The following financial data on CashCow, Inc. have been taken from its financial statements for 1996:
Answer(s): D
Items a and e are the financing cash flows.
A defined contribution pension plan:
Answer(s): A
In a defined benefit contribution plan, the employee makes definite contributions to the pension plan from the regular salary. Investment of these contributions is at the discretion of the employee and the size of the benefits paid out depends upon the total contributions made and the fund performance. Thus, in this plan, the risk of pension plan performance is borne by the employee and not the employer.
Which of the following would not normally be found in the footnotes that accompany financial statements?
Answer(s): B
Proctor Ltd. sells major household appliance service contracts for cash. The service contracts are for a 1-year, 2-year, or 3-year period. Cash receipts from contracts are recorded as unearned contract revenues. This account had a balance of $720,000 at December 31, 1996. Service contract costs are charged as incurred to the service contract expense account, which had a balance of $180,000 at December 31, 1996. Outstanding service contracts at December 31, 1996 expire as follows:During 1997 $150,000During 1998 $225,000During 1999 $100,000What amount should be reported as unearned service contract revenues in Proctor's December 31, 1996 balance sheet?
Unearned service contract revenues relate to outstanding contracts for which the agreed service has not yet been provided. Thus, the amount to be reported as unearned service contract revenues covers all contracts that are outstanding at December 31, 1996 which totals $475,000 (150,000 + 225,000 + 100,000)
A firm follows LIFO accounting. Its inventory accounts for a period showed the following sequential accounts:Beginning inventory of 50 units, purchased at $550 units purchased at $1035 units purchased at $925 units sold at $1570 units sold at $12Tax rate = 40%Beginning LIFO reserve = $300Then, the net income of the firm using LIFO is ________.
The total revenue equals 25*15 + 70*12 = 1,215, coming from a sale of 95 units. Under LIFO, the goods purchased last are assumed to have been sold first. Therefore, 35 of the sold units have a cost of $9 each, 50 units have a cost of $10 each and the remaining 10 have a cost of $5 each. Therefore, LIFO COGS = 35*9 + 50*10 + 10*5 = $865. Therefore, assuming no other costs, the pre-tax income equals 1,215 - 865 = $350 and the post tax income equals 350*(1-40%) = $210.
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