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ACCT+2101+Quiz+2+Version+2+Spr+09

ACCT+2101+Quiz+2+Version+2+Spr+09 - ACCT 2101 Quiz#2...

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Unformatted text preview: ACCT 2101 Quiz #2 SOLUTION - VERSION 2 Spring Semester, 2009 (pleaseyprint clearly) ; Pledge: On my honor, I have neither given nor received any unauthorized help on this quiz. (signed) WM” figsgtfikifiea 3“ Vfl'wfiim V") 3“ Instructions: 1. You may use your “Quiz #2 Authorized Help Sheet” during the quiz, but it must be submitted with your quiz. No other help is authorized. 2. Only the approved calculators may be used during the quiz. You must write legibly or your answers will not be graded. 4. Two of the financial statements for the Hewlett-Packard (HP) Company follow the quiz questions. Please refer to these statements when answering the questions specific to HP. Keep in mind that all dollar amounts are in millions except for the per-share numbers. Do NOT pull this quiz apart under any circumstances. Make sure you have 7 numbered pages including the cover sheet plus the Income Statement and Balance Sheet for HP (without page numbers). 7. Good luck! E” 9‘.“ Point Allocation: Problem 1: 7 items @ 0.5 each = 3.5 Problem 2: 7 items @ 0.5 each = 3.5 Problem 3: multiple parts totaling _3_>_._Q_ TOTAL POINTS = M points 1 of7 PROBLEM 1. Short Answer Questions. a. HP’s Balance Sheet reports Deferred Revenue in the amount of $6,287. What is the nature of this account? That is, explain why this is in the liability section of the Balance Sheet using complete sentences. 3 .3}; we” Deferred Revenue is a type of unearned income. It is in the liability section to reflect that HP has not met all of the requirements for revenue recognition. g , 2, b. On October 31, 2008, HP’s stock price closed at $41.93 per share. What is the book value of HP on that date? What is the market capitalization of HP on that date? Book Value: Stockholders’ Equity from the Balance Sheet 2 $38,942 1? Market Capitalization: Number of Shares Outstanding * Market Price Per Share {5 . 3 = 2,415 * $41.93 = $101,260.95 Alternative Answer Allowed: 2,580 * $41.93 = $108,179.4 (not correct, but allowed based on unclear disclosure by HP) c. HP sells products and provides services. Compute the Gross Margin (dollars and percentage) for their product business. Show your work. Gross Margin Dollars: Product Sales — Cost of Products 2 Gross Margin ? ‘ g $91,697 — $69,342 = $22,335 3’ "I? Gross Margin Percentage: Gross Margin/ Product Sales = $22,335 / $91,697 = 24.38% t) '2; d. How many shares of stock is HP authorized to issue? How many shares have they actually issued? How many shares are outstanding at October 31, 2008? Authorized: 9,600 1) ~32 Issued: 2,415 g 8*“ Outstanding: 2,415 31" .3 Alternative Answer Allowed (not correct, but allowed J based on unclear disclosure by HP) : 2,580 20f7 PROBLEM 1 CONTINUED. e. HP reports Basic Earnings Per Share of $3.35 and Diluted Earnings Per Share of $3.25. Explain the reason for the difference between these two amounts using complete sentences. Basic Earnings Per Share is based on the weighted—average number of shares outstanding. (l) ' 2' Diluted Earnings Per Share is based on the greatest possible number of shares that could be § . 3 outstanding including common stock equivalents. f. In the current economy, many companies are discontinuing operations. (1) Define a discontinued operation under GAAP. (2) What two activities must be reported for any discontinued operation? Please use complete sentences in your answer. (1) A discontinued operation is a segment of the business for which the company has S . 3. adopted a plan to terminate. (2) Two items are reported for discontinued operations: (a) the income or loss until the i) _ mg date of disposal, and (2) the gain or loss on the disposal of the assets. ”1 g. In class, we considered two measures of short—term solvency — the current ratio and the quick ratio. Compute each of these measures for HP for the most recent year presented. Please show your work. Current Ratio: Current Assets/ Current Liabilities = $51,728/ $52,939 = 0.977 => 0.98 fig... Quick Ratio: (Cash + Marketable Securities + Accounts Receivable) / Current Liabilities 5?. 