Name: Mohamed Jama Hassan

ACCT 312: Intermediate Accounting

Exam 2 – Part 1
Chapters 16, 18, and 19
Spring 2022

Instructions:

This exam consists of two parts: (Part 1) a take-home problems portion of the exam and (Part 2)
a timed, multiple-choice/matching problems portion. This Word document is Part 1 of Exam 2.
Your solutions to the problems must be uploaded to the D2L dropbox by 6:00 pm on Tuesday,
April 5th.

During this exam, you may use your textbook, textbook online resources, notes, and
Metropolitan State University library resources. You may NOT use solution manuals, tutoring
services (online or in-person), or any other resource that would violate the Student
Academic Integrity policies and procedures (see below). The answers you submit should be
supported with an explanation or a calculation, whichever is appropriate. Please attach
additional paper if more space is needed to support your answer. Partial credit will be given
based on: (1) what conclusion you arrive at, and (2), more important, the support for your
response. Please write neatly or type your answers; illegible answers cannot be given points.
You may submit your answers in Word, Excel, or PDF.

Academic Integrity Violations:

You may NOT consult with any other individuals, including your classmates, regarding
the questions on Exam 2.  You may not use any online or in-person study aids or tutoring
services that provide solutions to problems in this exam. Consulting with any other person
(including your classmates) or online/in-person resource which provides solutions to the
questions on Exam 2 falls under the definition of cheating and/or collusion under Student
Academic Integrity Procedure #219, which violates the Metropolitan State University Student
Academic Integrity Policy #2190. 

By submitting this part of Exam 2, you certify that you have complied with all instructions to
Exam 2 and have not committed any violations of Metropolitan State University's Student
Academic Integrity Policy and Procedure.  If the instructor determines that you have committed
a breach of the Academic Integrity Policy and Procedure, it will be reported to the Provost/Vice
President of Academic Affairs using the Academic Integrity Report Form. You will receive 0
points for both parts of Exam 2.

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 Note: You may not need to use all the lines provided on problems with journal entries.
There is sufficient space to make the necessary entries, and you may or may not have
extra lines.

Problem 1 (8 points)
P&G Corporation had 2,500,000 shares of common stock outstanding on January 1, 2021. On
April 1, 2021, P&G Corporation issued 500,000 new shares. On August 1, 2021, P&G
Corporation declared and issued a 3-to-1 stock split. On September 1, 2021, P&G Corporation
purchased 600,000 of its own outstanding shares as treasury stock.
a) Compute the weighted average number of shares to be used in computing earnings per
share for 2021.
Shares No of Shares Period New No of Shares
Stock O/Standing 2,500,000 12/12 2,500,000
New Shares Issued 500,000 9/12 375,000
Stock Splits 9,000,000 5/12 3,750,000

Repurchase (600,000) 4/12 (200,000)

Totals 11,400,000 6,425,000

b) Compute P&G Corporation’s Basic Earnings Per Share, assuming it had net income in 2021
of $15,000,000 and declared an $800,000 preferred dividend on its noncumulative preferred
stock outstanding.

Net Income Before $15,000,000

Dividends
Less: Preferred Dividend ($800,000)
Net Income $14,200,000

EPS= Net Income/ Outstanding Shares

=14,200,000/6,425,000= $2.21/ Share

Problem 2 (6 points)
Geibenhein Corporation called its 6% convertible bonds for conversion on January 1, 2021. The
$8,000,000 par bonds were converted into 320,000 shares of $20 par common stock. On
January 1, there was $800,000 of unamortized premium applicable to the bonds. The fair value
of the common stock was $20 per share. At conversion, there was no accrued interest on the
bonds. Prepare the journal entry to account for the conversion.

Date Account Debit Credit

1/1/2021 6% Convertible Bonds $8,000,000

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 Common Share $6,400,000
Unarmotized Premium $800,000
Additional Paid Up $800,000

Problem 3 (12 points)

Delta Spirit, Inc. entered into a contract to sell equipment to Wilco, LLC on October 1, 2021.
Along with the equipment, Delta Spirit will provide one-year maintenance services on an as-
needed basis, beginning once the equipment is installed. Delta Spirit offers similar services to
other customers that purchased equipment sold by other vendors for $20,000. Delta Spirit will
also provide installation services at no additional cost, a service that Delta Spirit typically
charges $10,000. The equipment normally sells for $170,000 on its own. For the package deal,
Wilco agrees to pay a total of $180,000. The equipment was delivered and installed on
November 1, 2021. Wilco paid the entire invoice in cash on the delivery and installation date.
a) How much revenue should Delta Spirit allocate to the various performance obligations in the
above contract (round to the nearest dollar, if needed)? SHOW YOUR WORK.
1/10/2021- One Year Maintenance - $20,000
- Installation Charges - $10,000
Normal Equipment Cost- $170,000
Totals $200,000

Performance Amount Percentage

Obligations
One Year $20,000 10%
Maintenance
Installation Charges $10,000 5%

Normal Equipment $170,000 85%

Charges
Totals $200,000 100%

Allocation of a package deal of $180,000

Performance Obligations Percentage Amount

One Year Maintenance 10% 180,000*10%= $18,000
Installation Charges 5% 180,000*5% = $ 9,000
Normal Equipment 85% 180,000*85%= $ 153,000
Charges
Totals 100% Totals = $ 180,000

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 b) Prepare the Journal Entry for Delta Spirit to record the sale. Assume the equipment cost
Delta Spirit $100,000 to manufacture.

