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Ch.5 finance Quiz

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Question;Exercise 5-1;On June;1, 2011, the Luttman and Dowd Company sold inventory to the Ushman Corporation;for $400,000. Terms of the sale called;for a down payment of $100,000 and four annual installments of $75,000 due on;each June 1, beginning June 1, 2012.;Each installment also will include interest on the unpaid balance;applying an appropriate interest rate.;The inventory cost Foster $150,000.;The company uses the perpetual inventory system.;Required;1. Compute the amount of gross profit to be;recognized from the installment sale in 2011, 2012, 2013, 2014, and 2015 using;point of delivery revenue recognition. Ignore interest charges.;2. Repeat requirement 1 applying the;installment sales method.;3. Repeat requirement 1 applying the cost;recovery method.;Exercise 5-2;The Ugenti Construction Company;contracted to construct a warehouse building for $2,600,000. Construction began in 2011 and was completed;in 2012. Data relating to the contract;are summarized below;2011 2012;Costs incurred during the year................................. $;360,000 $1,650,000;Estimated;costs to complete as of 12/31............... 1,560,000;-;Billings;during the year............................................. 430,000 2,170,000;Cash;collections during the year.............................. 320,000 2,280,000;Required;1. Compute the amount of gross profit or loss;to be recognized in 2011 and 2012 using the percentage-of-completion method.;2. Compute the amount of gross profit or loss;to be recognized in 2011 and 2012 using the completed contract method.;3. Prepare a partial balance sheet to show how;the information related to this contract would be presented at the end of 2011;using the percentage-of completion method.;4. Prepare a partial balance sheet to show how;the information related to this contract would be presented at the end of 2011;using the completed contract method.;Exercise 5-3;On April 13, 2011, the Pagano;Construction Company entered into a three-year construction contract to build a;mall for a price of $12,000,000. During;2011, costs of $3,000,000 were incurred with estimated costs of $6,000,000 yet;to be incurred. Billings of $3,800,000;were sent and cash collected was $3,250,000.;In 2012, costs incurred were;$4,000,000 with remaining costs estimated to be $5,600,000. 2012 billings were $3,500,000 and $3,600,000;cash was collected. The project was;completed in 2013 after additional costs of $5,800,000 were incurred. The company?s fiscal year-end is December;31. Arrow uses the percentage-of-completion;method.;Required;1. Calculate the amount of gross profit or;loss to be recognized in each of the three years.;2. Prepare journal entries for 2011 and 2012;to record the transactions described (credit ?Various accounts? for;construction costs incurred).;3. Prepare a partial balance sheet to show the;presentation of the project as of December 31, 2011 and 2012.;Exercise 5-4;On November 15, 2011, the;Coldstone Ice Cream Company entered into a franchise agreement with an;individual. In exchange for an initial;franchise fee of $25,000, Coldstone will provide initial services to the;franchisee to include assistance in design and construction of the building;help in training employees, help in obtaining financing, and management advice;over the first five years of the ten-year franchise agreement.;50% of the initial franchise fee;is payable on November 15, 2011, with the remaining $12,500 payable in five;equal annual installments beginning on November 15, 2012. These installments will include interest at;an appropriate rate. The franchise;opened for business on February 15, 2012.;Required;Assume that the initial services to be performed by Coldstone;subsequent to November 15, 2011, are substantial and that collectibility of the;installment receivable is reasonably certain.;Substantial performance of the initial services is deemed to have;occurred when the franchise opened.;Prepare the necessary journal entries for the following dates (ignoring;interest charges);1. November 15, 2011, and;2. February 15, 2012.;Exercise 5-5;The year 2011 income statement of;Garret & Sons Music Company reported net sales of $10 million, cost of;goods sold of $6 million, and net income of $1 million. The following table shows the company's;comparative balance sheets for 2011 and 2010;($ in 000s);Assets: 2011 2010;Cash..................................................................................... $;240 $ 280 Accounts receivable.......................................................... 800 600 Inventory............................................................................ 850 700 Property, plant, and equipment (net).............................;2,600 2,520 Total assets.................................................................... $4,490 $4,100;Liabilities;and Shareholders? Equity;Current liabilities................................................................ $;720 $ 650 Notes payable....................................................................;600 1,000;Paid-in capital....................................................................;2,000 2,000;Retained earnings..............................................................;1,170 450;Total liabilities and shareholders;equity.................... $4,490 $4,100;Some industry averages for the;company?s line of business are;inventory;turnover 6 times;average;collection period 28 days;asset turnover 2 times;Required;Assess Garret & Son's asset management relative to its industry.;Exercise 5-6;The following condensed;information was reported by Sanders Manufacturing, Inc. for 2011 and 2010;($ in 000s);2011 2010Income;statement information;Net sales $7,200 $6,800Net income 360;408;Balance Sheet information;Current assets.............................................................. $ 800 $ 750 Property, plant, and;equipment (net)...................... 2,100 1,950 Total assets............................................................... $2,900 $2,700;Current liabilities......................................................... $ 250 $ 400 Long-term liabilities...................................................;950;750;Paid-in capital.............................................................;1,000 1,000;Retained earnings....................................................... 700 550;Liabilities and shareholders? equity..................... $2,900 $2,700;Required;1. Determine the following ratios for 2011;a. profit;margin on sales;b. return on;assets;c. return on;shareholders? equity;2. Calculate the DuPont framework for Sanders;for 2011.;3. Determine the amount of dividends paid to;shareholders during 2011.

 

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