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Practice assignment financial accounting

Practice Assignment #1

Section III

FINANCIAL ACCOUNTING

Please read the directions preceding each section carefully before answering the questions.

III – Free Response Questions –Show your work for partial credit.

  1. Four transactions are given below that were completed during 2011 by Russell Company. You are to provide the adjusting entries required for Russell Company on December 31, 2011. No adjusting entries were made during the year. (8 points)
    1. On December 31, 2011, Russell Company owed employees $3,750 for wages that were earned by them during December and were not recorded.
    2. During 2011, Russell Company purchased office supplies that cost $1,000 which were placed in the supplies room for use as needed. The purchase was recorded as follows:

      At January 1, 2011, the inventory of unused office supplies was $300. At December 31, 2011, a physical count showed unused office supplies in the supply room amounting to $100.
    3. On December 1, 2011, Russell Company rented some office space to another party. Russell Company collected $900 rent for the period December 1, 2011, to March 1, 2012. The December 1 transaction was recorded as follows:
    4. On July 1, 2011, Russell Company borrowed $2,000 cash on a one-year, 8% interest-bearing, note payable. The interest is payable on the due date, June 30, 2012. The borrowing was recorded as follows on July 1, 2011:

  2. Perform transaction analysis for Blake Company regarding the following transactions for the month of March. Indicate the account affected by the transaction as well as the increase (+) or decrease (-) to the components of the accounting equation and the amount. (10 points)

Transaction

Assets

Liabilities

Stockholders' Equity

Account

Amount

Account

Amount

Account

Amount

Ex.

Paid wages for two weeks in March. The total cash paid was $500

Cash

-$500

Wage expense

-$500

A.

Collected $2,000 on accounts receivable.

B.

Services were completed for customers. A total of $1,500 was billed but none of it was received in March.

C.

Paid $3,000 for rent for April, May, and June.

D.

Received and paid the March utilities bill for $150.

E.

Sold land for $50,000 that had cost $35,000.

F.

Paid the February utilities bill for $100. It was recorded as an expense in February.

  1. The Booker Corporation reported the following balance sheet data for 2013 and 2012. (12 points)

2013

2012

Current Assets

Cash

$ 77,375

$ (22,955)

Accounts receivable, net

80,000

68,250

Inventory

165,000

145,000

Prepaid insurance

1,500

2,000

Long-term Assets

Investment securities

$ 15,500

$ 85,000

Land, buildings, equipment

1,250,000

1,125,000

Accumulated depreciation

(610,000)

(572,000)

Total Assets

$ 979,375

$ 830,295

Current Liabilities

Accounts payable

$ 76,340

$ 102,760

Salaries payable

20,000

24,500

Notes payable (current)

25,000

75,000

Long-term Liabilities

Bonds payable

$ 200,000

$ 0

Equity

Common stock

$ 300,000

$ 300,000

Retained earnings

358,035

328,035

Total Liabilities and Equity

$ 979,375

$ 830,295

Additional information for 2013:
(1.) Sold investment securities costing $69,500 for $74,000 in cash.
(2.) Equipment costing $20,000 with a book value of $5,000 was sold for $6,000 cash.
(3.) Issued bonds payable to raise cash of $200,000 (a long-term liability).
(4.) Purchased new equipment for $145,000 in cash.
(5.) Net income was $50,000.

(6.) Current notes payable is related to inventories. It should be considered an operating liability.

Required: Prepare a statement of cash flows for 2013 in good form (using the space provided in the next page) using the indirect method. You may use scratch paper for any calculations necessary, although you will be graded only on the Statement of Cash Flows you prepare on the next page (page 11).

Booker Company

Statement of Cash Flows

For the year ended December 31, 2013


Practice Assignment #1

Section IV

FINANCIAL ACCOUNTING

Please read the directions preceding each section carefully before answering the questions. Selected Financial Statements for Section IV can be found at the back of the exam.

IV – Case Analysis– Instructions: Use Apple’s 2012 annual report to answer the following questions. Its fiscal year ends September 29, 2012, and FY2012 refers to the fiscal year ended September 29, 2012. Treat each item below independently. Watch the dates on the statements. All numbers on the financial statements and in the problems are in millions (except per share data).

