Instructions;Solve the following 25 problems. Write all your solutions on this sheet. In addition, write your calculations or rationale for your answer on this sheet. In other words, it's not enough to give the correct answer. You must also show why your answer is correct through your calculations or rationale. The spaces expand as you write. Each problem is worth 4 points.;Problems;1.;Holiday Laboratories purchased a high speed industrial centrifuge at a cost of $420,000. Shipping costs totaled $15,000. Foundation work to house the centrifuge cost $8,000. An additional water line had to be run to the equipment at a cost of $3,000. Labor and testing costs totaled $6,000. Materials used up in testing cost $3,000.;The capitalized cost is;A. $455,000.;B. $446,000.;C. $437,000.;D. $435,000.;Calculations;Correct Answer;2.;Vijay Inc. purchased a 3-acre tract of land for a building site for $320,000. On the land was a building with an appraised value of $120,000. The company demolished the old building at a cost of $12,000, but was able to sell scrap from the building for $1,500. The cost of title insurance was $900 and attorney fees for reviewing the contract was $500. Property taxes paid were $3,000, of which $250 covered the period subsequent to the purchase date.;The capitalized cost of the land is;A. $336,400.;B. $336,150.;C. $334,650.;D. $201,150.;Calculations;Correct Answer;3.;Simpson and Homer Corporation acquired an office building on three acres of land for a lump-sum price of $2,400,000. The building was completely furnished. According to independent appraisals, the fair values were $1,300,000, $780,000, and $520,000 for the building, land, and furniture and fixtures, respectively.;The initial values of the building, land, and furniture and fixtures would be;A. $1,300,000, $780,000, $520,000.;B. $1,200,000, $720,000, $480,000.;C. $720,000, $1,200,000, $480,000.;D. These figures are not accurate - see my calculations for details.;Calculations;Correct Answer;4.;When bonds are sold at a discount, if the annual straight-line amortization amount is compared to the annual effective interest amortization amount over the life of the bond issue, the annual amount of the straight-line amortization of discount is;A.;Higher than the effective interest amount every year.;B.;Higher than the effective interest amount in the early years and less than the effective interest amount in the later years.;C.;Less than the effective interest amount in the early years and more than the effective interest amount in the later years.;D.;Less than the effective interest amount every year.;Correct Answer;Rationale for Your Answer;5.;On January 1, 2009, Zebra Corporation issued 1,000 of its 8%, $1,000 bonds at 98. Interest is payable semiannually on January 1 and July 1. The bonds mature on January 1, 2019. Zebra paid $50,000 in bond issue costs. Zebra uses the straight-line amortization method. What is the bond carrying value reported in the December 31, 2009, balance sheet?;A. $1,045,000.;B. $1,040,000.;C. $987,000.;D. $982,000.;Calculations;Correct Answer;6.;When bonds include detachable warrants, what is the appropriate accounting for the cash proceeds from the bond issue?;A.;The proceeds from the bond issue are allocated between the bonds and the warrants on the basis of their relative market values.;B.;The proceeds from the bond issue are allocated between the bonds and the warrants on the basis of their relative face values.;C.;A nominal amount is allocated to the warrants.;D.;All of the proceeds are allocated to the bonds.;Correct Answer;Rationale for Your Answer;7.;On January 2, 2009, Tobias Company began using straight-line depreciation for a certain class of assets. In the past, the company had used double-declining-balance depreciation for these assets. As of January 2, 2009, the amount of the change in accumulated depreciation is $40,000. The appropriate tax rate is 40%. The separately reported change in 2009 earnings is;A. An increase of $40,000.;B. A decrease of $40,000.;C. An increase of $24,000.;D. None of these are correct. See calculations and correct answer below.;Calculations;Correct Answer;8.;B Company switched from the sum-of-the-years-digits depreciation method to straight-line depreciation in 2009. The change affects machinery purchased at the beginning of 2007 at a cost of $72,000. The machinery has an estimated life of five years and an estimated residual value of $3,600. What is B's 2009 depreciation expense?;A. $ 8,400;B. $13,680;C. $15,840;D. $ 9,120;Calculations and Rationale;Correct Answer;9.;Retrospective restatement usually is appropriate for a change in which one of the following? Choose A, B, C, or D.;;A. ;B. ;C. ;D. ;Correct Answer;Rationale for Your Answer;10.;In 2009, internal auditors discovered that Fay, Inc. had debited an expense account for the $700,000 cost of a machine purchased on January 1, 2006. The machine's useful life was expected to be 5 years with no residual value. Straight-line depreciation is used by Fay. The journal entry to correct the error will include a credit to accumulated depreciation of;A. $140,000.;B. $280,000.;C. $420,000.;D. $700,000.;Calculations;Correct Answer;11.;During 2009, P Company discovered that the ending inventories reported on its financial statements were incorrect by the following amounts;;P Company uses the periodic inventory system to ascertain year-end quantities that are converted to dollar amounts using the FIFO cost method. Prior to any adjustments for these errors and ignoring income taxes, P's retained earnings at January 1, 2009 would be;A. Correct as stated.;B. $ 30,000 overstated.;C. $150,000 overstated.;D. $270,000 overstated.;Calculations;Correct Answer;12.;A change that uses the prospective approach is accounted for by;A. Implementing it in the current year.;B. Reporting pro forma data.;C. Retrospective restatement of all prior financial statements in a comparative annual report.;D. Giving current recognition of the past effect of the change.;Correct Answer;Rationale for Your Answer;13.;Which of the following accounting changes should not be accounted for prospectively?;A. The correction of an error.;B. A change from declining balance to straight-line depreciation.;C. A change from straight-line to declining balance depreciation.;D. A change in the expected salvage value of a depreciable asset.;Correct Answer;Rationale for Your Answer;14.;Issued stock refers to the number of shares;A. Outstanding plus treasury shares.;B. Shares issued for cash.;C. In the hand of shareholders.;D. That may be issued under state law.;Correct Answer;Rationale for Your Answer;15.;The common stock account on a company's balance sheet is measured as;A.;The number of common shares outstanding multiplied by the stock's par value per share.;B.;The number of common shares outstanding multiplied by the stock's current market value per share.;C.;The number of common shares issued multiplied by the stock's par value per share.;D.;None of these is correct. The correct answer and rationale for your answer are shown below;Correct Answer;Rationale for Your Answer;16.
Paper#79586 | Written in 18-Jul-2015Price : $27