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Question 1 A&O Corp. had the following selected account balances

Question 1

A&O Corp. had the following selected account balances as of 12/31/2012 before adjusting entries were made.

Cash

$90,000

Insurance expense

18,000

Accounts receivable

16,000

Supplies

6,400

Equipment

90,000

Accumulated depreciation

28,000

Unearned advertising revenue

5,000

Salaries expense

10,000

Rent expense

18,000

A&O’s accountant has provided you the following information:

1. Insurance was paid in advance on 10/1/2012 for a one year period starting 10/1/2012 and the entire amount ($18k) was recorded in the insurance expense account.

2. Supplies remaining on hand at the end of the year were $3,000.

3. Equipment was purchased on 10/1/2012 and it is being depreciated over 10 years by the straight line method. The salvage value of the equipment is $0.

4. A&O has completed 50% advertising services due to clients, whose advance cash payments were recorded above.

5. Rent ($18,000) was paid in advance on 11/30/2012, for 6 months (11/30/2012 to5/31/2013) and A&O recorded the entire amount as rent expense on that date.

Prepare the adjusting journal entries for each of the 5 items above (do not write any explanations). Show all supporting computations. Use the answer sheet provided.

Question 2

Presented below is the pretax information for Aloma Corporation, for the year 2012:

Sales

$6,000,000

Cost of goods sold

2,950,000

Interest revenue

60,000

Loss from abandonment of plant assets

300,000

Selling expenses

600,000

Administrative expenses

440,000

Unusual and infrequent loss from earthquake

90,000

Gain on disposal of a segment of the business. The corporation will no longer be in that business in the future.

290,000

Instructions:

Present all applicable information in a proper format (according to GAAP), to prepare a multiple step income statement. The company has 300,000 shares outstanding and a federal tax rate of 30%. Prepare an EPS section in proper format (round to two decimals). Use the answer sheet provided.

Question 3Presented below is the relevant information for Preeti Inc., for the year 2012:

Cash

$200,000

Accounts receivable (net)

60,000

Inventories (at average cost)

45,000

Available for sale securities, at fair value (long term)

26,000

Equipment (net)

129,000

Land held for speculation

59,000

Cash surrender value of life insurance

10,000

Patents

11,000

Notes and accounts payable

85,000

Long term liabilities

165,000

Stockholders’ equity

290,000

The following additional information is provided:

· Cash includes $50,000 designated for plant expansion in 2015.

· The net accounts- receivable is comprised of accounts receivable $68,000, and allowance for doubtful accounts $8,000.

· Equipment had a cost of $160,000 and accumulated depreciation of $31,000.

· Note and accounts payable include: Accounts payable $26,000; Taxes payable $21,000; and Note payable $38,000 due 6/15/2013.

· Long term liabilities are 10 year bonds, paying interest at 10%, maturing 6/30/2020, and comprised of: Bonds payable $190,000; Discount on bonds payable $25,000.

· Stockholder’s equity is comprised of: Common stock ($1 par) 100, 000 shares authorized, 50,000 shares issued and outstanding at $2.10; and Retained earnings of $185,000.

Instructions:Present the items above in proper format to prepare a balance sheet. Use the answer sheet provided.

Question 4

On January 1, 2012, PVP Co. issued 6 % bonds with a face value of $5,000,000 when the market interest rate was 10 %. The bonds are due in 10 years, and interest is payable semiannually every June 30 and December 31. Using the appropriate factors below, calculate the selling price of the bond (round your final answer).

Present value of an ordinary annuity of $1

At 3% 10 periods=8.5302

At 5% 20 periods=12.4622

At 6% 10 periods=7.3601

At 10% 10 periods=6.1446

Present value of $1

At 3% 10 periods=0.7441

At 5% 20 periods=0.3769

At 6% 10 periods=0.5584

At 10% 10 periods=0.3855

Use the answer sheet provided.

Question 5

The trial balance before adjustment for the A&E Corporation shows the following balances:

Debit

Credit

Accounts Receivable

$300,000

Allowance for Doubtful Accounts

$1,000

Sales

$700,000

Sales Returns and Allowances

$10,000

Using the data above, show computations and prepare the journal entries required to record each of the following:

a. The company wants to maintain the Allowance for Doubtful Accounts at 6% of gross accounts receivable. Show computation and prepare your journal entry using the answer sheet provided.

b. The company wishes to increase the allowance by 3% of net sales. Show computation and prepare your journal entry using the answer sheet provided.

Question 6

Select the best answer for each of the following and write the letter corresponding to your answer in the answer sheet provided.

1. Documents that comprise GAAP include all of the following, except

a. FASB technical bulletins.

b. AICPA accounting research bulletins.

c. Statements of financial accounting concepts.

d. FASB standards.

2. Which of the following provides a consensus on how to account for new and unusual financial transactions?

a. Securities and Exchange Commission.

b. Emerging issues task force.

c. Committee on Accounting Procedure.

d. Accounting Principles Board.

3. The fundamental qualitative characteristic of faithful presentation has the components of

a. Predictive value and confirmatory value.

b. Comparability, consistency, and confirmatory value.

c. Understandability, predictive value, and reliability.

d. Completeness, neutrality, and freedom from error.

4. According to the FASB conceptual framework, which of the following is an enhancing quality that relates to both relevance and faithful presentation?

a. Confirmatory value.

b. Predictive value.

c. Verifiability.

d. Freedom from error.

