BH1002

NATIONAL UNIVERSITY OF SINGAPORE

Semester 2 (2003/2004) Examinations

BH1002 FINANCIAL ACCOUNTING

April 2004 - Time Allowed 2 Hours

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INSTRUCTIONS TO CANDIDATES

1.

This examination paper contains THREE (3) questions and comprises

THIRTEEN (13) printed pages.

2.

You are required to answer ALL the questions. Mark your answers to the
multiple-choice questions on the scoring sheet provided, and write your workings
and answers to Question 2 and 3 inside this question paper.

3.

This is an open-book examination.

4.

You may use University-approved calculators, but not mobile phones, computers
or any other communication devices.

5.

Submit both this question paper and the scoring sheet at the end of the
examination.
Marks Recording space for Lecturers
Question

Marks

1
Matriculation No.:
2
3
Total

-2BH1002
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QUESTION 1 (40 marks)
Multiple-Choice questions: Choose the most appropriate answer for each question and
mark your answers in MCQ scoring sheets provided. Each question carries 2 marks. No
marks will be deducted for incorrect answers.
1.

The Retained Earnings account has a debit balance of $1,200 before closing entries
are made. If total revenues for the period are $55,200, total expenses are $39,800,
and dividends are $9,000, what is the ending balance in the Retained Earnings
account after all closing entries are made?
A.
B.
C.
D.

2.

According to generally accepted accounting principles, a company's balance sheet

should show the company's assets at:
A.
B.
C.
D.

3.

$ 5,200.
$ 7,600.
$14,200.
$16,600.

The cash equivalent value of what was given up or the asset received,
whichever is more clearly evident.
The market value of the asset received in all cases.
The cash outlay only, even if part of the consideration given was
something other than cash.
The best estimate of a certified internal auditor.

A company has several insurance policies in force with payments due at various
times. The following information refers to prepaid insurance and insurance expense
on two successive dates.

Prepaid insurance.............................................
Insurance expense ............................................

Dec. 31, Year 1

$5,000
3,200

Dec. 31, Year 2

$4,250
4,500

The amount of cash paid for insurance by this company in Year 2 was:
A.
B.
C.
D.

$5,000.
$4,250.
$3,750.
$4,500.

-3BH1002
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4.

If a period-end inventory amount is reported in error, it can cause a misstatement in:

A.
B.
C.
D.

5.

Gross profit.
Net income.
Current assets.
All of the above.

A company markets a climbing kit and uses a perpetual inventory system to account
for its merchandise. The beginning balance of the inventory and its transactions
during January were as follows:
January 1:
January 12:
January 19:
January 20:
January 27:

Beginning balance of 18 units at $13

Purchased 30 units at $14
Sold 24 units at $30 price
Purchased 24 units at $17
Sold 27 units at $30 price

If the ending inventory is reported at $276, what inventory method was used?
A.
B.
C.
D.

6.

LIFO method.
FIFO method.
Weighted-average method.
Specific identification method.

A depreciation method in which a plant asset's depreciation charge for the period is
determined by applying a constant depreciation rate each period to the asset's
beginning book value is called:
A.
B.
C.
D.

Book value depreciation.

Declining-balance depreciation.
Straight-line depreciation.
Units-of-production depreciation.

-4BH1002
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7.

A company purchased a delivery van for $23,000 with a salvage value of $3,000 on
September 1. It has an estimated useful life of 5 years. Using the straight-line
method, how much depreciation should the company recognize on December 31 of
the year when the van is acquired?
A.
B.
C.
D.

8.

A company sold a machine that originally cost $100,000 for $60,000 cash. The
accumulated depreciation on the machine was $40,000. The company should
recognize:
A.
B.
C.
D.

9.

$0 gain or loss.
$20,000 gain.
$20,000 loss.
$40,000 loss.

The matching principle requires:

A.
B.
C.
D.

10.

$1,000.
$1,333.
$1,533.
$4,000.

That expenses be ignored if their effect on the financial statements is less

important than revenues to the financial statement user.
The use of the direct write-off method for bad debts.
The use of the allowance method of accounting for bad debts.
That bad debts be disclosed in the financial statements.

If the balance of the Allowance for Doubtful Accounts account exceeds the amount
of a bad debt being written off, the entry to record the write-off against the
allowance account results in:
A.
B.
C.
D.

An increase in the expenses of the current period.

A reduction in current assets.
A reduction in equity.
No effect on the expenses of the current period.

-5BH1002
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11.

1n 1997 Wile Co. sold 2,000 microwave ovens for $150 each. The ovens carry a
two year warranty for repairs. Wile Co. estimates that the repair costs will average
3% of the total selling price. What is the amount that would be recorded in the
warranty liability account during 1997?
A.
B.
C.
D.

12.

$9,000
$12,000
$15,000
No liability should be recorded until the ovens are brought back for
repairs.

Gabby Inc. issues a $50,000, 4 month note payable to First State Bank at interest of
9% per year on November, 30th, 1995. The company follows a year end of
December 31st. The interest expense in 1995 is:
A.
B.
C.
D.

