24. (7 marks) full question is part D on the attach file

You are given the following information for two companies, ABC and XYZ, at the end of 2015.

Required:

a) Compare the current ratio and quick ratio.Assume ABC's inventory is slow-moving real estate while XYZ's inventory is fast-moving groceries. Briefly explain why ABC or XYZ have a better ability to repay liabilitiesin the short term? (4marks)

b) Contrast cash with accounts receivable. Summarize two reasons why cash is listed ahead of accounts receivable in the statement of financial position. (3 marks)

Name ______________________________ Student I.D. Number: ______________________________ Instructor Name (Jones, Savoni or Shih) ____________________________ ODETTE SCHOOL OF BUSINESS UNIVERSITY OF WINDSOR 70151 WINTER 2016 Final Exam 2.5 Hours Question Part A Part B Part C Part D Part E Part F Total Marks 24 36 10 7 13 10 100 Marks INSTRUCTIONS: (Exam has 13 total pagesensure your exam package is complete) 1. Print name and student number at top of this page. 2. Answer all questions in this examination booklet. 3. A Summary Sheet of Selected Ratios exists as the final page in this exam. 1 PART A: Circle your answer to each of the following questions as being True (T) or False (F) (24 arks) Each question in this part is worth 2 marks. 1. The full-disclosure principle requires a complete set of financial statements supported by notes to those statements. T F 2. The effective interest rate method to amortize bond discount or premium is not mandatory under IFRS. T F 3. An increase in selling price of goods to customers in itself will result in an increase in gross profit percentage. T F 4. Last-in first-out is an acceptable inventory costing method under IFRS. T F 5. Ownership of goods passes from the seller to the buyer after the buyer has paid for the goods. T F 6. An incorrect valuation of ending inventory at the end of a fiscal year affects only the balance sheet and does not affect the income statement. T F 7. The weighted average method of determining cost for inventory valuation purposes is not acceptable under IFRS . T F 8. Repair costs are classified as capital expenditures when they increase the useful life or operating efficiency of an asset. T F 9. The mixture of debt and equity for a business is called its capital structure. T F 10. A liability, to be reported on the balance sheet, must be a fixed, known amount to be paid in the future. T F 11. Amortization of a discount on a bond payable will make the amount of interest expense reported on the income statement less than the cash paid for that year. T F 12. The market price of outstanding bonds tends to fluctuate inversely with changes in the market interest rate. T F 2 Part B: Answer on this exam paper. (36 marks) Questions in this part are worth 3 or 4 marks as shown. (Show all calculations) 13. (3 marks) During 2015, Thomas Company recorded bad debt expense of $15,000 and wrote off an uncollectible account receivable amounting to $5,000. The January 1, 2015, balance in the allowance for doubtful accounts was $10,000. Required: The December 31, 2015, balance in the allowance for doubtful accounts account is $ _____________ . 14. (3 marks) In 2015, G CO. reported product sales of $717.8 million and yearend accounts receivable of $79.4 million. In 2014 product sales were $584.9 million and yearend accounts receivable were $71.4 million. Required: The receivables turnover ratio for 2015 is __________________ times. 3 15. (3 marks) The following information was taken from the 2015 income statement of Milburn Company: Pretax income, $12,000; Total operating expenses (not including income taxes), $20,000; Sales revenue, $120,000; Beginning inventory, $8,000; and Purchases, $90,000. Required: The dollar amount of the 2015 ending inventory that would appear in the balance sheet is $ _________________. 16.(3 marks) Richmond Company had the following information taken from its 2015 adjusted trial balance: Sales, $200,000; Sales Discounts, $4,000; Beginning Inventory, $10,000; and Purchases, $140,000. A physical count of the merchandise on hand at the end of the year showed $20,000. Required: The amount of the gross profit that would appear in the income statement of the company for 2015 is $ ______________. 4 17. (4 marks) Maxell Company uses the periodic FIFO method to value inventory and had the following transactions in January 2015. D a te 1 /1 1 /2 1 /5 1 /6 T ra n s a c tio n B e g in n in g b a la n c e P u rch ase S a le S a le # o f u n its 100 75 75 50 C o s t p e r u n it $5 $4 Required: A) The dollar amount of the cost of goods sold for January is $ ___________. B) The dollar amount of the ending inventory for January is $ ___________. 18. (4 marks) XYZ Corporation had a fire on August 1, 2015. The beginning inventory at the start of the fiscal year was $500,000. Purchases up to the date of the fire were $2,000,000. Sales for the year up to the date of the fire were $1,500,000. The company's historical gross profit percentage is 40%. Required: The dollar amount of the inventory account on the balance sheet at the date of the fire was $ ___________________. 5 19.