ACC 305 – Midterm Examination – August 6, 2013 The exam must be submitted by Sunday, August 11, 2013 on or...

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ACC 305 – Midterm Examination – August 6, 2013 The exam must be submitted by Sunday, August 11, 2013 on or before 5:59 p.m. To receive full credit you must show ALL of your work! 1. On February 1, 2012, Marsh Contractors agreed to construct a building at a contract price of $5,400,000. Marsh estimated total construction costs would be $4,000,000 and the project would be finished in 2014. Information relating to the costs and billings for this contract is as follows: 2012 2013 2014 Total costs incurred to date $1,500,000 $2,640,000 $4,600,000 Estimated costs to complete 2,500,000 1,760,000 -0- Customer billings to date 2,200,000 4,000,000 5,600,000 Collections to date 2,000,000 3,500,000 5,500,000 Using the percentage-of-completion method, calculate the gross profit that should be recorded for 2012, 2013 and 2014. (30 points) 2. Ashleigh Company provides the following selected information related to its defined benefit pension plan for 2012. Pension asset/liability, January 1 $25,000 Cr. Accumulated benefit obligation, December 31 400,000 Actual and expected return on plan assets 10,000 Contributions in 2012 150,000 Fair value of plan assets, December 31 800,000 Settlement rate 10% Projected benefit obligation, January 1 700,000 Service cost 80,000 Compute (a.) the pension expense and prepare the journal entry to record pension expense and the employer’s contribution to the pension plan in 2012, if benefits paid in 2012 were $35,000 and (b.) prepare the pension worksheet for Ashleigh Company for 2012. (80 points) 3. Keele Company has the following securities in its investment portfolio on December 31, 2012 (all securities were purchased in 2012): (1) 3,000 shares of Anderson Company common stock which cost $58,500, (2) 10,000 shares of Munter Ltd. common stock which cost $580,000, and (3) 6,000 shares of King Company preferred stock which cost $255,000. The Fair Value Adjustment account shows a credit balance of $10,100 at the end of 2012. In 2013, Keele Company completed the following securities transactions; (a.) On January 15th, sold 3,000 shares of Anderson’s common stock at $22 per share less fees of $2,150 and (b.) On April 17th, purchased 1,000 shares of Castle’s common stock at $33.50 per share plus fees of $1,980. On December 31, 2013, the market values per share of these securities were: Munter $61, King $40 and Castle $29. Perform the following: (a.) prepare the journal entry for the security sale on January 15, 2013; (b.) prepare the journal entry to record the security purchase on April 17, 2013 and (c.) compute the unrealized gains or losses of the revised investment portfolio and prepare the adjusting entry for Keele Company on December 31, 2013. (60 points) 4. At the end of the year, the Otaigbe Corporation has pretax financial income of $550,000. Included in the $550,000 is $70,000 interest income on municipal bonds, $25,000 fine for the dumping of hazardous waste, and depreciation of $60,000. Depreciation for tax purposes is $45,000. Compute the income taxes payable, assuming the tax rate is 30% for all periods. (15 points) 5. Wills and Turkvant Inc. have a deferred tax liability of $68,000 at the beginning of 2013. At the end of 2013, the company reports accounts receivable on the books at $90,000 and the tax basis at zero (the only temporary difference). If the enacted tax rate is 34% for all periods, and income taxes payable for the period is $230,000, determine the amount of total income tax expense to report for 2013. (15 points)
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