Review Packet for Final Exam
Structure of the final exam
The exam is worth 100 marks structured as follows.
1. Multiple Choice (20 questions) – comprehensive for Chapter 1-Chapter 9, Chapter 11,
Chapter 13 and Chapter 14. 40 marks in total.
2. Seven problem solving problems covering all materials discussed in lectures. (60 marks).
3. The present value factor table will be provided as the Appendix in the exam paper.
Final Exam – Chapter by Chapter Detail
Chapter 1-3: These are basic chapters which have been built upon during the remainder of the
course.
Chapter 4:
You will not be asked to prepare or work with a trial balance. You will not be
asked to prepare a closing entry. But know what both of these are used for.
Chapter 5:
Nothing on nonrecurring items/extraordinary items, common-size income
statement. You will NOT be asked any questions about the history of the
accounting profession or the history of accounting standard setting.
Chapter 6:
Responsible for the entire chapter. Ignore the Chapter Supplements.
Chapter 7:
Nothing on LIFO reserve, LIFO liquidations, the difference between perpetual
and periodic inventory systems. Ignore the Chapter Supplements.
Chapter 8:
Nothing on Natural Resources and depletion; nothing on intangible assets except
goodwill.
Chapter 9:
Responsible for the entire chapter.
Chapter 11: Omit Preferred stocks and the chapter supplement.
Chapter 13: Responsible for the entire chapter.
Chapter 14: You will NOT be asked to solve financial statement analysis problems.
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NOTE: Below is a set of practice questions for the problem solving questions. There is no
guarantee that the problems on the exam will be EXACTLY like these problems. In fact, they
will not be!
Problem 1: Recoding transactions
Considering each transaction, determine the current liabilities that would be recorded on ABC
Co’s 12/31/07 Balance Sheet. Be sure to write down the correct account titles along with the
amounts. Also make sure that you can prepare the journal entries.
a. During December, ABC made cash and credit sales of $500,000. ABC has to collect sales tax
at the rate of 7% on its sales and remit the sales tax to the taxing authority on the 10th day of
the following month (January 10 for December sales).
b. On 1st of September, ABC arranged with a supplier to replace an overdue Account Payable
in the amount of $100,000 by paying $20,000 in cash and signing a 6% 9 month note for the
balance. Interest is due on the maturity date of the note.
c. During the first week of December, ABC received an advanced payment of $50,000 cash
from a customer for services that will be performed in January 2008.
d. On January 1, ABC borrowed $500,000 from the bank. It is due in 5 equal installments on
each December 31, beginning on December 31, 2007. The note bears interest at 10% per year
and interest is payable on each installment date.
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a. Dr: cash/AR
535,000
Cr: revenue
500,000
Cr: sales tax payable 35,000
b. Dr: Account payable 100,000
C: Cash
20,000
Cr: note payable
80,000
Adjusting entry on Dec 31:
Dr: Interests expense 80,000 * 4/12 * 6% = 1600
Cr: interest payable
1600
c. Dr: Cash
50,000
Cr: advance receipt from customers (unearned revenue)
d. Dr: Cash
500,000
Cr: note payable
50,000
50,000
Annuity amount = 500,000 / PVA factor (n=5, i=10%) = 500,000 / 3.7908 = 131,898
Dec 2007:
Dr: interest expense 500,000 * 10% = 50,000
Dr: note payable
81,898
Cr: cash
131,898
Dec 2008:
Dr: interest expense (500,000 – 81898) * 10% = 41,810
Dr: note payable
90,088
Cr: cash
131,898
Problem 2: Shareholders’ Equity
M Corporation had the following transactions listed in chronological order for 2008, its second
year of operation. Opening balances in the accounts are listed on the first line in the chart.
Determine the increase or decrease in the stockholders’ equity accounts and in total stockholders’
equity. Use the grid.
a. Sale of 100,000 shares common stock (par value $10) for $25 per share.
b. Purchased 5,000 shares of its own common stock at $20 per share to be held as Treasury
Shares.
c. Declared cash dividends on outstanding common stock of $2 per share.
d. Sold 2,000 shares of treasury stock for $25 per share.
e. Paid the cash dividends declared in c.
f. Declared and distributed stock dividends on common stock of 5% of the shares
outstanding. The market value per share is $25 per share.
g. Declared and executed a 2 for 1 stock split.
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h. Declared cash dividends on outstanding common stock of $1 per share.
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Total
Increase
(Decrease) Stockholders’
Item
Equity (credit
balance)
Retained
Earnings
(credit
balance)
Common
Stock $10 par
(credit
balance)
APIC (credit
balance)
Treasury
Stock (debit
balance)
Beg Balc.
