Example Exam. 1. Write your name, student number and test number clearly on all your documents of the exam.

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1 Courses : Accounting Example exam Duration of the Exam : 3 hours Exam, date : Example Covers the subjects of term : 1 st semester , Block 2 This exam consists of : 5 problems Worksheets : 5 sets Example Exam 1. Write your name, student number and test number clearly on all your documents of the exam. 2. If asked you have to be able to identify yourself, so put your ID on your table. For ID you may use: passport, driving license, or University-of-Amsterdam registration card with your photograph. 3. You have to report any incompleteness regarding the questions and problems during the test to the invigilators. 4. You must answer the problems on your own. You may answer in English or in Dutch. 5. The use of a calculator, as long as it is noiseless, and is working on batteries, is permitted. Graphical calculators are NOT allowed. You may also use an unmarked dictionary. 6. The use of paper not provided by the invigilators is prohibited. You can use the blank backsides of the paper on which the test is printed, or you can ask the invigilators for additional paper. 7. If you want to go to the bathroom, you have to ask the invigilators for permission. 8. The set of questions and problems can be taken home. When you have finished the exam, you have to hand in all worksheets. 9. You can only leave your table if the invigilator allows you to. In case of any question you have to warn an invigilator. You have to remain seated for the first 30 minutes of the exam. 10. In case of violation of the instructions the invigilator is allowed to take in your worksheets and remove you from the room. The invigilator reports the violation to the Examination Commission of the FEB.

2 1. Inventory valuation (20 points) The following are data available for Blue Grass for the month of June: Sales 1200 Beginning inventory 300 2,00 Purchases, in chronological order 600 2, , ,30 Assume that the firm uses a periodic inventory system. a) Calculate cost of goods sold and ending inventory under the following cost flow assumptions (15 points): 1) Weighted average 2) FIFO 3) LIFO b) Assume net income using the weighted average cost-flow assumption was $6,400. Calculate net income under FIFO and LIFO using the following data (5 points): Cost of goods sold Weighted average FIFO LIFO

3 2. Transaction analysis (20 points) On June , the end of the current fiscal year, the following information is available to Kattakis Company s accountants. Prepare the journal entries for each item listed below (2 points each). Show clearly all computations made. a) Among the long-term liabilities of the company is a long-term loan payable in the amount of $300,000. On June the accrued interest on this long-term loan amounted to $10,000. b) On Friday, July , the company which is on a five-day workweek and pays employees weekly, will pay its regular salaried employees $20,000. c) On June , the company made an agreement to sign a contract to provide services to a new client at an expected annual rate of $4,000. d) The supplies account (under the periodic system) shows a beginning balance of $1,615 and purchases during the year of $3,766. The end of year inventory on June 30, 2010 reveals supplies on hand of $1,186. e) The prepaid Insurance account shows the following entries on June 30, 2010: January , $3,000: one-insurance year policy purchased during the current fiscal year f) On January 1, 2010, the company issued $1,000,000 of 10%, ten-year bonds at a premium of $150,000. Interest is payable on June 30 and December 31 of each year. The transaction has not yet been recorded in the books. g) Interest expense and amortization for the first half year of 2010 on the previous bond has not yet been recorded. h) The following information involves the cost and annual depreciation for equipment, all of which were purchased before the current fiscal year. Account Cost Annual Depreciation Equipment $220,000 $22,000 i) On June , the company completed negotiations with another client and accepted an advance of $22,000 for services to be performed in the next year. The services involved will be rendered proportionally in the next year. j) The company calculates that as of June 30 it has earned $3,500 on a $7,000 contract that will be completed and paid in September. 3

4 3. Cash flow statement (20 points) The following information is available from Lava Co. s accounting records for the year ended December 31, 2010 (amounts in thousands): Cash dividends declared and paid 400 Interest and taxes paid 90 Collections from customers 1750 Repayment of long term debt 250 Purchases of land and buildings 180 Cash paid to suppliers 450 Purchase of plant 400 Other operating expenses 120 Issuance of common stock 400 Cash paid to employees 410 Issuance of preferred stock 100 Proceeds from the sale of equipment 40 Required (4 points each): a) Calculate the net cash provided (used) by the operating activities for the year ended December 31, 2010; b) Calculate the net cash provided (used) by investing activities. c) Calculate the net cash provided (used) by financing activities. d) Calculate the net increase (decrease) in cash for the year. e) Does the company use the direct or the indirect method presentation for the cash flow statement? 4

5 4. Cost Accounting (20 points) Ozka Inc. uses an absorption cost system for accumulating product cost. The following data are available for the past year: Raw materials purchases Direct labor costs incurred Variable manufacturing overhead rate 11 per direct labor hour Budgeted fixed overhead costs Budgeted number of machine hours machine hours Direct labor rate 25 per hour Actual machine hours used during the year Actual fixed manufacturing overhead costs Actual selling & general administrative costs Ozka Inc. is using direct labor hours to allocate variable manufacturing overhead costs, and machine hours to allocate fixed manufacturing overhead costs. Inventory balances at the beginning and end of the year were as follows: Beginning of year End of year Raw materials Work in process Finished goods a) Calculate the predetermined fixed manufacturing overhead rate (2 points); b) Prepare a T-account for Raw Materials to calculate the cost of raw materials used (3 points); c) Calculate the variable manufacturing overhead applied to work in process (2 points); d) Calculate the fixed manufacturing overhead applied to work in process (2 points); e) Prepare a T-account for Work in Process to calculate the cost of goods manufactured (3 points); f) Prepare a T-account for Finished Goods to calculate the cost of goods sold (3 points); g) Calculate the overapplied or underapplied fixed manufacturing overhead (2 points); h) Prepare the journal entry to transfer the amount of overapplied or underapplied fixed manufacturing overhead to cost of goods sold(3 points). 5

6 5. Continue or discontinue a segment (20 points) The segmented income statement and the operating assets for Dwy Company for the fiscal year that ended December 31 st, 2010, is as follows: Dwy Company Total company Components Consumers Healthcare Sales Variable expenses Contribution margin Direct fixed expenses Allocated fixed expenses Operating income Operating assets The company is concerned about the performance of the Components division. The Components division is facing a competitive market, with tough price competition. Dwy Company has identified direct fixed expenses for each of the divisions. In addition, the allocated fixed expenses are corporatewide expenses that have been allocated to each division based on sales revenues. a) Prepare a relevant cost analysis for the decision to continue or discontinue the Components division (5 points); b) Assume that the components division is discontinued. Prepare a segmented income statement for the remaining divisions. Allocate corporatewide fixed expenses as described previously (5 points); c) Calculate ROI for the three divisions, as well as for the total company (5 points); d) Assume that the company required ROI is 12%. Calculate Residual Income for the three divisions, as well as for the total company. Is the company generating value? (5 points) 6

7 Appendix 1: Financial statement analysis formulas Ratio Acid-test (quick) ratio Turnover ratios Days sales in accounts receivable Days sales in inventory Days sales in payables Dividend yield Dividend payout ratio Preferred dividend coverage ratio Book value per share Price/book ratio Times interest earned EBITDA coverage ratio Calculation (Cash + Accounts receivable)/current liabilities Sales/Average assets Accounts receivable /( annual sales/365) Inventory / (annual sales/365) Accounts payable / (annual sales/365) Dividends per share/market price per share Annual dividend per share/earnings per share Net income/annual preferred dividend Common stockholders equity/common shares outstanding Share price/book value per share Earnings before interest and taxes/interest expense EBITDA/ Interest expense 7