 0.94232 0.92385 0.90573 3% 0.97087 0.94260 0.91514 0.88849 0.86261 4% 0.96154 0.92456 0.88900 0.85480 0.82193 Table Future Value of Ordinary Annuity of Periodic Rents 2% 1.00000 2.02000 3.06040 4.12161 5.20404 3% 1.00000 2.03000 3.09090 4.18363 5.30914 4% 1.00000 2.04000 3.12160 4.24646 5.41632 6% 1.00000 2.06000 3.18360 4.37462 5.63709 8% 1.00000 2.08000 3.24640 4.50611 5.86660 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Comprehensive Exam B B-4 Table Present Value of Ordinary Annuity of Periodic Rents 2% 0.98039 1.94156 2.88388 3.80773 4.71346 3% 0.97087 1.91347 2.82861 3.71710 4.57971 4% 0.96154 1.88609 2.77509 3.62990 4.45182 6% 0.94340 1.83339 2.67301 3.46511 4.21236 8% 0.92593 1.78326 2.57710 3.31213 3.99271 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Comprehensive Exam B B-5 Problem B-IV — FIFO vs LIFO In comparing and contrasting FIFO vs LIFO inventory procedures, the following listing was developed You are to complete the tabulation with an answer of "YES" or "NO" as demonstrated by the first item Any combination of yes-no answers is possible in each situation FIFO Usually matches the actual physical flow of goods Yes LIFO No _ Emphasizes the income statement in that it matches the more recent costs with revenue _ _ Defers tax payments in times of rising prices _ _ Possibility of liquidating the base may be a significant negative aspect _ _ Will probably not be adopted if prices are expected to decline _ _ Emphasizes the balance sheet in that the more recent costs are contained in the inventory account _ _ Can use price indexes to cost layers _ _ Switching to this method could cause problems in the equity markets, with loan covenants, etc _ _ Income figure more accurately reflects cash available for dividends, investments, etc _ _ Tends to smooth income in periods of fluctuating prices _ _ 10 Income figure is more "real" in that it doesn't contain "paper profits." _ _ 11 A change to this method must be justified (i.e., to the auditor) other than solely on the basis of the tax effect _ _ To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com B-6 Comprehensive Exam B 12 Perpetual inventory results may be different from periodic inventory results _ _ 13 Is acceptable to the IRS (i.e., for income tax purposes) _ _ 14 Gives lower profits when prices rise _ _ 15 In a period of rising prices has an adverse effect on assets, working capital, and stockholders' equity _ _ 16 Quick inventory turnover may have somewhat of a mitigating effect on some of the method's claimed disadvantages _ _ 17 Improves cash flow in periods of rising prices _ _ 18 If used for tax purposes, it must be used for financial reporting purposes _ _ 19 Somewhat opens door for profit manipulation and may cause poor purchase decisions _ _ 20 Is a current value, rather than a historical cost, valuation method _ _ Problem B-V — Year-end Inventory Cutoff Abel Company's business year ends on December 31 Listed below are purchase transactions which occurred during the last few days of 2012 or during the first few days of 2013 The inventory, determined by physical count, was taken after the close of business on December 31, 2012 The only adjusting entry recorded to date has been to enter the December 31 physical inventory on the books and to remove the beginning inventory Instructions (a) On the accompanying chart, indicate the effect of each of these transactions on the ending inventory and on reported net income for 2012, by writing the words overstated, understated, or no effect in the appropriate column Both columns must be answered for each transaction (b) Prepare all necessary correcting entries for 2012 (c) Indicate which of the correcting entries must be reversed in 2011 by preparing the necessary reversing entries To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Comprehensive Exam B B-7 12/31/12 Physical Inventory 2012 Income An invoice for $9,000, terms f.o.b shipping point, was received and entered December 30 The invoice shows that the merchandise was shipped December 29, and the receiving report indicates the merchandise was received January _ An invoice for $300, terms f.o.b shipping point, was received and entered December 30 The invoice shows that merchandise was shipped December 29, and the receiving report shows the merchandise was received December 31 _ An invoice for $4,000, terms f.o.b shipping point, was received and entered