FINANCIAL ACCOUNTING MBA PROGRAM

MIDTERM EXAM Version 1

(Time: 9:30-12:30)
INSTRUCTIONS
1)
2)
3)
4)
5)
Use the answer sheet to record your answers to the questions. For each question, circle the
appropriate letter [a, b, e] on the answer sheet. There is no penalty for wrong answers.
October 30, 2012
This exam booklet comprises an instructions page, several pages of questions, and an answer sheet on
the last page.
The exam is a multiple-choice exam. It contains 4 parts (A to D) and 60 consecutively numbered
questions. It is important therefore, that you follow the steps listed below:
Write your name and sign the honor-code statement on the answer sheet at the back of the exam
booklet.
Detach the answer sheet from the exam booklet.
The professor is unable to answer questions during the exam. If you discover a material typographical
error in the exam paper, please notify the professor so that other students can be informed.
On finishing the exam, hand your answer sheet to the person in charge. You can keep the exam
booklet. Please leave the classroom quietly to avoid disturbing fellow students.
Page 1
PART A
Ink Inc. Balance sheets at 31 December x2 and x3 (amounts in 000)
Dec 31, x2 Dec 31, x3
Fixed assets
Property, plant and equipment, at cost 900 850
less: Accumulated depreciation (100) (170)
Property, plant and equipment, net 800 680
Current assets
Prepaid rent 5 6
Inventory 500 300
Accounts receivable 300 238
less: Allowance for bad debt (10) (8)
Accounts receivable, net 290 230
Cash 292 764
Total current assets 1,087 1,300
Total assets 1,887 1,980
Shareholders equity
Share capital 380 380
Retained earnings 117 302
Total shareholders equity 497 682
Long-term liabilities
Long-term bank loan 900 800
Current liabilities
Short-term portion of long-term bank loan 100 100
Interest payable 20 18
Taxes payable 40 50
Advances from customers 150 130
Accounts payable, merchandise 150 200
Salaries payable 30 0
Total current liabilities 490 498
Total liabilities and shareholders equity 1,887 1,980
List of cash inflows and outflows in x3
Receipts from customers 1,800
Repayments of loan (100)
Payments of salaries (180)
Payments to suppliers (850)
Payments of taxes (50)
Payment of dividends (40)
Proceeds from sale of equipment 40
Payments of interest (76)
Payments of rent (72)
Total sum of inflows and outflows 472
Ink Inc. imports and sells ink cartridges for printers. Below you are provided with the balance sheet at the
end of x2 and x3, and a list with all cash inflows and outflows in year x3.
Page 2
1) Compute the salaries expense in x3:
(a) 30
(b) 180
(c) 150
(d) 210
(e) None of the above
2) Compute the tax expense in x3:
(a) 60
(b) 40
(c) 50
(d) 10
(e) None of the above
3) What is the original purchase cost of the equipment sold in x3?
(a) 40
(b) 30
(c) 100
(d) 50
(e) None of the above
Ink Inc. recognizes a gain of 10 in the Income Statement related to the sale of equipment in x3.
4) Compute the accumulated depreciation of the equipment sold in x3:
(a) 0
(b) 40
(c) 50
(d) 20
(e) None of the above
5) Compute the depreciation expense in x3:
(a) 90
(b) 70
(c) 50
(d) 110
(e) None of the above
6) At the end of x3, Ink Inc. estimates that the net realizable value of Property, Plant & Equipment is
765 and its value in use is 700 . How much is the impairment expense for PP&E in x3?
(a) 85
(b) 150
(c) 20
(d) 65
(e) None of the above
7) Since year x1, on Jan. 31st of each year, Ink Inc. pays in advance the annual rent of its offices and
warehouses until Jan 31st of the next year. Compute the rent expense in x3:
(a) 71
(b) 72
(c) 73
(d) 77
(e) None of the above
8) Compute the rent expense in x2:
(a) 55
(b) 59
(c) 60
(d) Cannot be determined; further information is needed
(e) None of the above
Page 3
9) In x3, writeoffs of receivables amounted to 12 . There were no recoveries. Compute the
bad debt expense in x3:
(a) 22
(b) 10
(c) -2 negative bad debt expense because of excess allowance, so positive effect on profit
(d) -14 negative bad debt expense because of excess allowance, so positive effect on profit
(e) None of the above
Ink Inc. offers an annual cartridge refilling service to some customers that has to be paid in advance.
