.jpg” alt=”University of maryland university college”> Comprehensive Final Exam (All Chapters) Intermediate Accounting II Acct 311 Summer 2015 Version B Student: _________________________________ Date: July 10 – 13 2014 Administrative Notes: This exam is open book & open notes. A calulator may be used. Write directly on this exam (or at your option you may present your answers in an excel file – this is optional and not a requirement). The deadline for submission is 11:00 P.M. (EDT) July 13 Late submissions will not be accepted without prior approval. Show your work; use properly labelled solutions in good form Good luck!! Course grades will be posted no later than Wednesday July 16 This final exam consists of the following: Component Points Problems 1 to 10 are worth a total of 40 points. Record your answers directly after the questions (or as an option in excel). Each problem is allocated a number of points; allocate your time accordingly. 40 30 multiple choice questions allocated 2 points each. 60 Total Points 100 6.1 1. Lewis Inc. began operations in January 2013. For certain of its property sales Lewis recognizes income in the period of sale for financial reporting purposes. However for income tax purposes Lewis recognizes income when it collects cash from the buyer’s installment payments. In 2013 Lewis had $600 million in sales of this type. Scheduled collections for these sales are as follows: .gif”> Assume that Lewis has a 40% income tax rate and that there were no other differences in income for financial statement and tax purposes. Ignoring operating expenses what deferred tax liability would Lewis report in its year-end 2013 balance sheet? (Questions 2 – 5). Each of the four independent situations below describes a lease requiring annual lease payments of $30 000. .gif”> Required: For each situation determine the appropriate lease classification by the lessee and indicate why. (Ques 2) Situation 1 (Ques 3) Situation 2 (Ques 4) Situation 3 (Ques 5) Situation 4 6. The following information is available for Whiteside Company for 2013: Net Income $120 000 Realized gain on sale of available-for-sale securities 10 000 Unrealized holding gain arising during the period on available-for-sale securities 24 000 Reclassification adjustment for gains included in net income 8 000 Instructions 6a. Determine other comprehensive income for 2013. 6b. Compute comprehensive income for 2013 7. The following information for Rapley Enterprises is given below: December 31 2013 Assets and obligations Plan assets (at fair value) $100 000 Accumulated benefit obligation 185 000 Projected benefit obligation 200 000 Other Items Pension asset / liability January 1 2013 5 000 Contributions 60 000 Accumulated other comprehensive loss 83 950 There were no actuarial gains or losses at January 1 2013. The average remaining service life of employees is 10 years. 7a. What is the pension expense that Rapley Enterprises should report for 2013? 7b. What is the amount that Rapley Enterprises should report as its pension liability on its balance sheet as of December 31 2013? 7c. The amortization of Other Comprehensive Loss for 2014 is: 8. The following information is for Moyano Inc. for the year ended December 31 2013. Moyano had a cash and cash equivalents balance of $5 200 on January 1 2013 and $2 320 on December 31 2013. .gif”> Required: Prepare a statement of cash flows in good form for the year using the direct method for operating activities. 9 and 10. LeeCo. is a calendar-year firm with 120 million common shares outstanding throughout 2013. As part of its executive compensation plan at January 1 2012 the company had issued 12 million executive stock options permitting executives to buy 12 million shares of stock for $10 each within the next eight years but not prior to January 1 2015. The fair value of the options was estimated on the grant date to be $3 per option. The stock options qualify for tax purposes as an incentive plan. The company’s net income was $480 million in 2013. Its income tax rate is 40%. The average market price of the stock during 2013 was $12 per share. Required: 9. Determine basic earnings per share (rounded to two decimal places) for Lee in 2013. 10. Determine diluted earnings per share (rounded to two decimal places) for Lee in 2013. Multiple Choice 1. Coleman Services granted 15 million of its $1 par common shares to executives subject to forfeiture if employment is terminated within three years. The common shares have a market price of $8 per share on the grant date. Ignoring taxes what is the effect on earnings in the year after the shares are granted to executives? A. $0 B. $15 million C. $40 million D. $120 million 2. If restricted stock is forfeited because an employee leaves the company the appropriate accounting procedure is to: A. Reverse related entries previously made. B. Do nothing. C. Prepare correcting entries. D. Record an income item. 3. On January 1 2013 Russell Inc. issued stock options for 200 000 shares to a division manager. The options have an estimated fair value of $6 each. To provide additional incentive for managerial achievement the options are not exercisable unless divisional revenue increases by 6% in three years. Russell initially