ACCT 311 Week 3

If the company recognizes revenues and costs from contracts at a point in time, what amount of gross profit (loss) would the company report in its Year 2 income statement?

$(20,000)

On January 1 of the current year, Barton Co. paid $900,000 to purchase two-year, 8%, $1,000,000 face value bonds that were issued by another publicly traded corporation. Barton plans to sell the bonds in the first quarter of the following year. The fair value of the bonds at the end of the current year was $1,020,000. At what amount should Barton report the bonds in its balance sheet at the end of the current year?

$1,020,000

On January 2 of the current year, Otto Co. purchased 40% of Penn Co.'s outstanding common stock. The carrying amount of Penn's depreciable assets was $1,000,000 on January 2. Penn's depreciable assets had an original useful life of 10 years, and a remaining useful life of five years. Otto recognized $8,000 amortization for the current year ending December 31 related to its investment in Penn due to the excess of fair value over book value on these assets. What was the fair value of Penn's depreciable assets on January 2 of the current year?

$1,100,000

Mod Cons Appliances entered into a contract to provide Reilly Clean Laundromat with 10 premium washer-dryer packages at $2,150 per package. The premium washer-dryer package includes a washing machine, a dryer, and a 5-year repair plan for each appliance. Mod Cons offers a washer package with a washer and a washer repair plan for $1,350 and a dryer package with a dryer and a dryer repair plan for $950. Mod Cons regularly sells individual washing machines at $1,200 each and individual dryers at $900 each. It sells 5-year repair plans at $300 for washing machines and $100 for dryers. Rounding to the nearest $100, how much of the Reilly contract revenue should be allocated to washing machines?

$10,100

At year end, Rim Co. held several debt investments with the intent of selling them in the near term. The investments consisted of a $100,000, 8%, five-year bond purchased for $92,000 and other debt securities purchased for $35,000. At year end, the bonds were selling on the open market for $105,000 and the other debt securities had a market value of $50,000. All changes in value for the year are considered noncredit related and temporary. What amount should Rim report as trading securities in its year end balance sheet?

$155,000

At the beginning of the fiscal year, End Corp. purchased 25% of Turf Co. for $550,000. At the end of the fiscal year, Turf reported net income of $65,000 and declared and paid cash dividends of $30,000. End uses the equity method of accounting. At year end, what amount should End report in its income statement from the investment in Turf?

$16,250

Chatham Co. owned 25% of the voting stock of Boyrum Co. Chatham applied the equity method to account for this investment. Boyrum reported income of $100,000 and paid $30,000 in cash dividends during the period. What amount should Chatham report as investment income?

$25,000

Data regarding an entity's available-for-sale debt securities are as follows: Cost Fair value December 31, Year 7 $80,000 $65,000 December 31, Year 8 $80,000 $90,000 Differences between amortized cost and fair values are considered temporary and not related to credit losses. By what amount should the entity increase its Year 8 other comprehensive income?

$25,000

At the beginning of Year 2, a company invested $40,000 in a marketable debt security. At that time, the security was appropriately classified as an available-for-sale security. At the end of Year 2, the company recorded the following related to the security: a $1,000 increase in the allowance for credit losses and an $10,500 increase in the valuation account for unrealized losses. Management does not intend to sell the security. What amount will the company report as the carrying value for the security?

$28,500

Marcury, Inc. bought 25% of Harmees Corp.'s outstanding common stock on January 2, Year 4, for $500,000. The carrying amount of Harmees' net assets at the purchase date totaled $1,500,000. Fair values and carrying amounts were the same for all items except for building and inventory, for which fair values exceeded their carrying amounts by $80,000 and $40,000, respectively. The building has a ten-year remaining useful life and no salvage value. All inventory was sold during Year 4. During Year 4, Harmees reported net income of $200,000 and paid a $20,000 cash dividend. There is no impairment of goodwill during year 4. Assume that Marcury uses the equity method to account for this investment. What amount should Marcury report in its income statement from its investment in Harmees for the year ended December 31, Year 4?

$38,000

An auto repair company has agreed to provide a customer with a package of standard car maintenance services for $100. The package consists of an oil change, for which the company normally charges $75, and a tire rotation, for which the company normally charges $50. What amount of revenue should be recognized from the tire rotation?

$40

The following information pertains to Long Inc.'s investment in marketable debt securities: A marketable available-for-sale debt security costing $40,000, written down to $25,000 in Year 4, had a $30,000 fair value on December 31, Year 5. On December 31, Year 5, Long reclassified a debt security with a $100,000 carrying cost and a $90,000 fair value from the trading category to the available-for-sale category. All changes in the value of the available-for-sale securities are noncredit related and considered temporary. What is the net effect of the above items on Long's available-for-sale debt securities valuation allowance for unrealized losses as of December 31, Year 5?

$5,000 decrease.

On December 30, Devlin Co. sold goods to Jensen Co. for $10,000, under an arrangement in which (1) Jensen has an unlimited right of return and (2) Jensen's obligation to pay Devlin is contingent upon Jensen's reselling the goods. Past experience has shown that Jensen ordinarily resells 60% of goods and returns the other 40%. What amount should Devlin include in sales revenue for this transaction on its December 31 income statement?

0

On January 1, Year 3, Point, Inc., purchased 10% of Iona Co.'s common stock. Point purchased additional shares, bringing its ownership up to 40% of Iona's common stock outstanding on August 1, Year 3. During October Year 3, Iona declared and paid a cash dividend on all of its outstanding common stock. Point uses the equity method to account for its investment in Iona. How much income from the Iona investment should Point's Year 3 income statement report?

