1. On January 1st, 2012 Jefferson Company sold equipment that cost 24,000 for 28,000 to Adams Inc.

receiving a note bearing 10% interest. The note will be paid in three annual installments starting December 31th 2012. The collection of the note is very uncertain. How much revenue from this sale should Jefferson recognize in 2012? A=0 B = 21,000 C = 28,000 D = 35,000 Because the collection of the note is very uncertain, Jefferson should record no revenue. They should discount the note and record a debit to Notes Receivable and credits to a discount and unearned revenue. 2. Monroe Building Company is using the completed contract method for a $2,000,000 contract that will take two years to complete. Data at December 31, 2012, the end of the first year, are as follows: Costs incurred to date Estimated costs to complete Billings to date Collections to date 1,200,000 1,100,000 900,000 500,000

What is the profit or loss that should be recognized for 2012? A=0 B = 300,000 loss C = 100,000 gain D = 700,000 loss Using the completed contract method, when it appears that an overall contract loss will occur, it must be reported in the period when it becomes apparent. 3. Madison Co. began operations on September 12, 2012 and uses the installment method for recording sales. The following information pertains to Madisons operations for 2012: Installment Sales 425,000 Cost of Sales 170,000 Administrative Expense 25,000 Selling Expense 10,000 Collections on installment sales 150,000 What amount should Madison report as a balance as deferred Gross Profit at December 31, 2012? A. 105,000 B. 195,000 C. 255,000 D. 70,000 425,000-170,000 = 255,000 (40% gross profit rate); 255,000 (150,000 x 40%) = 195,000 4. Bonds in the Held to Maturity portfolio are valued at ________ and unrealized holding gains or losses are _______. A. Fair Value and Not Recognized B. Fair Value and Recognized in Net Income C. Amortized Cost and Not Recognized D. Amortized Cost and Recognized in Other Comprehensive Income

5. Harrisons trading securities portfolio contains the following: Cost Fair Value AAPL 243,000 189,000 PG 142,000 154,000 MMM 365,000 378,000 GE 195,000 175,000 Total 945,000 896,000 What loss should be reported in the income statement? A. 0 B. 49,000 C. 74,000 D. 25,000

Gain (Loss) (54,000) 12,000 13,000 (20,000) (49,000)

6. Using the same information above except the securities are held in the Available for Sale portfolio. What loss should be reported in the income statement? A. 0 B. 49,000 C. 74,000 D. 25,000 7. During 2009, Tafts company purchased 20,000 shares of Arthurs common stock for $482,000 and brokerage fees were $3,000. Taft held the stock in the Available for Sale portfolio. At December 31, 2009, the fair value of the stock was $515,000. Taft sold all of the stock in 2010 for $483,000 and the brokerage fees were $1,000. What gain or loss should be reported on the sale? A. 32,000 loss B. 0 C. 1,000 gain D. 3,000 loss 8. If a company owns 35% of the outstanding shares of another corporation, what method should be used to report the investment in their balance sheet? A. Fair Value Method B. Fair Value Option C. Equity Method D. Consolidation 9. Jackson Company owns 40% of Tyler Tires. Tyler had a net income of 80,000 last year, and paid a cash dividend of 10,000. What effect will this have on Jacksons Equity Investment (Tyler) account? A. No Effect B. 28,000 increase C. 32,000 increase D. 40,000 increase 80,000 x 0.4 = 32,000 increase to the Equity account and 10,000 x 0.4 = 4,000 decrease to the Equity account. 10. Same facts as above, but the ownership interest is only 15%. What is the effect on Jacksons Revenue? A. No Effect B. 4,000 increase C. 6,000 decrease D. 10,000 increase 10,000 x 0.4 = 4,000 increase in Dividend Revenue

11. Fillmore Construction Company received a contract for $250,000 in 2010 to build a playground. The following data applies to the construction: 2010 2011 2012 Costs to date 60,000 143,500 210,000 Estimated cost to complete 140,000 61,500 Billings to date 10,000 50,000 250,000 Collections to date 10,000 30,000 200,000 1. Find the amount of gross profit to be recognized each year using the percentage of completion method. 2. Prepare the journal entries for all three years. Revenue Recognition Portion: 2010 Costs to date Estimated Cost to complete Estimated total Costs Percent of completion Revenue Construction Expense Gross Profit 60,000 140,000 20,000 30% 75,000 60,000 15,000 2011 143,500 61,500 205,000 70% 100,000* 83,500 16,500 2012 210,000 210,000 100% 75,000** 66,500 8,500 Total 250,000 210,000 40,000

