Hello, Please could you help me with this question and also with my homework? Thanks in advance. The first question is below and the homework is attached (uploaded). Warble Inc. extended a one-year warranty covering parts to Delta Inc. Warble estimates warranty expense at 1.5% of cost. On October 2, 20X1, the equipment required warranty work involving $1,800 of labour and $700 in parts. Warbles Estimated warranty liability account at January 1, 20X1, showed a $12,000 balance. What is Warble Estimated warranty expense on October 2? $0 $700 $2,500 $4,050

Homework CGA-CANADA FINANCIAL ACCOUNTING FUNDAMENTALS [FA1] ASSIGNMENT #3 (Updated to the 2014/2015 Module Notes) Time: 3 Hours Note: This assignment is similar in form, length, and difficulty to the actual FA1 final examination; however, because of its placement in the course, it will cover content in Modules 1 through 9 inclusive. The emphasis of each module in this assignment is based on the weightings in the examination blueprint, adjusted for the absence of Module 10 material. The FA1 final examination will cover all 10 modules, as indicated in the examination blueprint. This assignment will allow you to gauge your readiness for the final examination and to better target your exam study, based on the performance feedback you receive from your marker. To get the most benefit from the assignment, complete it under exam conditions within the three-hour time limit. The total marks for this assignment are 50, and it is worth 5% of your final grade. The total marks for the final examination are 100 and it will be worth 70% of your final grade. Marks 7.5 Question 1 Select the best answer for each of the following unrelated items. Answer each of these items in your examination booklet by giving the number of your choice. For example, if the best answer for item (a) is (1), write (a)(1) in your examination booklet. If more than one answer is given for an item, that item will not be marked. Incorrect answers will be marked as zero. Marks will not be awarded for explanations. Note: 1/2 mark each a. What type of account is prepaid expense? 1) Asset 2) Liability 3) Expense 4) Owners' equity b. How would a transaction that increases an expense and decreases an asset be recorded? 1) Debit the asset and credit the expense 2) Debit the asset and debit the expense 3) Debit the expense and credit the asset 4) Credit the expense and credit the asset c. The following T-accounts reflect the correct posting of a journal entry on May 12 by Lennox Ltd.: Cash Accounts Payable 24,000 24,000 What transaction is represented by the posting? 1) A purchase of supplies by Lennox for $24,000 on credit 2) A purchase of supplies by Lennox for $24,000 cash 3) A payment made to a supplier by Lennox of $24,000 on account 4) A sale of goods by Lennox for $24,000 on credit FA1 Page 2 of 9 d. Which method of depreciation provides a constant expense over the life of an asset? 1) Specific identification 2) Units-of-production 3) Straight-line 4) Declining-balance e. A $4,650 debit to utilities expense was incorrectly posted as a $465 debit. What is the effect of this error on the trial balance and the utilities expense account? 1) The debit column of the trial balance would be $4,185 too low and utilities expense would be understated by $4,185. 2) The debit column of the trial balance would be $4,185 too high and utilities expense would be understated by $4,185. 3) The debit column of the trial balance would be $4,185 too low and utilities expense would be overstated by $4,185. 4) The debit column of the trial balance would be $4,185 too high and utilities expense would be overstated by $4,185. f. At March 31, 2015, JBL Company had assets of $500,000 and liabilities of $400,000. What percentage of the assets held by JBL at March 31, 2015, is financed by equity? 1) 0% 2) 20% 3) 45% 4) 80% g. On February 1, 2015, Barnes Ltd. purchased a new building for $400,000, paying $300,000 cash and signing a one-year note payable for the balance of $100,000. What is the effect of this business transaction on the accounting equation of Barnes? 1) Assets increase by $100,000, liabilities increase by $100,000, and equity increases by $100,000. 2) Assets increase by $400,000, liabilities increase by $100,000, and equity increases by $300,000. 3) Assets increase by $100,000, liabilities increase by $100,000, and equity does not change. 