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Accounting 111 Final Exam - Show your calculations NAME SECTION INSTRUCTIONS: 1. This exam consists of 14 pages, including this page. Please ensure that you complete every page. 2. Round all answers, except for earnings per share (EPS), to the nearest whole dollar unless otherwise specified. 3. Round all EPS amounts to the nearest whole cent. 4. Show all calculations. TEST TIME: 3 Hours Possible Mark Question 1. Investments 17 2. Partnerships 11 3. Bonds 15 4. Corporations 15 5. Inventories 15 6. Multiple Choice/Short Answer 12 7. Earnings per share 7 8. Cash Flow 35 9. Financial Analysis 10 TOTAL Acct 111 Final Exam - Winter 2016 Mark Obtained _______ 137 Page 1 of 12 Accounting 111 Final Exam - Show your calculations Question 1: 17 marks (20 minutes) On April 13, 2015, DeShawn Shead Corp, with a year-end of December 31, purchased 21,000 of the voting common shares in Cary Williams Corp. for $3,125,000. Cary Williams Corp. is a key customer of Pricemart Corp, and the total voting common shares issued and outstanding by Stanley Co. on April 15, 2015 were 84,000. On Cary Williams Corp.'s year-end June 30, 2015, their total profit was $836,000, and they paid a total cash dividend to all common shareholders of $230,000. The payment date was June 30, 2015. On September 15, 2015, DeShawn Shead Corp sold the investment for $180 per share. On October 15, 2015, DeShawn Shead Corp invested in common shares of Real-Axe Inc, purchasing 20,000 shares for $11.25 per share; this purchase represented 3% of total shares issued and outstanding. DeShawn Shead Corp intends on selling these shares at some point in the future when the share value appreciates. Real-Axe Inc declared $100,000 in total dividends on November 15, 2015 for the shareholders of November 1, 2015. The shares were paid on November 30th of which DeShawn Stead received $3,000. Shares were trading for $11.00 per share on December 31, 2015. During 2015, DeShawn Shead Corp, had the following held-to-maturity investment related transactions: January 1 Purchased a FV $10,000 Relativity Ltd 5%, 10-year bond at 0.97. The bond pays interest semiannually on June 30 and December 31. June 30 Received semiannual interest on Relativity Ltd bond. December 31 Received semiannual interest on Relativity Ltd bond DeShawn Shead Corp uses the effective interest rate method of amortizing discounts and premiums and the effective interest at the time of the HTM purchase was 6%. Required: 1) Prepare all appropriate journal entries for Pricemart Corp for 2015 including journal entry with calculations. Journal descriptions are not required. (17 marks) Date Apr 13 Jun 30 Jun 30 Oct 15 Nov 30 Dec 31 Jan 1 Jun 30 Dec 31 Sep 15 Account Title Investment in DeShawn Cash DEBIT 3,125,000 Cash Investment in DeShawn 57,500 Investment in DeShawn Investment revenue 209,000 Investment in Real Axe Cash 225,000 Cash Dividend Revenue 3,000 Unrealized Loss Investment in Real Axe 5,000 Investment in Relativity Cash 9,700 Cash Interest revenue Investment in relativity 250 Cash Interest revenue Investment in relativity Cash Investment in Cary Williams Gain on sale of investment Acct 111 Final Exam - Winter 2016 CREDIT Marks 1 3,125,000 1 57,500 1 209,000 1 225,000 1 3,000 2 5,000 1 9,700 3 291 41 250 3 292 42 3,780,000 3 3,267,000 503,500 Page 2 of 12 Accounting 111 Final Exam - Show your calculations Question 2: 11 Marks (15 minutes) Part A: Mindy, Danny, Layla, and Jeremy are partners with capital balances of $35,000, $42,000, $25,000 and $25,000 respectively. Profits and losses are shared 30% to Mindy, 25% to Danny, 25% to Layla and 20% to Jeremy. Required: 1. Prepare the journal entry assuming that the partnership purchases Layla's partnership interest for $35,000 (5 marks). ITEM ACCOUNT TITLE DEBIT Layla, Capital 25,000 Mindy, Capital 4,000 Danny, Capital 3,333 Jeremy, Capital 2,667 CREDIT Cash 35,000 Part B: Jackie, Hyde, and Kelso have capital balances on January 1, 2014 of $150,000, 37,500 and 75,000 respectively. The partnership income-sharing agreement provides for (5 marks): Annual salaries Interest on beginning capital balances Remaining income or