Exam 9: Operating Activities

Upton Company has consistently used the percentage-of-completion method of recognizing income.In 2010,Upton started on an $18,000,000 construction contract that was completed in 2012.The following information was taken from Upton's 2010 accounting records: Progress billing Costs incurred Collections Estimated costs to complete \ 6,600,000 \ 5,400,000 \ 4,200,000 \ 10,800,000 What amount of revenue should Upton recognize on the contract in 2010?

Falcon Networks Falcon Networks is a leading semiconductor company with operations in 17 different countries.Information about the company's taxes appears below: Falcon Networks Components of Income Tax Expense (in millions) Current - Federal - Foreign - State and Local Total Current Deferred - Federal - Foreign Total Deferred Total Income Tax Expense Note: Falcon Networks has no current liability at year-end with respect to total current taxes. Components of Income before Taxes United States Foreign Total \ 55.65 \ 47.52 83.85 78.95 \ 154.19 \ 138.97 \ 30.28 \ 42.90 \ 54.17 \ 57.48 \ 256.35 \ 253.68 -Based on the information provided by Falcon Networks how much cash did income taxes use during 2012?

All of the following examples represent complex revenue generation models except:

A company that uses LIFO will experience a(n)______________________________ during a period it sells more units than it purchases.

Companies that engage in long-term contracts can recognize income using either the _____________________________________________ method or the ________________________________________ method.

A company that uses FIFO will find that its ___________________________________ account tends to be somewhat out of date.

___________________________________ is primarily a question of timing.

Falcon Networks Falcon Networks is a leading semiconductor company with operations in 17 different countries.Information about the company's taxes appears below: Falcon Networks Components of Income Tax Expense (in millions) Current - Federal - Foreign - State and Local Total Current Deferred - Federal - Foreign Total Deferred Total Income Tax Expense Note: Falcon Networks has no current liability at year-end with respect to total current taxes. Components of Income before Taxes United States Foreign Total \ 55.65 \ 47.52 83.85 78.95 \ 154.19 \ 138.97 \ 30.28 \ 42.90 \ 54.17 \ 57.48 \ 256.35 \ 253.68 -Using the information provided by Falcon Networks,determine the foreign effective tax rate for 2012.

Differences between income before taxes and taxable income are either ____________________ or ____________________.

Given the following information,compute December 31,2012 projected benefit obligation (PBO)and fair market value (FMV)of plan assets for Eagan Company. Prior service cost granted in a 2012 plan amendment \ 115,000 Interest on PBO 73,000 Actual return on plan assets 101,000 Service cost 84,000 Contribution sent to plan trustee 62,000 Benefit payments to retirees 24,000 Liability loss (gain) (37,000) FMV of plan assets, January 1, 2012 735,000 PBO, January 1, 2012 814,000 What amount of asset or liability will be reported on the balance sheet at December 31,2012?

Cooke Industries imports and sells quality merchandise.The company had the following layers in its LIFO inventory at January 1,2012,at which time the replacement cost of the inventory was $600 per unit. Year LIFO Leyer Added Units Unit Cast 2009 40 400 2010 30 475 2011 50 \ 575 The replacement cost of the merchandise remained constant throughout 2012.Cooke sold 300 units during 2012.The company established the selling price of each unit by doubling its replacement cost at the time of sale. Required: 1.Determine the gross margin and the gross margin percentage for 2012 assuming that Cooke purchased 310 units during the year. 2.Determine the gross margin and the gross margin percentage for 2012 assuming that Cooke purchased 200 units during the year. 3.Explain why the assumed number of units purchased makes a difference in your answers.

Firm D holds 20,000 gallons of chemicals in inventory on October 31,Year 1,that cost $225 per gallon.Firm D contemplates selling the chemicals on March 31,Year 2,when it completes the processing.Uncertainty about the selling price of the chemical on March 31,Year 2,leads Firm D to acquire a forward contract on the chemical.The forward contract does not require an initial investment of funds.Firm D designates the forward commodity contract as a cash flow hedge of an anticipated transaction.The forward price on October 31,Year 1,for delivery on March 31,Year 2,is $320 per gallon. Required a.Using the financial statement effects template,show the financial statement effects, if any,that Firm D would have on October 31,Year 1,when it acquires the forward commodity price contract. b.On December 31,Year 1,the end of the accounting period for Firm D,the forward price of the chemical for March 31,Year 2,delivery is $310 per gallon.Show the financial statement effects of recording the change in the value of the forward commodity price contract.Ignore the discounting of cash flows in this part and in the remainder of the problem. c.Show the financial statement effects of the December 31,Year 1,decline in value of the chemical inventory. d.On March 31,Year 2,the price of the chemical declines to $270 per gallon.Show the financial statement effects of revaluing the forward contract. e.Show the financial statement effects on March 31,Year 2,to reflect the decline in value of the inventory. f.Show the financial statement effects on March 31,Year 2,to settle the forward contract. g.Assume that Firm D sells the chemical on March 31,Year 2,for $270 a gallon.Show the financial statement effects of recording the sale and recognizing the cost of goods sold.

