COMPREHENSIVE EXAMINATION B

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COMPREHENSIVE EXAMINATION B Problem B-I — Multiple Choice — Cash and Receivables. Choose the best answer for each of the following questions and enter the identifying letter in the space pro ... vided. ____ 1. When should the loss on an uncollectible account receivable be recorded as an expense for accrual accounting purposes? a. When it is determined that an account cannot be collected. b. In the same period in which the sale on account occurs. c. When the balance is past due for more than 3 months. d. When a lawyer indicates that collection efforts would cost more than the account is worth. ____ 2. How should unearned discounts, finance charges, and interest included in the face amount of installment accounts receivable be presented in the balance sheet? a. As a current liability. b. As a deduction from the related installment accounts receivable. c. Within the net amount of installment accounts receivable. d. As an addition to the related installment accounts receivable. ____ 3. Durler Company's account balances at December 31 for Accounts Receivable and the related Allowance for Doubtful Accounts are $800,000 and $13,000, respectively. From an analysis of accounts receivable, it is estimated that $28,000 of the December 31 receivables will be uncollectible. After adjustment for the above facts, the net realizable value of accounts receivable would be a. $800,000. b. $787,000. c. $759,000. d. $772,000. ____ 4. Which group of items listed below should be included in the cash account? a. Silver coins, postage stamps, demand deposits, personal checks. b. Promissory notes, demand deposits, money orders, silver coins. c. Money orders, postdated checks, personal checks, time deposits. d. Silver coins, money orders, demand deposits, personal checks. ____ 5. Which of the following methods of accounting for uncollectible accounts does not properly match costs with revenues? a. Percentage of sales b. Percentage of receivables c. Direct write-off d. Aging schedule ____ 6. Certain information relative to the 2012 operations of Ball Co. follows: Accounts receivable, January 1, 2012 $48,000 Accounts receivable collected during 2012 92,000 Cash sales during 2012 24,000 Inventory, January 1, 2012 36,000 Inventory, December 31, 2012 33,000 Purchases of inventory during 2012 80,000 Gross profit on sales 27,000 What is Ball's accounts receivable balance at December 31, 2012? a. $36,000. b. $42,000. c. $48,000. d. $66,000. Problem B-II — Lower of Cost or Market Presented below is data relative to the 12/31/12 inventory of Lance Company: Number Units Original Cost Total Current Item In Inventory Per Unit Original Cost Replacement Cost A 5,000 $1.09 $5,450 $1.08 B 5,000 1.30 6,500 1.15 C 5,000 1.50 7,500 1.05 D 5,000 1.60 8,000 1.65 E 5,000 1.80 9,000 1.70 Total 25,000 $36,450 Appropriate Upper Lower Inventory Limit Limit Designated Valuation Item ("Ceiling") ("Floor") Market (Totals) A B C D E Total Additional Data: Selling price is $2.00/unit for all items. Disposal costs amount to 10% of selling price and a "normal" profit is 35% of selling price. Instructions Complete the last four columns above. Problem B-III — Notes Receivable. On December 31, 2011 Berry Corporation sold some of its product to Flynn Company, accepting a 3%, four-year promissory note having a maturity value of $500,000 (interest payable annually on December 31). Berry Corporation pays 6% for its borrowed funds. Flynn Company, however, pays 8% for its borrowed funds. The product sold is carried on the books of Berry at a manufactured cost of $310,000. Assume Berry uses a perpetual inventory system. Instructions (a) Prepare the journal entries to record the transaction on the books of Berry Corporation at December 31, 2011. (Assume that the effective interest method is used. Use the interest tables below and round to the nearest dollar.) (b) Make all appropriate entries for 2012 on the books of Berry Corporation. (c) Make all appropriate entries for 2013 on the books of Berry Corporation. For Use on Problem B-III Table 1 Future Value of 1 Periods 2% 3% 4% 6% 8% 1 1.02000 1.03000 1.04000 1.06000 1.08000 2 1.04040 1.06090 1.08160 1.12360 1.16640 3 1.06121 1.09273 1.12486 1.19102 1.25971 4 1.08243 1.12551 1.16986 1.26248 1.36049 5 1.10408 1.15927 1.21665 1.33823 1.46933 Table 2 Present Value of 1 Periods 2% 3% 4% 6% 8% 1 0.98039 0.97087 0.96154 0.94340 0.92593 2 0.96117 0.94260 0.92456 0.89000 0.85734 3 0.94232 0.91514 0.88900 0.83962 0.79383 4 0.92385 0.88849 0.85480 0.79209 0.73503 5 0.90573 0.86261 0.82193 0.74726 0.68058 Table 3 Future Value of Ordinary Annuity of 1 Periodic Rents 2% 3% 4% 6% 8% 1 1.00000 1.00000 1.00000 1.00000 1.00000 2 2.02000 2.03000 2.04000 2.06000 2.08000 3 3.06040 3.09090 3.12160 3.18360 3.24640 4 4.12161 4.18363 4.24646 4.37462 4.50611 5 5.20404 5.30914 5.41632 5.63709 5.86660 Table 4 Present Value of Ordinary Annuity of 1 Periodic Rents 2% 3% 4% 6% 8% 1 0.98039 0.97087 0.96154 0.94340 0.92593 2 1.94156 1.91347 1.88609 1.83339 1.78326 3 2.88388 2.82861 2.77509 2.67301 2.57710 4 3.80773 3.71710 3.62990 3.46511 3.31213 