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TITLE: Final Exam


CLASS / COURSE: BUS 306 Intermediate Accounting II


BUS 306 Intermediate Accounting II

Inter II Final Ch 8-15

Student: ___________________________________________________________________________

1. Modern Day Appliances, Inc. is a wholesaler of kitchen appliances. The company uses a periodic inventory system and the LIFO cost method. Modern Day's December 31, 2011, fiscal year-end inventory of its main product, double-door, stainless steel refrigerators, consisted of the following (listed in chronological order of acquisition):
The replacement cost of the refrigerators throughout 2012 was $900. Modern Day sold 5,000 of these refrigerators during 2012. The company's selling price throughout 2012 was $1,200.
1. Compute the gross profit (sales minus cost of goods sold) and the gross profit ratio for 2012 assuming that Modern Day purchased 5,200 units during the year.
2. Repeat requirement 1 assuming that Modern Day purchased only 4,500 units.
3. For requirements 1 and 2, what amount of before-tax LIFO liquidation profit or loss would Modern Day report in its 2012 disclosure notes, if any, assuming any calculated amount is material? 

2. Charleston Company has elected to use the dollar-value LIFO retail method to value its inventory. The following data has been accumulated from the accounting records:
Required:Estimate the ending inventory for December 31, 2011. 





3. On January 3, 2011, Michelson & Sons acquired a tract of land just outside the city limits. The land and existing building were purchased for $2.4 million. Michelson paid $400,000 and signed a noninterest-bearing note requiring the company to pay the remaining $2,000,000 on December 31, 2012. An interest rate of 7% properly reflects the time value of money for this type of loan agreement. Transfer taxes, title insurance and other costs totaling $24,000 were paid at closing.
During February, the old building was demolished at a cost of $120,000, and an additional $100,000 was paid to clear and grade the land. Construction of a new building began on March 1 and was completed on October 30. Construction expenditures were as follows:
Michelson did not borrow specifically for the construction project, but did have the following debt outstanding throughout 2011:
$6,000,000, 8% long-term note payable
$2,000,000, 5% long-term note payable
In December, the company purchased equipment and office furniture and fixtures for a lump-sum price of $800,000. The fair values of the equipment and the furniture and fixtures were $540,000 and $360,000, respectively. In December, Michelson paid $340,000 for the construction of parking lots and landscaping.
1. Determine the initial values of the various assets that Michelson acquired or constructed during 2011.
2. How much interest expense will Michelson report in its 2011 income statement? 


4. In the table below, data on depreciation for equipment are shown. Some data are missing.
Required:Fill in the missing data in the table.






131. In 2009, Quasar LTD. acquired all of the common stock of Penlight Laser for $124 million. The fair value of Penlight's identifiable tangible and intangible assets totaled $205 million, and the fair value of liabilities assumed by Quasar was $95 million. Quasar performed the required goodwill impairment test at the end of its fiscal year ended December 31, 2011. Management has provided the following information:
Required:1. Determine the amount of goodwill that resulted from the Penlight acquisition.
Determine the amount of goodwill impairment loss that Quasar should recognize at the end of 2011, if any.
If an impairment loss is required, prepare the journal entry to record the loss. 


6. FKG Inc. carries the following investments on its books at December 31, 2010, and December 31, 2011. All securities were purchased during 2010.
(1.) Prepare the necessary journal entries for FKG on December 31, 2010, and December 31, 2011.
(2.) What net effect would the valuation of these stock investments have on 2009 net income? On 2011 net income? 

7. Stern Corporation borrowed $10 million cash on September 1, 2011, to provide additional working capital for the year's production. Stern issued a 6-month, 10% promissory note to Second State Bank. Interest on the note is payable at maturity. Each firm uses the calendar year as the fiscal year.
1. Prepare all journal entries from issuance to maturity for Stern Corporation.
2. Prepare all journal entries from issuance to maturity for Second State Bank. 





8. On February 1, 2011, Lagune & Sons issued 9% bonds dated February 1, 2011, with a face amount of $200,000. The bonds sold for $182,841 and mature in 20 years. The effective interest rate for these bonds was 10%. Interest is paid semiannually on July 31 and January 31. Lagune's fiscal year is the calendar year.
1. Prepare the journal entry to record the bond issuance on February 1, 2011.
2. Prepare the entry to record interest on July 31, 2011, using the effective interest method.
3. Prepare the necessary journal entry on December 31, 2011.
4. Prepare the necessary journal entry on January 31, 2012. 

9. On June 30, 2011, Blue, Inc. leased a machine from Big Leasing Corporation. The lease agreement qualifies as a capital lease and calls for Blue to make semi-annual lease payments of $281,454 over a three-year lease term, payable each June 30 and December 31, with the first payment at June 30, 2011. Blue's incremental borrowing rate is 10%, the same rate Big uses to calculate lease payment amounts. Depreciation is recorded on a straight-line basis at the end of each fiscal year.
1. Determine the present value of the lease payments at June 30, 2011 (to the nearest $000) that Blue uses to record the leased asset and lease liability.
2. What would be the pretax amounts related to the lease that Blue would report in its balance sheet at December 31, 2011?
3. What would be the pretax amounts related to the lease that Blue would report in its income statement for the year ended December 31, 2011? 

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