* 250,000 x 0.70 = 175,000 less 75,000 recognized in 2012 = 100,000 ** 250,000 x 1.00 = 250,000 less 175,000 recognized in 2012 and 2013 - 75,000

Journal Entries
2010 CIP Various Accounts 60,000 60,000 CIP Various Accounts 2011 83,500 83,500 CIP Various Accounts 2012 66,500 66,500

A/R Billings

10,000 10,000

A/R Billings

40,000 40,000

A/R Billings

200,000 200,000

Cash A/R

10,000 10,000

Cash A/R

20,000 20,000

Cash A/R

170,000 170,000

Construction Expense CIP Revenues

60,000 15,000 75,000

Construction Expense CIP Revenues

83,500 16,500 100,000

Construction Expense CIP Revenues Billings CIP

66,500 8,500 75,000 250,000 250,000

12. FIllmore Construction Company received a contract for $250,000 in 2010 to build a playground. The following data applies to the construction: 2010 2011 2012 Costs to date 60,000 143,500 210,000 Estimated cost to complete 140,000 61,500 Billings to date 10,000 50,000 250,000

Collections to date

10,000

30,000

200,000

1. Find the amount of gross profit to be recognized each year using the completed contract method. 2. Prepare the journal entries for all three years. (1) Gross profit 2010 $0 2011 $0 2012 $40,000

(2)
2010 CIP Various Accounts 60,000 60,000 CIP Various Accounts 2011 83,500 83,500 CIP Various Accounts 2012 66,500 66,500

A/R Billings

10,000 10,000

A/R Billings

40,000 40,000

A/R Billings

200,000 200,000

Cash A/R

10,000 10,000

Cash A/R

20,000 20,000

Cash A/R

170,000 170,000

Construction Expense CIP

210,000 210,000

Billings Revenue

250,000 250,000

13. Pierce Co. sells merchandise on an installment basis. Presented below is information regarding those sales:
2010 $ 420,000 $ 294,000 $ 126,000 $ 175,000 2011 $ 534,000 $ 181,560 $ 352,440 $ 150,000 $ 210,000 2012 $ 500,000 $ 360,000 $ 140,000 $ 75,000 $ 275,000 $ 250,000

Sales (installment plan) Cost of sales Gross Profit Collections from Customers on 2010 installment sales 2011 installment sales 2012 installment sales

(a) Compute realized gross profit for each of the years. (b) Prepare the sales, collection and closing journal entries for 2012.
2010 Gross Profit % = - Cash collected in 2010 = 175,000 - 175,000 x 30% = 52,500 realized profit in 2010

126,000 / 420,000 = 30%

2011 Gross Profit % = 181,560 / 534,000 = 34% - Cash collected in 2011 = 210,000 from 2011 and 150,000 from 2010 - 150,000 x 30% + 210,000 x 34% = 45,000 + 71,400 = 116,400 realized profit in 2011 2012 Gross Profit % = 140,000 / 500,000 = 28% - Cash collected in 2012 = 75,000 from 2010, 275,000 from 2011 and 250,000 from 2012 - 75,000 x 30% + 275,000 x 34% + 250,000 x 28% = 22,500 + 93,500 + 70,000 = 186,000 realized profit in 2012

2012 Journal Entries

Accounts Receivable Sales Cost of Goods Sold Inventory Cash A/R (2010) A/R (2011) A/R (2012) Closing Entries Sales Deferred Revenue(2012) Cost of Goods Sold Deferred Revenue (2010) Deferred Revenue (2011) Deferred Revenue (2012) Realized Revenue 500,000 500,000 360,000 360,000 600,000 75,000 275,000 250,000

