ESLSCA UNIVERSITY

Accounting for Managers Exercise Sheet

Instructor
Dr. Maha Ramadan
Associate Professor of Accounting and Auditing
e-mail maha.ramdan@eslsca.edu.eg
MOB 01001047652
TASK ONE
Match each account to its classification on the balance sheet:
Stockholders’
Equity Liability Asset Account
a. Notes Payable

b. Cash

c. Capital

d. Inventories

e. Accounts Receivable

f. Accounts Payable

g. Property, Plant &

Equipment

h. Unearned Revenue

1
TASK TWO
Presented below is selected information related to Broadway Company at December 31,
2018. Broadway reports financial information monthly:

Accounts Payable $3,000 Salaries Expense $16,500

Cash 7,000 Notes Payable 25,000
Advertising Expense 6,000 Rent Expense 10,500
Service Revenue 54,000 Accounts Receivable 13,500
Equipment 29,000 Drawings 7,500
:Required

1. Determine the total assets of Broadway Company at December 31, 2018

2. Determine total liabilities of Broadway Company reported at December 31,2018
3. Determine the owner's equity of Broadway Company at December 31, 2018
4. Determine the net income of Broadway Company reported for December 31, 2018

2
TASK THREE
National Shops, Inc. reported the following amounts on its balance sheet as of
December 31, 2014:

Inventory $325
Notes Payable 100
Cash 150
Capital Stock 750
Net property, plant and equipment 600
Accounts Receivable 30
Accounts Payable 45
Retained Earnings ?
Requirements:
1. What is the amount of National's total assets as of December 31, 2014?

2. Identify the items listed above that are liabilities.

3. Determine the amount of stock holders' equity as of December 31, 2014

4.what is the amount of National's retained earnings as of December 31, 2014?

3
TASK FOUR
The following information relates to Olga Co. for the year 2018

Olga, Capital , Jan 1, 2018 $48,000 Advertising Expense $1,800

Olga, Drawings during 2018 7,000 Rent Expense 12,000
Service Revenue 67,000 Utilities Expense 3,100
Salaries Expense 30,000
Required:
Prepare an income statement and an owner's equity statement for the year ending
December 31, 2018

Olga Co.
Income statement
For the year ended Dec 31,2018

Olga Co.
Owner’s Equity
For the year ended Dec 31,2018

4
TASK FIVE
Prepare an April 30 balance sheet in proper form for Two Rivers Vending Service
from the following alphabetical list of the accounts at April 30:
Accounts receivable………………………. $10,000
Accounts payable………………………….. 18,000
Building…………………………………….... 28,000
Cash………………………….…………….... 10,000
Notes payable………………………………. 47,000
Office equipment……………...…………….. 12,000
K. Fields, Capital……………………………. ?
Trucks……………………………………….. 55,000
Two Rivers Vending Service
Balance Sheet at April 30
Assets (resources) Liabilities
(financing
sources)

Total Assets Total liab and

Equity

5
TASK SIX

ASSETS= LIABILITIES + O.EQUITY

Data for Kennedy Realty are as follows:

$100,000Total assets at January 1

35,000Total liabilities at January 1
79,000Total revenues for the year
47,000Total expenses for the year

The owner, Finn Kennedy, withdrew a total of $30,000 for personal use during the
year. Using the above data, prepare Kennedy Realty's Statement of Owner's Equity
for the year ended December 31, 2020

TASK SEVEN
The accounts of Mason Company at the end of the past year report the following amounts:

Accounts Amount
Owner Withdrawals, G. Mason……. $15,500
Revenues…………………………… $97,000
Expenses……………………………. $43,800
Owner investments………………..... 2,000

If the beginning equity for the year was $173,000, calculate the ending equity for
Mason Company.

6
TASK EIGHT
The records of Roadmaster Auto Rentals show the following information as of
December 31. The owner, Rob Fletcher withdrew $52,000 during the year for
personal expenses. Prepare a December income statement, a December statement of
owner's equity, and a December 30 balance sheet.

$75,000Wages expense $36,000Accounts payable

22,000Advertising expense 2,000Insurance expense
11,000Cash 24,000Accounts receivable
R Fletcher, Capital,
15,000Office Furniture 150,000 January 1
39,000Maintenance expense 150,000Airplanes
217,000Revenues 47,000Notes payable
60,000Hangar

Auto Rentals
Balance Sheet
Assets Liabilities

7
TASK NINE

Assets = liabilities +Revenue + Capital – Drawings - Expenses

Analyze each of the following transactions of World Wide Webster by performing
each of the following.
(a) Owners invested $10,000 cash to start the business.

Ensure the equation still balances

Stockholders’ Equity + Liabilities = Assets

(b) Borrow $15,000 cash using a note payable to the bank.

Ensure the equation still balances

Stockholders’ Equity + Liabilities = Assets

(c) Purchased a truck for $20,000 in cash.

Ensure the equation still balances

Stockholders’ Equity + Liabilities = Assets

(d) Purchase $300 of supplies on credit. “On account”

Ensure the equation still balances

Stockholders’ Equity + Liabilities = Assets

(e) Sign contract for first website design for $10,000.

Ensure the equation still balances

Stockholders’ Equity + Liabilities = Assets

(e) Company pays off $300 Accounts Payable.

Ensure the equation still balances

Stockholders’ Equity + Liabilities = Assets

8
 (f) Company purchased $600 supplies in cash.
Ensure the equation still balances

Stockholders’ Equity + Liabilities = Assets

g.Earned $9500 for services rendered, $3000 cash is received from customers and the balance
is billed to customers.
Ensure the equation still balances

Stockholders’ Equity + Liabilities = Assets

(h)Paid employees salaries $2,200.

