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UMUC Acct 311 Quiz 2
Question
Quiz #2
Intermediate Accounting II
Acct 311(7980) Fall 4, 2016
Administrative Notes – Please read carefully
before beginning the quiz.
- This
exam is open book & open notes, a calulator may (should) be used.
- Write,
print or type directly on this exam
- you may present your answers in a Word, excel
or pdf file.
- Show your work (computations), in
good form, where applicable for full credit
· You may not discuss this exam with
classmates or other students – our UMUC Honor Code prevents you from obtaining
outside or classmate asssistance – contact me with any questions or concerns in
this matter.
- During
the time period the exam is “live”, that is after it is released and
before the due date, please do not post any questions about the exam in
the online classroom – they will be deleted without comment – if you do
have questions, send an email to me.
- Work
the questions carefully, take your time, do not rush, go back and check
your work, keep track of the due date and time –
- Scan
your answers into 1 document (pdf, Word, Excel, etc) and
submit in the Quiz 2 Assignment Section.
- Due
Date for maximum credit: Tuesday, November 29, 2016, by 11pm; out of
fairness to the students who complete and submit the quiz on time, I will
have to assess grade penalties for late submission.Last day quiz will be accepted with
grade penalties for late submisison: Wednesday, Novemebr 30; quiz
solutions will not be accepted after November 30 unless for documented
emergency reasons.
Multiple Choice Problems (Show your work for any
computation, and full credit)
1. A company
with a June 30 fiscal year entered into a $3,000,000 construction project on
April 1, to be completed on September 30. The cumulative construction-in-progress
balances at April 30, May 31, and June 30 were $500,000, $800,000, and
$1,500,000 respectively. The interest
rate on the company’s debt used to finance the construction project was 5% from
April 1 through June 30, and 6% from July 1 through September 30. Assuming that the asset is placed into
service on October 1, what amount of interest should be capitalized to the
project on June 30?
a. $11,666
b. $18,750
c. $75,000
d. $90,000
2. A company
reports the following information for Year 1:
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Sale of
Equipment
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$20,000
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Issuance
of the company’s bonds
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$10,000
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Dividends
paid
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$5,000
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Purchase
of stock of another company
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$2,000
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$2,000
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Income
taxes paid
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$2,000
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Interest
income received
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$500
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What is the company’s net cash flow from financing
activities?
a. ($9,000)
b. $5,000
c. $5,500
d. $15,000
3. Long Co. invested in marketable securities. At year-end, fair-value changes in this
investment were included in Long’s other comprehensive income. How would Long classify this investment?
a. Held-to-maturity
securities
b. Trading
securities
c. Equity
securities
d. Available-for-sale
securities
Actual costs $2,000,000
Estimated costs to complete: $6,000,000
Progress billings: $1,800,000
Cash collected: $1,500,000
What amount should Howard recognize as gross profit
(loss) using the percentage-of-completion method?
a. ($1,000,000)
b. ($200,000)
c. $800,000
d. $1,750,000
5. Angie, Inc. owns 35% of Caifeng Corporation. During the calendar year 2016, Caifeng
had net earnings of $300,000 and paid dividends of $30,000. Angie, Inc. mistakenly recorded these transactions
using the fair value method rather than the equity method of accounting. What effect would this have on the
investment account, net income, and retained earnings, respectively?
a. Understate,
overstate, overstate
b. Overstate,
understate, understate
c. Overstate,
overstate, overstate
d. Understate,
understate, understate
6.Daley Co. holds a 30% stake in DiMarco Co. which was purchased in 2016 at a cost of
$3,000,000. After applying the equity method,
the Investment in DiMarco Co. account has
a balance of $3,040,000. At December
31, 2016 the fair value of the investment is $3,120,000. Which of the following values is
acceptable for Daley to use in its balance sheet at December 31, 2016?
