Strayer acc305 Final Exam Part 1 and part 2

Question 1

Which of the following statements is true when comparing the accounting for leasing transactions under U.S. GAAP with IFRS?

The IFRS leasing standard is the subject of over 30 interpretations since its issuance in 1982.

IFRS for leases is more "rules-based" than U.S. GAAP and includes many bright-line criteria to determine ownership.

IFRS does not provide detailed guidance for leases of natural resources,sale-leasebacks, and leveraged leases.

IFRS requires that companies provide a year-by-year breakout of future noncancelable lease payments due in years 1 through 5.

Question 2

A lessor with a sales-type lease involving an unguaranteed residual value available to the lessor at the end of the lease term will report sales revenue in the period of inception of the lease at which of the following amounts?

The minimum lease payments plus the unguaranteed residual value.

The present value of the minimum lease payments.

The cost of the asset to the lessor, less the present value of any unguaranteed residual value.

The present value of the minimum lease payments plus the present value of the unguaranteed residual value.

Question 3

Which of the following is an advantage of leasing?

Off-balance-sheet financing

Less costly financing

100% financing at fixed rates

All of these

Question 4

Which of the following is a correct statement of one of the capitalization criteria?

The minimum lease payments (excluding executory costs) equal or exceed 90% of the fair value of the leased property.

The lease transfers ownership of the property to the lessor.

The lease contains a purchase option.

The lease term is equal to or more than 75% of the estimated economic life of the leased property.

Question 5

Hull Co. leased equipment to Riggs Company on May 1, 2013. At that time the collectibility of the minimum lease payments was not reasonably predictable. The lease expires on May 1, 2014. Riggs could have bought the equipment from Hull for $4,000,000 instead of leasing it. Hull's accounting records showed a book value for the equipment on May 1, 2010, of $3,500,000. Hull's depreciation on the equipment in 2013 was $450,000. During 2013, Riggs paid $900,000 in rentals to Hull for the 8-month period. Hull incurred maintenance and other related costs under the terms of the lease of $80,000 in 2013. After the lease with Riggs expires, Hull will lease the equipment to another company for two years.

Ignoring income taxes, the amount of expense incurred by Riggs from this lease for the year ended December 31, 2013, should be

$360,000.

$900,000.

$296,000.

$656,000.

Question 6

Metro Company, a dealer in machinery and equipment, leased equipment to Sands, Inc., on July 1, 2013. The lease is appropriately accounted for as a sale by Metro and as a purchase by Sands. The lease is for a 10-year period (the useful life of the asset) expiring June 30, 2023. The first of 10 equal annual payments of $828,000 was made on July 1, 2013. Metro had purchased the equipment for $5,200,000 on January 1, 2013, and established a list selling price of $7,200,000 on the equipment. Assume that the present value at July 1, 2013, of the rent payments over the lease term discounted at 8% (the appropriate interest rate) was $6,000,000.

What is the amount of profit on the sale and the amount of interest income that Metro should record for the year ended December 31, 2013?

$0 and $206,880

$800,000 and $240,000

$1,200,000 and $480,000

$800,000 and $206,880

Question 7

Haystack, Inc. owns 30% of the outstanding stock of Hallmark, Inc. and accordingly uses the equity method to account for its investment. The stock was purchased on January 1, 2013 for $780,000. During the year ended December 31, 2013, Hallmark, Inc. reported the following:

Dividends declared and paid $ 400,000

Net income 2,400,000

Haystack, Inc. uses the FIFO method for costing its inventories, while Hallmark, Inc. uses the LIFO method to conform with other companies in its industry. Haystack, Inc. determines that if Hallmark, Inc. had used the FIFO method, its income would have been $350,000 higher during 2013. What is the balance in the Investment in Hallmark, Inc. that will be reported on Haystack, Inc.'s balance sheet at December 31, 2013 assuming Haystack, Inc. follows U.S. GAAP for its external financial reporting?

