ACCT 5301
Solution to Sample Exam II
I.
Multiple choice:
1.E
2.B
3.B
4.B
5.A
6.A
II. A. Invest. in Chicago 400,000
Cash
400,000
B. 1. Investment = 400,000 –32,000 + 40,000 = $408,000
2. Income = $40,000
Div. Receivable
32,000
Invest. in Chicago
32,000
Invest. in Chicago 40,000
Income from Chicago 40,000
III. 1. Invest. in Alpha 1,000
Cash
1,000
2. Invest. in Beta 2,000
Cash
2,000
3. Cash
Cash
100
Div. Income
100
200
Div. Income
200
4. Alpha: $10 to $9 = $1 decrease x 100 shares = $100 unrealized loss
Unrealized loss 100
Invest. in Alpha
100
Beta: $20 to $23 = $3 increase x 100 shares = $300 unrealized gain
Invest. in Beta 300
Unrealized gain
300
5. Income statement of Chloe?
Div. Inc. of 100
+ Div. Inc. of 200
- Unrealized loss of $100
= net increase of $200 on I/S
(the unrealized gain is on an AFS investment, and the effect is shown only in Other Comprehensive
Income, as part of stockholders’ equity on the balance sheet.)
IV. (in 000s)
A.
2.Div. (RE)
30
Cash
30 (30,000 sh. o/s x $1)
3.Stock Div (RE) 300
Common Stock 300
4.TS
46
Cash
46
5.OCI
6
AFS Invest.
6
IV.B.
CS, $10 par, 100,000 shares authorized, 60,000 shares issued
and 58,000 shares outstanding
$600,000
APIC
900,000
RE
420,000
OCI
(6,000)
TS, 2,000 shares at cost
(46,000)
Total SE
$1,868,000
($300,000 begin + 300 stock div.)
(no change)
Begin. 600 + NI 150 – Div 30 – Stock div 300_
Loss on AFS Invest
Begin -0- + repurchase of 46
V. Pensions
A.
Pension expense:
Service cost
$ 30,000
Interest cost
20,000
Expected return
-18,000
Amortization of PSC
2,000
Amortization of gain
- 750
Total pension expense $ 33,250
B.
C.
Journal entry for 2008:
Pension expense
33,250
Pension A/L (plug)
Cash
Adjustment to OCI and Pension A/L
OCI
38,750
Pension A/L
13,250
20,000
for 2008
38,750 (see below)
Pension A/L
25,000
13,250 Entry B
38,750 Entry C (to get to Liab. balance)
======
27,000
Balance in OCI?
Liab.:
Beginning:
Beginning:
Change:
Balance:
+
-
285,000 - 258,000
20,000 decrease (cost)
30,000 increase (benefit)
38,750 decrease (entry C)
28,750
Balance in Pension A/L: $27,000 Liability
VI. Capital Lease
A.
PV of MLP = PV of Rent + PV of BPO
Factors for PV: n = 5, i = 6%
PVOA
Adj.*to adjust to annuity due
PVAD = 5,000 (4.21236)(1.06) = $22,326
PV1
+ PV1 = 1,000 (.74726) =
Total present value
=
B.
747
$23,073
1.
Equipment
23,073
Lease Liability
23,073
2.
Lease Liability
Cash
5,000
Interest expense
Lease liability
Cash
1,084
3,916
3.
4.
5,000
18,073 x .06
plug
5,000
Depreciation expense
2,884
Accumulated Depr.
2,884
(Calc: (23,073 - 0)/8 = 2,884)
VII. Operating lease
PV,6%
n=1 43 x .9434
n=2 28 x .89
n=3 22 x .83962
n=4 18 x .79209
n=5 16 x .74726
*n=6 16 x .70496
*n=7 16 x .66506
Total
= $ 40.56
=
24.92
=
18.47
=
14.26
=
11.96
=
11.28
=
10.64
$ 132.8
million
*since approx. 2 payments at $16 each, just do 2 more PV1 calculations.
