13 Jan a. Compute the days’ sales in

Midterm exam

Question 1 Listed below are several qualitative characteristics. Label the characteristic (or characteristics) that align with each statement.

a. Understandability

b. Usefulness for decision making

c. Relevance

d. Reliability

e. Predictive

f. Feedback value

g. Timely

h. Verifiable

i. Representational faithfulness

j. Neutrality

k. Comparability

l. Materiality

m. Benefits of information should exceed its cost

___ 1. Two constraints included in the hierarchy.

___ 2. For this quality, the information needs to have predictive and feedback value and be timely.

___ 3. These are the qualitative characteristics that are viewed as having the most importance.

___ 4. SFAC No. 2 indicates that to be reliable, the information needs to have these characteristics.

___ 5. Interacts with relevance and reliability to contribute to the usefulness of information.

___ 6. Two primary qualities that make accounting information useful for decision making.

___ 7. For this quality, the information must be verifiable, subject to representational faithfulness, and neutral.

___ 8. SFAC No. 2 indicates that to be relevant, the information needs to have these characteristics.

Question 2 Listed below is information related to several adjusting entry situations. Assume that the accounting year ends on December 31.

a. $3,000 paid for insurance on October 1 for a one-year period (October 1 – September 30). This transaction was recorded as a debit to prepaid insurance ($3,000) and a credit to cash ($3,000).

b. Interest on bonds payable in the amount of $500 has not been recorded at December 31.

c. Rent expense in the amount of $1,200 was paid on November 1. This transaction was recorded as a debit to rent expense ($1,200) and a credit to cash ($1,200). This rent payment was for the period November 1 to January 31.

Record the original entries and the adjusting entries using T-accounts

Question 3 A partial list of accounts for Johnson and Clark, in alphabetical order, is presented below:

Accounts Payable

Interest Receivable

Accounts Receivable

Inventory¾Ending Balance

Accrued Salaries Payable

Land

Accumulated Depreciation¾Buildings

Land Held for Future Plant Site

Accumulated Depreciation¾Equipment

Loss on Sale of Equipment

Additional Paid-In Capital¾Common Stock

Marketable Securities

Allowance for Doubtful Accounts

Noncontrolling Interest

Bank Loan (long-term)

Notes Payable (long-term)

Bonds Payable

Obligations on Long-Term Loans

Buildings

Patent

Cash in Bank

Preferred Stock

Commission Expense

Premium on Bonds Payable

Common Stock

Prepaid Expenses

Current Portion of Long-Term Debt

Purchases

Equipment

Retained Earnings

FICA Taxes Payable

Sales

Franchise

Sales Salaries Expense

Goodwill

Treasury Stock

Interest Income

Unearned Rent Revenue

Prepare a consolidated balance sheet in good format, without monetary amounts, for December 31, 2012. Use the format Current Assets; Property, Plant, and Equipment; Investments; Intangibles; Current Liabilities; Long-Term Liabilities; and Stockholders’ Equity. Do not use the accounts not found on the balance sheet.

Question 4 The following is a partial listing of accounts for Euisara, Inc., for the year ended December 31, 2012.

Prepare a balance sheet in good format for December 31, 2012.

Finished Goods

$ 9,718

Current Maturities of Long-Term Debt

1,257

Accumulated Depreciation

9,980

Accounts Receivable

24,190

Sales Revenue

127,260

Treasury Stock

251

Prepaid Expenses

2,199

Deferred Taxes (long-term liability)

8,506

Interest Expense

2,410

Allowance for Doubtful Accounts

915

Retained Earnings

18,951

Raw Materials

9,576

Accounts Payable

19,021

Cash and Cash Equivalents

8,527

Sales Salaries Expense

872

Cost of Goods Sold

82,471

Investment in Unconsolidated Subsidiaries

3,559

Income Taxes Payable

8,356

Work In Process

1,984

Additional Paid-In Capital

9,614

Equipment

41,905

Long-Term Debt

15,258

Rent Income

2,468

Common Stock

3,895

Notes Payable (short-term)

6,156

Income Tax Expense

2,461

Question 5 The income statement for Lifeline Products in single-step format follows.

Lifeline Products

Income Statement

For the Year Ended December 31, 2012

Revenues:

Sales

$3,000,000

Rent Income

14,000

$3,014,000

Costs and Expenses:

Cost of Sales

2,370,000

Selling and Administrative Expenses

322,000

Interest Expense

48,000

Loss on the Sale of Plant Assets

16,000

$2,756,000

Income Before Taxes

$ 258,000

Income Taxes

112,000

Net Income

$ 146,000

Earnings per Share

$ 7.30

a. Convert the statement to multiple-step format.

b. Recompute net income with the unusual loss removed.

c. Why may net income with the unusual loss removed be preferable to use for trend analysis?

d. Speculate on why this loss is not considered extraordinary or as a disposal of a segment.

Question 6 Comparative income statements for 2012 and 2011 follow.

2012

2011

Sales

$9,434,000

$7,862,000

Cost of Sales

7,075,400

5,660,640

Gross Profit

$2,358,600

$2,201,360

Operating Expenses

1,367,690

1,365,060

Operating Income

$ 990,910

$ 836,300

Interest Expense

157,500

126,000

Earnings Before Tax

$ 833,410

$ 710,300

Income Taxes

400,000

317,200

Net Income

$ 433,410

$ 393,100

a. Prepare a vertical common-size analysis of this statement for each year, using sales as the base.

b. Comment briefly on the changes between the two years, based on the vertical common-size statement.

Question 7 Bill’s Produce does 60 percent of its business during June, July, and August.

For Year Ended

For Year Ended

December 31, 2012

July 31, 2012

Net Sales

$700,000

$690,000

Receivables, less allowance for doubtful accounts:

Beginning of period

45,000

80,000

(allowance, January 1, $2,000; August 1, $3,000)

End of period

(allowance, December 31, $3,000;

50,000

85,000

July 31, $3,500)

a. Compute the days’ sales in receivables for July 31, 2012, and December 31, 2012, based on the data above.

b. Compute the accounts receivable turnover for the period ended July 31, 2012, and December 31, 2012.

c. Comment on the results from (a) and (b).