Show your work if an answer requires a mathematical solution.
1. The following balance sheet information (in $ millions) comes from the Annual Report to Shareholders of Marriott International Inc. for the 2008 fiscal year. (Certain amounts have been replaced with question marks to test your understanding of balance sheets.) In addition, you’re provided with the following information from an analysis of Marriott’s financial position at the same date:
Current ratio = 1.3296486
Acid-test ratio = 0.407422
Debt-to-equity ratio = 5.4514493
Compute the missing amounts (rounded to the nearest $ in millions) in the Marriott balance sheet.
Assets
Current assets
Cash and equivalents $134
Accounts and notes receivable ?
Inventory ?
Other 355
Total current assets ?
Property and equipment, net $1,443)
Intangible assets, net ?)
Investments 346)
Notes and other receivables, net 988)
Other 1,173)
Total non current asssets ?
Total assets ?
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable $704
Accrued payroll and benefits 633
Other payables and accruals 1,196
Total current liabilities 2,533
Long-term debt ?)
Other long-term liabilities 2,015)
Total long-term liabilities ?
Total liabilities ?
Shareholders’ equity
Class A common stock 5)
Additional paid-in capital 3,590)
Retained earnings 3,565)
Treasury stock and other (5,780)
Total shareholders’ equity 1,380
Total liabilities and shareholders’ equity $8,903
using the debt to equity ratio to solve for total liabilities ($1,380 x 5.4514493 = $7,523 in total liabilities). Then they can determine the other missing data in the bottom half of the balance sheet by subtraction. With total liabilities and shareholders' equity known, so are the total assets. The current assets can be computed by the current ratio ($2,533 x 1.3296486 = $3,368 in current assets). The quick assets can be found from the acid-test ratio ($2,522 x .407422 = $1,032 in quick assets less $134 in cash and cash equivalents = $898 in accounts and notes receivable). With that known, students can compute the inventory balance ($3,368 - 134 - 898 - 355 = $1,981). Finally, with current and total assets determined, the non-current assets can be found, leading to the missing balance in intangible assets.
2. The following information is provided in the 2011 annual report to shareholders of
paris-perfume.com:
December 31, 2011 December 31, 2010
Accounts receivable ??? $100 million
Inventory $70 million $30 million
Other assets ??? $170 million
Total assets ??? $300 million
Total liabilities ??? $100 million
Total stockholders’ equity ??? $200 million
For the year ended Dec. 31, 2011
Required: Compute the missing amount in the paris-perfume.com financial statement
information, indicated by ??? in the table above.
3. Shown below is activity for one of the products of Denver Office Equipment:
January 1 balance, 500 units @ $55 $27,500
Purchases
January 10 500 units @ $60
January 20 1,000 units @ $63
Sales:
January 12 800 units
January 28 750 units
Compute the ending inventory and cost of goods sold assuming Denver uses FIFO.
b. Compute the ending inventory and cost of goods sold assuming Denver uses LIFO
and a perpetual inventory system.
c. Compute the ending inventory and cost of goods sold assuming Denver uses
average cost and a periodic inventory system.
d. Compute the ending inventory and cost of goods sold assuming Denver uses
average cost and a perpetual inventory system.
e. Compute the ending inventory and cost of goods sold assuming Denver uses LIFO
and a periodic inventory system.
Part B: Ten questions worth 4 points each. Show all work.
1. The following information ($ in millions) comes from a recent annual report of
Amazon.com, Inc.:
Net sales $10,711)
Total assets 4,363)
End of year balance in cash 1,022)
Total stockholders’ equity 431)
Gross profit (Sales – Cost of Sales) 2,456)
Net increase in cash for the year 9)
Operating expenses 2,067)
Net operating cash flow 702)
Other income (expense), net (12)
Compute Amazon’s balance in cash at the beginning of the year.
Compute Amazon’s total liabilities at the end of the year.
Compute cost of goods sold for the year.
Compute the income before income tax for Amazon.
2. The current asset section if Seifert & Seifert, CPA`s balance sheet consists of cash, accounts receivable, investments, and prepaid expenses. The 2011 Balance sheet reported the following: cash, $110000; investments, $ 22000; prepaid expenses, $ 18000; noncurrent assets, $ 42000; and shareholders’ equity $ 350000. The current ratio at the end of the year was 1.6 and the debt to equity ratio was.8.
