On its 2016 income statement, AbbottLaboratories reported research and development expense of$1,422,000,000.
Whichof the following statements must be true?
A) Abbott Laboratories spent$1,422,000,000 in cash to develop new products and improve oldproducts.
B) Research and development expensereduced Abbott Laboratories 2016 net income by $1,422,000,000.
C) Abbott Laboratories capitalized atleast $1,422,000,000 of research and development costs in 2016.
D) The $1,422,000,000 includedamortized research and development costs from prior years that werenot previously expensed, because Abbott Laboratories incurs suchexpenses each year.
E) None of the above
On its 2016 income statement, AbbottLaboratories reported research and development expense of$1,422,000,000.
Whichof the following statements must be true?
A) Abbott Laboratories spent$1,422,000,000 in cash to develop new products and improve oldproducts.
B) Research and development expensereduced Abbott Laboratories 2016 net income by $1,422,000,000.
C) Abbott Laboratories capitalized atleast $1,422,000,000 of research and development costs in 2016.
D) The $1,422,000,000 includedamortized research and development costs from prior years that werenot previously expensed, because Abbott Laboratories incurs suchexpenses each year.
E) None of the above
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At the start of the current year, SBC Corp. purchased 30% of SkyTech Inc. for $53 million. At the time of purchase, the carryingvalue of Sky Tech's net assets was $90 million. The fair value ofSky Tech's depreciable assets was $20 million in excess of theirbook value. For this year, Sky Tech reported a net income of $90million and declared and paid $20 million in dividends. |
The amount of purchased goodwill is: |
$20 million.
$33 million.
$73 million.
None of the above is correct.
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Universal Travel Inc. borrowed $500,000 on November 1, 2016, andsigned a 12-month note bearing interest at 6%. Interest is payablein full at maturity on October 31, 2017. In connection with thisnote, Universal Travel Inc. should report interest payable atDecember 31, 2016, in the amount of (Do not roundintermediate calculations. Round your final answer to the nearestwhole dollar amount): |
$5,000.
$20,000.
$25,000.
$30,000.
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Oklahoma Oil Corp. paid interest of $779,000 during 2016, andthe interest payable account decreased by $122,500. What wasinterest expense for the year? |
$656,500.
$779,000.
$901,500.
$534,000.
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Lake Co. receives nonrefundable advance payments with specialorders for containers constructed to customer specifications.Related information for 2016 is as follows ($ in millions): |
Customer advances balance, Dec. 31, 2015 | $118 |
Advances received with 2016 orders | 203 |
Advances applicable to orders shipped in 2016 | 181 |
Advances from orders canceled in 2016 | 43 |
What amount should Lake report as a current liability foradvances from customers in its Dec. 31, 2016, balance sheet? |
$97 million.
$0 million.
$321 million.
$140 million.
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On December 31, 2016, L Inc. had a $3,200,000 note payableoutstanding, due July 31, 2017. L borrowed the money to financeconstruction of a new plant. L planned to refinance the note byissuing long-term bonds. Because L temporarily had excess cash, itprepaid $670,000 of the note on January 23, 2017. In February 2017,L completed a $4,700,000 bond offering. L will use the bondoffering proceeds to repay the note payable at its maturity and topay construction costs during 2017. On March 13, 2017, L issued its2016 financial statements. What amount of the note payable should Linclude in the current liabilities section of its December 31,2016, balance sheet? |
$2,530,000.
$3,200,000.
$0.
$670,000.
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Branch Company, a building materials supplier, has $18,900,000of notes payable due April 12, 2017. At December 31, 2016, Branchsigned an agreement with First Bank to borrow up to $18,900,000 torefinance the notes on a long-term basis. The agreement specifiedthat borrowings would not exceed 75% of the value of the collateralthat Branch provided. At the date of issue of the December 31,2016, financial statements, the value of Branch's collateral was$19,100,000. On its December 31, 2016, balance sheet, Branch shouldclassify the notes as follows: |
$18,900,000 of long-term liabilities.
$18,900,000 of current liabilities.
$14,325,000 long-term and $4,575,000 current liabilities.
$4,725,000 long-term and $14,175,000current liabilities.
////////////////////////////////
At the beginning of 2016, Angel Corporation began offering a2-year warranty on its products. The warranty program was expectedto cost Angel 6% of net sales. Net sales made under warranty in2016 were $207 million. Fifteen percent of the units sold werereturned in 2016 and repaired or replaced at a cost of $5.20million. The amount of warranty expense on Angel's 2016 incomestatement is: |
$31.05 million.
$12.42 million.
$5.20 million.
$15.82 million.