loss to be shared Jackie 30,000 10% 50% Hyde 35,000 10% 35% Kelso 0 10% 15% Required: a. Prepare a schedule showing the distribution of net income on December 31, 2014 assuming net income is $85,000, round to two decimal places. Salary Interest Remaining Jackie 30,000 15,000 (3,125) Hyde 35,000 3,750 (2,187.5) Kelso 0 7,500 (937.50) Total 65,000 26,250 (6,250) 41,875 36,562.5 6,562.5 85,000 b. Journalize the allocation of net income (1 mark). Date Account Acct 111 Final Exam - Winter 2016 Debit Credit Page 3 of 12 Accounting 111 Final Exam - Show your calculations Question 3: 15 Marks (15 minutes) On January 1, 2016 Pumpkin Spice Company issued a $7,500,000, 10-year bond with a coupon rate of 8% when the market rate was 7%. It was sold for $8,032,965. Interest payments are made on June 30 and December 31 of each year with Pumpkin Spice's year-end December 31. Required: 1. Prepare all the appropriate journal entries related to the bond issuance. 2. Prepare the journal entry related to the interest payments in 2016. Show your work. Assume Pumpkin Spice uses the straight line amortization method. 3. Prepare the journal entry related to the interest payments in 2016 assuming Pumpkin Spice uses the effective interest rate amortization method. Show your work. ITEM Jan 1 ACCOUNT TITLE Cash DEBIT 8,032,965 B/P 7,500,000 Premium Jun 30 Interest exp Premium 532,965 273,352 26,649 Cash Dec 31 Ditto June 30 Interest exp Premium 300,000 281,154 18,846 Cash Dec 31 Interest Premium Cash Acct 111 Final Exam - Winter 2016 CREDIT 300,000 280,494 19,506 300,000 Page 4 of 12 Accounting 111 Final Exam - Show your calculations Question 4: 15 Marks (15 minutes) The accounts for the Suits Corporation reported the following shareholder equity account balances on their year-end December 31, 2014: Preferred shares, $5 cumulative, unlimited shares authorized Common shares, unlimited authorized, 20,000 shares issued and outstanding Retained Earnings $ 0 264,600 455,000 In 2015, Suits Corporation had the following transactions affecting shareholders and the shareholder equity accounts: Jan 14 Jan 30 Feb 5 Sep 15 Oct 5 Nov 15 Dec 15 The directors declared a 5% common share dividend distributable on February 5 to the January 30 shareholders of record. The shares were trading at $13.23 per share Date of record regarding the 5% common share dividend Date of distribution regarding the 5% common share dividend The directors declared a total cash dividend of $30,000 payable on October 5 to the September 20 shareholders of record. The cash dividend declared on September 15 was paid Suits repurchase 5,000 common shares for $13 per share. Suits repurchase 5,000 common shares for $15 per share Required: Journalize the above 2015 transactions (explanations not required, if a date is given and a journal entry is not required, specify \"no entry required\"): DATE Jan 14 ACCOUNT TITLE R/E Common stock div distributable DEBIT 13,230 No entry required Feb 5 Common stock Div Distributable C/S 13,230 R/e Dividend Payable 30,000 1 Sep 20 No entry required Oct 5 Dividend Payable Cash 30,000 C/S Cash Con Capital from the retirement of CS 66,150 C/s Cash Con Capital from the retirement of CS R/E 66,150 Nov 15 Dec 15 Acct 111 Final Exam - Winter 2016 2 13,230 Jan 30 Sep 15 CREDIT 13,230 2 30,000 1 1 1 30,000 3 65,000 1,150 4 75,000 1,150 7,700 Page 5 of 12 Accounting 111 Final Exam - Show your calculations Question 5: 15 marks total (20 minutes) Part A (5 marks): Journalize the following merchandising transactions for Robots Inc., assuming a perpetual system is used. Assume there is no beginning inventory before the Jan 23 transaction. Journal entry descriptions are not required. Jan. 23 Jan. 26 Jan. 30 Jan. 31 Purchased 150 units of merchandise for $3,125 each, terms 2/10 n/30. Returned 15 defective units from the Jan. 23rd purchase and received full credit. Paid for merchandise purchased above. Sold 15 units of the Jan. 23rd merchandise for $100,000 cash. Date Jan 23 Jan 26 Jan 30 Jan 31 Account Debit Inventory A/P 468,750 A/P Inventory 46,875 A/P Cash Inventory 421,875 Cash 100,000 Sales revenue COGS Inventory Credit 468,750 46,875 413,438 8,438 100,000 45,936 45,936 