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F-I
F-II
F-III
F-IV
F-V
COMPREHENSIVE EXAMINATION F
PART 6
(Chapters 22-24)
Approximate
Topic
Time
Multiple Choice Questions.
25 min.
Statement of Cash Flows.
25 min.
Accounting Changes, Error Corrections, and
Prior Period Adjustments.
30 min.
* Analysis of Financial Statements.
25 min.
Segment Reporting.
15 min.
120 min.
F-2
Based on the information given above, what should be the net cash
provided by operating activities in the statement of cash flows for the year
ended December 31, 2013?
a. $1,256,000.
b. $1,346,000.
c. $1,391,000.
d. $1,436,000.
3. Information concerning the debt of Cole Company is as follows:
Short-term borrowings:
Balance at December 31, 2012
$525,000
Proceeds from borrowings in 2013
325,000
Payments made in 2013
(450,000)
Balance at December 31, 2013
$400,000
Current portion of long-term debt:
Balance at December 31, 2012
$1,625,000
Transfers from caption "Long-Term Debt"
500,000
Payments made in 2013
(1,225,000)
Balance at December 31, 2013
$ 900,000
Long-term debt:
Balance at December 31, 2012
$9,000,000
Proceeds from borrowings in 2013
2,250,000
Transfers to caption "Current Portion of Long-Term Debt"
(500,000)
Payments made in 2013
(1,500,000)
Balance at December 31, 2013
$9,250,000
In preparing a statement of cash flows for the year ended December 31,
2013, for Cole Company, cash flows from financing activities would
reflect
Outflow
a. $2,000,000
b. $2,250,000
c. $2,575,000
F - 3F
Comprehensive Examination
d. $3,175,000
Problem F-I (cont.)
4. In considering interim financial reporting, how did the Accounting
Principles Board conclude that such reporting should be viewed?
a. As a "special" type of reporting that need not follow generally accepted
accounting principles.
b. As useful only if activity is evenly spread throughout the year so that
estimates are unnecessary.
c. As reporting for a basic accounting period.
d. As reporting for an integral part of an annual period.
5. Which of the following items represents a potential use of cash?
a. Patent amortization
b. Sale of plant assets at a loss
c. Net loss from operations
d. Declaration of a stock dividend
6. Worthington Company purchased a machine on January 1, 2010, for
$4,800,000. At the date of acquisition, the machine had an estimated
useful life of six years with no salvage. The machine is being depreciated
on a straight-line basis. On January 1, 2013, Worthington determined, as a
result of additional information, that the machine had an estimated useful
life of eight years from the date of acquisition with no salvage. An
accounting change was made to reflect this additional information. What
amount of depreciation expense should be reported in Worthingtons
income statement for the year ended December 31, 2013?
a. $800,000
b. $600,000
c. $480,000
d. $300,000
F-4
$ 12,000,000
20,000,000
50,000,000
66,000,000
2,000,000
$150,000,000
11,000,000
18,000,000
13,000,000
3,000,000
5,000,000
50,000,000
F - 5F
Comprehensive Examination
b. 1.64 to 1
c. 1.68 to 1
d. 3.00 to 1
*9. Fargo, Inc. disclosed the following information as of and for the year
ended December 31, 2013:
Net cash sales
600,000
Net credit sales
900,000
Inventory at beginning
100,000
Inventory at end
150,000
Net income
30,000
Accounts receivable at beginning of year110,000
Accounts receivable at end of year130,000
Fargos receivables turnover is
a. 6.9 to 1.
b. 7.5 to 1.
c. 12.5 to 1.
d. 13.6 to 1.
*10. The calculation of the number of times interest is earned involves dividing
a. net income by annual interest expense.
b. net income plus income taxes by annual interest expense.
c. net income plus income taxes and interest expense by annual interest
expense.
d. none of the above.
Problem F-II Statement of Cash Flows.
Sharp Company
Comparative Balance Sheet
Cash
December 31
2013
2012
54,000 $ 36,000
F-6
53,000
57,000
161,000
123,000
180,000
285,000
300,000
300,000
(75,000)
(60,000)
1,565,000
900,000
(177,000)
(141,000)
$2,061,000 $1,500,000
Accounts payable
Bonds payable
Capital stock, $10 par
Retained earnings
$ 202,000
450,000
1,125,000
284,000
$2,061,000
$ 150,000
-01,125,000
225,000
$1,500,000
Additional Data:
1. Net income for the year amounted to $104,000.
2. Cash dividends were paid amounting to 4% of par value.
3. Land was sold for $120,000.
4. Sharp sold equipment, which cost $225,000 and had accumulated
depreciation of $90,000, for $105,000.
Instructions
Prepare a statement of cash flows using the indirect method.
Problem F-III Accounting Changes, Error Corrections, and Prior Period
Adjustments.
Molina Companys reported net incomes for 2013 and the previous two years
are presented
below.
2013
2012
2011
$105,000
$95,000
$70,000
F - 7F
Comprehensive Examination
2013s net income was properly determined after giving effect to the following
accounting changes, error corrections, etc. which took place during the year.
