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At December 31, 2012, Burr Corporation owes $714,300 on a note payable due February 15, 2013.

(a) If Burr refinances the obligation by issuing a long-term note on February 14 and using the proceeds to pay off the note due February 15,
how much of the $714,300 should be reported as a current liability at December 31, 2012?
The amount to be reported as a current liability at December 31, 2012
$

(b) If Burr pays off the note on February 15, 2013, and then borrows $1,428,600 on a long-term basis on March 1, how much of the
$714,300 should be reported as a current liability at December 31, 2012, the end of the fiscal year?
The amount to be reported as a current liability at December 31, 2012
$

Mayaguez Corporation provides its officers with bonuses based on net income. For 2012, the bonuses total $393,500 and are paid on
February 15, 2013.

Prepare Mayaguezs (a) December 31, 2012, adjusting entry and (b) the February 15, 2013, entry. (If no entry is required, select "No
Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is
entered. Do not indent manually.)
No. Date Account Titles and Explanation Debit Credit
(a) 12/31/12



(b) 2/15/13




Scorcese Inc. is involved in a lawsuit at December 31, 2012.
(a) Prepare the December 31 entry assuming it is probable that Scorcese will be liable for $906,900 as a result of this suit.
(b) Prepare the December 31 entry, if any, assuming it is not probable that Scorcese will be liable for any payment as a result of this suit.

(If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are
automatically indented when amount is entered. Do not indent manually.)
No. Account Titles and Explanation Debit Credit
(a)



(b)




How would each of the following items be reported on the balance sheet?

Item

Reported on
(a)

Accrued vacation pay.


(b)

Estimated taxes payable.


(c)

Service warranties on appliance sales.


(d)

Bank overdraft.


(e)

Personal injury claim pending.


(f)

Unpaid bonus to officers.


(g)

Deposit received from customer to guarantee performance of a contract.

(h)

Sales taxes payable.


(i)

Gift certificates sold to customers but not yet redeemed.


(j)

Premium offers outstanding.


(k)

Discount on notes payable.


(l)

Employee payroll deductions unremitted.


(m) Current maturities of long-term debts to be paid from current assets.


(n)

Cash dividends declared but unpaid.


(o)

Dividends in arrears on preferred stock.


(p)

Loans from officers.



On December 31, 2012, Santana Company has $7,075,600 of short-term debt in the form of notes payable to Golden State Bank due in
2013. On January 28, 2013, Santana enters into a refinancing agreement with Golden that will permit it to borrow up to 55% of the gross
amount of its accounts receivable. Receivables are expected to range between a low of $5,150,000 in May to a high of $8,147,000 in October
during the year 2013. The interest cost of the maturing short-term debt is 15%, and the new agreement calls for a fluctuating interest rate at
1% above the prime rate on notes due in 2017. Santanas December 31, 2012, balance sheet is issued on February 15, 2013.

Prepare a partial balance sheet for Santana at December 31, 2012, showing how its $$7,075,600 of short-term debt should be presented.
SANTANA COMPANY
Partial Balance Sheet
December 31, 2012




$






Selzer Equipment Company sold 583 Rollomatics during 2012 at $6,100 each. During 2012, Selzer spent $31,650 servicing the 2-year
warranties that accompany the Rollomatic. All applicable transactions are on a cash basis.

(a) Prepare 2012 entries for Selzer using the expense warranty approach. Assume that Selzer estimates the total cost of servicing the
warranties will be $211,000 for 2 years. Use "Inventory" account to record the warranty expense. (If no entry is required, select "No
Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is
entered. Do not indent manually.)
No. Account Titles and Explanation Debit Credit
1.




(To record the sale)

2.




(To record the warranty expense)

3.




(To record the warranty liabilitiy)


(b) Prepare 2012 entries for Selzer assuming that the warranties are not an integral part of the sale. Assume that of the sales total,
$170,000 relates to sales of warranty contracts. Selzer estimates the total cost of servicing the warranties will be $211,000 for 2 years.
Estimate revenues earned on the basis of costs incurred and estimated costs. Use "Inventory" account to record the warranty expense. (If no
entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically
indented when amount is entered. Do not indent manually.)
No. Account Titles and Explanation Debit Credit
1.






(To record the sale)

2.




(To record the warranty expense)

3.




