Advanced Intermediate Accounting I Final Exam

Advanced Intermediate

Accounting I

Final Exam

Name:

Problems:

1. Which of the following is included in the cost of a fixed asset?

a)      Fixed asset market price

b)      Cost of tearing down an old building

c)      Severance pay for employees dismissed because of acquisition

d)     Cost of tearing down a building on newly acquired land

e)      Cost of training new employees

f)       Installation costs

g)      Replacement of an electric motor in a machine

h)      Expansion of the heating/cooling system

i)        Freight costs

j)        Cost of insurance during construction

k)      Testing costs

l)        Costs of grading land prior to construction

m)    Tax assessment for city improvements

n)      Landscaping costs

(20 points)

1. Wallace Corporation summarizes the following information from its weekly payroll records during April. Type of Salary Gross Pay F. I. C. A. Tax Federal Income Tax State Income Tax Net Pay Office Staff $ 70,000 $ 5,600 $ 5,110 $ 2,000 $ 57,290.

Prepare the two journal entries to record the payment of the payroll and the accrual of its payroll taxes for April. Assume an 8% F. I. C. A. rate for both employees and the employer. Also assume a 5.4% state unemployment tax rate, a 0.6% federal unemployment tax rate, and that all wages are subject to all payroll taxes. Round all answers.

Date

Accounts

D

C

(20 points)

1. Use the payroll information below to answer the following questions

Employees

Hourly Wage

Hours Worked

Cumulative Earnings

Al.  Angel

$45.00

38

$99,800

Bert Bayo

$18.00

43

$6,100

Claudia Cooper

$17.00

40

5,700

Danielle Donovan

$43.00

48

110,000

Over time is paid at 1 ½ times of the regular hourly wage. Assume there are no voluntary contributions.

The following are the current information about tax liabilities:

Tax

Rate

Ceiling

Social Security

6.0%

$100,000

Medicare

1.50%

N/A

SUTA

5%

$7,000

FUTA

1%

7,000

Additional Information: Federal Income taxes will be equal to 20% of the total weekly earnings.

Compute:

a.                                                                                                                                                                                           Total Social Security Payable

b.                                                                                                                                                                                          Total Medicare Payable

c.                                                                                                                                                                                           Total SUTA Payable

d.                                                                                                                                                                                          Total FUTA Payable

e.                                                                                                                                                                                           Total Federal Income Tax Payable

Round all answers.

(20 points)

1.   The data below refers to packaging equipment, bought by ABC Corporation on Jan/02/2003:

Name

XPA 234

Total Cost

$261,000

Useful Life

5 years

Residual Value

$11,000

Total Working Hours Capacity

18,000 hours

Calculate the following:

b.      The amount of depreciation for the year 2004 using the straight line method. (5 points)

c.       The depreciation for 2005 using the hours of operation depreciation method (same as the units of production method), knowing that the machine worked 4,300 hours during that year. (5 points)

c.   Create a depreciation schedule for all years, using the double declining 

      method. Do not depreciate below the residual value. (5 points)

d. Create a depreciation schedule for all years, using the sum of the years  

      method. (5 points)

1. Contingencies Fallon Company, a toy manufacturer that also operates several retail outlets, is preparing its December 31, 2013, financial statements according to GAAP standards. It has identified the following legal situations that may qualify as contingencies:

1. A customer is suing the company for $1,000,000 in damages because her child was injured in November 2013 in one of its stores. Legal counsel feels that the child is partially at fault, but that it is probable that the lawsuit will be settled for between $ 70,000 and $ 150,000, with $ 100,000 being the most likely amount.

1. Fallon has discovered that a toy it began manufacturing and selling in 2013 has defective bearings. Fallon has issued a ‘‘recall’’ notice in newspapers and magazines in which it offers to repair the toys. It estimates a cost of $ 200,000 for these repairs. No lawsuits have been filed for injury claims, although the company feels that there is a reasonable possibility that claims may total as high as $ 5 million.

1. In early 2013, Fallon signed a contract with a computer vendor to install ‘‘state of the art’’ cash registers in all of its retail outlets. Because of the vendor’s inability to acquire sufficient cash registers, the vendor canceled the contract. Fallon has filed a breach of contract suit against the vendor, claiming $ 500,000 in damages. The company’s lawyers expect that it will settle the suit ‘‘out of court’’ for $ 250,000.

For each situation, prepare the journal entry ( if any) on December 31, 2013, to record the information for Fallon. If no journal entry is recorded, explain how the information would be disclosed in Fallon’s 2013 annual report.

Date

Accounts

D

C

(20 points)

Bonus Question: (10 points)

How would your answers change if Fallon, the company in the previous question, used IFRS instead of GAAP standards?