Intermediate accounting week 3
The following trial balance of Flip Corp. at December 31, year 1, has been adjusted except for incometax expense.
| Account | Debit | Credit |
| Cash | $600,000 | |
| Accounts Receivable, net | 3,500,000 | |
| Cost in excess of billings on long-ter contracts | 1,600,000 | |
| Billings in excess of cost on long-term contracts | $700,000 | |
| Prepaid taxes | 450,000 | n |
| Property, plant, and equipment, net | 1,480,000 | |
| Notes Payable, noncurrent | 1,620,000 | |
| Common Stock | 750,000 | |
| Additional Paid In Capital | 2000,000 | |
| Retained Earnings – unappropriated | 900,000 | |
| Retained Earnings – restricted for Notes Payable | 160,000 | |
| Earning from long-term contracts | 6,680,000 | |
| Cost and Expenses | 5,180,000 | ________ |
| Totals | $12,810,000 | $12,810,000 |
Other financial data for the year ended December 31, year 1, are Flip uses the percentage-of-completion method to account for long- term construction contracts for financial statement and income tax purposes. All receivables on these contracts are considered to be collectible within twelve months.
During year 1, estimated tax payments of $450,000 were charged to prepaid taxes. Flip has notrecorded income tax expense. There were no temporary or permanent differences, and Flip’stax rate is 30%.
In Flip’s December 31, year 1 balance sheet, what amount should be reported as total noncurrent liabilities?
Question 1 options:
$2,480,000
$1,780,000
$1,620,000
$2,320,000
Question 2 (1 point)
The following trial balance of Flip Corp. at December 31, year 1, has been adjusted except for incometax expense.
| Account | Debit | Credit |
| Cash | $600,000 | |
| Accounts Receivable, net | 3,500,000 | |
| Cost in excess of billings on long-ter contracts | 1,600,000 | |
| Billings in excess of cost on long-term contracts | $700,000 | |
| Prepaid taxes | 450,000 | |
| Property, plant, and equipment, net | 1,480,000 | |
| Notes Payable, noncurrent | 1,620,000 | |
| Common Stock | 750,000 | |
| Additional Paid In Capital | 2000,000 | |
| Retained Earnings – unappropriated | 900,000 | |
| Retained Earnings – restricted for Notes Payable | 160,000 | |
| Earning from long-term contracts | 6,680,000 | |
| Cost and Expenses | 5,180,000 | ________ |
| Totals | $12,810,000 | $12,810,000 |
Other financial data for the year ended December 31, year 1, are
Flip uses the percentage-of-completion method to account for long- term construction contracts for financial statement and income tax purposes. All receivables on these contracts are considered to be collectible within twelve months.
During year 1, estimated tax payments of $450,000 were charged to prepaid taxes. Flip has not recorded income tax expense. There were no temporary or permanent differences, and Flip’stax rate is 30%. In Flip’s December 31, year 1 balance sheet, what amount should be reported as total current assets?
$6,150,000
$5,700,000
$5,450,000
$5,000,000
Question 3 (1 point)
Flip, Inc. was incorporated on January 1, year 1, with proceeds from the issuance of $750,000 in stock andborrowed funds of $110,000. During the first year of operations, revenues from sales and consulting amounted to 2,000, and operating costs and expenses totaled $64,000.On December 15stdeclared a $3,000 cash dividend, payable to stockholders on January 15 year 2. No additional activities affected owners’ equity in year 1. Flip’s liabilities increased to $120,000 by December 31, year 1. On Flip’s December 31, year 1 balance sheet, total assets should be reported at current assets.
$885,000
$882,000 $
878,000
$875,000
Question 4 (1 point)
When preparing a draft of its year 1 balance sheet, Flip, Inc. reported net assets totaling $875,000. Includedin the asset section of the balance sheet were the following:
| Treasury Stock of Flip, Inc at cost, which approximates market value on December 31 | $24,000 |
| Idle machinery | 11,200 |
| Cash surrender value of life insurance on corporate executives | 13,700 |
| Allowance for decline in market value of noncurrent equity investments | 8,400 |
At what amount should Flip’s net assets be reported in the December 31, year 1 balance sheet?
$850,100
$834,500
$851,000
$842,600
Question 5 (1 point)
In analyzing a company financial statements, which financial statement would a potential investor primarily use to assess the company’s liquidity and financial flexibility?
Balance sheet
Income statement
Statement of cash flows
Statement of retained earnings
Question 6 (1 point)
Flip Co. acquired 100% of Flop Corp. prior to year 2. During year 2, the individual companies included intheir financial statements the following.
| Flip | Flop | |
| Officers’ salaries | $ 75,000 | $50,000 |
| Officers’ expenses | 20,000 | 10,000 |
| Loans to officers | 125,000 | 50,000 |
| Intercompany sales | 150,000 | — |
What amount should be reported as related-party disclosures in the notes to flip’s year 2 consolidated financial statements.
