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ACC 1100 Sample Final Exam

QUESTION ONE

Selected 2021 balances of GNT Industries were made available as below:

On March 31, 2021, GNT declared and distributed a 3% stock dividend, which resulted in the distribution of common shares with a market value of $34,320.  On September 30, 2021, GNT spent $2.6 per share to repurchase and cancel 8,500 common shares.  On December 20, 2021, GNT declared and paid a total cash dividends of $50,000. There is no dividend in arrears as at January 1, 2021. For the year ended December 31, 2021, GNT reported $650,000 net income.

Required

1. Determine the balance of each shareholders equity account as at December 31, 2021 for GNT Industries. Clearly present calculations for numbers that are not given.

2. Determine the respective amount of cash dividends paid to preferred shares and common shares during 2021. Clearly present calculations for numbers that are not given.

QUESTION TWO

For each of the following INDEPENDENT cases, prepare any journal entry necessary on the underlined date.

1. Peter Limited purchased Machine C on January 1, 2018 for $420,000, estimating its useful life to be 20 years and its residual value to be $20,000. Peter uses the double-diminishing-balance method for depreciation purposes.  It is now December 31, 2019 and Peter has not recorded any depreciation expense for the year.  

2. Laura Corp. purchased Machine A and Machine B from a vendor on December 31, 2020 for $210,000 and $140,000 respectively. Installation of both machines occurred on December 31, 2020.  Laura paid installation costs of $2,000 for Machine A.  During installation, accidental damage occurred to Machine B that required repairs costing $5,000.  Laura signed a $250,000 note payable to the machine vendor and paid the balance of the purchase price and other expenditures in cash.

3. Starr, Incorporated purchased Machine D on January 1, 2020 for $280,000 (estimated residual value = $12,000).  Starr uses the units-of-production method for depreciation purposes and estimates that Machine D has a total capacity of 100,000 units.  On September 30, 2020, Starr sold Machine D for $250,000.  By this date, Machine D had produced 9,000 units in total.  On September 30, Starr had not yet recorded any depreciation expense for the year.

QUESTION THREE

Journalize the following passive investment transactions for Arthur Brothers Wholesale Inc.  Assume that Arthur Brothers uses Fair Value Through Profit and Loss, or FVTPL, for investments of this type.

a. June 1, 2018:  Purchased 800 common shares of CIBC at $80 per share, with the intent of holding the shares for the indefinite future.

b. September 15, 2018:  Received cash dividend of $0.25 per share on the CIBC investment.

c. December 31, 2018:  At year-end, adjusted the investment account to current fair value of $75 per share.

d. February 14, 2019:  Sold 400 common shares of CIBC for the market price of $82 per share.

QUESTION FOUR

Comparative financial data of ABC Inc. appears below.

ABC Inc.
Statement of Financial Position  As at December 31st
Assets	2020	2019
Cash	$  39,500	$  18,850
Accounts receivable	38,050	16,250
Merchandise inventory	48,675	51,475
Prepaid operating expenses	1,500	9,350
Long-term investments	52,500	47,250
Capital (fixed) assets (net)	108,450	100,250
	$ 288,675	$ 243,425
Liabilities and Shareholders' Equity
Accounts payable	$  38,650	$  32,925
Bonds payable	40,125	62,350
Common shares	100,000	85,000
Retained earnings	109,900	63,150
	$ 288,675	$ 243,425
ABC Inc.
Statement of Income
For the year ended December 31, 2020
Sales revenue		$ 184,390
Expenses:
Cost of goods sold	$  73,130
Operating expenses excluding depreciation	17,705
Depreciation expense	31,550
Income tax expense	9,640
Interest expense	2,865
Loss on sale of capital assets	2,750	137,640
Net income		$  46,750

Additional information:

a. During 2020, capital assets with an historical cost of $36,900 and accumulated depreciation of $32,050 were sold for cash.

b. Bonds matured and were paid off at face value for cash.

c. Accounts payable represents amounts owing to suppliers of merchandise inventory only.

Required (show all of your calculations):

a) Present in good form the 2020 statement of cash flows.  Use the indirect method.  

b) Present operating section of statement of cash flows using the direct method. 

QUESTION FIVE

For each of the following, circle the letter that corresponds with the best response. Marks are not deducted for incorrect answers.

Using the following information for questions 1 – 5 (round all calculations to two decimal place).

Mano Inc. had the following activity with one of its inventory items during a current period.

	Units	Unit Cost	Total Cost
Beginning inventory	80	$25.00	$2,000
Purchases:
June 1	160	28.00	4,480
June 15	210	30.00	6,300
Sales
June 8	100
June 30	280

1. Using a perpetual inventory system and the FIFO cost formula, the ending inventory was:

a. $1,750.

b. $1,936.9.

c. $1,960.

d. $2,100.

e. None of the above.

2. Using a periodic inventory system and the average cost formula, the cost of goods sold for the month of June was valued at:

a. $10,450.

b. $10,640.

c. $10,792.

d. $10,894.6.

e. None of the above.

3. Using a perpetual inventory system and the average cost formula, the cost of goods sold on June 8 was valued at:

a. $2,500.

b. $2,650.

c. $2,700.

d. $2,800.

e. None of the above.

