saint ACC549 midterm exam 2017

Question 1 (25 points)

Listed below are several qualitative characteristics. Label the characteristic (or characteristics) that align with each statement.

a. Understandability
b. Usefulness for decision making
c. Relevance
d. Reliability
e. Predictive
f. Feedback value
g. Timely
h. Verifiable
i. Representational faithfulness
j. Neutrality
k. Comparability
l. Materiality
m. Benefits of information should exceed its cost

___ 1. Two constraints included in the hierarchy.
___ 2. For this quality, the information needs to have predictive and feedback value and be timely.
___ 3. These are the qualitative characteristics that are viewed as having the most importance.
___ 4. SFAC No. 2 indicates that to be reliable, the information needs to have these characteristics.
___ 5. Interacts with relevance and reliability to contribute to the usefulness of information.
___ 6. Two primary qualities that make accounting information useful for decision making.
___ 7. For this quality, the information must be verifiable, subject to representational faithfulness, and neutral.
___ 8. SFAC No. 2 indicates that to be relevant, the information needs to have these characteristics.

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Question 2 (25 points)

Listed below is information related to several adjusting entry situations. Assume that the accounting year ends on December 31.

a. $3,000 paid for insurance on October 1 for a one-year period (October 1 - September 30). This transaction was recorded as a debit to prepaid insurance ($3,000) and a credit to cash ($3,000).

b. Interest on bonds payable in the amount of $500 has not been recorded at December 31.

c. Rent expense in the amount of $1,200 was paid on November 1. This transaction was recorded as a debit to rent expense ($1,200) and a credit to cash ($1,200). This rent payment was for the period November 1 to January 31.

Record the original entries and the adjusting entries using T-accounts.

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Question 3 (25 points)

A partial list of accounts for Johnson and Clark, in alphabetical order, is presented below:

Accounts Payable		Interest Receivable
Accounts Receivable		Inventory¾Ending Balance
Accrued Salaries Payable		Land
Accumulated Depreciation¾Buildings		Land Held for Future Plant Site
Accumulated Depreciation¾Equipment		Loss on Sale of Equipment
Additional Paid-In Capital¾Common Stock		Marketable Securities
Allowance for Doubtful Accounts		Noncontrolling Interest
Bank Loan (long-term)		Notes Payable (long-term)
Bonds Payable		Obligations on Long-Term Loans
Buildings		Patent
Cash in Bank		Preferred Stock
Commission Expense		Premium on Bonds Payable
Common Stock		Prepaid Expenses
Current Portion of Long-Term Debt		Purchases
Equipment		Retained Earnings
FICA Taxes Payable		Sales
Franchise		Sales Salaries Expense
Goodwill		Treasury Stock
Interest Income		Unearned Rent Revenue

Prepare a consolidated balance sheet in good format, without monetary amounts, for December 31, 2012. Use the format Current Assets; Property, Plant, and Equipment; Investments; Intangibles; Current Liabilities; Long-Term Liabilities; and Stockholders' Equity. Do not use the accounts not found on the balance sheet.

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Question 4 (25 points)

The following is a partial listing of accounts for Euisara, Inc., for the year ended December 31, 2012.

Prepare a balance sheet in good format for December 31, 2012.

Finished Goods	$ 9,718
Current Maturities of Long-Term Debt	1,257
Accumulated Depreciation	9,980
Accounts Receivable	24,190
Sales Revenue	127,260
Treasury Stock	251
Prepaid Expenses	2,199
Deferred Taxes (long-term liability)	8,506
Interest Expense	2,410
Allowance for Doubtful Accounts	915
Retained Earnings	18,951
Raw Materials	9,576
Accounts Payable	19,021
Cash and Cash Equivalents	8,527
Sales Salaries Expense	872
Cost of Goods Sold	82,471
Investment in Unconsolidated Subsidiaries	3,559
Income Taxes Payable	8,356
Work In Process	1,984
Additional Paid-In Capital	9,614
Equipment	41,905
Long-Term Debt	15,258
Rent Income	2,468
Common Stock	3,895
Notes Payable (short-term)	6,156
Income Tax Expense	2,461

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Question 5 (25 points)

The income statement for Lifeline Products in single-step format follows.

Lifeline Products Income Statement For the Year Ended December 31, 2012

Revenues:
Sales	$3,000,000
Rent Income	14,000
	$3,014,000
Costs and Expenses:
Cost of Sales	2,370,000
Selling and Administrative Expenses	322,000
Interest Expense	48,000
Loss on the Sale of Plant Assets	16,000
	$2,756,000
Income Before Taxes	$ 258,000
Income Taxes	112,000
Net Income	$ 146,000
Earnings per Share	$ 7.30

a. Convert the statement to multiple-step format.

b. Recompute net income with the unusual loss removed.

c. Why may net income with the unusual loss removed be preferable to use for trend analysis?

d. Speculate on why this loss is not considered extraordinary or as a disposal of a segment.

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Question 6 (20 points)

Comparative income statements for 2012 and 2011 follow.

	2012	2011
Sales	$9,434,000	$7,862,000
Cost of Sales	7,075,400	5,660,640
Gross Profit	$2,358,600	$2,201,360
Operating Expenses	1,367,690	1,365,060
Operating Income	$ 990,910	$ 836,300
Interest Expense	157,500	126,000
Earnings Before Tax	$ 833,410	$ 710,300
Income Taxes	400,000	317,200
Net Income	$ 433,410	$ 393,100

a. Prepare a vertical common-size analysis of this statement for each year, using sales as the base.

b. Comment briefly on the changes between the two years, based on the vertical common-size statement.

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Question 7 (20 points)

Bill's Produce does 60 percent of its business during June, July, and August.

	For Year Ended	For Year Ended
	December 31, 2012	July 31, 2012
Net Sales	$700,000	$690,000

Receivables, less allowance for doubtful accounts:

Beginning of period	45,000	80,000

(allowance, January 1, $2,000; August 1, $3,000)

End of period
(allowance, December 31, $3,000;	50,000	85,000
July 31, $3,500)

a. Compute the days' sales in receivables for July 31, 2012, and December 31, 2012, based on the data above.

b. Compute the accounts receivable turnover for the period ended July 31, 2012, and December 31, 2012.

c. Comment on the results from (a) and (b).

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