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Case Study
79260-Midterm_ACCT_311_Summer_2013_Blank_Answe x
Intermediate Accounting II–(ACCT 311), Summer 2013
Midterm Exam Blank Answer Sheet version A
Student: _____________________________________Date: ___________________
Instructions:
· You may use a calculator, your textbook, Wiley Plus resources, and the resources posted in the WebTycho classroom. Do not use any other materials.
· You must submit the answer sheet by the due date and time. No credit after due date. Students are responsible for ensuring that they have the necessary technology to successfully submit assignments by the due date.
· Write all answers directly on this answer sheet in the space provided.
· You should save this answer sheet on your hard drive, then work on your computer as you write the answers, save the completed answer sheet on your hard drive, then submit it in your assignment folder in WebTycho.
· THIS EXAM IS TO BE COMPLTED WITHOUT THE ASSISTANCE OF ANY OTHER PERSON. Please sign the pledge below.
I pledge on my honor that I have not given or received any unauthorized assistance on this examination. In addition, I pledge that I will not disclose to, or discuss the contents of this examination with students who have not taken it.
_________________________________________________________________________
Signed
Question 1 (2 points—20 minutes)
Question 2 (4 points—25 minutes)
Question 3 (3 points—20 minutes)
Question 4 (2 points—15 minutes)
Question 5 (2 points—20 minutes)
Question 6 (2 points— 20 minutes)
Question 7 (6 points—20 minutes)
Select the best answer for each of the ten questions and write the letter corresponding to your answer in the space provided:
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Question 8 (9 points—40 minutes)
Show computations for each of the following, and clearly show your final answer:
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79260-Midterm_ACCT_311_Summer_2013_version_A.d_(1) x
Intermediate Accounting II–(ACCT 311), Summer 2013
Midterm Exam Version A
Student: _____________________________________ Date: ___________________
Instructions:
· You may use a calculator, your textbook, Wiley Plus resources, and the resources posted in the WebTycho classroom. Do not use any other materials. A separate answer sheet is provided for your answers.
· You must submit the answer sheet (do not submit this exam) by the due date and time. No credit after due date. Students are responsible for ensuring that they have the necessary technology to successfully submit assignments by the due date.
· Write all answers on the separate answer sheet in the space provided.
· You should save this exam and the blank answer sheet on your hard drive, and print both for ready reference as you work on your computer to write the answers. Save the completed answer sheet on your hard drive, and submit it in your assignment folder in WebTycho.
· THIS EXAM IS TO BE COMPLTED WITHOUT THE ASSISTANCE OF ANY OTHER PERSON. Please sign the pledge below on the answer sheet:
I pledge on my honor that I have not given or received any unauthorized assistance on this examination. In addition, I pledge that I will not disclose to, or discuss the contents of this examination with students who have not taken it.
_________________________________________________________________________
Signed
Question 1 (2 points—20 minutes)
A&O Company offers a coffee mug as a premium for every ten coupons redeemed by the customers. Each box of product X contains one coupon and sells for $3 each. Customers must pay $1.00 along with the ten coupons to get a coffee mug. The purchase price of each mug to the company is $1.25. The results of the premium plan for the year 2012 are as follows (assume all purchases and sales are for cash):
2012
Coffee mugs purchased 720,000
Product X boxes sold 5,600,000
Coupons redeemed 2,800,000
2012 Coupons expected to be redeemed in 2013 2,000,000
Instructions
Show calculations and prepare the general journal entries to record the inventory of mugs, sales of product X, premium expense, and estimated liability for premiums in 2012 related to the above plan by A&O.
Question 2 (4 points—25 minutes)
On January 2, 2011, PVP Co. issued 6 % bonds with a face value of $400,000 when the market interest rate was 8 %. The bonds are due in 10 years, and interest is payable every June 30 and December 31. Use the following present value and present value annuity tables to select applicable factors.
