Practice Problems ACCT 3110 Spring 2020Multiple Choice1. The relationship between revenue from selling inventory and the cost of that inventory is measured asa. net income.b. gross profit.c. income before taxes.d. operating income.2. Temporary earnings are best characterized asa. earnings that do not have corresponding cash flows.b. earnings from nonoperating activities.c. earnings that do not conform to Generally Accepted Accounting Principles (GAAP).d. earnings that arise from events that are not likely to recur in the foreseeable future.3. The Claxton Company manufactures children's toys and also has a division that makes automobile parts. Due to a change in its strategic focus, the company sold the automobile parts division. The division qualifies as a component of the entity according to GAAP. How should Claxton report the sale in its 2018 income statement?a. Report the income or loss from operations of the division in discontinued operations.b. Do not report the sale in the income statement.c. Report it as restructuring costs.d. Report it as a gain on sale of investments included in income from continuing operations.4. Most real-world income statements are presented using which format?a. income-stepb. single-stepc. magnitude-stepd. multiple-step5. On October 28, 2018, Mercedes Company committed to a plan to sell a division that qualified as a component of the entity according to GAAP regarding discontinued operations and was properly classified as held for sale on December 31, 2018, the end of the company’s fiscal year. The division’s loss from operations for 2018 was $2,000,000.The division's book value and fair value less cost to sell on December 31 were $3,000,000 and $3,500,000, respectively. What before-tax amount(s) should Mercedes report as loss on discontinued operations in its 2018 income statement?a. $2,000,000 lossb. $2,500,000 lossc. No loss would be reported.d. $500,000 gain included in continuing operations and a $2,000,000 loss from discontinued operations.1Practice Problems ACCT 3110 Spring 20206. On May 1, Foxtrot Co. agreed to sell the assets of its Footwear Division to Albanese Inc. for $80 million. The sale was completed on December 31, 2018. The following additional facts pertain to the transaction:- The Footwear Division qualifies as a component of the entity according to GAAP regarding discontinued operations.- The book value of Footwear's assets totaled $48 million on the date of the sale.- Footwear's operating income was a pre-tax loss of $10 million in 2018.- Foxtrot's income tax rate is 40%.In the income statement for the year ended December 31, 2018, Foxtrot Co. would report incomefrom discontinued operations ofa. $9.2 million.b. $13.2 million.c. $22 million.d. $26 million.7. On June 1st, Lucy & Bros received an order for 500 cupcakes. Lucy delivered the cupcakes to the client on June 25th. A $50 deposit was received on June 5th and the remaining $450 was paid on June 30th. Lucy likely would recognize revenue ona. June 1st.b. June 5th.c. June 25th.d. June 30th.8. On November 1, 2018, Taylor signed a one-year contract to provide handyman services on an as-needed basis to King Associates, with the contract to start immediately. King agreed to pay Taylor $4,800 for the one-year period. Taylor is confident that King will pay that amount, but payment is not scheduled to occur until 2019. Taylor should recognize revenue in 2018 in the amount ofa. $0.b. $800.c. $2,400.d. $4,800.9. Which of the following is an example of an extended warranty?a. Fancy Headphones, Inc. provides assurance that its headphones are defect-free after purchase.b. Azalea’s Flowers assures clients that its flowers will stay fresh for at least a week.c. Mark Electronics offers a warranty at an affordable price that provides additional protection after the customer takes possession of the product.d. Erickson Electronics promises to make repairs or replace any product found to be defective within a week of purchase.2Practice Problems ACCT 3110 Spring 202010. Jing Statistical Services operates a website that links experienced statisticians with businesses that need data analyzed. Statisticians post their rates, qualifications, and references onthe website, and Jing receives 25% of the fee paid to the statisticians in exchange for identifying potential customers. VetMed Associates contacts Jing and arranges to pay a consultant $1,500 in exchange for analyzing some data. Jing's income statement would include the following with respect to this transaction:a. Revenue of $1,500.b. Revenue of $1,500 and cost of services of $1,125.c. Revenue of $375.d. Revenue of $1,875 and cost of services of $1,500.11. Which of the following is not true about revenue recognition with respect to long-term construction contracts?a. Long-term construction contracts often are viewed as having a single performance obligation, because goods or services fail the “separately identifiable” criterion.b. Long-term construction contracts often satisfy the criteria for recognizing revenue over time.c. Long-term construction contracts require accounting for construction in progress as well as billings to customers.d. Long-term construction contracts typically include multiple performance obligations because of all the different types of goods or services included for each project.3Practice Problems ACCT 3110 Spring 2020Workout ProblemsProblem 1 The accountant of Latifa Shoe Co. has compiled the following information from the company's records as a basis for an income statement for the year ended December 31, 2017. Latifa Shoe Company manufactures shoes.Rent revenue $ 29,000Interest expense 18,000Salaries and wages expense (selling) 114,800Supplies expense (selling) 17,600Income tax expense 37,400Salaries and wages expense (administrative) 135,900Other administrative expenses 51,700Cost of goods sold 496,000Sales revenue 980,000Depreciation expense (selling & administrative) 65,000Cash common stock dividends declared 16,000There were 20,000 shares of common stock outstanding during the year and no preferred stock outstanding.Required: Prepare a multiple-step income statement for 2017.4Practice Problems ACCT 3110 Spring 2020Problem 2 The following incorrect income statement was prepared by the accountant of the AxelCorporation, a manufacturing company: AXEL CORPORATIONIncome StatementFor the Year Ended December 31, 2018Revenues and gains: Sales