1 (Points: 15.

0)
.
Bonds 1 - sample final

On January 1, 20x1 Borrower Limited sold an 8% semi-annual (June 30th, December 31st)
four year, $100 million bond when bonds of equivalent risk and maturity were yielding 6%
annually.

On January 1, 20x3, when annual market yields for bonds with a two year remaining life were
10%, Borrower retired the entire bond at market value. To finance this retirement, Borrower
issued a new bond with an annual yield rate of 10%, payable semi-annually. Borrower is a
public company whose shares are actively traded on the Toronto Stock Exchange.

Required:

Use the account grid below to answer the following questions. You do not need to fill in all
of the blanks.

A Cash G Bond issuance

B Note Payable H Accumulated bond amortization
C Interest Payable I Bond amortization expense
D Bond Payable J Interest Expense
E Premium on bond payable K Gain on redemption
F Discount on bond payable L Loss on redemption

a. Prepare the journal entry to record the issuance of the bond on January 1st, 20x1.
Note, there may be more than one debit or credit per transaction. Use the pv tables
provided in the textbook.

b. Prepare the journal entry to record the payment of interest on June 30th, 20x1

c. Prepare the journal entry to record the payment of interest on December 31st, 20x1.

d. Prepare the journal entry to record the retirement of the bond on January 1st, 20x3
when market yields had increased to 10%. If you have no idea how to calculate how
much Borrower paid to retire the bond, assume $96,500,000 (which is not the correct
amount, but can be used for part marks.)
2. (Points: 5.0)
Cash Flow 2 - sample final

Information for Hardtack Inc. was as follows:

 1. Sold 500 common shares for $25,000.

 2. Prepaids decreased by $600.
 3. Income taxes payable decreased $2,500 over the year.

Required:

For each of the above, indicate which type of activity is affected on the cash flow
statement by putting an "I" for increase or "D" for decrease of cash flow in the
corresponding column. PLACE AN "X" in the columns that are not affected. There
may be more than one activity affected by the same piece of information. Your mark
will be determined by correctly completing the grid, including the placement of the
X's in the correct columns.
3 (Points: 10.0)
.
Cash Flow - sample final

The following financial statement information is available for Mayer Inc for the year ended
20x1.

Mayer Inc., Balance Sheet, As at Dec, 31

Assets 20x1
Cash $ 275,000 $
Accounts receivable 443,400
Inventory 277,000
Prepaid rent 26,000
Property plant and equipment 3,775,100 3
Accumulated Amortization (1,111,400) (
Total assets $3,685,100 $3

Liabilities
Accounts payable $ 394,000 $
Income tax payable 24,000
Long term debt 1,900,000 1
Total liabilities 2,318,000 2

Shareholders' Equity
Common shares 663,600
Retained earnings 703,500
Total shareholders' equity 1,367,100 1
Total liabilities and shareholders' equity $3,685,100 $3
 Mayer Inc., Income statement, Yr ended Dec. 31
Revenue $3,543,200
Cost of goods sold 1,641,400
Gross margin 1,901,800
Other expenses (income)
Amortization 332,400
Rent 221,000
General and administrative 674,000
Gain on sale of equipment (145,000)
Earnings before interest and taxes 819,400
Interest and income taxes 245,500
Net income $ 573,900

Additional information: A piece of equipment was sold during 20x1. This equipment had an
original cost of $213,000 and related accumulated amortization of $147,000. No other capital
assets were sold during the year.

Required:

Prepare, in good form, Mayer Inc.'s Statement of Cash Flow for the year ended December
31st, 20x1. Use the indirect method.
7 (Points: 6.0)
.
Warranties - sample final

Addle Ltd. manufactures "Brite" computer monitors. These monitors are subject to frequent
mechanical problems. Starting on January 1, 20x8, Addle, in an attempt to overcome
consumer reluctance to buy their product, introduced a one year warranty. The selling price
(including the warranty) of the Brite is $280 each. The cost of the Brite for Addle is $150 each
and the estimated warranty cost per player is $23 each.

