Reference no: EM131169181

Q1. Two accountants for the firm of Elwes and Wright are arguing about the merits of presenting an income statement in a multiple-step versus a single-step format. The discussion involves the following 2014 information related to P. Bride Company ($000 omitted).

Administrative expenses
Officers' salaries	$4,900
Depreciation of office furniture and equipment	3,960
Cost of goods sold	60,570
Rent revenue	17,230
Selling expenses
Transportation-out	2,690
Sales commissions	7,980
Depreciation of sales equipment	6,480
Sales	96,500
Income tax	9,070
Interest expense	1,860

Instructions:

(a) Prepare an income statement for the year 2014 using the multiple-step form. Common shares outstanding for 2014 total 40,550 (000 omitted).

(b) Prepare an income statement for the year 2014 using the single-step form. Common shares outstanding for 2014 total 40,550 (000 omitted).

Q2. Eddie Zambrano Corporation began operations on January 1, 2011. During its first 3 years of operations, Zambrano reported net income and declared dividends as follows.

Year	Net income	Dividends declared
2011	$40,000	$0
2012	125,000	50,000
2013	160,000	50,000

The following information relates to 2014:

 Income before income taxes - $240,000

Prior period adjustment: Understatement of 2012 depreciation expense. (Before taxes) - $25,000

Cumulative decrease in income from change in inventory methods (before taxes) - $35,000

Dividends declared - $100,000

Of the dividends declared to date, the amount that will be paid on Jan 15, 2015 is: $25,000

Effective tax rate - 40%

Instructions:

(a) Prepare a 2014 retained earnings statement for Eddie Zambrano Corporation.

(b) Assume Eddie Zambrano Corp. restricted retained earnings in the amount of $70,000 on December 31, 2014. After this action, what would Zambrano report as total retained earnings in its December 31, 2014, balance sheet?

Q3. On June 3, Hunt Company sold to Ann Mount merchandise having a sales price of $8,000 with terms of 2/10, n/60, f.o.b. shipping point. An invoice totaling $120, terms n/30, was received by Mount on June 8 from the Olympic Transport Service for the freight cost. Upon receipt of the goods, June 5, Mount notified Hunt Company that merchandise costing $600 contained flaws that rendered it worthless. The same day, Hunt Company issued a credit memo covering the worthless merchandise and asked that it be returned at company expense. The freight on the returned merchandise was $24 paid by Hunt Company on June 7. On June 12, the company received a check for the balance due from Mount.

Instructions:

(a)(1) Prepare journal entries on Hunt Company books to record all the events noted above under the sales and receivables are entered at gross selling price concept.

(a)(2) Prepare journal entries on Hunt Company books to record all the events noted above under the sales and receivables are entered net of cash discounts concept.

(b) Prepare the journal entry under basis 2, assuming that Ann Mount did not remit payment until August 5.

Q4. Presented below are selected accounts of Yasunari Kawabata Company at December 31, 2014.

Finished Goods	$52,000	Cost of Goods Sold	$2,100,000
Unearned Revenue	90,000	Notes Receivable	40,000
Equipment	253,000	Accounts Receivable	161,000
Work in Process	34,000	Raw Materials	207,000
Cash	37,000	Supplies Expense	60,000
Equity Investments (Short-term)	31,000	Allowance for Doubtful Accounts	12,000
Customer Advances	36,000	Licenses	18,000
Cash Restricted for Plant Expansion	50,000	Additional Paid-in Capital	88,000
		Treasury Stock	22,000

The following additional information is available:

1. Inventories are valued at lower-of-cost-or-market using LIFO.

2. Equipment is recorded at cost. Accumulated depreciation, computed on a straight-line basis, is $50,600

3. The short-term investments have a fair value of $29,000 (Assume they are trading securities.)

4. The notes receivables are due April 30, 2016, with interest receivable every April 30. The notes bear interest at 6% (Hint: Accrue interest due on December 31, 2014.)

5. The allowance for doubtful accounts applies to the accounts receivable. Accounts receivable o $50,000 are pledged as collateral on a bank loan.

6. Licenses are recorded net of accumulated amortization of $14,000

7. Treasury stock is recorded at cost.

Instructions: Prepare the current assets section of Yasunari Kawabata Company's December 31, 2014, balance sheet, with appropriate disclosures.

Q5. Presented below is the adjusted trial balance of Kelly Corporation at December 31, 2014.

	Debits	Credits
Cash	??
Supplies	$1,200
Prepaid Insurance	1,000
Equipment	48,000
Accumulated Depreciation - Equipment		$4,000
Trademarks	950
Accounts Payable		10,000
Salaries and Wages Payable		500
Unearned Service Revenue		2,000
Bonds Payable, due 2021		9,000
Common Stock		10,000
Retained Earnings		25,000
Service Revenue		10,000
Salaries and Wages Expense	9,000
Insurance Expense	1,400
Rent Expense	1,200
Interest Expense	900
Total	??	??

