Financial & Managerial Accounting

Financial & Managerial Accounting

Fall 2009

Exam 1

General Instructions. Make sure you write answers clearly. For the recording transactions using the financial statement approach make sure to indicate with (+) and (-) signs whether the account is increasing or decreasing in addition to the amount. Finally, the work you do on this exam must be your own and performed without any additional materials (i.e., notes, etc.) – except for a calculator. Cheating will be dealt with by following Earlham policyunconditionally.

Please take a moment to PRINT your name below.

PRINT Name: .

PART I (60 points). The following transactions occurred at a small retail toy store (“Tots on Toys”, or “ToT” for short). Record each transaction for the store using the approach indicated by the format. Make sure to be clear in your answers --- if I cannot determine with a glance what you have done then it will be marked wrong.

1. ToT purchased $500 worth of toys from its supplier. ToT paid cash for the games.

Account / Debit / Credit

2. ToT paid its sales clerks their $2,000 in wages.

Account / Debit / Credit

3. ToT purchased a new computer for general use by the manager. The computer cost ToT $1,200. ToT asked the computer supplier to bill the store for the purchase.

Account / Debit / Credit

4. ToT wrote a $1,200 check to the computer supplier for the earlier purchase of a computer.

Account / Debit / Credit

5. ToT received a $50 check from a customer that had previously purchased toys on store credit.

Account / Debit / Credit

6. ToT paid $300 on its car loan ($200 went towards the principal of the car loan, $100 towards interest on the loan).

Account / Debit / Credit

7. ToT sold $80 worth of toys to a customer. The customer paid in cash. The toys had cost ToT $60.

Account / Debit / Credit

8. ToT took on a new partner. The new partner invested $12,000 into the business.

Account / Debit / Credit

9. ToT paid a dividend to its owners in the total amount of $3,000.

Account / Debit / Credit

10. ToT took out a small business loan in the amount of $25,000.

Account / Debit / Credit

11. ToT sold $30 worth of toys to a customer. The customer asked to be billed for the purchase. The toys had cost ToT $20.

ASSETS / LIABILITIES / EQUITY / REVENUE / EXPENSES / NET INCOME

12. ToT received a $30 check from the previous customer that purchased toys.

ASSETS / LIABILITIES / EQUITY / REVENUE / EXPENSES / NET INCOME

13. ToT received its $200 utility bill. ToT does not plan to pay the bill until next month.

ASSETS / LIABILITIES / EQUITY / REVENUE / EXPENSES / NET INCOME

14. A month has passed since receiving the $200 utility bill, ToT makes the full payment.

ASSETS / LIABILITIES / EQUITY / REVENUE / EXPENSES / NET INCOME

15. ToT paid a dividend to its owners in the total amount of $3,000.

ASSETS / LIABILITIES / EQUITY / REVENUE / EXPENSES / NET INCOME

16. ToT paid $600 on its small business loan ($200 went towards the principal of the loan, $400 towards the interest on the loan).

ASSETS / LIABILITIES / EQUITY / REVENUE / EXPENSES / NET INCOME

17. ToT paid $10,000 to purchase an adjacent lot to its store. ToT paid cash for the land.

ASSETS / LIABILITIES / EQUITY / REVENUE / EXPENSES / NET INCOME

18. ToT paid its sales clerks their $2,000 in wages.

ASSETS / LIABILITIES / EQUITY / REVENUE / EXPENSES / NET INCOME

19. ToT purchased $1,000 worth of toys from its supplier. ToT asked to be billed for the purchase.

ASSETS / LIABILITIES / EQUITY / REVENUE / EXPENSES / NET INCOME

20. ToT recognized annual depreciation of $500 on the car it uses for deliveries.

ASSETS / LIABILITIES / EQUITY / REVENUE / EXPENSES / NET INCOME

Part II (20 points). 21. The following table represents the account balances on Jan. 1, 2009 for a small retail shop (“Roger’s Jewelers”) specializing in diamond rings and chains.

Accounts / Balance
Capital Stock / $10,000
Accounts Payable / 10,000
Inventory / 30,000
Long-Term Debt / 50,000
Accounts Receivable / 10,000
Retained Earnings / 30,000
Property, Plant, & Equipment / 40,000
Cash / 20,000

During the year, the following transactions occurred.

• Roger’s purchased $5,000 worth of diamonds from its suppliers. Roger’s asked to be billed for the purchase. They did not make the payment for the purchase during the year.
• Roger’s sold $14,000 worth of diamonds to customers. The customers had all paid cash. Roger’s had purchased the diamonds for $4,000.
• Roger’s paid rent on its store building in the amount of $2,000.
• Roger’s paid a dividend to its owners in the amount of $3,000.

Clearly do each of the following. (Please note, I am not asking to see you record the transactions – though you can do so if it helps you keep track of things.)

(a.) (5 points) Construct the beginning balance sheet as of Jan. 1, 2009.

(b.) (10 points) Construct the income statement for the year 2009.

(c.) (5 points) Construct the ending balance sheet as of Dec. 31, 2009.

Part III (10 points). Make the appropriate entries for each situation assuming the accounting cycle ends on Dec. 31st of the year. Be sure to write your answers clearly.

22. (2 pts) On May 15th, the owner of a business purchases $5,000 worth of phone cards for her sales associates. The owner paid for the phone cards in cash. On Dec. 31st, the owner finds that the balances on the phone cards amount to $2,000.

On May 15th, the following would be recorded.

Account / Debit / Credit

On Dec. 31st, the following would be recorded.

Account / Debit / Credit

23. (2 pts) On Nov. 1, the owner of a small financial counseling service company signs a contract to provide $20,000 worth of services to a union’s employees over the next five months (to be provided in equal monthly installments). The union pays the full amount in cash on the day the contract is signed.

On Nov. 1, the following would be recorded.

Account / Debit / Credit

On Dec. 31st, the following would be recorded.

Account / Debit / Credit

24. (3 pts) The owner of a business pays the store manager a monthly salary of $10,000 on the 15th of each month.

On Dec. 31st, the following would be recorded.

Account / Debit / Credit

On Jan. 15th of the following year, the following would be recorded.

Account / Debit / Credit

24. (3 pts) The following are account balances on Dec. 31st: Total Revenues of $80,000, Total Expenses of $50,000, and Total Dividends of $10,000. Make the appropriate entries on Dec. 31st that would close these accounts.

Account / Debit / Credit

Part IV (10 points). Clearly answer each of the following. You must show your work to earn any partial credit for wrong answers.

25. (5 pts) A small manufacturing business purchased a new machine for $100,000. Calculate the annual depreciation – assuming straight-line depreciation method – under the following scenarios.

a. The machine will last for 20 years with no salvage value at the end.

b. The machine will last for 10 years with no salvage value at the end.

c. The machine will last for 10 years with a $20,000 salvage value at the end.

26. (5 pts) A flour retailer purchases flour for its inventory on the first day of each month. During the months of May and June, the retailer had the following transactions occur.

• May 1st Purchased 100 pounds of flour at a cost of $3 per pound
• May 15th Sold 50 pounds of flour at a price of $4 per pound
• June 1st Purchased 75 pounds of flour at a cost of $2 per pound
• June 15th Sold 100 pounds of flour at a price of $4 per pound

a. Assuming the retailer uses the FIFO method of accounting for inventory, calculate the total Net Income earned during the two months. You should show as much of your work as necessary, though you do not need to show complete recordings for each transaction.

b. Assuming the retailer uses the LIFO method of accounting for inventory, calculate the total Net Income earned during the two months. You should show as much of your work as necessary, though you do not need to show complete recordings for each transaction.