University of Maryland University College
FINAL EXAM – ACCT 310 7980 – Intermediate Financial Accounting I
INSTRUCTOR: Rohan Chambers
INSTRUCTIONS:
- This paper contains 3 sections: A, B & C.
- Section A is mandatory and contains 5 questions
- Section B contains 2 questions, choose any 1
- Section C contains 2 questions, choose any 1
- Answer all questions in the space provided below each question. (Note – It may be a good idea to first print a hard copy of this paper)
- You have 6 hours in which to complete this exam.
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Section A
(This section contains 5 questions. Each question carries different point values).
Answer all 5 questions. Total points = 150
Question 1 (Chapter 8)
Brake Company utilizes the perpetual inventory method. Inventory information for Part # AB124 revealed the following for the month of May:
Required: Determine the value of ending inventory and gross profit under each of the following methods:
- LIFO (12 points)
- FIFO (6 points)
- Average Cost (12 points)
TYPE YOUR SOLUTION TO QUESTION 1 HERE
| May 1 | Balance 245 units @ $8 | May 10 | Sold 210 @ $23.50 |
| May 11 | Purchased 800 units @ $9.50 | May 16 | Sold 300 @ $23 |
| May 20 | Purchased 770 units @ $11 | May 26 | Sold 350 @ $24.50 |
B. FIFO Perpetual
Date Purchases Sales Balance
May 1 245 units @ $8.00 = 1960
May 10 210 @ 23.50= 4935 210 units @ 23.50 = 4935
May 11 800 @$9.50= 7600
May 16 35 @ 8
May 20
May 26
Question 2 (Chapter 9)
Grande Incorporated, a window installation company, is preparing its annual financial statements for the year ended December 31, 2009 and the following information in dollars is available:
| Raw Material | FIFO Cost | Replacement Cost | Sales Price |
| Aluminum | 70,000 | 50,000 | 79,000 |
| Cedar shake siding | 84,000 | 90,000 | 81,000 |
| Lowered glass doors | 116,000 | 120,000 | 150,000 |
| Thermal windows | 110,000 | 150,000 | 145,000 |
| Total | 380,000 | 410,000 | 455,000 |
- Selling Expenses are 15% of Sales.
- Normal Profit Margin is 20% of Sales.
- At December 31, 2009, the balance in Grande’s Raw Material inventory account was $380,000 and the Allowance to Reduce Inventory to Market had a credit balance of $50,000.
Required:
- Prepare a table with the headings below (and a row for each type of raw material) and determine the proper balance in the Allowance to Reduce Inventory to Market account at December 31, 2009.
| Raw Material | FIFO Cost |
Replacement Cost | Ceiling | Floor | Deemed Market Value | Lower of Cost or Market |
(20 points)
- Determine the amount of gain or loss that would be recorded due to the change in the Allowance to Reduce Inventory to Market account. (5 points)
TYPE YOUR SOLUTION TO QUESTION 2 HERE
| Raw Material |
FIFO Cost |
Replacement Cost |
Ceiling | Floor | Deemed Market Value |
Lower Cost of Market |
| Aluminum | 70,000 | 50,000 | ||||
| Cedar Shake Siding | 84,000 | 90,000 | ||||
| Lowered Glass Doors | 116,000 | 120,000 | ||||
| Thermal Windows |
110,000 | 150,000 |
Question 3 (Chapter 10)
Lola industries purchased the following assets and constructed a building as well. All of this was done during the current year.
Assets 1 and 2:
These assets were purchased as a lump sum for $110,000 cash. The following was gathered:
| Description | Initial Cost on Seller’s Books | Depreciation to Date on Seller’s Books | Book Value on Seller’s Books | Appraised Value |
| Machinery | $100,000 | $40,000 | $60,000 | $81,000 |
| Office Equipment | 70,000 | 25,000 | 45,000 | 44,000 |
Asset 3
Office Equipment was acquired by issuing 300 shares of $6 par value common stock. The stock had a market value of $14 per share.