$1,725,000

$1,485,000

$1,275,000

$1,380,000

Question 8

Link Co. purchased machinery that cost $1,350,000 on January 4, 2011. The entire cost was recorded as an expense. The machinery has a nine-year life and a $90,000 residual value. The error was discovered on December 20, 2013. Ignore income tax considerations.

Link's income statement for the year ended December 31, 2013, should show the cumulative effect of this error in the amount of

$930,000.

$1,210,000.

$1,070,000.

$0.

Question 9

Link Co. purchased machinery that cost $1,350,000 on January 4, 2011. The entire cost was recorded as an expense. The machinery has a nine-year life and a $90,000 residual value. The error was discovered on December 20, 2013. Ignore income tax considerations.

Before the correction was made, and before the books were closed on December 31, 2013, retained earnings was understated by

$1,350,000.

$1,070,000.

$1,210,000.

$930,000.

Question 10

Which type of accounting change should always be accounted for in current and future periods?

change in accounting estimate

correction of an error

change in reporting entity

change in accounting principle

Question 11

Langley Company's December 31 year-end financial statements contained the following errors:

Dec. 31, 2012 Dec. 31, 2013

Ending inventory $15,000 understated $22,000 overstated

Depreciation expense 4,000 understated

An insurance premium of $36,000 was prepaid in 2012 covering the years 2012, 2013, and 2014. The prepayment was recorded with a debit to insurance expense. In addition, on December 31, 2013, fully depreciated machinery was sold for $19,000 cash, but the sale was not recorded until 2014. There were no other errors during 2013 or 2014 and no corrections have been made for any of the errors. Ignore income tax considerations.

What is the total net effect of the errors on the amount of Langley's working capital at December 31, 2013?

Working capital understated by $24,000

Working capital overstated by $3,000

Working capital overstated by $10,000

Working capital understated by $9,000

Question 12

Which of the following disclosures is required for a change from LIFO to FIFO?

the cumulative effect on prior years, net of tax, in the current retained earnings statement

the justification for the change

restated prior year income statements

All of these are required.

Question 13

The net income for the year ended December 31, 2013, for Oliva Company was $1,500,000. Additional information is as follows:

Depreciation on plant assets $600,000

Amortization of leasehold improvements 340,000

Provision for doubtful accounts on short-term receivables 120,000

Provision for doubtful accounts on long-term receivables 100,000

Interest paid on short-term borrowings 80,000

Interest paid on long-term borrowings 60,000

Based solely on the information given above, what should be the net cash provided by operating activities in the statement of cash flows for the year ended December 31, 2013?

$2,560,000

$2,640,000

$2,800,000

$2,660,000

Question 14

The balance in retained earnings at December 31, 2012 was $720,000 and at December 31, 2013 was $582,000. Net income for 2013 was $500,000. A stock dividend was declared and distributed which increased common stock $250,000 and paid-in capital $110,000. A cash dividend was declared and paid.

The amount of the cash dividend was

$388,000.

$248,000.

$638,000.

$278,000.

Question 15

The primary purpose of the statement of cash flows is to provide information

about the operating, investing, and financing activities of an entity during a period.

about the entity's ability to meet its obligations, its ability to pay dividends, and its needs for external financing.

about the cash receipts and cash payments of an entity during a period.

that is useful in assessing cash flow prospects.

Question 16

In reporting extraordinary transactions on a statement of cash flows (indirect method), the

net of tax amount of an extraordinary gain should be deducted from net income.

net of tax amount of an extraordinary gain should be added to net income.

gross amount of an extraordinary gain should be added to net income.

gross amount of an extraordinary gain should be deducted from net income.

Question 17

The amortization of bond premium on long-term debt should be presented in a statement of cash flows (using the indirect method for operating activities) as a(n)

addition to net income.

financing activity.

deduction from net income.

investing activity.