Sales of other products and services are on credit. The total receipts from customers of 1,800
include 250 corresponding to the prepayments of the refilling service contracts.
10) Compute total sales revenues in x3:
(a) 1,770
(b) 1,476
(c) 1,500
(d) 1,550
(e) None of the above
11) Compute the total cost of purchases from suppliers in x3
(a) 850
(b) 300
(c) 900
(d) 500
(e) None of the above
12) Compute the cost of goods sold in x3:
(a) 1,100
(b) 200
(c) 700
(d) 850
(e) None of the above
On Oct. 1st of year x2, Ink Inc. received a bank loan of 1,000 (in '000 euros) at an interest
of 8%. Interests are paid at the end of each semester (Mar 31 and Sep 30). Every Mar 30, starting
in x3, Ink repays 100 of the principal.
13) Compute the interest expense in year x3:
(a) 76
(b) 74
(c) 72
(d) 80
(e) None of the above
14) Compute the interest expense that will be recognized in year x4:
(a) 68
(b) 64
(c) 72
(d) 66
(e) None of the above
15) Compute the interest that will be paid in year x4:
(a) 68
(b) 64
(c) 72
(d) 66
(e) None of the above
Page 4
16) Compute the expected interest payable at the end of year x4:
(a) 16
(b) 14
(c) 32
(d) 28
(e) None of the above
17) How much was the net income (loss) of Ink Inc. in x3?
(a) 472
(b) 185
(c) -145
(d) 225
(e) None of the above
18) How much was the cash flow from investing activities in x3?
(a) -132
(b) 40
(c) -32
(d) -60
(e) None of the above
19) How much was the cash flow from financing activities in x3?
(a) -40
(b) -100
(c) -216
(d) -176
(e) None of the above
20) How much was the cash flow from operations in x3? (Interest payments are operating cash flows)
(a) 572
(b) 648
(c) 608
(d) 720
(e) None of the above
END OF PART A
Page 5
PART B
Bow Chemical Group (BCG) purchased a new piece of equipment at the start of year x1.
Price paid for the equipment
Transportation and installation costs: 5,000
Expected useful life: 5 years
Salvage value 5,000
Expected annual maintenance cost: 1,000
Assume that the firm uses the straight-line method to compute depreciation. Assets are valued
at depreciated historical cost with LOCOM (lower of cost or market)
21) What is the depreciable value of the machine at the beginning of year x1?
(a) 66,000
(b) 61,000
(c) 45,000
(d) 50,000
(e) None of the above
22) What is the net book value of the machine at the end of year x3?
(a) 25,000
(b) 30,000
(c) 20,000
(d) 25,400
(e) None of the above
23) What is the accumulated depreciation at the end of year x5?
(a) 0
(b) 15,000
(c) 5,000
(d) 55,000
(e) None of the above
Disregard the information from the last questions to solve the following two questions.
Suppose that at the end of year x4, after having recognized the depreciation charge, the net book
value was 25,000 (just an assumption for the next two questions!). BCG finds out that:
Net selling price of the machine: 15,000
Value in use of the machine: 20,000
24) What is the recoverable amount of the machine at the end of year x4?
(a) 25,000
(b) 15,000
(c) 20,000
(d) 0
(e) None of the above
25) What is the impairment expense, if any, recognized in year x4?
(a) 15,000
(b) 0, the machine is not impaired
(c) 10,000
(d) 5,000
(e) None of the above
END OF PART B
50,000
Page 6
PART C
Sevendays Inc. is a successful bookstore specialized in technical books. Set out below are the company's
balance sheet at the end of years 2010 and 2011, together with its income statement for year 2011.