Ensure the equation still balances

) -( Stockholders’ Equity + Liabilities = )-( Assets

(j) Received $4000 in cash from customers who were previously been billed.
Ensure the equation still balances

Stockholders’ Equity + Liabilities = Assets

(i)Withdrew $1000 cash for personal use

Ensure the equation still balances

)-( Stockholders’ Equity + Liabilities = )-( Assets

(j) Received Telephone bill for $400 June 11

Ensure the equation still balances

)-( Stockholders’ Equity + )+( Liabilities = Assets

9
TASK TEN
Tabor Hill Designers entered into the following transactions during February of the
current year. Analyze each of the following transactions and prepare the journal entry
.required to record the related transaction
Tober Hill provided website design services for $40,000 cash to its customers (no. )a(
1 is shown as an example)

Ensure the equation still balances

Stockholders’ Equity + Liabilities = Assets

40,000 Revenues 40,000 cash

(b) Provide website design services to Acme Company, for $20,000 on account. We
expect Acme to pay in the future.

Ensure the equation still balances

Stockholders’ Equity + Liabilities = Assets

20,000 Revenues 20,000 A/R

.Collect $18,000 from Acme Company customers on account (from transaction b) )c(

Ensure the equation still balances and debits = credits

Stockholders’ Equity + Liabilities = Assets

58,000 Cash

2,000 A/R

Collected $1200 cash in advance from customers for services to be performed next )d(
month

Ensure the equation still balances

Stockholders’ Equity + Liabilities = Assets

Unearned revenue 58,000 Cash

1,200 3,200 A/R

10
.Co Paid $16,000 cash for wages to employees )e(

Ensure the equation still balances

---Stockholders’ Equity + Liabilities = Assets

16,000 Exp 42,000 Cash

.Paid $3,600 a one year insurance policy for next year in advance )f(

Ensure the equation still balances

Stockholders’ Equity + Liabilities = Assets

38,400 Cash

3,600 Pe

Determined that two months of the insurance policy purchased in (f) has been )g(
expired ins expired

Ensure the equation still balances

Stockholders’ Equity + Liabilities = Assets

16,600 exp 38,400 Cash

3000 PE

h) The company provided one third of the revenues related to the cash collected in

advance ( d

Ensure the equation still balances

Stockholders’ Equity + Liabilities = Assets

44,800 revenues Unearned rev 800

Received $250 telephone bill for month, to be paid next month )i(

Ensure the equation still balances

--Stockholders’ Equity + Liabilities = Assets

Accrued exp 250 A/R 250

11
TASK ELEVEN
Using the following list of accounts and identification letters A through J, enter the
type of account and its normal balance into the table below. The first item is filled in
as an example:

Normal Balance Type of Account

Credit Debit Equity Liability Asset
X X Homer, Capital
Interest Payable
Land
Homer, Withdrawals
Fees Earned
Prepaid Rent
Advertising Expense
Unearned Rent Revenue
Commissions Earned
Notes Receivable

12
INCOME STATEMENT, COMPREHENSIVE INCOME AND
SOCKHOLDERS’ EQUITY STATEMENTS

Summary of the Income Statement Structure

Net sales Revenues= {Sales – sales returns and allowances – sales
discounts } xx
- Cost of Goods Sold (COGS) (xx)
=Gross Profit {Net Sales -COGS} =(1)
Operating Expenses: (2)
- Selling and Admin exp (including depreciation and amortization)
- Loss on inventory (obsolescence)
- Research and Development Expenses
Operating Income : Gross profit – operating expenses (1 -2)= 3
Other Income (Expenses) [Other Operating Items) (4)
Impairment of assets (tangible and intangible assets)
Unrealized gains and losses on trading securities
Gain +and Losses - on Sale of investments and fixed Assets [MV-BV]
Gain +and losses - on foreign currency transactions
Interest Revenue +
Dividends Revenue +
Earnings Before interest and Taxes (EBIT) (5) (3)+ or - (4)
Less: Interest Expense (financing Cost) (6)
Income before taxes (EBT) (7) (5)-(6)
- Income Taxes (8)
Net Income from continuing operations (9) (7)-(8)
Discontinued Operations (10)
ADD/ SUBTRACT: Income (loss) from discontinued operations {Revenues-
Expenses} net of taxes
Add/ SUBTRACT: Gain or losses on sale of assets [Market value of assets -
Book value of assets] net of taxes
Net Income (9)+/- (10)
EPS

13
TASK ONE
The following is a partial trial balance for the Greenwich Corporation as of December
31, year 1:
Accounts Titles Debits Credits
Sales Revenues $1947,000
Interest Revenue 38,000
Gain on Sale of Investments 55,000
Cost of Goods Sold $746,031
Selling Expenses 165,785
General and Administrative Expenses 48,300
Interest Expense 46,500
Loss on Write Down (Obsolescence) 22,000
Income Tax Expense 134,400

There were 178,500 shares of common stock outstanding throughout year 1.

Required:
Prepare a multiple-step income statement for year 1, including EPS disclosures, by
inserting the amounts above into the appropriate section.

14
TASK TWO
The following incorrect income statement was prepared by the accountant of the
Annette Corporation:
ANETTE CORPORATION
Income Statement
For the year ended December 31,Year 1
Revenues and Gains
Sales Revenues $597,000
Interest Revenue 35,500
Gain on Sale of Investments 80,000
Total Revenues and Gains 712,500
Expenses and Losses
Cost of Goods Sold $327,745
Selling Expenses 67,000
Administrative Expenses 82,000
Interest Expense 27,500
Cost of Write down of Inventory 63,000
Income Tax Expense 50,839
Total Expenses and Losses 618,084
Net Income 94,416
Earnings Per Share (EPS) $0.94

Required:
Prepare a multiple-step income statement for year 1 applying generally accepted
accounting principles..

15
TASK THREE
The Filzinger Corporation's December 31, 2021 year-end trial balance contained the
following income statement items:

Account Title Debits Credits

Sales revenue 6,700,000
Interest revenue 70,000
Gain on sale of investments 52,000
Cost of goods sold 4,200,000
Selling expense 350,000
General and administrative expense 948,000
Interest expense 30,000
Research and development expense 600,000
Income tax expense 145,000

Required: Calculate the company's operating income for the year

16
Reporting Discontinued Operations:
 IF the component is sold before end of the year: the income effect
will include income or loss from operations of the component +/-
gain or loss on disposal of component’s assets
 IF the component is held for sale (Not sold before end of the year):
the income effect will include income or loss from operations of
the component +/- ONLY IMPAIRMENT LOSS (Expected loss on
disposal) if book value of components’ assets is less the fair value
to dispose the component’s assets

TASK FOUR
Emerald Comic Book Company had income before tax of $1,056,000 in year 1 before
considering the following material items:
1. Emerald sold one of its operating divisions, which qualified as a separate
component according to generally accepted accounting principles. The
before-tax loss on disposal was $324,800. The division generated before-
tax income from operations from the beginning of the year through
disposal of $464,000.
2. The company incurred losses on foreign currency transactions of
$75,000 during the year.

