61.On October 1, 2015, $20,000 of annual magazine subscriptions were sold by Cat World Magazines. The subscribed magazines are delivered on the first day of each month beginning on October 1, 2015. The total cost of the subscribed magazines is $12,000, equal to $1,000 per month. What is the amount of revenue to be recognized during 2015?
a.$20,000
b.$3,000
c.$5,000
d.$8,400
Solution:Revenue for 2015is the amount earned for the 3 months of subscriptions delivered for a total of $5,000 ($20,000 x 3/12).
62.On October 1, 2015, $20,000 of annual magazine subscriptions were sold by Cat World Magazines. The total cost of the subscribed magazines is $12,000, equal to $1,000 per month. The subscribed magazines are delivered on the first day of each month beginning on October 1, 2015. What is the amount of the cost of the magazines to be recognized during 2015?
a.$12,000
b.$8,400
c.$1,600
d.$3,000
Solution:Cost of goods sold is $3,000 (3 months x $1,000 per month).
63.On March 1, 2015, $60,000 of annual magazine subscriptions were sold by Traveler’s Monthly Magazines. The subscribed magazines are delivered on the first day of each month beginning on March 1, 2015. The total cost of the subscribed magazines is $30,000 or $2,500 per month. How much profit will the company recognize during 2015?
a.$60,000
b.$33,000
c.$25,000
d.$5,000
Solution:
Revenue: 2015 2015
($60,000 X 10/12)$50,000
($60,000 X 2/12)$10,000
Cost of goods sold:
($30,000 X 10/12) 25,000
($30,000 X 2/12) _____ 5,000
Profit$25,000$5,000
64.On March 1, 2015, $72,000 of annual magazine subscriptions were sold by Traveler’s Monthly Magazines. The subscribed magazines are delivered on the first day of each month beginning on March 1, 2015. The total cost of the subscribed magazines is $30,000 or $2,500 per month. How much profit will the company recognize during 2016?
a.$5,000
b.$8,250
c.$25,000
d.$2,750
Solution:
Revenue: 2015 2016
(($60,000/12) x 10 months) $50,000
(($60,000/12) x 2 months)$10,000
Cost of goods sold:
(($30,000/12) x 10 months) 25,000
(($30,000/12) x 2 months)_____ 5,000
Profit$25,000$5,000
65.Joseph Corporation purchased an extruding machine on January 1, 2013for $30,000. The machine is expected to be used for 5 years, and the company believes an equal portion of the cost should be allocated to each accounting period. Based on this information, what is the net book value of the machine on January 1, 2015?
a.$6,000
b.$18,000
c.$12,000
d.$30,000
Solution:$30,000 / 5 = $6,000 x 2 = $12,000; $30,000 – 12,000 = $18,000
66.Karr Construction built a levee for the state of Mississippi over a three-year period. The contracted price for the levee was $1,500,000. The costs incurred by Karr and the payments from the state over the three year period are as follows:
2014
2015
2016
Total
Costs incurred by Karr
$300,000
$400,000
$100,000
$800,000
Payments from Mississippi
$600,000
$400,000
$500,000
$1,500,000
If revenue is recognized when payments are received, which of the following present the net income amounts reported in 2014, 2015, and 2016, respectively?
a.$600,000; $400,000; $500,000
b.$300,000; $0; $400,000
c.$400,000; $400,000; $400,000
d.$300,000; $200,000; $100,000
67.Karr Construction built a levee for the state of Mississippi over a three-year period. The contracted price for the levee was $1,500,000. The costs incurred by Karr and the payments from the state over the three year period are as follows:
2014
2015
2016
Total
Costs incurred by Karr
$300,000
$400,000
$100,000
$800,000
Payments from Mississippi
$600,000
$400,000
$500,000
$1,500,000
If revenue is recognized in proportion to the costs incurred by Karr, how much net income is reported in 2015?
a.$100,000
b.$200,000
c.$350,000
d.$400,000
68.Karr Construction built a levee for the state of Mississippi over a three-year period. The contracted price for the levee was $1,500,000. The costs incurred by Karr and the payments from the state over the three year period are as follows:
2014
2015
2016
Total
Costs incurred by Karr
$300,000
$400,000
$100,000
$800,000
Payments from Mississippi
$600,000
$400,000
$500,000
$1,500,000
If revenue is recognized in proportion to the costs incurred by Karr, how much net income is reported in 2016?
a.$600,000
b.$400,000
c.$300,000
d.$87,500
69.Three years ago, Astro Masters, Inc. purchased the three assets listed in the following table. The chief financial officer, Bill Moss, is presently trying to decide what to do with each asset. He has three options for each asset: (1) sell it; (2) keep it; and (3) sell it and replace it with an equivalent asset. The following information is provided to aid his decision.
