1. For the questions requiring a written explanation, please be as brief as possible. None of the questions require a lengthy answer. Often, one sentence per point to explain is enough.
2. Show all your work for maximum credit.
3. PUT YOUR ANSWERS IN RED WITH THE EXAM QUESTION BUT ENSURE THE GRADER CAN IDENTIFY YOUR QUICKLY IDENTIFY. BUT PLEASE MAKE SURE YOU IDENTIFY EACH ANSWER SO THAT I KNOW THE QUESTION YOU ARE ANSWERING.
PART I (50 points) Journal Entries
Whammy Company begins the month of May with $2,000 in cash and $2,000 in stock sold at par. During the month, the company has eight transactions. Prepare the appropriate journal entries for each transaction. You will also need to prepare the appropriate adjusting journal entries.
1. On May 1, the company receives $3,000 cash. The company has agreed to allow a potential customer to use rent part of the company’s office space from May 1 through July.
2. On May 1 the company buys a one year $100,000 fire insurance policy for the office building. The one year premium paid on May 1 was $2,400.
3. The company purchases inventory for $6,000. $5,000 was purchased on credit and the remainder with cash.
4. The company sells the entire inventory for $19,000 on account.
5. The company collects $3,000 of the accounts receivable.
6. The company pays $2,000 on the account payable.
7. Employees earn $6,000, to be paid next month.
8. During May the company purchases $1,200 of office supplies with cash. On May 31, there are only $700 of office supplies left.
PART II BOND PRICING (40 Points)
1. (10 Points) The University of Alabama sells three year bonds with a $800,000 face value to private investors. The bonds are due in three years, have a 6% coupon rate, and interest is paid annually. The bonds were sold to yield 8%. What proceeds does UA receive from the investors?
2. (5 Points) Did the bond sell for par, a premium or a discount? How much was the premium or discount?
3. (5 Points) If the bond sold for a premium or discount, what is the balance in the premium or discount following the interest payment at the end of year 1?
4. (26 points) Prepare all of the necessary journal entries, beginning with the issuance of the bond, the three annual interest payments and the bond retirement at the end of year 3.
Part III Statement of Cash Flows (32 Points)
Prepare a Statement of Cash Flow for the year ending 2017 from the following information.
| 2016 | 2017 | ||||
| Cash | 85,000 | 27,000 | |||
| Accounts Receivable | 95,000 | 80,000 | |||
| inventory | 130,000 | 134,000 | |||
| prepaid expenses | 9,500 | 9,000 | |||
| land | 89,700 | 130,000 | |||
| PP&E | 295,500 | 256,700 | |||
| accumulated depr | -30,000 | -13,000 | |||
| total assets | 674,700 | 623,700 | |||
| accounts payable | 98,000 | 77,000 | |||
| accrued liabilities | 54,000 | 70,000 | |||
| bonds payable | 110,000 | 60,000 | |||
| common stock | 100,000 | 101,000 | |||
| retained earnings | 312,700 | 315,700 | |||
| 674,700 | 623,700 | ||||
| PP&E with a historical cost of $50,000 and a net book value of $28,000 was sold for $22,500 | |||||
| Dividends declared and paid for the year were for the year was $32,000. | |||||
| Land with a historical cost of $25,000 was sold for $35,000 |
PART IV Variety (35 points five points each)
1. Ending inventory for fiscal year ending December 31, 2016 was overstated (some of the inventory was counted twice). What would this effect have on year ending 2016 (state over or under stated):
a. Assets
b. Retained Earnings
c. Sales
d. Gross Profit
e. Net Income
2. Ending inventory for fiscal year ending December 31, 2016 was overstated (some of the inventory was counted twice). Ending inventory for December 31, 2017 was correctly counted. What would this effect have on year ending 2017 state over or under stated):
a. Assets
b. Retained Earnings
c. Sales
d. Gross Profit
e. Net Income
3. True or false (circle the correct answer) – The auditor is responsible for the preparation and fair presentation of the audited financial statements.
4. What are the three basic components of pension expense (circle correct answer)?
A) Service cost, benefits paid, and expected return on plan assets
B) Service cost, benefits paid, and actual return on plan assets
C) Service cost, interest cost, and actual return on plan assets
D) Service cost, interest cost, and expected return on plan assets
E) None of the above
5. Contingent Liabilities must have the following criteria – circle all that apply .
A) The obligation is certain to require payment at some point in the future.
B) The obligation will probably require payment at some point in the future.
C) The obligation is estimable.
D) The obligation will possibly require payment at some point in the future.