Required:
Prepare a year 1 income statement for Emerald beginning with income from
continuing operations. Assume an income tax rate of 25%. Ignore EPS disclosures.

17
TASK FIVE

The following books were taken from the books of Parnvik Corporation on December 31,
2019

Interest Revenue $86,000 Sales Returns and 150,000

Allowances
Loss on sale of plant 120,000 Selling Expense 194000
assets
Sales 1,280,000 Administrative and general 97,000
Interest Expenses 60,000 Sales Discount 45,000
Cost of Goods Sold 621,000

Assume that the total effective tax rate on all items is 34%
Prepare multiple step income statement

Required:

18
Retained Earnings Account
Beginning of year balance of retained earnings
+/-Prior period adjustments (net of tax) → I.S
± Cumulative effect of a change in accounting → I.S
principle (net of tax)
= Beginning balance as adjusted
+ Net income → I.S
– Dividends →
= End-of-year balance of retained earnings

TASK SIX
Presented below is information related to Brokaw Corp. for the year 2020.

Net Sales $1,200,000 Write off of inventory due to $80,000

obsolescence
Cost of Goods Sold 780,000 Depreciation Expense omitted by 40,000
accident in 2019 (net of tax)
Selling Expenses 65,000 Loss of impairment of plant assets 50,000
Administrative Expenses 48,000 Cash Dividends Declared 45,000
Dividends Revenue 20,000 Retained Earnings at December 300,000
31,2019 (=1/1/2020)
Interest Revenue 7,000 Effective tax rate 34% on all
items
Required a. Prepare a multiple-step income statement for 2020. Assume that 60,000 shares of
common stock are outstanding. B.Compute retained earnings statement for 2020.

Brokaw Corporation
Income Statement for the year ended December 31, 2020

19
Comprehensive Income Statement
Net Income XX
OCI items:
 Net unrealized holdings gains and losses on investments
(Available for sale securities)
 Unrealized gains (losses) from postretirement benefit plans
(the difference between the value of plan assets and
projected benefit obligations) for the plan
 Foreign currency exchange hedges aiming to reduce
currency fluctuations (IFRS 9)
 Gains (losses) adjustments from foreign currency
translation
Net Income XX

20
TASK SEVEN
The trial balance for Sunrise Corporation, a manufacturing company, for the year
ended December 31, year 1, included the following income accounts:
Account Title Debits Credits
Sales Revenue $2450,000
Cost of Goods Sold $1,200,500
Selling and Administrative Expenses 400,000
Interest Expense 45,500
Gain on debt Securities 88,000

The gain on debt securities is unrealized and classified as other comprehensive

income. The trial balance does not include the accrual for income taxes. Sumise’s
income tax rate is 25%. There were 1,000,000 shares of common stock outstanding
throughout year 1.
Required:
Prepare an income statement and comprehensive income for year 1, including
appropriate EPS disclosures.

21
TASK EIGHT
The Maven Consulting Group reported income net of tax $1,314,000 for its fiscal
year ended December 31, year 1. In addition, during the year the company
experienced a positive foreign currency translation adjustment before taxes $252,000
and an unrealized loss on debt securities AFS before taxes $84,500. The company’s
effective tax rate on all items affecting comprehensive income is 35%.
Each component of other comprehensive income is displayed net of tax.
Required:
Prepare a separate statement of comprehensive income for year 1.
Answer

22
Accounting Changes
Type of Change Accounting Treatment
Accounted for retrospectively by
Voluntary changes in accounting
revising prior years’ financial statements
principles example: Change in inventory
(An adjustment is made to the beginning
costing method from FIFO to average
balance of retained earnings)
cost
A disclosure note is required for the
reason and nature of the change

Changes due to revision of an estimate Accounted prospectively

because of new information or new New estimate is incorporated in any
experience related accounting determinations from
Example: Amount of bad debts exp in that point on
A/R; useful life and residual value of a If the effect of the change is material, a
depreciable asset; and future warranty disclosure note is needed to describe the
expenses change and its effect on income

Correction of Errors (Prior Period By increasing or decreasing the

Adjustments) beginning retained earnings balance in a
statement of shareholders’ equity

TASK NINE
The controller of Shembri manufacturing corporation has asked for your help in
determining the appropriate treatment of the following transactions that also occurred
during 2019
1. Investments are sold during the year at a loss of $220. b
2. Schembri had unrealized gains of $320 for the year on investments accounted
for as available for sale securities.
3. During the year, Shembri had decided to stop one of its operating divisions
that was considered a separate product line. The division incurred an operating
loss of $560 in 2019 prior to the sale and net assets of the divisions were sold
at a gain of $1400.
4. In 2019, the company’s accountant discovered that depreciation expense in
2018 for the office building was understated by $200.
5. Foreign currency translation losses for the year totaled $240.
6. Schembri sold one of its factories for $1,200,000. At time of sale, the factory
had a carrying value of $1100,000. The factory was not considered a
component of the entity.
.
Required: State where these items should be placed in the related statement of
income, retained earnings and comprehensive income statement: (specify the section
under which it is placed and the statement)
(A) I/S operating (B) I/S Non operating (c)I/S Discontinued
(d)OCI € R/E

23
TASK TEN
Calstone, Inc., prepares a single, continuous statement of comprehensive income. The
following situations occurred during the company's 2021 fiscal year:

1. Land that had been held as an investment was sold and a gain was recognized.
2. There was a loss on projected benefit obligation at December 31, 2021.
3. Interest revenue was recognized.
4. A division was sold that qualifies as a separate component according to GAAP
regarding discontinued operations.
5. There was an unrealized loss on debt securities during the year. The unrealized
loss represents a decrease in the fair value of debt securities as is classified as part of
other comprehensive income.
6. Restructuring costs were incurred due to downsizing and reorganization of a
manufacturing facility.

