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1. Income statement: Below is a partial listing of the adjusted account balances of FA Department Store at fiscal
Using whatever data, you believe appropriate, prepare a multiple‐step income statement for FA Department Store for the year ended April 30, 2018. Assume that this is FA Department Store’s first year of operations.
Prepare a classified balance sheet at May 15, 2018. Assume that this is FA Department Store’s first year of
3. Cash flow statement: A. Compute net cash flows from operating activities using the indirect method. Financial A Company reported net income of $200,000 for the current year. Depreciation recorded on buildings and equipment amounted to $80,100 for the year. Balances of the current asset and current liability accounts at the beginning and end of the year are as follows: Accounts End of Year Beginning of Year Cash ($) 20.000 15. Accounts receivable 24.000 32. Inventories 50.000 65. Prepaid expenses 7.500 5. Accounts payable 12.000 18. Income taxes payable 1.600 1. B. Compute net cash flows from investing activities. During the year, Financial B Company sold a building with a book value of $145,000 for cash of $132,000. The company also sold long‐term investments for cash of $45,000. The company purchased land and a new building for $320,000 by signing a long‐term note payable. No other transactions impacted long‐term asset accounts during the year. C. Compute net cash flows from financing activities. During the year, Financial C Company issued common stock for cash of $14,000 during the year. The company paid dividends of $2,000. The company also issued a long‐term note payable for $30,000 in exchange for equipment during the year. The company sold treasury stock that had a cost of $2,000 for $4,000. 4. Year‐end adjustments: In the journal, prepare adjusting entries for the following items. a. Unearned service revenue had a $8,750 normal balance prior to adjustment. By year end, 40 percent had rendered. b. Office supplies of $280 were on hand at the beginning of the period. Purchases of office supplies during the period totaled $4,000. At the end of the period, $1,200 in office supplies remained. c. Commissions amounting to $8,010 were accrued but not recorded or paid by year end. d. Federal income taxes for the year are estimated to be $5,510. 5. Merchandise inventories: a. In the journal, prepare entries corresponding to the transactions listed below, assuming use of the perpetual inventory system. b. In the ledger, prepare entries corresponding to the transactions listed below affecting the merchandise inventory account, assuming use of the perpetual inventory system. May. 1 Beginning inventory, 170$ 2 Purchased $1,000 of merchandise on credit, terms n/30. 6 Returned $150 of the items purchased on March 2. 16 Sold merchandise on credit for $1,200, terms n/15. The merchandise had a cost in inventory of $800. 17 Of the merchandise sold on March 16, $100 of it was returned. The items had a cost of $30. 25 Received payment in full from the customer of March 16. 31 Paid for the merchandise purchased on March 2. 31 Physical inventory revealed that the value of the merchandise on hand was $ 31 The net realizable value of merchandise inventory was $
10. Non‐current liabilities: Identify the choice that best completes the statement or answers the question. ____ 1. Which of the following statements best describes the behavior over time of the components of equal mortgage payments? a. Both payment of principal and interest expense decrease. b. Interest expense increases and payment of principal decreases. c. Payment of principal increases and interest expense decreases. d. The proportion of interest expense to payment of principal remains the same. ____ 2. The entry to record the issuance of bonds at a discount on an interest payment date should include a a. credit to Cash for the face amount of the bonds. b. debit to Cash for the face amount of the bonds minus the amount of discount. c. debit to Cash for the face amount of the bonds plus the amount of discount. d. debit to Cash for the face amount of the bonds. ____ 3. Under an operating lease, the lessee a. debits Capital Lease Equipment. b. records depreciation on the leased asset. c. debits Rent Expense. d. credits Capital Lease Obligations. ____ 4. A deferred income tax liability arises when a. a revenue