Name:
Part 1 – INDIVIDUAL QUESTIONS
1. Journalizing transactions (10 points)
The following events occu
ed for Morgan Company:
a. Received investment of $52,000 cash by organizers and distributed stock to them.
. Purchased $18,000 of land; paid $3,000 in cash and signed a mortgage note for the balance.
c. Purchased $4,000 of equipment, paying $500 in cash and signing a note for the rest.
d. Bo
owed $10,000 cash from a bank.
e. Loaned $700 to an employee who signed a note.
Prepare journal entries.
2. Identifying Revenues. (13 points)
The following transactions occur in June 2019:
a. A popular food magazine company receives a total of $14,980 from subscribers. The subscriptions begin in the next fiscal year. Answer from the magazine company’s standpoint.
b. On June 1, 2019, a bank lends $2,400 to a company; the note principal and $384 ($2,400 x 16 percent) annual interest are due in one year. Answer from the bank’s standpoint.
c. Honda, Inc., sells a truck with a list, or “sticker,” price of $27,089 for $21,559 cash.
d. Taryt department store orders 1,000 boy’s shirts for $12 each for future delivery from T-shirt World Corporation. The terms require payment in full within 30 days of delivery. Answer from T-shirt World’s standpoint.
e. T-shirt World Corporation completes production of the shirts described in (d) and delivers the order. Answer from T-shirt World’s standpoint.
f. T-shirt World Corporation receives payment from Taryt’s for the order described in (d). Answer from T-shirt World’s standpoint.
g. A customer purchases a ticket from United Airlines for $322 cash to travel the following January. Answer from United Airlines’ standpoint.
h. BMW issues $20 million in new common stock.
i. University of Miami receives $18,300,000 cash for 60,000 twelve-game season football tickets.
j. University of Miami plays the first football game refe
ed to in (i).
k. Precision Builders signs a contract with a customer for the construction of a new $500,000 warehouse. At the signing, Precision receives a check for $150,000 as a deposit on the future construction. Answer from Precision’s standpoint.
l. A customer orders and receives 72 MP3 players from Best Buy; the customer promises to pay $9,000 within three months. Answer from Best Buy’s standpoint.
m. Delights, a retail store, sells a $45 lamp to a customer who charges the sale on his store credit card. Answer from Delights’ standpoint.
For each of the transactions, if revenue is to be recognized in June, indicate the revenue account title and amount. If revenue is not to be recognized in June, explain why.
3. Recording Adjusting Entries (10 points)
Lamar Marina repairs, stores, and cleans boats for customers. It is completing the accounting process for the year just ended, November 30, 2019. The transactions during 2019 have been journalized and posted. The following data with respect to adjusting entries are available:
a. Lamar bo
owed $325,000 at a 12 percent annual interest rate on April 1, 2019, to expand its boat
storage facility. The loan requires Lamar’s to pay the interest quarterly until the note is repaid in three years. Lamar paid quarterly interest on July 1 and October 1.
. The Young family paid Lamar $3,240 on November 1, 2019, to store its sailboat for the winter until May 1, 2020. Lamar credited the full amount to Unearned Storage Revenue on November 1.
c. Lamar used boat-lifting equipment that cost $250,000; $25,000 was the estimated depreciation for 2019.
d. Boat repair supplies on hand at December 1, 2018, totaled $17,500. Repair supplies purchased and debited to Supplies during the year amounted to $44,000. The year-end count showed $10,400 of the supplies on hand.
e. Wages earned by employees during November 2019, unpaid and unrecorded at November 30, 2019, amounted to $3,950. The next payroll date will be December 5, 2019.
1. Identify each of these transactions as a defe
ed revenue, defe
ed expense, accrued revenue, o
accrued expense.
2. Prepare the adjusting entries that should be recorded for Lamar at November 30, 2019.
4. Infe
ing Stock Issuances and Cash Dividends from Changes in Stockholders’ Equity (6 points)
The Corner Co. is a large retailer that processes food. Corner reported the following January 31 balances in its stockholders’ equity accounts (dollars in millions):
Cu
ent Yea
Prior Yea
Common stock
$ 925
$ 919
Paid-in capital
3,366
3,231
Retained earnings
8,489
5,480
During the cu
ent year, Corner reported net income of $3,249.
1. How much did Corner declare in dividends for the year?
2. Assume that the only other transaction that affected stockholders’ equity during the cu
ent year was a single stock issuance. Recreate the journal entry reflecting the stock issuance.
