Mid – exam (2007/2008)
Name : ………………………………………………………… Student # : ………………………………………….
Q1. Choose the Correct answer:(5 Points)
1. / All of the following are advantages of leasing exceptA. Less costly financing.
B. / Off-balance sheet financing.
C. / Elimination of the risk of obsolescence.
D. / 100% financing at fixed rates.
2. / The FASB agrees with which of the following viewpoints regarding capitalization of leases?
A. / Do not capitalize any leased assets.
B. / Capitalize all long-term leases.
C. / Capitalize firm leases where the penalty for nonperformance is substantial.
D. / Capitalize those leases similar to installment purchases.
3. / The lessee would classify a lease as a capital lease if the
A. / Lease contains a purchase option.
B. / Lease transfers ownership of the asset to the lessor.
C. / Lease term is equal to 75% or more of the economic life of the leased asset.
D. / Minimum lease payments equal or exceed 90% of the fair value of the leased asset.
4. / Minimum lease payments include all of the following except
A. / A bargain purchase option.
B. / Executory costs.
C. / A guaranteed residual value.
D. / The minimum rental payments.
5. / The lessee records a capital lease as an asset and a liability at the
A. / Present value of the minimum lease payments.
B. / Fair market value of the leased asset at the lease inception.
C. / Lower of the present value of the minimum lease payments or the fair market value of the leased asset.
D. / Total amount of the minimum lease payments.
Q2. (8 Points)
2008 / 20072,200,000 / 2,200,000 / Contract price
1,905,000 / 480,000 / Costs incurred to date
- / 1,120,000 / Estimated costs to complete
1,680,000 / 420,000 / Billings during the year
1,500,000 / 350,000 / Cash collected during the year
Required :
- Using the percentage – of – completion method,prepare the journal entries for 2008.
Q3. (12 Points)
On January 1, 2007,Howard Corporation acquired 10,000 of the 50,000 outstanding shares of common stock of Kline company for $25 per share.
Additional information:
1-Kline reported net income of $100,000 and paid dividends of $30,000 in 2007.
2-Kline's stock had a fair value of $24 per share on December 31,2007
Instructions
(a)prepare the journal entries for Howard corporation for 2007, assuming that Howard cannot exercise significant influence over Kline Company.
(b)Prepare the journal entries for Howard Corporation for 2007, assuming that Howard can exercise significant influence over Kline Company.
Q4. (5 Points)
On January 1,2008 X company sold property for $100,000. cash collected as follows:
$40,000 in 2008,$30,000 in 2009, $25,000 in 2010, and $5000 in 2011.
The property had cost $80,000 when it was purchased in 2007.
Required:
compute the amount of gross profit realized and deferred gross profit each year using the interment sales method.