THE HONG KONG POLYTECHNIC UNIVERSITY HONG KONG COMMUNITY COLLEGE

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1 THE HONG KONG POLYTECHNIC UNIVERSITY HONG KONG COMMUNITY COLLEGE Subject Title : Intermediate Accounting Subject Code : CC3109 Session : Semester Two, 2009/10 Numerical Answers Question B1 (a) SMART CORPORATION Balance Sheet At December 31, 2009 Assets Current assets: Cash and cash equivalents... $ 534,000 Accounts receivable, net of allowance of 236,000 uncollectible accounts of $34, Short-term investments ,000 Total current assets ,000 Investments and Funds Land held for resale ,000 Property, plant, and equipment: Land 436,000 Machinery and equipment ,000 Less: Accumulated depreciation... (350,000) Net property, plant, and equipment ,000 Intangible assets: Goodwill... 60,000 Total assets... $1,926,000 Liabilities and Shareholders' Equity Current liabilities: Accounts payable... $ 462,000 Current maturities of long-term debt... 36,000 Total current liabilities ,000 Long-term liabilities: Notes payable ,000 Page 1 of 6

2 Shareholders equity: Common stock, par value of $1.0; 500,000 $240,000 shares authorized; 240,000 shares issued and outstanding... Retained earnings ,000 Total shareholders equity ,000 Total liabilities and shareholders equity $1,926,000 (b) Cost Retail Estimated ending inventory at retail $28,000 Estimated ending inventory at cost 21,000 (ii) Estimated ending inventory at cost 19,764.7 Page 2 of 6

3 Question B2 (a) PH Corp Statement of Cash Flows (Operating Section) For the Year ended Dec 31, 2010 Cash flows from operating activities: Net income $4,000 Adjustment for noncash effects: Depreciation expense 900 Decrease in accounts receivable 900 Increase in inventory (500) Decrease in accounts payable (700) Increase in taxes payable 300 Net cash flows from operating activities $4,900 (b) Athens Corporation Statement of Cash Flows For the Year Ended December 31, 2009 Cash flows from operating activities: Collections from customers $ 2,000 Interest on investments 200 Interest on debt (300) Payment of income taxes (80) Purchase of inventory (1,000) Payment of operating expenses (500) Net cash inflows from operating activities $ 320 Cash flows from investing activities Sale of land 300 Purchase of equipment (4,000) Net cash outflows from investing activities (3,700) Cash flows from financing activities: Issuance of common stock 600 Issuance of debt securities 2,000 Payment on debt (1,500) Payment of dividends (200) Net cash inflows from financing activities 900 Net decrease in cash (2,480) Cash and cash equivalents, January 1 5,200 Cash and cash equivalents, December 31 $ 2,720 Page 3 of 6

4 Question B3 (a) (i) Feb. 22 Investment in ABC common shares 48 Cash 48 Jun. 29 Cash (12 x $0.5) 6 Investment revenue 6 Oct. 22 Investment in Treasury bonds 13 Cash 13 Nov. 14 Cash 27 Investment in ABC common shares 20 Gain on sale of investments 7 Dec. 31 Net unrealized holding gains and losses OCI 1.4 Fair value adjustment ABC 1.4 [(7 x (4 3.8)] Dec. 31 Net unrealized holding loss on investments I/S 0.3 Fair value adjustment Treasury bonds 0.3 (ii) (b) Income Statement (partial) Investment revenue 6 Gain on sale of investment 7 Unrealized holding loss on investment (0.3) Investment in Riverside House shares 48 Cash 48 Investment in Riverside House shares 15 Investment revenue (50 x 30%) 15 Cash (9 million x 1.2) 10.8 Investment in Riverside House shares 10.8 Investment revenue (24 / )* Investment in Riverside House shares 1.8 Page 4 of 6

5 Question B4 Part I % of completion (to date) = 27.27% = 54.29% = 91.18% Gross profit/(loss) recognized in : 2008: = $40, : = - $13,760 (loss) 2010:= $64,035 Construction in progress 450,000 Various accounts 450,000 Cost of construction 450,000 Construction in progress 40,905 Revenue from long-term contracts 490,905 Accounts receivable 400,000 Billings on construction contract 400,000 Cash 300,000 Accounts receivable 300,000 Balance Sheet as of December 31, 2008 Accounts receivable $100,000 Construction in progress (450, ,905) 490,905 Less: Billings on construction contract 400,000 Cost and profit in excess of billings $ 90,905 5 Page 5 of 6

6 Question B5 ai) = $110, iii) Rent expense 25,000 Cash 25,000 b) i) A sales-type lease contains a dealer's profit. ii) Date Payments Effective Decrease in Outstanding balance interest balance January 1, ,791 December 31, ,000 21,215 21, ,006 December 31, ,000 18,601 24, ,607 December 31, ,000 15,673 27, ,280 iii) In the book of lessor: January 1, 2007 Lease receivable 176,791 Cost of goods sold 150,000 Sales revenue 176,791 Inventory of equipment 150,000 December 31, 2007 Cash 43,000 Lease receivable 21,785 Interest revenue 21,215 iv) In the book of lessee: December 31, 2008 Lease payable 24,399 Interest expense 18,601 Cash 43,000 Depreciation expense 29,465 Accumulated depreciation 29,465 Page 6 of 6

QUESTION 2. QUESTION 3 Which one of the following is most indicative of a flexible short-term financial policy?

QUESTION 2. QUESTION 3 Which one of the following is most indicative of a flexible short-term financial policy? QUESTION 1 Compute the cash cycle based on the following information: Average Collection Period = 47 Accounts Payable Period = 40 Average Age of Inventory = 55 QUESTION 2 Jan 41,700 July 39,182 Feb 18,921