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Practice Exam 3 – Financial Accounting for IB/E&BE
Questions
Exercise 1
Internet company Gold is located in Groningen. Its business activities consists of the import and sale of Webcams, and Blended Learning Projects. Gold presents the balance sheet on January 1, 2014, the statement of cash receipts and expenditures during 2014 and some additional information as follows (in euro):
| Buildings | 150,000 | Mortgage | 80,000 |
| Inventory (webcams) | 44,000 | Interest Payable | |
| Accounts receivable (webcams) | 17,000 | Salaries Payable | 3,000 |
| Cash | 16,000 | Accounts payable (webcams) | 11,000 |
| Unearned Revenues Blended Learning Projects | 23,000 | ||
| Share Capital | 45,000 | ||
| Share Premium | 45,000 | ||
| Retained Earnings | |||
| Receipts | Expenditures | ||
| Accounts Receivable (webcams) | 301,000 | Repayment of Mortgage | |
| Unearned Revenues Blenden Learning Projects | 172,000 | Interest Paid | |
| Sale of Building | 145,000 | Salaries Paid | 230,000 |
| Receipts from Issuing Shares | 25,000 | Accounts Payable (webcams) | 171,000 |
| Dividends Paid | 12,000 | ||
| Rent Paid | |||
| Payment of the Lease Term | 8,000 |
Additional information:
- Interest on the mortgage is 6% per year. The yearly interest is paid in arrear, on September 1
- Gold sold the building on July 1, 2014. Depreciation expenses of the building in the first half-year of 2014 are € 7,500. The selling price of the building is € 145,000. Out of the sale revenues of this building, the mortgage on this building will be completely repaid on September 1, 2014. Gold will rent an office and pays every month € 2,500 rent. The starting date of the rent contract is August 1, 2014.
- The issue price of shares is 250% of their nominal values.
Gold will lease a truck
Start date lease contract Jan 2, 2014
Lease period 4 years
Type of lease capital lease
Present value of lease terms €26,496.00
Lease term €8,000.00
Interest 8% Depreciation 4 years,straight-line
Residual value €0,00
On December 31, 2014, the amount of the following balance sheet items are given:
Inventory (webcams) €31,000
Accounts Receivable (webcams) €11,000
Salaries Payable €13,000
Accounts Payable (webcams) €21,000
Prepaid Revenues Blended Learning Projects €9,000
Question A
Complete the opening balance sheet of January 1, 2014 by calculating the amounts of Interest
Payable and Retained Earnings.
Question B
Complete the statement of cash receipts and expenditures over 2014 and calculate the amount
of Cash on December 31, 2014.
Question C
Prepare the journal entry of the first payment of the lease term on December 31, 2014
| Account name | Debit | Credit |
Question D
Complete the balance sheet on December 31, 2014
| Business Truck in LEase | Salaries Payable | 13,000 | |
| Inventory (webcams) | 31,000 | Accounts Payable | 21,000 |
| Accounts Receivable (webcams) | 11,000 | Unearned Revenues Blenden Learning Projects | 9,000 |
| Cash (question B) | Lease Obligation | ||
| Share Capital | |||
| Share Premium | |||
| Retained Earnings | |||
| Total | Total |
Question E
Calculate Net Income using the Equity Method or using the Statement of Retained Earnings.
Question F
Prepare the cash flow statement from operating activities using the indirect method.
Question G
Prepare the cash flow statement from investing activities
Question H
Prepare the cash flow statement from financing activities
Question I
List the non-cash investing and financing transaction(s).
Exercise 2
The chart of accounts is added below. Use only these accounts in your answers. Please skip a line between the different journal entries.
Pooling Ltd. is a trading business that imports swimming pools from China and sells them to customers in Belgium, the Netherlands, and Germany. Pooling Ltd. started its business on January 1, 2014. The company uses the Periodic Inventory System in combination with the First-In First-Out method. At the beginning of January there were no swimming pools in inventory.
