Name:
Intermediate Accounting I, Fall Semester 2005
Review Questions for Final Exam
Instructions: Please read each question carefully. Prepare your solutions on the exam form.. | |
Spencer Company, a partnership, had revenues of $360,000 in its first year of operations. The partnership has not collected on $35,000 of its sales, and still owes $40,000 on $150,000 of merchandise they purchased. The partnership has $30,000 in inventory at the end of the year. The partnership paid $25,000 in salaries. The partners invested $40,000 in the business and $25,000 was borrowed on a five-year note. The partnership paid $2,500 in interest and paid $8,000 for a two-year insurance policy on the first day of business.
|1. |Compute the cash balance at the end of the first year for Spencer Company. |
|2. |The following information (ALL IN $THOUSANDS) comes from the 2001 annual report of , Inc.: |
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| |Compute the Amazon's balance in cash and cash equivalents (CCE) at the beginning of 2001. |
|3. |Spencer Company has prepared a year-end trial balance. Certain accounts in the trial balance do not reflect all activities that |
| |have occurred. |
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| |Required: Prepare adjusting journal entries, as needed, for the following items. |
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| |(a.) The Supplies account shows a balance of $540, but a count of supplies reveals only $210 on hand. |
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| |(b.) Spencer Company initially records the payments of all insurance premiums as expenses. The trial balance shows a balance of |
| |$420 in Insurance expense. A review of insurance policies reveals that $125 of insurance is unexpired. |
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| |(c.) Spencer Company’s employees work Monday through Friday, and salaries of $2,400 per week are paid each Friday. Spencer |
| |Company’s year-end falls on Tuesday. |
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| |(d.) On December 31, 2003, Spencer Company received a utility bill for December electricity usage of $190 that will be paid in |
| |early January. |
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|4. |The December 31, 2003, post-closing trial balance (in $ thousands) for Spencer Company is presented below: |
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| |Required: Prepare a classified balance sheet for Spencer Company at December 31, 2003. |
|5. |The following is a partial trial balance for Spencer Company for the year ended December 31, 2003. |
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| |Spencer Company had 50,000 shares of stock outstanding through out the year. Its effective tax rate is 30%. Prepare a |
| |multi-step income statement with earnings per share disclosure on the fact of the statement. |
|6. |Spencer Construction received a contract to construct a mental health facility for $2,500,000. Construction was begun in 2003 |
| |and completed in 2004. Cost and other data are presented below: |
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| |Assume that Spencer Construction uses the percentage-of-completion method for revenue recognition. Compute the amount of gross |
| |profit recognized during 2003 and 2004. |
|7. |Spencer Real Estate Company develops and sells building lots. In 2003, the company sold for $250,000 ten building lots that |
| |cost $150,000. The installment method was appropriately used. Collections on the sale were: $80,000 in 2003, $120,000 in 2004, |
| |and $50,000 in 2005. |
| |Prepare journal entries to record the sale, cash collections, and recognition of gross profit (if appropriate) in 2003. |
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| |Prepare journal entries to record the sale, cash collections, and recognition of gross profit (if appropriate) in 2004. |
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| |Prepare journal entries to record the sale, cash collections, and recognition of gross profit (if appropriate) in 2005. |
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|8. |Spencer Company issued $2,000,000 in 8%, 10-year bonds when the market rate of interest is 6%. Interest is paid semiannually. |
| |Determine how much cash the Company should realize from the bond issue. |
|9. |A summary of Spencer Company’s December 31, 2003, accounts receivable aging schedule is presented below along with the estimated|
| |percent uncollectible for each age group: |
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| |The allowance for uncollectible accounts had a balance of $1,400 at January 1, 2003. During the year bad debts of $1,050 were |
| |written off. |
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| |Prepare all 2003 journal entries to write off the uncollectible accounts and recording bad debt expense for the year. |
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|10. |Spencer Company purchased merchandise on August 10, 2003, at a price of $24,000, subject to credit terms of 2/10, n30. The |
| |Company uses the gross method for recording purchases and uses perpetual inventory system. |
| |Prepare the journal entry to record the purchase. |
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| |Prepare the journal entry to record the payment of one-half the invoice amount on August 18, 2003. |
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| |Prepare the journal entry to record the payment of the balance of the amount due on September 8, 2003. |
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|The following applies to questions #11, #12, and #13. |
|Spencer Company sells one product. The company had a beginning inventory of 80 units on January 1, 2003 priced at $50 per unit. The |
|following are the purchases and sales during the month of January. |
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|[pic] |
|11. |Compute the ending inventory and cost of goods sold assuming Spencer Company uses FIFO. |
|12. |Compute the ending inventory and cost of goods sold assuming Spencer Company uses LIFO and perpetual inventory system. |
|13. |Compute the ending inventory and cost of goods sold assuming Spencer Company uses LIFO and a periodic inventory system. |
|14. |Spencer Company adopted dollar-value LIFO on January 1, 2003, when the inventory value was $850,000. The December 31, 2003, |
| |ending inventory at year-end cost was $950,000 and the cost index for the year is 1.08. Compute the dollar-value LIFO inventory|
| |valuation for the December 31, 2003, inventory. |
|15. |Spencer Products has developed the following data for lower-of-cost-or-market valuation for its products: |
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| |The normal profit margin on all trees is 20% of selling price and disposal costs are 10% of selling price. Determine the balance|
