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ACCOUNTANCY DEPARTMENT

COMPREHENSIVE EXAMINATION 1 PROBLEMS

INSTRUCTIONS: On the answer sheet provided, legibly shade the letter of your answers.

1. On December 31, 2014, the following information was available from ersey !ompany"s

accounting records#!ost $etail

%nventory 220,&00 304,&00'urchases 1,24(,&00 1,)32,&00*dditional mar+up -3,000

ales for the year totalled '1,--0,000. /ar+ down amounted to '140,000. nder the

average cost retail method, what is the inventory on December 31, 2014

a. 210,000 c. 22&,000b. 330,000 d. 30,000

2. olden !ompany developed a new machine for manufacturing baseballs. ecause the

machine is considered very valuable, the entity had it patented. 5he following

e6penditures were incurred in developing and patenting the machine#'urchase of special e7uipment to be used solely for development

of the new machine 1,20,000$esearch salaries and fringe bene8ts for engineers and scientists

1)1,000!ost of testing prototype 23-,0009egal cost of 8ling patent 12),000

:ees paid to government patent o;ce 2&,000Drawing re7uired by patent o;ce to be 8led with patent application

4),000

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*llowance for doubtful accounts, 1A1A201- 10,000*ccounts receivable written oB during 201- 1(0,000

*s a result of a review and aging of account receivable, it has been determined that the

allowance for doubtful accounts should have a balance of '210,000 on December 31,

201-. ustment for the following#

/erchandise costing '200,000, shipped :O shipping point from a vendor on

December 31, 201& was received and recorded on an. &, 201-.

oods in the shipping area were e6cluded from inventory although shipment was

not made until an. 2, 201-. 5he goods billed to the customer :O shipping point onDecember 30, 201&, had a cost of '00,000.

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%nventory on hand, 12A31 2(0,000%nventory out on consignment, 12A31 40,000'urchases 1,00,000:reight in 20,000:reight out )0,000:reight out to consignees 10,000

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'etty cash fund Junreplenished petty cash e6penses, '10,000K &0,000Gotes receivable 4,000,000*ccounts receivable, net of accounts with a credit balances of

'1,&00,000 -,000,000%nventory 3,&00,000ond sin+ing fund 3,000,000*ccounts payable, net of accounts with a debit balances of

'1,000,000 ),000,000Gotes payable 4,000,000onds payable, due une 30, 201) 3,000,000*ccrued e6penses 2,000,000

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1).rigette !ompany uses the composite method of depreciation based on a composite rateof 2&C. *t the beginning of 201-, the total cost of e7uipment was '&,000,000 with a totalresidual value of '-00,000. 5he accumulated depreciation was '3,000,000 at that time. %n

anuary 201-, rigette purchased an e7uipment for '2,&00,000 with no residual value. *tthe end of 201-, rigette sold an e7uipment with an original cost of '1,000,000 and aresidual value of '200,000 for '3&0,000. 5his asset was ac7uired on anuary 1, 2014.

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22.lue !ompany ac7uired the following portfolio of e7uity instruments during 201& andreported the following balances at December 31, 201-. Go sales occurred during 2014. *lldeclines are considered to be temporary.

@!$%5L !O5 /*$I@5 E*9@ 12A31A1- *D 3&0,000 3-0,000 'G 42&,000 400,000 9' &2&,000 -40,000

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%n its December 31, 201-, statement of 8nancial position, what amount of accruedliabilities should @mmaor report

a. )&,3)& c. -4,12&b. -&,&00 d. -3,3)&

2).itar !ompany commenced operation on anuary 1, 201&. During the following year, the

company ac7uired a tract of land, demolished the building on the land and built a new

factory. @7uipment was ac7uired for the factory and, in eptember 201-, the plant was

ready to commence operation. * gala opening was held on eptember 1, with the !ity

/ayor opening the factory. 5he 8rst items were ready for sale on eptember 2&. During

this period, the following cash inows and outows occurred#ust e7uipment to more energy e;cient

33,000

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bonus is '4,-&0,000. 5he bonus is deductible for ta6 purposes, and the ta6 rate is 3&C.

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3&.21. Fow much should be charged against !ameron"s income for the year ended December31, 201-

a. 2,20,000 c. 2,2-,000b. 2,20,000 d. 1,)2&,000

3-.On anuary 1, 201-, Orchid !o. sells its e7uipment with a carrying value of 1-0,000. 5hecompany receives a noninterest bearing note due in 3 years with a face amount of200,000. 5here is no established mar+et value for the e7uipment. 5he prevailing interestrate for this type of note is 12C. 5he following are the present value factors of 1 at 12C

'resent value of 1 for 3 periods .)11)'resent value of an ordinary annuity of 1 for 3 periods 2.4013

Fow much is the discount on note receivable on anuary 1, 201- is#a, &),-44 c. 1),-44b. 40,000 d. 0

3).5=arro !ompany had a machinery costing '3,000,000 when purchased on anuary 2, 200(.@stimated useful life of the asset was for 20 years with no salvage at the end of its usefullife. 5=arro uses the straight line method of depreciation. On anuary 2, 2014, 5=arro isevaluating machinery for possible impairment. 5he machinery has a remaining useful lifeof & years and is e6pected to generate cash inows of '&00,000 per year. 5=arro hasdetermined that the rate implicit in current mar+et transaction for similar asset is 10C.

5he present value factor of 10C for & periods is 3.)(. *vailable information as of anuary2,2014 also showed that the appropriate mar+et price for the same asset is '1,00,000.@stimated cost of disposal, '1&0,000.

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hare premium reserve --0,000$etained earnings 1,3-0,000