Construction of Building
A building was constructed on land purchased last year at a cost of $150,000. Construction began on February 1 and was completed on November 1. The payments to the contractor were as follows:
| Date | Payment |
| 2/1 | $100,000 |
| 6/1 | 380,000 |
| 9/1 | 460,000 |
| 11/1 | 120,000 |
To finance construction of the building, a $600,000 10% construction loan was taken out on February 1. The loan was repaid on November 1. The firm had $200,000 of other outstanding debt during the year at a borrowing rate of 7%.
Required: Record all of the applicable acquisition/construction entries for each of these assets.
(45 points)
TYPE YOUR SOLUTION TO QUESTION 3 HERE
Question 4 (Chapter 11)
Rohan Company purchased equipment in January 2008 for $8,000,000 and had an estimated useful life of 6 years with a salvage value of $2,000,000. At December 31, 2010, new technology was introduced that would accelerate the obsolescence of Rohan’s equipment. Rohan’s controller estimates that expected future net cash flows on the equipment will be $4,900,000 and that the fair value of the equipment is $4,600,000. Rohan intends to continue using the equipment, but it is estimated that the remaining life is 2 years and new salvage value is $1,000,000. Rohan uses straight line depreciation.
Required:
- Prepare the journal entry (if any) to record the impairment at December 31, 2010.
(10 points)
- Prepare any journal entries for the equipment at December 31, 2011. (5 points)
TYPE YOUR SOLUTION TO QUESTION 4 HERE
Question 5 (Chapter 12)
On May 1, 2011, Walker Company (a US company) paid US$3,700,000 to acquire all of the common stock of Hayden Corporation (an Australian company), which now became a division of Walker. Hayden reported the following US$ balance sheet at the time of the acquisition:
| Book Value $ | Fair Value $ | |
| Current Assets | 900,000 | 1,500,000 |
| Noncurrent Assets | 2,700,000 | 2,300,000 |
| Current liabilities | (600,000) | (700,000) |
| Long term liabilities | (500,000) | (400,000) |
At December 31, 2011, Hayden reports the following US$ balance sheet information:
| Book Value $ | Fair Value $ | |
| Current Assets | 800,000 | 800,000 |
| Noncurrent Assets (excluding Goodwill) | 1,500,000 | 1,300,000 |
| Current liabilities | (700,000) | (700,000) |
| Long term liabilities | (500,000) | (400,000) |
During the annual impairment test conducted on December 31, 2011, it was determined that the fair value of the Hayden division as a whole was $2,400,000.
Required:
- Compute the amount of goodwill recognized, if any, on May 1, 2011. (3 points)
- Determine the impairment loss, if any, to be recorded on December 31, 2011. (3 points)
- Determine the implied fair value of goodwill on December 31, 2011. (8 points)
- On the assumption that the fair value of Hayden on December 31, 2010 was $1,650,000 instead of $2,400,000, determine the impairment loss, if any, to be recorded. (21 points)
TYPE YOUR SOLUTION TO QUESTION 5 HERE
Section B
(This section contains 2 questions, each worth 20 points).
Answer any 1 question. Total points = 20
Question 6 (Chapter 7)
Walter & Company has produced the following detailed aging of outstanding accounts receivable as at December 31, 2009.