Required:
For each situation, identify the appropriate reporting treatment from the list below
(consider each event to be material).
a. As a component of operating income.
b. As a nonoperating income item (other income or expense).
c. As a discontinued operation.
d. As an item of other comprehensive income.

Answer:

Example on EPS
Basic EPS = Net income – Dividends paid to preferred stockholders
Weighted average number of shares outstanding
a-Use the following information to calculate the weighted average number
of ordinary shares outstanding for EPS. Show all calculations.

Ordinary shares, January 1, 2021 200,000 200,000

Shares issued, March 1, 2021 40,000 240000
Shares repurchased, June 1, 2021 20,000 220,000
Shares issued, Nov 1, 2021 60,000 280000

b- if company realized net income during 2021 equals 400,000 and dividends for
preferred stock holders equals $50,000. Calculate Basic EPS for the company

24
Summary for measuring and reporting methods of investments
Investment in Debt Securities of Another Investment in Stocks of Another
Entity Company
Level of Held to Trading Available for < 20% 20-50% of >50% of
ownership Maturity Sale of voting outstanding
voting shares voting
shares (significant shares
(passive influence) (control)
)

Measuring Amortized Fair value Fair value Fair Equity Acquisition

and cost value method accounting
Reporting and
consolidatio
n
Balance Long term Short term Current or Current Non Financial
sheet investment investment Non Current or not current statements
Classification s (Non s (Current (according to current LT are
) current assets) company Investment consolidate
assets) . intentions to s (sister co) d
Amounts sell them or
due next not next year)
year would
be
classified
as current
Unrealized Not Income Other Net
gains and applicable statement comprehensiv income
losses e income

25
SECOND: BALANCE SHEET AND CASH FLOW STATEMENT)
BALANCE SHEET TEMPLATE

Assets {5 items}

Cash & Cash equivalent (Treasury bills)-1

Short term Investments -2
Available for sale securities - at fair value. [Gain/Loss: OCI]
Trading securities - at fair Value [Gain/Loss: Income statement
3-Accounts receivable [Trade /Non Trade] at Net Realizable Value {Gross value1000 -
allowance for doubtful accounts 10).
Notes Receivable. (If Mature in less than one year)
]Inventories at lower of average cost or market {LCM-4
Inventory can be classified as follows in manufacturing co.
 Raw material /Work in process / Finished Product
 Supplies on hand.
Prepaid expenses. [Covering a year]-5
A. Non Current Assets
Long Term Investments -1

 Held to maturity securities

 Notes receivable will be paid after 1 year.
 Cash surrender value of life insurance.
 Land held for future development.
 Land held for speculation.
 Special Funds ( Loan Sinking funds, Pension fund , or plant expansion fund )
 Investments in Consolidated Subsidiaries >50% +F/S Consolidated
 Investment in Non-consolidated subsidiaries (associates)/sisters (20<50)
Property, plant, and equipment-2

 Land at cost (plant site)

 Building 1 (at book value 800) = {cost 1000 - Accumulated depreciation 200}
 Office equipment (net) = at cost – depreciation
 leased Assets Controlled by the firm ( Right to use ) (any long term asset not lands )
Intangible assets-3

 Goodwill ( only if u paid for it )

 Patents
 Trademarks
 Franchises
 Copyright
 Development costs
 Software programs
4- Other Assets: Prepaid expense. (or any other prepaid expense for more than one year)

Liabilities and stockholders’ Equity

26
 C. Current liabilities (liab < 1 year)
 Accounts payable
 Notes payable
 Notes payable to bank
 Bank overdraft.
 Accrued interest on notes payable
 Accrued compensation.
 Rent payable
 Income taxes payable
 Credit balance of A/Receivables Cr side cash collections> Dr invoices
 Unearned revenue (Deposits received from customers)
 Accrued salaries, wages
 Current maturities - Long term debt
 Cash dividends payable.

D. Long-term liabilities (NON Current liabilities )

 Pension obligation
 Bonds payable after 1 year. 1000 (+Premium on Bonds payable 100 / or – discount on
Bonds / Payable)
 Notes payable (due after more than one year)
 Obligations Capital Lease.
 Accrued Income taxes after more than one year
 Long Term debts
E. Stockholders’ equity
Paid in capital.1
Preferred Stock (At par value X # of shares issued)
Common stock (At par value X # of shares issued)
Premium Share or Additional paid-in capital: Difference between Market value/share and (
)par value x # of shares issued
Treasury Stocks (by minus )
Retained earnings R/E beg balance + Net income - Dividends = R/E ending balance .2
Accumulated other comprehensive income .3

27
TASK ONE
Presented below are a number of balance sheet items for Santana, Inc., for the current year

Good will $110,000 Accumulated Depreciation- 292,000

equipment
Payroll taxes payable 177,591 Inventories 239,000
Bonds Payable 290,000 Rent payable-short term 45,000
Discount on Bonds 15,000 Taxes Payable 195,991
Payable
Cash 260,000 Long term rental obligations 480,000
Land 450,000 Common stock, $1 par value $300,000
Accounts Receivable 600,000 Preferred Stock, $10 par value 150,000
Notes Payable to Banks 265,000 Prepaid Expenses 87,920
Accounts Payable 690,000 Equipment 1,470,000
Retained Earnings ????? Marketable Securities (Short 81,000
term)
Allowance for Doubtful 54,300 Accumulated Depreciation- 170,000
Accounts building
Notes Payable (long term) 1,600,000 Building 1,640,000
Treasury Stock 50,000

Instructions
Prepare a classified balance sheet in good form. Common stock authorized was
400,000 shares, 300,000 shares issued and 50000 shares repurchased as treasury
stocks at par and preferred stock authorized was 20,000 shares and 15000 shares are
issued. Assume that notes receivable and notes payable are short-term, unless stated
otherwise. Cost and fair value of marketable securities are the same.

