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BUA 201 Exam 2 Chapters 4, 5, and 6

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BUA 201 Exam 2 Chapters 4, 5, and 6;1. An annuity is a series of equal periodic payments.;2. Slick's Used Cars sells pre-owned cars on the installment basis and carries its own notes because its customers typically cannot qualify for a bank loan. Default rates tend to be high or unpredictable. However, in the event of nonpayment, Slick's can usually repossess the cars without loss. The revenue method Slick would use is the;A. Installment sales method.;B. Point of sales method.;C. Cost recovery method.;D. Installment sales method or cost recovery method.;3. Each of the following would be reported as items of other comprehensive income except;A. Foreign currency translation gains.;B. Unrealized gains on investments accounted for as securities available for sale.;C. Deferred gains from derivatives.;D. Gains from the sale of equipment;4. Freda's Florist reported the following before-tax income statement items for the year ended December 31, 2013;All income statement items are subject to a 40% income tax rate. In its 2013 income statement, Freda's separately stated income tax expense and total income tax expense would be;A. $128,000 and $128,000, respectively.;1;B. $128,000 and $100,000, respectively.;C. $100,000 and $128,000, respectively.;D. $100,000 and $100,000, respectively.;5. With an ordinary annuity, a payment is made or received on the date the agreement begins.;6. Merchandise sold FOB shipping point indicates that: A. The seller pays the freight.;B. The buyer holds title after the merchandise leaves the seller's location.;C. The common carrier holds the title until the merchandise is delivered.;D. The sale is not consummated until the merchandise reaches the point to which it is being shipped.;7. Popson Inc. incurred a material loss that was not unusual in character but was clearly an infrequent occurrence. This loss should be reported as;A. An extraordinary loss.;B. A separate line item between income from continuing operations and income from discontinued operations.;C. A separate line item within income from continuing operations.;D. A separate line item in the retained earnings statement.;8. The principal benefit of separately reporting discontinued operations and extraordinary items is to enhance;A. Predictive ability.;B. Consistency in reporting.;C. Intraperiod continuity.;D. Comprehensive reporting.;9. On August 1, 2013, Rocket Retailers adopted a plan to discontinue its catalog sales division, which qualifies as a separate component of the business according to GAAP regarding discontinued operations. The disposal of the division was expected to be concluded by June 30, 2014. On January 31, 2014, Rocket's fiscal year-end, the following information relative to the discontinued division was accumulated;2;In its income statement for the year ended January 31, 2014, Rocket would report a before-tax loss on discontinued operations of;A. $115,000.;B. $195,000.;C. $65,000.;D. $125,000.;10. Comprehensive income is the change in equity from: A. Owner transactions.;B. Nonowner transactions.;C. Owner or nonowner transactions.;D. Capital transactions.;Required: 3 points each;Consider independently the appropriate accounting by Jacob under the scenario below;3;11. Scenario 1: Assume that Jacob sold the division's assets on December 31, 2013, for $24 million. The book value of the division's assets was $19 million at that date. Under these assumptions, what would Jacob report in its 2013 income statement regarding the office equipment division? Explain where this information would be presented.;12. Scenario 2: Assume that Jacob had not yet sold the division's assets by the end of 2013. Further, assume that the fair value less costs to sell of the division's assets at December 31, 2013, was $24 million and was expected to remain the same when the assets are sold in 2014. The book value of the division's assets was $19 million at the end of the year. Under these assumptions, what would Jacob report in its 2013 income statement regarding the office equipment division? Explain where this information would be presented.;4;13. Scenario 3: Assume that Jacob had not yet sold the office furniture division by the end of 2013. Further, assume that the fair value less costs to sell of the division's assets at December 31, 2013, was $12 million and was expected to remain the same when the assets are sold in 2014. The book value of the division's assets was $19 million at the end of the year. Under these assumptions, what would Jacob report in its 2013 income statement regarding the office equipment division? Explain where this information would be presented.;14.(7points) Paris Company reported the following items in its December 31, 2013, year-end adjusted trial balance;Paris is subject to a 40% income tax rate.;Required;Prepare the December 31, 2013, income statement for Paris Company starting with income from continuing operations before income taxes.;15. Required: 15 points Prepare a single-step income statement with basic earnings per share disclosure.;Planto Co.;Income Statement;For Period ending Dec. 31, 2013;Revenues and Gains;Sales $700,000;Interest Revenues 60,000;Gains on sale of investments 110,000;Total Revenues and Gains: $870,000;Expenses and Losses;Cost of goods sold $500,000;Selling expenses 150,000;G&A expenses 60,000;Restructuring costs 40,000;Interest expense 30,000;Total Expenses and Losses: $780,00;Income Before income taxes $90,000;Income tax expense $27,000;Net income $63,000;Earnings Per Share;Basic $1.26.;16. (1point) Merchandise sold FOB destination indicates that;A. The seller holds the title until the merchandise is received at the buyer's location.;B. The buyer is responsible for delivery of the merchandise to the destination.;C. The full order is back-ordered to its destination.;D. The buyer pays the freight to the destination.;\;On December 15, 2013, Rigsby Sales Co. sold a tract of land that cost $3,600,000 for $4,500,000. Rigsby appropriately uses the installment sale method of accounting for this transaction. Terms called for a down payment of $500,000 with the balance in two equal annual installments payable on December 15, 2014, and December 15, 2015. Ignore interest charges. Rigsby has a December 31 year-end.;17.