Introduction to Financial Accounting


Introduction to Financial Accounting

Instructions:
• Answer all questions in the provided Excel file.
• Submit only the Excel file. PDF or Word files will NOT be accepted.
• Each student must submit their own response file.
• Save your Excel file as: “XXX NKU FA Final.”
• Submit your Final to gapp@cpacanada.net.cn no later than 23:59 on
January 13, 2021.
• Late assignments will not be accepted.
Page 2 of 9
Part 1 (20 marks)
Multiple Choice; Mark allocation: 2 marks per question

  1. What is the interest on a €1,500, 15%, 120-day note (assume 365 days in
    one year)?
    A. €7.50
    B. €73.97
    C. €225.00
    D. €1,574.00
  2. Mining Extraordinaire Inc. purchased a mineral deposit for €1,200,000. It
    expects the property to produce 2,600,000 tonnes of diamonds and to have
    no residual value. In 2020, Mining sold 86,000 tonnes of mineral. How
    much depletion expense should be reported on the statement of
    comprehensive income for 2020 (round to two decimal places)?
    A. €38,726
    B. €39,560
    C. €41,772
    D. €42,320
  3. The Formula Company purchased a new truck at a cost of €60,000 on
    August 1, 2020. The truck is estimated to have a useful life of seven years
    and a salvage value of €15,000. How much Depreciation expense will be
    recorded for the truck during the year ended December 31, 2020 assuming
    the straight-line method?
    A. €2,345
    B. €2,679
    C. €6,429
    D. €11,679
  4. When €100,000 of 5% annual interest, 10-year bonds are sold at 98, what
    will be the total cost of borrowing?
    A. €2,000
    B. €48,000
    C. €50,000
    D. €52,000
    Page 3 of 9
    Use the following information to answer questions (5) and (6):
    Cash dividends declared during 2020 € 68,000
    Ordinary share dividends declared during 2020 € 32,000
    Ordinary shares, December 31, 2020 € 800,000
    Preference shares, December 31, 2020 € 250,000
    Retained earnings, December 31, 2019 € 212,000
    Retained earnings, December 31, 2020 € 124,000
  5. What is the total contributed capital at December 31, 2020?
    A. €800,000
    B. €1,050,000
    C. €1,262,000
    D. €1,386,000
  6. What was the net income (loss) earned for the year ended December 31,
    2020?
    A. (€156,000)
    B. (€12,000)
    C. €12,000
    D. €156,000
  7. The statement of financial position for Chris’s Soccer Emporium shows
    €110,000 in current assets, €210,000 in non-current assets, and €190,000 in
    total liabilities. What should be reported in the Equity section?
    A. €130,000
    B. €190,000
    C. €320,000
    D. €510,000
  8. The Allowance for Doubtful Accounts account has a current balance of
    €450. The bad debts are estimated at 3% of €650,000 net credit sales. After
    the appropriate adjusting entry for bad debts, what would the new ending
    balance of the Allowance for Doubtful Accounts be?
    A. €24,500
    B. €19,950
    C. €19,500
    D. €19,050
    Page 4 of 9
  9. €20,000 in cash is borrowed on a 2-month note payable. If the interest
    expense on the note is €400, what is the actual annual interest rate?
    A. 10.00%
    B. 14.00%
    C. 12.00%
    D. 16.00%
  10. A customer charges a treadmill at Mike’s Sport Shop. The price is €800 and
    the annual interest charge is 9% if the bill is not paid in 30 days. The customer
    fails to pay the bill within 30 days and an interest charge is added to the
    customer’s account. What is the amount of the interest charge?
    A. €2
    B. €6
    C. €24
    D. €72
    Continue to next page
    Page 5 of 9
    Part 2 (20 marks)
    True/False; Mark allocation: 2 marks per question
  11. Employees sometimes commit fraud because of personal financial problems
    caused by too much debt.
  12. Internal control is associated with the safeguarding of an organization’s
    assets.
  13. Recognizing a credit sale to a customer involves debiting accounts
    receivable and crediting sales revenue.
  14. IFRS require that the direct write-off method be used for accounting for bad
    debts.
  15. Recording depreciation on fixed assets affects the statement of financial
    position and the income statement.
  16. A change in the estimated residual value of a fixed asset requires a
    restatement of prior years’ depreciation.
  17. Notes payable usually do not require the borrower to pay interest.
  18. The board of directors authorize the issuance of bonds.
  19. For external reporting, a company can prepare either an income statement or
    a statement of cash flows, but are not required to prepare both.
  20. A statement of cash flows indicates the sources and uses of cash during a
    period.
