ACCOUNTING INFORMATION SYSTEMS 2
1. Cendant Corporation’s results for the year ended December 31, 2011, include the following material items:
Cendant Corporation’s income from continuing operations before income taxes for 2011 is |
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| 2. Reliable Enterprises sells distressed merchandise on extended credit terms. Collections on these sales aren’t reasonably assured and bad debt losses can’t be reasonably predicted. It’s unlikely that repossessed merchandise will be in salable condition. Therefore, Reliable uses the cost recovery method. Merchandise costing $30,000 was sold for $55,000 in 2010. Collections on this sale were $20,000 in 2010, $15,000 in 2011, and $20,000 in 2012.
In its 2010 year-end balance sheet, Reliable would report installment receivables (net) of |
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| 3. On October 28, 2011, Mercedes Company committed to a plan to sell a division that qualified as a component of the entity according to GAAP regarding discontinued operations and was properly classified as held for sale on December 31, 2011, the end of the company’s fiscal year. The division’s loss from operations for 2011 was $2,000,000. The division’s book value and fair value less cost to sell on December 31 were $3,000,000 and $3,500,000, respectively. What before-tax amount(s) should Mercedes report as loss on discontinued operations in its 2011income statement? |
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| 4. Lake Power Sports sells jet skis and other powered recreational equipment. Customers pay 1/3 of the sales price of a jet ski when they initially purchase the ski, and then pay another 1/3 each year for the next two years. Because Lake has little information about collectibility of these receivables, they use the installment method for revenue recognition. In 2010 Lake began operations and sold jet skis with a total price of $900,000 that cost Lake $450,000. Lake collected $300,000 in 2010, $300,000 in 2011, and $300,000 in 2012 associated with those sales. In 2011 Lake sold jet skis with a total price of $1,500,000 that cost Lake $900,000. Lake collected $500,000 in 2011, $400,000 in 2012, and $400,000 in 2013 associated with those sales. In 2013 Lake also repossessed $200,000 of jet skis that were sold in 2011. Those jet skis had a fair value of $75,000 at the time they were repossessed. In 2013, Lake would record a loss on repossession of |
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| 5. Chancellor Ltd. sells an asset with a $1 million fair value to Sophie Inc. Sophie agrees to make 6 equal payments, one year apart, commencing on the date of sale. The payments include principal and 6% annual interest. Compute the annual payments. | ||||
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| 6. Elmore Co. purchased an offset press on January 1, 2008, at a cost of $120,000. The press had an estimated eight-year life with no residual value. Elmore uses straight-line depreciation. At January 1, 2011, Elmore estimated that the press would have only three more years of remaining life with no residual value. For 2011, Elmore would report depreciation of | ||||
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| 7. First Financial Auto Loan Department wishes to know the payment required at the first of each month on a $10,500, 48-month, 11% auto loan. To determine this amount, First Financial would | ||||
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| 8. Present and future value tables of $1 at 3% are presented below:
Shane wants to invest money in a 6% CD account that compounds semiannually. Shane would like the account to have a balance of $100,000 four years from now. How much must Shane deposit to accomplish his goal? |
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| 9. Lake Power Sports sells jet skis and other powered recreational equipment. Customers pay 1/3 of the sales price of a jet ski when they initially purchase the ski, and then pay another 1/3 each year for the next two years. Because Lake has little information about collectibility of these receivables, they use the installment method for revenue recognition. In 2010 Lake began operations and sold jet skis with a total price of $900,000 that cost Lake $450,000. Lake collected $300,000 in 2010, $300,000 in 2011, and $300,000 in 2012 associated with those sales. In 2011 Lake sold jet skis with a total price of $1,500,000 that cost Lake $900,000. Lake collected $500,000 in 2011, $400,000 in 2012, and $400,000 in 2013 associated with those sales. In 2013 Lake also repossessed $200,000 of jet skis that were sold in 2011. Those jet skis had a fair value of $75,000 at the time they were repossessed. In 2010, Lake would recognize realized gross profit of |
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10. Freda’s Florist reported the following before-tax income statement items for the year ended December 31, 2011:
All income statement items are subject to a 40% income tax rate. In its 2011 income statement, Freda’s separately stated income tax expense and total income tax expense would be |
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| 11. Lake Power Sports sells jet skis and other powered recreational equipment. Customers pay 1/3 of the sales price of a jet ski when they initially purchase the ski, and then pay another 1/3 each year for the next two years. Because Lake has little information about collectibility of these receivables, they use the installment method for revenue recognition. In 2010 Lake began operations and sold jet skis with a total price of $900,000 that cost Lake $450,000. Lake collected $300,000 in 2010, $300,000 in 2011, and $300,000 in 2012 associated with those sales. In 2011 Lake sold jet skis with a total price of $1,500,000 that cost Lake $900,000. Lake collected $500,000 in 2011, $400,000 in 2012, and $400,000 in 2013 associated with those sales. In 2013 Lake also repossessed $200,000 of jet skis that were sold in 2011. Those jet skis had a fair value of $75,000 at the time they were repossessed. In its December 31, 2011, balance sheet, Lake would report |
