Posted: February 5th, 2019

A&O Company’s income statement

Please see instructions on the answer sheet provided before completing the quiz.Question 1 (3 points—25 minutes)The following partial information is available from the A&O Company’s income statement for the year ended 2014:Sales$ 940,000All operating expenses except depreciation624,000Depreciation expense60,000Loss on sale of equipment26,000Income tax expense42,000Net Income145,000In addition, partial information from A&O’s Balance Sheets for the year ending 2013 and 2014 is as follows:20132014Accounts Receivable$94,000$67,000Accounts Payable for operating expenses41,00051,000Income Taxes Payable8,5004,000Instructions:a) Direct Method: Calculate cash received in 2014 from customers.b) Direct Method: Calculate cash paid for operating expenses in 2014c) Indirect Method: Prepare the operating activities section of the statement of cash flows.Question 2 (3 points—25 minutes)A&O Corporation contracted to build an office building for $50,000,000. Construction began in 2014 and is expected to be completed in 2016. Data for 2014 and 2015 are:20142015Costs incurred to date$14,600,000$30,600,000Estimated costs to complete25,400,0009,400,000Progress billings to date13,900,00030,000,000Cash collected to date13,000,00029,300,000A&O uses the percentage-of-completion method.Instructions:(a) Calculate the gross profit recognized in 2014.(b) Calculate the gross profit recognized in 2015.(c) Calculate the revenue recognized in 2015.(d) Prepare one journal entry to record the construction expense, revenue, and gross profit in 2015Question 3 (4 points—15 minutes)Select the best answer for each of the following and write the letter corresponding to your answer in the answer sheet provided.1. Assume that, at year-end, the fair value of investments held by VAP Co. is $104,000 and the carrying amount is $110,000. There is a zero prior balance in fair value adjustment account. Which of the following statements would be correct for the year-end adjusting entry?a. VAP will debit $6,000 to Unrealized Holding Gain or Loss- Income if the investment is in available for sale debt securitiesb. VAP will credit $6,000 to Unrealized Holding Gain or Loss- Income if the investment is in available for sale debt securitiesc. VAP will debit $6,000 to Unrealized Holding Gain or Loss- equity if the investment is in available for sale debt securitiesd. VAP will credit $6,000 to Unrealized Holding Gain or Loss- Income if the investment is in trading securities2. Which of the following statements is correct?a. Unrealized holding gains or losses on held to maturity debt securities are reported as a separate component of stockholders’ equityb. Trading securities are reported at fair value and available for sale debt securities are reported at amortized costc. Unrealized holding gains or losses on available for sale debt securities are reported as a separate component of stockholders’ equity, but such gain or losses are not recognized for held to maturity debt securities.d. Held to maturity debt securities and available for sale debt securities are reported at amortized cost.3. Unrealized holding gains and losses on investments in equity securities accounted for using the equity method area. Recognized in net incomeb. Not recognizedc. Recognized as other comprehensive income and as a separate component of stockholders’ equityd. All of the above statements are incorrect.4. Which of the following statements is correct?a. A refund liability is recorded by the consignee upon receipt of the goods on consignment.b. When goods are sold with a right of return, the transaction is recorded as a repurchase agreement.c. Service type warranties are recorded as a separate performance obligation.d. Assurance type warranties are recorded as a separate performance obligation.5. A contract modification is accounted for using a prospective approach ifa. The promised goods or services are distinct.b. The company has the right to receive an amount equal to the standalone price.c. The new products are not priced at the proper standalone price or if they are not distinct.d. Both a and b are correct.6. When using the indirect method to prepare the operating section of a statement of cash flows, which of the following is subtracted from net income to compute cash flow from operating activities?a. Decrease in accounts receivable.b. Gain on sale of land.c. Amortization of patent.d. Increase in accounts payable.7. Under the quantitative test, a segment is considered reportable ifa. Both the segment revenues are 10% or more of the combined revenues (excluding intersegment revenue) of all segments, and the Identifiable assets are 10% or more of the combined assets of all segments.b. Both the segment revenues are 10% or more of the combined revenues (excluding intersegment revenue) of all segments, and the net profit (loss) is 10% or more of the combined net profit or loss.c. The absolute amount of a segment’s profit or loss is 10% or more of the greater (in absolute amount) of the combined operating profit of all segments or the combined operating loss of all segments that reported a loss.d. Both a and b are correct.8. Which of the following statements is correct, with respect to interim reporting?a. Under the discrete approach each interim period is treated as an integral part of the annual reportb. Under the integral approach each interim period is treated as an integral part of the annual reportc. Under the integral approach each interim period is treated as a separate accounting periodd. All of the above statements are incorrectQuestion 4 (5 points—20 minutes)Show computations for each of the following, and clearly show your final answer using the answer sheet provided.1. VAP company enters into a contract with a customer to build a factory for $1,000,000 on January 10, 2014 with a performance bonus of $100,000 if the factory is completed by August 31, 2014. The bonus is reduced by $10,000 each week that completion is delayed. VAP commonly includes these completion bonuses in its contracts and, based on prior experience, estimates the following completion outcomes:Completed byProbabilityAugust 31, 201480%September 7, 201410%September 14, 20147%September 21, 20143%Show calculations to determine the transaction price for this contract.2. PVP Company sells products to customers with an unconditional right of return if they are not satisfied. The right of returns extends 30 days. On March 10, 2014, a customer purchases $20,000 of products (cost $12.000) paying cash. Assuming that based on prior experience estimated returns are 4%, prepare the journal entries to record (1) the sale and (2) cost of goods sold and the estimated inventory returns.3. The following information is provided for A&E Company, which uses the equity method.· On January 1, 2014, A&E Company acquired 100,000 shares of PVP, Inc. (representing 30 percent ownership and significant influence) common stock at a cost of $15 per share.· For the year 2014, PVP, Inc. reported net income of $500,000.· On January 28, 2015, PVP, Inc. announced and paid a cash dividend of $100,000.· For the year 2015, PVP Inc. reported a net loss of $100,000.Calculate the balance in the Investment in PVP Stock account as of the end of 12/31/2015.4. On December 31, 2014, A&E Co. provided the following information regarding its trading securities:InvestmentsCostFair ValueUnrealized gain/(loss)A company$40,000$36,000B company$25,000$20,000C company$25,000$30,000TotalsPrevious market adjustment balance$( 1,000)Show computations and prepare an adjusting journal entry on December 31, 2014.5. AM Company provided the following information on selected transactions during 2014:Dividends paid to preferred stockholders $ 150,000Loans made to other corporations 500,000Proceeds from issuing bonds 900,000Proceeds from issuing preferred stock 1,050,000Proceeds from sale of equipment 1,000,000Purchase of land by issuing bonds 300,000Show calculations for net cash provided (used) by (a) investing activities and (b) financing activities during 2014.