4) Assets increase by $300,000, liabilities increase by $100,000, and equity increases by $200,000. h. A $2,200 debit to salary expense was incorrectly posted as a credit of $2,200 to salary expense. What is the effect of this error on the trial balance and salary expense? 1) The debit column of the trial balance is $2,200 too low and salary expense is understated by $2,200. 2) The debit column of the trial balance is $2,200 too high and salary expense is overstated by $2,200. 3) The debit column of the trial balance is $4,400 too high and salary expense is overstated by $4,400. 4) The debit column of the trial balance is $4,400 too low and salary expense is understated by $4,400. i. What types of account balances are increased by debits? 1) Assets and liabilities 2) Assets and owners' equity 3) Assets and expenses 4) Assets and revenues Note: Use the following information to answer parts (j) to (l). Fitness Works is an exercise club. Members may join at any time during the year but must pay for a 12-month membership at the time of joining. The membership fees paid are initially recorded in the unearned membership fees account. Selected information from the unearned membership fees account of Fitness Works appears below: Unearned membership fees 120,000 Balance January 1, 2015 2015 180,000 Balance December 31, 2015 390,000 Credit entries during j. What was the amount of membership fees received by Fitness Works in 2015? 1) $180,000 2) $330,000 3) $390,000 4) $450,000 k. What was the amount of membership fees earned by Fitness Works in 2015? 1) $180,000 2) $330,000 3) $390,000 4) $450,000 l. How much money from membership fees did Fitness Works receive in 2014 for memberships in 2015? 1) $120,000 2) $180,000 3) $330,000 4) $390,000 m. There is a credit balance of $ 2,300 in the J. Smythe capital account before closing entries are made. For the year, total revenues are $42,500, total expenses are $32,400, and owner withdrawals are $6,000. What is the balance in the J. Smythe capital account on the year-end balance sheet? 1) $ 1,800 2) $ 6,400 3) $13,800 4) $18,400 n. A company has an asset that has a cost of $10,000 and accumulated depreciation of $7,840 at December 31, 2014, before recording depreciation expense for the year. The residual value of the asset is $2,000, the double-declining-balance of method of depreciation is used, and the useful life of the asset is five years. Depreciation expense for the year ended December 31, 2014, would equal which of the following amounts? 1) $ 160 2) $ 864 3) $1,600 4) $2,160 FA1 Page 4 of 9 o. A company did not make an adjusting entry for $5,600 of accrued revenue when preparing its June 30, 2014, financial statements. What would be the impact on its assets, liabilities, and revenues of not making the appropriate adjusting entry? 1) Assets would be understated by $5,600, liabilities would be correctly stated, and revenues would be understated by $5,600. 2) Assets would be understated by $5,600, liabilities would be understated by $5,600, and revenues would be understated by $5,600. 3) Assets would be correctly stated, liabilities would be understated by $5,600, and revenues would be overstated by $5,600. 4) Assets would be overstated by $5,600, liabilities would be correctly stated, and revenues would be overstated by $5,600. 7 Question 2 Following are selected general ledger account balances, before any adjusting journal entries, for Outdoor Services Ltd. at March 31, 2015: Debit Credit Cash 3,971 Petty cash 250 Accounts receivable 495,000 Allowance for doubtful accounts 2,514 Non-strategic equity investment Geldt shares 28,000 The bank statement at March 31, 2015, showed a cash balance of $4,253. A review of the bank statement revealed the following information: Bank service charges: $27 NSF cheque, J. Hay: $812 A cheque for $560, in settlement of an account payable to JJ & Co., had been entered in the company's records as $650 Outstanding cheques: $1,364 A cheque, written by Outdoor Pool Services Co. in the amount of $333, was deducted from Outdoor Services bank account, in error, by the bank On March 29, 2015, the petty cash box contained receipts for miscellaneous supplies in the amount of $121 and cash of $105. Outdoor Services uses the balance sheet method to account for bad debt expense. The company has estimated that bad debts will equal 3% of accounts receivable. At March 31, 2015, the market value of Geldt shares equalled $31,000. Required 4 a. Prepare the bank reconciliation at March 31, 2015, as well as any adjusting journal entries resulting from the bank reconciliation. 