item is not subject to income taxes. b. a corporation is able to obtain an extension on its income tax filing. c. an expense is not deductible for tax purposes. d. there is a difference between financial reporting requirements and income tax filing requirements. ____ 5. Other postretirement benefits should be expensed a. on the employee's retirement date. b. as they are received by the employee. c. when the employee is hired. d. as the employee earns them. 11. Stockholders’ equity: A. A corporation has 2,500,000 authorized shares of $15 par value common stock. As of June 30, there were 1,500, shares issued and outstanding. On June 30, the board of directors declared a $0.30 per share cash dividend to be paid on August 1 to shareholders of record on July 15, 2018. Prepare the necessary entries in journal form to be recorded on: a. the date of declaration b. the date of record c. the date of payment. B. A corporation had both the following transactions occur on the same day: a. Issued 50,000 shares of its $3 par value common stock for $360,000 cash. b. Issued 20,000 shares of its $3 par value common stock in exchange for land and a building. The building is estimated to have a market value of $94,000. Determine the issue value per share, the additional paid‐in capital per share and the value of the land. Prepare the entries in journal form to record the above transactions. C. Prepare the entries in journal form necessary to record the following stock transactions. These transactions represent all treasury stock transactions entered into by a company. June 1 Purchased 2,000 shares of its own $30 par value common stock for $80 per share, the current market price. 10 Sold 500 shares of treasury stock purchased on June 1 for $75 per share. 30 Retired the remaining shares purchased on June 1. The original issue price was $70 per share.
12. Investments: Identify the choice that best completes the statement or answers the question. ____ 1. Which of the following is not a category of investments? a. Available‐for‐sale securities b. Collateral securities c. Held‐to‐maturity securities d. Trading securities ____ 2. Which is the only type of investment that is always classified as short‐term? a. Available‐for‐sale securities b. Equity securities c. Held‐to‐maturity securities d. Trading securities ____ 3. Trading securities are valued on the balance sheet at a. cost. b. cost, adjusted for the effects of interest. c. lower of cost or market. d. market value. ____ 4. The year‐end adjusting entry to reflect an increase in the value of trading securities includes a a. credit to Allowance to Adjust Short‐Term Investments to Market. b. credit to Realized Gain on Investments. c. credit to Short‐Term Investments. d. credit to Unrealized Gain on Short‐Term Investments. ____ 5. Which of the following categories of investments are debt, but not equity, securities? a. Available‐for‐sale securities b. Held‐to‐maturity securities c. Trading securities d. Both trading and available‐for‐sale securities ____ 6. Which type of investment, if any, could be classified as short‐ or long‐term, as well as debt or equity? a. Available‐for‐sale securities b. Held‐to‐maturity securities c. Trading securities d. None of these are correct. ____ 7. Available‐for‐sale debt securities are valued on the balance sheet at a. cost. b. cost, adjusted for the effects of interest. c. lower of cost or market. d. market value. ____ 8. For available‐for‐sale equity securities, the Unrealized Loss on Long‐Term Investments account should be reported as a(n) a. prior period adjustment. b. realized loss item on the income statement. c. extraordinary item on the income statement. d. separate item in the stockholders' equity section of the balance sheet.
ANSWER SECTION
SURNAME(S) NAME
Show your calculations and omit explanation in recoding entries
1. INCOME STATEMENT
2. BALANCE SHEET
5. MERCHANDISE INVENTORIES (continued)
Merchandise inventory
Date Dr Cr Balance
6. ACCOUNTS RECEIVABLE AND ALLOWANCE METHOD FOR UNCOLLECTIBLE ACCOUNTS
Date Accounts Debit Credit
7. NOTES RECEIVABLE
Date Accounts Debit Credit
8. CURRENT LIABILITIES AND PAYROLL
Date Accounts Debit Credit
9. NON‐CURRENT ASSETS
A.
B.
Method Depreciation expense for
Carrying Value at
Straight‐line
Production
Double‐declining‐balance
Calculations:
C.
Date Accounts Debit Credit
D.
a. d.
b. e.
c. f.
10. NON‐CURRENT LIABILITIES
a.
b.
c.
d.
