Question 1: (4.5 points) Below appears the Balance Sheet of Claire Company as of December 31, 2019. Claire Company - Balance Sheet as of December 31, 2019 Assets Liabilities and Owner's equity Cash Accounts Receivable Inventory 40,000 30,000 12,000 Accounts Payable Notes Payable 10,000 30,000 Total Liabilities 40,000 Paid-in Capital Retained Earnings Total Owner's Equity 25,000 17,000 42,000 TOTAL LIABILITIES + OWNER'S EQUITY TOTAL ASSETS 82,000 82,000 During 2020 the company performed the following operations: 1. During the first half of the year, the company had credit sales (on account) of $140,000. By the end of the year, the company had collected $125,000 cash from credit sales. 2. On January 3, the company collected all outstanding accounts receivable from the previous year. 3. On February 10, the company purchased office supplies for $5,000, paying cash. During 2020, the company consumed $3,500 of office supplies. 4. On June 1, the company acquired a new machine for $6,000 cash. The company uses the straight-line method to calculate the depreciation of the machine, that has an expected life of 10 years and a salvage (terminal) value of zero 5. On June 30, the company borrowed $20,000 in a 12-month, 6% (annual rate) note (loan) payable. The amount borrowed and the interest will be paid to the bank at the end of the note. 6. On July 1, the company received a $12,000 payment from a customer for services to be performed later. On December 31, 2020, the company had performed 50% of the total service. 7. During 2020, the company purchased inventory on account at $120,000. 8. During the second half of the year, the company obtained $175,000 of sales in cash. 9. On September 15, the company paid legal expenses in cash, $9,000. 10. On October 15, the company paid $110,000 to suppliers from previous purchases of inventory 11. On December 31, 2020, the company paid the rent for the entire year, paying cash, $18,000 ($1,500 per month). On that date, it also paid $1,500 in advance for the following month. 12. On December 31, 2020, the company declared dividends for $5,000 that will be paid next year. 13. Total wages expense in 2020 amounted to $32,000 but just $20,000 had been paid by year end. 14. The cost of the inventory sold during 2020 was $110,000. Required: (Solve this exercise on the ANSWER SHEET) a) Prepare the journal entries and general ledger entries corresponding to the year 2020. (Note that some implied adjustments may be needed) (3 points) b) Identify inflows and outflows of cash from operating, investing and financing activities. (0.5 points) c) Prepare the Income Statement and the Balance Sheet as of Dec 31st, 2020. (1 point) You may make only one entry for the entire year, if you prefer, instead of monthly or quarterly entries. If you consider that some information is MISSING, please make a guess, explain it, and continue. Remember to enter the "implicit or adjusting" entries, so make the necessary adjustments as of December, 31st, 2020. Question 2 (1.5 points) BIP Corp. had gross sales of $850,000 on credit during November. Sales returns were $20,000, and Cash discounts granted were $40,000. Required: (Solve this exercise on the reserved space from the ANSWER SHEET) a) Prepare a detailed presentation of the revenue section of the income statement. (0.75 points) b) Show the journal entries. Assume the appropriate amount of receivables it is collected. (0.75 points) Question 3 (1.5 points) Florence Co. distributes sunglasses in the Italian market that have been previously imported from a Chinese manufacturer. The Company uses a periodic inventory system. The following data corresponds to 2020: Purchases Sold Inventory Dec 31, 2019 100 @ 200 = 20,000 Feb 1, 2020 40 @ 210 = 8,400 Feb 28, 2020 90 @ 300 = 27,000 Apr 18, 2020 80 @ 215 = 17,200 Jul 15, 2020 80 @ 310 = 24,800 Nov 12, 2020 60 @ 220 = 13,200 Dec 17, 2020 60 @ 325 = 19,500 Required: (Solve this exercise on the ANSWER SHEET) Prepare a comparison of income statements for the year ended, by filling the corresponding table from the ANSWER SHEET, contrasting FIFO, LIFO and Weighted Average methods. Assume that "Other Expenses" for the year are 4,800, and the income tax rate is 25%. (0.5 points for each method). Question 4 (1.5 points) IKEA Spain decided to acquire a new equipment that should help the Spanish stores to be more efficient in their logistics. The amount paid for this equipment was 54,000 with an expected useful life of 4 years and a 3,000 expected terminal value. Required: (Solve this exercise on the ANSWER SHEET) a. Prepare a tabular comparison of the annual depreciation and book value for each year under straight-line and Double Declining Balance depreciation (0.5 points) b. Assume straight-line depreciation is used. 2 years after the purchase, and after using the equipment less than expected, IKEA Spain decided to change the useful life from 4 years to 6 years. Calculate depreciation expense for year 3. (0.5 points) years and a C. Assume IKEA Spain chooses the straight-line method with a useful life of 4 residual value of 3,000. What would be the journal entry if IKEA Spain sells the equipment for 34,000 (cash) after 2 years? (0.5 points) Note: Points b. and c. are independent questions. You can ignore b. for solving c. and you can ignore c. for solving b. Question 5 (1 point: 0.25 points each question 5.1-5.4). Multiple Choice Problem Required: Answer on the ANSWER SHEET the following Questions by marking the right answer(s). Multiple choice 5.1 Using the periodic system, cost of goods is computed as: A) beginning inventory + acquisitions B) beginning inventory + acquisitions - ending inventory C) beginning inventory + ending inventory + acquisitions D) beginning inventory + ending inventory - acquisitions Multiple choice 5.2 A company paid in advance 36,000 on October 1, 2020, for an insurance premium covering from October 1, 2020 to September 30, 2021. Select the correct statement: A) A deferred expense 27,000 will be shown at the end of 2020. B) As the insurance premium is paid in 2020, the company will recognize 36,000 as an expense in 2020. C) On December 31, 2020 the company will do a prepaid insurance recognition, recording +9,000 euros in rent expense and - 9,000 in Cash. D) It is a prepaid insurance expense; therefore, no expense will be recorded in 2020. Multiple choice 5.3 For Alitalia (the Italian Airline), which of the following is not a cash flow from financing activities? A) Issuing common stock in exchange for cash B) Paying a dividend to Alitalia's shareholders C) Repaying amounts borrowed from banks D) Buying shares of its supplier (an oil distributor) Multiple choice 5.4 A company is preparing its Financial Statements at the end of the period. Indicate the total equity to be reported knowing the following information at the end of the period: Common Stock, $20,000 Retained Earnings (from previous periods), $60,000 Net Income (of the period), $20,000 Dividends declared and paid in the period), $10,000 A) $110,000 B) $100,000 C) $90,000 D) $80,000