ACCT 557 Week 4 Midterm
Page 1 – Multiple Choice
- Question(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
- Question (TCO A) Tim Construction Co. began operations in 2014. Construction activity for 2014 is shown below. Tim uses the percentage of completion method. Contract Contract Price Billings
- Question (TCO B) K Corporation’s partial income statement after its first year of operations is as follows:
- Question (TCO B) Deferred tax amounts that are related to specific assets or liabilities should be classified as current or noncurrent based on
- Question (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 balance of the projected benefit obligation at December 31, 2014 is
- Question (TCO C) Presented below is pension information related to Woods, Inc. for the year 2013.
Service cost $84,000……Interest on projected benefit obligation $46,000 ……..Interest on vested benefits $30,000
Expected return on plan assets $21,000 ……The amount of pension expense to be reported for 2013 is. - Question (TCO D) Capitalization of lease requires which of the following?
- Question (TCO D) Advantage(s) of leasing versus buying equipment is (are)
- Question (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
- Question (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 0.68058……10%, 5 periods 4.16986 3.79079 0.62092 - Question (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?
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Page 2 – Short/Essay
- Question (TCO B) There are four types of temporary differences. Indicate a minimum of two types and for each:(1) indicate the cause of the difference, (2) give an example, and (3) indicate whether it will create a taxable or deductible amount in the future.
- Question (TCO C) Measuring, recording, and reporting pension expense and liability. Feeble Co. on January 1, 2011 initiated a noncontributory, defined-benefit pension plan that grants benefits to its 100 employees for services rendered in years prior to the adoption of the pension plan. The total expected service-years of the 100 employees who are expected to receive benefits under the plan is 1,200. An actuarial consulting firm has indicated that the present value of the projected benefit obligation on January 1, 2011 was $5,040,000. On December 31, 2011 the following information was provided concerning the pension plan’s operations for its first year.
- Question (TCO A) Chicago contractors got $5,400,000 contract to construct a school building for the City of Chicago. Work on this contract began in 2013 and the financial data pertaining to this contract is available here…..Cost incurred till Dec.31, 2013 $1,080,000…..Billings made to City $1,000,000…..Amount collected from City $ 750,000…..The estimated future cost to complete this contract is $3,240,000. …..(a) Prepare Chicago contractors 2013 journal entries using completed contract method……(b) Show how the contract accounts will appear in the Balance Sheet of Chicago Contractors on 12/31/2013.
- Question (TCO B) Hertz Co. prepared the following reconciliation of its pretax financial statement income to taxable income for the year ended December 31, 2013, its first year of operations:…..Pretax financial income $300,000…..Nontaxable interest received on municipal securities (15,000)…….Estimated warranties not deductible for tax purpose in 2013 30,000……Depreciation in excess of financial statement amount (50 ,000)……Taxable income $265,000……Hertz’s tax rate for Year 2013 and for future years is 40%……(a) In its Year 1 income statement, what amount should Hertz report as income tax expense-current portion?……(b) In its December 31, 2013 balance sheet, what amount should Hertz report as deferred income tax liability/asset?
