Accounting Assignment Problems

Please see instructions on the answer sheet provided before completing the quiz.
Question 1 (3 points25 minutes)
The following partial information is available from the A&O Companys income statement for the year
ended 2014:
Sales
All operating expenses except depreciation
Depreciation expense
Loss on sale of equipment
Income tax expense
Net Income

$ 940,000
624,000
60,000
26,000
42,000
145,000

In addition, partial information from A&Os Balance Sheets for the year ending 2013 and 2014 is as
follows:
2013
$94,000
41,000
8,500

Accounts Receivable
Accounts Payable for operating expenses
Income Taxes Payable

2014
$67,000
51,000
4,000

Instructions:
a) Direct Method: Calculate cash received in 2014 from customers.
b) Direct Method: Calculate cash paid for operating expenses in 2014
c) Indirect Method: Prepare the operating activities section of the statement of cash flows.
Question 2 (3 points25 minutes)
A&O Corporation contracted to build an office building for $50,000,000. Construction began in 2014 and
is expected to be completed in 2016. Data for 2014 and 2015 are:
2014
$14,600,000
25,400,000
13,900,000
13,000,000

Costs incurred to date
Estimated costs to complete
Progress billings to date
Cash collected to date

2015
$30,600,000
9,400,000
30,000,000
29,300,000

A&O uses the percentage-of-completion method.
Instructions:
(a) Calculate the gross profit recognized in 2014.
(b) Calculate the gross profit recognized in 2015.
(c) Calculate the revenue recognized in 2015.
(d) Prepare one journal entry to record the construction expense, revenue, and gross profit in 2015
Question 3 (4 points15 minutes)
Select the best answer for each of the following and write the letter corresponding to your answer in the
answer sheet provided.
1. Assume that, at year-end, the fair value of investments held by VAP Co. is $104,000 and the
carrying amount is $110,000. There is a zero prior balance in fair value adjustment account. Which of
the following statements would be correct for the year-end adjusting entry?
a.
VAP will debit $6,000 to Unrealized Holding Gain or Loss- Income if the investment is in
available for sale debt securities
b.
VAP will credit $6,000 to Unrealized Holding Gain or Loss- Income if the investment is in
available for sale debt securities

1 of 3

c.

VAP will debit $6,000 to Unrealized Holding Gain or Loss- equity if the investment is in
available for sale debt securities
d.
VAP will credit $6,000 to Unrealized Holding Gain or Loss- Income if the investment is in
trading securities
2. Which of the following statements is correct?
a.
Unrealized holding gains or losses on held to maturity debt securities are reported as a
separate component of stockholders' equity
b.
Trading securities are reported at fair value and available for sale debt securities are
reported at amortized cost
c.
Unrealized holding gains or losses on available for sale debt securities are reported as a
separate component of stockholders' equity, but such gain or losses are not recognized for held
to maturity debt securities.
d.
Held to maturity debt securities and available for sale debt securities are reported at
amortized cost.
3. Unrealized holding gains and losses on investments in equity securities accounted for using the
equity method are
a.
Recognized in net income
b.
Not recognized
c.
Recognized as other comprehensive income and as a separate component of
stockholders equity
d.
All of the above statements are incorrect.
4.
Which of the following statements is correct?
a. A refund liability is recorded by the consignee upon receipt of the goods on consignment.
b. When goods are sold with a right of return, the transaction is recorded as a repurchase
agreement.
c. Service type warranties are recorded as a separate performance obligation.
d. Assurance type warranties are recorded as a separate performance obligation.
5.
A contract modification is accounted for using a prospective approach if
a. The promised goods or services are distinct.
b. The company has the right to receive an amount equal to the standalone price.
c. The new products are not priced at the proper standalone price or if they are not distinct.
d. Both a and b are correct.
6.When using the indirect method to prepare the operating section of a statement of cash flows, which of
the following is subtracted from net income to compute cash flow from operating activities?
a. Decrease in accounts receivable.
b. Gain on sale of land.
c. Amortization of patent.
d. Increase in accounts payable.
7. Under the quantitative test, a segment is considered reportable if
a. Both the segment revenues are 10% or more of the combined revenues (excluding intersegment
revenue) of all segments, and the Identifiable assets are 10% or more of the combined assets of all
segments.
b.
Both the segment revenues are 10% or more of the combined revenues (excluding
intersegment revenue) of all segments, and the net profit (loss) is 10% or more of the combined net
profit or loss.
c. The absolute amount of a segment's profit or loss is 10% or more of the greater (in absolute
amount) of the combined operating profit of all segments or the combined operating loss of all
segments that reported a loss.
d.
Both a and b are correct.

8. Which of the following statements is correct, with respect to interim reporting?
2 of 3

a.
b.
c.
d.

Under the discrete approach each interim period is treated as an integral part of the annual report
Under the integral approach each interim period is treated as an integral part of the annual report
Under the integral approach each interim period is treated as a separate accounting period
All of the above statements are incorrect

Question 4 (5 points20 minutes)
Show computations for each of the following, and clearly show your final answer using the answer sheet
provided.

1. VAP company enters into a contract with a customer to build a factory for $1,000,000 on January
10, 2014 with a performance bonus of $100,000 if the factory is completed by August 31, 2014. The
bonus is reduced by $10,000 each week that completion is delayed. VAP commonly includes these
completion bonuses in its contracts and, based on prior experience, estimates the following
completion outcomes:
Completed by
August 31, 2014
September 7, 2014
September 14, 2014
September 21, 2014

Probability
80%
10%
7%
3%

Show calculations to determine the transaction price for this contract.

2. PVP Company sells products to customers with an unconditional right of return if they are not
satisfied. The right of returns extends 30 days. On March 10, 2014, a customer purchases $20,000
of products (cost $12.000) paying cash. Assuming that based on prior experience estimated returns
are 4%, prepare the journal entries to record (1) the sale and (2) cost of goods sold and the
estimated inventory returns.
3. The following information is provided for A&E Company, which uses the equity method.

On January 1, 2014, A&E Company acquired 100,000 shares of PVP, Inc. (representing
30 percent ownership and significant influence) common stock at a cost of $15 per share.

For the year 2014, PVP, Inc. reported net income of $500,000.

On January 28, 2015, PVP, Inc. announced and paid a cash dividend of $100,000.

For the year 2015, PVP Inc. reported a net loss of $100,000.
Calculate the balance in the Investment in PVP Stock account as of the end of 12/31/2015.
4. On December 31, 2014, A&E Co. provided the following information regarding its trading securities:
Investments
A company
B company
C company

Cost
$40,000
$25,000
$25,000

Fair Value
$36,000
$20,000
$30,000

Unrealized gain/(loss)

Totals
Previous market adjustment balance

$( 1,000)

Show computations and prepare an adjusting journal entry on December 31, 2014.

5. AM Company provided the following information on selected transactions during 2014:
Dividends paid to preferred stockholders
Loans made to other corporations
Proceeds from issuing bonds
Proceeds from issuing preferred stock
Proceeds from sale of equipment
Purchase of land by issuing bonds

$ 150,000
500,000
900,000
1,050,000
1,000,000
300,000

Show calculations for net cash provided (used) by (a) investing activities and (b) financing activities
during 2014.