1 b. Prepare the journal entry that would have been made to replenish the petty cash fund on March 29, 2015. 1 c. Prepare the adjusting journal entry to record bad debt expense for the year ended March 31, 2015. 1 d. Prepare the March 31, 2015, adjusting journal entry, if required, with respect to the nonstrategic equity investment. FA1 Page 5 of 9 4 Question 3 Josh, the owner of Hi-Tech Gadgets, has prepared the preliminary financial statements for the company for the year ended December 31, 2015. He has been doing the accounting for the company since it started three years ago. Because the company has been so successful, Josh thinks it is now time to sell the company. Based on the preliminary financial statements, net sales for 2015 are $1,000,000 and cost of goods sold is $600,000. Josh is unsure whether he has applied the lower of cost and net realizable value rule correctly to the company's inventory. The cost of the inventory on hand at December 31, 2015, is $300,000, but its net realizable value is only $100,000. Josh believes the decline in the value of the inventory is due to an excess supply in the market, but he believes the excess supply is only temporary and is confident that the net realizable value will be in excess of cost early next year. Therefore, he has recorded inventory at cost ($300,000) in the preliminary financial statements for the year ended December 31, 2015. He has come to you, a professional accountant, for advice on this issue. Required 1 a. Explain whether it is appropriate to ignore the lower of cost and net realizable value rule for inventory when the decline in inventory value is considered to be only temporary. 1 b. Based on the preliminary financial statements, determine the gross profit ratio of Hi-Tech Gadgets for the year ended December 31, 2015. 2 c. Prepare the adjusting journal entry that Hi-Tech Gadgets would make at December 31, 2015, to apply the lower of cost and net realizable value rule to its inventory. Explain whether the gross profit ratio of Hi-Tech Gadgets for the year ended December 31, 2015, would increase or decrease as a result of this adjusting journal entry. 6 Question 4 PV Ltd. is considering issuing 15-year bonds in the amount of $500,000 to finance the building of a new warehouse facility. The bonds will have a contract interest rate of 9% and will pay interest semi-annually on November 30 and May 31. Required 2 a. Assume the bonds are issued when the market interest rate is 10%. Determine the issue price of the bonds and prepare the journal entry to record the issuance. 1 b. Assume the bonds are issued when the market interest rate is 8%. Determine the issue price of the bonds. 1 c. Assume the bonds are issued when the market interest rate is 9%. Determine the issue price of the bonds and prepare the journal entry to record the issuance. 2 d. The president of PV is considering financing the new warehouse by issuing additional shares. As chief financial officer of the company, briefly explain two disadvantages of using bond financing over share financing for the president. FA1 Page 6 of 9 6 Question 5 NDG Company is a small retailer. All sales are in cash only and the company guarantees customers they will be satisfied with their purchase or their money will be refunded on return of the merchandise. The company uses a perpetual inventory system. The following are the summarized transactions of NDG for the month of July 2015: 1. Sales for the month were $75,000. The cost of the merchandise sold in July was $30,000. 2. Merchandise with a sales value of $3,000 was returned by customers during the month for a cash refund. This merchandise, which cost $1,200, was undamaged and returned to inventory. 3. Most customers pick up their merchandise at the NDG's store. However, NDG agreed to pay the delivery charge of $400 to have merchandise delivered to the home of a particularly good customer. 4. NDG purchased merchandise for $40,000, on account, from one supplier during July. The supplier offered terms of 2/15, n/30, FOB shipping point. 5. NDG paid $650 in freight charges to a shipping company to have its July merchandise purchases delivered to NDG's store. 6. The $40,000 account payable from the July purchase was paid in July, within the discount period. 