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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