ACCT 557 Week 8 Final Exam(NEW)

ACCT 557 Week 8 Final Exam(NEW)

Author: Christine Farr


1. TCO A) Benny Building, Inc. won a bid for a new warehouse building contract.
Below is information from the project accountant. 
Total Construction Fixed Price $25,000,000 
Construction Start Date June 13, 2012 
Construction Complete Date December 16, 2013 

As of Dec. 31… 2012 2013
Actual cost incurred $11,500,000 $8,360,000 
Estimated remaining costs $8,250,000 $- 
Billed to customer $9,000,000 $16,000,000 
Received from customer $7,500,000 $16,500,000 
Assuming Benny Building, Inc. uses the completed contract method, what amount of gross profit would be recognized in 2013?
2. (TCO B) At the beginning of 2012, Barbara, Inc. has a deferred tax asset of $8,000 and deferred tax liability of $6,500. In 2012, pretax financial income was $600,000 and the tax rate was 35%.
Pretax income included: 
Interest income from municipal bonds $25,000 
Accrued warranty costs, estimated to be used in 2013 $74,000 
Prepaid rent expense, will be used in 2013 $16,000 
Installment sales revenue, to be collected in 2013 $45,000 
Operating loss carryforward $36,000 
What is the adjustment needed to correct the balance of deferred tax asset for 2012?
3. (TCO C) Presented below is pension information related to Baked Goods, Inc. for the year 2013.
Service cost $103,000 
Interest on projected benefit obligation $65,000 
Interest on vested benefits $12,000 
Amortization of prior service cost due to increase in benefits $14,000 
Expected return on plan assets $18,000
The amount of pension expense to be reported for 2013 is
4. (TCO C) Bunny Hopping, Inc. sponsors a defined-benefit pension plan. The following data relate to the operation of the plan for the year 2013.
Service cost $135,000 
Contributions to the plan $105,000 
Actual return on plan assets $120,000 
Projected benefit obligation (beginning of year) $1,800,000 
Fair value of plan assets (beginning of year) $1,900,000 
The expected return on plan assets and the settlement rate were both 9%. The amount of pension expense reported for 2013 is
5. (TCO D) Bucky, Inc. leased equipment from Green Enterprises under a 5-year lease requiring equal annual payments of $43,000, with the first payment due at lease inception. The lease does not transfer ownership, nor is there a bargain purchase option. The equipment has a 5-year useful life and no salvage value. Bucky, Inc.’s incremental borrowing rate is 6% and the rate implicit in the lease (which is known by Pisa, Inc.) is 8%. Assuming that this lease is properly classified as a capital lease, what is the amount of interest expense recorded by Bucky, Inc. in the first year of the asset’s life?
PV Annuity Due PV Ordinary Annuity
8%, 5 periods 4.31213 3.99271
6%, 5 periods 4.46511 4.21236

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