(To record the estimated revenues)

(a)

Sales Revenue = (583 x $6,100) = $3,556,300

Warranty Liability = ($211,000 $31,650) = $179,350
(b)

Warranty Revenue = [$170,000 x ($31,650/$211,000)] = $25,500

Listed below are selected transactions of Schultz Department Store for the current year ending December 31.
1.

On December 5, the store received $630 from the Jackson Players as a deposit to be returned after certain furniture to be used in stage
production was returned on January 15.
2.

During December, cash sales totaled $838,425, which includes the 5% sales tax that must be remitted to the state by the fifteenth day of
the following month.
3.

On December 10, the store purchased for cash three delivery trucks for $121,900. The trucks were purchased in a state that applies a
5% sales tax.
4.

The store determined it will cost $114,800 to restore the area (considered a land improvement) surrounding one of its store parking lots,
when the store is closed in 2 years. Schultz estimates the fair value of the obligation at December 31 is $90,540.

Prepare all the journal entries necessary to record the transactions noted above as they occurred and any adjusting journal entries relative to
the transactions that would be required to present fair financial statements at December 31. Date each entry. For simplicity, assume that
adjusting entries are recorded only once a year on December 31. (If no entry is required, select "No Entry" for the account titles and
enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Date Account Titles and Explanation Debit Credit
Dec. 5



Dec. 1-31





Dec. 10



Dec. 31



Dec. 1-31 Sales Revenue = ($838,425 1.05) = $798,500

Sales Taxes Payable = ($798,500 x 0.05) = $39,925
Dec. 10

Trucks = ($121,900 x 1.05) = $127,995

Signs of Illegal Activity"
Please respond to the following:
explain how you, as a financial advisor, could mitigate the risk of
being held responsible for a client who is laundering money.
Assume that you are a CPA working in a public accounting firm
and discover that your client is involved with money laundering and
other fraudulent activities. What would you do?



"Overstock.com"
Please respond to the following:
evaluate and discuss how the under billings should have
been accounted for in the original financial statements.
Should the under billings be treated as gain contingencies? Explain
your position



Wertz Construction Company decided at the beginning of 2012 to change from the completed-contract method to the percentage-of-
completion method for financial reporting purposes. The company will continue to use the completed-contract method for tax purposes. For
years prior to 2012, pretax income under the two methods was as follows: percentage-of-completion $130,600, and completed-contract
$74,400. The tax rate is 30%.

Prepare Wertzs 2012 journal entry to record the change in accounting principle. (Credit account titles are automatically indented when
amount is entered. Do not indent manually.)
Account Titles and Explanation Debit Credit



Construction in Process = ($130,600 $74,400) = $56,200
Deferred Tax Liability = [($130,600 $74,400) x 30%] = $16,860
Indicate the effectUnderstate, Overstate, No Effectthat each of the following errors has on 2012 net income and 2013 net income.

2012

2013
(a) Equipment purchased in 2010 was expensed.




(b) Wages payable were not recorded at 12/31/12.



(c) Equipment purchased in 2012 was expensed.




(d) 2012 ending inventory was overstated.




(e) Patent amortization was not recorded in 2013.





Palmer Co. is evaluating the appropriate accounting for the following items.

Identify whether each of the below items is a change in principle, a change in estimate, or an error.
1. Management has decided to switch from the FIFO inventory valuation method to the LIFO inventory valuation method for all inventories.

2. When the year-end physical inventory adjustment was made for the current year, the controller discovered that the prior years physical
inventory sheets for an entire warehouse were mislaid and excluded from last years count.
3. Palmers Custom Division manufactures large-scale, custom-designed machinery on a contract basis. Management decided to switch from
the completed-contract method to the percentage-of-completion method of accounting for long-term contracts.


Whitman Company began operations on January 1, 2010, and uses the average cost method of pricing inventory. Management is
contemplating a change in inventory methods for 2013. The following information is available for the years 20102012.

Net Income Computed Using

Average Cost Method

FIFO Method

LIFO Method
2010

$16,204

$19,292

$12,917
2011

18,346

20,460

13,913
2012

20,949

24,292

17,274

(a) Prepare the journal entry necessary to record a change from the average cost method to the FIFO method in 2013. (Credit account
titles are automatically indented when amount is entered. Do not indent manually.)
Account Titles and Explanation Debit Credit



(b) Determine net income to be reported for 2010, 2011, and 2012, after giving effect to the change in accounting principle.

