ACCOUNTING & FINANCIAL REPORTING II
EXAM 3
GENERAL REQUIREMENTS
1) This assignment is to be completed on an individual basis. Students who work together or copy from another student will be issued a failing grade for the course. Cheating of any kind will not be tolerated.
2) label and present all work in an organized fashion. Failure to show supporting work may be construed as cheating on the exam.
3) type all answers and supporting work directly in the body of THIS document and do not submit more than one document.
1. On January 1, a business issues $700,000 face value, 5 year, 8% contract rate bonds dated January 1. Prepare any necessary journal entries on January 1 to issue the bonds under the following independent circumstances.
A. The bonds are sold at 100.
B. The bonds are sold at 82.5.
C. The bonds are sold at 109.5.
2. On January 1, a business issues $200,000 face value, 10 year, 8% contract rate bonds dated January 1. Interest is payable annually each December 31. The bonds were issued at a discount of $25,000.
Using the STRAIGHT-LINE METHOD, prepare the necessary journal entries to record total interest expense for the FIRST interest period.
3. On January 1, a business issues $200,000 face value, 10 year, 8% contract rate bonds dated January 1. Interest is payable annually each December 31. The bonds were issued at a premium of $17,000.
Using the STRAIGHT-LINE METHOD, prepare the necessary journal entries to record total interest expense for the FIRST interest period.
4. A business has the following financial information at the end of the year:
Prior year Current year
Net income $500,000
Depreciation expense $100,000
Dividends paid $250,000
Accounts receivable $1,500,000 $2,000,000
Inventory $3,500,000 $2,000,000
Accounts payable $350,000 $500,000
Long term debt $2,300,000 $3,000,000
Common stock $2,200,000 $2,500,000
Retained earnings $6,150,000 $6,350,000
Based on the financial information presented above, determine net cash flow from OPERATING ACTIVITIES for the current year.
5. A business has the following financial information for the year:
1. Issued 5,000 shares of common stock for $35.00 per share.
2. Issued long term debt of $250,000.
3. Paid dividends of $35,000.
4. Sold a piece of equipment for $50,000. The equipment had a book value of $40,000.
5. Purchased land for $350,000.
6. Earned net income of $80,000.
A. Based on the financial information presented above, determine net cash flow from FINANCING ACTIVITIES for the year.
B. Based on the financial information presented above, determine net cash flow from INVESTING ACTIVITIES for the year.
Bonus questions (bonus questions cannot hurt your score; they can only help you)
1. What are “serial” bonds?
2. What are “secured” bonds?
3. What is a bond “indenture”?
4. What is the definition of “free cash flow”?
5. Depreciation is a non-cash expense. True or false (choose one).