500,000 140,000 360,000 22,500 93,500 70,000 186,000

14. Panera Bread charges Declan Buchanan an initial franchise fee of $2,000,000 to open a new franchise in Tower City. $1,000,000 is due upon signing and $100,000 is due for 10 years. Declan has an OK score and he recently borrowed money to purchase equipment for the new restaurant for 6%. Prepare the entries to record the initial franchise fee on the books of Panera Bread under (a) and (b) (a) The down payment is nonrefundable, no future service is required by Panera and collection of the note is reasonably assured using the gross method. (Prepare the journal entry for interest revenue in Year 2) (b) The down payment is refundable, collection of the note is reasonable certain, Panera has yet to perform a substantial amount of services (record the payments using the net method.) (a) Find PV of cash flows, i=6, n=10 factor = 7.36009 100,000 x 7.36009 = $736,009 Cash 1,000,000 N/R 1,000,000 Rev 1,736,009 Discount 263,991 Amortization Schedule Date Cash Interest Rev Amortization Y0 Y1 100,000 44,161 55,839 Y2 100,000 40,810 59,190 Y3 100,000 37,259 62,741 Y3-Y8 ---Y9 100,000 11,000 89,000 Y10 100,000 5,660 94,340

Carrying Value 736,009 680,170 620,980 558,238 -94,340 0

Cash N/R Discount Interest Revenue (b) Cash N/R Unearned Revenue

100,000 100,000 40,810 40,810 1,000,000 736,009 1,736,009

15. Johnsons Plaiting had an Accounts Receivable with Hayes Manufacturing totaling 10,000 in 2011. Sales were made on installment (40% Gross Profit rate), and Hayes made two payments of 1,000 each but is no longer has the ability to repay its debt. Johnsons Plaiting repossessed merchandise worth 1,500. Record the journal entry to recognize repossession of the inventory. Inventory 1,500 Deferred G.P (2011) 3,200* Loss 3,300** A/R 8,000 Setup a T-account A/R (2011) Hayes Manu. 10,000 1,000 1,000 8,000 * 8,000 x 0.40 = 3,200 ** 3,300 is a plug figure 16. Garfield Co. publishes text books that are sold to college bookstores on the following terms; f.o.b. shipping point, payment is due 90 days after shipment and the retailer may return 25% of an order at the retailers expense. Sales are made only to retailers who have good credit ratings. Past experience indicates that the normal rate of return is 15% and the average collection period is 98 days. In late June, Garfield shipped text books invoiced at $6,250,000. In October, $1,050,000 of the invoiced sales was returned and the remaining accounts were paid. Prepare the journal entries to record the initial sale; and the return and payment. Entries at the time of sale: Accounts Receivable Sales Revenue Sales R+A Allowance for Sales R+A Entries at the time of return: Cash Allowance for Sales R+A Sales R+A Accounts Receivable

6,250,000 6,250,000 937,500 937,500

5,200,000 937,500 112,500 6,250,000

17. On Jan 1st 2012 Taft Company purchased 8% bonds, with a face value of 1,000,000 and 10 year maturity. Similar risk bonds sold at 10% interest. The bonds pay interest annually on Dec 31th. Taft uses the effective interest method to allocate unamortized discount or premium. Taft intends to hold the bonds to maturity. (a) Prepare the journal entry to record the purchase of the bonds. (b) Prepare the amortization schedule (c) Prepare the journal entry to record the interest received and the amortization in 2013. (a) PV SS = 1,000,000 x 0.38554 PV OA = 80,000 x 6.14457 Debt Investment (HTM) Cash (b) Date
Y0 Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10

= =

385,540 491,566 877,106 877,106 877,106 Interest Rev (10%)

87,711 88,482 89,330 90,263 91,289 92,418 93,660 95,026 96,528 98,188

Cash (8%)
80,000 80,000 80,000 80,000 80,000 80,000 80,000 80,000 80,000 80,000

Amort
7,711 8,482 9,330 10,263 11,289 12,418 13,660 15,026 16,528 18,188

CV
877,106 884,817 893,298 902,628 912,891 924,180 936,598 950,258 965,284 981,812 1,000,000

(c) Cash Debt Investment Interest Rev 80,000 7,711 87,771

18. Assuming the same information from the previous problem, except the bonds are held in the Available for Sale portfolio. The Fair Value of the bonds at the end of the years is listed below: 2012 $890,000 2014 $878,000 2013 $869,000 2015 $895,000 (a) Prepare the journal entry at the date of purchase (b) Prepare the journal entries to record the interest and recognition for Fair Value in 2012. (c) Prepare the journal entry to record the recognition of fair value in 2013. (a) Debt Investment (AFS) Cash (b) Cash Debt Investment Interest Rev Fair Value Adjustment (AFS) Unrealized Holding G/L Equity Debt Investment 877,106 7,711 884,817 FVA(AFS) 5,183 80,000 7,711 87,771 5,183 5,183 Carrying Value 890,000 877,106 877,106

