MIDTERM EXAM

INTERMEDIATE 1
OCTOBER 2, 2020

Name :
NIM :

PROBLEM 1
The following account balances were included in the trial balance of Twain
Corporation at June 30, 2020.

Sales revenue $1,578,500 Depreciation expense (office furniture $7,250

Sales discounts 31,150 Property tax expense 7,320

Cost of goods sold 896,770 Bad debt expense (selling) 4,850

Salaries and wages expense 56,260 Maintenance and repairs expense 9,130
(sales) (administration)

Sales commissions 97,600 Office expense 6,000

Travel expense (salespersons) 28,930 Sales returns and allowances 62,300

Delivery expense 21,400 Dividends received 38,000

Entertainment expense 14,820 Interest expense 18,000

Telephone and Internet expense 9,030 Income tax expense 102,000

Depreciation expense (sales 4,980 Depreciation understatement due to 17,700

Maintenance and repair expense 6,200 Dividends declared on preferred stock 9,000
(sales)

Miscellaneous selling expense 4,715 Dividends declared on common stock 37,000

Office supplies used 3,450

Telephone and Internet 2,820

Instructions
1. Using the multiple-step form, prepare an income statement and a retained
earnings statement for the year ended June 30, 2020.
2. Using the single-step form, prepare an income statement and a retained
earnings statement for the year ended June 30, 2020.

PROBLEM 2
Presented below are a number of balance sheet items for Montoya, Inc., for the
current year, 2020

Goodwill $125,000 Accumulated $292,000

Payroll taxes payable 177,591 Inventory 239,800

Bonds payable 300,000 Rent payable (short-term) 45,000

Discount on bonds payable 15,000 Income taxes payable 98,362

Cash 360,000 Rent payable (long-term) 480,000

Land 480,000 Common stock, $1 par value 200,000

Notes receivable 445,700 Preferred stock, $10 par value 150,000

Notes payable (to banks) 265,000 Prepaid expenses 87,920

Accounts payable 490,000 Equipment 1,470,000

Retained earnings ? Debt investments (trading) 121,000

Income taxes receivable 97,630 Accumulated depreciation--buildings 270,200

Notes payable (long-term) 1,600,000 Buildings 1,640,000

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Instructions
Prepare a classified statement of financial position in good form. Common stock
authorized was 400,000 shares, and preferred stock authorized was 20,000 shares.
Assume that notes receivable and notes payable are short-term, unless stated
otherwise. Cost and fair value of equity investments (trading) are the same.

PROBLEM 3
The Cash account of Aguilar Co. showed a ledger balance of $3,969.85 on June 30,
2019. The bank statement as of that date showed a balance of $4,150. Upon
comparing the statement with the cash records, the following facts were determined.
1. There were bank service charges for June of $25.
2. A bank memo stated that Bao Dai's note for $1,200 and interest of $36 had
been collected on June 29, and the bank had made a charge of $5.50 on the
collection. (No entry had been made on Aguilar's books when Bao Dai's note
was sent to the bank for collection.)
3. Receipts for June 30 for $3,390 were not deposited until July 2.
4. Checks outstanding on June 30 totaled $2,136.05.
5. The bank had charged the Aguilar Co.'s account for a customer's uncollectible
check amounting to $253.20 on June 29.
6. A customer's check for $90 (payment on account) had been entered as $60 in
the cash receipts journal by Aguilar on June 15.
7. Check no. 742 in the amount of $491 had been entered in the cash journal as
$419, and check no. 747 in the amount of $58.20 had been entered as $582.
Both checks had been issued to pay for purchases of equipment.

Instructions
a. Prepare a bank reconciliation dated June 30, 2019, proceeding to a correct cash
balance.
b. Prepare any entries necessary to make the books correct and complete.

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PROBLEM 4
Chapman Company, a major retailer of bicycles and accessories, operates several
stores and is a publicly traded company. The comparative statement of financial
position and income statement for Chapman as of May 31, 2019, are as follows. The
company is preparing its statement of cash flows.

CHAPMAN COMPANY
COMPARATIVE STATEMENT OF FINANCIAL POSITION
AS MAY 31

CURRENT ASSETS

Cash $28,250 $20,000

Accounts receivable 75,000 58,000

Inventory 220,000 250,000

Prepaid expenses 9,000 7,000

Total Current Assets 332,250 335,000

PLANT ASSETS

Plant Assets 600,000 502,000

Less : Accumulated Depreciation--Plant Assets 150,000 125,000

Net Plant Assets 450,000 337,000

Total Assets $782,250 $712,000

CURRENT LIABILITIES

Accounts Payable $123,000 $115,000

Salaries and Wages Payable 47,250 72,000

Interest payable 27,000 25,000

Total current liabilities 197,250 212,000

Long-term debt

Bonds payable 70,000 100,000

Total Liabilities 267,250 312,000

Stockholders’ equity

Common stock, $10 par 370,000 280,000

Retained earnings 145,000 120,000

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 Total stockholders’ equity 515,000 400,000

Total liabilities and stockholders’ equity 782,250 712,000

CHAPMAN COMPANY
INCOME STATEMENT
FOR THE YEAR ENDED, MAY 31, 2019

Sales revenue $1,255,250

Cost of goods sold 722,000

Gross profit 533,250

Expenses

Salaries and wages expense 252,100

Interest expense 75,000

Depreciation expense 25,000

Other expenses 8,150

Total expenses 360,250

Operating income 173,000

Income tax expense 43,000

Net income $130,000

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The following is additional information concerning Chapman’s transactions during
the year ended May 31, 2017.
1. All sales during the year were made on account.
2. All merchandise was purchased on account, comprising the total accounts
payable account.
3. Plant assets costing $98,000 were purchased by paying $28,000 in cash and
issuing 7,000 shares of stock.
4. The “other expenses” are related to prepaid items.
5. All income taxes incurred during the year were paid during the year.
6. In order to supplement its cash, Chapman issued 2,000 shares of common stock
at par value.
7. Cash dividends of $105,000 were declared and paid at the end of the fiscal year.

Instructions
a. Compare and contrast the direct method and the indirect method for reporting
cash flows from operating activities.
b. Prepare a statement of cash flows for Chapman Company for the year ended May
31, 2017, using the direct method. Be sure to support the statement with
appropriate calculations. (A reconciliation of net income to net cash provided is
not required.)
c. Using the indirect method, calculate only the net cash flow from operating
activities for Chapman Company for the year ended May 31, 2017.

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