Accounting Changes and Error Analysis, Statement of Cash Flows (Indirect Method), and Net Cash provided by Operating Activities (Direct Method)

Accounting Changes and Error Analysis, Statement of Cash Flows (Indirect Method), and Net Cash provided by Operating Activities (Direct Method)

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ACT 5008 Final Exam – Due no later than midnight Sunday.
Please show all calculations.
Submit only Word or Excel documents.
NAME (do not forget to include your name)
1.
Moore Company began operations on Jan. 1
st
year 1.
At the beginning of year 3 Moore
switched from LIFO to FIFO for both financial and tax purposes.
If FIFO had been used in prior
years Moore’s inventories would have been higher by $60,000 and $40,000 at the end of the year
for years 3 and 2, respectively.
Moore has a 30% income tax rate.
What amount should Moore
report as the cumulative effect of this accounting change in the income statement for the year
ended December 31
st
of year 3?
ZERO
2. On Jan. 2
nd
of year 1, Moore Co. purchased a machine for $264,000 and depreciated it by the
straight-line method using an estimated life of 8 years with a zero salvage value.
On Jan. 2
nd
of
year 4 Moore determined that the machine had a useful life of 6 years from the date of
acquisition and will have salvage value of $24,000.
An accounting change was made in year 4 to
reflect the additional data. The accumulated depreciation for this machine should have a balance
at Dec. 31, year 4 of how much?
3. Moore Co. reported a retained earnings balance of $400,000 at Dec. 31
st
of the previous year.
In August of the current year Moore determined that insurance premiums of $60,000 for the three
year period
beginning Jan. 1
st
of the previous year and had been paid and fully expensed in that
year.
Moore has a 30% income tax rate.
What amount should Moore report as adjusted
beginning retained earnings in the current year statement of retained earnings?
4. Given the following information:
Sales
$242,807
Gain on sale of available for sale
$2,400
Equity in earnings of 30% owned company
$5,880
Gain on sale of land
$10,700
Total
$261,787
Cost of Sales
$138,407
General and Admin expenses
$25,010
Depreciation
$1,250
Interest expense
$1,150
Income taxes
$34,952
Net Income
$61,018
The following data presents the difference between last year and the current year balances.
Cash
$21,100
Available for sale securities
$(9,200)
Accts Rec.
$25,000

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Allow for uncollectible accounts
$ 0
Inventory
$17,500
Investment in 30% owned company
$5,880
Land
$(21,300)
Building
$ 0
Equipment
$81,500
Less Accum Depreciation
$(1,250)
Total Assets
$119,230
Accounts Payable
$(3,890)
Income taxes payable
$4,616
Bonds payable
$65,000
Less Unamortized discount
$150
Deferred tax liability
$336
Preferred stock
$(30,000)
Common stock
$30,000
Retained earnings
$53,018
Total Liabilities and equity
$119,230
Additional Information:
a. On Jan. 8, the company sold marketable equity securities for cash.
The original cost of the
securities is $9,200.
b. Only July 17
th
, 3 acres of land were sold for cash of $32,000.
c. On Sept. 3, the company purchased equipment for cash.
d. On Nov. 10, bonds payable were issued by the company, at par, for cash.
e. On Dec. 15, the company declared and paid an $8,000 dividend to common stockholders.
f. General and Administrative expenses include $3,000 of bad debt expense.
f. No dividends were received during the year from the 30% owned investee.
h. The company’s preferred stock is convertible into common stock at a rate of one share of
preferred stock for two shares of common stock. The preferred stock and common stock have par
values of $2 and $1, respectively.
i. For purposes of the statement of cash flows, the company considers all highly liquid debt
instruments purchased with a maturity of three months or less to be cash equivalents.
Required:
a. Prepare a Statement of Cash Flows in good form using the above information and the indirect
method.
b. Prepare the Net Cash Provided by Operating Activities section, using the above information,
using the direct method.

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