BBA in TM, 1st Sem.

November 08, 2021

ISLAMIC UNIVERSITY OF TECHNOLOGY (IUT)

ORGANIZATION OF ISLAMIC COOPERATION (OIC)
DEPARTMENT OF BUSINESS AND TECHNOLOGY MANAGEMENT
Final-Semester Examination Winter Semester, A. Y. 2020-2021
Course No. : BTM 4103 Time : 1 Hour 30 Min.
Course Title : Financial Accounting I Marks: 75
There are 4 (Four) questions. Answer any 3 (Three) questions. All questions carry equal marks.
Marks in the margin indicate full marks.
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1. Thomas Magnum began operations as a private investigator on January 1, 2019. The trial balance columns 25
of the worksheet for Thomas Magnum, P.I. at March 31 are as follows.

THOMAS MAGNUM, P.I.

Worksheet
For the Quarter Ended March 31, 2020

Trial Balance
Account Titles Dr. Cr.
Cash 11,400
Accounts Receivable 5,620
Supplies 1,050
Prepaid Insurance 2,400
Equipment 30,000

Notes Payable 10,000

Accounts Payable 12,350
T. Magnum, Capital 20,000
T. Magnum, Drawing 600
Service Revenue 13,620
Salaries Expense 2,200
Travel Expense 1,300
Rent Expense 1,200
Miscellaneous Expense 200
55,970 55970

Other data:
i. Supplies on hand total $380.
ii. Depreciation is $1,000 per quarter.

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 iii. Interest accrued on 6-month note payable, issued January 1, $300.
iv. Insurance expires at the rate of $200 per month.
v. Services provided but unbilled at March 31 total $530.
Instructions
(a) Enter the trial balance on a worksheet and complete the worksheet.
(b) Prepare an income statement and a classified balance sheet at March 31. T. Magnum did
not take any additional investments in the business during the quarter ended March 31, 2020.
(c) Journalize the adjusting entries from the adjustments columns of the worksheet.
(d) Journalize the closing entries from the financial statement columns of the
worksheet.
2. a) As the CPA for Mandara Manufacturing Inc., you have been asked to develop some key ratios from the 15
comparative financial statements. This information is to be used to convince creditors that the company is
solvent and will continue as a going concern. The data requested and the computations developed from the
financial statements follow.
2018 2017
Current Ratio 3.1 times 2.1 times
Acid-test ratio .8 times 1.4 times
Asset turnover 2.8 times 2.2 times
Net income Up 32% Down 8%
Earnings per share $3.30 $2.50

Instructions
With the class divided into groups, complete the following. Mandara Manufacturing Inc. asks you to prepare
a list of brief comments stating how each of these items supports the solvency and going-concern potential of
the business. The company wishes to use these comments to support its presentation of data to its creditors.
You are to prepare the comments as requested, giving each item's implications and limitations separately.
Then prepare a collective inference that may be drawn from the individual items about Mandara’s solvency
and going-concern potential.
b) Iqbal Mahbub is the CEO of Pletcher’s Electronics. Iqbal is an expert engineer but a novice in accounting. 10
He asks you to explain the bases for comparison in analyzing Pletcher’s financial statements.
Instructions
Write a letter to Iqbal Mahbub that explains the bases for comparison.

3 a) Explain why the Inventory account will usually require adjustment at year-end. 6
b) On December 10, Blue Company purchased $100,000 of merchandise from Green Company, FOB shipping 12
point, terms 2/10, n/30. Blue pays the freight costs of $600 on June 11. Damaged goods totaling $700 are
returned to Green for credit on June 12. The fair value of these goods is $300. On June 19, Blue pays Green
in full, less the purchase discount. Both companies use a perpetual inventory system.
Instructions
(a) Prepare separate entries for each transaction on the books of Blue Company.
(b) Prepare separate entries for each transaction for Green Company. The merchandise purchased by Blue on
June 10 had cost Green $6,400.
c) “The steps in the accounting cycle for a merchandising company are different from the accounting cycle for 7
a service company.” Do you agree or disagree?

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4. a) An analysis of comparative balance sheets, the current year’s income statement, and the general ledger
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accounts of Wafi Corp. uncovered the following items. Assume all items involve cash unless there is
information to the contrary.
(a) Payment of interest on notes payable. (f) Receipt of dividends on investment in stock.
(b) Exchange of land for the patent. (g) Receipt of interest on notes receivable.
(c) Sale of the building at book value. (h) Issuance of common stock.
(d) Payment of dividends. (i) Amortization of patent.
(e) Depreciation. (j) Issuance of bonds for land.
Instructions
Indicate how each item should be classified in the statement of cash flows using these four major
classifications: operating activity (indirect method), investing activity, financing activity and significant
noncash investing and financing activity.

b) The income statement for Auto Car Manufacturing Company contains the following condensed information. 20

Auto Car Company

Income Statement
For the Year Ended December 31, 2019

Sales revenue $6,583,000

Operating expenses, excluding depreciation $4,920,000
Depreciation expense 880,000 5,800,000
Income before income taxes 783,000
Income tax expense 353,000
Net income $ 430,000

Operating expenses include a $24,000 loss resulting from the sale of equipment for $270,000 cash.
Equipment was purchased at the cost of $750,000. The following balances were reported on Auto’s
comparative balance sheet on December 31.
Auto Car Company
Comparative Balance Sheets (partial)
2019 2018
Cash $672,000 $130,000
Accounts receivable 775,000 610,000
Inventory 834,000 867,000
Accounts payable 521,000 501,000

Income tax expense of $353,000 represents the amount paid in 2017. Dividends declared and paid in 2017
totaled $200,000.

Instructions
Prepare the statement of cash flows using the Indirect Method.