Part B (4 marks): Journalize the above merchandising transactions for Robots Inc., assuming a periodic system is used. Assume there is no beginning inventory before the Jan 23 transaction. Journal entry descriptions are not required. Date Jan 23 Jan 26 Jan 30 Jan 31 Account Debit Purchases AP 468,750 AP Purchases 46,875 AP Cash Purchases 421,875 Cash Sales revenue 100,000 Acct 111 Final Exam - Winter 2016 Credit 468750 46,875 413,438 8,438 100,000 Page 6 of 12 Accounting 111 Final Exam - Show your calculations Question 5 Part C (6 marks): Balloons Company sells just one product and had the following transactions during May 2015: Beginning inventory May 11 Purchase 16 Sale 18 Purchase 20 Sale 23 Purchase Units 60 120 115 100 80 55 Unit Cost/Price $4 6 25 15 25 6 Required: Compute the following amounts, under the following independent assumptions of inventory costing methods used. Round calculations to two decimal places and round the answer to the nearest whole dollar. a) Ending inventory, assuming FIFO inventory costing method (perpetual): 1605 b) Cost of goods sold, assuming Weighted Average inventory costing method (perpetual): 60 x 4 = 240 120 x 6 = 720 + 240 = 960 (180 units = 5.3 per unit) (115 x 5.3 = 609.5) 960 - 609.5 = 350.5 OR 346.67 (65 units) 100 x 15 = 1500 + 350.5 = 1850.5 OR 1,846.67 (165 units) unit cost = 11.21 OR 11.19 (80 x 11.21 = 897.21 OR 895.35 Cogs = 609.5 + 897.21 = 1506.71 OR 1508.68 Acct 111 Final Exam - Winter 2016 Page 7 of 12 Accounting 111 Final Exam - Show your calculations Question 6: 12 Marks (15 minutes) Apple, Peach, and Carrot are in the process of liquidating their partnership. They share profits 50%. 33%, 17% respectively. Following is the current balance sheet for the partnership: Cash $100,000 Other assets 225,000 Liabilities Apple, capital Peach, capital Carrot, capital Total assets Total liabilities and capital $325,000 $325,000 $ 55,000 145,000 50,000 75,000 1. Refer to the information above. If the other assets are sold for $250,000, the total amount of cash to be distributed to the partners is: a. b. c. d. e. $295,000 $350,000 $250,000 $195,000 None of the above. 2. The equity method of accounting for long term investments in shares is used by investors when: a) The investor has significant influence over the corporation b) The investor has purchased preferred shares of the corporation c) The investor has no influence over the corporation d) The investor intends to sell the shares within the next year e) None of the above 3. A company who purchases between 20 - 50% of the voting common shares of another company is generally regarded as having achieved \"significant influence\" over the purchased company. Which of the following are not another way by which a company can achieve significant influence over another? a) The distribution of the remaining shares is widely held b) The purchasing company owns a major supplier c) The company has the ability to appoint board of directors d) The purchasing company owns the majority of related patents in its industry 4. A firm's cash flow from investing activities is not affected by a) Cash received from the sale of equipment b) Cash paid to purchase a long term investment c) Cash received from the issuance of bonds payable d) Cash paid to purchase a building e) All of these affect cash flow from investing activities 5. The declaration and distribution of a stock dividend of common shares decreases a) The corporation's amount of assets b) The retained earnings of the corporation c) The total shareholders' equity of the corporation d) The number of common shares outstanding e) None of the above 6. For perishable and identical inventory, which inventory costing method is most appropriate? a) a. LIFO. b) Specific identication. c) Weighted Average d) FIFO Acct 111 Final Exam - Winter 2016 Page 8 of 12 Accounting 111 Final Exam - Show your calculations 7. Where on the financial statement does each of the following items belong? Account Where on financial statements (be specific - for example current assets or long-term liabilities Prepaid expenses Contributed surplus - retirement of shares Common stock dividend distributable Dividends