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| 12. Quaker State Inc. offers a new employee a lump sum signing bonus at the date of employment. Alternatively, the employee can take $8,000 at the date of employment plus $20,000 at the end of each of his first three years of service. Assuming the employee’s time value of money is 10% annually, what lump sum at employment date would make him indifferent between the two options? | ||||
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| 13. On May 1, Foxtrot Co. agreed to sell the assets of its Footwear Division to Albanese Inc. for $80 million. The sale was completed on December 31, 2011. The following additional facts pertain to the transaction: * The Footwear Division qualifies as a component of the entity according to GAAP regarding discontinued operations. * The book value of Footwear’s assets totaled $48 million on the date of the sale. * Footwear’s operating income was a pretax loss of $10 million in 2011. * Foxtrot’s income tax rate is 40%. Suppose that the Footwear Division’s assets had not been sold by December 31, 2011, but were considered held for sale. Assume that the fair value of these assets at December 31 was $80 million. In the 2011 income statement for Foxtrot Co., under discontinued operations it would report a |
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| 14. Indiana Co. began a construction project in 2011 that will provide it $150 million when it is completed in 2013. During 2011, Indiana incurred $36 million of costs and estimates an additional $84 million of costs to complete the project. Using the percentage-of-completion method, Indiana recognized _______ on the project in 2011. |
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| 15. Lucia Ltd. reported net income of $135,000 for the year ended December 31, 2011. January 1 balances in accounts receivable and accounts payable were $29,000 and $26,000 respectively. Year-end balances in these accounts were $30,000 and $24,000, respectively. Assuming that all relevant information has been presented, Lucia’s cash flows from operating activities would be | ||||
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| 16. Fenland Co. plans to retire $100 million in bonds in five years, so it wishes to create a fund by making equal investments at the beginning of each year during that period in an account it expects to earn 8% annually. What amount does Fenland need to invest each year? | ||||
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| 17. Shady Lane’s income tax payable account decreased from $14 million to $12 million during 2011. If its income tax expense was $80 million, what would be shown as an operating cash flow under the direct method? | ||||
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| 18. Misty Company reported the following before-tax items during the current year:
Misty’s effective tax rate is 40%. |
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| 19. Reliable Enterprises sells distressed merchandise on extended credit terms. Collections on these sales aren’t reasonably assured and bad debt losses can’t be reasonably predicted. It’s unlikely that repossessed merchandise will be in salable condition. Therefore, Reliable uses the cost recovery method. Merchandise costing $30,000 was sold for $55,000 in 2010. Collections on this sale were $20,000 in 2010, $15,000 in 2011, and $20,000 in 2012.
In 2010, Reliable would recognize gross profit of |
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| 20. On October 28, 2011, Mercedes Company committed to a plan to sell a division that qualified as a component of the entity according to GAAP regarding discontinued operations and was properly classified as held for sale on December 31, 2011, the end of the company’s fiscal year. The division’s loss from operations for 2011 was $2,000,000. The division’s book value and fair value less cost to sell on December 31 were $3,000,000 and $2,500,000, respectively. What before-tax amount(s) should Mercedes report as loss on discontinued operations in its 2011 income statement? |
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| 21. Indiana Co. began a construction project in 2011 that will provide it $150 million when it is completed in 2013. During 2011, Indiana incurred $36 million of costs and estimates an additional $84 million of costs to complete the project. In 2012, Indiana incurred costs of $58.5 million and estimated an additional $40.5 million in costs to complete the project. Using the percentage-of-completion method, Indiana recognized _______ on the project in 2012. |
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| 22. On May 1, Foxtrot Co. agreed to sell the assets of its Footwear Division to Albanese Inc. for $80 million. The sale was completed on December 31, 2011. The following additional facts pertain to the transaction: * The Footwear Division qualifies as a component of the entity according to GAAP regarding discontinued operations. * The book value of Footwear’s assets totaled $48 million on the date of the sale. * Footwear’s operating income was a pretax loss of $10 million in 2011. * Foxtrot’s income tax rate is 40%. Suppose that the Footwear Division’s assets had not been sold by December 31, 2011, but were considered held for sale. Assume that the fair value of these assets at December 31 was $40 million. In the 2011 income statement for Foxtrot Co., it would report a loss from discontinued operations of |
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23. Misty Company reported the following before-tax items during the current year:
Misty’s effective tax rate is 40%. What would be Misty’s income before extraordinary item(s)? |
