ACCT GENERALLY Completed Exam Wall Street Prep. Review: Accounting Crash Course Retake Exam v4. (Questions and Answers, All explained).

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Back to Exams Review: Accounting Crash Course Retake Exam v4 Score: 92%, 24 correct out of 26 | Taken On: 06-19-20 Question 1 Assume US GAAP to answer this question. In 2017, $2 million in wages... were earned and no cash wages were paid. In 2018, $8 million in wages were earned and $9 million in cash wages were paid. Cash wages were used to first pay wages earned in 2017 with the remainder used to pay wages earned in 2018. Any earned but unpaid wages will be paid during the first quarter of 2019. Using only the information provided, which of the following statements is most accurate? Liabilities decreased by $1.0 million in 2018. Liabilities increased by $6.0 million in 2018. Assets decreased by $7.0 million in 2018. Retained earnings decreased by $10.0 million in 2018. Retained earnings decreased by $9.0 million in 2018. . Since wages were earned in 2017 but not yet paid, the opening balance sheet in 2018 would have an accrued wages liability of $2.0. These were paid in 2018, reversing the liability. However, since there is only $7.0 million in cash ($9.0 less the $2.0 million used to pay 2017 wages) available to pay wages earned in 2018, that leaves $1.0 million in earned wages unpaid, lowering the accrued wages liability to $1.0 million. The net impact to the liability is -$1.0 million (-$2.0 + $1 million). The only asset impacted is cash, which decreases by $9.0 million, while retained earnings decreases by $8.0 million, since wages are expensed when they are earned, not when they are paid. See Lesson: Payable, Accrued Expenses, Deferred Revenue & Debt Question 2 A company reported gross profit of $22 million in 2018. In addition, it recorded the following activities: Sales and marketing expenses were $6 million. Interest expense was $1 million. Sold equipment for $13 million that had a net book value of $9 million. $3 million in preferred stock issuance. Company’s tax rate is 40%. Calculate the company’s net income. Gross profit 22.0 Selling and marketing expenses (6.0) Interest expense (1.0) Gain on sale 4.0 Pretax income 19.0 Tax rate 40% Net income 11.4 Gain on sale is calculated as the sale price less the net book value. See Lessons: Net Income, EPS & Dividends Property, Plant & Equipment, Part 2 Question 3 The next two questions use the following data from TGX Global, a heavy equipment manufacturer (this information will be repeated on the next question): TGX Global sells excavators, with an average sale price of $750,000 per excavator. TGX received new orders for 100 excavators in 2018. TGX produced & delivered 130 excavators in 2018: 70 of these delivered excavators were ordered in 2017 and the rest (60 excavators) were part of the 100 ordered in 2018. TGX received payment for 120 excavators. TGX began selling 1-year maintenance services contracts for $60,000 per excavator in 2018, which begin after the excavator is delivered. Contracts were sold on 50% of all excavator orders made in 2018 (no contracts were sold on orders placed in 2017) Assume all excavators delivered in 2018 are delivered at year end. Calculate TGX’s 2018 revenue based on the transactions described above. According to the revenue recognition principle, a company cannot record revenue until that order is shipped to a customer (or a service has been provided) and collection from that customer is reasonably assured. 130 excavators were shipped and delivered in 2018 at a price of $750,000 each, which implies $97.5 million of revenue. The maintenance agreement cannot be recognized as revenue until the service is provided, since excavators were delivered at year end, no revenue from the service agreement can be recognized in 2018. See Lesson: Basic Accounting Principles Question 4 This question uses the same TGX Global data as the previous question, repeated below: TGX Global sells excavators, with an average sale price of $750,000 per excavator. TGX received new orders for 100 excavators in 2018. TGX produced & delivered 130 excavators in 2018: 70 of these delivered excavators were ordered in 2017 and the rest (60 excavators) were part of the 100 ordered in 2018. TGX received payment for 120 excavators. TGX began selling 1-year maintenance services contracts for $60,000 per excavator in 2018, which begin after the excavator is delivered. Contracts were sold on 50% of all excavator orders made in 2018 (no contracts were sold on orders placed in 2017). Assume now that instead of the revenue recognized in the previous question, TGX recognized $75 million in revenue for 100 excavators (and assume no maintenance contract revenue was recognized). In addition, the following occurred in 2018: TGX recognized $3 million in shipping and delivery costs for its excavators. TGX recognized $7 million in direct labor expenses. TGX recognized $3 million in commissions paid to its salespeople for selling the excavators. TGX purchased $60 million in raw materials in 2018, of which $50 million was in cash. Raw materials required to assemble each excavator cost $500,000 per excavator. Calculate TGX’s 2018 gross profit based on the transactions described above. Gross profit is revenue less cost of goods sold. Cost of Goods sold represents a company's direct cost to manufacture or procure goods and services. According to the matching principle, costs associated with the production of the book should be recorded in (matched to) the same period as the revenue from the book’s sale. Revenue from 100 excavators was recognized and the corresponding cost of $500,000 each or $50 million should be matched. In addition, shipping, delivery and direct labor costs are included in the direct production of the excavator and