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ACCT5001 Financial Accounting

Final Exam (2019W)

Student ID Name Score

1. The balance sheet items for The City Butcher (arranged in alphabetical order) were
as follows at July 1, 2020.
Accounts Payable $7,800 Equipment and Fixtures $25,000
Accounts Receivable 9,000 Land 50,000
Building 70,000 Notes Payable 15,000

Capital Stock 100,000 Salaries Payable 3,700

Cash 4,100 Supplies 7,000
During the next few days, the following transactions occurred:
July 4 Additional capital stock was sold for $30,000. The accounts payable were
paid in full. (No payment was made on the notes payable or salaries payable.)
July 5 Equipment was purchased at a cost of $6,000 to be paid within 10 days.
Supplies were purchased for $1,000 cash from a restaurant supply center that was
going out of business. These supplies would have cost $2,000 if purchased through
normal channels.
Please prepare a balance sheet at July 5, 2020, and a statement of cash flows for
July 1-5. Classify the payment of accounts payable and the purchase of supplies as
operating activities. (20/100)

2. Computer Resources Inc. is a computer retailer. Computer Resources began

operations in July of the current year and engaged in the following transactions
during that month. Computer Resources uses a perpetual inventory system.
July 5 Purchased $100,000 of computer equipment, term n/30.
July 12 Sold $100,000 of computer equipment, term n/30. The cost of the
equipment sold is $50,000.
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July 26 Purchased $200,000 of computer equipment, term n/30.

a. Compute the gross profit on Computer Resources’s transactions during July.
(5/100)
b. Compute the gross profit on Computer Resources’s transactions during July if
a cash-basis accounting system was used. (5/100)
c. Explain the difference between the results in a and b. (5/100)
d. Assume that fair value of Computer Resources’s inventory at July 31 is
$373,000. A potential lender asks Computer Resources to prepare a fair-value-
based balance sheet. Prepare the journal entry to reflect inventory at fair value.
Comment on how a retailer might determine fair value for inventory items.
(5/100)

3. Sing Along is a popular music store. During the current year, the company’s cost of
goods available for sale amounted to $330,000. The retail sales value of this
merchandise amounted to $600,000. Sales for the year were $520,000.
a. Using the retail method, estimate (1) the cost of goods sold during the year and
(2) the inventory at the end of the year. (10/100)
b. At year-end, Sing Along takes a physical inventory. The general manager walks
through the store counting each type of product and reading its retail price into
a tape recorder. From the recorded information, another employee prepare a
schedule listing the entire ending inventory at retail sales prices. The schedule
prepared for the current year reports ending inventory of $75,000 at retail sales
prices. (1) Use the cost ratio computed in part a to reduce the inventory counted
by the general manager from its retail value to an estimate of its cost. (2)
Determine the estimated shrinkage losses (measured at cost) incurred by Sing
Along during the year. (3) Compute Sing Along’s gross profit for the year.
(Include inventory shrinkage losses in the cost of goods sold) (15/100)

4. Wilson, Inc., purchased a truck to use for deliveries and is attempting to determine
how much depreciation expense would be recognized under three different methods.
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The truck cost $24,000 and is expected to have a value of $6,000 at the end of its
six-year life. The truck is expected to be used at the rate of 15,000 miles in the first
year, 20,000 miles in the second and third years, and 12,000 miles in the fourth,
fifth, and sixth years.
a. Determine the amount of depreciation expense that will be recognized under
each of the following depreciation methods in the first and second years of the
truck’s useful life. A full year’s depreciation will be recognized in the first year
the truck is used. (1) Straight-line. (2) Double-declining-balance. (3) Units-of-
output (based on miles). (15/100)
b. Prepare the plant assets section of the balance sheet at the end of the second year
in the asset’s useful life under the units-of-output method, assuming the truck is
the only plant asset owned by Wilson, Inc. (5/100)
c. By which of the three methods is it not possible to determine the actual amount
of depreciation expense prior to the end of each year? What uncertainty causes
this to be true? (5/100)

5. In the long run, a company must generate positive net cash flows from operating
activities to survive. A business that has negative cash flows from operations will
not be able to raise cash indefinitely from other sources and will eventually cease
existing. Many creditors and stockholders are reluctant to invest in companies that
do not generate positive cash flows from operations. However, some investors will
invest in companies with negative cash flows from operations due to an optimistic
future outlook for the company. Thus, investors have invested millions of dollars in
Internet companies that have negative cash flows from operations.
a. What type of company may have Negative Net Cash Provided from Operating
Activities? (5/100)
b. What type of company may have large Positive Net Cash Provided from
Operating Activities? (5/100)