Question 1: Mapping Business Activity
1) Mapping Business Activity: The balance $ amount at the end of the current period is always the balance $ amount at the beginning of the next period for which of these accounts? (More than one answer may be correct.)
a) Sales revenue
b) SG&A expense
c) Interest expense
d) Cash
e) Intangibles
f) Long-term debt
2) Mapping Business Activity: Consider the following entry at the end of the current fiscal year:
Dr. Prepaid rent – 400
Cr. Cash – 400
The company expects to make the following related entry in each of the subsequent four fiscal years:
Dr. Rent expense – 100
Cr. Prepaid rent – 100
Which of the following accounts is affected in the current fiscal year by the entry? (More than one answer may be correct.)
a) Current Assets
b) Long-term Liabilities
c) Shareholders’ Equity
d) Expenses
e) Long-term Assets
f) Current Liabilities
3) Mapping Business Activity: Which of the following is not possible according to the accounting equation? Assume each statement pertains to an independent entry and no other entries are made. (More than one statement may be true.)
a) Increase stockholders’ equity and increase cash.
b) Increase a liability and decrease a liability.
c) Increase stockholders’ equity and increase a liability.
d) Increase a liability and decrease an asset.
e) Decrease stockholders’ equity and increase a liability.
f) Decrease stockholders’ equity and decrease a liability.
4) Mapping Business Activity: A new firm that did not exist in the previous year recorded the following transactions in 2020:
Dr. Cash – $3,500
Cr. Unearned Revenue – $3,500
Dr. Wage Expense – $2,100
Cr. Wages Payable – $2,100
Cr. Cash – $900
Dr. Organization Expense – $900
Cr. Accounts Payable- $900
Which of the following are the correct Net Income for 2020, and the correct amount of Assets and Liabilities as of the end of 2020 based on the above transactions?
a) Net Income: -$3,000 Assets:-$2,600 Liabilities: $5,600
b) Net Income: $500 Assets: $900 Liabilities: $3,500
c) Net Income: $500 Assets: $900 Liabilities: $2,100
d) Net Income: -$3,000 Assets: $3,500 Liabilities: $5,600
e) Net Income: -$3,000 Assets: $2,600 Liabilities: $5,600
f) Net Income: $500 Assets: $2,600 Liabilities: $2,100
Question 2: Accounting Process, SCF & Revenue
Question 2 in this exam is based on Sneaker Gear Corp.’s financial statements for 2021 (see financial statement packet). Sneaker Gear is a large manufacturer and seller of athletic footwear and apparel. Sneaker Gear’s fiscal years ended May 31, 2021, and May 31, 2020, and are referred to as fiscal years 2021 and 2020, respectively. Please answer your questions in millions of dollars (i.e., the same units that are reported in Sneaker Gear’s financial statements).
Note that some amounts are missing from Sneaker Gear’s financial statements, and you will need to consider the relation among the three financial statements to derive the missing numbers.
1) Accounting Process at Sneaker Gear: What was the amount of Cash and cash equivalents that Sneaker Gear was holding on May 31, 2021?
Enter your answer in the box provided below.
2) Accounting Process at Sneaker Gear: During the next fiscal year, Sneaker Gear expects to depreciate its manufacturing equipment for footwear by $300. In the box below, provide the summary journal entry (debits and credits including amounts) that will go along with this transaction in fiscal 2022.
3) Accounting Process at Sneaker Gear: Reconstruct the summary transactions on Sneaker Gear’s Retained Earnings T-account for fiscal 2021 by filling in the boxes provided below.
4) SCF & Revenue Recognition at Sneaker Gear: Ignoring income taxes, which of the following statements is true for Sneaker Gear during fiscal year 2021? (More than one statement may be true.)
a) Purchases of short-term investments was the single largest use of cash from investing activities.
b) Sales of short-term investments was the single largest use of cash from investing activities.
c) Payments of dividends was the single largest source of cash from financing activities.
d) Payments of dividends was the single largest use of cash from financing activities.
e) The firm received more cash from issuing new debt than it paid to retire existing debt.
f) The firm paid more cash to retire existing debt than it received from issuing new debt.