  1. In March 2012, Apple initiated a dividend policy, in which it plans to pay quarterly dividends to shareholders. What was the total amount of dividends declared by Apple in 2012? (5 points)
  2. Assume that Apple sold Property, Plant and Equipment for $1,000 during the year and that non-cash purchases of PP&E were $3,000. What were each of the following amounts? HINT: Don’t forget to use information available in Note 3. (6 points)
  3. Accumulated depreciation of “PP&E” disposed of during the year __
  4. The historical cost of “PP&E” disposed of during the year ___
  5. Gain or loss recognized on the sale of disposed PP&E assets __.

Be sure to clearly indicate whether there was a gain or loss.

  1. Assume that on July 1, 2012, Apple recorded a receipt of a $300 payment on account from a major customer with the following incorrect journal entry:

Cash 300

Sales Revenue 300

Please complete the following: (9 points)

  1. Compute the amount that should have been reported as “Total Current Assets” at year-end 2012.
  2. Compute the amount that should have been reported as “Operating Income” at year-end 2012.
  3. Compute the amount that should have been reported as “Cash Flow from Operating Activities” for 2012.
  4. Apple records liabilities related to customer warranties in the “Accrued Warranty and Related Costs” account and reduces this liability when customers submit warranty claims. During the fiscal year 2012, Apple recognized warranty expense of $2,184. What was the cost of warranty claims submitted by customers in 2012? (4 points)
  5. On December 1, 2012, Apple paid $10 cash for its December rent payment for its office building. To record this event, Apple made the following entry:

Rent Payable 10

Rent Receivable 10

No additional entries were made.

What would be the effect of the error on the following amounts? Circle U/S for understate, O/S for overstate, or NE for no effect. Ignore income tax effects. (8 points)

  1. Total Liabilities at year-end 2012 U/S O/S NE
  2. Cash Flow from Operations for the year 2012 U/S O/S NE
  3. Total Assets at year-end 2012 U/S O/S NE
  4. Stockholders’ Equity at year-end 2012 U/S O/S NE
  5. Assume that Apple had made the following mistake in preparation of its 2012 statements, and no adjustments were made:

On September 1, 2012, Apple purchased $120 of prepaid insurance for the six months beginning September 1 and made the following journal entry:

Insurance Expense $120

Cash $120

What would be the effect of the error on the following amounts? Circle U/S for understate, O/S for overstate, or NE for no effect. Ignore income tax effects. (8 points)

  1. Total Liabilities at year-end 2012 U/S O/S NE
  2. Income before tax at year-end 2012 U/S O/S NE
  3. Total Assets at year-end 2012 U/S O/S NE
  4. Cash Flow from Operating Activities at year-end 2012 U/S O/S NE

These are the excerpts from Apple’s 2012 annual report.

There are 5 pages including the cover.

APPLE INC.

CONSOLIDATED STATEMENT OF OPERATIONS

(in millions, except per share data)

Years Ended

September 29, 2012

September 24, 2011

September 25, 2010

Net sales

$156,508

$108,249

$65,225

Cost of sales

87,846

64,431

39,541

Gross profit

68,662

43,818

25,684

Operating expenses:

Research and development

3,381

2,429

1,782

Selling, general and administrative

10,040

7,599

5,517

Total operating expenses

13,421

10,028

7,299

Operating income

55,241

33,790

18,385

Other income/(expense), net

522

415

155

Income before income taxes

55,763

34,205

18,540

Provision for income taxes

14,030

8,283

4,527

Net income

$41,733

$25,922

$14,013

Earnings per share:

Basic

$44.64

$28.05

$15.41

Diluted

$44.15

$27.68

$15.15

Shares used in computing earnings per share:

Basic

934

924

909

Diluted

945

936

924

APPLE INC.