Required: Determine the following 2011 amounts and ratios:
a. Current liabilities.
b. Long-term liabilities.
c. Accounts receivable.
d. The acid-test ratio.
3. Canton Corporation reported the following items in its adjusted trial balance for the
year ended December 31, 2011:
Income from continuing operations before income taxes $110,000)
Extraordinary gain on property condemnsation 28,000)
Extraordinary loss on natural disaster (50,000)
Canton is subject to a 30% tax rate.
Required: Prepare the December 31, 2011, income statement for Canton Corporation,
starting with income from continuing operations before income taxes.
4. In 2011, KP building Inc. began work on a four-year construction project (called Cincy One). The contract price is $ 300 million. KP uses the percentage of completion method of accounting. At the end of 2011, the following financial statement information indicates the results to date for Cincy One:
INCOME STATEMENT
Gross Profit (before-taxes) recognized in 2011 $22 million
BALANCE SHEET
Accounts Receivable from construction billings $10 million
Construction in progress $66 million
Less: Billings on construction ($75 million)
Net billings in excess of construction in progress $9 million
Required: Compute the following, placing your answer in the spaces provided and
showing supporting computations
Items to compute:
Cash collected by KP on Cincy One during 2011
Actual costs incurred by KP on Cincy One during 2011
At 12/31/2011, the estimated remaining costs to complete Cincy One
The percentage of Cincy One that was completed during 2011
5. On June 30, 2011, Gunderson Electronics issued 8% stated rate bonds with a face amount of $300 million. The bonds mature on June 30, 2031 (20 years). The market rate of interest for similar bond issues was 10% (5% semiannual rate). Interest is paid semiannually (4%) on June 30 and December 31, beginning on December 31, 2011.
Required:
a. Determine the price of the bonds on June 30, 2011.
b. Calculate the interest expense Gunderson reports in 2011 for these bonds.
6. During Burns Company`s first year of operations, credit sales totaled $ 140000 and collections on credit sales totaled $ 105000. Burns had written off $ 300 of specific accounts as uncollectible.
Required:
a. Prepare all appropriate journal entries relative to uncollectible accounts and bad
debt expense.
b. Show the year-end balance sheet presentation for accounts receivable.
b. Calculate the interest expense Gunderson reports in 2011 for these bonds.
a. To determine the price of the bonds, we calculate the present value of the 40-period annuity (40 semiannual interest payments of $12 million) and the lump-sum payment of 300 million paid at maturity using the semiannual market rate of interest of 5%. In equation form,
7. Appleton Inc. adopted dollar-value LIFO on January 1, 2011, when the inventory value
7. Appleton Inc. adopted dollar-value LIFO on January 1, 2011, when the inventory value
was $1,200,000. The December 31, 2011, ending inventory at year-end costs was
$1,430,000 and the cost index for the year is 1.1.
Required: Compute the dollar-value LIFO inventory valuation for the December 31,
2011, inventory.
8. DK Super Stores Inc. uses the average cost retail method to estimate its ending
inventory. Information at June 30, 2011, is as follows:
Required: Compute the cost-to-retail percentage used by DK.
9. Schefter Mining operates a copper mine in Wyoming. Acquisition, exploration, and
development costs totaled $8.2 million. Extraction activities began on July 1, 2011.
After the copper is extracted in approximately six years, Schefter is obligated to restore the land to its original condition, including constructing a park. The company’s controller has provided the following three cash flow possibilities for the restoration costs:
Cash Flow Probability
1. $700,000 30%
2. $800,000 25%
3. $900,000 45%
The company’s credit-adjusted, risk-free rate of interest is 5%, and its fiscal year ends
on December 31.
Required:
a. What is the initial cost of the copper mine? (Round computations to nearest whole dollar.)
b. How much accretion expense will Schefter report in its 2011 income statement?
c. What is the carrying value (book value) of the asset retirement obligation that Schefter will report in its 2011 balance sheet?
d. Assume that actual restoration costs incurred in 2017 totaled $860,000. What amount of gain or loss will Schefter recognize on retirement of the liability?