Answer:

195,991
690,000
265,000
45,000

177,591
1373,582

275,000
480,000
1,600,000

2355,000

28
 $300,000*

150,000

(50,000)
293038

4421,620

 300,000 = number of shares issued 300,000 x par value per share [$1]
 Note that the common stock value is determined based on number of shares issued
not authorized
 The 250,000 outstanding is determined by subtracting the 50,000 shares of treasury
from the issued

29
TASK TWO
The calendar year-end adjusted trial balance for Blessinger Co. follows:

BLESSINGER CO.
Adjusted Trial Balance
December 31

$ 112,000Cash
27,000Accounts receivable
15,000Prepaid rent
9,000Prepaid Insurance
3,300Office supplies
38,000Office equipment
$ 3,200
3,200 Accumulated depreciation–Equipment
288,000Building
42,000 Accumulated depreciation–Building
700,000Land
25,800 Accounts payable
14,500 Salaries payable
2,500 Interest payable
72,000 Long-term note payable
910,000 P. Blessinger, Capital
200,500P. Blessinger, Withdrawals
430,800 Service fees earned
90,000Salaries expense
5,200Insurance expense
5,000Rent expense
800Depreciation expense–Equipment
7,000Depreciation expense–Building
$1,500,800 $1,500,800Totals
Required:

Prepare a classified year-end balance sheet. (Note: A $9,000 installment on the long-
term note payable is due within one year.)

30
TASK THREE
Bruno Company has decided to expand its operations. The bookkeeper recently
completed the balance sheet presented on the current page in order to obtain
additional funds for expansion.
Assets Dec 31, 2021

Assets
Current assets
Cash $260,000
Accounts receivable (net) of 17000 340,000
Inventories at lower of average cost or market 401,000
Trading securities—at cost (fair value $120,000) 140,000
Property, plant, and equipment
Building (net) 570,000
Office equipment (net) 160,000
Land held for speculation 175,000
Intangible assets
Goodwill 80,000
Cash surrender value of life insurance 90,000
Prepaid expenses 12,000
Liabilities and stockholders’ Equity
Current liabilities
Accounts payable 135,000
Pension obligation 82,000
Rent payable 49,000
Long-term liabilities
Bonds payable 500000
Notes payable (due next year) 125,000
Stockholders’ equity
Preferred Stock and Common stock (each $10.00 par,
10,000 shares preferred and 19,000 shares 290,000
Additional paid-in capital 180,000
Treasury Stocks 90000
Retained earnings 80000

Additional Information
1. The cash balance is net of a bank overdraft of $20000 from a different bank where
the cash account is deposited
2. The accumulated depreciation balance for the buildings is $160,000 and for the
office equipment, $105,000.
3. The allowance for doubtful accounts has a balance of $17,000.
Required
1. Indicate your criticisms of the above statement of financial position (mention 10
mistakes) and briefly explain the proper treatment of the item being criticized.
2. Calculate the correct amount of current assets 1153000 and current liabilities
329000
3. Compute the company’s working capital CA 1153000 – CL

31
TASK FOUR
The bookkeeper for Angeles Ochoa Company has prepared the
following balance sheet as of July 31, 2020
Angeles Ochoa Co.
Balance Sheet
As of July 21, 2020
Cash $69,000 Notes and $44,000
Accounts Payable
Accounts 40,500 Long term 75,000
Receivable Liabilities
Inventories 60,000 Stockholder equity 155,500
Equipment 84,000
Patents 21,000
Total $274,500 Total $274,500

The following additional information is provided

1. Cash includes $1200 in a petty cash fund and $9000 in a bond sinking fund.
2. The net accounts receivable balance comprises the following three items:
accounts receivable debit balance $50,000, accounts receivable credit balance
$6,000 and AFDA $3,500
3. Merchandise inventory costing $5,300 was shipped out on consignment on
July 31, 2019. The ending inventory balance does not include the consigned
goods. Receivables in the amount of $5,300 were recognized on the consigned
goods.
4. Equipment had a cost of $98,000 and an accumulated depreciation balance of
$14,000.
5. Taxes payable of $6,000 were accrued on July 31. Angeles co. had set up a
cash fund to meet this obligation. This cash fund was not included in the cash
balance but was offset against the taxes payable amount.
Required:
Prepare a corrected classified balance sheet as of July 31,2020 from the
available information adjusting the account balances using the additional
information.

32
TASK FIVE

Presented below is a partial trial balance for the Messenger Corporation at December
31, 2021.

Account Title Debits Credits

Cash and cash equivalents 30,000
Accounts receivable 195,000
Raw materials inventory 36,000
Notes receivable 120,000
Interest receivable 4,000
Interest payable 7,000
Investments 48,000
Land 100,000
Buildings 1,500,000
Accumulated depreciation–buildings 740,000
Work in process inventory 38,000
Finished goods inventory 98,000
Equipment 400,000
Accumulated depreciation–equipment 230,000
Franchise (net of amortization) 120,000
Prepaid insurance (for the next year) 60,000
Deferred revenue 48,000
Accounts payable 240,000
Notes payable 500,000
Salaries payable 6,000
Allowance for uncollectible accounts 24,000
Sales revenue 900,000
Cost of goods sold 500,000
Salaries expense 48,000

Additional information:
1. The notes receivable, along with any accrued interest, are due on November 1,
2022.
2. The notes payable are due in 2026. Interest is payable annually.
3. The investments consist of equity securities of other corporations. Management
does not intend to sell any of the securities in the next year.
4. Deferred revenue will be recognized equally over the next 18 months.
48000/18 x 12= 32000 c/l

Required:
Determine the company's working capital (Current assets – current liab ) at December
31, 2021.

33
TASK SIX
You are reviewing the December 31, 2021, financial statements of Ellie's Antiques.
Ellie's management is considering an initial public offering of shares of its common
stock. The following items come to your attention:
a. Included in long-term investments are 10-year U.S. Treasury bonds that mature
March 31, 2022. The bonds were purchased November 20, 2011.
b. The property, plant, and equipment account is stated at cost in case of land , except
that it includes a parcel of land purchased for investment purposes at a cost of
$40,000. Because of rising land prices, the value of the land has been written up to
$60,000. The company has an independent appraisal that attests to this amount.
Land should be recorded at cost 40000 in LT investment
c. The accounts receivable account includes $20,000 due in three years from officers
and employees, as well as a two-year, 8% note for $25,000 due from a customer. The
loan enabled the customer to buy equipment needed to process materials purchased
from Ellie's Antiques.