INTRODUCTION TO FINANCIAL ACCOUNTING
ANSWER SECTION
1. INCOME STATEMENT
FA DEPARTMENT STORE
Income Statement For Year Ended April, 2018 Sales revenues ($) Sales 340, Less: Sales discounts 22, Net sales 318, Merchandise inventory May 1, 2017 0 Purchases 272, Less: Purchases returns 6, Net purchases 266, Freight‐in 2, Net cost of purchases 268, Goods available for sale 268, Less: Merchandise inventory April 30, 2018 13, Cost of goods sold 255, Gross profit 63, Operating expenses Selling expenses 35, Administrative expenses 20, Total operating expenses 55, Income from operations 8, Other revenues and expenses Interest revenue 800 Less: Interest expense 1, Total other revenues and expenses (200) Income before taxes 7, Income taxes 1, Net Income ($) 5,
2. BALANCE SHEET
ASSETS
LIABILITIES STOCKHOLDERS' EQUITY
- Accounts Payable ($) 14, year‐end on April 30, 2018.
- Accounts Receivable 19,
- Accumulated Depreciation—Building 10,
- Administrative Expenses (includes depreciation) 20,
- Freight‐in 2,
- Income tax expense 1,
- Interest Expense 1,
- Interest Revenue
- Merchandise inventory 13,
- Purchases 272,
- Purchases discounts 6,
- Sales 340,
- Sales Discounts 22,
- Selling Expenses (includes depreciation) 35,
- Accounts Payable ($) 10, 2. Balance sheet: The following data pertain to FA Department Store at May 15, 2018:
- Accounts Receivable 7,
- Accumulated Depreciation—Building 2,
- Accumulated Depreciation—Equipment 3,
- Additional paid‐in capital 9,
- Bonds Payable (15 months) 12,
- Building 14,
- Cash 6,
- Common Stock 31,
- Copyright 1,
- Current part of long term bank loan 1,
- Deferred income taxes 2,
- Equipment 30,
- Income tax payable
- Interest payable
- Investment in Corporate Securities (long‐term) 4,
- Investment in Six‐Month Government Securities 3,
- Land 5,
- Long term bank loan 16,
- Merchandise inventory 12,
- Notes payable (45 days) 3,
- Notes receivable (18 months) 6,
- Notes receivable (30 days) 5,
- Office supplies
- Prepaid Rent
- Retained Earnings 16,
- Revenue Received in Advance
- Software 8,
- Treasury stocks 6,
- Wages payable 2,
- FA DEPARTMENT STORE ‐ Balance sheet ‐ May 15,
- Cash 6, Current assets
- Investment in Six‐Month Government Securities 3,
- Accounts Receivable 7,
- Notes receivable (30 days) 5,
- Merchandise inventory 12,
- Office supplies
- Prepaid Rent
- Total current assets 35,
- Notes receivable (18 months) 6, Investments
- Investment in Corporate Securities (long‐term) 4,
- Total investments 10,
- Land 5, Plant, property and equipment
- Building 14,
- Less: Accumulated Depreciation—Building ‐2,
- Equipment 30,
- Less: Accumulated Depreciation—Equipment ‐3,
- Total plant, property and equipment 44,
- Copyright 1, Intangible assets
- Software 8,
- Total intangible assets 9,
- Total ASSETS ($) 100,
- Accounts Payable 10, Current liabilities
- Notes payable (45 days) 3,
- Wages payable 2,
- Interest payable
- Income tax payable
- Revenue Received in Advance
- Current part of long term bank loan 1,
- Total current liabilities 18,
- Bonds Payable (15 months) 12, Non‐current liabilities
- Long term bank loan 16,
- Deferred income taxes 2,
- Total non‐current liabilities 30,
- Total liabilities 49,
- Common Stock 31, Contributed capital
- Additional paid‐in capital 9,
- Total contributed capital 40,