4. Using a periodic inventory system and the FIFO cost formula, the cost of goods sold for the month of June was valued at (assuming physical count indicate that there were 68 unites in warehouse at end of June):

a. $10,680.

b. $10,740.

c. $11,030.

d. $11,080.

e. None of the above.

5. Using a perpetual inventory system and the average cost formula, the ending inventory was:

a. $1,960.

b. $2,016.

c. $2,030.

d. $2,100.

e. None of the above.

6. Southwest Information Systems incurred a major maintenance overhaul expense on a computer system which is expected to increase the life of the system for an additional 8 years. The cost of the overhaul should be:

a. Charged to expense.

b. Charged to other comprehensive income.

c. Charged to the asset account.

d. Charged to retained earnings.

e. None of the above.

7. Rickshaw Industries uses the allowance method of estimating doubtful accounts. At December 31, 1999, Rickshaw had accounts receivable of $870,000 and an allowance for uncollectible accounts of $49,000. During 2000, Rickshaw wrote off accounts totalling $48,000 and collected $1,300 on accounts which had been written of in 1999. An aging of accounts receivable indicates that $51,400 is needed in the allowance for doubtful accounts as of December 31, 2000. The bad debt expense for 2000 is:

a. $51,400.

b. $48,000.

c. $51,700.

d. $49,100.

e. None of the above.

8. Assume the following shares outstanding at December 31, 2017:

· Preferred shares, $3, cumulative, 1,000 shares outstanding with dividends in arrears for 2015, 2016, and 2017.

· Common shares, 2,000 shares outstanding.

No shares were issued or repurchased during 2018. Total dividends declared in 2018 amounted to $30,000. The total amount of dividends to which common shareholders are entitled is:

a. $30,000.

b. $27,000.

c. $21,000.

d. $18,000.

e. None of the above.

9. Low-Tek Products reported a decline in market value of one of its non-strategic investments under FVTOCI method. This would result in:

a. An unrealized loss charged to other comprehensive income.

b. An unrealized loss reported in the statement of income.

c. A realized loss charged to other comprehensive income.

d. A realized loss reported in the statement of income.

e. None of the above. 

10. Which of the following is the least liquid asset.

a. Accounts receivable.

b. Prepaid Insurance.

c. Inventory.

d. Short-term Investments.

e. None of the above.

11.      If a company declares and distributes a stock dividend what is the effect on its retained earnings and earnings per share?

Retained Earnings

earnings per share

a. unchanged unchanged

b. unchanged decreased

c. decreased unchanged

d. decreased decreased

e. decreased           increased

12. Gamma Company has current assets of $300,000, and total assets of $800,000, a current ratio of 2 and a total debt to total asset ratio of 0.625. Gamma Company’s long-term liabilities are:

a. $312,500.

b. $300,000.

c. $243,750.

d. $350,000.

e. None of the above.

13. Advances in computer technology, including cheaper mass memory and optical scanning, is causing more companies to change inventory methods and procedures from:

a. Actual costing to standard costing.

b. Standard costing to actual costing.

c. Perpetual inventory to periodic inventory.

d. Periodic inventory to perpetual inventory.

e. None of the above.

14. In a period of declining prices, gross profit margin would be higher using:

a. Average cost than FIFO.

b. FIFO than average cost.

c. Specific identification than average cost.

d. FIFO than specific identification.

e. None of the above.

15. H-Lo Sporting Goods and Fast Out Sports Outlet are identical in every respect except that Hi-Lo uses FIFO and Fast Out uses average cost. Assuming merchandise costs are steadily increasing, the current ratio and profit margin for Hi-Lo, compared to Fast Out would be:

       Current Ratio        Profit Margin

a. Higher Higher

b. Lower Lower

c. Lower Higher

d. Higher Lower

e. None of the above.

16. The purpose of recording depreciation is to:

a. Provide funds for the replacement of the asset.

b. Allocate the cost of the asset to the periods benefiting from its use.

c. Approximate the market value of the asset.

d. Reduce the asset to its estimated replacement cost.

e. None of the above.

17. ABC Company repurchased and cancelled 1,000 of its common shares for $7,000. The original issue price on the shares was $8 per share. Which accounts are affected by this transaction?

a.	Common Shares decreases by $7,000
	Cash decreases by $7,000
b.	Investment in ABC Co. increases by $7,000
	Cash decreases by $7,000
c.	Common Shares decreases by $8,000
	Gain on repurchase of shares increases by $1,000
	Cash decreases by $7,000
d.	Common Shares decreases by $8,000
	Contributed surplus increases by $1,000
e.	Cash decreases by $7,000 None of the above.

18. Boron Electronic’s cash flow statement shows positive operating cash flows, positive investing cash flows, and negative financing cash flows. This could indicate that the company is:

a. Selling off investments in order to purchase equipment and retire debt.

b. Using cash from operations and selling investments in order to pay dividends.

c. Issuing debt securities and selling investments to provide operating cash flows.

d. Selling equipment and issuing share capital in order to retire debt.

e. None of the above.

19. Econ-o-ride, reported depreciation expense for one of its machines for the first three years of $8,000, $4,800, $2,800. The method being used i