During the first month of operations, Pooling Ltd. engaged in the following transactions:
| January 1 | Issued 1,000,000 shares with a nominal value of €1,50 per share for € 2,500,000. |
| January 1 | Purchase building to use as an office. Costs 2,000,000, paid in cash. |
| January 1 | Paid six months' insurance in advance. Insurance is €100 per month. |
| January 3 | Purchased twenty swimming pools from Biston Inc. on credit for a total amount of €12,000. Terms 2/10, n/30, FOB Destination. Total freight costs are €1,200 and have to be paid in cash. |
| January 9 | Sold fifteen swimming pools to 'Cogency' for €18,000 on credit. Terms 3/15, n/30, FOB Destination. Total freight costs are €1,000 and have to be paid in cash. |
| January 12 | Purchased thirty swimming pools from Biston Inc. on credit for a total amount of €30,000. Terms 2/10, n/30, FOB Shipping Point. Total freight costs are €1,800 and have to be paid in cash. |
| January 16 | Paid for the purchases from Biston Inc. dated January 3. |
| January 18 | Received payment from 'Cogency' for the sales transaction dated January 9. |
| January 20 | Paid for the purchases from Biston Inc. dated January 12. |
| January 23 | Sold ten swimming pools to 'Dutch Debating Institute' for €11,000 on credit. Terms 3/15, n/30, FOB Shipping Point. Total freight costs are €850 and have to be paid in cash. |
The following information is also available:
- During the month of January there was depreciation of the building. The building has a residual value of 200,000. The depreciation method is straight-line. The useful life is 30 years.
- The allowance for uncollectible account is calculated using the percentage of net sales method. Assume 5% of net sales are uncollectible.
Charts of accounts exercise 2
Accounts payable
Accounts Receivable
Accumulated Depreciation – Building
Allowance for Uncollectible Accounts
Building
Cash
Common Stock
Cost of Goods Sold
Depreciation Expense – Building
Dividends Freight In
Freight Out Expense
Income Summary
Income Tax Expense
Insurance Expense
Insurance Payable
Inventory
Additional Paid-In Capital, Common stock
Prepaid Insurance
Purchases
Purchase Discounts
Purchase Returns and Allowances
Rent Expenses
Rent Payable
Retained Earnings
Sales
Sales Discounts
Sales Returns and Allowances
Uncollectible Accounts Expense
Wage Expense
Question A
Prepare the journal entries for the transactions above. Please skip a line between the different
journal entries.
| Date | Account name | Debit | Credit |
Question B
Calculate Cost of Goods Sold for the month of January
Question C
Prepare all the appropriate adjusting journal entries on January 31, 2014. You can exclude the entry for cost of goods sold for the month of January. Please skip a line between the different entries.
| Date | Account name | Debit | Credit |
Provided here is the adjusted trial balance of Pooling Ltd. For the whole year of 2014.
| Account | Debit | Credit |
| Accounts payable | 39,000 | |
| Accounts receivable | 82,000 | |
| Accumulated Depreciation - building | 60,000 | |
| Additional Paid-in Capital, Common Stock | 1,000,000 | |
| Allowance for Uncollectible Accounts | 24,000 | |
| Building | 2,000,000 | |
| Cash | 387,475 | |
| Common Stock | 1,500,000 | |
| Cost of Goods Sold | 745,000 | |
| Depreciation Expense - Building | 60,000 | |
| Dividends | 10,000 | |
| Freight In | 15,000 | |
| Freight Out Expense | 16,000 | |
| Income Tax Expense | 7,825 | |
| Insurance Expense | 1,200 | |
| Inventory | 167,000 | |
| Purchase Discounts | 10,000 | |
| Sales | 1,860,000 | |
| Sales Discounts | 30,000 | |
| Uncollectible Accounts Expense | 91,500 | |
| Wage Expense | 880,000 | |
| Total | 4,493,000 | 4,493,000 |
Question D
Prepare the closing entries for 2014
| Date | Account name | Debit | Credit |
Exercise 3
The chart of accounts is added below. Use only these accounts in your answers. Please skip a line between the different journal entries.
Picasso Art Ltd. is a company that deals in buying, selling and restoration of art works. Its clients include many famous museums and collectors. It was founded in 2002. On December 31, 2013, the stockholders' equity section of the company's balance sheet shows that the company is authorized to issue 500,000 common stock shares of €10 par/nominal value and that 200,000 common stock shares were issued and outstanding. Retained earnings and Additional paid-in capital on the balance sheet as of December 31, 2013 were €1,648,000 and €2,560,000 respectively.