estimates that it is probable the goal will be achieved. Ignoring taxes what is reduction in earnings in 2013? A. $0 B. $200 000 C. $400 000 D. $1 200 000 4. On January 1 2014 Zheng Foods issued stock options for 40 000 shares to a division manager. The options have an estimated fair value of $5 each. To provide additional incentive for managerial achievement the options are not exercisable unless Zheng Foods’ stock price increases by 5% in four years. Zheng Foods initially estimates that it is not probable the goal will be achieved. How much compensation will be recorded in each of the next four years? A. $10 000 B. $45 000 C. $50 000 D. No effect 5. Which of the following results in increasing basic earnings per share? A. Paying more than carrying value to retire outstanding bonds. B. Issuing cumulative preferred stock. C. Purchasing treasury stock. D. All of these increase basic earnings per share. 6. Paige Inc declared and paid cash dividends to its common shareholders in January of the current year. The dividend: A. Will be added to the numerator of the earnings per share fraction for the current year. B. Will be added to the denominator of the earnings per share fraction for the current year. C. Will be subtracted from the numerator of the earnings per share fraction for the current year. D. Has no effect on the earnings per share for the coming year. 7. On December 31 2012 the Meisenhelder Company had 250 000 shares of common stock issued and outstanding. On March 31 2013 the company sold 50 000 additional shares for cash. Meisenhelder’s net income for the year ended December 31 2013 was $700 000. During 2013 Meisenhelder declared and paid $80 000 in cash dividends on its nonconvertible preferred stock. What is the 2013 basic earnings per share (rounded)? A. $2.16. B. $3.50. C. $3.10. D. $2.80. 8. The following information pertains to Demich’s Company’s outstanding stock for 2011: .gif”> What is the number of shares Demich should use to calculate 2011 basic earnings per share? A. 20 000. B. 22 500. C. 25 000. D. 27 000. 9. Which of the following changes would not be accounted for using the prospective approach? A. A change to LIFO from average costing for inventories. B. A change from the individual application of the LCM rule to aggregate approach. C. A change from straight-line to double-declining balance depreciation. D. A change from double-declining balance to straight-line depreciation. 10. Accounting changes occur for which of the following reasons? A. Management is being fair and consistent in financial reporting. B. Management compensation is affected. C. Debt agreements are impacted. D. All of the above. 11. Which of the following is an example of a change in accounting principle? A. A change in inventory costing methods. B. A change in the estimated useful life of a depreciable asset. C. A change in the actuarial life expectancies of employees under a pension plan. D. Consolidating a new subsidiary. 12. Velasco Co. changed from straight-line to DDB depreciation. The journal entry to record the change includes: A. A credit to accumulated depreciation. B. A debit to accumulated depreciation. C. A debit to a depreciable asset. D. The change does not require a journal entry. 13. During 2011 Hutton Co. decides to use FIFO to account for its inventory transactions. Previously it had used LIFO. A. Hutton is not required to make any accounting adjustments. B. Hutton has made a change in accounting principle requiring retrospective adjustment. C. Hutton has made a change in accounting principle requiring prospective application. D. Hutton needs to correct an accounting error. 14. A change in the residual value of equipment is treated ______________. A. currently B. prospectively C. retrospectively D. None of the above 15. Scott Company bought a copyright for $90 000 on January 1 2010 at which time the copyright had an estimated useful life of 15 years. On January 5 2013 the company determined that the copyright would expire at the end of 2016. How much should Scott record as amortization expense for this copyright for 2013? A. $14 400. B. $7 200. C. $8 000. D. $12 000. 16. Williams’ Company bought a copyright for $90 000 on January 1 2008 at which time the copyright had an estimated useful life of 15 years. On January 5 2011 the company determined that the copyright would expire at the end of 2016. How much should Williams record retrospectively as the effect of change? A. $0. B. $12 000. C. $8 000. D. $14 400. 17. Which of the following is a change in reporting entity? A. A change to the full cost method in the extractive industries. B. Switching to the completed contract method. C. A change from the cost to the equity method. D. Consolidating a subsidiary not previously included in consolidated financial statements. 18. Dopper Inc. took physical inventory at the end of 2013. Purchases that were acquired FOB destination were in transit so they were not included in the physical count. A. Dopper needs to correct an accounting error. B. Dopper has made a change in accounting principle requiring retrospective adjustment. C. Dopper is required to adjust a change in accounting estimate prospectively. D. Dopper is not required to make any accounting adjustments. 