1. list three examples of reserve accounts

(*) allowance for doubtful accounts
(*) accumulated depreciation
(*) estimated warranty liability

2. describe accrual accounts

(*) accrual basis reports operating activities in terms of their success in generation revenue
(*) accrual basis measures operating success by the extent to which revenues exceed expenses
(*) accrual basis measures operating success by the extent to which accomplishments exceed efforts

3. list 3 signs that suggest a company is recognizing sales too early

(*) large and volatile amounts of uncollectible accounts receivable
(*) excessive warranty expenditures
(*) unusually large amount of returned goods

4. when should the installment method of revenue recognition be used?

when cash collectibility is uncertain.

5. the installment method requires

that gross profit is recognized as each installment payment is received

6. list three factors used by analyst to access the quality of accounting

(*) the inventory cost-flow assumption chosen by management
(*) price variation and the speed at which inventory turns over
(*) any physical deterioration or obsolescence of inventory

7. Net Pension Expense =

Service Cost
+ Interest on PBO
- Expected return on assets
+ Amortization of Prior Service cost
+ Amortization of gain/loss

8. percentage-of-completion =

cost incurred / total estimated cost of contract

total estimated cost of contract =
cost incurred + estimated costs to complete

9. minimum pension liability problem
   
   gorilla corp implemented a defined benefit pension plan for it's employees on Jan 2 2012.
   
   The following data are provided for year 2012, as of Dec 31 2012
   
   Projected benefit obligation = $70,000
   Employers contribution at year end = $60,000
   
   What amount should Gorilla record as additional minimum pension liability at Dec 31 2012?

PBO > Employer's Contribution

Answer: $10,000... the difference between the PBO and the value of the plan at the end of the year which is $60,000

10. Average Asset Age Problem
    
    The following information is available from Sheldon Corp.:
    
    Information from the balance sheet:
    
    At Dec 31 2012
    Depreciable Assets = $245,860
    Accumulated Depreciation = (1,350,700)
    Depreciable Assets (net) = 1,107,900
    
    From the 2012 income statement
    
    Depreciation expense 384,500
    
    At Dec 31 2011
    Depreciable Assets = $1,985,400
    Accumulated Depreciation = (1,046,000)
    Depreciable Assets (net) = 939,400
    
    From the 2012 income statement
    
    Depreciation expense 312,300
    
    What is the average age of the depreciable assets (use accumulated depreciation) and,
    
    what is the average remaining useful life of the depreciable assets at the end of 2012 (use net depreciable assets)?

(a) take the average accumulated depreciation and divide by 2012 depreciation...

(.5 * (1,350,700 + 1,046,000)) / 384,000 = 3.12

the same method would be applied to the net PPE balances

(.5 * (1,107,900 + 939,400)) / 384,500 = 2.66

11. LIFO conversion problem
    
    Assume the following for this company that uses LIFO to value its inventory
    
    Sales = 24,000,000
    Beginning Inventory = 18,000,000
    Cost of sales = 17,500,000
    Ending Inventory = 23,000,000
    Current Assets = 7,500,000
    Current Liabilities = 3,800,000
    
    The footnotes indicate that if the company valued its inventory using FIFO, the beginning inventory would be 650,000 higher and the ending inventory would be 850,000 higher.
    
    What would the gross margin and current ratio have been had the company used FIFO accounting?

(1) first calculate purchases...
Cost of Sales - Beginning Inventory + Ending Inventory
= Cost of Purchases

17,500,000 - 18,000,000 + 23,000,000 = 22,500,000

(2) calculate FIFO beginning inventory...
18,000,000 + 650,000 = 18,650,000

(3) + purchases...
22,500,000 + 18,650,000 = 41,150,000 << goods available for sale

MINUS end FIFO inventory of (23,000,000 + 850,000) = 17,300,000 Cost of Sales

Gross Margin
24,000,000 - 17,300,000 = X

Current Ratio = Current Assets / Current Liabilities