5. A&E Corporation paid one year’s rent in advance on 8/1/2012 and charged the entire amount to Rent Expense. The adjusting entry made by A&E on 12/31/2012 would

a. Debit Rent Revenue

b. Credit Prepaid Rent

c. Be subsequently reversed

d. Credit a liability account

6. A&O Corporation received cash on September 1, 2012 for one year’s rent in advance and recorded the transaction with a credit to Rent Revenue. The December 31, 2012 adjusting entry would

a. debit Unearned Rent.

b. creditCash.

c. credit Rent Revenue.

d. credit a liability account.

7. Which of the following events will appear in the cash flows from investing activities section of the statement of cash flows?

a. Cash paid as dividends.

b. Cash received by issuing company’s own common stock.

c. Cash received as repayment for funds loaned to other companies.

d. Cash purchase of treasury stock.

8. Making and collecting loans and disposing of property, plant, and equipment are

a. operating activities.

b. investing activities.

c. financing activities.

d. liquidity activities.

9. What is the normal journal entry when writing-off an account as uncollectible under the allowance method?

a. Debit Allowance for Doubtful Accounts, credit Accounts Receivable.

b. Debit Allowance for Doubtful Accounts, credit Bad Debt Expense.

c. Debit Bad Debt Expense, credit Allowance for Doubtful Accounts.

d. Debit Accounts Receivable, credit Allowance for Doubtful Accounts.

10. In a statement of cash flows, interest payments to lenders and other creditors should be classified as cash outflows for

a. operating activities.

b. borrowing activities.

c. lending activities.

d. financing activities.

Question 7

Show computations for each of the following, and clearly show your final answer using the answer sheet provided.

1. AP Company had a credit balance of $15,000 on 1/1/12 and $11,000 on 12/31/2012 in its Unearned Rent account. AP received $60,000 cash in 2012, all of which was credited to Unearned Rent account. Calculate the amount of Rent Revenue recognized in 2012.

2. PVP Company sublet a warehouse for 4 years at an annual rental of $60,000, beginning on November 1, 2012. The tenant paid one year’s rent in advance on 11/1, which PVP recorded as a credit to Unearned Rent. Show computation and prepare the adjusting entry on December 31, 2012 for PVP.

3. The following information pertains to A&E Company’s insurance account:

Premiums paid by A&E to purchase insurance in 2012 $ 12,800

Prepaid insurance account balance as of 12/31/2012 $3,000

Prepaid insurance account balance as of 12/31/2011 $1,200

Calculate the amount recorded by A&E as Insurance Expense in 2012.

4. A&E Company had the following transactions during 2012:

· A $10,000 write-down of receivables.

· A $60,000 gain from fluctuations in foreign currency exchange.

· A $60,000 write-off of obsolete inventory

In its 2012 income statement, assuming a 40% tax rate, what amount should A&E report as total infrequent net gains/losses that are considered extraordinary?

5. For the year ended December 31, 2012, A&E Co. estimated its allowance for uncollectible accounts using the year-end aging of accounts receivable. The following data are available:

Allowance for uncollectible accounts balance, 1/1/12 $5,000

Uncollectible accounts written off in 2012 10,000

Allowance for uncollectible accounts balance 12/31/12 60,000

Calculate the amount of bad debt expense recorded by A&E in 2012.

6. A&O Corp. financed the purchase of a machine on December 31, 2012 by making payments of $5,000 each year, for five years starting on December 31, 2012. The appropriate rate of interest is 10 %. Using the appropriate factors given below, calculate the cost of the machine to A&O on 12/31/2012.

· The future value of one for five periods at 10 % is 1.61051.

· The present value of one for five periods at 10 % is 0.62092.

· The future value of an ordinary annuity for five payments at 10 % is 6.10510.

· The present value of an ordinary annuity for five payments at 10 % is 3.79079.

· The present value of an annuity-due for five payments at 10 % is 4.16986.

7. During 2012 the A&E Company had a net income of $100,000. In addition, selected accounts showed the following:

2012

2011

Cash

$153,000

$119,000

Accounts Receivable

238,000

306,000

Inventory

391,000

340,000

Property, Plant and Equipment

1,342,000

1,122,000

Accumulated depreciation

(476,000)

(442,000)

Accounts payable

187,000

102,000

Additional information: Assume that during 2012, A&E sold equipment at a gain of $10,000. Also, assume that depreciation expense for 2012 was $74,000.

Show calculations for the amount of cash provided by operating activities in 2012.

8. A person wins a lottery on 12/31/2012. She will receive 20 annual payments of $50,000 each starting on 12/31/2012. Assuming a 12% interest rate, what is the present value of her winnings? Use the appropriate factors given below.

· Present value of an ordinary annuity at 12 % for 20 payments 7.46944

· Future value of an ordinary annuity at 12 % for 20 payments 72.05244

· Present value of an annuity due at 12 % for 20 payments 8.36578

9. To obtain additional cash, A&E Corporation factors $200,000 of its accounts receivable to PVP Corporation. PVP assesses a finance charge of 5 percent of the amount of accounts receivable and retains an amount equal to 3 percent of accounts receivable to cover sales discounts, returns, and allowances.

Assuming that this transaction is on a without recourse basis, prepare a journal entry on the books of PVP Corporation to record this transaction. Show computations and prepare your journal entry using the answer sheet provided.

10. Assume the same data given in #9 above except that this transaction is on a with recourse basis. Prepare a journal entry on the books of A&E Corporation to record this transaction. Assume that A&E has determined the recourse obligation to be $6,000. Show computations and prepare your journal entry using the answer sheet provided.

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