January The invoice shows the merchandise was shipped December 30, and the receiving report indicates the merchandise was received December 31 _ An invoice for $800, terms f.o.b destination, was received and entered December 30 The receiving report shows the merchandise was received January _ An invoice for $500, terms f.o.b destination, was received and entered December 29 The receiving report indicates that the merchandise was received December 31 _ An invoice for $1,500, terms f.o.b destination, was received and entered January The receiving report indicates the merchandise was received December 31 _ Merchandise costing $12,000 and with a selling price of $18,000 was on consignment to Maris Distributing Company and was on that company's premises on December 31 No entry has been made for the consignment _ To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com B-8 Comprehensive Exam B Problem B-VI — Conventional and LIFO Retail Method.* *Note to Instructor Part B is based on Appendix 9-A A Landmark Book Store uses the conventional retail method Instructions Given the following data, prepare a neat, labeled schedule showing the computation of the cost of inventory on hand at 12/31/12 Inventory 1/1/12 Purchases Purchases Returns Purchase Discounts Sales (Gross) Sales Returns Employee Discounts Freight-in Freight-out Loss from Breakage Markups Markup Cancellations Markdowns Markdown Cancellations Cost $ 28,900 366,600 9,000 7,000 Retail $ 40,000 610,000 20,000 615,000 15,000 5,000 23,500 50,000 2,500 38,000 18,000 13,500 8,500 B Landmark Book Store has decided to switch to the LIFO retail method for the period beginning 1/1/13 Instructions Prepare a schedule showing the computation of the 12/31/13 inventory under the LIFO retail method adjusted for price level changes (i.e., dollar-value LIFO Retail.) Without prejudice to your answer in requirement A above, assume that the 12/31/12 inventory computed under the LIFO Retail method was $40,000 and $27,500 at retail and cost, respectively, for purposes of this requirement Data for 2013 follows: Cost Retail Purchases (net) $360,000 $485,000 Sales (net) 402,000 Markups (net) 30,000 Markdowns (net) 15,000 2012 Price Index 100 2013 Price Index 120 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Comprehensive Exam B B-9 Problem B-VII — Multiple Choice — Inventory For each of the following questions, select the letter of the statement which best answers the question and write it on the line to the left of the question Wade Company estimates the cost of its physical inventory at March 31 for use in an interim financial statement The rate of markup on cost is 25% The following account balances are available: Inventory, March Purchases during March Purchase returns Sales during March $1,000,000 500,000 26,000 850,000 The estimate of the cost of inventory at March 31 would be a $624,000 b $680,000 c $794,000 d $836,500 Most methods of pricing inventories are in accord with generally accepted accounting principles and generally are permissible for income tax purposes The method that must be used for financial reporting purposes if used for tax purposes is a moving average b weighted average c LIFO d FIFO A company has been using the FIFO cost method of inventory valuation since it was started 10 years ago Its 2012 ending inventory was $120,000, but it would have been $90,000 if LIFO had been used Thus, if LIFO had been used, this company's income before taxes would have been a $30,000 less in 2012 b $30,000 less over the 10-year period c $30,000 greater over the 10-year period d $30,000 greater in 2012 Why are inventories included in the computation of net income? a To determine cost of goods sold b To determine sales revenue c To determine merchandise returns d Inventories are not included in the computation of net income On December 31, 2012, Hill Company, which sells only one product, adopted the periodic last-in, first-out method of inventory valuation The inventory was valued at $40,000 on the December 31, 2012 balance sheet The number of items in its inventory remained constant during 2013 The December 31, 2013 inventory valuation would be a less than $40,000 if prices were steadily decreasing b less than $40,000 if prices were steadily increasing c greater than $40,000 if prices were steadily increasing d $40,000 regardless of any price changes To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Comprehensive