$1,500
$375
$1,125
$750.

Use the information below to answer questions 13, 14, and 15:
Zeff Inc. started business on January 1st 1999 for the first time. The following
information is shown in its balance sheet and income statements for 1999 and 2000
regarding investment in A Inc common stock, which Zeff purchased for trading purposes.
The balance sheet at the end of 1999 for Zeff showed the value of investment in A Inc. to
be $45,000. The balance sheet at the end of 2000 for Zeff showed the value of
investment in A Inc to be $25,500. During 2000, Zeff Inc sold half the shares that it
purchased in 1999. During 1999 there was an unrealized gain relating to the investment
in A Inc shown in the income statement of Zeff Inc. of $15,000. Further the income
statement of Zeff Inc for 2000 showed a realized loss of $2,500, relating to the investment
in A Inc. No new shares are purchased in 2000.
13.

The cost of acquisition of shares in A Inc. is

A.
B.
C.
D.

14.

$45,000
$60,000
$30,000
$57,500

Cash received for the sale of shares in A Inc. by Zeff Inc in 2000 is:
A.
B.
C.
D.

$22,500
$15,000
$30,000
$20,000

-6BH1002
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15.

The unrealized gain or loss for 2000 relating to Investment in A Inc. is

A.
B.
C.
D.

16.

Albert Inc. reported plant assets net of accumulated depreciation on 1/1/95 at

$427,500 and $579,300 on 12/31/95. The income statement showed a depreciation
of $38,700 for 1995 on plant assets. Albert Inc. purchased some plant assets in
1995. They sold no plant assets. The amount shown in the cash flow statement as
outflow for purchase of plant assets in 1995 is:
A.
B.
C.
D.

17.

$2,500
$3,000
$25,500
$5,500

$151,800
$38,700
$190,500
$1,006,800

Treasury stock balance on 1/1/98 is $45,000 and on 12/31/98 is 72,500. $57,000

worth of treasury stock is purchased. During the year treasury stock was sold for
$1,800 over cost. The cash received from sale of treasury stock is:
A.
B.
C.
D.

$31,300
$57,000
$27,700
$72,500

-7BH1002
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Use the following information for questions 18, 19, and 20:
The following information is given to you regarding Wright Brothers Inc. for the year
ended 12/31/97.
Cash
$50,000
Average Accounts Receivable
$150,000
Average Inventory
$150,000
Equipment
$300,000
Accounts payable
$120,000
Bonds payable
$350,000
Average total assets
$2,600,000
Retained Earnings end of the year $190,000
Net income
$160,000
P/E ratio end of the year
30
Net profit margin ratio
15%
Interest expense
$0
Operating expense
$20,000
Average total liabilities
$1,700,000
# shares outstanding
70,000 shares

18.

Taking a 365-day year, the days-sales-in-receivable for 1997, if sales are all for
credit is
A.
B.
C.
D.

19.

The price per share at the end of the year (rounded up) is
A.
B.
C.
D.

20.

51 days
65 days
7 days
95 days

$69 per share

$99 per share
$13 per share
$2 per share

The return to common shareholders (there are no preferred shareholders) is

A.
B.
C.
D.

17.78%
32.67%
6.15%
84.21%

-8BH1002
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For the following questions, all answers must be written in the spaces provided for
each of the questions. Be concise in your answers and write legibly.

QUESTION 2 (30 marks)

Argon Inc. presents the following figures from its balance sheets.
1996
Cash
$177,000
Accounts receivable
140,000
Inventory
40,000
Investments
52,000
Equipment
298,000
Accumulated depreciation
(106,000)
Current liabilities
134,000
Capital stock
160,000
Provision for bad debts
35,000
Retained earnings
272,000

1995
$78,000
165,000
20,000
74,000
240,000
(89,000)
151,000
160,000
27,000
150,000

Investments were sold at a loss of $9,000. Cash dividend of $20,000 was declared and
paid. Equipment with original cost of $32,000 was sold for a gain of $3,000.
Accumulated depreciation on equipment sold was $8,000. Actual bad debts are $2,000.
Required:
Prepare a statement of cash flows, showing clearly:
(a)

the cash flows from operations (18 marks).

(b)

the cash flows from investing (7 marks).

(c)

the cash flows from financing (5 marks).

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Write your answers to Question 2 here.

- 10 BH1002
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Answers to Question 2 (continued)

- 11 BH1002
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QUESTION 3 (30 marks)
IBM issues a bond with a face value of $500, and a coupon interest rate of 8% paid
annually, on 1/1/1998. The bond matures after 5 years and will be paid off at the end of 5
years. The market expects a return of 6% for the risk level of the bond issued by IBM.
Required:
(a)

Find the price of the bond (15 marks).

(b)

Calculate the interest expense for the first two years using the straight-line method
and journalize (5 marks).

- 12 BH1002
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QUESTION 3 (continued)
(c)

Calculate the interest expense for the first two years using the effective interest
rate method and journalize (10 marks).

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