(2pts) In 2013, Rigsby would recognize realized gross profit of;A. $500,000.;B. $0.;C. $900,000.;D. $100,000.;18.(2pts) In 2014, Rigsby would recognize realized gross profit of;A. $0.;B. $450,000.;C. $300,000.;D. $400,000.;19.(2pts) In its December 31, 2013, balance sheet, Rigsby would report: A. Realized gross profit of $100,000.;B. Deferred gross profit of $100,000.;C. Installment receivables (net) of $3,200,000.;D. Installment receivables (net) of $4,000,000.;20.(2pts) At December 31, 2014, Rigsby would report in its balance sheet: A. Realized gross profit of $500,000.;B. Deferred gross profit of $400,000.;C. Realized gross profit of $400,000.;D. Cost of installment sales $1,600,000.;21. 1pt. When using the completed contract method of accounting for long-term contracts;A. Estimated losses on the overall contract are recognized before the contract is completed.;B. Expenses are recorded each period, but revenue is only recognized when the contract is completed.;C. Use of this method is not permitted under generally accepted accounting principles.;D. Neither gains nor losses are recognized until the contract is completed.;22. 1pt. The percentage-of-completion method violates the general rule for revenue recognition that;A. Collection is reasonably assured.;B. Costs are known or reasonably estimated.;C. The earnings process is complete.;D. Collections have been received.;23. 2pt. Dowling's 2013 profit margin is (rounded);A. 17.4%.;B. 18.5%.;C. 18.0%.;D. 16.5%.;24. 2pt.Dowling's 2013 average collection period is (rounded);A. 50 days.;B. 63 days.;C. 57 days.;D. 51 days.;25. 2pt Dowling's average total assets for 2013 is (rounded);A. 32.;B. 210.;C. 115.;D. 194.;10;26. 2pts. Dowling's average inventory balance for 2013 is (rounded);A. 11.;B. 12;C. 11.5.;D. 12.5.;McCombs Contractors received a contract to construct a mental health facility for $2,500,000. Construction was begun in 2012 and completed in 2013. Cost and other data are presented below;27. Assume that McCombs uses the percentage-of-completion method for revenue recognition.;Required: 20 points: Prepare all journal entries to record costs, billings, collections, and profit recognition. Round your answers to the nearest whole dollar.;28. (6 points) Assume that McCombs uses the completed contract method for revenue recognition. Required: Compute the amount of gross profit recognized by McCombs during 2012 and 2013.;Present and future value tables of $1 at 3% are presented below;12;29. 2pts. Today, Thomas deposited $100,000 in a three-year, 12% CD that compounds quarterly. What is the maturity value of the CD?;A. $109,270.;B. $119,410.;C. $142,576.;D. $309,090.;30. 2pts. Carol wants to invest money in a 6% CD account that compounds semiannually. Carol would like the account to have a balance of $50,000 five years from now. How much must Carol deposit to accomplish her goal?;A. $35,069.;B. $43,131.;C. $37,205.;D. $35,000.;31. 3pts. At the end of the next four years, a new machine is expected to generate net cash flows of $8,000, $12,000, $10,000, and $15,000, respectively. What are the (rounded) cash flows worth today if a 3% interest rate properly reflects the time value of money in this situation?;A. $41,556.;B. $39,982.;C. $32,400.;D. $38,100.;32. 2pts. At the end of each quarter, Patti deposits $500 into an account that pays 12% interest compounded quarterly. How much will Patti have in the account in three years?;A. $7,096.;B. $7,213.;C. $7,129.;D. $8,880.;33. 2pts. Sondra deposits $2,000 in an IRA account on April 15, 2013. Assume the account will earn 3% annually. If she repeats this for the next nine years, how much will she have on deposit on April 14, 2023?;A. $20,600.;B. $20,928.;C. $23,616.;D. $24,715.;34. 2pts. Shelley wants to cash in her winning lottery ticket. She can either receive ten $100,000 semiannual;14;payments starting today, or she can receive a lump-sum payment now based on a 6% annual interest rate. What is the equivalent lump-sum payment?;A. $853,020.;B. $801,969.;C. $744,090.;D. $878,611.;35. 2pts. On January 1, 2013, you are considering making an investment that will pay three annual payments of $10,000. The first payment is not expected until December 31, 2016. You are eager to earn 3%. What is the present value of the investment on January 1, 2013?;A. $28,286.;B. $25,886.;C. $26,662.;D. $27,300.;36. 2pts. Rosie's Florist borrows $300,000 to be paid off in six years. The loan payments are semiannual with the first payment due in six months, and interest is at 6%. What is the amount of each payment?;A. $25,750.;B. $29,761.;C. $30,139.;D. $25,500.;37. 2pts. Jimmy has $255,906 accumulated in a 401K plan. The fund is earning a low, but safe, 3% per year. The withdrawals will take place at the end of each year starting a year from now. How soon will the fund be exhausted if Jimmy withdraws $30,000 each year?;A. 11 years.;B. 10 years.;15;C. 8.5 years.;D. 8.8 years.;38. 2pts. A firm leases equipment under a capital lease (analogous to an installment purchase) that calls for 12 semiannual payments of $39,014.40. The first payment is due at the inception of the lease. The annual rate on the lease is 6%. What is the value of the leased asset at inception of the lease?;A. $388,349.;B. $400,000.;C. $454,128.;D. $440,082.;16

 

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