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QUESTION 1 A method of estimating bad debts that focuses on the balance sheet rather than...

QUESTION 1

A method of estimating bad debts that focuses on the balance sheet rather than the income statement is the allowance method based on

a.

direct write-off

b.

aging the trade receivable accounts

c.

credit sales

d.

specific accounts determined to be uncollectible

QUESTION 2

In a business combination, goodwill is defined as the excess of cost over the

a.

fair value of assets acquired

b.

fair value of assets acquired less the liabilities assumed

c.

book value of assets acquired less the liabilities assumed

d.

net book value of assets acquired

QUESTION 3

The amount reported as "Cash" on a company's balance sheet normally should exclude

a.

postdated checks that are payable to the company

b.

cash in a payroll account

c.

undelivered checks written and signed by the company

d.

petty cash

QUESTION 4

Shepard Construction Company has consistently used the percentage-of-completion method. On January 10, 2008, Shepard began work on a $3,000,000 construction contract. At the inception date, the estimated cost of construction was $2,250,000. The following data relate to the progress of the contract:

Gross profit recognized at December 31, 2008....................    $300,000

Costs incurred Jan. 10, 2008, through Dec. 31, 2009..........   1,800,000

Estimated cost to complete at December 31, 2009..............      600,000

How much gross profit should Shepard recognize for the year ended December 31, 2009

a.

$150,000

b.

$262,500

c.

$300,000

d.

$450,000

Homework Answers

Answer #1

1.aging the trade receivable accounts

2.fair value of assets acquired less the liabilities assumed

3.deposits credited by the bank but not yet recorded by the company.

4.The answer is: Halt should report $150,000 as gross profit

Explanation:

Halt recognized $300,000 as gross profit for Yr 3.

By December 31, Yr 4, Halt had completed 75% of the construction project: ($1,800,000 spent / $1,800,000 + $600,000 cost to complete) x 100 = 75%

Halt anticipated $600,000 as gross profit ($3,000,000 contract price - $2,400,000 expected costs).

To determine the gross profit for Yr 4:

gross profit Yr 4 = ($600,000 total gross profit x 75% completion rate) - $300,000 previously recognized gross profit = $450,000 - $300,000 = $150,000

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