Additional information:

1. Net loss for the year was $2,500

2. No dividends were declared during 2014.

Instructions: Prepare a classified balance sheet as of December 31, 2014.

Q6. The income statement of Vince Gill Company is shown below.

VINCE GILL COMPANY Income Statement For The Year Ended December 31, 2014
Sales		$6,900,000
Cost of goods sold
Beginning inventory	$1,900,000
Purchases	4,400,000
Goods available for sale	6,300,000
Ending inventory	1,600,000
Cost of goods sold		4,700,000
Gross profit		2,200,000
Operating expenses
Selling expenses	450,000
Administrative expenses	700,000	1,150,000
Net income		$1,050,000

Additional information:

1. Accounts receivable decreased $310,000 during the year.

2. Prepaid expenses increased $170,000 during the year.

3. Accounts payable to suppliers of merchandise decreased $275,000 during the year.

4. Accrued expenses payable decreased               $120,000 during the year.

5. Administrative expenses include depreciation expense of $60,000.

Instructions: Prepare the operating activities section of the statement of cash flows for the year ended December 31, 2014, for Rodriquez Company, using the indirect method.

Q7. Mortonson Company has not yet prepared a formal statement of cash flows for the 2014 fiscal year. Comparative balance sheets as of December 31, 2013, and 2014, and a statement of income and retained earnings for the year ended December 31, 2014, are presented below.

MORTONSON COMPANY Statement of Income and Retained Earnings For The Year Ended December 31, 2014 ($000 Omitted)
Sales			$3,800
Expenses
Cost of goods sold	$1,200
Salaries and benefits	725
Heat, light, and power	75
Depreciation	80
Property taxes	19
Patent amortization	25
Miscellaneous expenses	10
Interest	30		2,164
Income before income taxes			1,636
Income taxes			818
Net income			818
Retained earnings - January 1, 2014			310
			1,128
Stock dividend declared and issued			600
Retained earnings - December 31, 2014			$528
MORTONSON COMPANY Comparative Balance Sheet December 31 ($000 Omitted)
Assets		2014		2013
Current assets
Cash		$333		$100
U.S. Treasury notes (Available-for-sale)		10		50
Accounts receivable		780		500
Inventory		720		560
Total current assets		1,843		1,210
Long-term assets
Land		150		70
Buildings and equipment		910		600
Accumulated depreciation		(200)		(120)
Patents (less amortization)		105		130
Total long-term assets		965		680
Total assets		$2,808		$1,890

 

Liabilities and Stockholders' Equity
Current liabilities
Accounts payable	$420	$330
Income taxes payable	40	30
Notes payable	320	320
Total current liabilities	780	680
Long-term notes payable - due 2016	200	200
Total liabilities	980	880
Stockholders' equity
Common stock outstanding	1,300	700
Retained earnings	528	310
Total stockholders' equity	1,828	1,010
Total liabilities and stockholders' equity	$2,808	$1,890

Instructions: Prepare a statement of cash flows using the direct method. Changes in accounts receivable and in accounts payable relate to sales and cost of sales. Do not prepare a reconciliation schedule.

Q8. Alan Jackson invests $20,000 at 8% annual interest, leaving the money 8 years. At the end of the 8 years, Alan withdrew the accumulated amount of money.

Instructions:

(a) Compute the amount Alan would withdraw assuming the investment earns simple interest.

(b) Compute the amount Alan would withdraw assuming the investment earns interest compounded     annually.

(c) Compute the amount Alan would withdraw assuming the investment earns interest compounded      semi-annually.

Q9. Using the appropriate interest table or Excel formula, answer each of the following questions: (Each case is independent of the others.)

(a) What is the future value of $7,000 at the end of 5 periods at 8% compounded interest?

(b) What is the present value of $7,000 due 8 periods hence, discounted at 11%.

(c) What is the future value of 15 periodic payments of $7,000 each made at the end of each period and compounded at 10%?

(d) What is the present value of $7,000 to be received at the end of each of 20 periods, discounted at 5% compound interest?

Q10. On June 3, Arnold Company sold to Chester Company merchandise having a sale price of $3,000 with terms of 2/10, n/60, f.o.b. shipping point. An invoice totaling $90, terms n/30, was received by Chester on June 8 from John Booth Transport Service for the freight cost. On June 12, the company received a check for the balance due from Chester Company.

Instructions:

(a) Prepare journal entries on the Arnold Company books to record all the events noted above under each of the following bases:

(1) Sales and receivables are entered at gross selling price.

(2) Sales and receivables are entered at net cash discounts.