HELLENIC OPEN UNIVERSITY

MASTERS DEGREE PROGRAMME IN BUSINESS ADMINISTRATION

Module: Financial Management and Accounting (MBA51)
Academic Year: 2015-16
1st Written Assignment (WA1)

Subject 1 (36%)
Assume the following information concerning the commercial enterprise MGC as at 31
December 2013:
Buildings
Merchandise
Interest revenues
Loss from a destruction of office equipment
Notes payable
Sales revenues
Accounts receivable
Trade creditors
Wages
Utilities expenses
Trade securities
Investments in associates
Cash
Office equipment
Loss from the sale of securities
Rent expenses
Advertising expenses
Accounts payable
Interest expenses
Deposits
Other operational expenses

70,000
3,000
1,000
500
1,500
40,000
5,000
7,000
3,000
1,000
5,000
5,000
60,000
15,000
200
3,000
2,000
1,200
650
10,000
1,200

In addition, take into consideration the following information:

1. The opening inventory of merchandise was 5,000, while the purchases of
merchandise during 2013 were 10,000
2. The balance of Accumulated-depreciation Buildings as at 31/12/2012 was
19,000
3. The balance of Accumulated-depreciation office equipment as at 31/12/2012
was 9,000
4. The balance of the Share capital as at 31/12/2012 was 70,000
5. The balance of the Retained earnings as at 31/12/2012 was 25,000
6. The balance of the Reserves as at 31/12/2012 was 10,000
7. During 2013 the company declared and paid dividends of 7,450

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MASTERS DEGREE PROGRAMME IN BUSINESS ADMINISTRATION
8. The depreciation expenses for year 2013 were:
- buildings, 1,000
- office equipment, 1,000.
9. On March 1, 2013, MGC applied to A Bank for a long-term loan of 12,000.
10. On October 1, 2013 MGC issued 5,000 ordinary shares at 2 per share for cash.
The par value of the ordinary shares of MGC is 1
11. On November 1, 2013 MGC publicized an investment program for the next two
years. According to this programme:
- MGC would open two retail outlets. The total cost of that investment
was estimated to be 10,000
- MGC would purchase new equipment. The total cost of that investment
was estimated to be 5,000
12. During 2013 MGC received a long-term bank loan amounted 15,000. The
scheduled principal payments of this loan as at 31/12/2013 were as follows:
Year Ending
December 31:
2014
3,000
2015
4,000
2016
3,300
The payments of principal and interest corresponding to 2013 had been made as
scheduled.
Required:
1. Prepare the balance sheet and the income statement of company MGC for the
year 2013, by taking into account that MGC:
a. The policy of the firm is to report financial revenues and expenses as
distinct components of the income statement, not included in the income
from operations.
b. The firms tax rate was 26%.
c. Assume that the result (profit or loss) was carried forward.
2. Is it possible for a firm to present in its balance sheet an item of asset despite the
fact that it does not have the ownership of this particular item? Explain your answer.

Subject 2 (20%)
Manufacturing firm MGC acquired a second-hand equipment on 1/8/2013, for
30,000. The equipment was expected to produce a specific product. The installation
cost of the equipment was 1,500. The acquired equipment was not in operational
condition and MGC paid 1,500 for repairs. Both installation and repairs were
completed on the acquisition date. On 10/10/2013 MGC paid 1,200 for the
maintenance of the equipment. The estimated useful life of the equipment was 12
years or 120,000 units of production, while its salvage value estimated to 2,500.

HELLENIC OPEN UNIVERSITY

MASTERS DEGREE PROGRAMME IN BUSINESS ADMINISTRATION
Under three depreciation methods the book value of the equipment at the end of 2015
is:
First method,
27,031
Second method,
26,857
Third method,
21,124

Required:
1. Determine the method of depreciation used in each case. Provide the equation
used in each instance and present analytically all the necessary calculations
(rounded to the nearest euro). Assume that the fiscal year of firm MGC
commences on January 1 and ends on December 31 of each year. The
equipment was ready for its intended use in the date of its acquisition. The
actual units produced by the equipment over its actual useful life were 80,500
allocated as following:
2013
2014
2015
2016
2017

