XLRI DELHI

MANAC-I (22-24)
END-TERM EXAMINATION

Duration: 1 HOUR 30 MINUTES

Marks: 20
Instructions:
I t is
closed book exam. No Mobiles or laptops allowed.
a

Only calculators are allowed in this

All workings should be examination, No Internet.
part of your answer.
Answer any one of the two questions given below

1.Stafford Press was founded in 2000 as a

one-man job printing firm in a small southwestern
town. Shortly after its founding, Lucas Stafford, the owner, decided to concentrate on one
specialty line of printing. Because of a high degree of technical
experienced a rapid growth. However, Stafford Press suffered from proficiency, the company
a
competitive
disadvantage in that the major market for its specialized output was in a metropolitan area
over300 miles away from the
some extra cash to finance a
company's plant. For this reason, in 2010, having accumulated
move, the owner decided to move nearer his
also decided to expand and modernize his facilities at primary market. He
the time of the move. After some
investigation, an attractive site was found in a suburb of his primary market, and the move
was made.
A balance sheet
prepared just prior to the move is shown in Exhibit 1. The transactions that
arose from this move are described in the following paragraphs:

1. The land at the old site,

together with the building thereon, was sold for $149,860 cash.
2. Certain equipment was sold for $35,200 cash. This equipment appeared on the books at a
cost of$73,645 less accumulated depreciation of $40,890, for a net book
value of $32,755.
3. A new printing press was purchased. The invoice cost of this equipment was $112,110. A 2
percent cash discount was taken by Stafford Press so that only $109,868 was
the seller. Stafford Press also paid $450 to a trucker to have this actually paid to
Installation of this equipment was made by Stafford Press
equipment delivered.
60 hours. These workers received $15 per hour in
employees who worked a total of
wages, but their
time was ordinarily
charged to printing jobs at $30.50 per hour, the difference representing an allowance for
overhead ($12.15) and profit ($3.35).

4. Stafford Press paid $140,000 to purchase land on which the new

rundown building, which Stafford's appraiser said had no plant was be built. A
to
value, was standing on the plot of
land. Stafford Press paid $21,235 to have the old
building
on the plot of land torn down. In
addition, the company paid $13,950 to have
permanent drainage facilities installed on the
new land.
 The company
invoice cost of $28,030 was purchased.
machine with an
S. A new composing on a used piece
of
$20,830 cash and received a trade-in allowance ofm$7,200
paid more than $6,050.
It
The used equipment could have been sold outright for not
equipment. the net book
on it was $5,200, making
had cost $12,000 new, and accumulated depreciation
value $6,800.
6. The company erected a building at the new site for $561,000. Of this amount, $136,000
was paid in cash and $425,000 was borrowed on a mortgage.

7. Trucking and other costs associated with moving equipment from the old location to the
new location and installing it were $8,440. In addition, Stafford Press employees worked an

estimated 125 hours on that part of the move that related to equipnment.
Fa 3 7 2o
8. D
.
During the moving operation, a piece of equipment costing $10,000 was dropped and
1 ? o

damaged; $3,220 was spent to repair it. Management bclieved, however, that thesalvage
C
value of this equipment had been reduced by $660 from the original estimate of $1,950 to
$1,290. Up until that time, the equipment was being depreciated at S805 per year,
representing a 10 percent rate after deduction of estimated salvage of $1,950. Accumulated
depreciation was $3,220.

