1- STATEMENT OF CASH FLOWS PREPARATION
The following summary transactions occurred during 2011
Cash Received from:
Customers $380,000
Interest on note receivable 6,000
Principal on note receivable 50,000
Sale of investment 30,000
Proceeds from note payable 100,000
Cash Paid for :
Purchase of inventory 160,000
Interest on note payable 5,000
Purchase of equipment 85,000
Salaries to employees 90,000
Principal on note payable 25,000
Payment of dividends to shareholders 20,000
The balance of cash and cash equivalent at the beginning of 2011 was $17,000
Required:
· Prepare a statement of cash flows for 2011 .Use the direct method for reporting operating activities, refer to the above situation.
2- INCOME STATEMENT PRESENTATION
Each of the following situations occurred during 2011 for one of your audit clients:
1-The write off inventory due to obsolence.
2-Discovery that depreciation expenses were omitted by accident from 2010s income statement.
3-The useful lives of all machinery were changed from eight to five years.
4-The depreciation method used for all equipment was changed from the declining-balance to the straight-line method.
5-Ten million dollars face value of bonds payable were repurchased (paid off) prior to maturity resulting in a material loss of $ 500,000.The Company considers the event unusual and infrequent.
6-Restructuring costs were incurred.
7-The Maryland Company, a manufacturer of shoes, sold all of its retail outlets. It will continue to manufacture and sell its shoes to other retailers. A loss was incurred in the disposition of the retail stores. The retail stores are considered components of the entity.
8-The inventory costing method was changed from FIFO to average cost.
Required:
· 1-For each situation, identify the appropriate reporting treatment from the list below( consider each event to be material):
a- As an extraordinary item.
b- As an unusual of infrequent gain or loss.
c- As prior period adjustment.
d- As a change in accounting principle.
e- As a discontinued operation.
f- As a change in accounting estimate.
g- As a change in accounting estimate achieved by a change in accounting principle.
· 2-Indicate whether each situation would be included in the income statement in continuing operations (CO) or below continuing operation (BC), or if it would appear as an adjustment to retained earnings(RE). Use the format show below to answer requirements 1 and 2.
Situation Treatment (a-g) Financial Statement Presentation (CO, BC, orRE)
1-
2-
3-
4-
5-
6-
7-
8-
3- LONG-TERM CONTRACT; PERCENTAGE OF COMPLETION, COMPLETED CONTRACT AND COST RECOVERY METHODS.
On June 15, 2011, Sanderson Construction entered into a long-term construction contract to build a baseball stadium in Washington D.C. for $220 million. The expected completion date is April 1 of 2013, just in time for the 2013 baseball season. Cost incurred and estimated costs to complete at year-end for the life of the contract are as follows ($ in millions):
2011 2012 2013
Cost incurred during the year $40 $80 $50
Estimated cost to complete as of 12/31 120 60 —
Required:
1- Determine the amount of gross profit or loss to be recognized in each of the three years using percentage of completion method.
2- How much revenue will San report in its 2011 and 2012 income statement related to this contract using the percentage-of completion method?
3- Determine the amount of gross profit or loss to be recognized in each of the three years using completed contract method.
4- Determine the amount of revenue, cost and gross profit or loss to be recognized in each of the three years under IFRS, assuming that using the percentage-of completion method is not appropriate.
5- Suppose the estimated costs to complete at the end of 2012 are $80 million instead of $60 million. Determine the amount of gross profit or loss to recognized in 2012 using the percentage-of completion method.