10% of Iona's income for January 1 to July 31, Year 3, plus 40% of Iona's income for August 1 to December 31, Year 3.

On May 1, Clothes Co. sells clothing to Link Corp. for $40,000. Clothes ships the clothing on May 1 and Link is obligated to pay Clothes within six months. Link is given 12 months to return any of the clothing for a refund if they experience low demand. Link is also given 18 months to exchange any clothing due to low demand. At the time of sale, Clothes cannot reasonably estimate returns, but estimates $5,000 in exchanged goods. Clothes should recognize revenue for the aforementioned transaction

12 months after the date of sale

Shipley Clothiers, LLC, specializes in custom-made clothing. Which of the following Shipley contracts most likely has separately identifiable promises resulting in distinct performance obligations for the recognition of revenue?

A contract to make a gold linen evening gown and a cream velvet evening wrap

Kale Co. purchased bonds at a discount on the open market as an investment and intends to hold these bonds to maturity. Kale should account for these bonds at

Amortized cost

CostFair valueMan Co.$10,000$8,000Kemo, Inc.9,00011,000Fenn Corp.11,0009,000 Ownership in each security represents less than 20% of the outstanding stock. What amounts, related to these investments, would Ott report on its year-end balance sheet and income statement?

Balance sheet- $28,000 Income statement- $2,000 unrealized loss

For $50 a month, Rawl Co. visits its customers' premises and performs insect control services. If customers experience problems between regularly scheduled visits, Rawl makes service calls at no additional charge. Instead of paying monthly, customers may pay an annual fee of $540 in advance. For a customer who pays the annual fee in advance, Rawl should recognize the related revenue

Evenly over the contract year

At the end of Year 1, Lane Co. held trading securities that cost $86,000 and which had a year-end fair value of $92,000. During Year 2, all these securities were sold for $104,500. At the end of Year 2, Lane had acquired additional trading securities that cost $73,000 and had a year-end fair value of $71,000. What is the impact of these activities on Lane's Year 2 income statement?

Gain of $10,500

When valuing certain financial instruments, a company that has elected the fair value measurement option must apply the accounting measurement based on which of the following criteria?

Instrument-by-instrument basis

On January 1, Year 1, a furniture wholesale company agreed to sell 10 identical couches to a customer at a price of $1,000 per couch. The entity transfers control of each couch at the point in time it is delivered to the customer. By July 1, Year 1, 6 couches had been provided to the customer. On that date, the customer offered to purchase 2 additional couches of the same model at a price of $950 per couch. The company agreed to accommodate the customer's request and provided 6 additional couches to the customer on October 1, Year 1. How much revenue, if any, should be allocated to each agreement in the December 31, Year 1, financial statements?

January 1, Year 1 agreement- $10,000 July 1, Year 1 agreement- $1,900

A marketable debt security is transferred from trading securities to the available-for-sale debt securities category. At the transfer date, the security's cost exceeds its fair value. What value is used to record the transfer?

Market value, regardless of whether the decline in market value below cost is considered permanent or temporary

A company recognizes revenue from a five-year construction contract as the performance obligation is being satisfied. If the company uses the cost-to-cost approach, revenue is recognized based on

Progress billings issued to customers- No Collections from progress billings- No

Red Co. has a long-term construction contract that qualifies for recognition of revenue while the performance obligations are being met. Red will use costs incurred as the measure of progress toward completion of the project. In determining the amount of profit to recognize for the second year, which of the following items would Red not use in this calculation?

Progress billings to date

A company recognizes income for a five-year construction contract as the performance obligation is being satisfied. If the company uses the cost-to-cost approach to measure progress on the contract, which of the following items will the company use to calculate the profit recognized in the third year?

Progress billings to date- No Profit previously recognized- Yes

Sork Inc. has a portfolio of marketable debt securities classified as available for sale. The fair value option was elected when the securities were purchased. At the end of the year, the securities' fair values exceeded their costs. The increase is considered temporary and due to improved market conditions. The unrealized gains are

Reported in net income.

Acorn Software provides subscribers with access to web-based software for 365 days for a single payment, regardless of how often the customer uses the software. Acorn developed the software, regularly updates it, and provides 24-hour customer service access for subscribers at no extra charge. If the company recognizes revenue while the performance obligation is being satisfied, what base is most appropriate to measure progress toward completion of the obligation?

Subscription time elapsed

Which of the following is a part of the core principle of the revenue recognition standard?

The amount of revenue recognized represents the consideration the entity expects to receive in exchange for goods or services

A company has a 22% investment in another company that it accounts for using the equity method. Which of the following disclosures should be included in the company's annual financial statements?

The company's accounting policy for the investment.

An entity has agreed to a three-year contract with a customer. Recognizing revenue from long-term contracts over a period of time is not required when

The customer has direct use of the performance obligation

When the market value of an investment in debt securities exceeds its amortized cost, how should each of the following assets be reported at the end of the year?

Trading securities: Market value Debt securities held to maturity: Amortized cost

On March 1, Year 3, Shore Co. purchased trading securities that cost $17,500. At the end of Year 3, the securities had a fair value of $16,500. At the end of Year 4, the securities' fair value increased to $19,000. What is the impact of the trading securities on Shore's Year 4 income statement?

Unrealized gain of $2,500