Alt: PVOA of 2 pmts back to time 0: 2 pmts
back to time 0
16(PVOA, 6%, 2)(PV1, 6%,5) = 16 x (1.83339) x (.74726) = $21.92
VIII.
1. D
2. B
3. B
4. A
5. C
Classification
Part IX
Schedule
Pretax financial income (loss)
Future Deductible:
Warranties
Subscription Revenues
Future Taxable:
Depreciation
Excess equity method income
Taxable (deductible) amount
Tax rate
Income tax payable
DIT - liab (asset)
2008 IT Pay
100,000
DIT
8,000
15,000
(8,000)
(15,000)
(800)
(13,000)
109,200
30%
800
13,000
(9,200)
30%
32,760
(2,760)
DIT
0
2,760
2,760
Journal entry:
Income tax expense (plug)
DIT
Income tax payable
0
30,000
2,760
32,760
X. Statement of Cash Flows
(analysis in red)
Given the following income statement and comparative balance sheets for North
(all amounts are in thousands). Note that earliest year is presented first.
Cash
Accounts receivable
Inventory
Land
Equip
Less: Accumulated depr.
Investment.
Total assets
Comparative Balance Sheets
12/31/06
12/31/07
$
15
-6 $
9
17
23 +6 SUBTRACT(OP)
7
14 +7 SUBTRACT (OP)
38
28
50
73
( 18)
( 24)
37
37
$ 146
$ 160
Accounts payable
Unearned Revenues
Notes payable (long-term)
Bonds payable (long-term)
Add: Premium
Common stock
Retained earnings
Total Liab. & Eq.
Income Statement for 2006
Sales revenue
Service revenue
Gain on sale of land
Cost of goods sold
Depreciation expense - equipment
Interest expense
Other operating expenses (all cash)
Income tax expense
Net income
$
13
7
18
50
8
34
16
146
$
15 +2 ADD (OP)
5 -2 SUBTRACT (OP)
10
50
5 –3 OP
55
20
160
$ 120
30
3 –3 OP
(82)
( 6)+6 OP
( 6)
(11)
(13)
$
35 TOP LINE OP
Additional information for 2006: FOR INVESTING AND FINANCING
1.
The only activities in retained earnings were for income and dividends.
BRE + NI – DIV = ERE
16+35-DIV=20 DIV=31 –31 FINANCING
2.
Equip. was purchased for $8 cash. –8 INVEST
3.
Equip. was purchased with a N/P of $15. SUPP SCHEDULE
4.
Land with a cost of $10 was sold at a gain of $3 . +13 INVEST
5.
Payment made on N/P for $23. –23 FINANCING
6.
The change in common stock was due to the issue of stock for cash. +21 FIN
Required:
On the next page, prepare the Statement of Cash Flows, including Indirect method
fo Operating Section.
Cash Flow from Operating Activity
Net Income
Add Depreciation
Subtract Premium amort.
Subtract gain
Less increase in A/R
Less increase in Inventory
Add increase in A/Pay
Less decrease in U. Rev
$35
6
(3)
(3)
( 6)
(7)
2
(2)
Net cash from operating activity
$ 22
Cash Flow from Investing Activity
Cash paid for equip
Cash received from land
$(8)
13
Net cash from investing
5
Cash Flow from Financing Activity
Cash paid for dividends
Cash paid on N/P
Cash received from stock
$ (31)
(23)
21
Net cash used for financing
(33)
Net decrease in cash
$(6) (Confirm: cash from $15 to $9)
________________________________________________
Supplementary schedule of non-cash activities:
Equip purchased with N/P
$15
Part 2: Operating section using direct method
Sales revenue
Service income
Gain on sale of land
COGS
Depr exp
Other
Interest exp
Income tax expense
Cash from operations
$120
30
3
-82
-6
-11
- 6
-13
- 6 = $
-2 =
- 3 =
-7 +2 =
+6 =
-3 =
=
114
28
0
(87)
0
(11)
( 9) adjust out prem. amort
(13)
$22
(same as indirect method)