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First Exam Total Points: 100 Due: 1. Please se...

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First Exam Total Points: 100 Due: 1. Please select the best answer for each of the following multiple choice questions by indicating its corresponding letter in your solution. (2 points each) a. Financial reporting objectives state that financial statements should be comprehensible to A. Accounting experts. B. Those who have a reasonable understanding of business and economic activities and are willing to study the information. C. Large investors. D. The average investor with average communication skills and average training and experience. b. Financial reporting objectives do not include providing information: A. About resources, obligations, and changes. B. To determine market values of assets, or assess profit potential. C. To assess the amounts and timing of prospective cash flows. D. To make rational investment, credit, and similar decisions. d. Land was acquired in 2009 for a future building site at a cost of $40,000. The assessed valuation for tax purposes is $27,000, a qualified appraiser placed its value at $48,000, and a recent firm offer for the land was for a cash payment of $46,000. The land should be reported in the financial statements at: A. $40,000. B. $27,000. C. $46,000. D. $48,000. e. Primecoat could get its annual financial statements two days earlier if it shifted employees from other operations to the annual report project. Management decided the value of the earlier report was not worth the added commitment of resources. The concept demonstrated is: A. Conservatism. B. Materiality. C. Relevance. D. Cost effectiveness. f. Disclosure notes to a company's financial statements: A. Are relatively unimportant facts that don't belong in the basic financial statements. B. Document the source of financial statement facts, like literary footnotes. C. Are an integral part of a company's financial statements. D. Are irrelevant facts that are immaterial in amount. 2. You are reviewing UM Co.'s adjusted trial balance for the year ended 12/31/10. You notice several errors and omissions during your review, some of which are noted below. For each one, you are to determine what effect, if any, these items would have on the stated components of UM Co.'s 2010 Income Statement and 12/31/2010 Balance Sheet if they are not corrected or updated. Assume no income taxes. Use the following code for your answers. Do not include any dollar amounts. N = No Effect O = Overstated U = Understated (24 points) Additional Information 12/31/10 Book value of Total Assets 12/31/10 T otal Liabilities Additional Information 12/31/10 Book value of Total Assets 12/31/10 Total Liabilities 2010 net income 12/31/10 owner?s equity The company is supposed to use the Allowance method of Uncollectibles. Uncollectible accounts of $7,000 are estimated at the end of the year and recorded as a debit to Bad Debts Expense and a credit to Accounts Receivable. The journal entry for depreciation expense on equipment for 2009 was recorded for $48,000. It should have been recorded at $84,000. Cash dividends declared and paid in December 2010 were unrecorded. $10,000 of the rent revenue collected in 2010 and recorded as earned in 2010 actually pertains to 2011. Interest earned during 2010 on a note receivable was not yet collected and hence not recorded in the books. Supplies purchased during 2010 for $10,000 cash were recorded by a debit to Supplies Expense and a credit to Cash. About $2,000 of supplies still remain unused at the end of the year, but no further entries have been made. 3. Presented below are a number of accounting procedures/practices/events in Sanchez Corp, a publicly traded company. For each of these items, list the assumption, principle, information characteristic, or convention that is being violated. If you feel that more than one assumption, principle, etc. is being violated in a situation, list only two that are the most appropriate answers. (1 points each) (a) Cantor Corporation's accountant increased the book value of land from its original cost of $1 million to its recently appraised value of $6 million. (b) At the end of its 2010 fiscal year, Dower, Inc. received an order from a customer for $60,000. The merchandise will ship early in 2011. Because the sale was made to a long-time customer and the invoice was already paid in 2010, the controller recorded the sale in 2010. (c) In the middle of its 2010 fiscal year, Sanguinetti, Inc. paid $12,000 to its insurance company for one-year comprehensive insurance coverage. Sanguinetti recorded the entire expenditure as an expense in 2010. (d) The Churchill Pharmaceutical Company failed to include a note in its financial statements that should have described a pending lawsuit against the company. (e) The Daily Corporation, a company whose securities are publicly traded, prepares monthly, quarterly, and annual financial statement for internal