The Hong Kong Management Association Lingnan University
Joint Diploma in Management Studies
____________________________________________________________________________
L-63
ACCOUNTING FOR MANAGERS
FINAL EXAMINATION
AUTUMN TERM 2006
WEDNESDAY, 10 JANUARY 2007
7:00PM – 9:00PM
INSTRUCTIONS:
1. This examination paper consists of 8 pages.
2. Time allowed is 2 hours.
3. This paper has Two Parts:
Answer ALL three questions in Part A
Answer any ONE question in Part B
75 marks
25 marks
4. Write orderly and clearly and write your answers only in the answer booklet.
5. Return the whole set of examination paper and answer book.
6. You are given 1 MC answer sheet and 3 answer books. For question 1, put your
answers on the MC answer sheet. For questions 2-5, begin each question on a new
answer book.
1
L-63
Part A
Answer all three questions in this part.
Question 1 (Compulsory) (30 marks)
Select the best answer for each of the following questions. Write down your answers in your
answer booklet. 2 marks for each question.
Question 2(Compulsory) (20 marks)
At March 31, 2005, Alice Hong Kong Co. Ltd. reported the following as plant assets:
Land
Building
$26,500,000
Less: Accumulated depreciation - Building
(11,925,000)
Equipment
40,000,000
Less: Accumulated depreciation – Equipment (19,301,000)
TOTAL PLANT ASSETS
$3,000,000
14,575,000
20,699,000
$38,274,000
During fiscal year 01/04/2005 – 31/03/2006, the following cash transactions occurred:
Apr 1, 05 Purchased Land for $2,200,000
Apr 1, 05 Sold Equipment that cost $600,000 when purchased on April 1, 2004. The equipment
was sold for $500,000.
Oct 1, 05 Purchased equipment from Germany for $1,400,000. Related expenditures included
sales tax $70,000, shipping costs $7,500, insurance during shipping $750, installation
and testing costs $8,000, and $5,800 of oil and lubricants to be used with the
machinery during its first year of operation.
Required:
(1)
Journalize the above transaction (omit explanations). Alice Hong Kong uses straight-line
depreciation method for building and double-declining depreciation method for
equipment. The buildings are estimated to have a 40-year useful life with no salvage value,
and 10-year useful life with no salvage value for the equipment.
(8 marks)
(2)
Prepare journal entries to record depreciation expense for building and equipment for the
fiscal year 2005/2006.
(6 marks)
(3)
Prepare the plant assets section of Alice Hong Kong’s Balance Sheet at March 31, 2006.
(6 marks)
2
L-63
Question 3 (Compulsory) (25 marks)
(1)
The stockholders’ equity section of Latifa Corporation’s balance sheet at December 31,
2004, appears as follows:
Stockholders’ equity
Paid-in capital
Common stock, $20 par value, 100,000 shares authorized; 80,000
shares issued (out of which 4,000 shares are held in treasury)
$1,600,000
Additional paid-in capital common stock
320,000
Total paid-in capital
1,920,000
Retained earnings
625,000
2,545,000
120,000
Less: Treasury stock (4,000 shares)
$2,425,000
Total stockholders’ equity
During 2005, the following selected transactions had occurred:
Jan. 19
Issued 10,000 shares of common stock for $350,000.
Apr. 1
Sold all of the treasury stock for $140,000
Dec. 1
Declared a 5% stock dividend on common stock, to be capitalized at the market
price of the stock, which is $38 a share. Assume shares are issued and
distributed on the same day.
Required:
(i)
(ii)
(2)
Prepare the journal entries to record the above stock transactions of Latifa Corporation.
(9 marks)
Prepare the stockholders’ equity section of the balance sheet for Latifa Corporation as at
December 31, 2005. The net income for the year was $150,000 and no cash dividends
were declared.
(10 marks)
On March 31, 2005, Gold Finger Corporation had the following selected accounts with
credit balance after posting adjusting entries:
Accounts payable ……………………………………………………..…
$900,000
Allowance for doubtful accounts..………………………………….....…
30,000
Accumulated depreciation – equipment ……………………..…………..
