ACT 201

FINAL ASSIGNMENT
TOTAL MARKS 100

Short Questions:
5*6=30 marks
1. What is bank reconciliation? Give three usefulness of the bank reconciliation. What are the
adjustments the company need to record after preparing bank reconciliation and why these
adjustments are necessary?
2. What is depreciation? Define the 3 categories of depreciation methods. Based on the advantages
and disadvantages of each methods which method you think is the best ? Justify
3. Difference between service based and merchandising companies. Why delivery cost is added to
inventory account under perpetual inventory system based on buyer’s perspective? If you have a
big grocery store which merchandising inventory system would you prefer-perpetual or periodic?
Why?
4. What is FIFO,LIFO and average cost? Among these three which method maintain the actual
physical flow. Why?
5. Sims Company is in the electronics industry and the price it pays for inventory is decreasing.
Indicate which inventory method will:
a)provide the highest cost of goods sold.
b )result in the lowest income tax expense

Problem solving
Total 30 marks
1.

Prepare the cash flows from the operating activities section of the statement of cash flows using the
indirect method. Marks 4
United agency reported net income of $280,000 for the current year and Depreciation expense on
buildings and equipment amounted to $100,000 for the year. The balances of short term assets and
liabilities of beginning and ending period are given below
End of Year Beginning of Year
Cash $30,000 $12,000
Accounts receivable 44,000 22,000
Inventories 40,000 55,000
Prepaid expenses 9,500 5,000
Accounts payable 8,000 18,000
Income taxes payable 1,600 1,200
 ACT 201
FINAL ASSIGNMENT
TOTAL MARKS 100

2.

On December 1, Nova company had an inventory of 25 wall clocks at a cost of $20 each. The company
uses a perpetual inventory system. During December , the following transactions and events occurred.

DEC. 4 Purchased 70 wallclocks at $20 each from Scully, terms 1/10, n/30.

DEC. 6 Received credit for the return of 6 wallclocks purchased on DEC. 4 that were defective.

DEC. 9 Sold 50 wall clocks for $35 each to Oliver, terms 2/10, n/30.

DEC. 13 Sold 15 wall clocks for $40 each to Heathers Supply, terms n/30.

DEC. 14 Paid scully in full, less discount.

Journalize the December transactions for Nova company. Marks 8

3.
Bay group uses the periodic inventory method. You are provided with the following information for Bay
group for the month of August 2019.

Unit Cost or
Date Description Quantity Selling Price
December 31 Ending Inventory 220 $32
January 2 Purchase 143 33
January 6 Sale 275 61
January 9 Sale return 15 61
January 9 Purchase 124 35
January 10 Sale 66 69
January 23 Purchase 153 40
January 30 Sale 169 76
 ACT 201
FINAL ASSIGNMENT
TOTAL MARKS 100

For each of the following cost flow assumptions, calculate (i) cost of goods sold, (ii) ending inventory,
and (iii) gross profit.
(1) LIFO. (2) FIFO. & Average cost marks 8

3. April 30 Balance of Vue company is given below :

Account Balances
Accounts
Cash $ 7,000
Supplies 3,000
Equipment 45,000
Accumulated Depreciation 12,000
Accounts Payable 5,000
Capital 30,000
Drawing 12,000
Revenues from branch 1 60,000
Revenues from branch 2 32,000
Revenues from branch 3 29,000
Advertising Expense 22,000
Concession Supplies Expense 29,000
Depreciation Expense 3,000
Film Rental Expense 16,000
Rent Expense 22,000
Salaries Expense 28,000
Utilities Expense 3,000
 ACT 201
FINAL ASSIGNMENT
TOTAL MARKS 100

Prepare the closing journal entries and post closing trial balance for Vue. Marks 10

Analytical Question:
Total 40
1.
The financial statement of Mary Scully Co. is as follows: Marks 30

Income Statement
For the Year Ended December 31
2011 2010
Net Sales 2,000,000 1,750,000
Cost of Goods Sold 1,011,500 996,000
Gross Profit 988,500 754,000
Selling and Adm.
Expense 500,000 470,000
Income from operations 488,500 284,000
Other expenses and
losses
Interest Expense 15,000 14,000
Income before income
tax 473,500 270,000
Income tax expense 80,000 75,000
Net Income 393,500 195,000
Cash dividend 266,500 100,000
Balance Sheets
December 31
Assets 2011 2010
Current assets
Cash 60,000 65,000
Short-term Investment 70,000 50,000
Accounts receivable (net) 115,000 105,000
Inventory 125,000 115,000
Total Current Assets 370,000 335,000
Plant assets (net) 600,000 520,000
 ACT 201
FINAL ASSIGNMENT
TOTAL MARKS 100

Total assets 970,000 855,000

Liabilities and Stockholders' Equity

Current liabilities
Accounts payable 150,000 145,000
Income taxes payable 45,000 42,000
Total current
liabilities 195,000 187,000
Notes payable 200,000 200,000
Total liabilities 395,000 387,000
Stockholders' equity
Common stock ($5 par) 350,000 370,000
Retained earnings 225,000 98,000
Total stockholders'
equity 575,000 468,000
Total liabilities and stockholders' equity 970,000 855,000

Additional Information: Weighted average common shares in 2011 were 55,000. Market price of common
stock is $20 on 31st of December.

a) Compute and interpret the following ratios for 2011

I. Current ratio
II. Quick ratio
III. Receivable turnover
IV. Inventory turnover
V. Profit margin
VI. Return on Asset
VII. Return on equity
VIII. EPS
IX. Debt ratio
X. Times interest earned ratio

b) Explain the financial position of the company based on liquidity ,profitability and solvency ratios
c) if you are a credit manager of a bank how will you will you sanction the loan? Give you reasons.

2.
Marks 10
The United Hospital purchased a new equipment for $100,000. The estimated salvage value is
 ACT 201
FINAL ASSIGNMENT
TOTAL MARKS 100

$10,000. The equipment has a useful life of five years and the hospital expects to use it 15,000 hours. It
was used 1,800 hours in year 1; 2,200 hours in year 2; 2,700 hours in year 3; 1,800 hours in year4; 1,900
hours in year 5.
Instructions
(a) Compute the annual depreciation for each of the five years under each of the following
methods:
(1) straight-line.
(2) units-of-activity.
(b) If you were the administrator of the hospital, which method would you prefer and why?
(c) Which method would result in the lowest reported income in the first year? Which method
would result in the lowest total reported income over the five-year period?