10. On March 30, 2011. Calvin Exploration purchased a drilling machine for $ 840000. The estimated useful life of the machine is 10years, and no residual value is anticipated. An important component of the machine is the drill housing component that will need to be replaced in five years. The $200000 cost of the drill housing component is included in the $ 840000 cost of the machine. Calvin uses the straight line depreciation method for all machinery. The company`s fiscal year ends on December 31.
Required:
a. Calculate depreciation on the drilling machine for 2011 and 2012 applying the
typical U.S. GAAP treatment.
Repeat requirement 1 applying IFRS.
1.Calloway Shoes purchased a delivery truck on September 30, 2011, for $32,000. The estimated useful life of the truck is 10 years with no residual value. After five years, the refrigeration unit will need to be replaced. The $8,000 cost of the unit is included in the cost of the truck. Calloway uses the straight-line depreciation method. Depreciation for 2011 under U.S. GAAP and International Financial Reporting Standards (IFRS), respectively, is
A. Option d
B. Option a
C. Option c
D. Option b
2. Axcel Software began a new development project in 2010. The project reached technological feasibility on June 30, 2011 and was available for release to customers at the beginning of 2012. Development costs incurred prior to June 30, 2011 were $3,200,000 and costs incurred from June 30 to the product release date were $1,400,000. 2012 revenues from the sale of the new software were $4,000,000 and the company anticipates additional revenues of $6,000,000. The economic life of the software is estimated at four years. 2012 amortization of the software development costs would be
A. $0.
B. $350,000.
C. $1,840,000.
D. $560,000.
3. On June 1, 2010, the Crocus Company began construction of a new manufacturing plant. The plant was completed on October 31, 2011. Expenditures on the project were as follows ($ in millions):
Cash Outflow Probability
July 1, 2010 54
October 1, 2010 22
February 1, 2011 30
April 1, 2011 21
September 1, 2011 20
October 1, 2011 6
July 1, 2010, Crocus obtained a $70 million construction loan with a 6% interest rate. The loan was outstanding through the end of October, 2011. The company's only other interest-bearing debt was a long-term note for $100 million with an interest rate of 8%. This note was outstanding during all of 2010 and 2011. The company's fiscal year-end is December 31.
In computing the capitalized interest for 2011, Crocus' average accumulated expenditures are
A. $46.30 million.
B. $124.25 million.
C. $122.30 million.
D. $103.54 million.
4. Kingston Corporation has $95 million of goodwill on its books from the 2009 acquisition of Reliant Motors. At the end of its 2011 fiscal year, management has provided the following information for its annual goodwill impairment test ($ in millions):
Fair value of Reliant (approximates fair value less costs to sell) $655
Fair value of Reliant's net assets (excluding goodwill) 600
Book value of Reliant's net assets (including goodwill) 700
Present value of estimated future cash flows 670
Assuming that Reliant is considered a reporting unit for U.S. GAAP and a cash-generating unit for IFRS, the amount of goodwill impairment loss that Kingston should recognize according to U.S. GAAP and IFRS, respectively, is
A. Option c
B. Option b
C. Option a
D. Option d
5. On March 31, 2011, M. Belotti purchased the right to remove gravel from an old rock quarry. The gravel is to be sold as roadbed for highway construction. The cost of the quarry rights was $164,000, with estimated salable rock of 20,000 tons. During 2011, Belotti loaded and sold 4,000 tons of rock and estimated that 16,000 tons remained at December 31, 2011. At January 1, 2012, Belotti estimated that 20,000 tons still remained. During 2012, Belotti loaded and sold 8,000 tons.
Belotti would record depletion in 2011 of
A. $32,800.
B. $24,600.
C. $41,000.
D. $30,750.
6. Short Corporation purchased Hathaway, Inc. for $52,000,000. The fair value of all Hathaway's identifiable tangible and intangible assets was $48,000,000. Short will amortize any goodwill over the maximum number of years allowed. What is the annual amortization of goodwill for this acquisition?
A. $200,000.
B. $400,000.
C. $100,000.
D. 0.
7. On June 1, 2010, the Crocus Company began construction of a new manufacturing plant. The plant was completed on October 31, 2011. Expenditures on the project were as follows ($ in millions):
Cash Outflow Probability
July 1, 2010 54
October 1, 2010 22
February 1, 2011 30
April 1, 2011 21
September 1, 2011 20
October 1, 2011 6
July 1, 2010, Crocus obtained a $70 million construction loan with a 6% interest rate. The loan was outstanding through the end of October, 2011. The company's only other interest-bearing debt was a long-term note for $100 million with an interest rate of 8%. This note was outstanding during all of 2010 and 2011. The company's fiscal year-end is December 31.