Required: Determine the proper balance sheet presentation and amounts for the
above items.

34
TASK SEVEN
The following incomplete balance sheet for Sanderson Manufacturing Company was
prepared by the company’s controller. As accounting manager for Sanderson, you are
attempting to reconstruct and revise the balance sheet
Sandersonn Manufacturing Company
Balance Sheet
At December 31, 2019
(in $000s)
Assets
Current Assets
Cash 1250
Accounts Receivable 3500
Allowance for uncollectible Accounts (400)
Finished Goods Inventory 6000
Prepaid Expenses 1,200
Total Current assets 11,550
Non Current Assets
Investments 3000
Raw Materials and Work in process 2,250
Inventory
Equipment 15,000
Accumulated Depreciation-equipment (4200)
Patent ???
Total Assets ????
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts Payable $5200
Notes Payable 4,000
Interest payable – note 100
Unearned Revenue 3,000
Total Current liabilities 12,300
Long term liabilities
Bonds Payable 5500
Interest payable- bonds 200
Shareholders’ equity
Common Stock ?
Premium Share
Retained Earnings ?
Total liabilities and Shareholders’ ?
Equity

Additional Information ($in 000s)

1. Certain records that include the account balances for the patent and
shareholders’ equity items were lost. However, the controller told u that a
complete, preliminary balance sheet prepared before the records were lost
showed a debt-to-equity ratio of 1.2. That is, total liabilities are 120% of
total shareholders’ equity. Retained earnings at beginning of the year was

35
 $4000. Net income for 2019 was $1560 and $560 cash dividends were
declared and paid to shareholders.
2. Management intends to sell investments in the next months
3. Interest on both the note and bonds is payable annually
4. The note payable is due in annual installments of $1000 each
5. Unearned revenue will be earned equally over the next two fiscal years
Required:
Prepare a complete, corrected, classified balance sheet
Assets
Current Assets

Total Assets 33000

Liabilities and Stockholders’ Equity
Current Liabilities

Long term liabilities

Total equity 15000

Total liabilities and Shareholders’ Equity 33000

36
TASK EIGHT
The following is the 2019 balance sheet for the Nagoda Corporation does not conform
with the accounting principles:

The Nagoda Corporation

Balance Sheet (Asset Portion Only)
December 31, 2019
Current Assets
Cash after deducting a bank overdraft of ($5000) 46,500
Available-for-sale securities at cost (Fair value $159,800) 185,800
Accounts Receivable (gross value) 745,000
Inventories valued at replacement cost (cost equals 1,455,000) 1,800,000
Notes Receivable (will be paid in 2021) 310,000
Total Current Assets 3,087,300

Long term Investments

Treasury Stocks 251,540
Trademarks 70,000
321,540

Property, Plant and Equipment

Land held for speculation 2,575,000
Buildings at (fair value) 3,475,540
Equipment at book value (less of Accumulated Depreciation) 332,100
Total Property, Plant and Equipment 8,382,640

Intangible Assets
Goodwill (generated by the business since its beginning) 2,000,000
Cash Surrender value of Life Insurance Policy 450,000
Total Intangible Assets 2,450,000
Total Assets 12,241480

Additional information
1. Allowance for Doubtful accounts are 45000
2. Historical cost of the building is 3,000,000 and its accumulated depreciation is
50,000.
3. Equipment have an accumulated depreciation of 72,000
Required:
Find all the errors that you can notice (10 errors at least) in the asset portion of the
balance sheet of Nagoda Corporation and explain how each error should be corrected
according to the accounting principles

37
38
TASK NINE
The following is a December 31, 2019 trial balance for the Weismuller Publishing
Company
Account Title Debits Credits
Cash 65,000
Accounts Receivable 160,000
Inventories 285,000
Prepaid Expenses 148,000
Machinery and equipment 320,000
Accumulated Depreciation 110,000
Machinery
Investments 140,000
A/payable 60,000
Interest Payable 20,000
Unearned Revenue 80,000
Taxes Payable 30,000
Notes Payable 200,000
Allowance for uncollectible 16,000
accounts
Common Stock 400,000
Retained Earnings 202.000
Totals 1118000 1118000

Additional Information:
1. Prepaid expenses include $120,000 paid on December 31, 2019, for a two year
rent on the building.
2. Investments include $30,000 in treasury bills purchased on November 30, 2019.
The bills mature on January 30, 2020. The remaining $110,000 includes
investments in marketable equity securities that the company intends to sell in
the next year.
3. Unearned Revenues represent customer prepayments for magazine subscriptions
for a period of less than one year.
4. The notes payable account consists of the following:
a. $40,000 note in due in six months
b. $100,000 note due in six years.
c. $60,000 due in three annual installments of $20,000 each, with the
next installment due August 31, 2020
5. The common stock account represents $400,000 shares of no par value common
stock issued and outstanding, the corporation has 80,000 shares authorized.
Required:
Prepare a classified balance sheet for the Weimuller Publishing company at December
31, 2019

39
Cash flow statement

Notes that can help you

Concerning cash flows from operating activities
We start by net income then we

 Add: Depreciation exp (either directly given in the income statement or

calculated by the difference in accumulated depreciation from beginning of the
period to the end)
 Any increase in Current assets (A/R, Prepaid Exp, Inventory) will be
subtracted
 Any decrease in Current assets (A/R, Prepaid Exp, Inventory) will be added
 Any increase in current liabilities (A/P, Accrued exp, exp payable) will be
added
 Any decrease in current liabilities (A/P, Accrued exp, exp payable) will be
subtracted
Cash flows from investing
 An increase in property, plant and equipment (Land, building, furniture,
vans….) or any investment account, means we purchased, then this is a cash
outflow (subtracted)
 A decrease in property, plant and equipment (Land, building, furniture,
vans….) or any investment account, means we sold, then this is a cash inflow
(added)
Cash flows from financing activities

 An increase in common stocks or bonds payable means we issued stocks or

bonds, then this is a cash inflow that should be added
 A decrease in common stocks or bonds payable means we purchased the
stocks or paid the bonds, then this is a cash outflow that should be subtracted
Dividends always result in cash outflow that should be subtracted

40
Exercises on Cash flow Statements

TASK ONE
The accounting records of Rockness Company provided the data below ($ in 000s).

