Midterm 1 Practice Problems

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University of Minnesota-Twin Cities *

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5101

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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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