Mock Test (final exam)

Question 1: Classify each transaction as cash flows from operating activity,

investing activity, financing activity, or noncash activity:
a. Purchase inventory for $2,000 on account -> Dr Inventory/Cr AP -> non-
cash
b. Direct issuance of common stock to purchase equipment cost $20,000 ->
Dr Equipment/Cr Share capital -> non-cash
c. Pay salaries for employee for $4,000 cash -> Dr SW exp/ Cr Cash ->
Operating
d. Conversion of $10,000 bonds payable into common stock -> non-cash
e. Issuance of common stock for $10,000 cash -> Dr Cash/ Cr Share capital
-> financing activities
f. Issuance of note payable to purchase inventory cost $10,000 -> Dr
Inventory/ Cr Note payable -> non-cash
g. Declare and pay cash dividends of $8,000 -> Dr dividend/ Cr Cash ->
financing activties
h. Sign a long-term note payable to borrow $2,000 cash from Bank of
America -> Dr Cash/ Cr Note payable -> financing activties
i. Receive dividends from stock invesment for $1,000 cash -> Dr cash/ Cr
dividend revenue -> operating
j. Receive interest from bank saving account for $100 cash -> Dr cash/ Cr
Interest revenue -> operating
k. Purchase property for $30,000 cash -> Dr Property/ Cr Cash -> investing
l. Pay income tax $6,000 cash to the government -> Dr Income Tax Exp/ Cr
Cash -> Operating
m. Pay interest on note payable for $50 cash -> Dr Interest Exp/ Cr Cash ->
operating
n. Depreciation expense is $200 > Dr depreciation exp/ Cr Accumulated
depreciation -> non-cash
o. Purchase supplies for $4000 cash -> Dr supplies/ Cr Cash -> operating
p. An old equipment which had book value of $2,000 had been sold for
$5,000 cash-> Investing activities
q. Purchase a 5-year bond for $1,000 cash -> Dr Investment in bond/ Cr
Cash -> Investing activities
BE14.4

Mokena Ltd. reported net income of €2.0 million in 2020. Depreciation for the
year was €160,000, accounts receivable increased €350,000, and accounts
payable increased €280,000. Compute net cash provided by operating activities
using the indirect method.

Net income 2,000,000

Depreciation expense 160,000

Increase in account receivable (350,000)

Increase in account payable 280,000

Net cash provided by operating activities ?

BE14.5

The net income for Lodi Ltd. for 2020 was £250,000. For 2020, depreciation on
plant assets was £65,000, and the company incurred a gain on disposal of plant
assets of £12,000. Compute net cash provided by operating activities under the
indirect method.

Net income 250,000

Depreciation expense 65,000

Gain on disposal of plant assets of (12,000)

Net cash provided by operating activities = ?

BE14.6

The comparative statements of financial position for Sergipe SA show these

changes in non- cash current asset accounts: accounts receivable increase
R$80,000, prepaid expenses decrease R$28,000, and inventories decrease
R$30,000. Compute net cash provided by operating activities using the indirect
method assuming that net income is R$250,000.

Net income is 250,000

Accounts receivable increase (80,000)

Prepaid expenses decrease 28,000

Inventories decrease 30,000

Net cash provided by operating activities = ?

Question 2: Latvia opened Lava Company on June 1, 2021. Lava Company

completed the following merchandising transactions in the month of June.
Jun 1. The owner invests $10,000 cash in exchange for common stock.
Dr Cash 10,000
Cr Share capital 10,000
Jun 2. Hire 3 new employees -> No entry
Jun. 3 Purchased inventory from Minco for $3,800, FOB shipping point, terms
1/10, n/30. The appropriate party also made a cash payment of $50 for freight
on this date.
FOB shipping point: buyer pays for shipping
Dr Inventory 3,800
Cr Accounts payable (Minco) 3,800
Dr Inventory (delivery inward) 50
 Cr Cash 50
Jun 6. Purchase an equipment for $5,000 cash
Dr Equipment 5,000
Cr Cash 5,000
Jun 12. Sold merchandise to Maxco for $4,200, FOB destination, terms 2/10,
n/30. The appropriate party also made a cash payment of $50 for freight on this
date. The inventory sold had a cost of $2,200.
FOB destination: seller pays for shipping
Dr Accounts receivable (Maxco) 4,200
Cr Sales revenue 4,200
Dr COGS 2,200
Cr Inventory 2,200
Dr Delivery expense 50
Cr Cash 50
Jun 14. Grant Maxco $200 credit for low quality merchandise allowance
Dr Sales returns and allowance 200
Cr Accounts receivable (Maxco) 200
Jun 19. Receiving payment from Maxco in full, less discount if any.
Dr Cash 98%x4,000 = 3,920
Dr Sales discount 2%x4,000 = 80
Cr Accounts receivable (Maxco) 4,000
Jun 24. Paid Minco in full, less discount if any.
Accounts payable (Minco) 3,800
Cash 3,800
Jun 30. Depreciation expense (equipment) of the month is $100
Dr Depreciation expense 100
Cr Accumulated depreciation – Equipment 100
Jun 30. Accrued salaries and wages expense is $1,000
Dr salaries and wages expense 1,000
 Cr salaries and wages payable 1,000
Jun 30. Paid $250 for utilities bill of June
Dr Utility expense 250
Cr Cash 250
Jun 30 Declared and paid cash dividend for $200
Dr Dividends 200
Cr Cash 200