Net Income
2010
$
2011
$
2012
$

(c) Assume Whitman Company used the LIFO method instead of the average cost method during the years 20102012. In 2013, Whitman
changed to the FIFO method. Prepare the journal entry necessary to record the change in principle. (Credit account titles are
automatically indented when amount is entered. Do not indent manually.)
Account Titles and Explanation Debit Credit


(a)

Inventory = ($19,292 + $20,460 + $24,292) ($16,204 + $18,346 + $20,949) = $8,545
(c)

Inventory = ($19,292 + $20,460 + $24,292) ($12,917 + $13,913 + $17,274) = $19,940

Thurber Co. purchased equipment for $745,600 which was estimated to have a useful life of 10 years with a salvage value of $10,800 at the
end of that time. Depreciation has been entered for 7 years on a straight-line basis. In 2013, it is determined that the total estimated life
should be 15 years with a salvage value of $5,400 at the end of that time.
(a)

Prepare the entry (if any) to correct the prior years depreciation.
(b)

Prepare the entry to record depreciation for 2013.

(If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Credit account titles are
automatically indented when amount is entered. Do not indent manually.)
No. Account Titles and Explanation Debit Credit
(a)



(b)



Original cost

$745,600
Accumulated depreciation [($745,600 $10,800) 10] x 7 (514,360 )
Book value (1/1/11)

231,240
Estimated salvage value

(5,400 )
Remaining depreciable basis

225,840
Remaining useful life (15 years 7 years)

8
Depreciation expense2012

$28,230

On December 31, 2012, before the books were closed, the management and accountants of Madrasa Inc. made the following
determinations about three depreciable assets.
1.

Depreciable asset A was purchased January 2, 2009. It originally cost $450,000 and, for depreciation purposes, the straight-line
method was originally chosen. The asset was originally expected to be useful for 10 years and have a zero salvage value. In
2012, the decision was made to change the depreciation method from straight-line to sum-of-the-years digits, and the
estimates relating to useful life and salvage value remained unchanged.
2.

Depreciable asset B was purchased January 3, 2008. It originally cost $151,500 and, for depreciation purposes, the straight-line
method was chosen. The asset was originally expected to be useful for 15 years and have a zero salvage value. In 2012, the
decision was made to shorten the total life of this asset to 9 years and to estimate the salvage value at $2,600.
3.

Depreciable asset C was purchased January 5, 2008. The assets original cost was $140,400, and this amount was entirely
expensed in 2008. This particular asset has a 10-year useful life and no salvage value. The straight-line method was chosen for
depreciation purposes.

Additional data:
1. Income in 2012 before depreciation expense amounted to $359,000.
2. Depreciation expense on assets other than A, B, and C totaled $53,000 in 2012.
3. Income in 2011 was reported at $370,000.
4. Ignore all income tax effects.
5. 108,600 shares of common stock were outstanding in 2011 and 2012.





(a)

Prepare all necessary entries in 2012 to record these determinations. (Credit account titles are automatically indented when
amount is entered. Do not indent manually.)
No. Account Titles and Explanation Debit Credit
1.



2.



3.






(To correct equipment expensed.)






(To record depreciation.)

1.

Cost of Building

$450,000

Less: Depreciation prior to 2012 135,000 *

Book value, January 1, 2012

$315,000

Depreciation for 2012: = $315,000 x 7/28** = $78,750
* ($450,000 10) x 3 = $135,000
** [7(7 + 1)] 2 = 28
2. Original cost

$151,500

Accumulated depreciation (1/1/12) $10,100 x 4 (40,400 )

Book value (1/1/12)

111,100

Estimated salvage value

(2,600 )

Remaining depreciable base

108,500

Remaining useful life (9 years4 years taken)

5

Depreciation expense2012

$21,700



"White Collar Fraud" Please respond to the following:
evaluate the accounting policy related to purchase discounts and
trade allowances used by Sam E. Antar at Crazy Eddies to cover
up the fraud. Identify how you would detect an error in the
treatment.
Describe the techniques you would use to identify the reported errors in inventories.
Do you agree with smoothing income if fraudulent techniques are not used? Explain
your position







"Accounting Restatements" Please respond to the following:
speculate why a stock declines more prior to the restatement than
after the restatement, and why restatement involving operational
errors and those related executive compensations result in greater
declines.
Imagine you are a CEO for an organization that needs to restate
earnings. Describe the actions you would take to lessen the
decline of the stock price.