The incomes for 2011 and 2012 do not take these items into account and are
stated at the amounts determined in those years. Ignore income taxes.
Instructions
(a) For each of the six accounting changes, errors, or prior period adjustment
situations described below, prepare the journal entry or entries Molina
Company should record during 2013. If no entry is required, write none.
(b) After recording the situation in part (a) above, prepare the year-end
adjusting entry for December 31, 2013. If no entry, write none.
1. Early in 2013, Molina determined that equipment purchased in January,
2011 at a cost of $645,000, with an estimated life of 5 years and salvage
value of $45,000 is now estimated to continue in use until December 31,
2017 and will have a $15,000 salvage value. Molina recorded its 2013
depreciation at the end of 2013.
(a)
(b)
2. Molina determined that it had understated its depreciation by $20,000 in
2012 owing to the fact that an adjusting entry did not get recorded.
(a)
(b)
3. Molina bought a truck January 1, 2010 for $50,000 with a $5,000 estimated
salvage value and a six-year life. The company debited an expense account
and credited cash on the purchase date. The truck is expected to be traded at
the end of 2015. Molina uses straight-line depreciation for its trucks
(a)
(b)
F-8
2013
$51,000
$63,000
2012
$59,000
$67,000
2011
$42,000
$48,000
F - 9F
Comprehensive Examination
350,000,000315,000,000
2,800,000 3,500,000
15,000,000 20,000,000
6,000,000 7,000,000
8,000,000
9,100,000
$643,000,000$629,000,000
180,000,000190,000,000
69,000,000 65,000,000
15,000,000
9,500,000
365,000,000 375,000,000
Stockholders' equity:
Common stock, par value $1; authorized 20,000,000
shares; issued and outstanding 12,000,000 shares12,000,000
12,000,000
10% cumulative preferred shares, par value $100;
$100 liquidating value; authorized 100,000 shares;
issued and outstanding 60,000 shares6,000,000 6,000,000
Additional paid-in capital
119,000,000119,000,000
Retained earnings
141,000,000 117,000,000
Total stockholders' equity
278,000,000 254,000,000
Total liabilities and stockholders' equity$643,000,000$629,000,000
*Problem F-IV (cont.).
Farmington Corp.
Statement of Income and Retained Earnings
Year
ended December 31
2013
2012
F - 11F
Comprehensive Examination
Net sales
$540,000,000$500,000,000
Cost and expenses:
Cost of goods sold
390,900,000400,000,000
Selling, general, and administrative expenses70,000,00065,000,000
Other, net
9,100,000
6,000,000
Total costs and expenses
470,000,000 471,000,000
Income before income taxes
Income taxes
Net income
70,000,000 29,000,000
21,000,000 11,600,000
49,000,000 17,400,000
F - 13F
Comprehensive Examination
120,000
105,000
(890,000)
(665,000)
(45,000)
450,000
405,000
18,000
36,000
$ 54,000
78,000
20,000
(b) None
3. (a) Truck................................................................ 50,000
Accumulated Depreciation........................
Retained Earnings......................................
(b) Depreciation Expense.......................................
Accumulated Depreciation........................
22,500
27,500
7,500
7,500
4. (a) None
(b) Depreciation Expense....................................... 200,000
Accumulated Depreciation........................
200,000
5. (a) None
(b) Bad Debt Expense............................................ 25,000
F - 15F
Comprehensive Examination
25,000
14,000
(b) None
*Problem F-IV Solution.
(a) Current ratio:
Total current assets $261,200,000
=
= 2.59 to 1
Total current liabilities
$101,000,000
(b) Acid-test (quick) ratio:
Total quick assets$135,200,000
= = 1.34 to 1
Total current liabilities $101,000,000
*Problem F-IV Solution (cont.)
(c) Receivables turnover:
Net sales
$540,000,000
=
= 4.91 times
Average accounts receivable [($109,000,000 + $111,000,000) 2]
(d) Inventory turnover:
Cost of goods sold $390,900,000
= = 2.98 times
Average inventories $131,000,000
(e) Book value per share of common stock:
= = 13.4
Earnings per share on common stock
$4.03
(h) Payout ratio on common stock:
Dividends on common stock $24,400,000
= = 50.4%
Net income dividends on preferred stock
$48,400,000
Problem F-V Solution.
a. Revenue test a segment is reportable if its total sales are $350,000 or more
(10% $3,500,000). Segments A, B, and E satisfy the revenue test.
b. Operating profit or loss test a segment's absolute profit or loss must be $58,000 or
more [10% of the absolute greater of $520,000 or ($580,000)]. Segments A, B, and D
satisfy the operating profit or loss test.
c. Identifiable assets test a segment's identifiable assets must be $1,810,000 or more
(10% $18,100,000). Segments B, D, and E satisfy the identifiable test.
Segments A, B, D, and E are identified as significant and therefore reportable because
they passed at least one of the significance tests.