What is the amount of interest that Crocus should capitalize in 2011, using the specific interest method (rounded to the nearest thousand dollars)?
A. $7,248,000 (rounded)
B. $7,283,000 (rounded)
C. None of these answers is correct.
D. $8,740,000 (rounded)
8. P. Chang & Co. exchanged land and $9,000 cash for equipment. The book value and the fair value of the land were $106,000 and $90,000, respectively.
Chang would record equipment at and record a gain/(loss) of
Equipment Gain/Loss
a. $99,000 $(16,000)
b. $99,000 $(25,000)
c. $108,000 $16,000
d. $106,000 $(9,000)
A. Option c
B. Option a
C. Option d
D. Option b
9. On June 1, 2010, the Crocus Company began construction of a new manufacturing plant. The plant was completed on October 31, 2011. Expenditures on the project were as follows ($ in millions):
Cash Outflow Probability
July 1, 2010 54
October 1, 2010 22
February 1, 2011 30
April 1, 2011 21
September 1, 2011 20
October 1, 2011 6
July 1, 2010, Crocus obtained a $70 million construction loan with a 6% interest rate. The loan was outstanding through the end of October, 2011. The company's only other interest-bearing debt was a long-term note for $100 million with an interest rate of 8%. This note was outstanding during all of 2010 and 2011. The company's fiscal year-end is December 31.
What is the amount of interest that Crocus should capitalize in 2010, using the specific interest method?
A. $1.95 million
B. $2.96 million
C. $1.90 million
D. $65 million
10. Horton Stores exchanged land and cash of $5,000 for similar land. The book value and the fair value of the land were $90,000 and $100,000, respectively.
Assuming that the exchange lacks commercial substance, Horton would record land-new at and record a gain/(loss) of
Land Gain/Loss
a. $105,000 $ 0
b. $105,000 $10,000
c. $95,000 $ 0
d. $95,000 $10,000
A. Option c
B. Option a
C. Option b
D. Option d
11. Fellingham Corporation purchased equipment on January 1, 2009, for $200,000. The company estimated the equipment would have a useful life of 10 years with a $20,000 residual value. Fellingham uses the straight-line depreciation method. Early in 2011, Fellingham reassessed the equipment's condition and determined that its total useful life would be only six years in total and that it would have no salvage value. How much would Fellingham report as depreciation on this equipment for 2011?
A. $41,000
B. $27,333
C. $24,000
D. $36,000
12. Below are listed data relative to an exchange of equipment by Pensacola Inc. Assume the exchange has commercial substance.
In Case A, Pensacola would record the new equipment at:
A. $80,000.
B. $68,000.
C. $63,750.
D. $67,250.
13. On January 1, 2009, Al's Sporting Goods purchased store fixtures at a cost of $180,000. The anticipated service life was 10 years with no residual value. Al's has been using the double-declining balance method, but in 2011 adopted the straight-line method because the company believes it provides a better measure of income. Al's has a December 31 year-end. The journal entry to record depreciation for 2011 is
a. Depreciation expense 23,040
Accumulated depreciation 23,040
b. Depreciation expense 14,400
Accumulated depreciation 14,400
c. Accumulated depreciation 28,800
Retained earnings 28,800
d. No entry
A. Option a
B. Option b
C. Option c
D. Option d
14. In 2010, Antle, Inc., had acquired Demski Co. and recorded goodwill of $245 million as a result. The net assets (including goodwill) from Antle's acquisition of Demski Co. had a 2011 year-end book value of $580 million. Antle assessed the fair value of Demski at this date to be $700 million, while the fair value of all of Demski's identifiable tangible and intangible assets (excluding goodwill) was $550 million. The amount of the impairment loss that Antle would record for goodwill at the end of 2011 is
A. $95 million.
B. $150 million.
C. $12 million.
D. $0.
15. Grab Manufacturing Co. purchased a ten-ton draw press at a cost of $180,000 with terms of 5/15, n/45. Payment was made within the discount period. Shipping costs were $4,600, which included $200 for insurance in transit. Installation costs totaled $12,000, which included $4,000 for taking out a section of a wall and rebuilding it because the press was too large for the doorway. The capitalized cost of the ten-ton draw press is
A. $171,000.
B. $187,600.
C. $185,760.
D. $183,600
16. Below are data relative to an exchange of similar assets by Grand Forks Corp. Assume the exchange has commercial substance.