payable 8. If Ending Inventory is overstated at the end of the year, net income will be: a. Overstated b. Understated c. Correct 9. What are the two main sources of GAAP for Canadian companies? (Hint: Publically traded vs private companies) Acct 111 Final Exam - Winter 2016 Page 9 of 12 Accounting 111 Final Exam - Show your calculations Question 7: 7 marks (10 minutes) On January 1, 2015, Florenza Corporation issued 6,500 common shares at $15 per share. On June 30, 2015, an additional 1,500 common shares were issued to investors in exchange for land with a current market value of $26,250. On October 1, 2015, Florenza Corporation reacquired 1,000 of its own common shares at $18.00 per share. No cash dividends have been declared during 2015 by Florenza Corporation. During the year, Florenza Corporation has a loss from discontinued operations of $11,000 net of tax. The net income before discontinued operations for the first year of operations is $38,500 and net income is $28,500. Required: 1. Compute Florenza Corporation's weighted average number of common shares for 2015. (4 marks) 2. Assuming the weighted average number of common shares during 2015 is 9,000, compute earnings per share for 2015 at December 31 for Florenza Corporation (3 marks) Jan 1 - jun 29: 6,500 x 6/12 = June 30 - sep 30\" 6,500 + 1,500 = 8,000 x 3/12 Oct 1 - dec 31: 7,000 x 3/12 28,500/9000 = 3.17 Acct 111 Final Exam - Winter 2016 Page 10 of 12 Accounting 111 Final Exam - Show your calculations Question 8: 35 Marks total (45 minutes) Following are the financial statements and other supplementary information for Frank Clark's Potato Sacks Inc. for its year-ended December 31, 2014: Frank Clark's Potato Sacks Inc. Comparative Balance Sheet As at December 31, 2014 Assets 2014 2013 $105,000 $23.000 Accounts Receivable (net) 62.000 51,000 Inventory 124,800 83,000 5,500 3,100 297,300 160,100 Equipment 514,400 326,000 Accumulated Depreciation, Equipment (46,600) (65,200) Total Long-Term Assets 467,800 260,800 Total Assets $765,100 $420,900 Accounts Payable 35,000 21,000 Accrued Expenses 18,000 13,000 300 1,600 Income Taxes Payable 8,000 12,500 Total Current Liabilities 61,300 48,100 L.T. Notes Payable 42,000 75,000 Total Liabilities 109,200 151,400 Common Shares 220,000 180,000 Retained Earnings 405,110 128,400 Total Liabilities and Shareholders' Equity $765,100 $420,900 Current Assets: Cash Prepaid Expenses Total Current Assets Long-Term Assets: Liabilities Current Liabilities: Interest Payable Long-Term Liabilities: Shareholders' Equity Frank Clark's Potato Sacks Inc. Income Statement For the year-ended December 31, 2014 Sales Revenue $1,172,000 Cost of Goods Sold (561,000) Gross Profit 611,000 Operating Expenses: Depreciation Expense Other Operating Expenses ($22,000) (47,000) Income from Operations (69,000) 542,000 Other Revenues/Gains and Expenses/Losses: Interest Expense Gain/(Loss) on Sale of Equipment Profit before Taxes (12,000) 1,600 (10,400) 531,600 Income Tax Expense (134,167) Profit $397,433 Supplementary Information: 1. Equipment with a historical cost of $100,600 was sold during the year. Its Accumulated Depreciation balance was $40,600 at the time of the sale. 2. New equipment was acquired during the year using cash. 3. Prepaids and accrued expenses are related to other operating expenses. Accounts payable are related to the purchase of inventory. Acct 111 Final Exam - Winter 2016 Page 11 of 12 Accounting 111 Final Exam - Show your calculations 4. Common shares were issued for cash during the year. 5. Dividends were paid in cash during the year. The only journal entries recorded to Retained Earnings were dividends and net income. Question 8 Required: (cont'd) Part A: Prepare, in proper form, a Cash Flow Statement for Frank Clark's Potato Sacks Inc. Corporation for the year-ended December 31, 2014, using the Direct Method. Frank Clark's Potato Sacks Inc. Cash Flow Statement For the year-ended December 31, 2014 Part B: Prepare, in proper form, the Operating Activities section ONLY of the Cash Flow Statement, for the year-ended December 31, 2014, using the Indirect Method. No title is required. Acct 111 Final Exam - Winter 2016 Page 12 of 12