I. (16 points)

Prepare journal entries for the following four events (use straight-line amortization).

01/01/07 The Def Co. issued $100,000, five year bonds, carrying a coupon rate of ten percent (10%), interest payable annually on December 31 each year. Assume that the net proceeds from the issue of the bond were $2,000 different from the face value. The market rate of interest at the time of issue was nine percent(9%).

12/31/07 Recognize the first interest payment.

12/31/08 Recognize the second interest payment.

01/01/09 Redeem (i.e., buy back) twenty percent (20%) of the bonds outstanding for $19,500.

II. (9 points)

What information can be obtained from a companys cash flow statement that is not available from the companys other financial statements?

III.(15 points)

Use the data from Problem V. For the most recent year (2008) calculate the following ratios.

Current ratio

Inventory turnover

Rate of return on total assets

Accounts receivable turnover (assume all sales are on account)

Debt ratio.

IV. (30 points)

Prepare journal entries for ABC Co.s following events.

05/12/08 Received charter authorizing ABC Co. to issue 40,000 shares of common stock at a par value of $2 per share.

06/03/08 Issued 18,000 shares of stock, receiving $40,000.

06/04/08 Paid the law firm of Lo, Ball and Hyde for their services to help organize the company by sending them one thousand shares of stock.

11/15/08 Declared a cash dividend of $3 per share, payable on 01/15/09, to holders of record as of 12/15/08.

12/15/08 Make the appropriate entry.

12/31/08 Make any necessary adjusting entry.

01/15/09 Make the appropriate entry.

06/12/09 Declared a ten percent (10%) stock dividend, payable on 7/15/09 (ignore the date of record for this event). The market value of the stock is $20 per share.

07/15/09 Make the appropriate entry.

08/15/09 Declared a two-for-one stock split. The market value of the stock is $22 per share.

09/15/09 Declared and paid a cash dividend of $2 per share (pretend this happens all in one day).

10/01/09 Purchased 2,000 shares of treasury stock for a total price of $40,000.

10/15/09 Declared and paid a cash dividend of $2 per share.

11/15/09 Reissued 400 shares of treasury stock at $32 each.

12/15/09 Reissued the remaining treasury stock at $9 per share.

V. (30 points)-Additional Information

Prepare a cash flow statement for 2014 with clear documentation (i.e., show your work) for each section of the statement. Use either the direct or the indirect method.

There were no write-offs of delinquent accounts during the year.

A building was sold during the year for $120.

V. (continued)

Comparative balance sheets and an income statement for 2014 are presented below for Nroklesah Company.

Company Information

Comparative Balance Sheets and Income Statement

For the Years 2013 and 2014

BALANCE SHEETSAssets 2014 2013

Cash $ 200 $ 285

Accounts receivable 350 300

Allowance for bad debts (40) (25)

Inventory 100 135

Land 600 500

Buildings 275 255

Accumulated depreciation-buildings (75) (80)

Total assets $1,410 $1,370

Liabilities & Owners EquityLiabilities

Accounts payable $ 300 $ 305

Wages payable 70 60

Dividends payable 30 25

Taxes payable 50 45

Long-term Bonds payable 100 100

Premium on bonds payable 7 10

Total liabilities 557 545Owners Equity

Common stock 650 600

Retained earnings 203 225

Total owners equity 853 825Total liabilities & owners equity $1,410 $1,370

INCOME STATEMENT (2008)

Revenue $1,500

Cost of goods sold 850

Gross margin 650

Operating expenses

Wage expense $171

Depreciation expense 40

Bad debt expense 15

Bond interest expense 14

Total operating expenses 240

Net operating income 410

Gain on sale of building 60

Net income before tax 470

Income tax 141

Net income after tax $ 329