Exam Number: University of Florida College of Law Final Examination Legal Accounting Summer Semester, 1997 Professor Willis.

Transcription

1 Exam Number: University of Florida College of Law Final Examination Legal Accounting Summer Semester, 1997 Professor Willis Date: July 15, 1997 Time: 9:00 a.m. Time Limit: Four Hours Instructions 1. You May Consult Any Written Materials You Consider Helpful. 2. Unless Otherwise Indicated, All Parties Are on The Cash Method of Accounting And Use The Calendar Year. All Parties Are Unrelated Unless Otherwise Indicated. All Parties Are Single And Not Heads of Households, Unless Otherwise Indicated. 3. Answer in the Space Provided to the extent possible. If you add paper, please clearly mark it indicating the answer it appends. 4. This exam is due in my office by 1:00 p.m. 5. Place your exam number or other form of identification at the top of this page. 6. I will answer no questions prior to the time you turn in your paper. 7. This is a take home exam. That means you may take it anywhere permitted by normal College of Law rules, including the assigned rooms, or any place off university property. If you choose to use a computer or other memory possessing equipment(other than a calculator), you must do so off university property. 1

2 QUESTION ONE You have started a new law practice with a partner. You each use the accrual method of accounting and the calendar year. You have acquired and furnished your offices at a total cost of $150,000, having purchased furniture (for $10,000), books (for $10,000), and equipment (for $10,000) and an old house for $100,000 ($20,000 for the land and $80,000 for the building). You also spent $20,000 renovating the building. You purchased and paid for all the items on October 1, 1997, the date on which the renovations were complete, and the date on which you borrowed the money. You use a half-year convention for depreciation of all depreciable assets. You reasonably estimate the various personal property items each has a useful life of seven years and a salvage value equal to ten percent of its original cost and that the building has a useful life of twenty years and a salvage value of twenty percent. You each contributed $10,000 cash to the partnership, and together you borrowed the remaining $140,00 from a bank. The bank charges 9% nominal annual interest on the loan and requires monthly payments over a ten year period. The first payment is due November 1, During the final three months of 1997, the firm earned and received payment for $15,000 in legal fees. It owed and paid $6,000 in expenses (other than payments on the bank loan and depreciation). You use the double declining balance method of depreciation for the personal property and straight line for the real. Provide the journal entries for the above information and prepare a balance sheet for 12/31/97. [No explanation is necessary: just provide account names and numbers. QUESTION TWO Use the facts from the prior question. Your partner is having marital difficulties and fears having to pay alimony to his soon-to-be ex-wife and having to pay her an additional amount equal to one-half his interest in the law firm. He anticipates she will accept book value figures to reflect his income and assets. You may modify any assumptions, allocations, or methods of accounting or depreciation, as well as components thereof. Your modifications must be defensible, i.e., consistent with GAAP or tax accounting and reasonable. For example, you cannot assume the equipment has a useful life of 1,000 years - that would be ridiculous. You may, however, assume it has a useful life of ten or eleven years - or any other common sense, defensible period. What would you change and why? What are some of the adverse consequences that may flow from the changes you propose? In other words, argue against making the changes. 2

3 Entry Debit Credit 3

4 Balance Sheet Assets Liabilities Total Liabilities Owner s Equity Total Assets Total Liab & Equity 4

5 Proposed Changes (list up to ten):

6 Brief Explanation of Proposed Changes (explain at most five):

7 Brief Explanation of Arguments Against What You Propose: 7