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COMPREHENSIVE EXAMINATION F
PART 6
(Chapters 22-24)
Problem
F-I
F-II
F-III
F-IV
F-V
Topic
Multiple Choice Questions.
Statement of Cash Flows.
Accounting Changes, Error Corrections, and
Prior Period Adjustments.
*Analysis of Financial Statements.
Segment Reporting.
Approximate
Time
25 min.
25 min.
30 min.
25 min.
15 min.
120 min.
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F-2
2.
The net income for the year ended December 31, 2013, for Tax Consultants INC. was
$920,000. Additional information is as follows:
Capital expenditures
Depreciation on plant assets
Cash dividends paid on common stock
Increase in noncurrent deferred tax liability
Amortization of patents
$1,200,000
450,000
180,000
45,000
21,000
Based on the information given above, what should be the net cash provided by operating
activities in the statement of cash flows for the year ended December 31, 2013?
a. $1,256,000.
b. $1,346,000.
c. $1,391,000.
d. $1,436,000.
3.
$525,000
325,000
(450,000)
$400,000
$1,625,000
500,000
(1,225,000)
$ 900,000
Long-term debt:
Balance at December 31, 2012
Proceeds from borrowings in 2013
Transfers to caption "Current Portion of Long-Term Debt"
Payments made in 2013
Balance at December 31, 2013
$9,000,000
2,250,000
(500,000)
(1,500,000)
$9,250,000
In preparing a statement of cash flows for the year ended December 31, 2013, for Cole
Company, cash flows from financing activities would reflect
Outflow
a. $2,000,000
b. $2,250,000
c. $2,575,000
d. $3,175,000
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Comprehensive Examination F
F-3
In considering interim financial reporting, how did the Accounting Principles Board
conclude that such reporting should be viewed?
a. As a "special" type of reporting that need not follow generally accepted accounting
principles.
b. As useful only if activity is evenly spread throughout the year so that estimates are
unnecessary.
c. As reporting for a basic accounting period.
d. As reporting for an integral part of an annual period.
5.
6.
7.
*8.
$ 12,000,000
20,000,000
50,000,000
66,000,000
2,000,000
$150,000,000
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F-4
$ 11,000,000
18,000,000
13,000,000
3,000,000
5,000,000
$ 50,000,000
Fargo, Inc. disclosed the following information as of and for the year ended December 31,
2013:
Net cash sales
600,000
Net credit sales
900,000
Inventory at beginning
100,000
Inventory at end
150,000
Net income
30,000
Accounts receivable at beginning of year
110,000
Accounts receivable at end of year
130,000
Fargos receivables turnover is
a. 6.9 to 1.
b. 7.5 to 1.
c. 12.5 to 1.
d. 13.6 to 1.
*10.
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Comprehensive Examination F
F-5
Cash
Accounts receivable, net
Inventory
Land
Building
Accumulated depreciation
Equipment
Accumulated depreciation
Accounts payable
Bonds payable
Capital stock, $10 par
Retained earnings
December 31
2012
2013
$ 54,000
$ 36,000
53,000
57,000
161,000
123,000
180,000
285,000
300,000
300,000
(75,000)
(60,000)
1,565,000
900,000
(177,000)
(141,000)
$2,061,000
$1,500,000
$ 202,000
450,000
1,125,000
284,000
$2,061,000
$ 150,000
-01,125,000
225,000
$1,500,000
Additional Data:
1.
2.
3.
4.
Sharp sold equipment, which cost $225,000 and had accumulated depreciation of $90,000,
for $105,000.
Instructions
Prepare a statement of cash flows using the indirect method.
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F-6
Problem F-III Accounting Changes, Error Corrections, and Prior Period Adjustments.
Molina Companys reported net incomes for 2013 and the previous two years are presented
below.
2013
2012
2011
$105,000
$95,000
$70,000
2013s net income was properly determined after giving effect to the following accounting
changes, error corrections, etc. which took place during the year. The incomes for 2011 and 2012
do not take these items into account and are stated at the amounts determined in those years.
Ignore income taxes.
Instructions
(a) For each of the six accounting changes, errors, or prior period adjustment situations
described below, prepare the journal entry or entries Molina Company should record during
2013. If no entry is required, write none.
(b)
After recording the situation in part (a) above, prepare the year-end adjusting entry for
December 31, 2013. If no entry, write none.
1.
Early in 2013, Molina determined that equipment purchased in January, 2011 at a cost of
$645,000, with an estimated life of 5 years and salvage value of $45,000 is now estimated
to continue in use until December 31, 2017 and will have a $15,000 salvage value. Molina
recorded its 2013 depreciation at the end of 2013.
(a)
(b)
2.
Molina determined that it had understated its depreciation by $20,000 in 2012 owing to the
fact that an adjusting entry did not get recorded.
(a)
(b)
3.
(a)
(b)
Molina bought a truck January 1, 2010 for $50,000 with a $5,000 estimated salvage value
and a six-year life. The company debited an expense account and credited cash on the
purchase date. The truck is expected to be traded at the end of 2015. Molina uses straightline depreciation for its trucks.
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Comprehensive Examination F
F-7
During 2013, Molina changed from the straight-line method of depreciating its cement plant
to the double-declining-balance method. The following calculations present depreciation on
both bases. (Ignore income taxes.) The 2013 amount applies double-declining balance to
the 1/1/13 carrying amount after straight-line was used.
