Assignment:
EXAM II
Instructions:
1.Please download all exam materials posted on Blackboard immediately. Then turn your internet connection off. I'm also providing printed copies.
2.Hand in the printed copy of the exam with your answers for problems 2 and 3. I'll look at your spreadsheet for problems 1 and 4.
3.Submit your work, and answers to problems 1 and 4 on a single spreadsheetwith multiple pages (tabs). Use the spreadsheet posted on Blackboard and add pages or copy pages from other spreadsheets. Ask me if you don't know how to do that.
4.Label that file with your last name.
5.Email your solution to [email protected]
6.You have three hours to complete the exam.
7.As stated above, any connections with the internet should be turned off immediately after you download the exam. Also, smartphones should be out of reach, not on your desk.
8.You are free to use your textbook, notes, PowerPoint slides, and spreadsheets. However, you cannot use the internet or communicate with another person.
Problem 1:
Condensed balance sheets for Post Enterprises and ROCI Company as of December 30, 2016 are shown in Exhibit 1. On December 31, 2016, Post Enterprisesacquired 75.0 percent of ROCI Company for $120,000 by issuing 25,000 shares of its previously authorized ommon stock.
As of December 31, 2016, the fair values of ROCI Company's assets and liabilities are shown below, including "research in progress," an intangible asset identified during the acquisition:
Cash $10,000
Inventory 65,000
Property, plant and equipment 120,000
Research in Progress 10,000
Accounts payable 30,000
Long-term liabilities 50,000
Required: Prepare a consolidated balance sheet immediately after the acquisition on December 31, 2016.
Problem 2:
Revenues and expenses, excluding depreciation, that Betsy Corporation reported for 2014, 2015, and 2016 for both financial reporting and income tax purposes are shown at the top of Exhibit 2. Assume the company bought new equipment, with zero salvage value, costing $75,000 on January 1, 2014. Betsy used straight-line depreciation, over a three-year service life for financial reporting. However, for tax purposes, Betsy reported deprecation of $40,000 in 2014, $20,000 in 2015, and $15,000 in 2016. These figures are also shown in Exhibit 2. The income tax rate is 30 percent.
Required:
a.How much income tax did Ralph pay for the year ending December 31, 2015? _____________
b.What was the income tax expense on Ralph Enterprises income statement for the year ending December 31, 2015? _________________
c.What is the dollar amount of the deferred tax asset or deferred tax liability shown on Ralph Enterprises balance sheet on December 31, 2015? __________________________
d.Was the amount in c. above (circle one) (a) deferred tax asset or (b) deferred tax liability?
Problem 3:
Danish Company issued bonds with a "face" value of $500,000 on January 1, 2017. The bonds, which mature in five years, have a coupon rate of 3.7 percent. Interest is paid semiannually on June 30th and December 31st, with the first payment due on June 30, 2017. The bonds were sold on January 1, 2014 at 96.
Required:
a.What is the (annual) yield rate on the bonds? _____________
b.How much interest did Danish pay for the year ending December 31, 2019?
c.How do the bonds appear on the balance sheet on December 31, 2019? _______________________
Problem 4:
The income statement for Morse Company for the year ending December 31, 2016 is shown in Exhibit 4.1 and balance sheets as of December 31, 2015 and 2016 are shown in Exhibit 4.2. The company sold property, plant and equipment (PP&E) with accumulated depreciation of $25,000 for $5,000 in cash.
Required: Prepare a statement of cash flows for 2016 using the indirect method. Make sure the statement is prepared in good form; that means all cash flow accounts are in the correct sections, with correct labels or headings.