In Case B, Grand Forks would record a gain/(loss) of
A. $5,000.
B. $(3,000).
C. $3,000.
D. $(5,000).
17. Gulf Consulting Co. reported the following on its December 31, 2011, balance sheet:
Equipment (at cost) . . .$700,000
In a disclosure note, Gulf indicates that it uses straight-line depreciation over five years and estimates salvage value as 10% of cost. Gulf’s equipment averages 3.5 years at December 31, 2011.
What is the book value of Gulf’s equipment at December 31, 2011?
A. $210,000
B. $490,000
C. $259,000
D. $441,000
18. Rice Industries owns a manufacturing plant in a foreign country. Political unrest in the country indicates that Rice should investigate for possible impairment. Below are data related to the plant's assets ($ in millions):
Book value $190
Undiscounted sum of future estimated cash flows 210
Present value of future cash flows 175
Fair value less cost to sell (determined by appraisal) 180
The amount of impairment loss that Rice should recognize according to U.S. GAAP and IFRS, respectively, is
A. Option c
B. Option d
C. Option b
D. Option a
19. Bloomington Inc. exchanged land for equipment and $3,000 in cash. The book value and the fair value of the land were $104,000 and $90,000, respectively.
Bloomington would record equipment at and record a gain/(loss) of
Equipment Gain/Loss
a. $87,000 $3,000
b. $104,000 $(5,000)
c. $87,000 $(14,000)
d. None of the above.
A. Option a
B. Option b
C. Option c
D. Option d
20. LakeIncorporated purchased all of the outstanding stock of Huron Company paying $950,000 cash. Lake assumed all of the liabilities of Huron. Book values and fair values of acquired assets and liabilities were
Book Value Fair Value
Current assets (net) $130,000 $125,000
Property, plant, equip. (net) 600,000 750,000
Liabilities 150,000 175,000
Lake would record goodwill of
A. $75,000.
B. $250,000.
C. $445,000.
D. $0.
21. Broadway Ltd. purchased equipment on 1/1/09 for $800,000, estimating a five-year useful life and no residual value. In 2009 and 2010, Broadway depreciated the asset using the straight line method. In 2011, Broadway changed to sum of years digits depreciation for this equipment. What depreciation would Broadway record for the year 2011 on this equipment?
A. $160,000.
B. $240,000.
C. $200,000.
D. $120,000.
22. On June 30, 2011, Prego Equipment purchased a precision laser-guided steel punch that has an expected capacity of 300,000 units and no residual value. The cost of the machine was $450,000 and is to be depreciated using the units-of-production method. During the six months of 2011, 24,000 units of product were produced. At the beginning of 2012, engineers estimated that the machine can realistically be used to produce only another 230,000 units. During 2012, 70,000 units were produced.
Prego would report depreciation in 2012 of
A. $126,000.
B. $108,000.
C. $105,000.
D. $135,230
23. Asset C3PO has a depreciable base of $16.5 million and a service life of 10 years. What would the accumulated depreciation be at the end of year five under the sum of the years digits method?
A. $16.5 million.
B. $12 million.
C. $8.25 million.
D. $4.5 million.
24. Below are listed data relative to an exchange of equipment by Pensacola Inc. Assume the exchange has commercial substance.
In Case B, Pensacola would record a gain/(loss) of:
A. $(10,000).
B. $(4,000).
C. $0.
D. $4,000.
25. Nanki Corporation purchased equipment on 1/1/09 for $650,000. In 2009 and 2010, Nanki depreciated the asset on a straight-line basis with an estimated useful life of 8 years and a $10,000 residual value. In 2011, due to changes in technology, Nanki revised the useful life to a total of six years with no residual value. What depreciation would Nanki record for the year 2011 on this equipment?
A. $106,667.
B. $108,333.
C. $650,000.
D. $122,500.