    Page 6 of 9
    Part 3 (20 marks)
    Mark allocation: 10 marks per question.
    Question 1
    At December 31, 2019 Oilfield Co’s statement of financial position showed capital asset
    information as detailed in the schedule below. The vehicle was not driven until 2019,
    with 16,000 km in 2019, and 31,000 km in 2020.
    Cost Information Depreciation
    Description
    Date of
    Purchase
    Depreciation
    Method Cost Residual Life
    Balance
    of
    Accumulated
    Depreciation
    Dec. 31,
    2019
    Depreciation
    Expense
    for 2020
    Balance
    of
    Accumulated
    Depreciation
    Dec. 31,
    2020
    Office
    equipment
    January
    1, 2017 Straight-line €64,000 €12,000 10 yr.
    Machinery January
    1, 2019
    Doubledeclining
    balance €140,000 €52,000 5 yr.
    Vehicle January
    1, 2017
    Units-ofproduction €108,000 €22,000 240,000
    km.
    Required
  21. Complete the schedule. (9 marks)
  22. If there is an improvement made to an asset, should that improvement be
    capitalized (added to the asset’s value), or expensed (treated as an expense)? (1
    mark)
    Question 2
    On December 31, 2019, Potter Corporation issued €2,000,000, 6%, 5-year bonds for
    €1,837,750. The bonds were sold to yield an effective-interest rate of 8%. Interest is paid
    annually on December 31. The company uses the effective-interest method of
    amortization.
    Required
    Complete the bond discount amortization schedule, which shows the amortization of
    discount for the first two interest payment dates. The partially completed schedule is in
    your Excel file. (Round to the nearest dollar.)
    Page 7 of 9
    Part 4 (15 marks)
    Harrington Company reported the following balances at December 31, 2019: share capital–
    ordinary €500,000; retained earnings €250,000. During 2020, the following transactions
    affected equity.
  23. Issued preference shares €220,000.
  24. Earned net income of €140,000.
  25. Declared and paid cash dividends of €75,000.
    Required
    Prepare the equity section of Harrington Company’s December 31, 2020, statement of
    financial position.
    Continue to next page
    Page 8 of 9
    Part 5 (25 marks)
    Holliday Corp.’s statement of financial position and statement of comprehensive income
    are as follows:
    HOLLIDAY CORP.
    Comparative Statement of Financial Position Information
    December 31
    Assets 2020 2019
    Cash……………………………………………………………………………. € 150,850 € 214,550
    Accounts receivable ……………………………………………………… 182,000 138,950
    Merchandise inventory………………………………………………….. 766,500 707,000
    Prepaid expenses………………………………………………………….. 15,050 17,500
    Equipment…………………………………………………………………… 446,600 308,000
    Accumulated depreciation …………………………………………….. (96,950) (123,200)
    Total assets………………………………………………………………….. €1,464,050 €1,262,800
    Liabilities and Shareholders’ Equity
    Accounts payable …………………………………………………………. € 246,750 € 326,550
    Short-term notes payable ………………………………………………. 28,000 17,500
    Long-term notes payable……………………………………………….. 262,500 150,500
    Ordinary shares……………………………………………………………. 563,500 437,500
    Retained earnings…………………………………………………………. 363,300 330,750
    Total liabilities and shareholders’ equity…………………………. €1,464,050 €1,262,800
    HOLLIDAY CORP.
    Statement of Comprehensive Income
    for year ended December 31, 2020
    Sales…………………………………………………………………………… €1,389,500
    Cost of goods sold………………………………………………………… 700,000
    Gross profit …………………………………………………………………. € 689,500
    Operating expenses:
    Depreciation expense ………………………………………………. € 52,500
    Other expenses……………………………………………………….. 382,200
    Total operating expenses………………………………………….. 434,700
    Income from operations………………………………………………… €254,800
    Loss on sale of equipment……………………………………………… 14,350
    Income taxes ……………………………………………………………….. 33,950
    Net income ………………………………………………………………….. €206,500
    Page 9 of 9
    Other information regarding Holliday Corp.:
    a. All sales are credit sales.
    b. All credits to accounts receivable in the period are receipts from customers.
    c. Purchases of merchandise are on credit.
    d. All debits to accounts payable in the period result from payments for merchandise.
    e. The other operating expenses are cash expenses.
    f. The only decrease in income taxes payable is for payment of taxes.
    g. The other expenses are paid in advance and are initially debited to Prepaid expenses.
    Required
    Prepare the operating section of the statement of cash flows according to the direct
    method.
    End of Assignment
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