Net income $25,200

Depreciation expense 3,300
Decrease in accounts receivable 2,000
Increase in inventory 4,500
Increase in prepaid insurance 300
Increase in salaries payable 900
Decrease in interest payable 400

Required:
Prepare a reconciliation of net income to net cash flows from operating activities.
Answer:

41
TASK TWO

A comparative balance sheet for Oprah Winfrey Company is

:presented below
Assets December 31, 2019 December 31, Change
2018=1/1/2019
Cash $43,000 22,000 21,000
Accounts Receivable 85,000 66,000 19000
Inventories 180,000 189,000 )9000(
Land 75,000 110,000 )35000(
Equipment 260,000 200,000 60000
Accumulated )66,000( )42,000( 24000
Depreciation
Total 617000 545,000
Liabilities and
Stockholders’ equity
Accounts Payable 34,000 47,000 (13000)
Bonds Payable 150,000 200,000 )50000(
Common Stock 214,000 164,000 50,000
Retained Earnings 199,000 134,000 65000
Treasury stock 20000 0 20000+
Total 617,000 545,000
Additional information
Net income for 2019 was $105,000

:Required

Prepare a cash flow statement for the year ended December 31, 2019

42
TASK THREE
The following is the financial data for Gully company

Assets December 31, 2019 December 31, Change

2018
Cash 54000 37000 17000
Accounts Receivable 68000 26000 42000
Inventories 54000 -0- 54000
Prepaid expenses 4000 6,000 2000-
Land 45000 70,000 25000-
Building 200,000 200,000
Accumulated )21000( )11000(
Depreciation
Equipment 193000 68000
Accumulated )28000( )10,000(
Depreciation
Total 569000 386000
Liabilities and
Stockholders’ equity
Accounts Payable 23000 40,000
Accrued Expense 10,000 -0-
payable
Bonds Payable 110,000 150,000
Common Stock 220,000 60,000
Retained Earnings 206000 136,000 70000+
Total 569,000 386000
Additional Information:

Net Income for the period is 125000

Cash dividends of 55000 were declared and paid

Required: Prepare a cash flow statement for the year 2019

43
44
TASK FOUR
The following is a comparative balance sheet for Anne Boleyn Corporation:

December 31
Assets 2018 2017
Cash $69,000 22,000
Accounts Receivable 82,000 66,000
Inventories 180,000 189,000
Land 75,000 110,000
Equipment 260,000 200,000
Accumulated Depreciation- (69,000) (42,000)
equipment
597,000 545,000
Total
Liabilities and Stockholders'
Equity
Accounts Payable $34,000 47,000
Bonds Payable 150,000 200,000
Common Stock 214,000 164,000
Retained Earnings 199,000 134,000
Total 597,000 545,000

Additional Information

change in R/E +65000 = Net income 115000 – dividends

Dividends = 115000 -65000= 50000

1. Net income for 2018 was $115,000
2. Cash Dividends of $50,000 were declared and paid
3. Bonds Payable amounting to $50,000 were retired through the issuance of
common stock
Required:
Prepare a statement of cash flows for 2018 for Anne Boeyn Corpration

45
MULIPLE CHOICE QUESTIONS
Choose the Correct Answer
1. Which of the following is a limitation of the balance sheet?
a. Many items that are of financial value are omitted.
b. Judgments and estimates are used.
c. Current fair value is not reported.
d. All of these

Answer: d
2. The statement of financial position is useful for analyzing all of the following
except
a. Liquidity. c. Solvency.
b. Profitability. d. Financial flexibility.

Answer: b

3. The balance sheet contributes to financial reporting by providing a basis for all of
the following except
a. Computing rates of return.
b. Evaluating the capital structure of the enterprise.
c. Determining the increase in cash due to operations.
d. Assessing the liquidity and financial flexibility of the enterprise.

Answer: a
\
4. The current assets section of the balance sheet should include
a. Machinery. c. Patents.
b. Goodwill. d. Inventory.

Answer: d

5. Which of the following should not be considered as a current asset in the balance
sheet?
a. Installment notes receivable due over 10 months in accordance with normal
trade practice.
b. Prepaid taxes which cover assessments of the following operating cycle of the
business.
c. Equity or debt securities purchased for trading.
d. The cash surrender value of a life insurance policy carried by a corporation on
its president.
Answer: d

6. Which of the following is not a long-term investment?

a. Cash surrender value of life insurance c. Franchise
b. Land held for speculation d. A sinking fund

Answer: c

46
7. Which item below is not a current liability?
a. Unearned revenue c. Accounts receivable
b. The currently maturing portion of long-term debt d. Trade accounts payable

Answer: c

8. An example of an item which is not an element of working capital is

a. Accrued interest on notes receivable. c. Goodwill.
b. Goods in process. d. Trading investments.

Answer: c
9. Company had assets of $100,000 and liabilities of $60,000. What is the balance of
stockholders’ equity?
a. $0 c. $40,000
b. $60,000. d. $100,000

Answer: c

10. Treasury stock should be reported as a(n)

a. Current asset. C. Investment.
b. Other asset. D. Reduction of stockholders' equity.

Answer: d

11. Which of the following is not an acceptable major asset classification?

a. Current assets c. Long-term investments
b. Property, plant, and equipment d. Deferred charges

Answer: d

12. Which of the following is a contra account?

a. Premium on bonds payable c. Unearned revenue
b. Patents d. Accumulated depreciation

Answer : d

13. In preparing a statement of cash flows, sale of treasury stock would be classified
as a(n)
a. Operating activity. c. Financing activity.
b. Extraordinary activity. d. Investing activity.