Asset
Original Cost
Replacement Cost
Fair Market Value
Present Value of Future Cash Flows Produced by Old Asset
Present Value of Future Cash Flows of Equivalent Asset
A
$4,500
$1,500
$2,000
$3,000
$5,000
B
$2,000
$2,500
$1,000
$3,000
$4,500
C
$2,500
$4,000
$3,500
$3,000
$6,000
Based on your calculations of total cash flows, which of the following options is the best for Bill to pursue with respect to Asset A?
a.Option 1
b.Option 2
c.Option 3
d.Both Options 2 & 3 provide the same total cash flows.
70.Three years ago, Astro Masters, Inc. purchased the three assets listed in the following table. The chief financial officer, Bill Moss, is presently trying to decide what to do with each asset. He has three options for each asset: (1) sell it; (2) keep it; and (3) sell it and replace it with an equivalent asset. The following information is provided to aid his decision.
Asset
Original Cost
Replacement Cost
Fair Market Value
Present Value of Future Cash Flows Produced by Old Asset
Present Value of Future Cash Flows of Equivalent Asset
A
$4,500
$1,500
$2,000
$3,000
$5,000
B
$2,000
$2,500
$1,000
$3,000
$4,500
C
$2,500
$4,000
$3,500
$3,000
$6,000
Based on your calculations, what would be the total cash flows associated with selling and replacing Asset C with an equivalent asset?
a.$2,500
b.$5,500
c.$5,000
d.$4,500
Solution:
Cash InflowsCash OutflowFutureTotal
From Salefor ReplacementCash FlowsCash Flows
Asset C:
Option 3 3,500 (4,000) 6,000 5,500
71.Three years ago, Astro Masters, Inc. purchased the three assets listed in the following table. The chief financial officer, Bill Moss, is presently trying to decide what to do with each asset. He has three options for each asset: (1) sell it; (2) keep it; and (3) sell it and replace it with an equivalent asset. The following information is provided to aid his decision.
Asset
Original Cost
Replacement Cost
Fair Market Value
Present Value of Future Cash Flows Produced by Old Asset
Present Value of Future Cash Flows of Equivalent Asset
A
$4,500
$1,500
$2,000
$3,000
$5,000
B
$2,000
$2,500
$1,000
$3,000
$4,500
C
$2,500
$4,000
$3,500
$3,000
$6,000
Based on your calculations of total cash flows, which of the following options is the best for Bill to pursue with respect to Asset B?
a.Option 1
b.Option 2
c.Option 3
d.Both Options 2 & 3 provide the same total cash flows.
72.Three years ago, Astro Masters, Inc. purchased the three assets listed in the following table. The chief financial officer, Bill Moss, is presently trying to decide what to do with each asset. He has three options for each asset: (1) sell it; (2) keep it; and (3) sell it and replace it with an equivalent asset. The following information is provided to aid his decision.
Asset
Original Cost
Replacement Cost
Fair Market Value
Present Value of Future Cash Flows Produced by Old Asset
Present Value of Future Cash Flows of Equivalent Asset
A
$4,500
$1,500
$2,000
$3,000
$5,000
B
$2,000
$2,500
$1,000
$3,000
$4,500
C
$2,500
$4,000
$3,500
$3,000
$6,000
On December 31, 2015, just before preparing the company’s financial statements, Bill decides to replace Asset A and keep both Assets B and C. According to generally accepted accounting principles, at what dollar amount he report each of these respective assets on the balance sheet?
a.$4,500; $2,000; $2,500
b.$1,500; $2,000; $2,500
c.$2,000; $1,000; $3,500
d.$1,500; $2,500; $4,000
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