$330,000
$175,000
$150,000
$155,000
Question 7 (1 point)
Flop Co. has entered into a joint venture with an affiliate to secure access to additional inventory. Under thejoint venture agreement, Flop will purchase the output of the venture at prices negotiated on an arm’s-length basis. Which of the following is(are) required to be disclosed about the related-party transaction?
I. The amount due to the affiliate at the balance sheet date.
II. The dollar amount of the purchases during the year.
I only. II only.
Both I and II.
Neither I nor II.
Question 8 (1 point)
What is the purpose of information presented in notes to the financial statements?
To correct improper presentation in the financial statements.
To present management’s responses to auditor comments.
To provide disclosures required by generally accepted accounting principles.
To provide recognition of amounts not included in the totals of the financial statements.
Question 9 (1 point)
Which of the following information should be included in Flop, Inc.’s year 1 summary of significant accounting policies?
Business component year 1 sales are Alpha $1M, Beta $2M, and Charlie $3M.
Property, plant, and equipment is recorded at cost with depreciation computed principally by the straight-line method.
Future common share dividends are expected to approximate 60% of earnings.
During year 1, the Delta component was sold.
Question 10 (1 point)
Which of the following information should be disclosed in the summary of significant accounting policies?
Guarantees of indebtedness of others.
Criteria for determining which investments are treated as cash equivalents.
Refinancing of debt subsequent to the balance sheet date.
Adequacy of pension plan assets relative to vested benefits.
Question 11 (1 point)
Flop Corp. prepares its financial statements for its fiscal year ending December 31, year 1. Flop estimates that its product warranty liability is $28,000 at December 31, year 1. On February 12, year 2, before the financial statements were issued, Flop received information about a product defect that willrequire a recall of all units sold in year 1. It is expected the product recall will cost an additional $40,000 in warranty repairs. What should Flop present in its December 31, year 1 financial statements?
A footnote disclosure listing the estimated amount of $40,000 in warranty repairs and an
explanation of the recall.
An estimated warranty liability of $68,000.
No disclosure is necessary.
A footnote disclosure explaining the product recall.
Question 12 (1 point)
Flop Corp. has a fiscal year-end of December 31styear 1. On that date, Flop reported total assets of$600,000. On February 1, year 2 before the year 1 financial statements were issued, Flop lost $250,000 ofinventory due to a fire. The inventory was a total loss and was uninsured. How should Flop present thisinformation in its December 31, year 1 financial statements?
should disclose the loss in a footnote to its year 1 financial statements.
Flop should report an allowance for lost inventory in its year 1 balance sheet.
Flop should not report the loss
Flop should report an extraordinary loss in its year 1 income statement.
Question 13 (1 point)
The fair value of an asset should be based upon
The replacement cost of an asset.
The price that would be received to sell the asset at the measurement date under current market conditions.
The price that would be paid to acquire the asset.
The original cost of the asset plus an adjustment for obsolescence.
Question 14 (1 point)
Which of the following describes a principal market for establishing fair value of an asset?
The market that has the greatest volume and level of activity for the asset.
Any broker or dealer market that buys or sells the asset.
The market in which the amount received would be maximized.
The most observable market in which the price of the asset is minimized.
Question 15 (1 point)
Which of the following is true for valuing an asset to fair value?
The price should be adjusted for transportation costs to transport the asset to its principal market.
The fair value price is based upon an entry price to purchase the asset.
The fair value of the asset should be adjusted for costs to sell.
The price of the asset should be adjusted for transaction costs.
Question 16 (1 point)
Which of the following would meet the qualifications as market participants in determining fair value?
A subsidiary of the reporting unit interested in purchasing assets similar to those being valued.
An independent entity that is knowledgeable about the asset.
A liquidation market in which sellers are compelled to sell.
A broker or dealer that wishes to establish a new market for the asset.
Question 17 (1 point)
The fair value of an asset at initial recognition is
The price paid to transfer or sell the asset.
The price paid to acquire the asset.
The price paid to acquire the asset less transaction costs.
The book value of the asset acquired.
Question 18 (1 point)
Which of the following is not a valuation technique used in fair value estimates?
Market approach.
Cost approach.
Residual value approach.
Income approach.
Question 19 (1 point)
The market approach valuation technique for measuring fair value requires which of the following?
The weighted-average of the present value of future cash flows.
The price to replace the service capacity of the asset.
Present value of future cash flows.
Prices and other relevant information of transactions from identical or comparable assets.
Question 20 (1 point)
A change in valuation techniques used to measure fair value should be reported as
A change in accounting principle with retrospective restatement.
An extraordinary item on the current year’s income statement.
An error correction with restatement of the financial statements of previous periods.
A change in accounting estimate reported on a prospective basis.
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