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ACCY593-Fall 2004 Prof. Doogar Quiz 2 solutions: Question 1: Multiple Choices: for each question, please circle the letter for the one answer that is most accurate. 1. During the first quarter, a company's application of lower of cost or market methods indicated a $150,000 loss from a temporary market decline, which is expected to be restored in the fiscal year. During the second quarter, the market reversed the decline. Which of the following situations indicates a proper treatment of these facts? (5 points) a. A $37,500 loss recognized in the first quarter and no recovery recognized in the second quarter. b. A $150,000 loss recognized in the first quarter and a $90,000 recovery in the second quarter. c. A $150,000 loss recognized in the first quarter and a $50,000 recovery in the second quarter. d. No loss recognized in the first quarter and no recovery recognized in the second quarter. ANS: D 2. Caliper Corporation sold land in the first quarter of 20X1 at a $150,000 loss. How much of the loss should appear in the second- and third-quarter income? (5 points) a. b. c. d. $37,500 and $37,500 $50,000 and $50,000 $0 and $0 $100,000 and $0 ANS: C 3. Rutherford, Inc. has several potentially reportable segments. The following financial information has been determined for the current fiscal year: Consolidated net income ......................... $ 1,000,000 Operating income before taxes.................... 1,500,000 Net operating income of all segments............. 1,350,000 Total consolidated revenue....................... 8,000,000 Total revenue of all segments, excluding intersegments sales.................... 7,000,000 Total intersegment sales ........................ 1,200,000 Consolidated total assets........................ 50,000,000 Total assets of all segments..................... 45,000,000 2 1) The minimum amount of revenues a segment must have to qualify as reportable is __________.(5 points) a. b. c. d. $700,000 $800,000 $820,000 The answer cannot be determined from the information given. CC ANS: C 2) The minimum amount of profit or loss a segment must have to qualify as reported is __________.(5 points) a. b. c. d. $100,000 $135,000 $150,000 The answer cannot be determined from the information given. ANS: D 3) The minimum amount of assets a segment must have to qualify as reportable is __________.(5 points) a. b. c. d. $ 4,500,000 $ 5,000,000 $37,500,000 The answer cannot be determined from the information given. ANS: A 4) For Rutherford to report a significant portion of its financial information as segments, its segments, in total, must represent (5 points) a. b. c. d. $37,500,000 in assets. $ 6,000,000 in revenues. $ 1,125,000 in operating income before taxes. The answer cannot be determined from the information given. ANS: B 3 Question 2 (20 points): Ace Co., a U.S. firm, formed a German company in 20X1 by purchasing the common stock of the newly formed Duce Inc. The functional currency of Duce is the German mark. During their first three years, Duce experienced the following activity in retained earnings: 20X1................................. 20X2................................. January 1, 20X3...................... 20X3................................. Net loss Net income Dividend Net income 100,000 200,000 50,000 75,000 marks marks marks marks The following exchange rates could be relevant: Date December 31, 20X0.......................... December 31, 20X1.......................... Average 20X1............................... January 1, 20X3............................ Average 20X2............................... December 31, 20X3.......................... Average 20X3............................... 1 1 1 1 1 1 1 Rate mark = $0.20 mark = $0.22 mark = $0.215 mark = $0.245 mark = $0.24 mark = $0.26 mark = $0.25 Required: What is the translated December 31, 20X3, balance of the retained earnings for Duce? ANS: 20X1 net loss (100,000 marks) ´ .215....... 20X2 net income 200,000 marks ´ .24........ 20X3 dividend (50,000 marks) ´ .245........ 20X3 net income 75,000 marks ´ .25........ Translated balance on December 31, 20X3.... $(21,500) 48,000 (12,250) 18,750 $ 33,000 ========