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Management 1A
Spring 2011
Danny S. Litt
EXAM 1
Solutions Section No: 1
I agree to have my grade posted by Student ID Number
________________ _________________ (Signature) (Student ID Number)
Name: ________________
PROBLEM POINTS SCORE
1 25
2 25
3 35
4 25
5 25
6 25
7 40
TOTAL 200
MANAGEMENT 1A
NAME: __________________________
Page | 2
Problem 1
James Haley owned a sailboat and was tired of his current job. He decided to open a corporation that
provides day sails to tourists in his hometown.
Required:
Prepare journal entries on this and the following page to record these transactions. No explanations are
necessary.
Date Accounts Debit Credit
May 1 Salary payable 20,000
Sailboat 90,000
Common stock 110,000
May 2 Office equipment 3,000
Cash 3,000
May 3 Sailing supplies 2,500
Accounts payable 2,500
May 4 Rent expense 500
Cash 500
May 5 Prepaid insurance 1,800
Cash 1,800
May 10 Cash 2,000
Sailing tour revenue 2,000
MANAGEMENT 1A
NAME: __________________________
Page | 3
May 12 Accounts receivable 3,500
Sailing tour revenue 3,500
May 19 Accounts payable 2,500
Cash 2,500
May 22 Cash 3,500
Accounts receivable 3,500
May 25 Cash 2,750
Sailing tour revenue 2,750
May 31 Salary expense 1,000
Cash 1,000
May 31 Dividends 2,000
Cash 2,000
MANAGEMENT 1A
NAME: __________________________
Page | 4
Problem 2
Prepare a November 30 balance sheet in proper form for Green Bay Delivery Service from the following
alphabetical list of the accounts at November 30:
Accounts receivable $10,000
Accounts payable 18,000
Building 28,000
Cash 8,000
Notes payable 45,000
Office equipment 12,000
Common stock ?
Trucks 55,000
Required:
Prepare a classified balance sheet.
Green Bay Delivery Service
Balance Sheet
November 30
Assets Liabilities
Cash 8,000 Accounts payable 18,000
Accounts receivable 10,000 Notes payable 45,000
Office equipment 12,000
Building 28,000 Total Liabilities 63,000
Trucks 55,000
Common stock 50,000
Total Assets 113,000 Total liabilities & Equity 113,000
MANAGEMENT 1A
NAME: __________________________
Page | 5
Problem 3
The unadjusted trial balance of Bade Cleaning Service is entered on the partial work sheet below.
Complete the work sheet using the following information:
(a) Salaries earned by employees that are unpaid and unrecorded, $4,000.
(b) An inventory of supplies showed $3,000 of unused supplies still on hand.
(c) Depreciation on automobiles, $30,000.
(d) Services paid in advance by customers of $12,000 have now been provided to customers.
(e) Advertising for November and December in the amount of $8,000 remains unpaid and unrecorded.
Accounts Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit
Cash 50,000
Accounts Receivable 10,000
Supplies Expense 8,000
Automobiles 160,000
Accum. Depreciation 55,000
Accounts Payable 15,000
Unearned fees 22,000
Salaries Payable
Capital 55,000
Dividends 45,000
Fees earned 275,400
Salaries 125,000
Rent expense 24,400
Totals 422,400 422,400
Supplies Expense
Advertising Expense
Depreciation Expense
Totals
Net Income
Totals
Trial Balance Adjusting JE's Adjusted T/B Income Statement Balance Sheet
Accounts Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit
Cash 50,000 50,000 50,000
Accounts Receivable 10,000 10,000 10,000
Supplies Expense 8,000 5,000 3,000 3,000
Automobiles 160,000 160,000 160,000
Accum. Depreciation 55,000 30,000 85,000 85,000
Accounts Payable 15,000 8,000 23,000 23,000
Unearned fees 22,000 12,000 10,000 10,000
Salaries Payable 4,000 4,000 4,000
Capital 55,000 55,000 55,000
Dividends 45,000 45,000 45,000
Fees earned 275,400 12,000 287,400 287,400
Salaries 125,000 4,000 129,000 129,000
Rent expense 24,400 24,400 24,400
Totals 422,400 422,400
Supplies Expense 5,000 5,000 5,000
Advertising Expense 8,000 8,000 8,000
Depreciation Expense 30,000 30,000 30,000
Totals 59,000 59,000 464,400 464,400 196,400 287,400 268,000 177,000
Net Income 91,000 91,000
Totals 287,400 287,400 268,000 268,000
Trial Balance Adjusting JE's Adjusted T/B Income Statement Balance Sheet
MANAGEMENT 1A
NAME: __________________________
Page | 6
Problem 4
Excalibur frequently has accrued expenses at the end of its fiscal year that should be recorded for proper
financial statement presentation. Excalibur pays on a weekly basis and has $50,000 of accrued salaries
incurred but not paid for June 30, its fiscal year-end. This consists of one day's accrued salaries for the
week. Excalibur will pay its employees $250,000 on July 4; the one day of accrued salaries and the
remaining four days for July salaries. Record the following entries:
Required:
(a) Accrual of the salaries on June 30.
