Ava is a first year staff accountant who is unsure of the difference between tests of controls and substantive testing. For each of the following tests, indicate whether it is more likely to be used as a TEST OF CONTROLS or as a SUBSTANTIVE TEST by choosing the appropriate answer.

Windsor Company acquired a plant asset at the beginning of Year 1. The asset has an estimated service life of 5 years. An employee has prepared depreciation schedules for this asset using three different methods to compare the results of using one method with the results of using other methods. You are to assume that the following schedules have been correctly prepared for this asset using (1) the straight-line method, (2) the sum-of-the-years'-digits method, and (3) the double-declining-balance method.

What is the cost of the asset being depreciated?

What amount, if any, was used in the depreciation calculations for the salvage value for this asset?

Which method will produce the highest charge to income in Year 1?

Which method will produce the highest charge to income in Year 4?

Which method will produce the highest book value for the asset at the end of Year 3?

If the asset is sold at the end of Year 3, which method would yield the highest gain (or lowest loss) on disposal of the asset?

Prior to adjustment at April 30, the end of the fiscal year, Salary Expense has a debit balance of $372,750. Salaries owed but not paid as of the same date total $5,275. On May 2, $6,000 is paid.

1. Present all necessary entries assuming a reversing entry is used.
2. Present all necessary entries assuming NO reversing entry is used.

Personal Budget

At the beginning of the school year, Priscilla Wescott decided to prepare a cash budget for the months of September, October, November, and December. The budget must plan for enough cash on December 31 to pay the spring semester tuition, which is the same as the fall tuition. The following information relates to the budget:

a. Prepare a cash budget for September, October, November, and December. Enter all amounts as positive values except cash decrease which should be indicated with a minus sign.

b. Are the four monthly budgets that are presented prepared as static budgets or flexible budgets?
Static

c. What are the budget implications for Priscilla Wescott?

Priscilla can see that her present plan will not provide sufficient cash. If Priscilla did not budget but went ahead with the original plan, she would be $ short at the end of December, with no time left to adjust.

1. If an employee is awarded stock with a 2-year vesting period, what are the advantages and disadvantages to the employee to making a Section 83 election? How is this election made? Does the election (or lack of election) impact the employer?

2. The following statement is true: Lapse restrictions affect the timing, but not the amount, of compensation recognized under Section 83. Nonlapse restrictions affect the amount, but not the timing, of compensation recognized under Section 83. Explain why this is true.

The stockholders’ equity section of Martino Inc. at the beginning of the current year appears below.

Common stock, $10 par value, authorized 1,000,000 shares,

300,000 shares issued and outstanding ………………………………………….. $3,000,000

Paid-in capital in excess of par …………………………………………………………      600,000

Retained earnings ……………………………………………………………………………      570,000

During the current year the following transactions occurred.

1. The company issued to the stockholders 100,000 rights. Ten rights are needed to buy one share of stock at $32. The rights were void after 30 days. The market price of the stock at this time was $34 per share.

2. The company sold to the public a $200,000, 10% bond issue at 104. The company also issued with each $100 bond one detachable stock purchase warrant, which provided for the purchase of common stock at $30 of common stock at $30 per share. Shortly after issuance, similar bonds without warrants were selling at 96 and the warrants at $8.

3. All but 5,000 of the rights issued in (1) were exercised in 30 days.

4. At the end of the year, 80% of the warrants in (2) had been exercised, and the remaining were out-standing and in good standing.

5. During the current year, the company granted stock options for 10,000 shares of common stock to company executives. The company using a fair value option-pricing model determines that each option is worth $10. The option price is $30. The options were to expire at year-end and were considered compensation for the current year.

6. All but 1,000 shares related to the stock-option plan were exercised by year-end. The expiration resulted because one of the executives failed to fulfill and obligation related to the employment contract.

Instructions:

(a) Prepare general journal entries for the current year to record the transactions listed above.

(b) Prepare the stockholders’ equity section for the balance sheet at the end of the current year. Assume that the retained earnings balance at the end of the current year is $750,000.

A survey of several 11 to 13 year olds recorded the following amounts spent on a trip to the mall:

$28.43,$25.23,$23.98,$24.79,$29.05

Construct the 95% confidence interval for the average amount spent by 11 to 13 year olds on a trip to the mall. Assume the population is approximately normal.

Step 3 of 4 : Find the critical value that should be used in constructing the confidence interval. Round your answer to three decimal places.

IRS data indicates that the tax refunds it issued this year follow the normal distribution with μ = 1,200 and σ = 200. Based on this information calculate the following probabilities.

1. Probability of selecting a tax return, the refund for which will fall between $1,170 and $1,200:
   
   
   
2. Probability of selecting a tax return, the refund for which will be less than $1,406:
   
   
   
3. Probability of selecting a tax return, the refund for which will be more than $1,598:
   
   
   
4. Probability of selecting a tax return, the refund for which will fall between $1,132 and $1,354:

Pearl Corp. is expected to have an EBIT of $2,400,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $160,000, $105,000, and $145,000, respectively. All are expected to grow at 20 percent per year for four years. The company currently has $12,500,000 in debt and 1,050,000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 3.5 percent indefinitely. The company’s WACC is 8.9 percent and the tax rate is 21 percent. What is the price per share of the company's stock? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)