Acct 557 midterm exam

(TCO A) Benny Building, Inc. won a bid for a new warehouse building contract.

Below is information from the project accountant.

Total Construction Fixed Price $25,000,000

Construction Start Date June 13, 2012

Construction Complete Date December 16, 2013

As of Dec. 31… 2012 2013

Actual cost incurred $11,500,000 $8,360,000

Estimated remaining costs $8,250,000 $-

Billed to customer $9,000,000 $16,000,000

Received from customer $7,500,000 $16,500,000

Assuming Benny Building, Inc. uses the completed contract method, what amount of gross profit would be recognized in 2013?

(TCO B) At the beginning of 2012, Barbara, Inc. has a deferred tax asset of $8,000 and deferred tax liability of $6,500. In 2012, pretax financial income was $600,000 and the tax rate was 35%.

Pretax income included:

Interest income from municipal bonds $25,000

Accrued warranty costs, estimated to be used in 2013 $74,000

Prepaid rent expense, will be used in 2013 $16,000

Installment sales revenue, to be collected in 2013 $45,000

Operating loss carryforward $36,000

What is the adjustment needed to correct the balance of deferred tax asset for 2012?

(TCO C) Presented below is pension information related to Baked Goods, Inc. for the year 2013.

Service cost $103,000

Interest on projected benefit obligation $65,000

Interest on vested benefits $12,000

Amortization of prior service cost due to increase in benefits $14,000

Expected return on plan assets $18,000

The amount of pension expense to be reported for 2013 is

(TCO C) Bunny Hopping, Inc. sponsors a defined-benefit pension plan. The following data relate to the operation of the plan for the year 2013.

Service cost $135,000

Contributions to the plan $105,000

Actual return on plan assets $120,000

Projected benefit obligation (beginning of year) $1,800,000

Fair value of plan assets (beginning of year) $1,900,000

The expected return on plan assets and the settlement rate were both 9%. The amount of pension expense reported for 2013 is

(TCO D) Bucky, Inc. leased equipment from Green Enterprises under a 5-year lease requiring equal annual payments of $43,000, with the first payment due at lease inception. The lease does not transfer ownership, nor is there a bargain purchase option. The equipment has a 5-year useful life and no salvage value. Bucky, Inc.’s incremental borrowing rate is 6% and the rate implicit in the lease (which is known by Pisa, Inc.) is 8%. Assuming that this lease is properly classified as a capital lease, what is the amount of interest expense recorded by Bucky, Inc. in the first year of the asset’s life?

PV Annuity Due PV Ordinary Annuity

8%, 5 periods 4.31213 3.99271

6%, 5 periods 4.46511 4.21236

(TCO E) On December 31, 2013, Antique Salvage, Inc. appropriately changed its inventory valuation method from weighted-average cost to FIFO method for financial statement and income tax purposes. The change will result in a $1,700,000 increase in the beginning inventory at January 1, 2013. Assume a 30% income tax rate. The cumulative effect of this accounting change on beginning retained earnings is

(TCO E) Which of the following is not a change in accounting estimate?

(TCO F) Balancing Act, Inc. recognized net income of $367,000 including $15,600 in depreciation expense.

Additional changes from the balance sheet are as follows.

Accounts Receivable $3,400 decrease

Prepaid Expenses $18,500 decrease

Inventory $3,600 increase

Accrued Liabilities $12,000 decrease

Accounts Payable $13,500 increase

Compute the net cash from operating activities based on the above information.

(TCO G) The disclosure of accounting policies is important to the financial statements when determining

(TCO G) Adventure, Inc. is a company that operates in four different divisions. The following information relating to each segment is available for 2013.

Sales revenue Operating profit (loss) Identifiable assets

A $11,200 $- $72,800

B $630,000 $168,700 $511,000

C $75,600 $(8,400) $65,800

D $44,800 $6,510 $47,600

Required:

For which of the segments would information have to be disclosed in accordance with professional pronouncements?

(TCO A) Bentley Corporation has several divisions. All operations keep their own accounting books and have chosen the appropriate method of revenue recognition.

(TCO B) Buffy, Inc. qualifies to use the installment-sales method for tax purposes and sold an investment on an installment basis. The total gain of $90,000 was reported for financial reporting purposes in the period of sale. The installment period is 3 years; one third of the sale price is collected in 2012 and the rest in 2013. The tax rate was 40% in 2012, 35% in 2013, and 35% in 2014. The accounting and tax data is shown below.

Financial Accounting Tax Return

2012

Income before temporary difference $200,000 $200,000

Temporary difference $90,000 $30,000

Income $290,000 $230,000

2013

Income before temporary difference $230,000 $230,000

Temporary difference $- $30,000

Income $230,000 $260,000

2014

Income before temporary difference $195,000 $195,000