a
b
c
d
e
f
g
h
Total
$150,000
$100,000
1,000,000
$300,000
1,500,000
$0
$550,000
2,500,000
(100,000)
(210,000)
50,000
nil
0
0
(224,700)
2,465,300
(100,000)
(210,000)
(10,000)
(133,750)
53,500
80,250
(224,700)
(418,450)
1,153,500
1,870,250
(40,000)
140,000
Problem 3: Bank Reconciliation Problem
Prepare a bank reconciliation for XYZ Company for May 31, 2013 given the following:
Bank balance May 31
Bank service charge for May
Firm book balance May 31
Deposit in transit May 31
Error by bookkeeper in recording check #3122 (actual check
was $150; recorded by company was $510)
NSF check
Outstanding checks May 31
$16,595
15
$16,120
1,010
$212
1,352
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Bank Reconciliation
XYZ Company
May 31, 2013
Bank:
16,595
Book:
16,120
Add: Deposit in transit
1,010
Add: Error
Less: Outstanding check
(1,352)
Less: Service Charge (15)
Subtotal:
16,253
NSF
360
(212)
Subtotal: 16,253
Problem 4: Account Receivable Problem
XYZ Company has accounts receivable of $104,800 at March 31, aged as follows:
Month of sale
March (current)
February (30 to 59 days past due)
January (60 to 89 days past due)
Prior (Over 90 days past due)
Balance
$85,000
14,500
4,200
1,100
$104,800
Prior to any adjustments, on March 31 XYZ had a credit balance in the Allowance for
Uncollectible Accounts of $2,300. XYZ had $220,000 in credit sales for the month of March.
XYZ closes its financial records every month.
Required:
Using the aging method, assume the following:
XYZ’s collection history indicates the following estimates for uncollectible accounts.
Current – 2%
30-59 days past due – 6%
60-89 days past due – 35%
90 days or more past due – 60%
Calculate:
(1) The ending balance in the Allowance for Uncollectible Accounts on March 31.
(2) The total amount of bad debt expense for the month of March.
(3) Net accounts receivable on March 31 as shown on the balance sheet.
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(1) 85,000 * 2% + 14,500 * 6% + 4,200 * 35% + 1,100 * 60% = 4,700
(2) 4,700 – 2,300 = 2,400
Dr: Bad debt expense 2,400
Cr: Allowance for doubtful accounts 2,400
(3) (104,800 – 4,700) = 100,100
Problem 5: Property, Plant and Equipment
Covey Company purchased a machine on January 1, 2010, by paying cash of $250,000.
The machine has an estimated useful life of five years, is expected to produce 500,000
units, and has an estimated residual value of $25,000.
Requirements:
A. Calculate determine depreciation expense (to the nearest dollar) for each year of the
machine's useful life under (1.) straight-line depreciation; and (2.) the 200% declining
balance method.
B. What is the book value of the machine after three years using the 200% decliningbalance method?
C. What is the book value of the machinery after three years with straight-line
depreciation?
D. If the machine was used to produce and sell 120,000 units in 2010, what would the
depreciation expense be under the units of production method?
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A:
1.Straight-line depreciation for years 1 through 5 =
($250,000 - $25,000/5 years) = $45,000
2. 200% declining-balance method
Year
1
2
3
4
5
B.
C.
D.
E.
Depreciation expense
$250,000 x 1/5 x 200% = $100,000
$150,000 x 1/5 x 200% = $60,000
$90,000 x 1/5 x 200% = $36,000
$54,000 x 1/5 x 200% = $ 21,600
$32,400 -25,000 = $7,400*
Book Value
$250,000
150,000
90,000
54,000
32,400
25,000
$250,000 – $100,000 – $60,000 - $36,000 = $54,000
*Amount
book value to $5,000
$250,000 – ($45,000
x 3)to= reduce
$115,000
($250,000 - $25,000) ÷ 500,000 = $.45/unit
$.45 x 120,000 = $54,000
Problem 6: Inventory
William Company uses the periodic inventory system and has provided the following data:
Units
Amount
6,000
$ 30,000
Purchases
32,000
192,000
Sales
28,000
280,000
Beginning inventory
FIFO
LIFO
A. Ending inventory
$_______
$_______
B. Cost of Goods Sold
$_______
$_______
C. Gross margin
$_______
$_______
Requirement 2:
Conceptually, how does pretax income using FIFO (in times of rising prices)
compare to LIFO pretax income? Explain your answer.
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A.
B.
C.
(1)
10,000 x $6
$222,000 - $60,000
$280,000 - $162,000
=
=
=
FIFO
$ 60,000
$162,000
$118,000
(2)
(6,000 x $5) + (4,000 x $6)
$222,000 - $54,000
$280,000 - $168,000
=
=
=
LIFO
$ 54,000
$168,000
$112,000
FIFO pretax income is higher than LIFO pretax income in times of rising prices. FIFO matches
older lower prices to current period sales providing for higher gross margin and net income.
Problem 7: Prepare cash flow statement
Sagaworth Inc. reported the following information:
2011 Income Statement:
Net loss
Depreciation expense
Amortization expense
$ 380,000
150,000
25,000
Balance Sheet:
Accounts receivable
Inventory
Prepaid expenses
Accounts payable
Accrued liabilities
Taxes payable
2011
$ 200,000
140,000
40,000
190,000
50,000
10,000
2010
$ 230,000
160,000
30,000
180,000
45,000
20,000
Determine Sagaworth's net cash flow from operating activities for 2011 under the indirect
method.
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Cash flow from operating activities (-$160,000) = Net loss (-$380,000) + Depreciation expense
($150,000) + Amortization expense ($25,000) + Decrease in accounts receivable ($30,000) +
Decrease in inventory ($20,000) – Increase in prepaid expenses ($10,000) + Increase in accounts
payable ($10,000) + Increase in accrued liabilities ($5,000) – Decrease in taxes payable
($10,000).
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