Exam B B-10 *6 Kramer Company values its inventory by using the retail method (LIFO basis, stable prices) The following information is available for the year 2012 Beginning inventory Purchases Freight-in Markups (net) Markdowns (net) Sales Cost $ 78,000 368,000 16,000 — — Retail $140,000 628,000 18,000 6,000 610,000 At what amount would Kramer Company report its ending inventory? a $95,700 b $96,000 c $100,300 d $102,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Comprehensive Exam B B-11 Solutions — Comprehensive Examination B Problem B-I — Solution b c d d c b Solutions to computational Multiple Choice Questions $800,000 – $28,000 = $772,000 $80,000 + $3,000 + $27,000 – $24,000 + $48,000 – $92,000 = $42,000 Problem B-II — Solution Item A B C D E Upper Limit ("Ceiling") $1.80 1.80 1.80 1.80 1.80 Lower Limit ("Floor") $1.10 1.10 1.10 1.10 1.10 Designated Market $1.10 1.15 1.10 1.65 1.70 Appropriate Inventory Valuation (Totals) $5,450 5,750 5,500 8,000 8,500 $33,200 Problem B-III — Solution (a) 12/31/11 Notes Receivable Discount on Notes Receivable Sales Revenve 500,000 82,803 417,197 Computation of Present Value of Note: (using 8%) $500,000 × 73503 = $367,515 15,000 × 3.31213 = 49,682 Present value of note 417,197 Face value of note 500,000 Amount of discount $ 82,803 12/31/11 Cost of Goods Sold Inventory 310,000 310,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Comprehensive Exam B B-12 (b) 12/31/12 Cash Interest Revenue Discount on Notes Receivable Interest Revenue ($417,197 × 08 = $33,376 – $15,000) (c) 12/31/13 Cash Interest Revenue Discount on Notes Receivable Interest Revenue [($417,197 + $18,376) × 08 = $34,846 – $15,000] 15,000 15,000 18,376 18,376 15,000 15,000 19,846 19,846 Problem B-IV — Solution No-Yes No-Yes No-Yes No-Yes Yes-No No-Yes 10 11 12 No-Yes No-Yes No-Yes No-Yes Yes-Yes No-Yes 13 14 15 16 17 18 Yes-Yes No-Yes No-Yes Yes-No No-Yes No-Yes 19 20 No-Yes No-No Problem B-V — Solution (a) Understated/Understated No effect/No effect No effect/Overstated No effect/Understated No effect/No effect No effect/Overstated Understated/Understated (b) Inventory Cost of Goods Sold None 9,000 Purchases Accounts Payable 4,000 Accounts Payable Purchases 800 None 9,000 4,000 800 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Comprehensive Exam B (c) Purchases Accounts Payable 1,500 Inventory Cost of Goods Sold 12,000 Accounts Payable Purchases 4,000 Purchases Accounts Payable 800 Accounts Payable Purchases 1,500 B-13 1,500 12,000 4,000 800 1,500 Problem B-VI — Solution A Beginning Inventory Purchases Purchase Returns Purchase Discounts Freight-In Markups Markup Cancellations Goods Available Cost Ratio = 62% Sales Sales Returns Employee Discounts Goods Broken Markdowns Markdown Cancellations Ending Inventory @ Retail Est Ending Inventory @ Cost (62% × $37,500) Cost $ 28,900 366,600 (9,000) (7,000) 23,500 $403,000 $615,000 (15,000) Retail $ 40,000 610,000 (20,000) 38,000 (18,000) 650,000 (600,000) (5,000) (2,500) 13,500 (8,500) (5,000) $ 37,500 $ 23,250 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Comprehensive Exam B B-14 *B Inventory, December 31, 2012 Net purchases Net markups Net markdowns Total (excluding beginning inventory) Total (including beginning inventory) Net sales Inventory, December 31, 2013, at retail Cost to retail percentage ($360,000 ÷ $500,000) 12/31/13 inventory at base ($138,000 ÷ 1.20) 12/31/12 inventory at base Increase at base Increase at current prices, at cost ($75,000 × 1.20 × 72) 12/31/13 inventory at LIFO cost Cost $ 27,500 360,000 360,000 $387,500 72% $ 27,500 64,800 $ 92,300 Problem B-VII — Solution c c b *6 a d b Solutions to computational Multiple Choice Questions Retail $ 40,000 485,000 30,000 (15,000) 500,000 540,000 (402,000) $ 138,000 $1,474,000– (80% ì $850,000) = $794,000 $384,000 ữ $640,000 = 60% $78,000 + (60% × $30,000) = $96,000 $ 115,000 (40,000) $ 75,000 ... columns above To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Comprehensive Exam B B-3 Problem B- III — Notes Receivable On December 31, 2011 Berry... No entry has been made for the consignment _ To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com B- 8 Comprehensive Exam B Problem B- VI — Conventional... solutions and test bank, visit http://downloadslide.blogspot.com Comprehensive Exam B B-10 *6 Kramer Company values its inventory by using the retail method (LIFO basis, stable prices) The