(c) Unrealized Holding G/L Equity Fair Value Adjustment (AFS) 29,482 29,482

Debt Investment 884,817 8,482 893,299

FVA(AFS) 5,183 29,482 24,299

Carrying Value 869,000

19. On January 1, 2012, Grant Inc. issued a 10 year $500,000 at 8% fixed interest rate, semiannual note. Grant preferred a variable-rate note, but was not able to obtain one from the lender. On the same day of issue, Grant entered into an interest rate swap where it agrees to receive 8% fixed and pay LIBOR of 5.6% for the first 6 months on $500,000. At each 6-month period, the variable rate will reset. On June 30th, 2012 LIBOR was 6.2%. (a) Compute the net interest expense to be reported for this note and the swap transaction as of June 30, 2012 (b) Compute the net interest expense to be reported for this note and the swap transaction as of Dec 31, 2012. (a) Fixed Variable June 30th Transactions: January 1 = 500,000 @ 8% fixed annual or 4% semiannual. Interest payments = 500,000 x .04 = 20,000 Swap First six months 500,000 x 0.56 x 6/12 = 14,000 Journal Entries Interest Expense Cash Cash Interest Expense (b)December 31st Transactions: Swap (second 6 months) 500,000 x 0.062 x 6/12 = 15,500 Interest Expense Cash Cash Interest Expense 20,000 20,000 4,500 4,500

20,000 20,000 6,000 6,000

20. On July 10, 2012 Wilson purchased a call option on Harding common share for $1,000. The notional value of the call option is 800 shares, and the option price is $50. The option expires March 10th 2013. The following data are available: Date Market Price of Shares Time Value of Call Option $ 52 per share 500 9/30/2012 $ 55 per share 300 12/31/2012 $ 53 per share 225 1/31/2013 Prepare the journal entries for the purchase of the call option, financial statement dates (Sep30 and Dec 31) and Jan 31 (settlement of the call option). 10-Jul Call Option Cash Unrealized Holding Gain/Loss - Income Call Option Call Option (2x800) Unrealized Holding Gain/Loss - Income 31-Dec Unrealized Holding Gain/Loss - Income Call Option Call Option (3x800) Unrealized Holding Gain/Loss - Income 31-Jan Unrealized Holding Gain/Loss - Income Call Option Unrealized Holding Gain/Loss - Income Call Option (2x800) Cash Loss on Settlement of Call Option Call Option Call Option 1,000 500 1,600 200 2,400 75 1,600 2,625 0 1,000 1,000 500 500 1,600 1,600 200 200 2,400 2,400 75 75 1,600 1,600 2,400 225 2,625

30-Sep

21. Carter Co. uses silver in the production of fine watches. Carter thinks it will need to purchase 750 ounces of silver in November 2013 for the sale of watches for New Years gifts. To hedge the risk of increased silver prices, on June 1, 2012, Carter enters into a silver futures contract and designates this futures contract as a cash flow hedge of the anticipated silver purchase. The notional amount of the contract is 750 ounces, and the terms of the contract give Carter the option to purchase silver at a price of $20 per ounce. The price will be good until the contract expires on November 30, 2012. Assume the following data with respect to the price of the futures contract and the silver inventory purchase. Date Spot Price for November Delivery 1-Jun $20 per ounce 30-Jun $21.50 per ounce 30-Sep $23.50 per ounce Prepare entries for the following: (a) June 1, 2012 Purchased futures contract (b) June 30, 2012 Prepares Financial Statements (c) September 30, 2012 Prepares Financial Statements (d) November 1, 2012 Carter purchases 750 ounces at $23.50 per ounces and settles futures contract (e) December 15, 2012 Carter sells inventory containing all 750 ounces for 500,000, and cost of finished goods is 225,000 (a) No Journal Entry is made. (b) Futures Contract (1.5 x 750) Unrealized Holding G/L-Equity (c) Futures Contract (2 x 750) Unrealized Holding G/L-Equity (d) Raw Materials Inventory(750 x 23.5) Cash Cash (750 x 3.5) Futures Contract (e) Cash Revenue CoGS Finished Goods Inventory Unrealized Holding G/L-Equity CoGS

1,125 1,125 1,500 1,500 17,625 17,625 2,625 2,625 500,000 500,000 225,000 225,000 2,625 2,625