5. Preparing a Simple Statement of Cash Flows Using the Indirect Method (16 points)
Nancy & Donald Corp. is preparing its annual financial statements as of December 31, 2019. Listed below are Balance Sheets for 2019 and 2018 as well as the Income Statement for 2019. Cash Flow statement is missing.
Balance Sheets
2018
2019
Income Statement
2019
$ in millions
$ in millions
Assets
Net revenues
610
Cash
25
55
COGS
280
Accounts receivable
160
130
Depreciation expense
50
Prepaid Expense
10
30
Earnings before interest
Inventory
220
285
and taxes (EBIT)
280
Total Cu
ent Assets
415
500
Interest expense
20
Profit before tax
260
Net PP&E
485
600
Taxes paid
60
Total Assets
900
1100
Net income
200
Liabilities and equity
Dividends declared and paid
100
Accounts payable
50
80
Notes payable
70
85
Other short term debt
40
55
Total Cu
ent Liabilities
160
220
Long-term debt
105
125
Shareholders’ equity
Common stock
240
260
Retained earnings
395
495
Total Shareholder's Equity
635
755
Total liabilities and equity
900
1100
A. Prepare (show the “waterfall”) the 2019 statement of cash flows for Nancy & Donald Corp. (10 points)
B. What is the amount of cash flow from Operations for 2019 ? (2 points)
C. What is the amount of Free Cash Flow for 2019 ? (2 points)
D. What is the change in cash for 2019 ? (2 points)
6. On March 3, 2019, Gooddeal.com sold merchandise for $2,500, terms 2/10 n/30. Prepare the journal entry. This merchandise originally cost $2, XXXXXXXXXXpoints)
Debit and credit the accounts affected
Mar. 3
On March 6, 2019, the customer returned $1,250 (or one-half) of the merchandise that was purchased back on March 3. Prepare the journal entry. (5 points)
Debit and credit the accounts affected
Mar. 6
The customer paid for the merchandise on March 8, 2019, taking advantage of the permitted discount. Prepare the journal entry. (3 points)
Debit and credit the accounts affected
Mar. 8
7. Determine the effect of the following transactions on the identified financial statement components and ratios. (8 points)
Code your answers as follows:
I: If the transaction results in an increase in the financial statement component or ratio.
D: If the transaction results in a decrease in the financial statement component or ratio.
N: If the transaction does not affect the financial statement component or ratio.
Transaction 1: A company issued common stock at a price in excess of par value.
Revenues _____
Assets _____
Stockholders' equity _____
Return on assets ratio _____
Transaction 2: A company recorded depreciation expense at year-end.
Net income _____
Assets _____
Stockholders' equity _____
Total asset turnover ratio _____
8. Recording and Reporting a Bad Debt Estimate Using Aging Analysis (6 points).
Columbia Company uses the aging approach to estimate bad debt expense. The balance of each account receivable is aged on the basis of three time periods as follows:
(1) not yet due, $65,000,
(2) up to 180 days past due, $17,000, and
(3) more than 180 days past due, $6,000.
Experience has shown that for each age group, the average loss rate on the amount of the receivables at year-end due to uncollectability is (1) 3 percent, XXXXXXXXXXpercent, and XXXXXXXXXXpercent, respectively. At December 31, 2019 (end of the cu
ent year), the Allowance for Doubtful Accounts balance is $300 (credit) before the end-of-period adjusting entry is made.
1. Prepare the appropriate bad debt expense adjusting entry for the year 2019.
2. Show how the various accounts related to accounts receivable should be shown on the December 31, 2019, balance sheet.
9. Infe
ing Missing Amounts Based on Income Statement Relationships (10 points)
Supply the missing dollar amounts for the income statement for each of the following independent
cases:
Case
Sales Revenue
Beg. Inven-tory
Pur-chases
Total Avail-able
Ending Inventory
Cost of Goods Sold
Gross Profit
Ex-penses
Pretax Income or (Loss)
A
$ 655
$115
$800
?
$400
?
?
$130
?
B
1,300
250
900
?
?
?
?
150
300
C
?
105
?
?
300
155
445
125
?
D
1,800
?
550
?
300
?
?
300
1,000
E
1,200
?
1,000
1,200
?
?
500
?
(75)
10. Reporting Inventory at Lower of Cost or Market (5 points)
Vargas Company is preparing the annual financial statements dated December 31, 2019. Ending inventory information about the five major items stocked for regular sale follows:
Ending Inventory 2019
Item
Quantity
Unit Cost When Acquired (FIFO)
Replacement Cost Market at Year end
A
57
$16
$13
B
87
31
45
C
17
49
53
D
77
26
31
E
357
11
6
Compute the valuation that should be used for the 2019 ending