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INTERMEDIATE ACCOUNTING ACCT310 Exercise 1 A cash flow of-(Answered)

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INTERMEDIATE ACCOUNTING

ACCT310

Exercise 1

A cash flow of $500,000 may be received by Cynthia Bennett Company in one year, two years, or three years, with probabilities of 30%, 60%, and 20%, respectively. The rate of interest on default risk-free investments is 8%.

Required:

What is the expected present value of Cynthia Bennett' cash flow? Round your answers to the nearest whole dollar.

Exercise 2

8. Toro, Inc. paid $9,330 to renew its only insurance policy for three years on March 1, year 1, the effective date of the policy. At March 31, year 1, Toro's unadjusted trial balance showed a balance of $450 for prepaid insurance and $9,330 for insurance expense.

Required:

What amounts should be reported for prepaid insurance and insurance expense in Toro's financial statements for the three months ended March 31, year 1? Hint: The price of the insurance premium increased in the current year.

Exercise 3

If the beginning merchandise inventory was understated $8,000 in 2014, purchases were overstated $6,000 in 2014 and the ending merchandise inventory was overstated $10,000 in 2015. Assume that no corrections were made during 2014 or 2015. All other items in the income statement were correct.What affect does this have on the cost of goods sold and net income for 2014 in dollars understated or overstated?What affect does this have on net income and retained earnings in dollars understated or overstated for 2015?What is the issue price of these bonds and the bond discount or premium?Assume that US Steel uses the effective interest method to amortize the bond discount or premium for the semiannual interest payments, what is the interest expense and the amount of cash paid the second interest payment?

Exercise 7

Sally Smith owns a furniture store. One of her most popular items is a leather recliner.

If the furniture store uses the first-in, first-out (FIFO) inventory method and periodic approach, what values would be assigned to ending inventory, cost of goods sold and gross profit?If the furniture store uses the last-in, first-out (LIFO) inventory method and periodic approach, what values would be assigned to ending inventory, cost of goods sold and gross profit?If the furniture store uses the weighted-average inventory method and periodic approach, what values would be assigned to ending inventory, cost of goods sold and gross profit?

Exercise 8

Dillon?s Camping Equipment was burglarized on 3/10/15. It is unclear how many items were stolen. Dillon and its insurance company are currently working to estimate the dollar value of the stolen goods in order to reach a financial settlement under the existing property insurance policy.

Dillon?s tax return prepared at the end of 2014 revealed that the ended 2014 with a total inventory of $550,000. Dillon uses the same inventory account methods for tax and accounting purposes.

The insurance company has contacted Dillon?s suppliers and confirmed Dillon?s claim that purchases for 2015, prior to the date of the burglary, were $1,250,000. All inventory was purchased, FOB destination.

2015 sales taxes collected by Dillon and remitted to the state, prior to the date of the theft, were $155,000. The sales tax rate is 6% of sales.

An inventory was taken immediately after the burglary and the cost of equipment in stock was $365,000.

Dillon consistently sells equipment at a gross profit margin of 35%.

Required: Use the gross profit method to estimate the dollar value of stolen property.

Exercise 9

Seven Star Corporation purchased a piece of equipment at the beginning of 2012. The equipment cost $140,000. Its estimated service life is 8 years and has an expected salvage value of $8,000. The sum-of-the-years-digits method is used. The depreciation schedule has a $20,357 annual depreciation expense for a certain year.

Required: Determine what year the depreciation expense of $20,357 is on the depreciation schedule. Round all answers to the nearest whole dollar.

Exercise 10

Sunshine Company purchased equipment for $100,000 in 2012. The machinery originally had an estimated life of 8 years and a salvage value of $10,000. Sunshine used the straight-line depreciation method. In 2016, the estimated life was changed to 11 years.

Required: What is the annual depreciation expense for 2016?


INTERMEDIATE ACCOUNTING

 

ACCT310

 

Exercise 1

 

A cash flow of $500,000 may be received by Cynthia Bennett Company in one

 

year, two years, or three years, with probabilities of 30%, 60%, and 20%,

 

respectively. The rate of interest on default risk-free investments is 8%.

 

Required:

 

What is the expected present value of Cynthia Bennett' cash flow? Round your

 

answers to the nearest whole dollar.

 

Exercise 2

 

8. Toro, Inc. paid $9,330 to renew its only insurance policy for three years

 

on March 1, year 1, the effective date of the policy. At March 31, year 1,

 

Toro's unadjusted trial balance showed a balance of $450 for prepaid insurance

 

and $9,330 for insurance expense.

 

Required:

 

What amounts should be reported for prepaid insurance and insurance expense in

 

Toro's financial statements for the three months ended March 31, year 1? Hint:

 

The price of the insurance premium increased in the current year.