E) None of the above
Dont Fall Down Incorporated produces skates and offers a one-year warranty on all products. During 2016, the company recorded net sales of $3,887.4 million. Historically, about 2% of all sales are returned under warranty and the cost of repairing and or replacing goods under warranty is about 50% of retail value. Assume that at the start of the year Dont Fall Down’s balance sheet included an accrued warranty liability of $16.9 million and at the end of the year, the accrued warranty liability balance was $13.0 million.
6. Calculate Dont Fall Down’s warranty expense for 2016.
7. How much did Dont Fall Down pay during the year to repair and or replace goods under warranty?
PART V ACCRUAL ACCOUNTING (30 points)
Houston Company’s balance sheet includes the amounts shown below. Analysis of the company’s records reveals the following transactions during 2017, the company’s first year of operations:
Cash received from customers, recorded as service revenue $217,650
Purchase of supplies for cash, expensed $ 19,000
Cash paid for salaries, expensed $ 85,400
At year-end, supplies on hand total $5,300, employees have earned $8,000 but have not yet been paid, and on the last day of the fiscal year, customers paid deposits of $8,700 for future promotions (this is included in total cash received from customers, above).
Required: Determine the ending balance for service revenue, supplies expense and salary expense.
PART VI (40 points)
1. Accounts receivable increased by $33,000. Credit sales for the period were $415,000. What was the amount of cash that was collected from accounts receivable?
2. Wages payable decreased by $12,500. Cash paid for wages in the period was $222,000. What was wage expense for the period?
3. Unearned revenue increased by $13,100. Cash received for unrecorded revenue in the period was $43,700. How much unearned revenue was recorded as revenue during the period?
4. Prepaid insurance increased by $28,400. Cash paid for prepaid insurance policies during the period was $121,000. What was insurance expense for the period?
PART VII (38 Points) Harley Davidson Annual Report
You can find the Harley Davidson’s 2017 annual report at the following
http://investor.harley-davidson.com/sec-filings/sec-filing/10-k/0000793952-18-000012
Use the 2017 annual report to answer the following questions.
1. (2 points) Who is Harley Davidson’s external auditor?
2. (2 points) What kind of opinion did Harley Davidson receive?
3. (3 points) What is the gross profit percentage related to motorcycles and related products f05 2015, 2016, and 2017?
4. (2 points) What does the trend noted in Part VII question 3 imply?
5. (2 points) What depreciation method is used by Harley Davidson?
6. (2 points) What is the primary inventory method used by Harley Davidson?
7. (2 points) What is the dollar amount of trading securities invested in mutual funds in 2017?
8. (2 points) What was the total of depreciation and amortization of intangibles in 2017?
9. (2 points) What is the estimated amortization of intangibles in 2018?
10. (2 points) What is the interest rate on the Senior unsecured notes due in 2045, issued in July 2015?
11. (2 points) What is the largest item making up deferred tax liabilities?
12. (2 points) What is the pension benefit obligation at the end of 2017?
PART VIII Short answer (52 points 4 points each)
1. The Company uses the balance sheet approach to estimate bad debt expense. Credit sales for the period were $10 million. The beginning balance in the allowance for doubtful accounts was a credit balance of $44,300. During the year, $41,000 of receivables were written off. The aging schedule suggests that the ending balance in the allowance for doubtful accounts is $51,500. What was bad debt expense for the period?
2. Credit sales were $950,000. Cash flow from operating activities was $650,000. Cash sales were $350,000. Accrual expenses were $925,000. Cash flow from financing activities was $400,000. What was net income?
3. What does the current portion of long term debt represent?
4. In periods of rising prices, which inventory method (LIFO or FIFO) will provide you with a higher net income?
5. Record the journal entry to write off $4,000 of receivables that were deemed uncollectible.
6. Assume that $500 of the receivables written off in (8) were subsequently collected. Record the journal entry to record the collection of the $500.
7. What does a deferred tax liability represent?
8. What was the gain on the disposal of a piece of equipment if the equipment had a historical cost of $25,000, related accumulated depreciation of $13,500, and was sold for $15,500. In addition, in its last year, the equipment had produced 4,000 units of inventory that had been sold for $3.50 a piece.
9. What is goodwill on the balance sheet?
10. What is the criteria to determine if marketable securities are “trading” securities or “available for sale securities”?
11. Can a stock be classified as a “held to maturity” security and justify your answer.
12. How are unrealized gains and losses treated on trading securities?
13. How are unrealized gains and losses on available for sale securities treated?