use but disseminates to external users only the annual financial statements. --------------------------------------------------------------------------------------------------------------------- 4. Bronco Electronics' current assets consist of cash, marketable securities, accounts receivable, and inventories. The following data was abstracted from a recent financial statement: inventories 150,000 total assets 1,400,000 current ratio 3 acid-test ratio 2.25 debt to equity ratio 1.5 Required: Compute the following for Bronco: Current assets (5 points) Shareholders' equity (3 points) Noncurrent assets (3 points) Long-term liabilities (3 points) Note: The numerator in Acid-test ratio = The numerator in Current ratio ? Inventory 5. Indicate whether each of the actions listed below will immediately increase (I), decrease (D), or have no effect (N) on the ratios shown. Assume each ratio is greater than 1.0 before the action is taken. (1 point each) Current ratio Acid-test ratio Debt to equity ratio Receive rent in advance for next 3 months Purchase land by paying cash Sell inventory at a loss and receive cash Advance payment of estimated income tax Report currently maturing portion of a long term debt Issue bonds for cash that will mature after 10 years Pick the best answer for each of the following multiple-choice questions: (1 points each) a. The Maytag Corporation's income statement includes income from continuing operations, a loss from discontinued operations, and extraordinary items. Earnings per share information would be provided for: A. Net income only. B. Income from continuing operations and net income only. C. Income from continuing operations, loss from discontinued operations and net income only. D. Income from continuing operations, loss from discontinued operations, extraordinary items and net income. b. Pro forma earnings: A. Are management's view of permanent earnings. B. Are needed for the correction of errors. C. Are standardized under generally accepted accounting principles. D. Are useful to compare two different firms' performance. c. Operating cash outflows would include: A. Purchase of long-term investments. B. Purchase of equipment. C. Payment of cash dividends. D. Purchases of inventory. d. Cash flows from investing do not include cash flows from: A. Lending money to another corporation. B. The sale of equipment. C. Borrowing. D. The purchase of other corporation's securities. f. Cash flows from investing activities do not include: A. Proceeds from issuing bonds. B. Payment for the purchase of equipment. C. Proceeds from the sale of marketable securities. D. Cash outflows from acquiring land. 7. List at least four operating activity cash flow names that would be reported in the statement of cash flows for Wal-Mart if the company were to use the direct method. (4 points) 8. How will you report each of the following events/items for your company in the year 2010? (Read the instructions for presenting your answers) (a) The write-off of inventory in 2010 due to obsolescence. (b) The company split its stock 3-for-1. (c) Discovery in 2010 that depreciation expenses were omitted, by accident, from 2006?s income statement. (d) The 2010 depreciation expense that resulted from a change in the useful lives of all machinery wherein the lives were changed in 2010 from eight years to eleven years. (e) Loss from a major hurricane that destroyed the company building. Hurricanes are very rare in the area where the company operates. (f) Significant restructuring/downsizing costs were incurred in 2010. These days such costs are incurred once in every 3-4 years. (g) The company, a manufacturer of shoes, sold all of its retail outlets in 2010. It will continue to manufacture and sell its shoes to wholesalers. A loss was incurred in the disposal of the retail stores. (h) The government of Libya, where some of your company?s production facilities are located, announced a takeover of your facilities, resulting in a material loss to your company. This has never happened before in the history of your company. Required: (Total 14 points) Use the format shown below to answer both requirements A and B. Situation (a) is presented for you as an example of the answer format. A. For each situation, identify the appropriate reporting treatment from the list below (consider each event to be material): i. As a regular item on the income statement. ii. As an unusual or infrequent item on the income statement. iii. As an extraordinary item. iv. As a discontinued operation. v. As a prior period adjustment. vi. None of the above. B. Indicatewhethereachitemwouldbeincluded?abovethelineincomefromcontinuing operations? (ACO), ?below the line income from continuing operations? (BCO), ?as an adjustment to retained earnings? (ARE), or not included in any of the above (NON). Situation Reporting treatment Placement in the financial statements A I ACO B C D E F G H

 

Paper#6499 | Written in 18-Jul-2015

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