Accounting 2610Final Practice Exam-KeyTOTALPark CompanyAccounting 2610 Final Practice Exam-KeyProfessor Xiumin Martin Fall 2011Name ___________________________Section ___________________________General Instructions:Please observe the Olin School’s Code of Conduct requirements.1. You have 2 hours to complete the exam. 2. This exam is closed book, closed notes. You may use calculators. 4. This exam packet should have 11 pages and has 100 points available. 5. Please check that you have all the pages. 6. Review the complete exam in order to allocate your time appropriately.7. If a question is ambiguous, write your assumptions on the exam along with your answer. You will receive credit provided your assumptions are necessary and reasonable.8. Write your answers neatly in the space provided. 9. You must turn in your exam packet before you leave, even if you don’t want to have it graded.10. Monitor your time and good luck! Points Available Points ReceivedQuestion I 8Question II 15Question III 30Question IV 16Question V 32TOTAL 100Question I (8 points)Below is a list of items and subtotals from the financial statements (balance sheet, income statement, statement of shareholders’ equity and cash flow statement). Balance sheet: current assets, investments, net PP&E, intangibles and other assets, current liabilities, long-term liabilities, common stock, additional paid in capital, treasury stock, retained earnings.Income statement: revenues, expenses, gains, losses.Retained earnings portion of the statement of shareholders’ equity: net income, dividends.Cash flow statement: cash flow from operating activities, cash flow from investing activities, cash flow from financing activities Describe all the effects of each of the following transactions on the above items, as reported in the financial statements for the current fiscal year. For the cash flow statement part, you should only describe (and classify) actual cash flows.For example: The firm incurred administration salaries of $200 and paid $150. Balance sheet: current assets (cash) down $150; current liabilities (salaries payable) up $50; retained earnings down $200.Income statement: expense (salaries) up $200.Retained earnings portion of the statement of shareholders’ equity: net income down $200.Cash flow Statement: cash from operating activities down $150.1. At the beginning of the year, the firm delivered products costing $30 to customers who paid $50 for these products in the prior year. Balance sheet: current assets (inventory) down $30; current liability (unearned revenue) down $50; Income statement: revenue up $50; expense (COGS) up $30;Retained earnings portion of the statement of shareholders’ equity: net income up $20;Cash flow statement: no impact.2. Three month after the beginning of the fiscal year, the firm purchased a headquarter building for $120 cash. The building has an estimated salvage value of $40 and useful life of 10 years. The firm uses the straight line method of depreciation.Balance sheet: current assets (cash) down $120; long-lived assets (accumulated depreciation) down $6; Long-lived assets (building) up $120;Income statement: expense (depreciation expense) up $6;Retained earnings portion of the statement of shareholders’ equity: net income down $6;Cash flow statement: cash from investing activities down $120.Question II (15 points)A. Sales Revenue – Cost of Sales = Gross Margin Cost of Sales = Sales Revenue – Gross Margin Cost of Sales = 70,000 – 30,000 = $ 40,000B. Use Relationship: Total Assets = Total Liabilities and Equity Total Assets = $ 34,000C. Use Relationship: Cash + Accts. Rec. + Inventory + Plant & Equipment = Total Assets Cash = Total Assets - Accts. Rec. - Inventory - Plant & Equipment Cash Balance12/31/03 = $ 34,000 – 5,000 – 10,000 – 15,000 = $ 4,000D. Use Relationships: Cash Balance12/31/03 + Cash Y/E 12/31/04 = Cash Balance12/31/04 and Cash Y/E 12/31/04 =Cash from Operations + Cash from Investing + Cash from Financing Cash Y/E 12/31/04 = 6,000 – 3,000 – 2,000 = 1,000 Cash Balance12/31/04 = $ 4,000 (from Part C) + 1,000 = $ 5,000E. Use Relationship: Ret. Earnings 12/31/03 + Net Income Y/E12/31/04 - Dividends Y/E 12/31/04 = Ret. Earnings12/31/04 Ret. Earnings12/31/04 = 5,000 + (30,000 – 23,000) - 2,000 = $ 10,000F. Note Total Liabilities & Equity12/31/04 = $ 11,000 + (Contributed Capital + Ret. Earnings12/31/04 ) = $ 11,000 + (20,000 + 10,000 (from Part E)) = $ 41,000 Since Total Assets = Total Liabilities + Total Equity = $ 41,000 Cash + Accts. Receivable + Inventory + Plant & Equipment = $ 41,000 Plant & Equipment = $ 41,000 – Cash – Accts. Rec. – Inventory = $ 41,000 - 5,000 - 5,500 – 13,000 = $ 17,500 G. In the absence of any sales or depreciation, Plant and Equipment would increase by the amount of purchases. Since the beginning balance is $ 15,000, and purchases were $ 3,000, the balance in the absence of additional depreciation would be $ 18,000. Since the reported balance is $ 17,500, $ 500 of depreciation must have been reported during the year-ending December 31, 2004.Question III (30 points)A. $ 230,000 + (10,000 x $ 45) = $ 680,000B. $ 80,000 (calculated as ( 2,000 x $ 10) + ( 3,000 x $ 20) ) C. $ 600,000 (calculated indirectly as $ 680,000 less $ 80,000 or directly as (10,000 x $ 45) + (1,000 x $ 40) + (3,000 x $ 30) + (1,000 x $ 20)D. Correct answer is “B”. The fact that a layer with 1,000 units was added suggests that 2004 purchases exceeded 2004 sales.E. Correct answer is “D”. Given that there is a 2004 layer, we can conclude that in 2004 KnickKnack did not draw down on a 2003 layer. However, we are unable to differentiate whether 2003 Thigamjig purchases were equal to 2003 sales, or if in 2003 KnickKnack sold all of the 2003 purchases and drew down on earlier inventory layers.F In the Cost of Goods Sold calculation for 2005, the 5,000 units purchased on Dec. 31, would displace the 5,000 units that were drawn from the Beginning Inventory. The historical cost of the 5,000 units from the Beginning Inventory that would be included in Cost of Goods Sold are $ 150,000 (equal to (1,000 x $ 40)+(3,000 x $ 30) + (1,000 x $ 20)). In
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