5 4.71346 4.57971 4.45182 4.21236 3.99271 Problem B-IV — FIFO vs. LIFO. In comparing and contrasting FIFO vs. LIFO inventory procedures, the following listing was developed. You are to complete the tabulation with an answer of "YES" or "NO" as demonstrated by the first item. Any combination of yes-no answers is possible in each situation. FIFO LIFO 0. Usually matches the actual physical flow of goods. Yes_ No__ 1. Emphasizes the income statement in that it matches the more recent costs with revenue. ______ ______ 2. Defers tax payments in times of rising prices. ______ ______ 3. Possibility of liquidating the base may be a significant negative aspect. ______ ______ 4. Will probably not be adopted if prices are expected to decline. ______ ______ 5. Emphasizes the balance sheet in that the more recent costs are contained in the inventory account. ______ ______ 6. Can use price indexes to cost layers. ______ ______ 7. Switching to this method could cause problems in the equity markets, with loan covenants, etc. ______ ______ 8. Income figure more accurately reflects cash available for dividends, investments, etc. ______ ______ 9. Tends to smooth income in periods of fluctuating prices. ______ ______ 10. Income figure is more "real" in that it doesn't contain "paper profits." ______ ______ 11. A change to this method must be justified (i.e., to the auditor) other than solely on the basis of the tax effect. ______ ______ 12. Perpetual inventory results may be different from periodic inventory results. ______ ______ 13. Is acceptable to the IRS (i.e., for income tax purposes). ______ ______ 14. Gives lower profits when prices rise. ______ ______ 15. In a period of rising prices has an adverse effect on assets, working capital, and stockholders' equity. ______ ______ 16. Quick inventory turnover may have somewhat of a mitigating effect on some of the method's claimed disadvantages. ______ ______ 17. Improves cash flow in periods of rising prices. ______ ______ 18. If used for tax purposes, it must be used for financial reporting purposes. ______ ______ 19. Somewhat opens door for profit manipulation and may cause poor purchase decisions. ______ ______ 20. Is a current value, rather than a historical cost, valuation method. ______ ______ Problem B-V — Year-end Inventory Cutoff. Abel Company's business year ends on December 31. Listed below are purchase transactions which occurred during the last few days of 2012 or during the first few days of 2013. The inventory, determined by physical count, was taken after the close of business on December 31, 2012. The only adjusting entry recorded to date has been to enter the December 31 physical inventory on the books and to remove the beginning inventory. Instructions (a) On the accompanying chart, indicate the effect of each of these transactions on the ending inventory and on reported net income for 2012, by writing the words overstated, understated, or no effect in the appropriate column. Both columns must be answered for each transaction. (b) Prepare all necessary correcting entries for 2012. (c) Indicate which of the correcting entries must be reversed in 2011 by preparing the necessary reversing entries. 12/31/12 Physical 2012 Inventory Income 1. An invoice for $9,000, terms f.o.b. shipping point, was received and entered December 30. The invoice shows that the merchandise was shipped December 29, and the receiving report indicates the merchandise was received January 2. _______ _______ 2. An invoice for $300, terms f.o.b. shipping point, was received and entered December 30. The invoice shows that merchandise was shipped December 29, and the receiving report shows the merchandise was received December 31. _______ _______ 3. An invoice for $4,000, terms f.o.b. shipping point, was received and entered January 2. The invoice shows the merchandise was shipped December 30, and the receiving report indicates the merchandise was received December 31. _______ _______ 4. An invoice for $800, terms f.o.b. destination, was received and entered December 30. The receiving report shows the merchandise was received January 2. _______ _______ 5. An invoice for $500, terms f.o.b. destination, was received and entered December 29. The receiving report indicates that the merchandise was received December 31. _______ _______ 6. An invoice for $1,500, terms f.o.b. destination, was received and entered January 2. The receiving report indicates the merchandise was received December 31. _______ _______ 7. Merchandise costing $12,000 and with a selling price of $18,000 was on consignment to Maris Distributing Company and was on that company's premises on December 31. No entry has been made for the consignment. _______ _______ Problem B-VI — Conventional and LIFO Retail Method.* *Note to Instructor. Part B is based on Appendix 9-A. A. Landmark Book Store uses the conventional retail method. Instructions Given the following data, prepare a neat, labeled schedule showing the computation of the cost of inventory on hand at 12/31/12. Cost Retail Inventory 1/1/12 $ 28,900 $ 40,000 Purchases & [Show More]

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