should thus be included in COGS. Sales, marketing and general expenses are not included in COGS. See Lesson: COGS & Gross Profit Question 5 Fairview Corporation recorded the following in 2018: After-tax net income was $25 million in 2018. The actual share count at the beginning of the year was 15.0 million. Fairview repurchased 3 million shares at $12/share in the middle of 2018. Fairview issued preferred dividends of $5 million and common dividends of $5 million. Fairview issued 5 million stock options in 2018, 1 milllion of which vested in the middle of 2018. Calculate 2018 basic earnings per share (EPS). Net income must be reduced by preferred dividends in the basic EPS calculation. Unvested shares do not get included in the basic share count, only the diluted. The share count is a weighted average. Both shares were repurchased and options vested in the middle of the year , the average is = 14.0 million weighted average shares. Net income 25.0 Preferred dividends (5.0) Net income to common 20.0 Basic Shares - BOP 15.0 Basic Shares - EOP 13.0 Basic Shares - Weighted Average 14.0 Basic EPS 1.43 See Lessons: Net Income, EPS & Dividends Financial Statement Analysis Question 6 Dynamic Resources reported the following information for year ending June 30, 2016 (values in millions): Plant, Property & Equipment, gross $5,000 Accumulated Depreciation 1,500 Plant, Property & Equipment, net 3,500 Salvage Value 300 The company also reported the following transactions on the first day of fiscal 2017: Sale of asset with gross PP&E of $700 million for $500 million and useful life of 7 years and no salvage value. Recorded a gain on sale of $400 million. Write off of asset with gross PP&E of $600 million. Asset was purchased 3 years ago with original useful life of 4 years and salvage value of $300 million. Purchase of new equipment for $1,600 million with useful life of 8 years and no salvage value (purchased on the first day of fiscal 2017). Assuming the remaining useful life of other equipment is 9 years on a straight-line basis, what is the net PP&E as of June 30, 2017 (rounded to nearest thousand)? . First calculate the PP&E balance on the first day of FY2017. The asset was sold for $500 million and a gain of $400 million was recognized, which implies a net PP&E value of $100 million. The write off is for gross PP&E of $600 million that has been depreciated at $75 million (($600-300)/4) for 3 years, which implies a net PP&E value of $375 million (including the $300 million salvage value). Starting with $3,500 million of net PP&E, subtracting $100 million for the sale and $375 million for the write down leaves $3,025 million of other equipment with no salvage value (due to the write down). $1,600 of new equipment is purchased, which increases net PP&E to $4,625 million. After one year, the other equipment is depreciated by $336.1million reflecting remaining useful life of 9 years and the new equipment is depreciated by $200 million reflecting a useful life of 8 years. Net PP&E for FY2017 is $4,625 – 336.1 – 200 = $4,088.9 million. See Lesson: Depreciation Question 7 Information about the assets of TAP Holdings is provided below: TAP purchased land on January 1, 2013 for $500 million. As of January 1, 2018, the fair value was estimated to be $550 million. TAP purchased a trademark on January 1, 2016 for $300 million. As of January 1, 2018, the fair value was estimated to be $200 million. TAP acquired a company on Jun 5, 2016 and recognized $1100 million in goodwill as a result. A $150 million goodwill impairment was recognized at year end 2017. Assume a useful life of 5 years and the straight-line method for any depreciable or amortizable assets above. Assume TAP reports under US GAAP. What is the total value of these assets reported on TAP’s balance sheet as of January 1, 2018 $1,610 million $1,650 million $1,700 million $1,800 million . GAAP financial statements report companies’ resources at an initial historical cost (unless written down). GAAP requires that firms only show measurable activities, such as the value of acquired intangible assets. The current reported value of the land would be the lower historical cost of $500. The current reported value of the trademark would be written down to the lower fair value of $200. Goodwill would also be reported at the lower fair value of 950. The total value of the assets would be $500 + $200 + $950 = $1,650. Land, trademarks and goodwill are considered are generally considered to have indefinite useful lives and not depreciated or amortized. See Lessons: Basic Accounting Principles Intangible Assets & Goodwill Question 8 For the next 2 questions, use the financials of Acme Corporation. After adjusting revenue for accounts receivable and deferred revenue, how much cash did Acme generate from revenue for the three months ending September 30, 2017? $234.4 million $241.1 million $274.8 million $369.4 million . Accounts receivable increased by $87.7 million, implying that the company did not collect that amount in cash. Deferred revenue increased by $40.4 million, which the company collected but did not book as sales. Therefore, cash collection was $322.1 million - $87.7 million + $40.4 million = $274.8 million. See Lessons: Cash, Receivables & Prepaid Expenses Payable, Accrued Expenses, Deferred Revenue & Debt Question 9 For this question, use the financials of Acme Corporation. Note the industry average ratios below: A/R days (based on average balances) = 57 days A/P days (based on average balances) = 23 days Current ratio (based on ending balance) = 1.8x Based on Acme’s A/R days, A/P days and Current ratios for the three months ending September 30, 2017, which of the following conclusions is most accurate? Assume 92 days in the three months ending September [Show More]

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