CONSOLIDATED BALANCE SHEET

(in millions, except per share data)

September 29, 2012

September 24, 2011

Current assets:

Cash and cash equivalents

$10,746

$9,815

Short-term marketable securities

18,383

16,137

Accounts receivable, less allowances of $98 and $53, respectively

10,930

5,369

Inventories

791

776

Deferred tax assets

2,583

2,014

Vendor non-trade receivables

7,762

6,348

Other current assets

6,458

4,529

Total current assets

57,653

44,988

Long-term marketable securities

92,122

55,618

Property, plant and equipment, net

15,452

7,777

Goodwill

1,135

896

Acquired intangible assets, net

4,224

3,536

Other assets

5,478

3,556

Total assets

$176,064

$116,371

Current liabilities:

Accounts payable

21,175

14,632

Accrued expenses

11,414

9,247

Deferred revenue

5,953

4,091

Total current liabilities

38,542

27,970

Deferred revenue - non-current

2,648

1,686

Other non-current liabilities

16,664

10,100

Total liabilities

$57,854

$39,756

Shareholders' equity:

Common stock, no par value; 1,800,000 shares authorized;

Outstanding shares -939 and 929 shares

16,422

13,331

Retained earnings

101,289

62,841

Accumulated other comprehensive income

499

443

Total shareholders' equity

118,210

76,615

Total liabilities and shareholders' equity

$176,064

$116,371

APPLE INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(in millions, except per share data)

Years Ended

September 29, 2012

September 24, 2011

September 25, 2010

Operating activities:

Net income

$41,733

$25,922

$14,013

Adjustments to reconcile net income:

Depreciation and amortization

3,277

1,814

1,027

Share-based compensation expense

1,740

1,168

879

Deferred income tax expense

4,405

2,868

1,440

Changes in operating assets and liabilities:

Accounts receivable, net

(5,551)

143

(2,142)

Inventories

(15)

275

(596)

Vendor non-trade receivables

(1,414)

(1,934)

(2,718)

Other current and non-current assets

(3,162)

(1,391)

(1,610)

Accounts payable

4,467

2,515

6,307

Deferred revenue

2,824

1,654

1,217

Other current and non-current liabilities

2,552

4,495

778

Cash generated by operating activities

50,856

37,529

18,595

Investing activities:

Purchases of marketable securities

(151,232)

(102,317)

(57,793)

Proceeds from maturities of marketable securities

13,035

20,437

24,930

Proceeds from sales of marketable securities

99,770

49,416

21,788

Payments made in connection with business acquisitions, net of cash acquired

(350)

(244)

(638)

Payments for acquisition of property, plant and equipment

(8,295)

(4,260)

(2,005)

Payments for acquisition of intangible assets

(1,107)

(3,192)

(116)

Other

(48)

(259)

(20)

Cash used in investing activities

(48,227)

(40,419)

(13,854)

Financing activities:

Proceeds from issuance of common stock

665

831

912

Excess tax benefits from equity awards

1,351

1,133

751

Dividends and dividend equivalent rights paid

(2,488)

0

0

Taxes paid related to net share settlement of equity awards

(1,226)

(520)

(406)

Cash (used in)/generated by financing activities

(1,698)

1,444

1,257

Net Increase/(decrease) in cash and cash equivalents

931

(1,446)

5,998

Cash and cash equivalents, beginning of the year

9,815

11,261

5,263

Cash and cash equivalents, end of the year

$10,746

$9,815

$11,261

Note 3. Consolidated Financial Statement Details

The following table show the Company’s consolidated financial statement details as of September 29, 2012 and September 24, 2011 (in millions):

Practice assignment financial accounting

Note 7. Long- Term Supply Agreements

The Company has entered into long- term agreements to secure the supply of certain inventory components. Under certain of these agreements, which expire between 2012 and 2022, the Company has made prepayments for the future purchase of inventory components and has acquired capital equipment to use in the manufacturing of such components.

As of September 29, 2012, the Company had a total of $4.2 billion of inventory component prepayments outstanding, of which $1.2 billion are classified as other current assets and $3.0 billion are classified as other assets in the Consolidated Balance Sheets. The Company had a total of $2.3billion of inventory component prepayments outstanding as of September 24, 2011. The Company's outstanding prepayments will be applied to certain inventory component purchases made during the term of each respective agreement. The Company utilized $943 million and $173 million of inventory component prepayments during 2012 and 2011, respectively.

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