(4 marks) On August 1, Energy Company purchased a coal digging machine in exchange for $30,000 cash and 100 shares of AT common stock held by Energy Company as an investment. Energy Company originally paid $5,000 for the AT common stock which on August 1 had a market value of $4,200. Installation cost was $700 and shipping cost was $200. Required: The dollar amount to be added to the machinery asset account is $ ___________. 20.(4 marks) Johnson Company acquires land and building for $4,000,000 including all fees related to the acquisition. At the date of acquisition the land is appraised at $2,700,000 and the building at $2,100,000. The building was renovated subsequent to acquisition at a cost of $ 750,000. Required: The dollar amount to be added to the building asset account is $ __________ . 6 21.(4 marks) Acme Corporation started business several years ago and acquired a machine costing $2,000,000 on August 1, 2015. The company's normal yearend date is December 31 each year. This machine has a 10 year useful life and an expected salvage value of $ 180,000. Required: A) The dollar amount of depreciation for 2015 under the straight-line method of depreciation is $ _________________ . B) The dollar amount of depreciation for 2015 under the double declining balance method of depreciation is $___________________ . 22. (4 marks) Bateman Company reported total shareholders' equity of $58,000 on its balance sheet dated December 31, 2015. During 2015, it reported a net income of $4,000, declared and paid a cash dividend of $2,000, and issued additional capital stock of $20,000. Required: The dollar amount of total shareholders' equity at January 1, 2015 (the start of the year) is $ ___________. PART C. Answer on this exam paper. (10 total marks) You find the following items on the 2013 statement of earnings of amounts of Yumm Brands, Inc. 7 Sales revenue Sales discounts Sales returns and allowances Beginning inventory Purchases Transportation in Purchase returns Ending inventory Expenses (operating) $ 16,000 1,200 300 22,000 10,000 2,000 850 20,000 2,600 A. What is net sales? B. What is net purchases? C. What is cost of goods sold? D. What is gross margin? E. What is income before income tax? PART D. Answer on this exam paper (7 total marks) 24. (7 marks) You are given the following information for two companies, ABC and XYZ, at the end of 2015. Company Cash Accounts receivable Inventory ABC 1,000 1,000 30,000 XYZ 2,000 1,000 2,000 8 Current assets 32,000 5,000 Current liabilities 10,000 10,000 320% 50% 20% 30% Current ratio CA/CL Quick ratio (CAInv)/CL Required: a) Compare the current ratio and quick ratio. Assume ABC's inventory is slow-moving real estate while XYZ's inventory is fast-moving groceries. Briefly explain why ABC or XYZ have a better ability to repay liabilities in the short term? (4 marks) b) Contrast cash with accounts receivable. Summarize two reasons why cash is listed ahead of accounts receivable in the statement of financial position. (3 marks) PART E. Answer this part on this exam paper. (13 total marks) 1. Aloha Cruise issued $170,000 in 6%, 10-year bonds (payable on December 31, 2028) on December 31, 2018, for $156,776. Interest is paid on June 30 and December 31. The market rate of interest is 8%. Required: Prepare journal entries for the payment of interest on June 30 and December 31, 2018. 9 2. Solomon Shingles uses the aging method to estimate bad debt expense. At the beginning of the year, the company had an accounts receivable balance of $47,600 and a credit balance in the allowance for doubtful accounts of $ 9,960. During the year, Solomon had credit sales of $1,248,600, and collected accounts receivable in the amount of $1,205,400. $21,200 of accounts receivable were determined to be uncollectible and written off. The company had the following analysis of accounts receivable at the end of the year: Accounts Receivable Age Default Current 1-15 days past due 16-45 days past due 46-90 days past due Over 90 days past due Amount $ 40,800 10,600 6,200 7,200 4,800 $ 69,600 Proportion Expected to 1% 2% 8% 15% 30% Windsor has a December 31 yearend. Required: Answer the questions below on the following page: 1. Prepare the journal for the write-off of the accounts receivable of $21,200. 2. Calculate the desired ending balance of the allowance for doubtful accounts at the end of the year. 3. Prepare the journal entry to record bad debt expense at year end. 10 27. (3 marks) Selected data from the Goal Company follows: 2015 ($) Retained earnings Accumulated OCI Common shares Current liabilities Long-term debt 155,000 150,000 250,000 300,000 900,000 2014 ($) 145,000 130,000 225,000 200,000 750,000 Required: Based on the above information only, determine if the debt to equity ratio is improving or deteriorating? Should shareholders be concerned? 11 SUMMARY SHEET OF SELECTED RATIOS 1.Accounts receivable turnover = Net credit sales Average accounts receivable 2. Inventory turnover = Cost of goods sold Average inventory 3. Current ratio = Current assets Current liabilities 4. Debt to equity ratio = Total liabilities Total equity 5. Cash ratio = Cash and short-term investments Current liabilities 6. Return on assets ratio = Net income + (Interest expense x (1- tax rate)) Total assets 7. Quick ratio = Cash + Accounts receivable + short term investments Current liabilities 8 Return on equity ratio = 9. Gross profit percentage ratio = 10. Net profit margin percentage ratio = Net income Average equity Gross profit Net sales Net income Net sales 12 13