1,500
7,000
15,000
25,000
32,000
80,500

It should be noted that MGC sold the equipment on March 1 2017, due to an
unanticipated restructuring of firms operations that took place during 2017. The
decision regarding the restructuring of firms operations was taken in early January
2017.
2. Assuming that MGC is allowed by the tax authorities to choose among the three
depreciation methods identified above, which method is more likely to choose MGC
for tax purposes? Explain your answer.
Subject 3 (30%)
The unadjusted Trial Balance on 30/11/2013 for the firm BMA includes the following
information.
Accounts payable
Equipment
Interest income
Beginning invent. merchandise
Cash on hand
Notes payable
Purchases of merchandise

120,000
250,000
2,000
60,000
125,000
48,000
100,000

Sight deposits
Accounts receivable
Rent expense
Notes receivable
Sales of merchandise
Depreciated equipment
Share capital

90,000
130,000
80,000
20,000
280,000
30,000
?

HELLENIC OPEN UNIVERSITY

MASTERS DEGREE PROGRAMME IN BUSINESS ADMINISTRATION
Assume the following information for firm BMA:
1. On 4/12/2013 BMA paid 16,000 for rent expenses.
2. A debt of 20,000 to supplier DIGP is settled on 6/12/2013 as follows: 15,000 is
paid by cash and 5,500 by notes payable (500 interest expense).
3. On 7/12/2013 BMA deposits the amount of 12,000 in its bank account.
4. On 8/12/2013 11,000 of notes receivable are collected.
5. On 15/12/2013 the firm purchased merchandise for 30,000 (1/3 by cash, 1/3 by
credit, 1/3 by notes payable).
6. On 18/12/2013 a total amount of 28,000 is collected from customers.
7. On 22/12/2013 the firm received an offer for an aggressive sales campaign, for
12,000.
8. On 31/12/2013 extra interest due by customers amounted to 500.
9. The depreciation rate for the equipment is 12%, the residual value is zero while
the firm adopts the straight-line method of depreciation.
10. The closing inventory of merchandise is 80,000 at 31/12/2013. The firm adopts
the periodic inventory system.
YOU ARE REQUIRED TO:
a. Calculate the share capital at 30/11/2013.
b. Post the journal entries for December 2013.
c. Post the entries in the general ledger.
d. Calculate the cost of goods sold and post the appropriate entries to the journal
and the ledger.
e. Calculate the equity at 31/12/2013. Assume that the result was carried
forward.
Subject 4 (14%)
Answer briefly the following questions:
1. Describe the role of a companys management and the external auditors in the
accounting communication process.
2. Explain why a firm can present high profits on the income statement and at the
same time experience a cash shortage.
3. Describe how:
a) the income statement is related to the statement of stockholders' equity.
b) the statement of stockholders' equity is related to the balance sheet.
4. Assuming that the following errors have occurred in the recording process,
determine the implications of these errors on the financial statements.

HELLENIC OPEN UNIVERSITY

MASTERS DEGREE PROGRAMME IN BUSINESS ADMINISTRATION
Code your answers as follows:
A: The error results in an overstatement of the financial statement component.
B: The error results in an understatement of the financial statement
component.
C. The error does not affect the financial statement component.
Error 1: A firm did not adjust the prepaid insurance account for insurance which
expired during the period.
Revenues_____
Expenses_____
Net income_____
Assets_____
Liabilities_____
Stockholders equity_____
Error 2: A firm did not record depreciation expense at year-end.
Revenues_____
Expenses_____
Net income_____
Assets_____
Liabilities_____
Stockholders equity_____
Error 3: A firm did not adjust the unearned revenue account for revenue earned
during the year.
Revenues_____
Expenses_____
Net income_____
Assets_____
Liabilities_____
Stockholders equity_____

HELLENIC OPEN UNIVERSITY

MASTERS DEGREE PROGRAMME IN BUSINESS ADMINISTRATION

Assignment guidelines

It is important that the coursework reflects your knowledge rather than it being
simply an accumulation of information.
The assignment should be well structured and easy to read.
The assignment should clearly present all aspects and perspectives of the
subject area, i.e.:
o
efficiently develop all necessary elements
o
refer to actual case studies or statistics if required
o
present reasonable argumentation
o
omit irrelevant material
All questions are compulsory. There is a word limit in answering subjects 1.2
(250 words) 2.2 (200 words), 4.1 (100 words) 4.2 (100 words) and 4.3 (100
words). There will be a penalty for any violation of the word limit.
Each question accounts for a percentage of the total mark. This is clearly
marked at the beginning of each question.
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