Questions
1. Analyze the effect of each of these transactions on the items in the balance sheet and
income statement. For transactions that affect owner's equity, distinguish between
those that affect the net income of the current year and those that do not. In most
cases, the results of your analysis can be set forth most clearly in the form of journal
entries. (8*2 = 16 marks)

2. Adjust the balance sheet in Exhibit 1 to show the effect of these transactions.
(4 marks)
EXHIBIT 1
13916
STAFFORD PRESS
Condensed Balance Sheet
(Prlor to Move)

Assets Liablitles and Owner's Equty

Currernt assets:
Casth $395,868 Current labilties $160,223
Other current assets 251,790 Common stock 400,000
Retained earnings 35192
Total current assets s647,658 358,648
Property and equipment:
Land 34,034
Buildings $350,064
Less: Accumulated depreclation 199,056 151,008
Equipment 265,093
LessAccumulated deprectation 178,922 86,171
Total assets 5918,871 Total liabilities and owner's equity $918,871

3 V 1 3 2 2 0

SODO
222

8110 2
2. Amerbran Company was a diversified company that sold various consumer products,
including food, tobacco, distilled products, and personal care products and financial services.
Financial statements for the company are shown in Exhibit 1.

The 20x1 financial statements reflect the following transactions (dollar amounts are in
thousands):
1. Depreciation and amortization expense was $115,974.

2. Net income included a loss of $66,046 resulting from the write-off of some obsolete
equipment. The equipment had not yet been disposed of.

3. Net income included $59,610 from Amerbran's investment in a subsidiary; none of

this income had been received in cash.
4. The year-end balance in Deferred Income Taxes was $17,548 lower than it was at the

start of the year.

5. New property, plant, and equipment purchases totalled $260,075, all paid for with
cash. Disposals of fixed assets generated $33,162 cash proceeds.

6. Acquisition of another company that was made for cash resulted in additional
depreciable assets of$31,691 and goodwill of $102,030.

7. Cash dividends were paid in the amount of $216,158.

8. The firm declared and issued a 100 percent common stock dividend effective
September 10, 20x1; that is, each shareholder received as a dividend a mumber of
shares equal to his or her holdings prior to the dividend. The newly issued shares were
valued at par in recording this transaction.

9. The firm spent $30,609 to purchase treasury stock on the open market. Some of the
shares so acquired were reissued to certain employees as a bonus.

10. The firm increased its short-term debt as indicated on the balance sheet in Exhibit 1.
Long-term borrowings decreased by $34,606.

Question:
Prepare a statement ofcash flows for the year 20x1. In order for your statement to show the
correct increase in cash ($4,960), you will need to add a "miscellaneous activities" category
this will capture several transactions that were not described because they are more
complicated than those covered in the text. (20 marks)

32
Car

322D
3
EXHIBIT T

AMERBRAN COMPANY
Balance Sheets As of December 31, 20x1 and
20x0
tn thousands)

20x1 20x0
Assets
Cash
S 28,912 S23,952
Accounts receivable
Inventories 756,152 687,325
Prepaid expenses 1,244,912 1,225,402
Total current assets 76,140 77,167
Investments 2,106,116 2,013,846
Property, plant, and equipment, at cost
1,116,534 1,058,637
Less accumulated depreciation 1,566,268 1,366,719.
Net property, plant, and equipment
723,442 645,734
842,826 720,985
Goodwill 645,210 577,606
Other assets
115,826 62,374
Total assets
$4,826,512 $4,433,448
Llabltles and Shareholders' Equity
Accounts payable S 271,452 S 238,377
Short-term debt 430,776 351,112
Accrued expenses payable
922,990 728,262
Total current liabilities 1,625,218 1,317,751
Long-temliabiltles 880,674 932,828
Total liabilties 2,505,892 2,250,579
Convertible preferred stock 33,828 42,611
Common stock, at par 322,834 161,417
Additionaf paid-in capftal 53,641 57,072
Treasury stock, at cost (110,948) (102,705)
Retained eamings 2,021,265 2,024,474
Total shareholders' equity
2,320,620 2,182,869
Total liabilities and shareholders equity 54,826,512 $4,433,448

Income Statement
For the year ended December 31, 20x1
(Inthousands)
Sales revenues, net
$7,622,677
Cost ofsales 2,803,623
Excise taxes on goods sold 2,887,616
Gross margin 1,931,438
Seling, general, and administrative expenses
1,328,107
Income before income taxes 603,331
Provision for income taxes 274,558
Net income S 328,773