Question 1
""On January 1, 2010, Allan acquires 15 percent of Bellevue?s outstanding common stock for $62,000. Allan classifies the investment as an available-for-sale security and records any unrealized holding gains or losses directly in owners? equity. On January 1, 2011, Allan buys an additional 10 percent of Bellevue for $43,800, providing Allan the ability to significantly influence Bellevue?s decisions. During the next two years, the following information is available for Bellevue: Income Dividends Common Stock Fair Value (12/31) 2010 $ 80,000 $30,000 $438,000 2011 100,000 40,000 468,000 -------------------------------------------------------------------------------- In each purchase, Allan attributes any excess of cost over book value to Bellevue?s franchise agreements that had a remaining life of 10 years at January 1, 2010. Also at January 1, Bellevue reports a net book value of $280,000. Assume Allan applies the equity method to its Investment in Bellevue account: (a-1) On Allan?s December 31, 2011, balance sheet, what amount is reported for the Investment in Bellevue account? (Omit the "$" sign in your response.) Investment in Bellevue $ (a-2) What amount of equity income should Allan report for 2011? (Omit the "$" sign in your response.) Equity income $ (a-3) Prepare the January 1, 2011, journal entry to retrospectively adjust the Investment in Bellevue account to the equity method Assume Allan elects the fair-value reporting option for its investment in Belllevue: (b.1.) On Allan's December 31, 2011, balance sheet, what amount is reported for the Investment in Bellevue account? (b.2.) What amount of income from its investment in Bellevue should Allan report for 2011?
Question 2
1 Purchased merchandise from Black Company for $6,000 under credit terms of 1/15, n/30, FOB shipping point, invoice dated July 1. 2 Sold merchandise to Coke Co. for $800 under credit terms of 2/10, n/60, FOB shipping point, invoice dated July 2. The merchandise had cost $500. 3 Paid $100 cash for freight charges on the purchase of July 1. 8 Sold merchandise that had cost $1,200 for $1,600 cash. 9 Purchased merchandise from Lane Co. for $2,300 under credit terms of 2/15, n/60, FOB destination, invoice dated July 9. 11 Received a $200 credit memorandum from Lane Co. for the return of part of the merchandise purchased on July 9. 12 Received the balance due from Coke Co. for the invoice dated July 2, net of the discount. 16 Paid the balance due to Black Company within the discount period. 19 Sold merchandise that cost $900 to AKP Co. for $1,250 under credit terms of 2/15, n/60, FOB shipping point, invoice dated July 19. 21 Issued a $150 credit memorandum to AKP Co. for an allowance on goods sold on July 19. 24 Paid Lane Co. the balance due after deducting the discount. 30 Received the balance due from AKP Co. for the invoice dated July 19, net of discount. 31 Sold merchandise that cost $3,200 to Coke Co. for $5,000 under credit terms of 2/10, n/60, FOB shipping point, invoice dated July 31. Prepare journal entries to record the above merchandising transactions of Bask Company, which applies the perpetual inventory system. (Identify each receivable and payable; for example, record the purchase on July 1 in Accounts Payable?Black.)
Question 3
Multiple Choice Questions Select the ONE, BEST Answer 1. Equivalent units of production are equal to: A. The number of units that could have been completed if all effort had been applied to units that were started and completed that period. B. The number of finished units actually produced that period. C. The number of units introduced into the process that period. D. The number of units still in process that period. E. Physical units that were completed this period from all effort being applied to them. 2. Which of the following characteristics applies to process cost accounting and not to job order cost accounting? A. Use of a predetermined overhead rate. B. Identifiable lots of production. C. Equivalent units of production. D. Labor time ticket for each employee. E. Use of a single Goods in Process account. 3. After posting all actual factory overhead and applying factory overhead to production departments in a process costing system, A. There will never be underapplied overhead. B. There will never be overapplied overhead. C. There will always be underapplied overhead. D. There will always be overapplied overhead. E. There may be over or underapplied overhead. 4. To compute an equivalent unit of production, one must be able to reasonably estimate: A. The percentage of completion. B. Units completed. C. Units started and completed. D. Direct labor cost. E. Materials cost.
