## 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.”
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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