Answer: c

14. In preparing a statement of cash flows, which of the following transactions would
be considered an investing activity?
a. Sale of equipment c. Sale of merchandise on credit
b. Payment of a cash dividend d. Issuance of bonds payable at a discount

47
Answer: a
15. For Grimmett Company, the following information is available:
Goodwill $200,000 Trademarks 65,000 Long-term
receivables 75,000
In Grimmett’s balance sheet, intangible assets should be reported at
a. $65,000. c. $75,000.
b. $265,000. d. $275,000.

Answer: b

16. Houghton Company has the following items: common stock, $720,000; treasury
stock, $85,000; Taxes payable $100,000 and retained earnings, $313,000. What total
amount should Houghton Company report as stockholders’ equity?
a. $848,000. c. $948,000.
b. $1,048,000. d. $1,118,000.

Answer: Common stock 720,000 – Treasury stock 85,000 +R/E 313,000=c

17. Which of the following is not a major characteristic of a plant asset?

a. Possess physical substance c. Acquired for resale
b. Acquired for use d. Long-term in nature

Answer: c

18. Stine Corp.'s trial balance reflected the following account balances at December
31, 2010:
Accounts receivable (net) $24,000
Trading securities 6,000
Accumulated depreciation on equipment and furniture 15,000
Cash 11,000
Inventory 30,000
Equipment 25,000
Patent 4,000
Prepaid expenses 2,000
Land held for future business site 18,000
In Stine's December 31, 2010 balance sheet, the current assets total is
a. $90,000. c. $82,000.
b. $77,000. d. $73,000.

Answer: A/R 24,000 + trading securities 6000 + cash 11000 + inventory 30,000 +
prepaid exp 2000= 73000 d

19.Kinder Company purchased equipment for $210,000 on 1/1/2015. The estimated

residual value is $10,000, and the estimated useful life is 10 years. The straight
line method is used for depreciation. (210000-10000 )/10
What is the annual depreciation expense on this asset?
a. $19,000 c. $20,000
b. $22,000 d. $190,000

48
Answer : annual dep exp = [210,000- 10000]/10= 20000 [c]
Annual dep = (cost -residual value)/UL
20. Refer to the previous problem, the book value of the equipment at end of the third
year is:
a. $180,000 c. $200,000
b. $ 170,000 d. $150,000
Answer : Book value = cost 210000 – [Acc dep for 3 years 60,000]= 150,000 [d]

21-The primary difference between revenues and gains is:

Gains are increases in net assets from peripheral activities while revenues are A.
increases from ongoing activities.

Revenues increase operating income and gains have no impact on net income.B.

Revenues cause increases in net assets as a result of peripheral activities and gains C.
cause increases through ongoing activities.

Gains result in an increase in operating income whereas revenues do not impact D.

operating income.

Answer: A

22. Lanz company has provided the following information

Cash Sales totaled $255,000 Credit Sales totaled $479,000
Cash collections from customers for services to be provided =$88,000
A $22,000 loss from the sale of property, plant and equipment occurred
Interest income was $7,700 Interest Expense was $19,900
Cost of Goods Sold $336,000 Rent Expense was 36,000
Salaries Expense was $49,000 Other operating expenses totaled
$79,00
Unearned Revenue $4000
Lantz Company has provided the following information:

How much was Lantz's operating income?

A. 219,700 B. 322,000 C.199,800 D.234,000

Answer: Revenues [255000 +479000]- Expenses[336000 +49000+ 36000+79000]= d

23) A payment on bonds payable will be reported in the ________ section of the
statement of cash flows.
A) operating activities only
B) investing activities
C) financing activities
D) noncash investing and financing activities
Answer: C

24) Which of the following events do NOT affect cash flows from operating

49
activities?
A) cash sale of merchandise inventory
B) cash purchase of equipment
C) cash purchase of inventory
D) cash paid for employees' wages

25) The cash paid to settle a long-term note payable is included in the ________
section of the statement of cash flows.
A) operating
B) investing
C) financing
D) noncash
Answer: C

26) The cash paid for taxes is included in the ________ section of the statement of
cash flows. .
A) operating
B) investing
C) financing
D) noncash
Answer: A

27) The cash paid for employees' wages is included in the ________ section of the
statement of cash flows. .
A) operating
B) financing
C) investing
D) noncash
Answer: A

28) The cash paid to purchase equipment is included in the ________ section of the
statement of cash flows.
A) operating
B) investing
C) financing
D) noncash
Answer: B

29) Cash collections from customers are included in the ________ section of the
statement of cash flows
A) operating
B) investing
C) financing
D) noncash
Answer: A

Old equipment having a book value of $12,000 was sold for $20,000 cash. New )30
equipment was purchased for $25,000 cash. Additional equipment was acquired in

50
exchange for a $17,000 long-term note payable. The net cash flow from investing
.________ activities was
A) $5,000 cash outflow
B) $22,000 cash outflow
C) $25,000 cash outflow
D) $42,000 cash outflow
Answer: A

31) California Company reports the following information:

12/31/14 12/31/15
Fixed Assets $330 $581
Less: Accumulated Depreciation (110) (127)
Net Fixed Assets $220 $454

Depreciation expense for the year ending December 31, 2015 is $17. No fixed assets
were sold during 2015. What is the net cash flow from investing activities for the year
ending December 31, 2015? 251
A) $17 cash inflow
B) $251 cash inflow
C) $251 cash outflow
D) $268 cash outflow
Answer: C

32 Listed below are selected accounts for Dentice Corporation:

December 31, 2013 December 31, 2014

Accounts Receivable $20,000 $40,000
Inventory $70,000 $30,000
Accounts Payable $20,000 $88,000
Wages payable $22,000 $1,000

For the year ended December 31, 2014, net income was $50,000 and depreciation
expense was $0. The net cash provided by operating activities for the year ending
December 31, 2014 was ________. Assume the indirect method is used.
A) $70,000
B) $90,000
C) $108,000
D) $117,000
Answer: D
Net income =50000 +0 -20000+40000+68000 -21000=

51