Name:_________________________________________ Accounting 350 Homework #2 Due on Thursday, October 20th 1.

. The following condensed statements of the Lewis Holding Company are presented for the two years ended December 31, 2011 and 2010: 2011 $15,000,000 9,200,000 5,800,000 3,200,000 2,600,000 50,000 (200,000) 2,450,000 Income tax expense (40%) Net income 980,000 $1,470,000 2010 $9,600,000 6,000,000 3,600,000 2,600,000 1,000,000 1,000,000 400,000 $600,000

Sales Cost of goods sold Gross profit Operating expenses Operating income Gain on Sale of Assets Impairment loss on assets of division held for sale

Other relevant information:

(1) On December 1, 2011, Lewis entered into a tentative agreement to sell the assets of one its

divisions. The division comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the company. The sale is expected to be completed in early 2012. The book value of the divisions assets on December 31, 2011 is $5,200,000 and the estimated fair value (net of expected costs to sell) is $5,000,000. The divisions contribution to Lewis operating income before-tax for each year was as follows: 2011: $120,000 2010: $ 70,000 (2) On July 1, 2011, Lewis decided to dispose of a group of assets that met all of the requirements to classify the group as a long-lived asset to be disposed of by sale. The asset group was not considered a component of the entity under U.S. GAAP. On July 1, 2011, the carrying value of the asset group was $800,000 and fair value was $775,000 (net of expected costs to sell). The assets were sold on December 1, 2011 for $850,000 (net of selling costs). Required: Prepare revised income statements for 2010 and 2011 according to U.S. GAAP, beginning with income from continuing operations. Assume a tax rate of 40%. You may ignore EPS disclosures. Use the table provided on the next page for your answer and the extra space provided for calculations.

Income Statements For years ended December 31 Income from Continuing Operations (Before Tax) Income Tax (at 40%) Income from Continuing Operations Discontinued Operations (Total) Net Income

2011

2010

2. Cendant Corporation's results for the year ended December 31, 2011, include the following material items:

Assume Cendants tax rate is 40%. 1. Calculate Cendants income from continuing operations before income taxes for 2011.

2. Calculate Cendants net income for 2011.

3. Below are three independent and unrelated accounting errors. For each error: (1) Indicate the effect of each error on the income statement and balance sheet in the 2010 financial statements. (2) Prepare any journal entries each company should record in 2011 to correct the errors. Ignore tax effects. a. On December 28, 2010, Impact Imports received a $25,000 deposit from a customer for merchandise to be delivered in January 2011. Impact Imports recorded the deposit as sales revenue.

b. At the end of 2010, Munger Engineering failed to accrue interest of $8,000 on a note payable. At the beginning of 2011, when the company paid cash for interest, it was recorded as interest expense.

c. On December 31, 2010, Owen Corporation failed to accrue utilities expense of $3,800. In January 2011, when it paid the bill from the utility company, Owen made the following entry: Utilities expense 3,800 Cash 3,800

4. Morse Company uses the aging method to estimate bad debts. Immediately before recording its adjusting entries, Morse wrote off $5,000 of accounts receivable, leaving a $1200 credit balance in its allowance for doubtful accounts. The following is the aging schedule prepared on December 31, 2011 after the write-offs. Category Not past due 1 45 days Beyond 45 days past due Amount $140,000 30,000 10,000 % Uncollectible 2% 6% 20%

a. After recording bad debt expense, what is the final balance in the allowance for doubtful accounts at December 31, 2011?

b. What effect will bad debts have on Morses reported net income for the period ended December 31, 2011? You may ignore income tax effects.

c. At what amount should the receivables be reported on the balance sheet at December 31, 2011?

5. General Mills reported the following information in its 2009 financial statements ($ in millions): 2009 Balance Sheet: Accounts Receivable, net 2009 Income Statement: Sales Revenue Bad Debt Expense $ 953 $4,271 14 2008 $ 1,084

A note disclosed that the allowance for uncollectible accounts had a balance of $18 million and $16 million at the end of 2009 and 2008, respectively. Required: Determine the amount of cash collected from customers during 2009.