(b) Payment of the salaries on July 4, assuming that Excalibur does not prepare reversing entries.
(c) Assuming that Excalibur prepares reversing entries, reverse the adjusting entry made on June 30.
(d) Assuming that Excalibur prepares reversing entries, payment of the salaries on July 4.
Date Accounts Debit Credit
June 30 Salary expense 50,000
Salary payable 50,000
July 4 Salary payable 50,000
Salary expense 200,000
Cash 250,000
July 1 Salary payable 50,000
Salary expense 50,000
July 4 Salary expense 250,000
Cash 250,000
MANAGEMENT 1A
NAME: __________________________
Page | 7
Problem 5
Shown below is Adventure Travel's adjusted trial balance as of the end of its annual accounting period:
Adjusted Trial Balance
Debit Credit
Cash 25,000
Accounts Receivable 15,000
Supplies 4,300
Building 29,600
Accumulated Depreciation—Building 5,000
Long term notes payable 25,000
Common Stock 30,260
Dividends 1,000
Sales 75,000
Salaries expense 32,800
Rent expense 16,800
Depreciation expense - office equipment 3,960
Advertising expense 4,000
Office supplies expense 2,800
Total 135,260 135,260
Required:
Prepare the necessary closing entries.
Accounts Debit Credit
Fees earned 75,000
Income summary 75,000
Income summary 60,360
Salaries expense 32,800
Rent expense 16,800
Depreciation expense-Office equipment 3,960
Advertising expense 4,000
Office supplies expense 2,800
Income summary 14,640
Common Stock 14,640
Common Stock 1,000
Dividends 1,000
MANAGEMENT 1A
NAME: __________________________
Page | 8
Problem 6
Salvo Co. had the following transactions in the last two months of its year ended December 31. Prepare
entries for these transactions under the method that records prepaid expenses as expenses and records
unearned revenues as revenues. Also prepare adjusting entries at the end of the year. No explanations are
necessary.
Required:
Date Accounts Debit Credit
Nov 1 Insurance expense 11,400
Cash 11,400
Nov 5 Cash 8,000
Fees earned 8,000
Nov 7 Advertising expense 10,000
Cash 10,000
Dec 31 Prepaid insurance 9,500
Insurance expense(11,000x10/12x2) 9,500
Dec 31 Fees earned 2,500
Unearned fees 2,500
Dec 31 Prepaid advertising 1,500
Advertising expense 1,500
MANAGEMENT 1A
NAME: __________________________
Page | 9
Problem 7
Attached are the financial statements for Target Corporation. Using this data, calculate the following
ratios for 2010 and 2009 (be sure to identify the results for each year):
2010 2009
Current Ratio
Current Assets 17,213 = 1.709 18,424 = 1.627
Current Liabilities 10,070 11,327
2010 2009
Quick Ratio
Cash 1,712 2,200
Marketable Sec - -
A/R 6,153 6,966
Quick Assets 7,865 = 0.781 9,166 = 0.809
Current Liabilities 10,070 11,327
2010 2009
Return on Sales
Net Income 2,920 = 4.333% 2,488 = 3.807%
Sales 67,390 65,357
2010 2009
or
EBIT (Operating Income) 5,252 = 7.793% 4,673 = 7.150%
Sales 67,390 65,357
2010 2009
Return on
Equity Net Income 2,920 = 18.940% 2,488 = 17.124%
Average Equity 15,417 14,530
Beg Equity 15,347 13,712
End Equity 15,487 15,347
30,834 29,059
2010 2009
Gross Profit
Margin
Percentage
Only for 2009
and 2010
Revenue 67,390 65,357
Cost of Revenue 45,725 44,062
