ACCT 557 ACCT557 Week 4 Midterm Exam Answers (Devry)

ACCT 557 ACCT557 Week 4 Midterm Exam Answers (Devry)


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ACCT 557 Week 4 Midterm Exam

    1. (TCO A) In accounting for a long-term construction-type contract using the percentage-of-completion method, the gross profit recognized during the first year would be the estimated total gross profit from the contract, multiplied by the percentage of the costs incurred during the year to the
  • (TCO A) Tim Construction Co. began operations in 2014. Construction activity for 2014 is shown below. Tim uses the completed contract method.
  • Contract
  • Contract Price
  • Billings
  • Collections
  • Costs to
  • Estimated
    Costs to
  • 1
  • $5,200,000
  • $3,500,000
  • $2,600,000
  • 3,000,000
  • 1,000,000
  • 2
  • 3.600,000
  • 1,500,000
  • 1,000,000
  • 800,000
  • 1,600,000
  • 3
  • 3,600,000
  • 1,900,000
  • 1,800,000
  • 2,250,000
  • 1,200,000

  • What amount of Gross Profit should Tim show on the Income Statement of 2014 related to Contract 3?
  1. (TCO B) K  Corporation's partial income statement after its first year of operations is as follows: 
    Income before Income Taxes        $3,750,000
    Income Tax expense      
       Current                 $1,035,000
       Deferred                      90,000
                                  __________      1,125,000
    Net Income                                    $2,625,000
    K uses the straight-line method of depreciation for financial reporting purposes and accelerated depreciation for tax purposes. The amount charged to depreciation expense on its books this year was $1,200,000. No other differences existed between book income and taxable income except for the amount of depreciation. 
    Assuming a 30% tax rate, what amount was deducted for depreciation on the corporation's tax return for the current year?
  2. (TCO B) Deferred taxes should be presented on the balance sheet
  3. (TCO C) On January 1, 2008, Nen Co. has the following balances: 
    Projected benefit obligation    $4,200,000
    Fair value of plan assets           3,750,000
    The settlement rate is 10%. Other data related to the pension plan for 2014 are:
    Service cost                                                             $240,000
    Amortization of unrecognized prior service costs    54,000
    Contributions                                                              270,000
    Benefits paid                                                              225,000
    Actual return on plan assets                                      264,000
    Amortization of unrecognized net gain                      18,000
    The fair value of plan assets at December 31, 2014 is
  4. (TCO C) Presented below is pension information related to Woods, Inc. for the year 2013.

    Service cost                                                                                $135,000 
    Interest on projected benefit obligation                                           $46,000 
    Interest on vested benefits                                                            $30,000 
    Amortization of prior service cost due to increase in benefits            $14,000 
    Expected return on plan assets                                                     $21,000 

    The amount of pension expense to be reported for 2013 is
  5. (TCO D) Lease methods of accounting are
  6. (TCO D) Advantage(s) of leasing versus buying equipment is (are)
  7. (TCO D) Pirate, Inc. leased equipment from Shoreline Enterprises under a four-year lease requiring equal annual payments of $320,000, 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 ,Pirate 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
  8. (TCO D) On January 2, 2013, Bentley Co. leases equipment from Harry's Leasing Company with five equal annual payments of $120,000 each, payable beginning December 31, 2013. Bentley Co. agrees to guarantee the $20,000 residual value of the asset at the end of the lease term. Bentley‚Äôs incremental borrowing rate is 10%; however, the company knows that Harry‚Äôs implicit interest rate is 8%. What journal entry would Harry's Leasing Company make at January 2, 2013, assuming this is a direct‚Äďfinancing lease?¬†¬†
                                                    PV Annuity Due PV Ordinary Annuity    PV Single Sum
                8%, 5 periods                 4.31213                    3.99271                     0.68058
                10%, 5 periods               4.16986                    3.79079                     0.62092
  9. (TCO D) Lease A does not contain a bargain purchase option, but the lease term is equal to 90% of the estimated economic life of the leased property. Lease B 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. How should the lessee classify these leases?

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