I. $3,000,000
II. $3,040,000
III. $3,120,000
7. The
percentage-of-completion method must be used when certain conditions exist. Which of the following is not one of
those necessary conditions?
d. The contract
clearly specifies the enforceable rights of the parties, the consideration to
be exchanged, and the manner and terms of settlement.
8. How should
the balances of progress billings and construction in process be shown at
reporting dates prior to the completion of a long-term contract?
9. In
accounting for a long-term construction-type contract using the
percentage-of-completion method, the gross profit recognized during the first
year would be the estimated total gross profit from the contract, multiplied by
the percentage of the costs incurred during the year to the
10. How should
earned but unbilled revenues at the balance sheet date on a long-term
construction contract be disclosed if the percentage-of-completion method of
revenue recognition is used?
d. In a note to
the financial statements until the customer is formally billed for the portion
of work completed.
11. The
principal disadvantage of using the percentage-of-completion method of
recognizing revenue from long-term contracts is that it
c. is likely to
assign a small amount of revenue to a period during which much revenue was
actually earned.
12. Scott Corp. and its divisions are engaged solely in
manufacturing operations. The
following data (consistent with prior years' data) pertain to the industries in
which operations were conducted for the year ended December 31, 2016.
Assets
Industry Revenue Profit 12/31/16
A $ 8,000,000 $1,320,000$16,000,000
B 6,400,000 1,120,00014,000,000
C 4,800,000 960,00010,000,000
D 2,400,000 440,0005,200,000
E 3,400,000 540,0005,600,000
F 1,200,000 180,000 2,400,000
$26,200,000 $4,560,000$53,200,000
In its segment information for 2016, how many
reportable segments does Scott have?
a. Three
b. Four
c. Five
d. Six
13. The
following information pertains to Agnew Corp. and its divisions for the year ended
December 31, 2016.
Sales to unaffiliated customers $3,500,000
Intersegment sales of products similar to those
sold to
unaffiliated customers 1,050,000
Interest earned on loans to other operating
segments 70,000
Agnew and all of its divisions are engaged solely
in manufacturing operations. Agnew has a
reportable segment if that segment's revenue exceeds
14. Major Corp. has estimated that total depreciation
expense for the year ending December 31, 2016 will amount to $400,000, and that
2016 year-end bonuses to employees will total $800,000. In Minor’s interim income statement for
the six months ended June 30, 2016, what is the total amount of expense
relating to these two items that should be reported?
15. The MD&A
section of a company's annual report is to cover the following three items:
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16.
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How is
the amortization of patents reported in a statement of cash flows that is
prepared using the direct method?
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17.
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Cash
equivalents have each of the following characteristics except:
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18.
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When a
company purchases a security it considers a cash equivalent, the cash outflow
is:
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19.
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A firm
reported salary expense of $239,000 for the current year. The beginning and ending balances in salaries payable were $40,000 and
$15,000, respectively. What was the amount of cash paid for salaries?
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20.
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In a
statement of cash flows in which operating activities are reported by the
direct method, which of the following would increase reported cash flows from
operating activities?
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Problems
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1.
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Lewis
Inc. purchased several investment securities during 2014, its first year of
operations. The following information pertains to these securities. The fluctuations in their fair values are not considered permanent.
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What
balance sheet amount would Lewis report for its total investment securities
at 12/31/2016?
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2. Moore
Construction specializes in the construction of commercial and industrial
buildings. The contractor is experienced in
bidding long-term construction projects of this type, with the typical project
lasting fifteen to twenty-four months. The
contractor uses the percentage-of-completion method of revenue recognition
since, given the characteristics of the contractor's business and contracts, it
is the most appropriate method. Progress
toward completion is measured on a cost to cost basis. Moore began work on a lump-sum contract
at the beginning of 2016. As bid, the
statistics were as follows:
Lump-sum price (contract price) $12,000,000
Estimated costs
Labor $2,550,000
Materials and subcontractor 5,250,000
Indirect costs 1,200,000 9,000,000
$3,000,000
At the end of the first year, the following was the
status of the contract:
Billings to date $6,690,000
Costs incurred to date
Labor $1,392,000
Materials and subcontractor 3,294,000
Indirect costs 579,000 5,265,000
Latest forecast total cost 9,000,000
It should be noted that included in the above costs
incurred to date were standard electrical and mechanical materials stored on
the job site, but not yet installed, costing $315,000. These costs should not be considered in
the costs incurred to date.
