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(TCO A) Amazon Building, Inc. won a bid for a new warehouse building contract.

  • ACCT 557 ACCT557 Week 8 Final Exam Answers

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ACCT 557 Week 8 Final Exam

(TCO A) Amazon Building, Inc. won a bid for a new warehouse building contract.

(TCO B) At the beginning of 2012, Annie, Inc. has a deferred tax asset of $7,500 and deferred tax liability of $10,500. In 2012, pretax financial income was $826,000 and the tax rate was

(TCO C) Presented below is pension information related to Amazing Goods, Inc. for the year 2013. 

(TCO C) Apple Dumpling Inc. sponsors a defined-benefit pension plan. The following data relates to the operation of the plan for the year 2013. 

(TCO D) Animal, Inc. leased equipment from Zoo Enterprises under a 5-year lease requiring equal annual payments of $63,000, 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 5-year useful life and no salvage value. Animal, 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 Animal, Inc. in the first year of the asset’s life? 

(TCO E) On December 31, 2013, Bob's Trucking, Inc. appropriately changed its inventory valuation method from weighted-average cost to FIFO method for financial statement and income tax purposes. The change will result in an $800,000 increase in the beginning inventory at January 1, 2013. Assume a 40% income tax rate. The cumulative effect of this accounting change on beginning retained earnings is 

(TCO F) Amazing Glory, Inc. recognized a net income of $55,000 including $8,000 in depreciation expense. 

(TCO G) Which of the following events that occurred after the balance sheet date but before issuance of the financial statements would require adjustment of the accounts before issuance of the financial statements? 

(TCO G) Adventure, Inc. is a company that operates in four different divisions. The following information relating to each segment is available for 2013.

Sales revenue Operating profit (loss) Identifiable assets 

(TCO A) Adam's Adorable Creations Company provided the following financial information for its installment sales for the current year.

(TCO B) The Accent Corporation shows the following information.

On January 1, 2012, Accent purchased a donut machine for $700,000.

(a) Pretax financial income is $2,300,000 in 2012 and $2,400,000 in 2013.

(b) Taxable income is expected in future years with an expected tax rate of 35%.

(c) The company recognized an extraordinary gain of $150,000 in 2013 (which is fully taxable).

(d) Tax-exempt municipal bonds yielded interest of $150,000 in 2013.

(e) Straight-line basis for 7 years for financial reporting (See Appendix 11A.)

(f) Half-year convention basis depreciation for 4 years for tax purposes.


(TCO D) Absolute Leasing, Inc. agrees to lease equipment to Allen, Inc. on January 1, 2012. They agree on the following terms:
(a) The normal selling price of the equipment is $600,000 and the cost of the asset to Absolute Leasing, Inc. was $475,000.

(b) At the end of the lease, the equipment will revert to Absolute Leasing, Inc. and have an unguaranteed residual value of $60,000. Their implicit interest rate is 10%.
(c) The lease is noncancelable with no renewal option. The lease term is 10 years (the same as the estimated economic life).

(d) Absolute Leasing, Inc. incurred costs of $10,000 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.

(e) The lease begins on January 1, 2012 and payments will be in equal annual installments.
(f) Allen will pay all maintenance, insurance, and tax costs directly and annual payments of $65,000 on January 1 of each year. 

(TCO F) Drexon Corp., which follows U.S. GAAP, uses the direct

Student Answer:

Instructor Explanation:

method to report its cash flows. The CFO is assessing the impact on cash flows of 12 events during the fiscal year. Specify which category each event falls under (under the direct method) and note whether it increases cash, decreases cash, or has no impact on cash: 

(TCO G) Selected financial ratios.
The following information pertains to Allbright, Inc.

Student Answer:

Current Ratio (53000+186000+82000) / (85000 +12000) = 3.31 Inventory Turnover 760000/82000 = 9.27 C) Receivables

10 11 12

Investing Operating Financing

17 of 40

Decrease Increase


Accounts receivable Inventory
Plant assets (net) Total assets

Accounts payable
Accrued taxes and expenses payable $12,000

Long-term debt
Common stock ($10 par) Paid-in capital in excess of par Retained earnings
Total equities

Net sales (all on credit) Cost of goods sold
General & Admin Expenses Net income

$268,000 $120,000 $6,000

$150,000 $641,000

$980,000 $760,000 $160,000 $60,000 

(TCO E) Please describe the requirements for a change in accounting principle and at least four reasons why companies might implement a change in accounting principle.

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