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You have obtained the followinginformation:
STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR TO 31DECEMBER
20X8 | 20X7 | |||
Note | Draft ($m) | Actual ($m) | ||
Revenue | (1) | 645.5 | 606.5 | |
Other income | (2) | 15.6 | 14.4 | |
Changes in inventories | 3.8 | (16.4) | ||
Cost of materials | (334.1) | (286.8) | ||
Employee benefits expense | (91.0) | (83.9) | ||
Depreciation | (3) | (29.8) | (23.6) | |
Other expenses | (4) | (116.3) | (100.6) | |
Interest income, net | (5) | 12.3 | (20.9) | |
Profit before tax | 106.0 | 130.5 | ||
Income tax expense | (44.4) | (47.7) | ||
Profit for the year | 61.6 | 82.8 |
STATEMENT OF FINANCIAL POSITION AT 31DECEMBER
20X8 | 20X7 | |||
Note | Draft ($m) | Actual ($m) | ||
Assets | ||||
Non-current assets | ||||
Intangible assets | (6) | 47.8 | 40.5 | |
Property, plant and equipment | (7) | 124.5 | 102.5 | |
172.3 | 143.0 | |||
Current assets | ||||
Inventories | (8) | 30.3 | 27.9 | |
Trade receivables | 73.1 | 50.3 | ||
Cash and cash equivalents | 111.4 | 86.0 | ||
Total assets | 387.1 | 307.2 | ||
Equity and liabilities | ||||
Equity | 5.8 | 5.8 | ||
Share capital | 15.3 | 15.3 | ||
Share premium | 112.1 | 80.1 | ||
Retained earnings | 133.2 | 101.2 | ||
Non-current liabilities | ||||
Provisions | (9) | 160.1 | 121.4 | |
Current liabilities | ||||
Trade payables | 33.5 | 31.8 | ||
Tax | 50.4 | 44.3 | ||
Other liabilities | 9.9 | 8.5 | ||
Total equity and liabilities | 387.1 | 307.2 |
Notes
(1)Revenue from businessactivities:
Revenue from business activities | ||
20X8 ($M) | 20X7 ($M) | |
Vehicles | 588.0 | 526.0 |
Parts and accessories | 39.6 | 36.8 |
Other | 17.9 | 43.7 |
645.5 | 606.5 |
(2)Other income includes gains on the disposals oftangible assets and income from the reversal ofprovisions.
(3)Average number of employees:
20X8 (Draft) | 20X7 (Actual) | |
Wage earners | 484 | 499 |
Salaried employees | 483 | 477 |
Apprentices and trainees | 36 | 37 |
1,003 | 1,013 |
(4)Other expenses include costs for warranties,administration and distribution, maintenance andinsurance.
(5)Interest income, net:
20X8 (Draft ($m) | 20X7 (Actual $m) | |
Interest and similar income | 16.8 | 25.1 |
Interest and similar expenses | (4.5) | (4.2) |
12.3 | 20.9 |
(6)Intangible assets include development costs, alsofranchises and industrial rights and licenses. During the year,$12.7 million (20X7 - $6.3 million) was spent on developing a newsports model, the Fox.
(7)Property, plant and equipment:
Land and Buildings | Equipment | Assets under construction | Total | |
$m | $m | $m | $m | |
Cost | ||||
1 January 20X8 | 61.8 | 212.1 | 19.0 | 292.9 |
Additions | 5.0 | 28.9 | 9.4 | 43.3 |
Disposals | 0.0 | (4.5) | 0.0 | (4.5) |
Reclassification | 3.0 | 8.9 | (11.9) | 0.0 |
31 December 20X8 | 69.8 | 245.4 | 16.5 | 331.7 |
Depreciation | ||||
Current year | 1.9 | 18.4 | 0.0 | 20.3 |
Accumulated | 28.7 | 178.5 | 0.0 | 207.2 |
Net book value | ||||
31 December 20X8 | 41.1 | 66.9 | 16.5 | 124.5 |
31 December 20X7 | 34.9 | 48.6 | 19.0 | 102.5 |
(8)Inventories comprise:
20X8 (Draft $m) | 20X7 (Draft $m) | |
Raw materials, consumables and supplies | 8.3 | 7.3 |
Work-in-progress | 6.8 | 4.8 |
Finished goods | 15.2 | 15.8 |
30.3 | 27.9 |
(9) Provisions mainly covermanufacturing warranty, product liability and litigation risks.Also, provisions have been established for deferred maintenance andIT reorganisation
The following additional information isavailable:
(i) Pavia has achieved record sales in 20X8 with the delivery of10,153 vehicles (20X7 â 7,642 vehicles).
(ii) Although some sales are direct to individual customers themajority are ordered through dealers who take new vehicles onconsignment.
(iii) Since 1 January 20X8 Pavia has offered 0% finance forthree years on new vehicle sales in its most competitivemarkets.
(iv) The launch of the Fox has been postponed from late 20X8 toearly 20X9 as internal trials have revealed that the doors are notsufficiently secure at high speeds.
(v) A car part required for the Cipeta model is bought-inexclusively from an overseas manufacturer. Deliveries of supplieshave been unpredictable in 20X7 causing disruption to the Cipetamodel assembly schedules.
Given all of the information above you are requiredto do the following:
In respect of the financial statements audit of Pavia Co for theyear ending 31 December 20X8:
(a) Identify and explain the risks of materialmisstatement to be taken into account in planning the finalaudit.
(b) Evaluate how you might use analytical procedures to provideaudit evidence and reduce the level of detailed substantiveprocedures.
(c) Briefly describe the principal audit work to be performed inrespect of the carrying amount of the following items in thestatement of financial position.
(i) Inventories
(ii) Cash and cash equivalents
(iii) Receivables