Gross Profit 21,665 = 32.149% 21,295 = 32.583%
Sales 67,390 65,357
2010 2009
MANAGEMENT 1A
NAME: __________________________
Page | 10
TARGET CORPORATION
Consolidated Statements of Operations
(millions, except per share data) 2010 2009 2008
Sales $ 65,786 $ 63,435 $ 62,884 Credit card revenues 1,604 1,922 2,064
Total revenues 67,390 65,357 64,948 Cost of sales 45,725 44,062 44,157 Selling, general and administrative expenses 13,469 13,078 12,954 Credit card expenses 860 1,521 1,609 Depreciation and amortization 2,084 2,023 1,826
Earnings before interest expense and income taxes 5,252 4,673 4,402 Net interest expense
Nonrecourse debt collateralized by credit card receivables 83 97 167 Other interest expense 677 707 727 Interest income (3 ) (3 ) (28 )
Net interest expense 757 801 866
Earnings before income taxes 4,495 3,872 3,536 Provision for income taxes 1,575 1,384 1,322
Net earnings $ 2,920 $ 2,488 $ 2,214
Basic earnings per share $ 4.03 $ 3.31 $ 2.87
Diluted earnings per share $ 4.00 $ 3.30 $ 2.86
Weighted average common shares outstanding Basic 723.6 752.0 770.4 Diluted 729.4 754.8 773.6
See accompanying Notes to Consolidated Financial Statements.
MANAGEMENT 1A
NAME: __________________________
Page | 11
TARGET CORPORATION
Consolidated Statements of Financial Position
(millions, except footnotes)
January 29,
2011 January 30,
2010
Assets Cash and cash equivalents, including marketable securities of $1,129 and $1,617 $ 1,712 $ 2,200 Credit card receivables, net of allowance of $690 and $1,016 6,153 6,966 Inventory 7,596 7,179 Other current assets 1,752 2,079
Total current assets 17,213 18,424
Property and equipment Land 5,928 5,793 Buildings and improvements 23,081 22,152 Fixtures and equipment 4,939 4,743 Computer hardware and software 2,533 2,575 Construction-in-progress 567 502 Accumulated depreciation (11,555 ) (10,485 ) Property and equipment, net 25,493 25,280
Other noncurrent assets 999 829
Total assets $ 43,705 $ 44,533
Liabilities and shareholders' investment Accounts payable $ 6,625 $ 6,511 Accrued and other current liabilities 3,326 3,120 Unsecured debt and other borrowings 119 796 Nonrecourse debt collateralized by credit card receivables — 900
Total current liabilities 10,070 11,327
Unsecured debt and other borrowings 11,653 10,643 Nonrecourse debt collateralized by credit card receivables 3,954 4,475 Deferred income taxes 934 835 Other noncurrent liabilities 1,607 1,906
Total noncurrent liabilities 18,148 17,859
Shareholders' investment Common stock 59 62 Additional paid-in-capital 3,311 2,919 Retained earnings 12,698 12,947 Accumulated other comprehensive loss (581 ) (581 ) Total shareholders' investment 15,487 15,347
Total liabilities and shareholders' investment $ 43,705 $ 44,533
Common Stock Authorized 6,000,000,000 shares, $0.0833 par value; 704,038,218 shares issued and outstanding at January 29, 2011; 744,644,454 shares issued and outstanding at January 30, 2010.
Preferred Stock Authorized 5,000,000 shares, $0.01 par value; no shares were issued or outstanding at January 29, 2011 or January 30, 2010.
See accompanying Notes to Consolidated Financial Statements.