19. Heuer Company’s prepaid insurance was $8 000 at December 31 2012 and $10 000 at December 31 2013. Heuer reported insurance expense of $15 000 on the 2013 income statement. What amount would be reported in the statement of cash flows as insurance paid using the direct method? A. $13 000. B. $17 000. C. $15 000. D. $23 000. 20. Which of the following circumstances creates a future taxable amount? A. Service fees collected in advance from customers: taxable when received recognized for financial reporting when earned. B. Accrued compensation costs for future payments. C. Straight-line depreciation for financial reporting and accelerated depreciation for tax reporting. D. Investment expenses incurred to obtain tax-exempt income (not tax deductible). 21. Which of the following usually results in an increase in a deferred tax liability? A. Accrual of estimated operating expenses. B. Revenue collected in advance. C. Prepaid operating expenses. D. All of the above are correct. 22. How should earned but unbilled revenues at the balance sheet date on a long-term construction contract be disclosed if the percentage-of-completion method of revenue recognition is used? A. As construction in process in the current asset section of the balance sheet. B. As construction in process in the noncurrent asset section of the balance sheet. C. As a receivable in the noncurrent asset section of the balance sheet. D. In a note to the financial statements until the customer is formally billed for the portion of work completed. 23. For its first year of operations Daley Corporation’s reconciliation of pretax accounting income to taxable income is as follows: .gif”> Daley’s tax rate is 40%. Assume that no estimated taxes have been paid. What should Daley report as income tax payable for its first year of operations? A. $120 000. B. $114 000. C. $106 000. D. $8 000. 24. During the current year Moore Company had pretax accounting income of $45 million. Moore’s only temporary difference for the year was rent received for the following year in the amount of $15 million. Moore’s taxable income for the year would be: A. $30 million. B. $60 million. C. $50 million. D. $45 million. 25. Robinson Corporation declares and distributes a cash dividend that is a result of current earnings. How will the receipt of those dividends affect the investment account of the investor under each of the following accounting methods? Fair Value Method Equity Method A. No Effect Decrease B. Increase Decrease C. No Effect No Effect D. Decrease No Effect 26. Carlock Inc. owns 35% of Mosby Corporation. During the calendar year 2010 Mosby had net earnings of $300 000 and paid dividends of $30 000. Carlock mistakenly recorded these transactions using the fair value method rather than the equity method of accounting. What effect would this have on the investment account net income and retained earnings respectively? A. Understate overstate overstate B. Overstate understate understate C. Overstate overstate overstate D. Understate understate understate 27. The percentage-of-completion method must be used when certain conditions exist. Which of the following is not one of those necessary conditions? A. Estimates of progress toward completion revenues and costs are reasonably B. The contractor can be expected to perform the contractual obligation. C. The buyer can be expected to satisfy some of the obligations under the contract. D. The contract clearly specifies the enforceable rights of the parties the consideration to be exchanged and the manner and terms of settlement. 28. On December 1 2013 Gonzalez Corporation leased office space for 10 years at a monthly rental of $90 000. On that date Perez paid the landlord the following amounts: Rent deposit $ 90 000 First month’s rent 90 000 Last month’s rent 90 000 Installation of new walls and offices 495 000 $765 000 The entire amount of $765 000 was charged to rent expense in 2013. What amount should Gonzalez have charged to expense for the year ended December 31 2013? A. $90 000 B. $94 125 C. $184 125 D. $495 000 29. On January 1 2013 Shelley Corporation signed a ten-year noncancelable lease for certain machinery. The terms of the lease called for Shelley to make annual payments of $100 000 at the end of each year for ten years with title to pass to Shelley at the end of this period. The machinery has an estimated useful life of 15 years and no salvage value. Shelley uses the straight-line method of depreciation for all of its fixed assets. Shelley accordingly accounted for this lease transaction as a capital lease. The lease payments were determined to have a present value of $671 008 at an effective interest rate of 8%. With respect to this capitalized lease Shelley should record for 2013 A. lease expense of $100 000. B. interest expense of $44 734 and depreciation expense of $38 068. C. interest expense of $53 681 and depreciation expense of $44 734. D. interest expense of $45 681 and depreciation expense of $67 101. 30. Which of the following results in increasing basic earnings per share? A. Paying more than carrying value to retire outstanding bonds. B. Issuing cumulative preferred stock. C. Purchasing treasury stock. D. Al of these increase basic earnings per share.