| Age (days) | $Amount Due | Probability of collection. |
| 0 30 | 400,000 | 90% |
| 31 – 60 | 200,000 | 75% |
| 61 90 | 300,000 | 50% |
| 91 180 | 100,000 | 25% |
| Over 180 | 200,000 | 10% |
Required:
- Prepare an aging analysis and show how accounts receivable and the related allowance for doubtful accounts would appear in the balance sheet at December 31, 2009. (7 points)
- Prepare the necessary journal entry to update the allowance for doubtful accounts assuming that the balance prior to preparing the aging was a credit of $100,000. (3 points)
- One of the customers, Janet, who was in the “Over 180” days category owed $60,000. On January 15, 2010, it was revealed that Janet was officially declared bankrupt and would only be able to repay a quarter of what she owed to any company. Prepare the journal entry to write off Janet’s uncollectible debt. (4 points)
- On January 31, 2010, Janet won the lottery and on the same day she decided to repay all of her original debts to everyone whom she owed money. Prepare the journal entry to record Walter’s unexpected receipt of Janet’s payment. (6 points)
TYPE YOUR SOLUTION TO QUESTION 6 HERE
Question 7 (Chapter 7)
Jack’s Dance Company provided you with the following information, from which you are to prepare the 2009 October bank reconciliation as well the corresponding entries to make the books correct and complete:
Balance per bank – October 31, 2009 $217,000.08
Bank service charge for the month 73.00
NSF check (received from customer) returned with bank statement 1,780.95
Note collect by bank during the month 64,000.00
Interest on note collected during the month 12,800.00
Outstanding checks at month end 43,087.45
Deposits in transit at month end 23,754.90
Balance per company records – Oct 31, 2009 122,721.48
(20 points)
TYPE YOUR SOLUTION TO QUESTION 7 HERE
Balance per bank – October 31, 2009 $217,000.08
Deposits in transit at month end 23,754.90
240,754.98
Outstanding checks at month end 43,087.45
Correct Cash Balance 197,667.53
Balance per company records – Oct 31, 2009 122,721.48
Interest on note collected during the month 12,800.00
Note collect by bank during the month 64,000.00
199,594.48
NSF check (received from customer) returned with bank statement 1,780.95
Bank service charge for the month 73.00
Correct Cash Balance 197,667.53
Section C
(This section contains 2 questions, each worth 30 points).
Answer any 1 question, Total points = 30
Question 8 (Chapter 4)
Shown below is an income statement for 2010 that was prepared by a poorly trained bookkeeper of Howell Corporation.
Howell Corporation
INCOME STATEMENT
December 31, 2010
Sales $945,000
Investment revenue 19,500
Cost of merchandise sold (408,500)
Selling expenses (145,000)
Administrative expense (215,000)
Interest expense (13,000)
Income before special items 183,000
Special items
Loss on disposal of a component of the business (30,000)
Major casualty loss (extraordinary item) (70,000)
Net federal income tax liability (24,900)
Net income
$ 58,100
Required
Prepare a multiple step income statement for 2010 for Howell Corporation that is presented in accordance with generally accepted accounting principles (including format and terminology). Howell Corporation has 50,000 shares of common stock outstanding and has a 30% federal income tax rate on all tax related items. Round all earnings per share figures to the nearest cent.
(30 points)
TYPE YOUR SOLUTION TO QUESTION 8 HERE
Howell Corporation
INCOME STATEMENT
December 31, 2010
Sales $945,000
Cost of Goods Sold 408,500
Gross Profit 536,500
Selling Expense $145,000
Administrative expense 215,000 360,000
Income from Operations 176,500
Other Revenue: Investment Revenue 19,500
196,000
Other Expenses: Interest Expense 13,000
Income from Continuing Operations before taxes 183,000
Income Taxes 54,900
Income from Continuing Operations 128,100
Loss from discontinued operations, net of applicable income tax of 9,000 21,000
Income before extraordinary Item 107,100
Extraordinary casualty loss, net of applicable income tax of $21,000 49,000
Net Income $58,100
Question 9 (Chapter 5)
The following balance sheet was prepared by the bookkeeper for Kraus Company as of December 31, 2010.
Kraus Company
Balance Sheet
as of December 31, 2010
Cash $ 80,000 Accounts payable $ 75,000
Accounts receivable (net) 52,200 Long term liabilities 100,000
Inventories 57,000 Stockholders’ equity 218,500
Investments 76,300
Equipment (net) 96,000
Patents 32,000
$393,500 $393,500
The following additional information is provided:
1. Cash includes the cash surrender value of a life insurance policy $9,400, and a bank overdraft of $2,500 has been deducted.
2. The net accounts receivable balance includes:
(a) accounts receivable—debit balances $60,000;
(b) accounts receivable—credit balances $4,000;
(c) allowance for doubtful accounts $3,800.
3. Investments include investments in common stock, trading $19,000 and available for sale $48,300, and franchises $9,000.
4. Equipment costing $5,000 with accumulated depreciation $4,000 is no longer used and is held for sale. Accumulated depreciation on the other equipment is $40,000.
Required:
Prepare a balance sheet in good form (stockholders’ equity details can be omitted.)
(30 points)
TYPE YOUR SOLUTION TO QUESTION 9 HERE
Attachments:
ACCT310 Fin….doc