7. Interest expense for the month, paid in cash, was $2,000. 8. Operating expenses, in addition to those listed in transactions 1 to 7, for the month of July 2015 were $30,000 and all were paid in cash during July. Required 4 a. Prepare journal entries to record the above transactions of NDG for the month of July 2015. 1 b. Prepare a multiple-step income statement for NDG for the month ended July 31, 2015. 1 c. You are a professional accountant and a friend of Nicholas, the owner of NDG. Nicholas tells you that the margins in his business are low and, therefore, the company needs to take advantage of all of the purchase discounts offered by its suppliers. Nicholas has instructed his staff to take the purchase discount even when payment is made after the discount period. Nicholas says it is up to the supplier to accept or reject the discount. Discuss the ethics of NDG's policy with respect to taking purchase discounts. 1.5 Question 6 Alan and Illona formed a partnership on January 1, 2008, to provide marketing services to clients. The partnership was successful in its first five years of business, which resulted in large capital account balances for each partner. At January 1, 2014, Alan's capital account balance equalled $508,000 and Illona's capital account balance equalled $550,000. The partnership agreement states that Alan will receive a salary allowance of $50,000 and Illona will receive a salary allowance of $56,000. The partnership agreement also states that each partner will receive an interest allowance equal to 6% of their beginning of the year capital account balance and any residual income or loss will be shared equally. As a result of poor economic conditions in 2014, the partnership's clients purchased less marketing services than normal. Partnership income for the year ended December 31, 2014, amounted to only $149,000. Required Prepare a statement showing the allocation of income for the year ended December 31, 2014, to each partner. FA1 Page 7 of 9 7 Question 7 SB Holdings Ltd. is a wholesaler of soybeans and it uses a perpetual inventory system to collect information about cost of goods sold and cost of inventory on hand. Its opening inventory and purchases of soybeans during the month of June 2015 were as follows: June 1 Opening inventory ................... 100,000 bushels @ $13.00/bushel = $ 1,300,000 June 3 Purchase ................................... 50,000 bushels @ $13.60/bushel = $ 680,000 June 28 Purchase ................................. 60,000 bushels @ $14.50/bushel = $ 870,000 SB Holdings made two sales of soybeans during the month of June 2015, as follows: June 10 Sale ........................................ 80,000 bushels@ $16/bushel June 29 Sale ........................................ 70,000 bushels@ $17/bushel Required 2 a. Calculate the dollar value of SB's inventory of soybeans at June 30, 2015, and cost of goods sold for soybeans for the month of June 2015, assuming SB uses the moving weighted average method of inventory costing. 1 b. Assume instead that SB Holdings uses the first-in, first-out (FIFO) method of inventory costing. Explain whether the dollar value of SB Holding's inventory of soybeans at June 30, 2015, would be higher or lower than it was under the moving weighted average method of inventory costing. (You are not required to calculate the dollar value of SB's inventory using FIFO.) 1 c. Briefly explain which inventory costing method, FIFO or moving weighted average, would produce the highest cash flow for SB Holdings for the month of June 2015. 2 d. During its physical inventory count at June 30, 2015, SB Holdings incorrectly included the contents of a storage container in the count. The 5,000 bushels of soybeans in the storage container were part of the sale on June 29 and SB Holdings was holding the soybeans until the customer could arrange delivery. Assume the cost of the 5,000 bushels of soybeans was $72,500. Identify the effect (dollar amount and overstated or understated) of this error on SB's gross profit for the year ended June 30, 2015. Assuming inventory is properly counted at June 30, 2016, identify the effect of the June 30, 2015, inventory count error (dollar amount and overstated or understated) on SB's gross profit for the year ended June 30, 2016. 