During 20x8, 620,000 Brites were sold. During 20x9, 1,050,000 Brites were sold.

As the warranty is good for a one year period from the date of sale, warranty costs for any
year's sales are incurred both in the year of the sale and the following year. Details of actual
warranty costs for units sold in 20x8 and 20x9 are as follows:

Warranty costs paid in the year sold Warranty costs paid in the follo
Re: units sold in 20x8 $7,200,000
Re: units sold in 20x9 13,900,000

Required:

a. What is warranty expense for 20x8?

b. What is warranty expense for 20x9?

c. What is the balance of Warranty Liability as at December 31, 20x8?

d. What is the balance of Warranty Liability as at December 31, 20x9?

e. It is now early in 20x10. You are the Vice President Finance for Addle, comment on
the reasonableness of the warranty provision of $23 per unit.
5 (Points: 10.0)
.
Financial statement analysis 2 - sample final

Manly Auto Parts Ltd. ("Manly") is a publicly traded company that manufactures and sells
automobile parts to the big North American Automobile manufacturers. You are presented
with the following (incomplete) financial information (in thousands of dollars):

20x3 20x2 20x1

Cash $50 $150 $250
Accounts receivable 805 738 500
Fixed Assets (net) 3,473 1,826 1,888
Total Assets 5,683 4,044 3,668
Accounts Payable 335 265 206
Bonds payable 1,000 1,500 1,500
Total liabilities 2,845 2,218 2,142
Preferred shares 10% cumul. 1,000 200 200
Common shares 350 450 500
Retained earnings 1,488 1,176 826
Total shareholders' equity 5,683 4,044 3,668
Revenues 4,600 3,900 3,600
Gross margin 1,122 1,015 936
Bad debts expense 34 29 26
Other operating expenses 312 310 300
Interest expense 90 60 30
Net income 412 370 348

Additional information:

 - All sales are made on credit with payment due in 40 days. Manly uses the percentage
of sales method to estimate bad debts.
 - All bonds payable have a coupon rate of 6% and are sold at par.
 - The common share price at the end of each year was:
  20x3 – $38.02
 20x2 – $35.01
 20x1 – $31.80
 - The weighted average # of common shares outstanding (in 000's) each year was:
 20x3 – 70
 20x2 – 90
 20x1 – 100

Required:

Comment on the above and the results of the following ratios:

20x3 20x2 20x1

Total liabilities to total assets .50 .55 .58
Return on assets 10.3% 11.1% 12.3%
Gross Margin % 24% 26% 26%
Return on equity 18.0% 23.7% 24.7%
Earnings per share $4.46 $3.89 $3.28
Interest coverage 8.62 11.27 20.33
Days in accounts receivable 61 58 51
6. (Points: 12.0)
Shareholders' equity - sample final

Bertstell Inc. ("Bertstell") had the following account balances on January 1, 20x5:

Also as of January 1, 20x5:

 - Common shares, 75,000 shares issued & outstanding; 1,000,000 shares authorized

 - Preferred shares, $1.50 cumulative, 6,000 shares issued & outstanding; 100,000 shares
authorized

 - All of the common shares had been issued at one public offering in 20x2. The last
dividends declared for the common and preferred shares were for the year ended
December 31, 20x2.

Required:

You are to indicate the appropriate journal entry for each transaction by entering the code letters
(or account names as above) and the correct amounts. Note, there may be more than one debit
and/or credit for a transaction. The transactions are listed in chronological order.

You do not need to fill all blanks for this question; however, if there is no entry, you must indicate
this in the first blank of the transaction by placing an L under the code column. No closing entries
are required. Place all calculations in Box A
PART B

Assume that net income for the year was $216,000. Prepare (ie, account titles, number and details
about shares, dollar amounts) the shareholders' equity section of the balance sheet. (8 marks)