Please see instructions on the answer sheet provided before completing the exam.;Question 1 (3 points?30 minutes);On January 1, 2014, A&O Corp. leases equipment to PVP Company under a six-year non-cancelable lease agreement. The fair value of the equipment is $700,000 and the cost of equipment to A&O is $600,000. Economic life of the leased equipment is ten years with no residual value and title to the equipment passes to PVP at the end of the lease. Equal annual payments of 151,421 are due on December 31 each year. The implicit interest rate is 8%. Collectibility of the lease payments is reasonably predictable and there are no additional costs yet to be incurred by A&O Corp. Assume that this is a sales type lease. The present value factor for an ordinary annuity for 6 periods at 8% is 4.62288 and the present value factor for an annuity due for 6 periods at 8% is 4.99271.;For A&O Co. (lessor) answer the following questions.;a.;Show calculations for Lease Receivable on 1/1/2014 (round your answer).;b.;Prepare the journal entry to record the lease on 1/1/ 2014.;c.;Prepare a partial amortization table for the lease through 12/31/2016.;d.;Prepare the journal entry to record the receipt of lease payment on 12/31/2014.;Question 2 (3 points?30 minutes);The following partial information is available for A&O Company for 2014 and 2015;2015 2014;Cash $ 292,000 $ 153,000;Accounts receivable 149,000 117,000;Inventory 150,000 180,000;Prepaid expenses 18,000 27,000;Plant assets 1,275,000 1,050,000;Accumulated depreciation (450,000) (375,000);Patent 153,000 174,000;$1,587,000 $1,326,000;Accounts payable $ 153,000 $ 168,000;Accrued liabilities 60,000 42,000;Mortgage payable ? 450,000;Preferred stock 525,000 ?;Additional paid-in capital?preferred 120,000 ?;Common stock 600,000 600,000;Retained earnings 129,000 66,000;$1,587,000 $1,326,000;?;The increase in Accumulated Depreciation account is due to the depreciation expense for the period. No plant assets were sold during the year. Patents were not purchased or sold during the year.;?;The Retained Earnings account has been charged for dividends of $148,000 and credited for the net income for the year.;?;Depreciation expense and patent amortization expense for 2015 are included in the $680k operating expense shown below.;The income statement (partial information) for 2015 is as follows;Sales revenue $1,980,000;Cost of sales 1,089,000;Gross profit 891,000;Operating expenses 680,000;Net income $ 211,000;Indirect method: show calculations for cash flow from (a) Operating (b) Investing, and (c) Financing activities for 2015.;Question 3 (2 points?15 minutes);During 2014, AM Construction Company changed from the completed-contract method to the percentage-of-completion method for accounting purposes but not for tax purposes. Gross profit figures under both methods for the past three years appear below;Completed-Contract Percentage-of-Completion;2012 $ 400,000 $ 800,000;2013 600,000 900,000;2014 700,000 1,000,000;$1,700,000 $2,700,000;Assume an income tax rate of 35% for all years.;a.;Show computations to determine the adjustment needed in 2014 to the beginning balance of retained earnings to account for the effect of this accounting change on prior periods.;b.;Prepare a journal entry needed in 2014 to adjust the accounting records for this change in accounting principle..;Question 4 (2 points?25 minutes);The following information pertains to VAAP Co.?s defined benefit pension plan for the year 2014.;Projected benefit obligation at 1/1/2014;$700,000;Fair value of pension plan assets 1/1/2014;600,000;Unrecognized prior service costs at 1/1/2014;100,000;Service cost for 2014;80,000;Amortization of prior service costs;11,000;Actual return on plan assets in 2014;55,000;Expected return on plan assets in 2014;50,000;Contributions to the plan in 2014;90,000;Benefits paid in 2014;25,000;Unexpected loss from change in projected benefit obligation due to change in actuarial predictions in 2014;27,000;Settlement rate used;9%;a.;Show calculations to determine the pension expense for 2014.;b.;Show calculations to determine the ending balance of the projected benefit obligation at 12/31/2014.;Question 5 (4 points?20 minutes);Select the best answer for each of the following and write the letter corresponding to your answer in the answer sheet provided.;1.;VAAP Company becomes aware of a lawsuit after the date of the financial statements, but before they are issued. The cause for action occurred during the accounting period covered by the financial statements. A loss and related liability should be reported in the financial statements if;a. VAAP lawyers admit guilt.;b. The court will decide the case within one year.;c. T he amount can be reasonably estimated, and an unfavorable outcome is reasonably possible.;d. T he amount can be reasonably estimated, and an unfavorable outcome is highly probable.;2.;A company is required to exclude a short term obligation from current liabilities if;a. It intends to refinance the obligation on a long term basis;b. It enters into a financing agreement that permits the enterprise to refinance the debt on a short-term basis.;c. It demonstrates an ability to consummate the refinancing;d. Both conditions in a and c are met.;3.;Under the effective-interest method of bond discount or premium amortization, which of the following statements is correct?;a.;As bond discount is amortized, the interest expense increases over time.;b.;As bond discount is amortized, the carrying value of bonds remains the same over time.;c.;As bond premium is amortized, the carrying value of bonds increases over time.;d.;All of the above statements are incorrect.;4.;A&O Corporation issued a 10% stock dividend of its common stock which had a par value of $10 and a fair value of $13 at the time of the stock dividend. At what amount should retained earnings be capitalized (debit to retained earnings) for the additional shares issued?;a.;There should be no capitalization of retained earnings.;b.;Par value;c.;Fair value on the declaration date;d.;Fair value on the date of distribution;5.;What effect does the issuance of a stock dividend have on each of the following?;Par Value per Share Retained Earnings;a. No effect No effect;b. Increase Increase;c. Decrease Decrease;d. No effect Decrease;6.;Which of the following would result in future deductible amounts?;a.;Fines resulting from a violation of law.;b.;Warranty expense reported in financial income before it is paid.;c.
Paper#74300 | Written in 18-Jul-2015Price : $22