FAR: ALL: 4/28/2018 Flashcards
On January 1, year 1, Beal Corporation adopted a plan to accumulate funds for a new plant building to be erected beginning July 1, year 6, at an estimated cost of $1,200,000. Beal intends to make five equal annual deposits in a fund that will earn interest at 8% compounded annually. The first deposit is made on July 1, year 1. Present value and future amount factors are as follows:
Present value of 1 at 8% for 5 periods 0.68
Present value of 1 at 8% for 6 periods 0.63
Future amount of ordinary annuity of 1 at 8% for 5 periods 5.87
Future amount of annuity in advance of 1 at 8% for 5 periods 6.34
Beal should make five annual deposits (rounded) of
1) $151,200
2) $163,200
3) $189,300
4) $204,400
$189,300
The desired fund balance on July 1, year 6 ($1,200,000) is a future amount. The series of five equal annual deposits is an annuity in advance. Whether this is an ordinary annuity or an annuity in advance can be determined by looking at the last deposit. The last deposit (7/1/Y5)) is made one year prior to the date the future amount is needed. Therefore, these are beginning-of-year payments, and this is an annuity in advance. The deposit amount is computed below.
Future amount
F.A. factor = $1,200,000
6.34 = $189,274
The following information pertains to Been Corp. and its operating segments for the year ended December 31, year 1:
Total revenues $80,000,000
Sales to external customers (included in total) $30,000,000
In its financial statements, Been should disclose major customer data if sales to any single customer amount to at least
1) $ 5,000,000
2) $ 3,000,000
3) $11,000,000
4) $ 8,000,000
$8,000,000
Per ASC Topic 280, if 10% or more of the revenue of an enterprise is derived from sales to any single customer, that fact and the amount of revenue from each significant customer shall be disclosed. In this problem, Been reported revenues of $80,000,000 and thus should disclose major customer data if sales to any single customer amount to $8,000,000 ($80,000,000 × 10%). The segment generating the sales must be disclosed but the name of the customer does not need to be disclosed.
In year two, Ajax, Inc. reported taxable income of $400,000 and pre-tax financial-statement income of $300,000. The difference resulted from $60,000 of non-deductible premiums on Ajax’s officers’ life insurance and $40,000 of rental income received in advance. Rental income is taxable when received. Ajax’s effective tax rate is 30%. In its year-two income statement, what amount should Ajax report as income tax expense (current portion)?
1) $90,000
2) $102,000
3) $108,000
4) $120,000
$120,000
The current portion of income tax expense is the amount currently due and is equal to the tax liability for the period. That amount is the product of the current tax rate and taxable income: .30 × $400,000 = $120,000.
Based on 2000 sales of compact discs recorded by an artist under a contract with Bain Co., the artist earned $100,000 after an adjustment of $8,000 for anticipated returns.
In addition, Bain paid the artist $75,000 in 2000 as a reasonable estimate of the amount recoverable from future royalties to be earned by the artist.
What amount should Bain report in its 2000 Income Statement for royalty expense?
1) $100,000
2) $108,000
3) $175,000
4) $183,000
$100,000
The artist earned $100,000, based on the sales of the CD. That is the total expense for Bain to recognize. The royalty payment of $75,000 is a partial payment of those earnings.
Select the correct statement about executive compensation plans involving stock.
1) The total amount of compensation expense for a restricted stock award plan is recognized when the stock is issued.
2) The total amount of compensation expense for a restricted stock award plan is determined at the grant date.
3) For stock-appreciation rights plans payable in cash, compensation expense is recognized only during the service period.
4) For stock-appreciation rights plans payable in cash, compensation expense recognized in any given reporting period cannot be negative.
The total amount of compensation
expense for a restricted stock award
plan is determined at the grant date.
Compensation expense is recognized over the service period required for the employee to keep the stock. No stock-based plan recognizes the total amount of compensation expense in one transaction.
Trans Co. uses a periodic inventory system. The following are inventory transactions for the month of January:
1/1 Beginning inventory 10,000 units at $3
1/5 Purchase 5,000 units at $4
1/15 Purchase 5,000 units at $5
1/20 Sales at $10 per unit 10,000 units
Trans uses the average pricing method to determine the value of its inventory. What amount should Trans report as cost of goods sold on its income statement for the month of January?
1) $30,000
2) $37,500
3) $40,000
4) $100,000
$37,500
The requirement is to determine the amount of cost of goods sold.
# Units Price Total cost 1/1 Beg. Inv. 10,000 $3 $30,000 1/5 Purchase 5,000 $4 20,000 1/15 Purchase 5,000 $5 25,000 Total 20,000 75,000
The weighted-average pricing method is $75,000 ÷ 20,000 units = $3.75 per unit. The number of units sold times the cost per unit equals cost of goods sold (10,000 units × $3.75 per unit = $37,500).
Which of the following financial statements of a private, nonprofit hospital reports the changes in net assets with donor restriction and net assets without donor restriction for a time period?
Balance sheet Statement of operations
1) Yes Yes
2) Yes No
3) No Yes
4) No No
No, No
The statement of operations discloses only the changes in net assets without donor restriction for a time period. A separate statement of net assets reports the change in both classes of net assets for the fiscal year.
On December 31, Year 1, Ball Co. leased a machine from Cook for a 10-year period expiring December 30, Year 10.
Annual payments of $100,000 are due on December 31. The first payment was made on December 31, Year 1, and the second payment was made on December 31, Year 2.
The present value at the inception of the lease for the 10 lease payments discounted at 10% was $676,000. The lease is appropriately accounted for as a capital lease by Ball.
In its December 31, Year 2 balance sheet, Ball should report a lease liability of
1) $643,600.
2) $608,400.
3) $533,600.
4) $518,400.
$533,600
The ending Year 2 lease liability balance is the present value of remaining payments and also equals the initial lease liability amount less the principal portion of the first two payments.
The first payment is made at the inception and therefore is all principal. It reduces the lease liability by $100,000. The opening Year 2 lease liability balance is $676,000 − $100,000 or $576,000.
Interest expense .10($576,000) 57,600
Lease liability 42,400
Cash 100,000
Thus, the ending Year 2 lease liability balance is $533,600 = $676,000 − $100,000 − $42,400.
