UVW Broadcast Co. entered into a contract to exchange unsold advertising time for travel and lodging services with Hotel Co. As of June 30, advertising commercials of $10,000 were used. However, travel and lodging services were not provided. How should UVW account for advertising in its June 30 financial statements?

 Question 21

UVW Broadcast Co. entered into a contract to exchange unsold advertising time for travel and lodging services with Hotel Co. As of June 30, advertising commercials of $10,000 were used.  However, travel and lodging services were not provided.  How should UVW account for advertising in its June 30 financial statements?
    Revenue and expense is recognized when the agreement is complete.
    An asset and revenue for $10,000 is recognized. Correct
    Both the revenue and expense of $10,000 are recognized.
    Not reported.

You Answered Correctly!
This answer is correct because UVW has provided $10,000 in advertising services and has a receivable for the travel and lodging services.
Question 22

How should an unusual event that is material be disclosed in the financial statements?
    Shown as a separate item in operating revenues or expenses and supplemented by a footnote if deemed appropriate.  Correct
    Shown in operating revenues or expenses but not shown as a separate item.
    Shown after ordinary net earnings but before extraordinary items.
    Shown after extraordinary items net of income tax but before net earnings.

You Answered Correctly!
This answer is correct because items unusual in nature or infrequent in occurrence are to be disclosed separately in the operating section of the income statement and also may be supplemented by a footnote. Note that such items should not be shown net of income taxes. 

 
Question 23

A company changes from the double-declining balance method of depreciation for previously recorded assets to the straight-line method. According to ASC Topic 250, the effect of the change should be reported separately as a(n)
    Unusual item.
    Component of income after discontinued operations.
    Component of income from continuing operations on a prospective basis. correct
    Prior period adjustment. Incorrectly

You Answered Incorrectly.
This answer is incorrect because a change in accounting principle does not meet the criteria for a prior period adjustment, which is reported as an adjustment to beginning retained earnings.
Question 24

Vane Co.'s trial balance of income statement accounts for the year ended December 31, year 2, included the following:
    Debit    Credit
Sales        $575,000
Cost of sales    $240,000    
Administrative expenses    70,000    
Loss on sale of equipment    10,000    
Sales commissions    50,000    
Interest revenue        25,000
Freight out    15,000    
Loss on early retirement of long-term debt    20,000    
Uncollectible accounts expense     15,000                 
Totals    $420,000    $600,000
Other information:         
Finished goods inventory:        
January 1, year 2    $400,000    
December 31, year 2    360,000    
Vane's income tax rate is 30%. In Vane's year 2 multiple-step income statement,
What amount should Vane report as the cost of goods manufactured?
    $200,000 Correct
    $215,000
    $280,000
    $295,000

You Answered Correctly!
To directly compute cost of goods manufactured (CGM), the formula is
    Beginning work in process
+     Direct materials used
+     Direct labor
+     Factory overhead
−     Ending work in process
    Cost of goods manufactured
However, none of these elements are given in this problem, so CGM must be computed indirectly, using the cost of sales formula
    Beginning finished goods    $400,000
+     Cost of goods manufactured    +      CGM
−     Ending finished goods    −360,000
    Cost of sales    $240,000
Solving for the missing amount, CGM is $200,000.