Strayer acc305 Final Exam Part 1 and part 2

Creation of financial plan

September 26, 2018

ACT 325 Portfolio Project Description Your portfolio

September 26, 2018

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

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 Ã· 1,173.

350 Ã· 1,188.

335 Ã· 1,173.

335 Ã· 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 2Final Part 2

Question
1 Correct

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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

.gif” alt=”http://edugen.wiley.com/edugen/art2/common/pixel.gif”>Equipment

.gif” alt=”http://edugen.wiley.com/edugen/art2/common/pixel.gif”>1399500

.gif” alt=”http://edugen.wiley.com/edugen/art2/common/pixel.gif”>

.gif” alt=”http://edugen.wiley.com/edugen/art2/common/pixel.gif”>Retained Earnings

.gif” alt=”http://edugen.wiley.com/edugen/art2/common/pixel.gif”>

.gif” alt=”http://edugen.wiley.com/edugen/art2/common/pixel.gif”>1079500

.gif” alt=”http://edugen.wiley.com/edugen/art2/common/pixel.gif”>Accumulated Depreciation-Equipment

.gif” alt=”http://edugen.wiley.com/edugen/art2/common/pixel.gif”>

.gif” alt=”http://edugen.wiley.com/edugen/art2/common/pixel.gif”>320000

(To
correct the error.)

.gif” alt=”http://edugen.wiley.com/edugen/art2/common/pixel.gif”>Depreciation Expense

.gif” alt=”http://edugen.wiley.com/edugen/art2/common/pixel.gif”>160000

.gif” alt=”http://edugen.wiley.com/edugen/art2/common/pixel.gif”>

.gif” alt=”http://edugen.wiley.com/edugen/art2/common/pixel.gif”>Accumulated Depreciation-Equipment

.gif” alt=”http://edugen.wiley.com/edugen/art2/common/pixel.gif”>

.gif” alt=”http://edugen.wiley.com/edugen/art2/common/pixel.gif”>160000

(To
record depreciation expense.)

.gif” alt=”http://edugen.wiley.com/edugen/art2/common/pixel.gif”>

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

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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).

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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

$.gif” alt=”http://edugen.wiley.com/edugen/art2/common/pixel.gif”>
3410800

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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.)

.gif” alt=”http://edugen.wiley.com/edugen/art2/common/pixel.gif”>852700

Question
4

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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

.gif” alt=”http://edugen.wiley.com/edugen/art2/common/pixel.gif”>Depreciation Expense

$.gif” alt=”http://edugen.wiley.com/edugen/art2/common/pixel.gif”> 121000

.gif” alt=”http://edugen.wiley.com/edugen/art2/common/pixel.gif”>Gain on Sale of Machinery

.gif” alt=”http://edugen.wiley.com/edugen/art2/common/pixel.gif”>-18000

.gif” alt=”http://edugen.wiley.com/edugen/art2/common/pixel.gif”>94000

Cash
flows from investing activities

.gif” alt=”http://edugen.wiley.com/edugen/art2/common/pixel.gif”>Sale of Machinery

.gif” alt=”http://edugen.wiley.com/edugen/art2/common/pixel.gif”>51000

.gif” alt=”http://edugen.wiley.com/edugen/art2/common/pixel.gif”>Purchase of Machinery

.gif” alt=”http://edugen.wiley.com/edugen/art2/common/pixel.gif”>-206000

.gif” alt=”http://edugen.wiley.com/edugen/art2/common/pixel.gif”>-155000

.gif” alt=”http://edugen.wiley.com/edugen/art2/common/pixel.gif”>