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| 24. Kunkle Company wishes to earn 20% annually on its investments. If it makes an investment that equals or exceeds that rate, it considers it a success. Assume that it invests $2 million and gets $500,000 in return at the end of each year for x years. What is the minimum value of x for which it will consider the investment a success? Assume that it can’t invest for fractional parts of a year. | ||||
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| 25. Hong Kong Clothiers reported revenue of $5,000,000 for its year ended December 31, 2011. Accounts receivable at December 31, 2010 and 2011, were $320,000 and $355,000, respectively. Using the direct method for reporting cash flows from operating activities, Hong Kong Clothiers would report cash collected from customers of | ||||
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ECONOMIC RESOURCES 1
| 1. Alliance Software began 2011 with accounts receivable of $115,000. All sales are made on credit. Sales and cash collections from customers for the year were $780,000 and $700,000, respectively. Cost of goods sold for the year was $450,000. What was Alliance’s receivables turnover ratio (rounded) for 2011? | ||||
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| 2. Chez Fred Bakery estimates the allowance for uncollectible accounts at 3% of the ending balance of accounts receivable. During 2011, Chez Fred’s credit sales and collections were $125,000 and $131,000, respectively. What was the balance of accounts receivable on January 1, 2011, if $180 in accounts receivable were written off during 2011 and if the allowance account had a balance of $750 on 12/31/11? | ||||
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3. Data below for the year ended December 31, 2011, relates to Houdini Inc. Houdini started business January 1, 2011, and uses the LIFO retail method to estimate ending inventory.
Current period cost-to-retail percentage is |
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4. Sullivan Corporation has determined its year-end inventory on a FIFO basis to be $500,000. Information pertaining to that inventory is as follows:
What should be the carrying value of Sullivan’s inventory? |
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| 5. Ramen, Inc., adopted dollar-value LIFO (DVL) as of January 1, 2011, when it had a cost inventory of $600,000. Its inventory as of December 31, 2011, was $667,800 at year-end costs and the cost index was 1.06. What was DVL inventory on December 31, 2011? | ||||
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6. Cashmere Soap Corporation had the following items listed in its trial balance at 12/31/11:
What amount will Cashmere Soap include in its year-end balance sheet as cash and cash equivalents? |
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7. On July 8, a fire destroyed the entire merchandise inventory on hand of Larrenaga Wholesale Corporation. The following information is available:
What is the estimated inventory on July 8 immediately prior to the fire? |
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| 8. Baker Inc. acquired equipment from the manufacturer on 10/1/11 and gave a noninterest-bearing note in exchange. Baker is obligated to pay $918,000 on 4/1/12 to satisfy the obligation in full. If Baker accrued interest of $9,000 on the note in its 2011 year-end financial statements, what is its imputed annual interest rate? | ||||
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| 9. False Value Hardware began 2011 with a credit balance of $32,000 in the allowance for sales returns account. Sales and cash collections from customers during the year were $650,000 and $610,000, respectively. False Value estimates that 6% of all sales will be returned. During 2011, customers returned merchandise for credit of $28,000 to their accounts.
What is the balance in the allowance for sales returns account at the end of 2011? |
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| 10. Prunedale Co. uses a periodic inventory system. Beginning inventory on January 1 was overstated by $32,000, and its ending inventory on December 31 was understated by $62,000. These errors were not discovered until the next year. As a result, Prunedale’s cost of goods sold for this year was | ||||
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| 11. Data related to the inventories of Costco Medical Supply is presented below:
In applying the LCM rule, the inventory of surgical supplies would be valued at |
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| 12. Oswego Clay Pipe Company sold $46,000 of pipe to Southeast Water District #45 on April 12 of the current year with terms 1/15, n/60. Oswego uses the gross method of accounting for cash discounts.
What entry would Oswego make on June 10, assuming the customer made the correct payment on that date?
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13. Nu Company reported the following pretax data for its first year of operations.
What is Nu’s net income if it elects LIFO? |
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| 14. GG, Inc., uses LIFO. GG disclosed that if FIFO had been used, inventory at the end of 2011 would have been $15 million higher than the difference between LIFO and FIFO at the end of 2010. Assuming GG has a 40% income tax rate, its reported | ||||
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| 15. At December 31, 2010, Gill Co reported accounts receivable of $216,000 and an allowance for uncollectible accounts of $8,400. During 2011, accounts receivable increased by $22,000, and $7,800 of bad debts were written off. An analysis of Gill Co.’s December 31, 2011, accounts receivable suggests that the allowance for uncollectible accounts should be 3% of accounts receivable. Bad debt expense for 2011 would be | ||||
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16. Data below for the year ended December 31, 2011, relates to Houdini Inc. Houdini started business January 1, 2011, and uses the LIFO retail method to estimate ending inventory.
Estimated ending inventory at retail is |
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