Intermediate Accounting I Final Exam Booklet

Intermediate Accounting I
Final Exam Booklet
Replacement
Part A
20 Point Questions (
3 questions x 20 points = 60 total points)
Show all work.
1. The following information is provided in the 2011 annual
report to shareholders of The
BizStore:
Required: Compute U-Z in the table above.
2. Shown below is the activity for one of the products of
Random Creations:
January 1 balance, 80 units @ $50 $4,000
2a. Compute the
ending inventory and cost of goods sold assuming Random Creations
uses FIFO.
2b. Compute the ending inventory and cost of goods sold
assuming Random Creations
uses LIFO and perpetual inventory system.
2c. Compute the ending inventory and cost of goods sold
assuming Random Creations
uses LIFO and a periodic inventory system.
2d. Compute the ending inventory and cost of goods sold
assuming Random Creations
uses average cost and a periodic inventory system.
2e. Compute the ending inventory and cost of goods sold
assuming Random Creations
uses average cost and a perpetual inventory system.
3. On January 3, 2011, Michelson & Sons acquired a tract
of land just outside the city
limits. The land and existing building were purchased for
$2.4 million. Michelson paid
$400,000 and signed a noninterest-bearing note requiring the
company to pay the
remaining $2,000,000 on December 31, 2012. An interest rate
of 7% properly reflects the
time value of money for this type of loan agreement.
Transfer taxes, title insurance and
other costs totaling $24,000 were paid at closing.
During February, the old building was demolished at a cost
of $120,000, and an
additional $100,000 was paid to clear and grade the land.
Construction of a new building
began on March 1 and was completed on October 30.
Construction expenditures were as
follows:
Michelson did not borrow specifically for the construction
project, but did have the
following debt outstanding throughout 2011:
$6,000,000, 8% long-term note payable
$2,000,000, 5% long-term note payable
In December, the company purchased equipment and office
furniture and fixtures for a
lump-sum price of $800,000. The fair values of the equipment
and the furniture and
fixtures were $540,000 and $360,000, respectively. In
December, Michelson paid
$340,000 for the construction of parking lots and
landscaping.
Required:
3a. Determine the initial values of the various assets that
Michelson acquired or
constructed during 2011.
3b. How much interest expense will Michelson report in its
2011 income statement?

Part B:
4 Point Questions (10
questions x 4 points = 40 total points)
Show all work.
1. Tri Fecta, a partnership, had revenues of $360,000 in its
first year of operations. The
partnership has not collected on $35,000 of its sales, and
still owes $40,000 on $150,000
of merchandise they purchased. There was no inventory on
hand at the end of the year.
The partnership paid $25,000 in salaries. The partners
invested $40,000 in the business
and $25,000 was borrowed on a five-year note. The
partnership paid $3,000 in interest
that was the amount owed for the year and paid $8,000 for a
two-year insurance policy on
the first day of business.
Required:
1a. Compute net income for the first year for Tri Fecta.
1b. Compute the cash balance at the end of the first year
for Tri Fecta. 2. Presented below is a partial trial balance for the Messenger
Corporation at December
31, 2011.
Additional information:
1. The note receivable, along with any accrued interest, is
due on November 1, 2012.
2. The note payable is due in 2016. Interest is payable
annually.
3. The marketable securities consist of equity securities of
other corporations.
Management does not intend to sell any of the securities in
the next year.
4. Unearned revenue will be earned equally over the next
eighteen months.
Required: Determine the company’s working capital (current
assets minus current
liabilities) at December 31, 2011. 3. Paris Company reported
the following items in its December 31, 2011, year-end
adjusted trial balance:
Required: Prepare the December 31, 2011, income statement
for Paris Company starting
with income from continuing operations before income taxes.
4. Beck Construction Company began work on a new building
project on January 1, 2010.
The project is to be completed by December 31, 2012, for a
fixed price of $108 million.
The following are the actual costs incurred and estimates of
remaining costs to complete
the project that were made by Beck’s accounting staff:
Required:What amount of gross profit (or loss) would Beck
record on this project in
each year under the percentage-of-completion method? Place
answers in the spaces
provided below and show supporting computations.5. White
& Decker Corporation’s 2011 financial statements included the following
information in the long-term debt disclosure note:
The disclosure note stated that the debenture bonds were
issued late in 2006 and have a
maturity value of $500 million. The maturity value indicates
the amount that White &
Decker will pay bondholders in 2026. Each individual bond
has a maturity value (face
amount) of $1,000. Zero-coupon bonds pay no cash interest
during the term to maturity.
The company is “accreting” (gradually increasing)
the issue price to maturity value using
the bonds’ effective interest rate computed on an annual
basis.
Required:
5a. . Determine the effective interest rate on the bonds.
5b. . Determine the issue price in late 2006 of a single,
$1,000 maturity-value bond.
6. During Bricker Company’s first year of operations, credit
sales totaled $200,000 and
collections on credit sales totaled $145,000. Bricker
estimates that $1,000 of its ending
accounts receivable balance will not be collected. By
year-end, Bricker had written off
$330 of specific accounts as uncollectible.
Required:
6a. Prepare all appropriate journal entries relative to
uncollectible accounts and bad debt
expense.
6b. Show the year-end balance sheet presentation for
accounts receivable.
7. Chavez Inc adopted dollar-value LIFO on January 1, 2011,
when the inventory value
was $850,000. The December 31, 2011, ending inventory at
year-end cost was $950,000
and the cost index for the year is 1.08.
Required:
Compute the dollar-value LIFO inventory valuation (rounded)
for the December 31, 2011,
inventory. 8. Penfold’s Paints uses the average cost retail
method to estimate its ending inventories.
The following data has been summarized for the year 2011:

Required: Compute the cost-to-retail percentage used by
Penfold’s Paints.
9. Calegari Mining paid $2 million to obtain the rights to
operate a coal mine in
Tennessee. Costs of exploring for the coal deposit totaled
$1,500,000 and development
costs of $5 million were incurred in preparing the mine for
extraction, which began on
January 2, 2011. After the coal is extracted in
approximately five years, Calegari is
obligated to restore the land to its original condition. The
company’s controller has
provided the following three cash flow possibilities for the
restoration costs:
The company’s credit-adjusted, risk-free rate of interest is
7%, and its fiscal year ends on
December 31.
Required:
9a.. What is the initial cost of the coal mine? (Round
computations to nearest whole
dollar.)
9b. . How much accretion expense will Calegari report in its
2011 and 2012 income
statements?
9c. . What is the carrying value (book value) of the asset
retirement obligation that
Calegari will report in its 2011 and 2012 balance sheets?
9d. . Assume that actual restoration costs incurred in 2016
totaled $1,370,000. What
amount of gain or loss will Calegari recognize on retirement
of the liability? 10. On June 30, 2009, Mobley Corporation acquired a patent
for $4 million. The patent
was estimated to have an eight-year life and no residual
value. Mobley uses the straightline
method of amortization for intangible assets. At the
beginning of January 2011,
Mobley successfully defended its patent against
infringement. Litigation costs totaled
$650,000.
Required:
10a.. Calculate patent amortization for 2009 and 2010.
10b. Prepare the journal entry to record the 2011 litigation
costs.
10c. Calculate amortization for 2011.
10d. Repeat requirements 2 and 3 assuming that Mobley
prepares its financial statements
according to International Financial Reporting Standards.