Question 18

Surf Company follows IFRS for its external financial reporting. The following amounts were available at December 31, 2013:

Interest paid $22,000

Dividends paid 16,000

Taxes paid 37,000

Under IFRS, what is the maximum amount that could be reported for cash used by operating activities for Surf Company for the year ended December 31, 2013?

$53,000

$38,000

$75,000

$59,000

Question 19

Correct.

Information for Ramirez Corp. is given below:

Ramirez Corp.

Balance Sheet

December 31, 2013

Assets Equities

Cash $100,000 Accounts payable $210,000

Accounts receivable (net) 650,000 Federal income tax payable 63,000

Inventories 813,000 Miscellaneous accrued payables 75,000

Plant and equipment, Bonds payable (10%, due 2015)625,000

net of depreciation 661,000 Preferred stock ($100 par, 6%

Patents87,000 cumulative nonparticipating) 250,000

Other intangible assets25,000 Common stock (no par, 20,000

Total Assets $2,336,000 shares authorized, issued

and outstanding) 375,000

Retained earnings 813,000

Treasury stock-500 shares

of preferred (75,000)

Total Equities $2,336,000

Ramirez Corp.

Income Statement

Year Ended December 31, 2013

Net sales $3,000,000

Cost of goods sold 2,000,000

Gross profit 1,000,000

Operating expenses (including bond interest expense)500,000

Income before income taxes 500,000

Income tax 150,000

Net income $350,000

Additional information:

There are no preferred dividends in arrears, the balances in the Accounts Receivable and Inventory accounts are unchanged from January 1, 2013, and there were no changes in the Bonds Payable, Preferred Stock, or Common Stock accounts during 2013. Assume that preferred dividends for the current year have not been declared.

The rate of return for 2013 based on the year-end common stockholders' equity was

350 ÷ 1,173.

350 ÷ 1,188.

335 ÷ 1,173.

335 ÷ 1,188.

Question 20

A$n example of an inventory accounting policy that should be disclosed in a Summary of Significant Accounting Policies is the

method used for pricing inventory.

composition of inventory into raw materials, work-in-process, and finished goods.

major backlogs of inventory orders.

amount of income resulting from the involuntary liquidation of LIFO.

Question 21

During 2013, Quirk, Incorporated purchased $3,400,000 of inventory. The cost of goods sold for 2013 was $3,600,000 and the ending inventory at December 31, 2013, was $400,000. What was the inventory turnover for 2013?

7.2.

6.4.

9.0.

6.0.

Question 22

Correct.

If the financial statements examined by an auditor lead the auditor to issue an opinion that contains an exception that is not of sufficient magnitude to invalidate the statement as a whole, the opinion is said to be

qualified.

unqualified.

adverse.

exceptional.

Question 23

Correct.

The rate of return on common stock equity is calculated by dividing

net income by ending common stockholders' equity.

net income less preferred dividends by average common stockholders' equity.

net income less preferred dividends by ending common stockholders' equity.

net income by average common stockholders' equity.

Question 24

Correct.

Companies should disclose all of the following in interim reports except

basic and diluted earnings per share.

changes in accounting principles.

post-balance-sheet events.

seasonal revenue, cost, or expenses.

Question 25

Correct.

IFRS requires which of the following disclosures regarding related parties?

I. The name of the related party.

II. The amount and terms of the outstanding balance.

III. Doubtful amounts related to the outstanding balance.

I and II.

I and III.

I, II, and III.

II and III.

final exam part 2

Final Part 2

Question 1 Correct Your answer has been saved and sent for grading. See Gradebook for score details. Quigley Co. bought a machine on January 1, 2013 for $1,399,500. It had a $119,500 estimated residual value and a 8-year life. An expense account was debited on the purchase date. Quigley uses straight-line depreciation. This was discovered in 2015. Prepare the entries related to the machine for 2015. (If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 5,275.) Account Titles and Explanation Debit Credit Equipment 1399500 Retained Earnings 1079500 Accumulated Depreciation-Equipment 320000 (To correct the error.) Depreciation Expense 160000 Accumulated Depreciation-Equipment 160000 (To record depreciation expense.)