| Jan 4 | The board of directors obtained authorization for 50,000 shares of €40 par value noncumulative preferred stock that carried an indicated dividend rate of €5 per share and was callable at €42 per share. |
| Jan 14 | The company issued 25,000 shares of preferred stock at €40 per share and another 4,000 shares of preferred stock in exchange for a building valued at €160,000. |
| Mar 8 | The board of directors declared a 2-for-1 stock split on the common stock. |
| Apr 20 | The company purchased 6,000 shares of common stock for the treasury at an average price of €15 per share. |
| May 4 | The company sold 2,000 of the shares purchased on April 20, at a price of €20 per share. |
| July 15 | The board of directors declared a cash dividend of €5 per share on the preferred stock and €0.60 per share on the common stock. |
| July 25 | Date of record. |
| Aug 15 | Paid the cash dividend. |
| Sept 20 | The company sold 3,000 of the shares purchased on April 20, at a price of €14 per share. |
| Dec 31 | Close Dividends and Income Summary account to Retained Earnings. Net loss for 2014 was €575,000 |
Charts of accounts exercise 3
Additional Paid-In Capital, Common Stock
Additional Paid-In Capital, Treasury Stock
Bonds Payable
Building
Cash
Common Stock
Dividends, Common Stock
Dividends, Preferred Stock
Dividends Payable Income
Summary
Preferred Stock
Retained Earnings
Treasury Stock, Common
Unamortized Bond Discount
Unamortized Bond Premium
Question A
Calculate the number and the value of common stock shares issued that should be reported in the balance sheet on December 31, 2014.
Question B
Calculate the number of common stock shares outstanding and in treasury stock on December 31, 2014.
Question C
Prepare the journal entries to record the stock related events. Please state explicitly if no entry is needed.
| Date | Account | Debit | Credit |
Question D
Prepare the stockholders' equity section of the company's balance sheet as of December 31,
2014. Please be as detailed as possible.
Answers
Excersise 1
Question A
Interest payable is 80,000 * 6% * 4/12 = 1,600
Retained earnings is 227,000 – 208,600 = 18,400
Question B
Repayment of mortgage is 80,000 – 0 = 80,000
Interest Paid is 80,000 * 6% = 4,800
Rent Paid is 2,500 * 5 = 12,500
Cash begin: 16.000
Receipts: 643.000
Expenditures: 518.300
Cash end 140.700
Question C
| Account name | Debit | Credit |
| Interest Expense | 2120 | |
| Lease Obligation | 5880 | |
| Cash | 8000 |
Question D
| Business Truck in Lease | 19.872 | Salaries Payable | 13.000 |
| Inventory (webcams) | 31.000 | Accounts Payable | 21.000 |
| Accounts Receivable (webcams) | 11.000 | Unearned Revenues Blended Learning Projects | 9.000 |
| Cash | 140.700 | Lease Obligations | 20.616 |
| Share Capital | 55.000 | ||
| Share Premium | 60.000 | ||
| Retained Earnings | 23.959 | ||
| Total: | 202.572 | Total: | 202.572 |
Question E
Equity end: 138,959
Equity begin: 108,400
Deposit: 25,000
Withdrawal: 12,000
Net income: 17,599
Retained earnings end: 23,959
Retained earnings begin: 18,400
Dividends: 12,000
Net income: 17,599
Question F
| Net profit | 17.599 | |
| Book gain | 2.500 | SUB (145.000-142.500) |
| Depreciation expenses: | ||
| Trucks in Lease | 6.624 | ADD (24.496*1/4) |
| Building | 7.500 | ADD |
| Inventory | 44,000 (begin); 31,000 (end); 13,000 (change) POS | |
| 17,000 (begin); 11,000 (end); 6,000 (change) NEG | ||
| 1,600 (begin); 0 (end); 1,600 (change) POS | ||
| 3,000 (begin); 13,000 (end); 10,00 (change) POS | ||
| 3,000 (begin); 13,000 (end); 10,00 (change) POS | ||
| 3,000 (begin); 13,000 (end); 10,00 (change) POS |
Total cash flow: 52,580
Question G
Cash flow IN
Book value Building: 150,000 – 7,500 = 142,500
Book gain: 2,500
Total cash flow: 145,000
Question H
Cash flow IN
Share issue: 25,000
Cash flow OUT
Repayment mortgage: 80,000
Dividend: 12,000
Repayment lease: 5,880
Total cash flow: (72,880)
Question I