Instructions
(a) Compute the percentage of completion on the
contract at the end of 2016.
(b) Indicate the amount of gross profit that would
be reported on this contract at the end of 2016.
(c) Make the journal entry to record the income
(loss) for 2016 on Moore’s books.
Balance Sheet ($)
Jan 1 Dec 31
ASSETS:
Current Assets:
Cash 310,000 600,000
Marketable Securities 1,200,000 1,000,000
Accounts Receivable, net 290,000 330,000
Inventory 3,000,000 4,000,000
Prepaid Expenses 200,000 300,000
Total Current Assets 5,000,000 6,230,000
Total Fixed Assets, net 2,500,000 2,000,000
Total Assets 7,500,000 8,230,000
LIABILITIES & EQUITIES
Current Liabilities:
Accounts Payable 1,500,000 1,000,000
Notes Payable 1,000,000 1,000,000
Accrued Expenses 500,000 800,000
Total Current Liabilities 3,000,000 2,800,000
Total Long-term Liabilities 1,000,000 1,500,000
Total Liabilities 4,000,000 4,300,000
Preferred Stock 500,000 500,000
Common Stock 500,000 500,000
Capital in Excess of Par 1,000,000 1,000,000
Retained Earnings 1,500,000 1,930,000
Total Stockholders Equity 3,500,000 3,930,000
Total Liabilities and Equity 7,500,000 8,230,000
Income Statement (for problem 3)
Sales 10,000,000
COGS 6,000,000
Gross Profit 4,000,000
Administrative expenses 1,200,000
Depreciation 500,000
EBIT 2,300,000
Interest Expense 500,000
EBT 1,800,000
Taxes (40%) 720,000
Net Income 1,080,000
4. An analyst
compiled the following information for Uver Inc. for the year ended December 31, 2016:
? Net income was $1,700,000.
? Depreciation expense was $400,000.
? Interest paid was $200,000.
? Income taxes paid were $100,000.
? Common stock was sold for $200,000.
? Preferred stock (8% annual dividend) was sold at par value of $250,000.
? Common stock dividends of $50,000 were paid.
? Preferred stock dividends of $20,000 were paid.
? Equipment with a book value of $100,000 was sold for $200,000.
Using the indirect method, what was Uver Inc.'s net cash flow from operating activities for the year ended December 31, 2016?
? Net income was $1,700,000.
? Depreciation expense was $400,000.
? Interest paid was $200,000.
? Income taxes paid were $100,000.
? Common stock was sold for $200,000.
? Preferred stock (8% annual dividend) was sold at par value of $250,000.
? Common stock dividends of $50,000 were paid.
? Preferred stock dividends of $20,000 were paid.
? Equipment with a book value of $100,000 was sold for $200,000.
Using the indirect method, what was Uver Inc.'s net cash flow from operating activities for the year ended December 31, 2016?
The following data is given:
December 31,
2016 2015
Cash $ 68,000 $ 50,000
Accounts receivable (net) 70,000 60,000
Inventories 90,000 130,000
Plant assets (net) 383,000 325,000
Accounts payable 60,000 40,000
Salaries and wages payable 10,000 5,000
Bonds payable 70,000 70,000
10% Preferred stock, $40 par 100,000 100,000
Common stock, $10 par 120,000 90,000
Paid-in capital 80,000 65,000
Retained earnings 170,000 175,000
Net credit sales 800,000
Cost of goods sold 600,000
Net income 80,000
Instructions
Compute the following ratios:
(a) Acid-test ratio at 12/31/16
(b) Receivables turnover in 2016
(c) Inventory turnover in 2016
(d) Profit margin on sales in 2016
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