Sevendays Inc.
Balance sheets at 31 December 2010 and 2011 (amounts in 000)
Dec 31, 2010 Dec 31, 2011
Fixed assets
Land 26 20
Building and equipment 53 102
less: Accumulated depreciation (29) (41)
Building and equipment, net 24 61
Investments 25 28
Property, plant and equipment, net 75 109
Current assets
Inventories 54 65
Accounts receivable 9 11
Prepaid rent 5 8
Cash 37 51
Total current assets 105 135
Total assets 180 244
Shareholders equity
Share capital 75 75
Retained earnings 38 45
Total shareholders equity 113 120
Long-term liabilities
Long-term bank loan 0 50
Current liabilities
Accounts payable, book suppliers 53 59
Taxes payable 4 7
Prepaid orders 10 8
Total current liabilities 67 74
Total liabilities and shareholders equity 180 244
Income Statement for 2011 (amounts in 000)
Revenues 240
Less: Cost of Sales -180
Gross profit 60
Less: Operating expenses
Rent expense -9
Depreciation on buildings and equipment -12
Other operating expenses -16
Gain on sale of land 8
Operating profit 31
Interest expense -6
Profit before tax 25
Income taxes -10
Net profit 15
Page 7
Sevendays' accountant wants to calculate the Cash Flow from Operations following the indirect method
and has the following questions on how to adjust net profit to obtain the CFO:
26) What is the adjustment to net profit related to depreciation?
(a) -12
(b) 12
(c) 37
(d) There is no adjustment
(e) None of the above
27) What is the adjustment to net profit related to the gain on the sale of land?
(a) 8
(b) -6
(c) -8
(d) There is no adjustment
(e) None of the above
28) What is the adjustment to net profit related to inventory?
(a) -180
(b) -11
(c) 65
(d) There is no adjustment
(e) None of the above
29) What is the adjustment to net profit related to accounts receivable?
(a) 2
(b) -2
(c) -8
(d) There is no adjustment
(e) None of the above
30) What is the adjustment to net profit related to prepaid rent?
(a) 9
(b) 3
(c) -9
(d) There is no adjustment
(e) None of the above
31) What is the adjustment to net profit related accounts payable of book suppliers?
(a) 6
(b) -6
(c) -59
(d) There is no adjustment
(e) None of the above
32) What is the adjustment to net profit related to prepaid orders?
(a) 2
(b) -2
(c) 8
(d) There is no adjustment
(e) None of the above
33) What is the adjustment to net profit related to taxes payable?
(a) 10
(b) -13
(c) 3
(d) There is no adjustment
(e) None of the above
Page 8
34) What is the adjustment to net profit related to long-term bank loan?
(a) 50
(b) -50
(c) 44
(d) There is no adjustment
(e) None of the above
35) What is the cash flow from operations?
(a) 10
(b) 4
(c) 18
(d) 60
(e) None of the above
Sevendays' accountant also wants to prepare the cash flow statement using the direct method. In the next
questions, help him estimate the actual cash inflows and outflows from the cash account. You don't have to
use positive or negative signs to differenciate cash collections from cash payments because it's understood.