Question 4
1. (TCO D) Lease methods of accounting are (Points : 5) operating and sales leaseback methods. operating and capital lease methods. leveraged and operating lease methods. None of the above 2. (TCO D) A major purpose(s) in starting an equipment leasing company is (are) (Points : 5) tax incentives. interest revenue. high residual value. All of the above 3. (TCO D) Pirate, Inc. leased equipment from Shoreline Enterprises under a four-year lease requiring equal annual payments of $180,000, with the first payment due at lease inception. The lease does not transfer ownership, nor is there a bargain purchase option. The equipment has a 4-year useful life and no salvage value. Pirate, Inc.?s incremental borrowing rate is 10% and the rate implicit in the lease (which is known by Pisa, Inc.) is 8%. Assuming that this lease is properly classified as a capital lease, what is the amount of interest expense recorded by Pirate, Inc. in the first year of the asset?s life? PV Annuity Due PV Ordinary Annuity 8%, 4 periods 3.5771 3.31213 10%, 4 periods 3.48685 3.16986 (Points : 5) $37,110 $47,695 $0 $51,510 4. (TCO D) On January 2, 2013, Bentley Co. leases equipment from Harry's Leasing Company with five equal annual payments of $30,000 each, payable beginning December 31, 2013. Bentley Co. agrees to guarantee the $60,000 residual value of the asset at the end of the lease term. Bentley?s incremental borrowing rate is 10%; however, it knows that Harry?s implicit interest rate is 8%. What journal entry would Harry's Leasing Company make at January 2, 2013 assuming this is a direct?financing lease? PV Annuity Due PV Ordinary Annuity PV Single Sum 8%, 5 periods 4.31213 3.99271 0.68508 10%, 5 periods 4.16986 3.79079 0.62092 (Points : 5) Lease Receivable $150,979 Equipment $150,979 Lease Receivable $119,781 Loss $90,219 Equipment $210,000 Lease Receivable $210,000 Equipment $210,000 Lease Receivable $160,886 Equipment $160,886 5. (TCO D) Lease A does not transfer ownership of the property to the lessee by the end of the lease term, but the lease term is equal to 75% of the estimated economic life of the leased property. Lease B does not contain a bargain purchase option, but the lease term is equal to 90% of the estimated economic life of the leased property. How should the lessee classify these leases? (Points : 5) (Lease A) Operating lease (Lease B) Capital lease (Lease A) Operating lease (Lease B) Operating lease (Lease A) Capital lease (Lease B) Capital lease (Lease A) Capital lease (Lease B) Operating lease 6. (TCO D) Carl Leasing, Inc. agrees to lease medical equipment to Sally, Inc. on January 1, 2012. They agree on the following terms. 1) The normal selling price of the medical equipment is $260,000 and the cost of the asset to Carl Leasing, Inc. was $135,000. 2) Sally, Inc. will pay all maintenance, insurance, and tax costs directly and annual payments of $35,000 on January 1 each year. 3) The lease begins on January 1, 2012, and payments will be in equal annual installments. 4) The lease is noncancelable with no renewal option. The lease term is 10 years (the same as the estimated economic life). 5) At the end of the lease, the medical equipment will revert to Carl Leasing, Inc. and have an unguaranteed residual value of $20,000. Their implicit interest rate is 10%. 6) Carl Leasing, Inc. incurred costs of $6,500 in negotiating and closing the lease. There are no uncertainties regarding additional costs yet to be incurred and the collectability of the lease payments is reasonably predictable. Required: a) Determine what type of lease this would be for the lessee and calculate the initial obligation. b) Prepare all the journal entries for Sally, Inc. for 2012. Assume a calendar year fiscal year. (Points : 15)
Question 5
Trevor Hawthorne (age 16), was working at the Burger Hut when he got into a conversation with Gary Witherspoon (age 47) about Gary?s 1967 Chevy Corvette. Gary has stated that he has had a few problems with the car as of late, and that he would be happy to sell it to anyone who would take it off his hands ?as is? if they offered him $400 for the car. Trevor, who plans to be a mechanic, asked Gary several questions about the specific problems with the car, and Gary provided detailed answers. Trevor then informed Gary that he could pay him the $400 but he did not have it on him at that time. Gary responded that he would be there next Saturday after his bowling league, as usual, and Trevor could pay him at that time. However, that Saturday when Gary went to give the money to Gary, Gary responded that he had made a deal with someone else the day before to sell the car for $5,000. Trevor said he would sue Gary for breach of contract. Gary claimed that they did not have a contract, and even if they did it would be unenforceable because Trevor was a minor. Further, Gary said he had had ?a couple of beers? that night, and the contract would be unenforceable due to his intoxication. From this fact pattern, did Trevor and Gary form a valid contract, and, if so, were any of Gary?s claims regarding unenforceability correct? Must be in Legal Memorandum form.
