Question 1 (25 points)
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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)
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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)
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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)
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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)
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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)
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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)
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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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