Prepare your solution in an MS Excel Workbook with one Worksheet devoted to each question. Each worksheet should contain the answers to only one...

Prepare your solution in an MS Excel Workbook with one Worksheet devoted to each question. Each worksheet should contain the answers to only one question. Name the bottom tab of each worksheet according to the question number being addressed. Failure to follow the above instructions may cost you some points.

o Only MS Excel format is acceptable for submission. Please do not use any other software or I may have to return the file without grading it.

o All questions should be answered keeping in mind “US GAAP”, unless mentioned otherwise. Read each question carefully before you attempt to answer.

1. UM Contractors received a contract to construct a mental health facility for $2,500,000. Construction was begun in 2008 and completed in 2009. Cost and other data are presented below:

2008 2009

Cost incurred during the year 1,500,000 1,300,000

Estimated costs to complete 1,200,000 0

Billings during the year 1,200,000 1,300,000

Cash collections during the year 1,000,000 1,500,000

1. Assume that UMU uses the percentage-of-completion method for revenue recognition. Required: Compute and show separately the amounts of gross profit (loss) recognized during 2008 and 2009 from the above contract. (6 points)

(ii) Assume that UMU reports under the completed contract method of revenue recognition. Required: Compute and show separately the amounts of gross profit (loss) recognized during 2008 and 2009 from the above contract. (4 points)

2. Answer each of the following multiple-choice questions by picking the appropriate answer from the given choices. (1 point each)

(i) The percentage-of-completion method violates the general rule on revenue recognition that:

A. Collection is reasonably assured.

B. Costs are known or reasonably estimated.

C. The earnings process is complete.

D. Collections have been received.

(ii) For a typical manufacturing company, the most common critical point for recognizing revenue is the date:

A. An order is received.

B. Production is completed.

C. The product is delivered.

D. Payment is received.

(iii) Reliable Enterprises sells distressed merchandise on extended credit terms. Collections on these sales are not reasonably assured and bad debt losses cannot be reasonably predicted. It is unlikely that repossessed merchandise will be in salable condition. Merchandise costing $30,000 was sold for $55,000 in 2008. Collections on this sale were $20,000 in 2008, $15,000 in 2009, and $20,000 in 2010. In 2008, Reliable would recognize gross profit of:

A. $ 0.

B. $25,000.

C. $ 8,090.

D. $ 8,333.

(iv) Boomerang Computer Company sells computers with an unconditional right to return the computer if the customer is not satisfied. Boomerang has a long history selling these computers under this returns policy, and can provide precise estimates of the amount of returns associated with each sale. Boomerang most likely should recognize revenue:

A. When Boomerang delivers a computer to a customer.

B. When Boomerang receives cash from the customer.

C. When a customer returns a computer.

D. Never, because the right of return is unconditional.

(v) Gunk Goblin sells vacuums and just launched a policy where customers have the right to return a vacuum during a three-year period following purchase. Gunk management has no experience under this sort of policy, and does not believe it can accurately estimate returns. What is the longest period of time that Gunk may have to wait before recognizing gross profit associated with one of these sales?

A. No time delay, recognize gross profit upon delivery.

B. Gunk should recognize gross profit as cash is received under the installment method.

C. Gunk should defer gross until costs are recovered under the cost recovery method.

D. Three years, after the right of return has expired.

(vi) Todd Sweeney is an artist who sells his work under consignment (he displays his work in local barbershops, and customers buy the work there). Sweeney recently transferred a painting to a local barbershop. 83. Sweeney most likely should recognize revenue when:

A. He paints the painting, as the painting is accreting.

B. When he transfers a painting to a barbershop.

C. When the barbershop sells the painting.

D. When the barbershop's right of return expires.

(vii) In question vi above, after Sweeney has transferred a painting to a barbershop, the painting:

A. Should be counted in Sweeney's inventory until the barbershop sells it.

B. Should be counted in the barbershop's inventory, as they now possess it.

C. Should be counted in either Sweeney's or the barbershop's inventory, depending on which incurred the cost of preparing the painting for display.

D. None of these.

Chapter 6

3. Answer each of the following multiple-choice questions by picking the appropriate answer from the given choices. (2 points each)

(i) LeAnn wishes to know how much she should set aside now at 7% interest in order to accumulate a sum of $5,000 in four years. She should use a table for the:

A. Present value of 1.

B. Future value of 1.

C. Present value of an ordinary annuity of 1.

D. Future value of an annuity due of 1.

(ii) Polo Publishers purchased a multi-color offset press with terms of $50,000 down and a noninterest-bearing note requiring payment of $20,000 at the end of each year for five years. The interest rate implicit in the purchase contract is 11%. Polo would record the asset at:

A. $109,618.

B. $123,918.

C. $130,000.

D. $169,560.

(iii) Loan A has the same original principal, interest rate, and payment amount as Loan B. However, Loan A is structured as an annuity due, while Loan B is structured as an ordinary annuity. The maturity date of Loan A will be:

A. Earlier than Loan B.

B. Later than Loan B.

C. The same as Loan B.

D. Indeterminate with respect to loan B.

(iv) Yamaha Inc. hires a new chief financial officer and promises to pay him a lump sum bonus four years after he joins the company. The new CFO insists that the company invest an amount of money at the beginning of each year in a 7% fixed rate investment fund to insure the bonus will be available. To determine the amount that must be invested each year, a computation must be made using the formula for:

A. The future value of a deferred annuity.

B. The future value of an ordinary annuity.

C. The future value of an annuity due.

D. None of these is correct.

(v) Zulu Corporation hires a new chief executive officer and promises to pay her a signing bonus of $2 million per year for 10 years, starting five years after she joins the company. The liability for this bonus when the CEO is hired:

A. Is the present value of a deferred annuity.

B. Is the present value of an annuity due.

C. Is $20 million.

D. Is zero because no cash is owed for five years.

Chapter 7

4. AT&T's financial statements for the 2007 and 2006 fiscal years contained the following information:

Balance sheets (in millions) 2007 2006

Current assets:

Account receivable, net of allowances for

Uncollectibles of 1,364 and 1,276 16,185 16,194

Income statements (in millions) 2007 2006

Revenues 118,928 63,055

In addition, the statement of cash flows disclosed bad debt expense of $1,617 million in 2007 and $586 million in 2006.

Required:

1. Determine the amount of actual bad debt write-offs made during 2007. (4 points)

2. Determine the amount of cash collected from customers during 2007. (5 points)

3. Compute the receivables turnover ratio for 2007. (3 points)

5. Companies can have accounts receivable from ordinary trade customers and from related parties (e.g., directors, employees or large shareholders). How do U.S. GAAP and IFRS differ in their requirements about separate disclosure of trade receivables and related-party receivables? Why might separate disclosure of related party receivables be useful?

(4 points)

Chapter 8

6. Indicate in each of the spaces provided, the effect of the described errors on the various elements of our company's financial statements.

Use the following codes:

O = amount is overstated;

U = amount is understated;

NE = no effect. Assume a periodic inventory system, and that all purchases and sales are on credit. (20 points)

Chapter 9:

7. Henderson Company uses the gross profit method to estimate ending inventory and cost of goods sold when preparing monthly financial statements required by its bank. Inventory on hand at the end of July was $82,500. The following information for the month of August was available from company records:

Purchases 219,000

Freight in 5,200

Sales 350,000

Sales returns 9,000

Purchases returns 4,300

In addition, the controller is aware of $14,000 of inventory that was stolen during August from one of the company's warehouses. Calculate the estimated inventory as per books at the end of August, assuming a markup on cost of 25%. (9 points)

Each of questions 8a