Present value of an ordinary annuity of $1
At 3% 10 periods=8.5302
At 4% 20 periods=13.5903
At 6% 10 periods=7.3601
At 8% 10 periods=6.7101
Present value of $1
At 3% 10 periods=0.7441
At 4% 20 periods=0.4564
At 6% 10 periods=0.5584
At 8% 10 periods=0.4632
1. Show computations to calculate the selling price of the bond (round your final answer to the nearest dollar).
2. Prepare an amortization schedule through 12/31/2012. Round all numbers to the nearest dollar.
3. Prepare the journal entry for the bond issue on 1/2/2011.
4. Prepare the journal entry for the interest payment on 6/30/2011.
Question 3 (3 points—20 minutes)
PVP Inc. has $800,000 of 8% preferred stock and $1,200,000 of common stock outstanding, each having a par value of $10 per share. No dividends have been paid or declared during 2010 and 2011. As of December 31, 2012, PVP wishes to distribute $488,000 in dividends.
Show computations for how much will the preferred and common stockholders receive under each of the following assumptions:
(a) The preferred is noncumulative and nonparticipating.
(b) The preferred is cumulative and nonparticipating.
(c) The preferred is cumulative and fully participating.
Question 4 (2 points— 15 minutes)
Information concerning the capital structure of PVP, Inc. is as follows:
· Common stock outstanding for the entire year 2012: 1,250,000 shares
· Face value of 8 percent convertible bonds issued 1-1-2012 and outstanding for the 12 months of 2012: $600,000
· Net income for the year ended 12-31-2012 was $1,540,000.
· The 8 percent convertible bonds are convertible into 100,000 shares of common stock. The tax rate for the company is 40 percent.
For the year ended December 31, 2012 compute the basic and diluted earnings per share.
Question 5 (2 points— 20 minutes)
On December 31, 2011, A&E Co. provided the following information regarding its trading securities:
Investments
Cost
Fair Value
Unrealized gain/(loss)
A company
$20,000
$19,000
$(1,000)
B company
$10,000
$ 9,000
$(1,000)
C company
$20,000
$20,600
$ 600
Totals
$50,000
$48,600
$(1,400)
Previous market adjustment balance
$ 0.00
During 2012, B Company stock was sold for $9,200. The fair market value of the remaining stock at December 31, 2012 was A Company–$19,000 and C Company–$20,500.
a) Prepare adjusting journal entry on December 31, 2011.
b) Prepare a table similar to the one shown above to determine the adjustment needed at 12/31/2012
c) Prepare the adjusting journal entry on December 31, 2012.
Question 6 (2 points— 20 minutes)
A&E Company began operations on January 1, 2012. During the year they entered into a contract to construct a facility. The following details apply to this contract:
Contract price
$6,500,000
Actual costs in 2012
$1,250,000
Additional estimated costs in the future
$4,000,000
Billings on contract in 2012
$1,950,000
Assuming that the company uses the percentage of completion method, show computations for the following:
1. Gross profit to be recognized in 2012.
2. Revenue to be recognized in 2012.
3. Calculate the amount of billings in excess of construction-in-process during 2012.
Question 7 (6 points—20 minutes)
Select the best answer for each of the following and write the letter corresponding to your answer in the answer sheet provided.
1. Which of the following is an example of a contingent liability?
a. Obligations related to product warranties.
b. Possible receipt from a litigation settlement.
c. Pending court case with a probable favorable outcome.
d. Tax loss carry-forwards.
2. Under what conditions an employer must accrue a liability for sick pay?
a. Sick pay benefits can be reasonably estimated.
b. Sick pay benefits vest.
c. Sick pay benefits accumulate and employees paid only if they are sick.
d. Sick pay benefits accumulate but do not vest.
3. A&O Corporation purchased $100,000, 10%, 5-year bonds with an 8% yield, for 108,111 and recorded the purchase with a debit to Available-for-Sale securities account on 1/1/2011. At 12/31 2011, the amortized cost of the bonds was $107,435 and the fair value was $107,000. At 12/31/2011, under the fair value method for debt securities, A&O would report
a. An unrealized holding loss in its income statement
b. The Available-for-Sale securities account at amortized cost on the balance sheet
c. The Available-for-Sale securities account at fair value on the balance sheet
d. An unrealized holding gain as other comprehensive income
4. If bonds are issued between interest dates, the entry on the books of the issuing corporation could include a
a. Debit to Interest Payable.
b. Credit to Interest Receivable.
c. Credit to Interest Expense.
d. Credit to Unearned Interest.