36) Compute the total cash receipts from customers (note: cash from prepaid orders was 30 ):
(a) 236
(b) 240
(c) 238
(d) 242
(e) None of the above
37) Compute dividends paid:
(a) 15
(b) 22
(c) 8
(d) 7
(e) None of the above
38) Compute the purchase of investments (assume there are no disposals of investments in 2011):
(a) 28
(b) 25
(c) 3
(d) 0
(e) None of the above
39) Compute the payments to book suppliers (assume all book purchases are on credit):
(a) 191
(b) 185
(c) 197
(d) 180
(e) None of the above
40) Compute the purchase of buildings and equipment (assume there are no disposals in 2011):
(a) 102
(b) 37
(c) 61
(d) 49
(e) None of the above
41) Compute the proceeds from the sale of land:
(a) 6
(b) 8
(c) 14
(d) Cannot be computed
(e) None of the above
Page 9
42) Compute the interest paid:
(a) 6
(b) 5
(c) 0
(d) 12
(e) None of the above
43) Compute the cash inflow from the long-term bank loan:
(a) 56
(b) 44
(c) 7
(d) 50
(e) None of the above
44) Compute the payment of rent:
(a) 3
(b) 17
(c) 12
(d) 6
(e) None of the above
45) Compute the payment of taxes:
(a) 10
(b) 3
(c) 13
(d) 7
(e) None of the above
46) Compute the payment of other operating expenses:
(a) 16
(b) 0
(c) 31
(d) 15
(e) None of the above
47) How much is the cash flow from investing activities in 2011? (Now you need to use + or signs)
(a) -38
(b) -35
(c) 14
(d) -26
(e) None of the above
48) How much is the cash flow from financing activities in 2011? (Now you need to use + or signs)
(a) -8
(b) 36
(c) 50
(d) 42
(e) None of the above
END OF PART C
Page 10
PART D
Music Magic is a manufacturer of turntables to play classic records.
Prepare the Income Statement for year x2 using the information below.
All amounts are in 000.
BB EB
Raw materials & supplies inventory 52 36
Work-in-progress inventory 88 60
Finished goods inventory 84 136
During the year, the following events took place:
Raw materials purchased 200
Supplies purchased and used in S&A activities 8
Salaries earned by production employees 184
Salaries earned by S&A employees 112
Depreciation of production equipment and facilities 92
Depreciation of S&A equipment and facilities 44
Utilities consumed in production 32
Utilities consumed in S&A activities 16
Total sales revenue 800
Tax rate 25%
Compute the following items:
49) Raw materials used in production
(a) 224
(b) 216
(c) 208
(d) 200
(e) None of the above
50) Cost of completed goods
(a) 552
(b) 500
(c) 560
(d) 704
(e) None of the above
51) Cost of goods sold expense
(a) 180
(b) 550
(c) 500
(d) 552
(e) None of the above
52) Total RM & Supplies cost in a by nature Income Statement
(a) 180
(b) 208
(c) 216
(d) 224
(e) None of the above
53) Total salaries in a by nature Income Statement
(a) 184
(b) 296
(c) 192
(d) 280
(e) None of the above
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54) Total depreciation in a by nature Income Statement
(a) 136
(b) 92
(c) 130
(d) 44
(e) None of the above
55) Total utilities in a by nature Income Statement
(a) 48
(b) 32
(c) 84
(d) 16
(e) None of the above
56) Operating profit in a by nature Income Statement
(a) 300
(b) 152
(c) 102
(d) 128
(e) None of the above
57) Total S&A expense recognized in a by function Income Statement
(a) 172
(b) 164
(c) 180
(d) 704
(e) None of the above
58) Operating profit in a by function Income Statement
(a) 152
(b) 128
(c) 300
(d) 120
(e) None of the above
59) Net profit
(a) 72
(b) 96
(c) 90
(d) 85
(e) None of the above
60) What is the adjustment to sales revenue included in a by nature Income Statement?
(a) 52
(b) 24
(c) -28
(d) -26
(e) None of the above
END OF THE EXAM. CONGRATULATIONS!
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FINANCIAL ACCOUNTING
MBA PROGRAM
MIDTERM EXAM Version: 1
Name:
(PRINT)
I hereby certify that the answers to this exam are exclusively the result of my own work
and that I have not used any unauthorized help.
Signature:
ANSWER SHEET
(circle the correct option)
1) a b c d e 31) a b c d e
2) a b c d e 32) a b c d e
3) a b c d e 33) a b c d e
4) a b c d e 34) a b c d e
5) a b c d e 35) a b c d e
6) a b c d e 36) a b c d e
7) a b c d e 37) a b c d e
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9) a b c d e 39) a b c d e
10) a b c d e 40) a b c d e
11) a b c d e 41) a b c d e
12) a b c d e 42) a b c d e
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18) a b c d e 48) a b c d e
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30) a b c d e 60) a b c d e
October 30, 2012
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