Midterm 1 Practice Problems

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Accounting

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Feb 20, 2024

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ACC 5101 Midterm Review Problems Madsen Part 1 Use the following information to answer the six questions over the four pages. Beginning Balance: Jake’s company “Gopher Books” started January 1, 2017 with $6,500 in cash, $1,000 in unearned revenue, $6,000 in gross accounts receivable, $600 in allowance for doubtful accounts (credit balance), $8,000 in accounts payable, $500 in prepaid rent (lease stipulates monthly rent of $1,500 due by the 5 th of each month), $20,000 in gross property, plant, and equipment (estimated useful life 15 years with a salvage value of $5,000), $5,000 accumulated depreciation, $2,600 in inventory, $10,000 in long-term debt (10% interest rate, payable semiannually on June 30 and Dec 31) and $500 in interest payable, and $15,000 in contributed capital (with a total of 2,000 common shares outstanding), and a retained loss (i.e., debit balance of retained earnings) of $4,500. Current Year activities: During the first quarter of 2017, Jake (i.e., Gopher Books) purchased $50,000 of textbooks, spending $6,000 cash and putting the remainder on account with various suppliers. He sold textbooks for $80,000 (all on account), and by March 31 had collected $75,000 from his customers. He also delivered $1,000 worth of textbooks that had been paid for in the prior year (unearned revenue). He purchased a new desktop computer on January 2 (estimated useful life 3 years, zero salvage value) for $3,000 cash. For depreciation purposes, Gopher Books uses straight line depreciation for the full period (i.e., no half-year rule). At the beginning of the quarter he prepaid $5,000 for rent. At the end of March he decided to write off $2,000 of outstanding receivables, and estimates that 10% of the remaining outstanding accounts will never be collected and uses the percentage of accounts receivable method to estimate his bad debt expense. At the end of March he also received and paid utility bills totaling $1,000, returned textbooks costing $2,000 to the various suppliers (and received a credit for their purchase price), sent payments to his suppliers totaling $45,000, and had textbooks costing $10,000 still on his shelves. He accrued for, but did not pay, interest on his long-term debt. He estimates that he owes the government $6,000 in taxes. For GAAP purposes he estimates his tax rate to be 30% of his pre-tax income. Finally, at the end of the quarter he declared and paid a regular cash dividend of $1.50 per share.

ACC 5101 Midterm Review Problems Madsen 1. Prepare a beginning balance sheet reflecting Gopher Book’s financial position on January 1, 2017 (before any current year activities). Be sure to include tabulations of total current assets, non- current assets, current liabilities, non-current liabilities, total assets, and total liabilities plus shareholders’ equity.

ACC 5101 Midterm Review Problems Madsen 2. How much cash is left in Jake’s business account on March 31? 3. What was Jake’s operating cash flow for the quarter? Hint: identify all the operating cash flows in the problem—you don’t need to use the indirect method here! 4. What was Jake’s investing cash flow for the quarter? 5. What was Jake’s financing cash flow for the quarter?

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ACC 5101 Midterm Review Problems Madsen 6. Prepare the ending comparative balance sheet for Gopher Books. 7. Prepare a multi-step income statement for the three-month period ending March 31, 2017. You should include the following line items: Revenue, COGS, Gross Margin, Rent Expense, Depreciation Expense, Bad debt expense, utility expense, interest expense, income before taxes, tax expense, net income, and EPS. Hint: net income should be $22,295.

ACC 5101 Midterm Review Problems Madsen 8. Reconcile the differences between Gopher Book’s accrual-based net income of $22,295 and operating cash flow (your answer to #3 above). (hint: use the indirect method). Clearly list each adjustment for partial credit.

ACC 5101 Midterm Review Problems Madsen A.

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ACC 5101 Midterm Review Problems Madsen Part 2 Using the comparative balance sheet and income statement from Ellie Lu. Co. below, answer the five (5) questions listed on the following page. Ignore the effect of income taxes. Ellie Lu Co. End Beg Delta Cash 50 20 30 Accounts Receivable 120 60 60 Inventory 80 90 -10 Property, Plant, and Equipment 340 250 90 Accumulated Depreciation -90 -40 -50 Total Assets 500 380 120 Accounts Payable 70 105 -35 Unearned Revenue 30 40 -10 Long-term Debt 200 150 50 Common Stock 80 40 40 Retained Earnings 120 45 75 Total Liabilities and Equity 500 380 120 Revenues 600 Cost of Goods Sold -300 Depreciation -100 Loss on Sale of Equipment -20 Net Income 180 Book Value of Equipment sold: $100

ACC 5101 Midterm Review Problems Madsen 1. What was Ellie Lu’s operating cash flow? 2. How much cash did Ellie Lu receive from customers? 3. How much cash did Ellie Lu receive for the sale of some of its equipment? 4. How much did Ellie Lu spend on new Property, Plant, and Equipment? 5. Calculate Ellie Lu’s cash dividends for the year