5. In a troubled debt restructuring in which the debt is settled by a transfer of assets with a fair market value less than the carrying amount of the debt, the debtor would recognize
a. No gain or loss on the settlement.
b. A gain on the settlement.
c. A loss on the settlement.
d. A gain on the disposition of the asset
6. Which dividends do not reduce stockholders’ equity?
a. Cash dividends
b. Stock dividends
c. Property dividends
d. Liquidating dividends
7. On January 1, 2010, VAAP Corp. granted an employee an option to purchase 6,000 shares of its $5 par value common stock at $20 per share. Assume that the option pricing model determines total compensation expense to be $140,000. The option became exercisable on December 31, 2011, after the employee completed two years of required service. The market prices of VAAP stock were as follows:
January 1, 2010 $30
December 31, 2011 50
The compensation expense for 2011, under the fair value method, would be computed as
a. One-half of the option price of $120,000 for 6,000 shares
b. One-half of the market-price of $300,000 at 12/31/2011 for 6,000 shares
c. One-half of the $140,000 determined by the option pricing model
d. Hundred percent of the $140,000 determined by the option pricing model
8. In determining diluted earnings per share, dividends on nonconvertible cumulative preferred stock should be
a. Disregarded.
b. Added back to net income whether declared or not.
c. Deducted from net income only if declared.
d. Deducted from net income whether declared or not.
9. On its December 31, 2010, balance sheet, A&O Co. reported its investment in available-for-sale securities, which had a cost of $600,000, at fair value of $550,000. At December 31, 2011, the fair value of the securities was $585,000. What should A&O report on its 2011 income statement as a result of the increase in fair value of the investments in 2011?
a. No Gain or Loss
b. An Unrealized Loss
c. A Realized Gain
d. An Unrealized Gain
10. On 12/31/2011, A&O Corp declared a property dividend of marketable securities to be distributed on 12/31/2011, to stockholders of record on 12/15/2011. On 12/31/2011 the marketable securities had a carrying amount of $60,000 and a fair value of $68,000. As a result of this dividend, A&O should
a. Record a loss on securities of $8,000,and debit retained earnings for $60,000
b. Record a loss on securities of $8,000, and credit retained earnings for $68,000
c. Record a gain on securities of $8,000, and debit retained earnings for $68,000
d. Record a gain on securities of $8,000, and debit retained earnings for $60,000
11. Under what conditions an employer must accrue a liability for vacation pay?
a. Vacation pay benefits can be reasonably estimated.
b. Only if vacation pay benefits are vested.
c. Only if vacation pay benefit-rights are accumulated but not vested.
d. Vacation pay benefit-rights are accumulated or vested.
12. A&E Co. has $1,000,000 of notes payable due June 15, 2012. At the financial statement date on December 31, 2011, A&E signed an agreement to borrow up to $1,000,000 to refinance the notes payable on a long-term basis. The financing calls for borrowings to not exceed 70% of the value of the collateral A&E was providing. The value of A&E’s collateral on 12/31/2011 was $1,300,000 and was not expected to fall below this amount during 2012. On the December 31, 2011 balance sheet A&E should classify:
a. $300,000 of notes payable as short term and $700,000 as long term
b. $90,000 of notes payable as short term and $910,000 as long term
c. $1,000,000 of notes payable as short term
d. $1,000,000 of notes payable as long term
Question 8 (9 points— 40 minutes)
Show computations for each of the following, and clearly show your final answer using the answer sheet provided.
1. Total payroll of VAP Co. was $920,000, of which $160,000 represented amounts paid in excess of $106,000 to certain employees. The amount paid to employees in excess of $7,000 was $720,000. Income taxes withheld were $225,000. The state unemployment tax is 1.2%, and the federal unemployment tax is 0.8%. Assume that the F.I.C.A. tax is 7.65% on an employee’s wages up to $106,000 and 1.45% on wages in excess of $106,000.
Calculate the amount of FICA tax that will be deducted from the employees’ wages and salaries.