5) SCF & Revenue Recognition at Sneaker Gear: What was the net amount of cash provided by (used in) investing activities during fiscal 2021?
Enter your answer in the box provided below. Indicate the amount and whether it was a cash inflow (positive number) or cash outflow (negative number).
6) SCF & Revenue Recognition at Sneaker Gear: In the notes to its 2021 financial statements, Sneaker Gear included the following:
In addition to the products we sell to our wholesale customers and directly to consumers, we also enter into license agreements that permit unaffiliated parties to manufacture and sell, using Sneaker Gear-owned trademarks, certain apparel, digital devices and applications and other equipment designed for sports activities.
The Company requires third parties that enter into license agreements to pay license fees in full at the beginning of the license period. The Company defers revenues from license agreements and recognizes revenue into sales over the license period. The liability associated with outstanding license agreements was $615 million and $598 million at May 31, 2021, and May 31, 2020, respectively. Deferred revenue recognized into sales were $216 million for the fiscal year ended May 31, 2021, and $210 million for the fiscal year ended May 31, 2020.
Based on the above information and ignoring income taxes, provide the summary journal entry that Sneaker Gear made to record the deferred revenue recognized into sales for fiscal 2021 and indicate the debits and credits (including amounts)
Question 3: Accounts Receivable, Inventory, LTA
Instructions:
Question 3 in this exam is based on excerpts from the annual report of Moose Company for the fiscal year ended November 1, 2020. Moose Company, with headquarters in Illinois, is a manufacturer of agricultural, construction, and forestry machineries. The company also engages in financial services and other related activities.
Unless specifically requested to do otherwise, please answer all questions in millions of dollars (i.e., the same units that are reported in Moose’s financial statements).
Assumptions:
i. Unless the question explicitly indicates, assume that none of the accounts are influenced
ii. You should ignore the effect of taxes unless explicitly requested to do otherwise.
1) Accounts Receivable: How much cash did Moose Company collect from its customers from the sales of products in 2020 from both cash sales and collections on accounts receivable?
2) Accounts Receivable: In the box below, provide the summary journal entry (debits and credits including amounts) that Moose Company made in fiscal 2020 to record the write-offs of uncollectible accounts.
3) Inventory: What would the net book value of Moose Company’s inventory have been at the end of fiscal 2020 if it had always used FIFO rather than LIFO to account for its inventory? If necessary, assume a tax rate of 21%.
4) Inventory: Which of the following statements is true for a hypothetical transaction for Moose Company during fiscal 2020? (More than one statement may be true.)
(Note: Gross Margin = (Revenue – COGS) / Revenue)
(Note: Current Ratio = Current Assets / Current Liabilities)
(Note: Return on Sales = Net income / Revenue)
(Note: Financial leverage = Total Debt / Total Shareholders’ Equity)
The net impact of writing down obsolete inventory would…
a) Increase gross margin.
b) Decrease current ratio.
c) Decrease gross inventory.
d) Decrease net inventory.
e) Decrease financial leverage.
f) Decrease return on sales.
5) Long-lived Assets: What summary journal entry did Moose Company make during fiscal 2020 to record the cash purchase of Property, Plant, and
Equipment (PP&E)? Assume that Moose did not acquire any PP&E as part of an acquisition for this question.
6) Intangibles: What was the net book value of Moose’s “Customer lists and relationships” in fiscal 2020?
7) Long-lived Assets: What was the net book value of the property and equipment that Moose Company disposed of for cash during fiscal 2020?
8) Long-lived Assets: Provide a reconciliation of Moose Company’s “Accumulated Depreciation” T-account for property and equipment (PP&E) for fiscal 2020. Assume no depreciation was capitalized during fiscal 2020.