Please answer the following questions about defined benefit pension plans: 1.Companies with defined benefit pension plans must recognize pension expense each period.What are the five components of pension expense? Briefly describe each component. 2.How does each component of pension expense effect pension expense during the period (increase,decrease,or uncertain)? 3.What is the difference between the accumulated pension obligation and the projected pension obligation? 4.What determines whether a pension plan is underfunded or overfunded?

Bower Construction Comp.has consistently used the percentage-of-completion method for recognizing revenue on its long-term contracts.During 2010 Bower entered into a fixed-price contract to construct an office building for $8,000,000.Information relating to the contract is as follows: Percent Complete Estimated Total Cost at Completion Gross Profit Recognized to date 2010 2011 2012 25\% 70\% 100\% \ 5,600,000 \ 6,400,000 \ 6,500,000 600,000 1,120,000 ? Required (Show Calculations): 1. Compute contract costs incurred during 2010, 2011 and $2012 .$ 2. Determine how much gross profit Bower should recognize in 2012 . 3. Under what conditions would it not be reasonable for a company to use the percentage of completion method of recognizing revenue on long-term contracts? 4. If Bower had used the completed contract method of accounting for this long-term contract how much gross profit would it have earned in 2010,2011 and $2012 ?$

Income tax expense consists of two components,the ____________________ portion and the ____________________ portion.

Which of the following statements best describes the difference between U.S.GAAP and IFRS with respect to revenue recognition?

What are the five steps to apply the core principles of revenue recognition?

Firm A places its order for the equipment on June 30,Year 1.It simultaneously signs a forward foreign exchange contract for 20,000 GBP.The forward rate on June 30,Year 1,for settlement on June 30,Year 2,is $1.64 per GBP.Firm A designates the forward foreign exchange contract as a fair value hedge of the firm commitment. Required a.U.S.GAAP and IFRS do not require Firm A to record the purchase commitment or the forward foreign exchange contract on the balance sheet as a liability and an asset on June 30,Year 1.What is the logic for this accounting? b.On December 31,Year 1,the forward foreign exchange rate for settlement on June 30,Year 2,is $1.73 per GBP.Using the financial statement effects template,show the financial statement effects of recording the change in the value of the purchase commitment and the change in the value of the forward contract for Year 1.Assume an 8 percent per year interest rate for discounting cash flows to their present values on December 31,Year 1. c.Show the financial statement effects on June 30,Year 2,of recording the change in the present value of the purchase commitment and the forward foreign exchange contract for the passage of time. d.On June 30,Year 2,the spot foreign exchange rate is $1.75 per GBP.Show the financial statement effects of recording the change in the value of the purchase commitment and the change in the value of the forward contract due to changes in the exchange rate during the first six months of Year 2. e.Show the financial statement effects of the June 30,Year 2,purchase of 20,000 GBP with U.S.dollars and acquisition of the equipment. f.Show the financial statement effects on June 30,Year 2,to settle the forward foreign exchange contract. g.How would the effects in Parts b-f differ if Firm A had chosen to designate the forward foreign exchange contract as a cash flow hedge instead of a fair value hedge? h.Suggest a scenario that would justify Firm A treating the forward foreign exchange contract as a fair value hedge and a scenario that would justify the firm treating the contract as a cash flow hedge.

The following information is related to the defined benefit pension plan of Xavier Company for 2012: Service cost \ 60,000 Contributions to pension plan 142,400 Benefits paid to retirees 150,000 Plan assets (fair value), January 1 740,000 Plan assets (fair value), December 31 850,000 Unamortized Prior Service Cost, January 1 160,000 Unamortized Prior Service Cost, December 31 110,000 Actual return on plan assets 150,000 PBO, January 1 900,000 PBO, December 31 960,000 ABO, December 31 890,000 Discount rate 10\% Long-term expected return on plan assets 9\% Required: 1. Using the above information calculate pension expense for $2012 ?$ 2. Will it be necessary for the company to report a minimum pension liability at Dec. 31 , 2012? If so what is the amount.

Which of the following accounts would not be considered a reserve account?