MANAGEMENT 1A
NAME: __________________________
Page | 12
TARGET CORPORATION
Consolidated Statements of Cash Flows
(millions) 2010 2009 2008
Operating activities Net earnings $ 2,920 $ 2,488 $ 2,214 Reconciliation to cash flow
Depreciation and amortization 2,084 2,023 1,826 Share-based compensation expense 109 103 72 Deferred income taxes 445 364 91 Bad debt expense 528 1,185 1,251 Non-cash (gains)/losses and other, net (145 ) 143 316 Changes in operating accounts: Accounts receivable originated at Target (78 ) (57 ) (458 ) Inventory (417 ) (474 ) 77 Other current assets (124 ) (129 ) (99 ) Other noncurrent assets (212 ) (114 ) (55 ) Accounts payable 115 174 (389 ) Accrued and other current liabilities 149 257 (230 ) Other noncurrent liabilities (103 ) (82 ) (186 )
Cash flow provided by operations 5,271 5,881 4,430
Investing activities Expenditures for property and equipment (2,129 ) (1,729 ) (3,547 ) Proceeds from disposal of property and equipment 69 33 39 Change in accounts receivable originated at third parties 363 (10 ) (823 ) Other investments (47 ) 3 (42 )
Cash flow required for investing activities (1,744 ) (1,703 ) (4,373 )
Financing activities Reductions of short-term notes payable — — (500 ) Additions to long-term debt 1,011 — 3,557 Reductions of long-term debt (2,259 ) (1,970 ) (1,455 ) Dividends paid (609 ) (496 ) (465 ) Repurchase of stock (2,452 ) (423 ) (2,815 ) Stock option exercises and related tax benefit 294 47 43 Other — — (8 )
Cash flow required for financing activities (4,015 ) (2,842 ) (1,643 )
Net increase/(decrease) in cash and cash equivalents (488 ) 1,336 (1,586 ) Cash and cash equivalents at beginning of year 2,200 864 2,450
Cash and cash equivalents at end of year $ 1,712 $ 2,200 $ 864
Cash paid for income taxes was $1,259, $1,040 and $1,399 during 2010, 2009 and 2008, respectively. Cash paid for interest (net of interest capitalized) was $752, $805 and $873 during 2010, 2009 and 2008, respectively.
See accompanying Notes to Consolidated Financial Statements.
MANAGEMENT 1A
NAME: __________________________
Page | 13
TARGET CORPORATION
Consolidated Statements of Shareholders' Investment
Accumulated Other
Comprehensive
Income/(Loss)
(millions, except footnotes)
Common
Stock
Shares
Stock
Par Value
Additional Paid-in
Capital Retained
Earnings
Pension and
Other Benefit Liability
Adjustments
Derivative
Instruments, Foreign
Currency
and Other Total
February 2, 2008 818.7 $68 $2,656 $12,761 $(134 ) $(44 ) $ 15,307 Net earnings — — — 2,214 — — 2,214
Other comprehensive income/(loss)
Pension and other benefit liability adjustments, net of taxes of $242 — — — — (376 ) — (376 )
Net change on cash flow hedges, net of taxes of $2 — — — — — (2 ) (2 )
Total comprehensive income 1,836
Dividends declared — — — (471 ) — — (471 ) Repurchase of stock (67.2 ) (5 ) — (3,061 ) — — (3,066 ) Stock options and awards 1.2 — 106 — — — 106
January 31, 2009 752.7 $ 63 $ 2,762 $ 11,443 $ (510 ) $ (46 ) $ 13,712 Net earnings — — — 2,488 — — 2,488
Other comprehensive income/(loss)
Pension and other benefit liability adjustments, net of taxes of $17 — — — — (27 ) — (27 )
Net change on cash flow hedges, net of taxes of $2 — — — — — 4 4
Currency translation adjustment, net of taxes — — — — — (2 ) (2 )
MANAGEMENT 1A
NAME: __________________________
Page | 14
of $0
Total comprehensive income 2,463
Dividends declared — — — (503 ) — — (503 ) Repurchase of stock (9.9 ) (1 ) — (481 ) — — (482 ) Stock options and awards 1.8 — 157 — — — 157
January 30, 2010 744.6 $ 62 $ 2,919 $ 12,947 $ (537 ) $ (44 ) $ 15,347 Net earnings — — — 2,920 — — 2,920
Other comprehensive income/(loss)
Pension and other benefit liability adjustments, net of taxes of $4 — — — — (4 ) — (4 )
Net change on cash flow hedges, net of taxes of $2 — — — — — 3 3
Currency translation adjustment, net of taxes of $1 — — — — — 1 1
Total comprehensive income 2,920
Dividends declared — — — (659 ) — — (659 ) Repurchase of stock (47.8 ) (4 ) — (2,510 ) — — (2,514 ) Stock options and awards 7.2 1 392 — — — 393
January 29, 2011 704.0 $59 $3,311 $12,698 $(541 ) $(40 ) $ 15,487
Dividends declared per share were $0.92, $0.67 and $0.62 in 2010, 2009 and 2008, respectively.
See accompanying Notes to Consolidated Financial Statements.