Question 1: Adjusting Entries

Hummingbird Corporation prepares monthly financial statements. Below are listed some selected
accounts and their balances on the September 30th trial balance before any adjustments have been
made.

Hummingbird Corporation
Trial Balance
September 30, 2021

Debit Credit
Cash $ 22,300 $ -
Notes Receivable 3,000 -
Office Supplies 2,700 -
Prepaid Insurance 5,775 -
Office Equipment 16,200 -
Accumulated Depreciation - Office Equipment - 540
Accounts Payable - 1,100
Notes Payable - 10,000
Unearned Revenue - 1,200
Common Shares - 10,000
Retained Earnings - 21,925
Rent Revenue - 6,360
Salaries Expense 1,150 -
Office Supplies Expense - -
Insurance Expense - -
Depreciation Expense - -
Total $ 51,125 $ 51,125

An analysis of the account balances by the company’s accountant provided the following additional
information:

1. A physical count of office supplies revealed $1,200 on hand for September 30th
2. A two-year life insurance policy was purchased on June 1st for $6,600.
3. The Office equipment was purchased on July 1st for $16,200 and had an estimated useful life of
five years.
4. A customer borrowed $3,000 signing a six-month, 9%, promissory note. Interest will be paid on
the first day of each month for the interest accrued for the previous month. The principal will
be collected at maturity.
5. The amount of rent received in advance that remains unearned at September 30th is $500.
6. The company borrowed $10,000 on March 31st at an interest rate of 6%. The loan will be repaid
in 11 months with interest paid at maturity.

Required:

1. Prepare the appropriate month end adjusting entries that should be made by Hummingbird
Corporation at September 30th.
Question 2: Financial Statements

The following is an alphabetical list of Bob’s Grocer’s adjusted account balances at the end of the
company’s fiscal year on November 30th, 2021.

Accounts Payable $ 32,310 Merchandise Inventory $ 34,360

Accounts Receivable 13,770 Mortgage Payable 106,000
Accumulated Depreciation - Building 61,200 Prepaid Insurance 4,500
Accumulated Depreciation - Equipment 19,880 Property Tax Expense 3,500
Building 175,000 Purchases 634,700
B. Hatch, Capital 164,480 Purchase Disounts 6,300
B. Hatch, Drawings 12,000 Purchase Returns and Allowances 13,315
Cash 8,500 Rent Revenue 2,800
Depreciation Expense 14,000 Salaries Expense 122,000
Equipment 57,000 Salaries Payable 8,500
Freight In 5,060 Sales 872,000
Freight Out 8,200 Sales Discounts 8,250
Insurance Expense 9,000 Sales Return and Allowances 9,845
Interest Expense 5,300 Unearned Revenue 3,000
Land 85,000 Utilities Expense 19,800

Additional Information:

• Bob’s Grocers uses a Periodic Inventory System.

• A physical count determined that merchandise inventory on hand at November 30th, 2021 was
$37,350.

Required:

1. Prepare a multi-step income statement for the year.

Question 3: Bonds Payable

On July 1, 2019, Onassis Corporation issued $1 million of 10-year, 6% bonds priced to yield a market
interest rate of 7%. The bonds pay semi-annual interest on July 1st and January 1st. Onassis has a
December 31st year end.

Required:

1. Calculate the present value of the bond on the issue date.

2. Prepare an amortization schedule through to January 1st, 2021.
3. Record any related journal entries required for the 2019 fiscal year (including accruals).
4. Record the payment of interest on January 1st, 2020.
Question 4: Accounting for Equity

Lavender Corporation, a publicly traded company, is authorized to issue 200,000 $4 cumulative

preferred shares and an unlimited number of common shares. On January 1, 2020, the general ledger
contains the following shareholder’s equity accounts:

Preferred Shares (8000 issued) $440,000

Common Shares (70,000 issued) $1,050,000
Contributed Surplus $25,000
Retained Earnings $800,000
Accumulated Other Comprehensive Income $10,000

The following equity transactions occurred in 2020:

Feb. 6 Issued 10,000 preferred shares for $600,000.

Apr. 6 Issued 20,000 common shares for $570,000.
Apr. 27 Reacquired and retired 3,000 common shares at $17 per share.
May 29 Declared a semi-annual cash dividend to preferred shareholders of record at June 12th.
It is payable on July 1st.
Aug. 22 Issued 9,000 common shares in exchange for a building. At the time of the exchange,
the building was valued at $165,000 and the commons shares were trading at $16.67
per share.
Nov. 1 Declared a 10% stock dividend to common shareholders of record on November 14th. It
is payable on December 1st. Shares were trading at $22 on the date of declaration, $23
on the date of record and $24 on the date of issue.
Dec. 14 The board of directors decided there were insufficient funds to declare the semi-annual
dividend to preferred shareholders.
Dec. 31 Net income for the year was $582,000. Other Comprehensive Income for the year was
$5,000.

Required:

1. Record the above transactions, including entries required to close dividends and net income.
2. Complete the Statement of Changes in Equity for Lavender Corporation.
3. Complete the Shareholder’s Equity section of the Statement of Financial Position for the fiscal
year.
Question 5: Accounting for Investments

Drummond Services Ltd acquired 150,000 shares of Bella Roma Ltd on January 1, 2018 by paying $1.8
million. Bella Roma has 600,000 shares outstanding currently.