Date Account Debit Credit

1/11/2021
Cash Account $180,000.00
Equipment Account $127,000.00
Profit on Disposal $53,000.00

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 Problem 4 (12 points)
JNJ Co. began operations in 2020. The following data relates to JNJ’s 2020 operations:

 Pretax financial income is $1,000,000. The tax rate is 21%.

 JNJ estimates bad debt expense on 2020 accounts receivable was $35,000. Tax does
not deduct the bad debts until an accounts receivable is determined to be uncollectible.
 Machinery was acquired in January for $500,000. Tax depreciation exceeds GAAP
depreciation by 100,000.
 Interest received on tax-exempt Minnesota State bonds was $30,000.

(a) Prepare a schedule to compute JNJ’s taxable income, starting with pretax financial
income.

Pretax Financial Income $1,000,000

Add : Disallowed Bad Debts Expenses $35,000
:Depreciation Expense $100,000
:Tax Exempt Interest $30,000
Taxable Net Income $1,165,000
Tax Expense ($244,650)

(b) Prepare the journal entry to record income tax payable, income tax expense, and any
deferred taxes for 2020.

Date Account Debit Credit

2020 Dr: Tax Expense Acc $244,650.00
Cr: Tax Payable Acc $244,650.00

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Problem 5 (20 points)
National Construction agreed to construct a building for Berninger Corp with construction
beginning on March 15, 2020. The project's contract price is $5,910,000, and National
Construction estimates total construction costs would be $4,088,000. The project is scheduled
to finish in 2022. Information relating to the costs and billings for this contract is as follows:

  2020 2021 2022

Total costs incurred to date $1,533,000 $2,706,000 $4,655,000
Estimated costs to complete 2,555,000 1,804,000 -0-
Customer billings to date 2,310,000 4,088,000 5,710,000
Collections to date 2,110,000 3,610,000 5,610,000

a) How much gross profit should be recorded for 2020, 2021, and 2022? Assuming National
Construction uses the percentage-of-completion method of accounting for long-term
contracts? Show your work.

  2020 2021 2022

Total costs incurred to date $1,533,000 $2,706,000 $4,655,000
Estimated costs to complete 2,555,000 1,804,000 -0-
Customer billings to date 2,310,000 4,088,000 5,710,000
Collections to date 2,110,000 3,610,000 5,610,000
% of Completion-W1 33% 58% 100%
Working 1=

2020 1,533,000/4,655,000*100%= 33%

2021 2,706,000/4,655,000*100%= 58%
2022 4,655,000/4,655,000*100%=100%

Revenues
2020= 33%*$5,910,000= $1,950,300
2021= 58%* $5,910,000= $ 3,427,800 $3,427,800-$1,950,300= $1,477,500
2021=100%*$5,910,000= $5,910,000 $5,910,000-$1,950,000-$1,477,500= $2,482,200

Details 2020 2021 2022

Revenues ($) 1,950,300 1,477,500 2,482,200
Costs ($) (1,533,000) (1,173,000) (1,949,000)
Gross Profit ($) 417,300 304,500 533,200

Continues on the next page.

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 Problem 5, continued.

b) Prepare the necessary 2020 journal entries for National Construction related to the above
contract assuming they use the percentage-of-completion method to account for long-term
contracts. Your journal entries should include entries to record construction costs incurred,
progress billings, cash collections, and gross profit recognition.

Date Account Debit Credit

2020 On Costs Incurred
Dr: CIP_WIP $1,533,000
Cr: Cash/ Payables $1,533,000
2020 On Billings
Dr: Accounts Receivable Acc $2,310,000
Cr: Billing on CIP Acc $2,310,000
2020 On Collections
Dr: Cash at Bank Acc $2,110,000
Cr: Accounts Receivable Acc $2,110,000
2020 On Recording Revenues
Dr: Billing on CIP Acc $ 1,950,000
Cr: Construction Revenue Acc $1,950,000
2020 On Recording Expenses
Dr: Cost of Construction Acc $ 1,533,000
Cr: CIP_WIP Acc $1,533,000

c) How would your answer to part a) above change if National Constructions uses the
completed contract method of accounting? That is, how much gross profit would
National Construction recognize in 2020, 2021, and 2022 if it uses the completed
contract method?

The company will not recognize gross profits in 2020 & 2021 but will recognise a gross profit of
In 2022.

Details 2020 2021 2022

Revenues ($) 5,910,000
Costs ($) (4,655,000)
Gross Profit 1,255,000
($)

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