ACCOUNTING

11.   Lake Power Sports sells jet skis and other powered recreational equipment. Customers pay 1/3 of the sales price of a jet ski when they initially purchase the ski, and then pay another 1/3 each year for the next two years. Because Lake has little information about collectibility of these receivables, they use the installment method for revenue recognition. In 2010 Lake began operations and sold jet skis with a total price of $900,000 that cost Lake $450,000. Lake collected $300,000 in 2010, $300,000 in 2011, and $300,000 in 2012 associated with those sales. In 2011 Lake sold jet skis with a total price of $1,500,000 that cost Lake $900,000. Lake collected $500,000 in 2011, $400,000 in 2012, and $400,000 in 2013 associated with those sales. In 2013 Lake also repossessed $200,000 of jet skis that were sold in 2011. Those jet skis had a fair value of $75,000 at the time they were repossessed.
In its December 31, 2011, balance sheet, Lake would report
 

[removed]A. installment receivables (net) of $900,000.
[removed]B. deferred gross profit of $700,000.
[removed]C. deferred gross profit of $1,050,000.
[removed]D. installment receivables (net) of $750,000.

 

12.   Quaker State Inc. offers a new employee a lump sum signing bonus at the date of employment. Alternatively, the employee can take $8,000 at the date of employment plus $20,000 at the end of each of his first three years of service. Assuming the employee’s time value of money is 10% annually, what lump sum at employment date would make him indifferent between the two options?
 

[removed]A. $57,737
[removed]B. $23,026
[removed]C. $8,000
[removed]D. $62,711

 

13.   On May 1, Foxtrot Co. agreed to sell the assets of its Footwear Division to Albanese Inc. for $80 million. The sale was completed on December 31, 2011.
The following additional facts pertain to the transaction:
* The Footwear Division qualifies as a component of the entity according to GAAP regarding discontinued operations.
* The book value of Footwear’s assets totaled $48 million on the date of the sale.
* Footwear’s operating income was a pretax loss of $10 million in 2011.
* Foxtrot’s income tax rate is 40%.
Suppose that the Footwear Division’s assets had not been sold by December 31, 2011, but were considered held for sale. Assume that the fair value of these assets at December 31 was $80 million. In the 2011 income statement for Foxtrot Co., under discontinued operations it would report a
 

[removed]A. 16% gain.
[removed]B. $6 million loss
[removed]C. $10 million loss
[removed]D. $13.2 million income

 

14.   Indiana Co. began a construction project in 2011 that will provide it $150 million when it is completed in 2013. During 2011, Indiana incurred $36 million of costs and estimates an additional $84 million of costs to complete the project.
Using the percentage-of-completion method, Indiana recognized _______ on the project in 2011.
 

[removed]A. $36 million loss
[removed]B. $6 million loss
[removed]C. $9 gross profit
[removed]D. no gross profit or loss

 

15.   Lucia Ltd. reported net income of $135,000 for the year ended December 31, 2011. January 1 balances in accounts receivable and accounts payable were $29,000 and $26,000 respectively. Year-end balances in these accounts were $30,000 and $24,000, respectively. Assuming that all relevant information has been presented, Lucia’s cash flows from operating activities would be
 

[removed]A. $136,000.
[removed]B. $134,000.
[removed]C. $132,000.
[removed]D. $138,000

 

16.   Fenland Co. plans to retire $100 million in bonds in five years, so it wishes to create a fund by making equal investments at the beginning of each year during that period in an account it expects to earn 8% annually. What amount does Fenland need to invest each year?
 

[removed]A. $17,045,650
[removed]B. 15,783,077
[removed]C. $23,190,400
[removed]D. The amount can’t be determined from the given information.

 

17.   Shady Lane’s income tax payable account decreased from $14 million to $12 million during 2011. If its income tax expense was $80 million, what would be shown as an operating cash flow under the direct method?
 

[removed]A. A cash outflow of $80 million
[removed]B. A cash outflow of $82 million
[removed]C. A cash outflow of $12 million
[removed]D. A cash outflow of $78 million

 

 

18.   Misty Company reported the following before-tax items during the current year:

 

Sales $600
Operating expenses 250
Restructuring charges 20
Extraordinary loss 50

Misty’s effective tax rate is 40%.
What would be Misty’s net income for the current year?

 

[removed]A. $112
[removed]B. $148
[removed]C. $168
[removed]D. $198

 

19.   Reliable Enterprises sells distressed merchandise on extended credit terms. Collections on these sales aren’t reasonably assured and bad debt losses can’t be reasonably predicted. It’s unlikely that repossessed merchandise will be in salable condition. Therefore, Reliable uses the cost recovery method. Merchandise costing $30,000 was sold for $55,000 in 2010. Collections on this sale were $20,000 in 2010, $15,000 in 2011, and $20,000 in 2012.

In 2010, Reliable would recognize gross profit of

 

[removed]A. $8,090.
[removed]B. $25,000.
[removed]C. $0.
[removed]D. $8,333.

 

 

 

 

 

 

 

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