Accounting Final Exam Questions -
Q1. The balance sheets for Kinder Company showed the following information. Additional information concerning transactions and events during 2011 are presented below.
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Kinder Company Balance Sheet
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December 31
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2011
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2010
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Cash
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$30,900
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$10,200
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Accounts receivable (net)
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43,300
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20,300
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Inventory
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35,000
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42,000
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Long-Term investments
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0
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15,000
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Property, plant & equipment
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236,500
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150,000
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Accumulated depreciation
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(37,700)
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(25,000)
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$308,000
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$212,500
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Accounts payable
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$17,000
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$26,500
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Accrued liabilities
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21,000
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17,000
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Long-term notes payable
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70,000
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50,000
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Common stock
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130,000
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90,000
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Retained earnings
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70,000
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29,000
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$308,000
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$212,500
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Additional data:
1. Net income for the year 2011, $76,000.
2. Depreciation on plant assets for the year, $12,700.
3. Sold the long-term investments for $28,000 (assume gain or loss is ordinary).
4. Paid dividends of $35,000.
5. Purchased machinery costing $26,500, paid cash.
6. Purchased machinery and gave a $60,000 long-term note payable.
7. Paid a $40,000 long-term note payable by issuing common stock.
Instructions - Using the format provided on the next page, prepare a statement of cash flows (using the indirect method) for 2011 for Kinder Company.
Q2. Eubank Company, as lessee, enters into a lease agreement on July 1, 2010, for equipment. The following data are relevant to the lease agreement:
1. The term of the noncancelable lease is 4 years, with no renewal option. Payments of $422,689 are due on June 30 of each year.
2. The fair value of the equipment on July 1, 2010 is $1,400,000. The equipment has an economic life of 6 years with no salvage value.
3. Eubank depreciates similar machinery it owns on the sum-of-the-years'-digits basis.
4. The lessee pays all executory costs.
5. Eubank's incremental borrowing rate is 10% per year. The lessee is aware that the lessor used an implicit rate of 8% in computing the lease payments (present value factor for 4 periods at 8%, 3.31213; at 10%, 3.16986.
Instructions -
(a) Indicate the type of lease Eubank Company has entered into and what accounting treatment is applicable.
(b) Prepare the journal entries on Eubank's books that relate to the lease agreement for the following dates:
1. July 1, 2010.
2. December 31, 2010.
3. June 30, 2011.
4. December 31, 2011.
Q3. The accounting staff of Elias Inc. has prepared the following pension worksheet. Unfortunately, several entries in the worksheet are not readable. The company has asked your assistance in completing the worksheet and completing the accounting tasks related to the pension plan for 2011.
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General Journal Entries
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Memo Record
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Items
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Annual Pension Expense
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Cash
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OCI -- Prior Service Cost
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OCI - Gain/Loss
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Pension Asset/Liability
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Projected Benefit Obligation
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Plan Assets
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Balance, Jan. 1, 2011
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1,700
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Cr.
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4,200
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2,500
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Service cost
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(1)
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600
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Interest cost
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(2)
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420
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Actual return
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(3)
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480
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Unexpected gain
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225
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(4)
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Amortization of PSC
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(5)
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85
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Contributions
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1,200
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1,200
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Benefits
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300
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300
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Liability increase
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(6)
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545
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Journal entry
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(7)
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(8)
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(9)
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(10)
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(11)
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Accumulated OCI, Dec. 31, 2010
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1,700
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0
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Balance, Dec. 31, 2011
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1,615
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320
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1,585
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5,465
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3,880
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Instructions
(a) Determine the missing amounts in the 2011 pension worksheet, indicating whether the amounts are debits or credits.
(b) Prepare the journal entry to record 2011 pension expense for Elias Inc.
Q4. Farmer Inc. began business on January 1, 2010. Its pretax financial income for the first 2 years was as follows:
2010 $240,000
2011 560,000
The following items caused the only differences between pretax financial income and taxable income.
1. In 2010, the company collected $180,000 of rent; of this amount, $60,000 was earned in 2010; the other $120,000 will be earned equally over the 2011-2012 period. The full $180,000 was included in taxable income in 2010.
2. The company pays $10,000 a year for life insurance on officers.
3. In 2011, the company terminated a top executive and agreed to $90,000 of severance pay. The amount will be paid $30,000 per year for 2011-2013. The 2011 payment was made. The $90,000 was expensed in 2011. For tax purposes, the severance pay is deductible as it is paid.
The enacted tax rates existing at December 31, 2010 are:
2010 30% 2012 40%
2011 35% 2013 40%
Instructions -
(a) Determine taxable income for 2010 and 2011.
(b) Determine the deferred income taxes at the end of 2010, and prepare the journal entry to record income taxes for 2010.
(c) Prepare a schedule of future taxable and (deductible) amounts at the end of 2011.
(d) Prepare a schedule of the deferred tax (asset) and liability at the end of 2011.
(e) Compute the net deferred tax expense (benefit) for 2011.
(f) Prepare the journal entry to record income taxes for 2011.
(g) Show how the deferred income taxes should be reported on the balance sheet at December 31, 2011.