FATİH UNIVERSITY
FACULTY OF ECONOMIC AND
ADMINISTRATIVE SCIENCES
DEPARTMENT OF
MANAGEMENT & DEPARTMENT OF ECONOMICS
MAN 202 PRINCIPLES OF
ACCOUNTING II
FINAL EXAM
Instructor: Ali COSKUN
Duration: 90 Minutes June 7, 2006
QUESTION
1. (20
points)
Prepare the operating activities section of the Decade Technologies’ statement of cash flows for 2005. Use the direct method or indirect method. Place brackets around dollar amounts representing cash outflows. Decade Technologies has prepared an income statement for the current
year and has developed the following
additional information by analyzing changes
in the company’s balance sheet accounts.
DECADE TECHNOLOGIES
Income Statement
For the
Year Ended December 31, 2005
Interest income................................................................... 25,000
Gain on sales of marketable securities.................................... 27,000
Costs and expenses:
Operating expenses (including depreciation of $190,000)......... 820,000
Interest expense.................................................................. 30,000
Income taxes....................................................................... 87,000
Loss on sales of plant assets.................................................
30,000
Total costs, expenses, and losses.................................. 3,567,000
Net income.............................................................................. $ 185,000
1.
Cash and
cash equivalents amounts to $58,000 at the beginning of the year.
2.
Accounts receivable
increased by $60,000.
3.
Accrued interest
receivable decreased by 1,000.
4.
Inventory increased
by 35,000 and accounts payable to suppliers of merchandise increased by $15,000.
5.
Short-term
prepayments of operating expenses decreased by $10,000, and accrued liabilities for operating expenses
decreased by $12,000.
6.
The liability for accrued income
taxes payable decreased by $9,000 during the year.
7.
The liability for accrued interest
payable increased by $3,000 during the year.
8.
The following schedule summarizes the total debit
and credit entries during the year in other
balance sheet accounts:
Debit Credit
Entries Entries
Notes Receivable
(cash loans made to borrowers).......................... 39,000 52,000
Plant Assets
(see paragraph 9)................................................... 250,000 190,000
Notes Payable
(short-term borrowing).......................................... 50,000 89,000
Capital Stock........................................................................... 50,000
Additional Paid-in
Capital – Capital Stock................................... 200,000
Retained Earnings (see paragraph 10)......................................... 100,000 185,000
9.
The $90,000 in credit
entries to the Plant Assets
account is net of any debits to Accumulated
Depreciation when plant assets were
retired. Thus the $90,000 in credit entries represents the book value of all
plant assets sold or retired
during the year.
10.
The $100,000 debit
to retained earnings represents dividends declared and paid during
the year. The $185,000 credit entry represents
the net income shown in the income
statement.
11.
All investing and financing activities
were cash transactions.
(CHOOSE FOUR OF THE FOLLOWING QUESTIONS AND ANSWER)
QUESTION 2. (20 points)
Prepare the
financing and investing activities section of the Decade Technologies’ statement of cash flows for 2005.
QUESTION 3. (20 points)
The Cash
account in the ledger of Home-Builders Co. shows
a balance of $16,526 at September
30. The bank statement, however, shows a balance of $20,900 at the same date. The
only reconciling items consist of a bank service charge of $16, a large number of outstanding checks totaling $5,930, and a deposit in transit.
a. What
is the adjusted cash balance in the September 30 bank reconciliation?
b. What
is the amount of the deposit in transit?
c. Give
the journal entry necessary, if any, to
adjust Home-Builders Co.'s accounting records at September 30.
QUESTION 4. (20 points)
On March 2, 2003, Farlow Industries purchased a fleet of automobiles at a cost of
$360,000. The cars are to be depreciated
by the straight-line method over
five years with no salvage value. Farlow uses
the half-year convention to compute depreciation
for fractional periods.
Prepare a complete
depreciation schedule, beginning with calendar year 2003.
QUESTION 5. (20 points)
When MAJOR, INC. Corporation was incorporated in 2004, authorization
was obtained to issue 100,000 shares of $2 par value common stock and
5,000 shares of 12% cumulative
preferred stock. The preferred stock
has a par value of $100. In
January 2004, all the preferred stock
was issued at par and 20,000 shares of the common stock
were sold $9 per share. At the
beginning of 2005, the company reacquired 1,000 shares of common stock by paying
$15,000.
During the
first two years of operations (2004 through 2005) the corporation earned a total of $800,000 and paid dividends of $0,50 per share each
year on the common stock.
Prepare the
stockholders’ equity section of the balance sheet at December 31, 2005. Include a supporting schedule showing your computation
of retained earnings at the balance sheet
date.
QUESTION 6. (20 points)
On October 1, 2005, Sallie Company purchased a building from Nixa Corporation
by paying $30,000 cash and issuing
a one-year note payable for
the balance of the purchase price. Interest on the note is stated
at an annual rate of 12% and is paid at maturity. In its December
31, 2005, balance sheet, Sallie correctly presented the note
and interest payable as follows:
Interest Payable ....................................... $15,000
Notes Payable
%12, Due Oct. 1, 2006
......... $ 500,000
a. How
much must Sallie pay Nixa Corporation on October 1, 2006, when the note
matures?
b. What
is the amount of the interest expense
Sallie will recognize on this note in 2006?
c. What
is the total cost of the building purchased by Sallie?
d. What
is the adjusting entry at December 31, 2005, with respect to
this note?
QUESTION 7. (20 points)
On December
1, 2005, Newton Corporation
incurs a 15-year $300,000 mortgage liability in conjunction with the acquisition of an office building. This mortgage is payable in monthly installments of $3,600, which include interest computed at the rate of 12% per year. The first monthly
payment is made on December 31, 2005.
a. Compute
the total amount to be paid
by Newton over the 15-year
life of the mortgage.
b. How
much of the first payment made
on December 31, 2005, represents
interest expense?
c. How
much is the total liability related to this
mortgage reported in Newton's balance sheet at December 31, 2005?
d. Over
the 15-year life of the mortgage, How
much is the total amount Newton
will pay for interest charges?
e. How
much is the portion of the second monthly payment made on January 31, 2006, which represents repayment of principal?
QUESTION 8. (20 points)
Indicate how
each of the following events should be classified in a statement of cash flows for the
current calendar year. Assume this company
uses the direct method.
Use the
following code: O = operating activities, I = investing activities, and F = financing activities.
If the
event does not involve a cash flow that should
be included in the statement of cash flows, use an X.
____ (a) Declared a dividend to be paid early next
year.
____ (b) Recorded depreciation expense for the current
year.
____ (c) At year-end, paid rent
in advance for the next six
months.
____ (d) Issued capital stock for
cash; management plans to use
this cash to invest in marketable
securities.
____ (e) Sold a parcel of unused land at a loss.
____ (f) Collected principal amount due on a note receivable.
____ (g) Used the cash received
in d, above, to purchase marketable securities.
____ (h) Collected interest due on note receivable described in f, above.
____ (i) Made an adjusting entry to accrue interest
payable at year-end.
____ (j) Collected account receivable from a customer who made
a large credit purchase in a prior period.