Instructions
(a) Journalize the June transactions using a perpetual inventory system
(b) Prepare closing entry

Close Revenue to Income Summary

Dr Sales revenue 4,200
Cr Income summary 4,200
Close expense and contra revenue to income summary
Dr Income summary 3,880
Cr Depreciation expense 100
Cr Utilities expense 250
Cr Delivery expense 50
Cr Salaries and Wages expenses 1,000
Cr COGS 2,200
Cr Sales Discount 80
Cr Sales Return and allowance 200
Close net income to retained earnings
Dr Income summary 320
Cr Retained earnings 320
Close dividends to retained earnings
Dr Retained earnings 200
 Cr Dividends 200
*Net loss
Dr Retained earnings
Cr Income summary
(c) Prepare Multiple-step income statement of Lava company for June,
2021
Revenues
Sales revenue 4,200
Less: Sales return and allowance 200
Sales discount 80
Net sales 3,920
Less: COGS 2,200
Gross profit 1,720
Less: Operating expenses
Depreciation expense 100
Salaries and wages expense 1,000
Utility expense 250
Delivery expense 50
Income from operation 320
Add: Other income 0
Less: Other expense 0
Net income 320
(d) Prepare Classified balance sheet of Lava company on June 30, 2021
Cash Share
capital
OB: 0 OB: 0
10,000 50 10,000
3,920 50 CB:
 3,800 10,000
5,000
250
CB: 200
4,570

Inventor Accumulated
y depreciation
– Equipment
OB: 0 OB: 0
3,850 2,200 100CB:
CB: 100
1,650

SW Retained
payable earnings
OB: 0 200 OB: 0
1,000 320
CB: CB: 120
1,000

Equipment
OB: 0
5,000
CB: 5,000

Classified balance sheet of Lava company on June 30, 2021.

Assets
Non-current assets
Equipment 5,000
Less: accumulated depreciation –Equipment 100
Current assets
Inventory 1,650
Cash 4,570
Total assets 11,120
Equity and liabilties
Equity
Share capital 10,000
RE 120
Total equity 10,120
Liabilities
Non-current liabilities
Current liabilities
SW payable 1,000
Total liabilites 1,000
Total Equity and liabilties 11,120

Retained earnings statement

RE opening
Add: net income (or Deduct net loss)
Deduct: Dividend
RE closing

Question 3:

Periodic:

Beginning inventory + Purchase – Ending inventory = COGS

Step1: Ending inventory

Step2: COGS

(a) Determine the cost of goods available for sale.

= Beginning inventory + Cost of goods purchase

= 150 units x $20 + (400 units x $23 + 250 units x $24 + 350 units x $26 + 100
units x $29)

= $30,200

Number of unit available for sale = 1,250

Number of units sold = 1,000
Ending inventory in units = 250

(b)Determine (1) the ending inventory, and (2) the cost of goods sold under
each of the assumed cost flow methods (FIFO, and average-cost) under a
periodic inventory system

Beginning inventory + Cost of goods purchase – Ending inventory =

COGS

(1) FIFO

Ending inventory = 100 units x $29 + 150 units x 26 = 6,800

COGS = Cost of goods available for sale - Ending inventory = $30,200 - $6,800
= $23,400

(2) Average-cost

Average unit cost = $30,200/1,250 = $24.16

Ending inventory = 250 units x $24.16 = $6,040

COGS = $24,160

Calculte:
Ending inventory and COGS

Cost of goods avaiable for sale = Begining inventory + Purchase

Gross profit = Sales revenue - COGS

Inventory turnover = COGS/Average inventory

Average inventory = (Begining inventory + Ending inventory)/2

Days in inventory = 365/ Inventory turnover

Question 4:

Perpetual
Begining inventory + Purchase – COGS = Ending inventory

Step1: COGS

Step 2: Ending inventory

Total
FIFO Unit Price balance
beg 150 20 3000
Feb 2 sales 100 units 100 100*20 2000
Mar. 15 400 units at $23 400 23 9200
June 1 sale 200 units 200 50*20+150*23 4450
July 20 250 units at $24 250 24 6000
Aug 5 300 units 300 250*23+50*24 6950
Sept. 4 350 units at $26 350 26 9100
 200*24+200*2
Oct 10 400 units
400 6 10000
Dec. 2 100 units at $29 100 29 2900

COGS= 23400 Ending 6800

Average unit current

Average -cost Unit Price Total unit price remaining balance
beg 150 20 3000 20 150 3000
Feb 2 100 units 100 20 2000 20 50 1000
Mar. 15 400 units 22.666666
at $23 400 23 9200 67 450 10200
June 1 200 units 200 22.67 4534 22.67 250 5667.5
July 20 250 units at
$24 250 24 6000 23.335 500 11667.5
Aug 5 300 units 300 23.33 6999 23.33 200 4666
Sept. 4 350 units at 25.029090
$26 350 26 9100 91 550 13766
Oct 10 400 units 400 25.03 10012 25.03 150 3754.5
Dec. 2 100 units at
$29 100 29 2900 26.618 250 6654.5

COGS 23545 Ending 6654.5

Question 5: Lower-of-cost-or-NRV (net realizable value) -> MCQ

Camera: $65 x 100 units

DVD: $67 x 150 units

Ipod: $78 x 125 units

Total ending inventory

Balance sheet
Inventory – at cost
Less: Allowance for reduce inventory to LCM