3% = ($10,153 + $93 + $16,928 + $2,314) / $52,939 = 0.557 => 0.56 fl Alternative Answer if Financing Receivables were not included: 2 ($10,153 + $93 + $16,928) / $52,939 = 0.5133 :> 0.51 3 of7 PROBLEM 2. Dr. Turner started her own consulting firm, Turner Company, on June 1, 2008. The Unadjusted Trial Balance at June 30, 2008, is as follows: Debit Credit Cash 33 6,850 Accounts Receivable 7,000 Prepaid Insurance 2,400 Supplies on Hand 2,000 Office Equipment 15,000 Accumulated Depreciation—Off ice Equipment —0— Accounts Payable 4,500 Utilities Payable —0— Salaries Payable —0- Unearned Service Revenue 5,000 Common Stock 21,750 Service Revenue 8,000 Salaries Expense 4,000 Rent Expense 2,000 Depreciation Expense ~0— Insurance Expense —0— Utilities Expense -0— Supplies Expense —0— Totals $39,250 $39,250 Other Data: (l) Supplies on hand (based on a count) on June 30 total $300. (2) A utility bill for June in the amount of $230 has not been recorded and will not be paid until next month. (3) The Prepaid Insurance included in the Unadjusted Trial Balance is comprised of a 12—month insurance policy that was purchased on June 1. (4) Of the Unearned Service Revenue the company has been recorded, 70% of it has been earned by June 30. (5) Salaries of $4,200 should be accrued as of June 30. (6) The office equipment was purchased on June 1. The useful life of the equipment is 6 years, and the expected salvage value is $3,000. (7) Invoices representing $3,500 of services performed during the month have not been recorded as of June 30. PROBLEM 2 CONTINUED ON NEXT PAGE. 40f7 grad/x atraccoeemte mama, “e mtg; ii 22 [facet/”x {ZAQRQW QWWQW? Q-i PROBLEM 2 REQUIRED: Record the adjusting journal entries for the month of June below. Please record them next to the number that corresponds to the “Other Data” item that appears on the previous page. YOU SHOULD USE THE EXACT ACCOUNT NAMES USED IN THE TRIAL BALANCE ON THE PREVIOUS PAGE IN YOUR OWN ANSWERS. Explanations are not required unless you would like them to be considered for possible partial credit. Account Titles Debit Credit 1. Supplies Expense 1,700 Supplies on Hand 1,700 ($2,000 —- $300) 2. Utilities Expense 230 Utilities Payable 230 3. insurance Expense 200 Prepaid Insurance 200 ($2,400 ~:- 12 months) 4. Unearned Service Revenue 3,500 Service Revenue 3,500 ($5,000 * 70%) 5. Salaries Expense 4,200 Salaries Payable 4,200 6. Depreciation Expense 167 Accumulated Depreciation— Office Equipment 167 l(($15,000 - $3,000) / 6) * 1/12] 7. Accounts Receivable 3,500 Service Revenue 3,500 50f7 PROBLEM 3. Kathleen Turner started her own consulting firm, KT Company, on June 1, 2008. The Adjusted Trial Balance at June 30, 2008, is as follows: Debit Credit Cash 35 7850 Accounts Receivable 10,000 Prepaid Insurance 1,200 Supplies 2,100 Office Equipment 14,500 Accumulated Depreciation—Office Equipment 1,250 Accounts Payable 3,500 Utilities Payable 1,160 Salaries Payable 2,500 Uneamed Service Revenue 2,000 Note Payable (due 10/1/2011) 3,750 Common Stock 17,000 Dividends 2,000 Service Revenue 14,000 Interest Revenue 1,500 Salaries Expense 5,500 Rent Expense 2,000 Depreciation Expense 250 Insurance Expense 200 Utilities Expense 160 Supplies Expense 900 Totals 46 660 316,660 PROBLEM 3 REQUIRED: Prepare a CLASSIFIED Balance Sheet for the KT Company for the month ended June 30, 2008. Your solution should appear on the next page. HINT: You are only required to prepare the Balance Sheet. However, a quick calculation of net income and retained earnings is necessary to complete the Balance Sheet. Net Income = Revenues — Expenses = $15,500 - $9,010 2 $6,490 Retained Earnings 2 Beginning Balance + Net Income ~ Dividends = 0 + $6,490 — $2,000 2 $4,490 6 of7 We my? M, g, 21;; WWWLIMQomagLWMfi/ LCLASSIFIED Balance Sheet / ea wwwmjfimfié'fiflmfismmmw New :ée ‘ ,, ASSETS Current Assets: Cash $ 7,850 Accounts Receivable 10,000 Prepaid Insurance 1,200 Supplies 2,100 Total Current Assets $ 21,150 Property, Plant & Equipment: Office Equipment 39 14,500 Less: Accumulated Depreciation $1,250) Office Equipment, net 13,250 TOTAL ASSETS _$ 354,400 LIABILTIES & STOCKHOLDERS’ EQUITY Current Liabilities: Accounts Payable $ 3,500 Utilities Payable 1,160 Salaries Payable 2,500 Unearned Service Revenue 2,000 Total Current Liabilities $ 9,160 Long—Term Liability: Notes Payable » 3,750 Stockholders’ Equity: Common Stock $ 17,000 Retained Earnings 4,490 Total Stockholders’ Equity 21,490 TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY S 34,400 at if: C: A {in C. 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