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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

Accounting 1A Exam 1 - Spring 2011 - Section 1 - Solutions

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Page 1: Accounting 1A Exam 1 - Spring 2011 - Section 1 - Solutions

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

Page 2: Accounting 1A Exam 1 - Spring 2011 - Section 1 - Solutions

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

Page 3: Accounting 1A Exam 1 - Spring 2011 - Section 1 - Solutions

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

Page 4: Accounting 1A Exam 1 - Spring 2011 - Section 1 - Solutions

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

Page 5: Accounting 1A Exam 1 - Spring 2011 - Section 1 - Solutions

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

Page 6: Accounting 1A Exam 1 - Spring 2011 - Section 1 - Solutions

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

Page 7: Accounting 1A Exam 1 - Spring 2011 - Section 1 - Solutions

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

Page 8: Accounting 1A Exam 1 - Spring 2011 - Section 1 - Solutions

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

Page 9: Accounting 1A Exam 1 - Spring 2011 - Section 1 - Solutions

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

Page 10: Accounting 1A Exam 1 - Spring 2011 - Section 1 - Solutions

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.

Page 11: Accounting 1A Exam 1 - Spring 2011 - Section 1 - Solutions

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.

Page 12: Accounting 1A Exam 1 - Spring 2011 - Section 1 - Solutions

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.

Page 13: Accounting 1A Exam 1 - Spring 2011 - Section 1 - Solutions

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 )

Page 14: Accounting 1A Exam 1 - Spring 2011 - Section 1 - Solutions

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.