2. During 2011, PVP Co. introduced a new product carrying a two-year warranty against defects. The estimated warranty costs related to dollar sales are 3% within 12 months following sale and 4% in the second 12 months following sale. Sales and actual warranty expenditures for the years ended December 31, 2011 and 2012 are as follows:
Actual Warranty
Sales Expenditures
2011 $ 900,000 $10,000
2012 1,000,000 30,000
$1,900,000 $40,000
Show computation for an estimated warranty liability on 12/31/2011 and 12/31/2012 respectively.
3. AVP Company issued $20,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2012. Interest is paid on June 30 and December 31. The proceeds from the bonds were $19,604,145. Prepare a partial amortization table using the effective-interest method to calculate (1) Interest expense to be recognized in 2012, and (2) the carrying value of bonds at 12/31/2012.
4. A&O Corporation is indebted to AVP Corporation under a $400,000, 12%, three-year note dated
December 31, 2010. Because of A&O’s financial difficulties developing in 2012, A&O owed accrued interest of $48,000 on the note at December 31, 2012. Under a troubled debt restructuring, on December 31, 2012, AVP agreed to settle the note and accrued interest for a tract of land having a fair value of $360,000. A&O’s acquisition cost of the land was $290,000. Ignoring income taxes, show calculations for A&O’s (1) Gain or loss on the disposal of land, (2) Gain or loss on restructuring of the debt.
5. VAP Company’s balance sheet shows:
· Common stock, $20 par $3,000,000
· Paid-in capital in excess of par 1,050,000
· Retained earnings 750,000
Prepare journal entries to record the following transactions using the cost method.
(a) Bought 5,000 treasury shares of its own common stock at $29 a share.
(b) Sold 2,500 treasury shares at $30 a share.
(c) Sold 1,000 shares of treasury stock at $26 a share.
6. On January 1, 2012, PVP Corporation had 1,000,000 shares of common stock outstanding. On March 1, the corporation issued 150,000 new shares to raise additional capital. On July 1, the corporation declared and issued a 2-for-1 stock split. On October 1, the corporation purchased on the market 600,000 of its own outstanding shares and retired them. Compute the weighted average number of shares to be used in computing earnings per share for 2012.
7. The following information is provided for A&E Company, which uses the equity method.
· On January 1, 2011, A&E Company acquired 50,000 shares of PVP, Inc. (representing 30 percent ownership and significant influence) common stock at a cost of $10 per share.
· For the year 2011, PVP, Inc. reported net income of $200,000.
· On January 28, 2012, PVP, Inc. announced and paid a cash dividend of $50,000.
· For the year 2012, PVP Inc. reported a net loss of $100,000.
Calculate the balance in the Investment in PVP Stock account as of the end of 12/31/2012.
8. PVP Co. had 200,000 shares of common stock, 20,000 shares of convertible preferred stock, and $1,000,000 of 10% convertible bonds outstanding during 2012. The preferred stock is convertible into 40,000 shares of common stock. During 2012, PVP paid dividends of $.90 per share on the common stock and $3.00 per share on the preferred stock. Each $1,000 bond is convertible into 45 shares of common stock. The net income for 2012 was $600,000 and the income tax rate was 30%. Show computations for the diluted EPS for 2012 (round your answer to the nearest penny)
9. A&O Corp, which began business on January 1, 2012, appropriately uses the installment sales method of accounting. The following data is available for the year 2012:
Installment sales
$1,000,000
Cost of installment sales
$ 700,000
Cash collections on sales
$ 500,000
An item sold in 2012 resulted in a default in 2012. At the date of default, the balance in the installment receivable was $16,000 and repossessed merchandise had a fair value of $10,000. Show computations and prepare a journal entry to record the repossession.
10. VAAP Corporation issued 2,000 shares of common stock and 400 shares of preferred stock for a lump sum of $72,000 cash.
Show computations to determine the amounts that would be allocated to common and preferred stock, respectively, assuming the par value of the common was $5 and the market value was $30, and the par value of the preferred was $40 and the market value was $50. In addition, prepare a journal entry to record this transaction.
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