University of Maryland University College

Version A Final Examination - Acct 221: Principles of Accounting II

For this exam, omit all general journal entry explanations.

Be sure to include correct dollar signs, underlines & double underlines.

Question 1 Statement of Cash Flows

The following is selected information from Aztec Company for the fiscal years ended December 31, 2015: Aztec Company had net income of $500,000. Depreciation was $50,000, purchases of plant assets were $ 250,000, and disposals of plant assets for $500,000 resulted in a $20,000 gain. Stock was issued in exchange for an outstanding note payable of $925,000. Accounts receivable decreased by $25,000. Accounts payable decreased by $10,000. Dividends of $200,000 were paid to shareholders. Aztec Company had interest expense of $5,000. Cash balance on January 1, 2015 was $250,000.

Requirements: Prepare Aztec Company's statement of cash flows for the year ended December 31, 2015 using the indirect method.

Hint (recall the 3 sections)

Question 2

On January 1, 2015, Aztec Company purchased 10,000 shares of the stock of Baker, Inc., and did obtain significant influence. The investment is intended as a long-term investment. The stock was purchased for $80,000, and represents a 30% ownership stake. Baker made $40,000 of net income in 2015, and paid dividends of $10,000. The price of Baker's stock increased from $20 per share at the beginning of the year, to $22 per share at the end of the year.

Requirements:

Prepare the January 1 and December 31 general journal entries for Aztec Company.

How much should the Aztec Company report on the balance sheet for the investment in Aztec at the end of 2015?

Question 3

The following events occurred during 2016 for Titus Corporation and have not been recorded

1/10/2016 - Issued 200,000 shares of stock at $16 per share.

1/25/2016 - The law firm that helped the company incorporate and file all forms for the stock issue accepts 1,000 shares of newly issued stock in lieu of cash for its legal bill rendered. The amount of the legal bill was $20,000.

6/10/2016 - Titus Corporation declares a 50 cent per share dividend payable July 15 to shareholders of record as of June 30, 2016.

6/30/2016 - The record date for the dividend declared on June 10.

7/15/2016 - The dividend declared on June 10 is paid.

9/15/2016 - Titus Corporation declares a 10% stock dividend payable on September 30 to shareholders of record as of September 20. The market value of the stock was $15 immediately prior to the declaration of the stock dividend.

9/30/2016 - The stock dividend declared on September 15 is paid.

10/15/2016 - Titus Corporation buys 5,000 shares of its own stock on the open market for $18 per share.

12/18/2016 - Titus Corporation resells 2,000 shares of the treasury stock for $20 per share.

Requirements:

Prepare journal entries in good form for the transactions listed above

Question 4

4A. January 1, 2016, Brandon Company issued $100,000 of 5 year 9% bonds when the market rate of interest was 10%. Brandon received $96,149 for the bond issue. The bonds pay interest on July 1 and January 1.

4B. January 1,2016 ABC Company issues $100,000 of 5 year 9% bonds to yield $104,100 when the market rate of interest is 8%.The bonds pay interest on July 1 and January 1.

Requirements: Prepare all general journal entries for the 2 bonds issued and any interest accruals and payments for the fiscal year 2016. What is the carrying amount on the December 31, 2016 Balance Sheet for 4A. and 4B?

Question 5

John Webb recently graduated from mortuary school. He is considering opening his own funeral home. A funeral home is a high-fixed cost business, as it requires considerable expenditures for facilities, labor, and equipment, no matter how many families are served.

Assume the annual fixed cost of operations is $800,000. Further assume that the only significant variable cost relates to burial containers like urns and caskets. An average casket costs $1,200. John's banker has asked a variety of questions in contemplation of providing a loan for this business.

Required: Provide the solution to each of the following questions.

If the average family is charged $6,000 for services and a burial container, how many families must be served to clear the break-even point?

If the banker believes John will only serve 100 families during the first year in business, how much will the business lose during its first year of operation?

If John believes his profits will be at least $100,000 during the first year, how much is he anticipating for total revenue?

The banker has suggested that John can reduce his fixed costs by $150,000 if he will not buy any vehicles. John can instead rent vehicles as needed. The variable cost of renting is $700 per family served. Will this suggestion help John reach the break-even point sooner?
Hint: Think CVP

Question 6

Rosie's manufactures silk flowers. ABC Company has approached Rosie's with a proposal to buy 2,000 silk flowers for $4.00 each. Regular customers are charged $4.25 for each flower. Rosie's has the necessary capacity. The following costs are associated annually with silk flowers with the company's normal production and sales of 10,000 flowers:

Direct material

$21,000

Direct labor

13,000

Manufacturing overhead

9,000

Total

$43,000

Forty percent of the manufacturing overhead is variable. All fixed overhead is allocated equally to all products produced.

Requirements: Prepare an incremental analysis schedule to demonstrate what amount operating income would increase or decrease as a result of accepting the special order.

Hint: think differences between accepting the order or not.

Question 7

ABC Company manufactures 10,000 units of wheel sets for use in its annual production. Costs are as follows: direct materials are $20,000; direct labor is $55,000; variable overhead is $45,000; and fixed overhead is $70,000. Murphy Company has offered to sell ABC 10,000 units of wheel sets for $18 per unit. If RSW accepts the offer, some of the facilities presently used to manufacture wheel sets could be rented to a third party at an annual rental of $15,000. Additionally, $4 per unit of the fixed overhead applied to wheel sets would be totally eliminated.

Requirements: Prepare an incremental analysis schedule to demonstrate if ABC should accept Murphy's offer.

Hint: Set up 2 columns and show differences in income and costs for each column.