Lease contract Trucks: 26,496
Exercise 2
Question A
| Date | Account Name | Debit | Credit |
| 1/1 | Cash | 2.500.000 | |
| @Common Stock | 1.500.000 | ||
| @Additional Paid-In Capital, Common Stock | 1.000.000 | ||
| 1/1 | Building | 2.000.000 | |
| @Cash | 2.000.000 | ||
| 1/1 | Prepaid Insurance | 600 | |
| @Accounts Payable | 600 | ||
| 3/1 | Purchases | 12.000 | |
| @Accounts Payable | 12.000 | ||
| 9/1 | Accounts Receivable | 18.000 | |
| @Sales | 18.000 | ||
| 9/1 | Freight Out Expense | 1.000 | |
| @Cash | 1.000 | ||
| 12/1 | Purchases | 30.000 | |
| @Accounts Payable | 30.000 | ||
| 12/1 | Freight in | 1.800 | |
| @Cash | 1.800 | ||
| 16/1 | Accounts Payable | 12.000 | |
| @Cash | 12.000 | ||
| 18/1 | Cash | 17.460 | |
| Sales Discount | 540 | ||
| @Accounts Receivable | 18.000 | ||
| 20/1 | Accounts Payable | 30.000 | |
| @Purchase Discounts | 600 | ||
| @Cash | 29.400 | ||
| 23/1 | Accounts Receivable | 11.000 | |
| @Sales | 11.000 | ||
Question B
Number of sales (15 on 9th + 10 on 23th) = 25
3/1 Purchases = 20 for 12,000 = 600 per swimming pool
12/1 Purchases = 30 for 30,000 = 1,000 per swimming pool
COGS = 20 * 600 + 5 * 1,000 = 17,000
Question C
| Date | Account Name | Debit | Credit |
| 31/1 | Insurance Expense | 100 | |
| @Prepaid Insurance | 100 | ||
| 31/1 | Depreciation Expense – Building | 5000 | |
| @Accumulated Depreciation - Building | 5000 | ||
| 31/1 | Uncollectible Accounts Expense | 1423 | |
| @Allowance for Uncollectible Accounts | 1423 |
Depreciation Expense – Building: (2,000,000 – 200,000) / 30 years / 12 months = 5,000
Net sales = 18,000 + 11,000 – 540 (discount) = 28,460
Uncollectible accounts expense = 5% * 28,460 = 1,423
Question D
| Date | Account Name | Debit | Credt |
| 31/12 | Sales | 1.861.000 | |
| @Sales Discounts | 30.000 | ||
| @Freight Out Expense | 16.000 | ||
| @Income Summary | 1.814.000 | ||
| 31/12 | Income Summary | 1.790.525 | |
| Purchase Discounts | 10.000 | ||
| @Cost of Goods Sold | 745.000 | ||
| @Depreciation Expense – Building | 60.000 | ||
| @Freight In | 15.000 | ||
| @Income Tax Expense | 7.825 | ||
| @Insurance Expense | 1.200 | ||
| @Uncollectible Accounts Expense | 91.500 | ||
| @Wage Expense | 880.000 | ||
| 31/12 | Income Summary | 23.475 | |
| @Retained Earnings | 23.475 | ||
| 31/12 | Retained Earnings | 10.000 | |
| @Dividends | 10.000 |
Exercise 3
Question A
200,000 x 2 = 400,000 shares
With a par/nominal value of €5 each
Question B
Shares Outstanding = 400,000 – 6,000 + 2,000 + 3,000 = 399,000
Treasury Stock = 1,000 shares
Question C
| Date | Account Name | Debit | Credit |
| 4/1 | No Entry | ||
| 14/1 | Cash | 1.000.000 | |
| Building | 160.000 | ||
| @Preferred Stock | 1.160.000 | ||
| 8/3 | Memo entry or no entry | ||
| 20/4 | Treasury Stock, Common | 90.000 | |
| @Cash | 90.000 | ||
| 4/5 | Cash | 40.000 | |
| @Treasury Stock, Common | 30.000 | ||
| @Paid-In Capital, Treasury Stock | 10.000 | ||
| 15/7 | Dividends, Preferred Stock | 145.000 | |
| Dividends, Preferred Stock | 237.600 | ||
| @Dividends Payable | 382.600 | ||
| 25/7 | No entry | ||
| 15/8 | Dividends payable | 382.600 | |
| @Cash | 382.600 | ||
| 20/9 | Cash | 42.000 | |
| Paid-In Capital, Treasury Stock | 3.000 | ||
| @Treasury Stock, Common | 45.000 | ||
| 31/12 | Retained Earnings | 575.000 | |
| @Income Summary | 575.000 | ||
| 31/12 | Retained Earnings | 382.600 | |
| @Dividends | 382.600 |
Question D
Picasso Art Ltd. Stockholders’ Equity. December 31, 2014
| Contributed Capital | ||
| 1.160.000 | |
| 1.995.000 | |
| 2.560.000 | |
| 7.000 | |
| Total contributed capital | 5.722.000 | |
| Add: Retained Earnings (1,648,000 – 575,000 – 382,600) | 690.400 | |
| Total Contributed Capital & Retained Earnings | 6.412.400 | |
| Less: Treasury Stock, Common (1,000 shares at cost €15) | (15.000) | |
| Total Stockholders’ Equity | 6.397.400 |
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