- Retained Earnings 16,
- Total retained earnings 16,
- Less: Treasury stocks ‐6,
- Total stockholders' equity 50,
- Total LIABILITIES + STOCKHOLDERS' EQUITY ($) 100,
5. MERCHANDISE INVENTORIES (continued) Merchandise inventory Date Dr Cr Balance May. 1 170 170 2 1,000 1, 6 150 1, 16 800 220 17 30 250 31 40 210 31 15 195 DIF: Moderate KEY: Merchandise purchases and sales transactions | Recording entries
6. ACCOUNTS RECEIVABLE AND ALLOWANCE METHOD FOR UNCOLLECTIBLE ACCOUNTS
Date Accounts Debit Credit Dec. 31 Uncollectible Accounts Expense 280 Allowance for Uncollectible Accounts ($14,000 x 0.02) 280 Feb. 5 Allowance for Uncollectible Accounts 600 Accounts Receivable 600 Feb. 17 Accounts Receivable 200 Allowance for Uncollectible Accounts 200 Feb. 17 Cash 200 Accounts Receivable 200 DIF: Challenging KEY: Uncollectible accounts receivable
7. NOTES RECEIVABLE
Date Accounts Debit Credit Sept. 1 Notes Receivable 30, Land 12, Gain on sale of land 18, Dec. 31 Interest Receivable 1, Interest Income ($30,000 x 0.1 x 4/12) 1, Mar. 1 Cash 31, Notes Receivable 30, Interest Receivable 1, Interest Income ($30,000 x 0.1 x 2/12) 500 DIF: Moderate KEY: Notes receivable
8. CURRENT LIABILITIES AND PAYROLL
Date Accounts Debit Credit Salaries Expense 14, Employees' Income Taxes Payable 3, Social Security Tax Payable 850 Medical Insurance Premiums Payable 700 Life Insurance Premiums Payable 400 Salaries Payable 8, Social security tax expense 1, Medical insurance expense 1, Social Security Tax Payable 1, Medical Insurance Premiums Payable 1, DIF: Moderate KEY: Recording the payroll
9. NON‐CURRENT ASSETS
A. In the year of purchase, both net income and total assets will be understated as a result of the overstatement of expenses. In the following year, net income will be overstated because of the lack of the depreciation that should have been charged, and total assets will continue to be understated. DIF: Challenging KEY: Acquisition cost of property, plant, and equipment
B.
Method Depreciation expense for 2013
Carrying Value at 12/31/ Straight‐line $16,800 $56, Production $14,700 X Double‐declining‐balance $21,600 $32, Straight‐line Depreciation expense = $16,800 = ($90,000 – $6,000) ÷ 5 Carrying Value = $56,400 = $90,000 – (2 x $16,800) Production Depreciation expense = $14,700 = ($84,000 ÷ 200,000) x 35,000 = $.42 x 35, Carrying Value = X Double‐declining‐balance Depreciation expense year 2012 = $90,000 x 40% = $36, Depreciation expense year 2013 = $21,600 = ($90,000 – 36,000) x 40% = $54,000 x 40% Carrying Value = $32,400 = $90,000 – $36,000 – $21,
DIF: Moderate KEY: Depreciation
C.
Date Accounts Debit Credit a. Depreciation Expense–Equipment 1, Accumulated Depreciation–Equipment ($18,000 – $3,000) ÷ 5 x 4/12 = $3,000 x 4/
b. Cash 11, Accumulated Depreciation–Equipment 4, Loss on Sale of Equipment (11,000 – ($18,000 – $4,500)) 2, Equipment 18, DIF: Moderate KEY: Depreciation | Disposal of depreciable assets
D.
a. Trademark^ d. Leasehold
b. Copyright^ e. Franchise or license
c. Goodwill^ f. Patent
DIF: Moderate KEY: Intangible assets
10. NON‐CURRENT LIABILITIES
a. b. B B c. C d. D D
- ANS: B Moderate Mortgages payable
- ANS: B Moderate Bonds
- ANS: C Easy Long‐term leases
- ANS: D Moderate Estimated liabilities
- ANS: D Moderate Other postretirement benefits
