devry ACCT557 Final exam

. (TCO B) At the beginning of 2012, Barbara, Inc. has a deferred tax asset of $8,000 and deferred tax liability of $6,500. In 2012, pretax financial income was $600,000 and the tax rate was 35%.
Pretax income included:
Interest income from municipal bonds $25,000
Accrued warranty costs, estimated to be used in 2013 $74,000
Prepaid rent expense, will be used in 2013 $16,000
Installment sales revenue, to be collected in 2013 $45,000
Operating loss carryforward $36,000
Deferred tax liability ending balance December 31, 2012 is (Points : 5)
$14,850.
$15,750.
$21,350.
$41,650.

2. (TCO C) Presented below is pension information related to Baked Goods, Inc. for the year 2013.
Service cost $85,000
Interest on projected benefit obligation $52,000
Interest on vested benefits $28,000
Amortization of prior service cost due to increase in benefits $15,000
Expected return on plan assets $56,000
The amount of pension expense to be reported for 2013 is (Points : 5)
$81,000.
$124,000.
$180,000.
$96,000.

3. (TCO C) Bunny Hopping, Inc. sponsors a defined-benefit pension plan. The following data relate to the operation of the plan for the year 2013.
Service cost $150,000
Contributions to the plan $120,000
Actual return on plan assets $130,000
Projected benefit obligation (beginning of year) $1,800,000
Fair value of plan assets (beginning of year) $1,650,000
The expected return on plan assets and the settlement rate were both 10%. The amount of pension expense reported for 2013 is (Points : 5)
$150,000.00.
$200,000.00.
$165,000.00.
$330,000.00.

4. (TCO F) Balancing Act, Inc recognized net income of $489,000 including $7,500 in depreciation expense.
Additional changes from the balance sheet are as follows.
Accounts Receivable $2,600 decrease
Prepaid Expenses $4,500 decrease
Inventory $26,400 increase
Accrued Liabilities $2,300 decrease
Accounts Payable $3,800 increase
Compute the net cash from operating activities based on the above information. (Points : 5)
$501,100
$453,900
$519,200
$478,700

5. (TCO G) The disclosure of accounting policies is important to the financial statements when determining (Points : 5)
whether or not the accounting policies are consistently applied from year to year.
the value of obsolete items included in ending inventory.
whether or not the working capital position is adequate for future operations.
net income for the year.

6. (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
A $102,000 $37,200 $67,200
B $126,000 $(19,200) $98,400
C $300,000 $134,400 $768,000
D $24,000 $4,800 $42,000

Required:
For which of the segments would information have to be disclosed in accordance with professional pronouncements? (Points : 5)
Segments A, B, C, and D
Segments A, B, and C
Segments A and B
Segments A and D
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1. (TCO B) Buffy, Inc. qualifies to use the installment-sales method for tax purposes and sold an investment on an installment basis. The total gain of $750,000 was reported for financial reporting purposes in the period of sale. The installment period is 3 years; one third of the sale price is collected in 2012 and the rest in 2013. The tax rate was 40% in 2012, 35% in 2013, and 35% in 2014. The accounting and tax data is shown below.
Financial Accounting Tax Return
2012
Income before temporary difference $1,800,000 $1,800,000
Temporary difference $750,000 $250,000
Income $2,550,000 $2,050,000

2013
Income before temporary difference $1,500,000 $1,500,000
Temporary difference $- $250,000
Income $1,500,000 $1,750,000

2014
Income before temporary difference $1,250,000 $1,250,000
Temporary difference $- $250,000
Income $1,250,000 $1,500,000

Required:
1) Prepare the journal entries to record the income tax expense, deferred income taxes, and the income taxes payable for 2012, 2013, and 2014. No deferred income taxes existed at the beginning of 2012.
2) Explain how the deferred taxes will appear on the balance sheet at the end of each year. (Assume Installment Accounts Receivable is classified as a current asset.)
3) Show the income tax expense section of the income statement for each year, beginning with “Income before income taxes.” (Points : 40)

2. (TCO D) Bing Leasing, Inc. agrees to lease equipment to Boyd, Inc. on January 1, 2012. They agree on the following terms:
1) The normal selling price of the equipment is $1,500,000 and the cost of the asset to Bing Leasing, Inc. was $135,000.
2) The lease is noncancelable with no renewal option. The lease term is 10 years (the same as the estimated economic life).
3) The lease begins on January 1, 2012 and payments will be in equal annual installments.
4) At the end of the lease, the equipment will revert to Bing Leasing, Inc. and have an unguaranteed residual value of $150,000. Their implicit interest rate is 10%.
5) Boyd will pay all maintenance, insurance, and tax costs directly and annual payments of $160,000 on January 1 of each year.
6) Bing Leasing, Inc. incurred costs of $10,600 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.

Required:
a) Determine what type of lease this would be for the lessor and calculate the following (show all work).
Lease Receivable
Sales Price
Cost of Sales
b) Prepare Bing’s amortization schedule for the lease terms.
c) Prepare all the journal entries for Kingdom for 2012. Assume a calendar year fiscal year. (Points : 40)

3. (TCO F) Financial data of Beautiful Beadwork Company for 2013 and 2012 are presented below.
Beautiful Beadwork Company
COMPARATIVE BALANCE SHEET
AS OF DECEMBER 31, 2013 AND 2012

2013 2012
Cash $ 364,000 $ 322,000
Receivables $ 218,400 $ 168,000
Inventory $ 252,000 $ 308,000
Plant assets $ 224,000 $ 189,000
Accumulated depreciation $ (112,000) $ (106,400)
Long-term investments (held-to-maturity) $ 112,000 $ 130,200
$ 1,058,400 $ 1,010,800

Accounts payable $ 189,000 $ 170,800
Accrued liabilities $ 42,000 $ 46,340
Bonds payable $ 189,000 $ 232,400
Common stock $ 252,000 $ 231,000
Retained earnings $ 386,400 $ 330,260

$ 1,058,400 $ 1,010,800

Beautiful Beadwork Company
INCOME STATEMENT
For the year ended December 31, 2013
Sales 1,050,000
Cost of Goods Sold 742,000
Gross Margin 308,000
Selling and administrative expenses 148,400
Income from Operations 159,600
Other revenues and gains
Gain on sale of investments 9,800
Income before tax 169,400
Income tax expense 67,760
Net Income 101,640

Additional information:
During the year, $12,600 of common stock was issued in exchange for plant assets. No plant assets were sold in 2012. Cash dividends were $45,500.

Required:
Prepare a statement of cash flows using the indirect method.
(Points : 40)