Straight-line
Double-declining
2013
$100,000
$200,000
2012
$100,000
$160,000
2011
$100,000
$200,000
(a)
(b)
5.
Molina, in reviewing its provision for uncollectibles during 2013, has determined that 1/2 of
1% is the appropriate amount of bad debt expense to be charged to operations. The
company had used 1% as its rate in 2012 and 2011 when the expense had been $20,000
and $14,000, respectively. The company would have recorded $50,000 of bad debt expense
on December 31, 2013 under the old rate.
(a)
(b)
6.
During 2013, Molina decided to change from the LIFO method of valuing inventories to
average cost. The net incomes involved under each method were as follows:
LIFO
Average cost
2013
$51,000
$63,000
2012
$59,000
$67,000
2011
$42,000
$48,000
Assume no difference between LIFO and average cost inventory values in years prior to
2011.
(a)
(b)
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F-8
9,000,000
17,200,000
109,000,000
122,000,000
4,000,000
$261,200,000
5,200,000
15,400,000
111,000,000
140,000,000
2,800,000
$274,400,000
350,000,000
2,800,000
15,000,000
6,000,000
8,000,000
$643,000,000
315,000,000
3,500,000
20,000,000
7,000,000
9,100,000
$629,000,000
7,000,000
55,000,000
27,500,000
1,500,000
10,000,000
101,000,000
$ 17,000,000
52,000,000
30,000,000
2,000,000
9,500,000
110,500,000
180,000,000
69,000,000
15,000,000
365,000,000
190,000,000
65,000,000
9,500,000
375,000,000
Stockholders' equity:
Common stock, par value $1; authorized 20,000,000
shares; issued and outstanding 12,000,000 shares
12,000,000
10% cumulative preferred shares, par value $100;
$100 liquidating value; authorized 100,000 shares;
issued and outstanding 60,000 shares
6,000,000
Additional paid-in capital
119,000,000
Retained earnings
141,000,000
Total stockholders' equity
278,000,000
Total liabilities and stockholders' equity
$643,000,000
12,000,000
6,000,000
119,000,000
117,000,000
254,000,000
$629,000,000
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Comprehensive Examination F
F-9
Net sales
Cost and expenses:
Cost of goods sold
Selling, general, and administrative expenses
Other, net
Total costs and expenses
Income before income taxes
Income taxes
Net income
Retained earnings at beginning of period
Dividends on common stock
Dividends on preferred stock
Retained earnings at end of period
400,000,000
65,000,000
6,000,000
471,000,000
70,000,000
21,000,000
49,000,000
29,000,000
11,600,000
17,400,000
117,000,000
(24,400,000)
(600,000)
$141,000,000
113,100,000
(12,900,000)
(600,000)
$117,000,000
Instructions
Based on the above information, compute the following (for the year 2013 only): (Show
supporting computations in good form.)
(a) Current ratio.
(f)
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(270,000)
1,600,000
480,000
40,000
5,800,000
1,200,000
(300,000)
3,900,000
(10,000)
5,600,000
Instructions
Identify which segments are significant enough to warrant disclosure in accordance with FASB
No. 131, "Reporting Disaggregated Information about a Business Enterprise," by applying the
following quantitative tests:
a.
b.
c.
Revenue test
Operating profit or loss test
Identifiable assets test
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Comprehensive Examination F
F - 11
c
d
d
d
c
6.
7.
*8.
*9.
*10.
c
a
b
b
c
$104,000
4,000
(38,000)
52,000
(15,000)
30,000
15,000
126,000
120,000
105,000
(890,000)
(45,000)
450,000
174,000
278,000
(665,000)
405,000
18,000
36,000
$ 54,000
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2. (a)
(b)
3. (a)
(b)
4. (a)
(b)
5. (a)
(b)
6. (a)
(b)
None
Depreciation Expense ............................................................
Accumulated Depreciation .............................................
[($645,000 $240,000 $15,000) 5]
78,000
20,000
Truck .......................................................................................
Accumulated Depreciation .............................................
Retained Earnings .........................................................
50,000
7,500
22,500
27,500
7,500
None
Depreciation Expense ............................................................
Accumulated Depreciation .............................................
200,000
200,000
None
Bad Debt Expense ..................................................................
Allowance for Doubtful Accounts ...................................
25,000
14,000
None
Current ratio:
Total current assets
(b)
20,000
None
78,000
$261,200,000
= = 2.59 to 1
$101,000,000
25,000
14,000
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Comprehensive Examination F
F - 13
Receivables turnover:
Net sales
$540,000,000
= = 4.91 times
Average accounts receivable
[($109,000,000 + $111,000,000) 2]
(d)
Inventory turnover:
Cost of goods sold
$390,900,000
= = 2.98 times
Average inventories
$131,000,000
(e)
(g)
(h)
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Revenue test a segment is reportable if its total sales are $350,000 or more
(10% $3,500,000). Segments A, B, and E satisfy the revenue test.
b.
Operating profit or loss test a segment's absolute profit or loss must be $58,000 or more
[10% of the absolute greater of $520,000 or ($580,000)]. Segments A, B, and D satisfy the
operating profit or loss test.
c.
Identifiable assets test a segment's identifiable assets must be $1,810,000 or more (10%
$18,100,000). Segments B, D, and E satisfy the identifiable test.
Segments A, B, D, and E are identified as significant and therefore reportable because they
passed at least one of the significance tests.