170,000
Bank overdraft ………………………………………………….….……
120,000
Notes payable (due in 1 month but arrangement has been made with the
300,000
bank to renew the note for 18 months)………………………..………....
Accrued expenses payable ………………
10,000
Unearned revenue …………………………….……………….…….…..
60,000
Purchase discounts taken……………………….……………………..…
2,800
Dividends payable ……………………………………………………….
100,000
Income taxes payable …………..…………………………………..……
111,000
Required:
Prepare the current liability section of the balance sheet for Gold Finger Corporation as at March
31, 2005.
(6 marks)
3
L-63
Part B
Answer any ONE question in this part.
Question 4 (Elective) (25 marks)
Selected financial data of two competing companies for the year ending 31 December 2006 are
presented below:
Income Statement Data
Sales …………………………………………..
Sales returns and allowances………………….
Sales discounts…………………….…………..
Cost of goods sold………………………….…
Operating expenses…………………………...
Net income…………………………………....
Balance Sheet Data
Cash …………………………….….…………
Accounts receivable (net)*.………….………..
Inventory*.…………………….………………
Prepayments………………………….………..
Total assets*..………………………..………..
Total current liabilities………………..………
Long-term liabilities….………………………
Common stock ($1 par value)*……..………..
Retained earnings*...…………………….……
Bee Limited
Butterfly Limited
$3,085,000
81,000
4,000
2,316,000
2,116,000
160,000
$2,632,000
30,100
1,900
2,160,000
2010,000
104,000
$204,000
300,000
332,840
3,160
2,000,000
420,000
180,000
960,000
440,000
64,000
292,500
640,000
3,500
2,200,000
400,000
360,000
1,040,000
400,000
*Assume that the year-end balances also represents the average balance for this item
throughout the year
Required:
(1) For each of the two companies, compute the following accounting ratios (show your
workings and calculate to one decimal place):
(i) Working capital
(ii) Current ratio
(iii) Quick ratio
(iv) Inventory turnover period (in days)
(v) Accounts receivable period (in days)
(vi) Operating cycle (in days)
(vii) Gross profit rate
(viii) Return on total assets
(ix) Return on stockholders’ equity
(20 marks)
(2) Based on the measures of liquidity and profitability, comment on the performances of the
two companies.
(5 marks)
4
L-63
Question 5 (Elective) (25 marks)
The following is the trial balance of Peter Corporation as at 31 March 2006:
Debit
Sales……………………………………………….……
Dividends……………………………………………….
Purchases……………………………………………….
Salaries expense………………………………………..
Retained earnings (at 1 April 2005).....…………………
Freight-in on purchases…………………………………
Insurance expense………………………………………
Purchase returns………………………………………..
Rent and rates expense…………………………………
Accounts receivable…………………………………….
Allowance for doubtful accounts……………….………
Accounts payable………………………………..………
Cash……………………………………………..………
Inventory (at 1 April 2005)……………………….…….
Furniture, at cost………………………………….…….
Accumulated depreciation – furniture………………….
Common stock capital, $1 par………………………….
Credit
$1,500,000
82,000
$800,000
120,000
100,000
18,000
15,000
20,000
508,000
210,000
12,000
180,000
110,000
100,000
90,000
$2,053,000
36,000
205,000
$2,053,000
Additional information as at 31 March 2006:
(1) A specific bad debt of $8,000 was to be written off on 31 March 2006.
(2) The allowance for doubtful accounts should be equal to 10% of accounts receivable as at 31
March 2006 (after the write-off in (1) above).
(3) Furniture is to be depreciated at the rate of 10% per annum on cost.
(4) Salaries accrued was $9,500.
(5) At 1 February 2006, the firm paid insurance for three months beginning 1 February 2006 at
$1,500 per month. The entire amount was recorded in Insurance Expense account.
(6) Inventory at 31 March 2006 had a cost of $120,000.
Required to prepare:
(1) Prepare an income statement for the year ended 31 March 2006.
(11 marks)
(2) Prepare a classified balance sheet as at 31 March 2006.
(10 marks)
(3) Prepare a statement of retained earnings for the year ended 31 March 2006.
-
END OF QUESTIONS 5
(4 marks)