 


 

Exercise 3

 

1. If the beginning merchandise inventory was understated $8,000 in 2014,

 

purchases were overstated $6,000 in 2014 and the ending merchandise

 

inventory was overstated $10,000 in 2015. Assume that no corrections

 

were made during 2014 or 2015. All other items in the income statement

 

were correct.

 

Required:

 

1) What affect does this have on the cost of goods sold and net income

 

for 2014 in dollars understated or overstated?

 

2) What affect does this have on net income and retained earnings in

 

dollars understated or overstated for 2015?

 

Exercise 4

 

The following information relates to Rem Corp's accounts receivable for 2015:

 

Accounts receivable, 1/1/15

 

$ 500,000

 

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Credit sales for 2015

 

Sales returns for 2015

 

Accounts written off during 2015

 

Collections from customers during 2015

 

Estimated future sales returns at 12/31/15

 

Estimated uncollectible accounts at 12/31/15

 


 

2,000,000

 

60,000

 

37,000

 

1,500,000

 

35,000

 

73,000

 


 

Required:

 

What amount should Rem report for accounts receivable sales returns and

 

uncollectible accounts, at December 31, 2015?

 

Exercise 5

 

1. On January 1, 2015, Canden Company started to make annual deposits in order

 

to accumulate $1,500,000 by January 1, 2019. This fund will earn annual

 

interest of 8%.

 

Required:

 

What are the four annual deposits that Canden should make at the beginning of

 

each year. Round your answers to the nearest whole dollar.

 


 

Exercise 6

 

US Steel issues a $2,000,000 bond at 10% for 8 years. The market interest rate

 

is 9%.

 

Required:

 

1. What is the issue price of these bonds and the bond discount or premium?

 

2. Assume that US Steel uses the effective interest method to amortize the

 

bond discount or premium for the semiannual interest payments, what is

 

the interest expense and the amount of cash paid the second interest

 

payment?

 

Exercise 7

 

Sally Smith owns a furniture store. One of her most popular items is a leather

 

recliner.

 

Following is the recliner inventory activity for August. The recliners on

 

hand at August 1 had a unit cost of $300.

 

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Date

 

8/1

 

8/6

 

8/15

 

8/22

 

8/30

 


 

Purchases

 

Balance fwd

 

100 units @ $315

 


 

Sales

 


 

Units on Hand

 


 

`

 

120 units @ $500

 


 

150 units @ $325

 

100 units @ $530

 


 

Required:

 

1) If the furniture store uses the first-in, first-out (FIFO) inventory

 

method and periodic approach, what values would be assigned to ending

 

inventory, cost of goods sold and gross profit?

 

2) If the furniture store uses the last-in, first-out (LIFO) inventory

 

method and periodic approach, what values would be assigned to ending

 

inventory, cost of goods sold and gross profit?

 

3) If the furniture store uses the weighted-average inventory method and

 

periodic approach, what values would be assigned to ending inventory,

 

cost of goods sold and gross profit?

 


 

Exercise 8

 

Dillon?s Camping Equipment was burglarized on 3/10/15. It is unclear how many

 

items were stolen. Dillon and its insurance company are currently working to

 

estimate the dollar value of the stolen goods in order to reach a financial

 

settlement under the existing property insurance policy.

 

Dillon?s tax return prepared at the end of 2014 revealed that the ended 2014

 

with a total inventory of $550,000. Dillon uses the same inventory account

 

methods for tax and accounting purposes.

 

The insurance company has contacted Dillon?s suppliers and confirmed Dillon?s

 

claim that purchases for 2015, prior to the date of the burglary, were

 

$1,250,000. All inventory was purchased, FOB destination.

 

2015 sales taxes collected by Dillon and remitted to the state, prior to the

 

date of the theft, were $155,000. The sales tax rate is 6% of sales.

 

An inventory was taken immediately after the burglary and the cost of

 

equipment in stock was $365,000.

 

Dillon consistently sells equipment at a gross profit margin of 35%.

 


 

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3 of 4

 


 

60

 

160

 

40

 

190

 

90

 


 

Required: Use the gross profit method to estimate the dollar value of stolen

 

property.

 

Exercise 9

 

Seven Star Corporation purchased a piece of equipment at the beginning of

 

2012. The equipment cost $140,000. Its estimated service life is 8 years and

 

has an expected salvage value of $8,000. The sum-of-the-years-digits method is

 

used. The depreciation schedule has a $20,357 annual depreciation expense for

 

a certain year.

 

Required: Determine what year the depreciation expense of $20,357 is on the

 

depreciation schedule. Round all answers to the nearest whole dollar.

 

Exercise 10

 

Sunshine Company purchased equipment for $100,000 in 2012. The machinery

 

originally had an estimated life of 8 years and a salvage value of $10,000.

 

Sunshine used the straight-line depreciation method. In 2016, the estimated

 

life was changed to 11 years.

 

Required: What is the annual depreciation expense for 2016?

 


 

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