ACCOUNTING 610
Fall, 2000
Interim Exam
ANSWER KEY
Prof. Steve Matsunaga
Student Name ___________________
Section 1 Adjusting entries
Section 2 Income statement
Section 3 Revenue recognition
Section 4 Statement of C.F.
Total
Each section is weighted equally. You must show supporting calculations in order to
receive partial credit.
Section 1:
1) Prepare all necessary end-of-the-year adjusting entries.
Dr/Cr
Account
Amount
Dr
|Peformer expense
|24,000
|
Cr
|Prepaid expense
|10.000
|
Cr
|Performer payable
|14.000
|
Dr
|Unearned admission revenue
|40,000
|
Cr
|Admission revenue
|40.000
|
|
|
|
2) Prepare the necessary adjusting entries. Assume the company closes its books non an
annual basis and has a December 31 year-end.
A) Office space rental
10/1/99
Dr./Cr. Account Name
Dr.
Cash
Cr.
Unearned rent
Cr.
Deposits payable
B) Mr. Z's contract
10/1/99
Dr./Cr. Account Name
Dr.
Prepaid wages
Cr.
Cash
C) Plumbing services
10/1/99
Dr./Cr. Account Name
No entry
Amount
25,000
20,000
5,000
Amount
120,000
120,000
Amount
12/31/99
Dr./Cr.
Account Name
Dr.
Unearned rent
Cr.
Rent Revenue
Amount
12,000
12,000
12/31/99
Dr./Cr.
Account Name
Dr.
Wage expense
Cr.
Prepaid wages
Cr.
Accrued wages
Amount
22,500
15,000
7,500
12/31/99
Dr./Cr.
Account Name
Dr.
Plumbing expense
Cr.
Accrued plumbing
Amount
3,000
3,000
Section 2:
ABC Co.
Income Statement for the year ended December 31, 1999
Amount
Net Sales
700,000
Cost of goods sold
(350,000)
Gross profit
350,000
SG&A
(160,000)
Loss from settlement litigation
(20,000)
Gain on disposal of equipment
40,000
Income before tax from
Continuing operations
210,000
Tax expense
(63,000)
Income from continuing operations
147,000
Income from discontinued operations
Operating income
14,000
Loss on disposal of assets
(70,000)
Income before cumulative effect of
Changes in accounting principal and
Extraordinary items
Cumulative effect of a change in
Accounting principal
Income before extraordinary items
Extraordinary gain on early
Retirement of debt
Net Income
91,000
(35,000)
56,000
210,000
266,000
Section 3:
1) i) 1999 Journal entries.
Dr/Cr
Dr.
Cr.
Dr.
Cr.
Dr.
Cr.
Dr.
Dr.
Cr.
Account Name
Construction in progress
Cash, etc.
Accounts receivable
Billings
Cash
Accounts receivable
Construction in progress
Cost of construction
Revenue on construction contract
Amount
1,450,000
1,450,000
1,400,000
1,400,000
1,200,000
1,200,000
334,615
1,450,000
1,784,615
(4,000,000 - (1,800,00+1,450,000))*(1,450,000/3,250,000) = 334,615
1) ii) 2000 journal entries.
Dr/Cr
Dr.
Cr.
Dr.
Cr.
Dr.
Cr.
Dr.
Dr.
Cr.
Account Name
Construction in progress
Cash, etc.
Accounts receivable
Billings
Cash
Accounts receivable
Construction in progress
Cost of construction
Revenue on construction contract
Amount
950,000
950,000
2,600,000
2,600,000
2,000,000
2,000,000
174,476
950,000
1,124,476
(4,000,000 - 3,300,000) * (2,400,000/3,300,000) - 334,615 = 174,476
1) iii) Balance sheet presentation
Accounts receivable
Construction in progress
Net of billings
Billings in excess of construction costs
and
Gross profit
1999
200,000
2000
800,000
384,615
1,090,909
2) Software revenue recognition.
For each sale of the software and the upgrade package, the company should
Allocate a portion of the revenue between the original sale and the upgrade.
Because the upgrade will double the value the fair values of the original
Software and the upgrade are equal and the revenue should be split 50/50.
Therefore, $60 of revenue should be recorded.
Section 4:
change in AR
change in ppd insurance
change in inventory
change in payables
change in unearned revenue
change in utility accrual
CF from operations
Amount
52,500
30,000
12,000
94,500
-20,500
5,000
-41,000
5,000
-4,000
-3,000
36,000
Proceeds from sale of FA
Purchase of FA
CF from investments
58,000
-80,000
-22,000
Financing activities
Proceeds from sale of note
Repayment of note
Payment of dividends
CF from financing
45,000
-25,000
-25,000
-5,000
Net Income
Depreciation expense
Loss on sale of fixed assets
Net Cash Flow
Beginning cash balance
Ending Cash balance
9,000
6,000
15,000