Bella Roma declared a $0.50 per share dividend in each quarter that was received on March 15, June 15,
September 15 and December 15.

Bella Roma reported net income of $1.1 million for the year. At December 31, the market price of Bella
Roma was $17 per share.

Required:

1. Prepare the journal entries for Drummond Services for 2018, assuming Drummond cannot
exercise significant influence over Bella Roma and uses fair value through profit or loss model
(FVTPL). Prepare one entry for the dividend payments on March 15 and assume they are
repeated for June 15, September 15 and December 15.

2. Prepare the journal entries for Drummond Services for 2018, assuming Drummond can exercise
significant influence over Bella Roma and uses the equity method. Prepare one entry for the
dividend payments on March 15 and assume they are repeated for June 15, September 15 and
December 15.

3. Prepare the journal entries for Drummond Services for 2018, assuming the company reports
under ASPE and has chosen to account for the investment using the Cost Model.
Question 6: Cash Flow Statements

The comparative balance sheet of Action Ltd at the end of December 31, 2020 and 2021 is found below:

Assets 2021 2020

Cash $ 5,000 $ 36,000
Term Deposits - 42,000
Accounts Receivable 75,000 40,000
Inventory 101,000 70,000
Land 180,000 230,000
Buildings 923,000 524,000
Accumulated Depreciation - Building - 136,000 - 190,000
Equipment 100,000 70,000
Acccumulated Depreciation - Equipment - 41,000 - 20,000
Total Assets $ 1,207,000 $ 802,000

Liabilities and Shareholder Equity

Acounts Payable $ 29,000 $ 72,000
Income Tax Payable 3,000 5,000
Interest Payable 18,000 13,000
Bank Loan Payable - Current Portion 56,000 40,000
Bank Loan Payable - Non-Current Portion 891,000 420,000
Common Shares 160,000 180,000
Retained Earnings 50,000 72,000
Total Liabilities and Shareholder Equity $ 1,207,000 $ 802,000

Additional Information for Fiscal Year 2021:

1. Net income was $10,000.

2. A loss of $21,000 was recorded on the disposal of a small parcel of land. No land was purchased
during the year.
3. A gain on disposal of $15,000 was recorded when an old building was sold for $40,000 cash. A
new building was purchased for $520,000 and depreciation expense on buildings for the year
was $42,000.
4. Equipment costing $72,000 was purchased while a loss of $11,000 was recorded when
equipment that originally cost $42,000 and was sold for $21,000.
5. The company received $512,000 from new bank loans during the year.
6. Dividends were declared and paid during the year.
7. No common shares were issued during the year but some were bought back and retired at the
amount they were originally issued at.

Required:

1. Prepare the statement of cash flows using the Indirect Method.

Question 7: Ratio Analysis

The following are the balance sheets and income statements for Prime Safety Corp:

Assets 2019 2018 2017

Current Assets
Cash $ 25,000 $ 20,000 $ 18,000
Accounts Receivable 55,000 45,000 48,000
Inventory 100,000 85,000 64,000
Total Current Assets 180,000 150,000 130,000
Long Term Investments 55,000 70,000 45,000
Property, Plant, Equipment 500,000 370,000 258,000
Total Assets $ 735,000 $ 590,000 $ 433,000

Liabilities and Shareholder Equity

Liabilities
Current Liabilities $ 85,000 $ 80,000 $ 30,000
Non-Current Liabilities 155,000 85,000 20,000
Total Liabilities 240,000 165,000 50,000
Shareholder Equity
Common Shares 330,000 300,000 300,000
Retained Earnings 165,000 125,000 83,000
Total Shareholder Equity 495,000 425,000 383,000
Total Liabilities and Shareholder Equity $ 735,000 $ 590,000 $ 433,000

2019 2018
Sales $ 740,000 $ 500,000
less Sales Returns and Allowances 40,000 50,000
Net Sales 700,000 450,000
Cost of Goods Sold 450,000 300,000
Gross Profit 250,000 150,000
Operating Expenses 150,000 84,000
Profit from Operations 100,000 66,000
Interest Expense 10,000 4,000
Profit before Income Tax 90,000 62,000
Income Tax Expense 18,000 12,400
Profit $ 72,000 $ 49,600
Additional Information:

1. The allowance for doubtful accounts was $4800 in 2017, $4500 in 2018 and $5000 in 2019.
2. All Sales were credit sales.
3. Net Cash provided by operating activities were $119,600 in 2018 and $102,000 in 2019.

Required:

1. Calculate each of the following ratios for 2018 and 2019:

a) Current Ratio
b) Quick Ratio
c) Cash Ratio
d) Receivables Turnover
e) Collection Period
f) Inventory Turnover
g) Days in Inventory
h) Debt to Total Assets
i) Times Interest Earned
j) Gross Profit Margin
k) Profit Margin
l) Asset Turnover
m) Return on Assets

2. Evaluate if the company's liquidity, solvency and profitability improved, deteriorated or

remained the same.