Top of Form Question 2 The condensed financial statements of Marks Company for the years 2014-2015 are presented below: Marks Company Comparative Balance Sheets As of December 31, 2014 and 2015 2015 2014 Cash $420,000 $156,000 Accounts receivable (net) 366,000 307,000 Inventories 378,000 342,000 Plant and equipment 1,805,000 1,116,000 Accumulated depreciation (260,000 ) (195,000 ) $2,709,000 $1,726,000 Accounts payable $342,000 $161,000 Dividends payable -0- 43,000 Bonds payable 404,000 -0- Common stock ($10 par) 1,520,000 1,240,000 Retained earnings 443,000 282,000 $2,709,000 $1,726,000 Additional data: Market value of stock at 12/31/15 is $80 per share. Marks sold 34,000 shares of common stock at par on July 1, 2015. Marks Company Condensed Income Statement For the Year Ended December 31, 2015 Sales revenue $2,444,000 Cost of goods sold 1,640,000 Gross profit 804,000 Administrative and selling expenses 502,000 Net income $302,000 Compute the following financial ratios by placing the proper amounts for numerators and denominators. (Round per unit answers to 2 decimal places, e.g. 52.75.) Bottom of Form

Question 3 Correct

Hughey Co. as lessee records a capital lease of machinery on January 1, 2014. The seven annual lease payments of $700,300 are made at the end of each year. The present value of the lease payments at 10% is $3,410,800. Hughey uses the effective-interest method of amortization and sum-of-the-years'-digits depreciation (no residual value).

Your answer has been saved and sent for grading. See Gradebook for score details. Prepare an amortization table for 2014 and 2015. (Round answers to 0 decimal places e.g. 5,275.) Hughey Co. Lease Amortization Schedule Date Annual Lease Receipt/Payment Interest on Receivable/Liability Reduction in Receivable/Liability Lease Receivable/Liability 1/1/14 $ 3410800

Your answer has been saved and sent for grading. See Gradebook for score details. Prepare all of Hughey's journal entries for 2014. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places e.g. 5,275.) 852700

Question 4 Your answer has been saved and sent for grading. See Gradebook for score details. Milner Co. sold a machine that cost $74,000 and had a book value of $33,000 for $51,000. Data from Milner's comparative balance sheets are: 12/31/15 12/31/14 Machinery $804,000 $672,000 Accumulated depreciation 192,000 112,000 Complete the cash flow statement below: (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).) Milner Co. Partial Statement of Cash Flows For the Year Ended December 31, 2015 Cash flows from operating activities Depreciation Expense $ 121000 Gain on Sale of Machinery -18000 94000 Cash flows from investing activities Sale of Machinery 51000 Purchase of Machinery -206000 -155000

Top of Form

Question 4

Cash inflow from investing activities (Sales price)			$51,000
Sales price			$51,000
Book value			33,000
Gain on sale			$18,000		Deduct from net income
Cost			$74,000
Book value			33,000
Accumulated depreciation			41,000
Add increase in accumulated depreciation			80,000
Depreciation expense			$121,000		Add to net income
Cost of machine sold			$74,000
Add increase in machinery			132,000
Purchase of machinery			$206,000		Cash outflow from investing activities

Bottom of Form

Answer

Close

Top of Form

Question 4

Milner Co. sold a machine that cost $74,000 and had a book value of $33,000 for $51,000. Data from Milner's comparative balance sheets are:

		12/31/15		12/31/14
Machinery		$804,000		$672,000
Accumulated depreciation		192,000		112,000

Complete the cash flow statement below: (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

Milner Co. Partial Statement of Cash Flows For the Year Ended December 31, 2015
Cash flows from operating activities
Cash flows from investing activities

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