| |sheet inventory carrying value assuming the LCM rule is applied to individual trees. |
|16. |On August 31, 2003, a fire destroyed Spencer Company’s entire inventory. The following information is available from its |
| |accounting records: |
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| |[pic] |
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| |Assuming that Spencer Company estimates the cost of destroyed inventory at $510,000, compute gross profit margin % that Spencer |
| |Company uses in estimating inventory. |
|17. |Spencer Stores uses the conventional retail method to estimate its ending inventories. The following data has been summarized |
| |for the year 2003: |
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| |Estimate the ending inventory as of December 31, 2003. |
|18. |Spencer Company purchased a new piece of equipment for $215,000, FOB shipping point. Other costs connected with the purchase |
| |were as follows: |
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| |Determine the capitalized cost of the new equipment. |
|19. |During the current year, Spencer Company purchased all of the outstanding common stock of Alexander, Inc. paying $12,000,000 |
| |cash. The book values and fair values of Alexander's assets and liabilities acquired are listed below: |
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| |[pic] |
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| |Prepare the journal entry to record the acquisition by Alexander, Inc. |
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|20. |Spencer Construction spent $600,000 in 2002 on a construction project to build an office building. Spencer Company also |
| |capitalized $30,000 of interest on the project in 2002. Spencer Construction financed 100% of the construction with a 10% |
| |construction loan. The project was completed on September 30, 2003. Additional expenditures in 2003 were as follows: |
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| |[pic] |
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| |Calculate the weighted average accumulated expenditures for 2003. |
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| |Calculate the completed cost of the office building. |
|The following pertains to questions #21, #22 and #23. |
|On January 1, 2003, Spencer Company purchased manufacturing equipment at a cost of $36,000. The equipment is expected to last 10 years and |
|has a residual value of $6,000. During its ten-year life, the equipment is expected to produce 500,000 units of product. In 2003 and 2004, |
|25,000 and 84,000 units, respectively, were produced. |
|21. |Compute depreciation expense for 2003 and 2004 and the book value of the equipment at December 31, 2003 and 2004, assuming the |
| |straight-line method is used. |
|22. |Compute depreciation expense for 2003 and 2004 and the book value of the equipment at December 31, 2003 and 2004, assuming the |
| |double-declining-balance method is used. |
|23. |Compute depreciation expense for 2003 and 2004 and the book value of the equipment at December 31, 2003 and 2004, assuming the |
| |units-of-production method is used. |
|24. |On February 20, 2003, Spencer Mining Company incurred costs of $3,600,000 to acquire and prepare to extract an estimated |
| |4,000,000 tons of mineral deposits. 450,000 tons of ore were mined in 2003. At the beginning of 2004, Spencer’s geologists |
| |estimated that 3,900,000 tons of ore still remained. 700,000 tons of ore were mined in 2004. |
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| |Required: |
| |Compute depletion costs for 2003 and 2004. |
|25. |Spencer Company carries the following investments on its books at December 31, 2003, and December 31, 2004. All securities were |
| |purchased during 2003. |
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| |In the format provided prepare the necessary journal entries for Spencer Company on December 31, 2003. |
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| |[pic] |
| |In the format provided prepare the necessary journal entries for Spencer Company on December 31, 2004. |
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| |What net effect would the valuation of these stock investments have on 2003 net income? |
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| |What net effect would the valuation of these stock investments have on 2004 net income? |
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|26. |On January 1, 2003, Spencer Company purchased 25% of the outstanding voting shares of Scott Manufacturing, Inc. common stock for|
| |$120,000 cash. On that date, Scott’s book value and fair value were both $420,000. The equity method is deemed appropriate for |
| |this investment. Scott's net income reported on December 31, 2003, was $50,000. During 2003, Scott also paid cash dividends in |
| |the amount of $30,000. Compute the amount that would be reported for the investment on Spencer Company’s financial statements |
| |at December 31, 2003. |
|27. |The following selected transactions relate to liabilities of Spencer Company for 2003. Spencer Company’s fiscal year ends on |
| |December 31. In the space provided prepare the appropriate journal entry for each transaction. |
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| |On January 15, Spencer Company received $5,500 from Byron Incorporated toward the purchase of $56,000 of pet supplies to be |
| |delivered on February 6. |
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| |On February 3, Spencer Company received $6,700 of refundable deposits relating to containers used to transport pet supply |
| |components. |
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| |On February 6, Spencer Company delivered the pet supplies to Byron, Inc. and received the balance of the purchase price. |
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| |First quarter credit sales totaled $900,000. The state sales tax rate is 4% and the local sales tax rate is 2%. |
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|28. |In 2003, Spencer Company introduced a new line of pet entertainment centers that carry a two-year warranty against |
| |manufacturer's defects. Based on past experience with similar products, warranty costs are expected to be approximately 1% of |
| |sales during the first year of the warranty and approximately an additional 3% of sales during the second year of the warranty. |
| |Sales were $4,000,000 for the first year of the product's life and actual warranty expenditures were $31,000. Assume that all |
| |sales are on credit. |
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| |Prepare journal entries to record the sales, the warranty expense and the warranty costs incurred during 2003. |
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| |What amount should Spencer Company report as a liability at December 31, 2003? |
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