1 e. SB's merchandise turnover ratio is 12 for the year ended June 30, 2015. The industry average turnover ratio is 18. Explain what the merchandise turnover ratio is and whether SB's merchandise turnover is better or worse than the industry average. FA1 Page 8 of 9 5 Question 8 Petros Ltd. is a real estate development company. During 2014 the company made the following new real estate purchases and sale: On March 4, 2014, the company paid $2,150,000 to purchase land that was previously used as a gas station and auto body shop. Petros paid $51,000 to have an environmental analysis performed and $13,000 to remove tires and other hazardous material found on the property. In addition, Petros paid $2,000 to have the grass cut for March through December 2014. On June 13, 2014, the company paid $4,500,000 to purchase land and a building, making a cash down payment of $1,000,000 and signing a fiveyear note payable for the rest. At the time of purchase the land had a fair market value of $3,500,000 and the building had a fair market value of $1,500,000. On September 1, 2014, Petros sold land and a building for $2,910,000 cash. The land had a cost of $1,900,000. The building had a cost of $900,000 and accumulated depreciation of $50,000, after recording depreciation on the building up to the date of sale. Required 1 a. Calculate the amount at which the land purchased in March would be recorded on the books of Petros at December 31, 2014. 2 b. Prepare the journal entry to record the June 13, 2014, purchase of land and a building. 2 c. Prepare the journal entry to record the September 1, 2014, sale of land and a building. 6 Question 9 On June 1, 2014, Mohamed and Hem started a business, MH Exports, which was organized as a corporation. The corporation was authorized to issue an unlimited number of common shares and an unlimited number of $3 cumulative preferred shares. On June 1, 2014, the corporation issued Mohamed 500 common shares in exchange for $50,000 cash and it issued Hem 500 common shares in exchange for $30,000 cash and a vehicle with a market value of $20,000. A friend of Hem's agreed to invest in the new business and on June 1, 2014, was issued 300 preferred shares in exchange for $15,000 cash. On May 15, 2015, the corporation declared its first dividend in the amount of $5,000. The dividend was to be paid out on June 1, 2015. Required 2 a. Prepare the journal entry(ies) to record the issuance of shares to Mohamed, Hem, and Hem's friend. 11/2 b. Preferred shares were issued to Hem's friend instead of common shares on the recommendation of an advisor to Mohamed and Hem. Explain why an advisor would suggest that preferred rather than common shares be offered to Hem's friend. 11/2 c. Prepare the equity section of the balance sheet as it would appear on June 1, 2014. 1 d. Prepare the entry to record the declaration of the dividend on May 15, 2015. Indicate how much of the dividend will be paid to the preferred shareholder and how much will be paid to the common shareholders. END OF ASSIGNMENT50 Homework CGA-CANADA FINANCIAL ACCOUNTING FUNDAMENTALS [FA1] ASSIGNMENT #3 (Updated to the 2014/2015 Module Notes) Time: 3 Hours Note: This assignment is similar in form, length, and difficulty to the actual FA1 final examination; however, because of its placement in the course, it will cover content in Modules 1 through 9 inclusive. The emphasis of each module in this assignment is based on the weightings in the examination blueprint, adjusted for the absence of Module 10 material. The FA1 final examination will cover all 10 modules, as indicated in the examination blueprint. This assignment will allow you to gauge your readiness for the final examination and to better target your exam study, based on the performance feedback you receive from your marker. To get the most benefit from the assignment, complete it under exam conditions within the three-hour time limit. The total marks for this assignment are 50, and it is worth 5% of your final grade. The total marks for the final examination are 100 and it will be worth 70% of your final grade. Marks 7.5 Question 1 Select the best answer for each of the following unrelated items. Answer each of these items in your examination booklet by giving the number of your choice. For example, if the best answer for item (a) is (1), write (a)(1) in your examination booklet. If more than one answer is given for an item, that item will not be marked. Incorrect answers will be marked as zero. Marks will not be awarded for explanations. Note: 1/2 mark each a. What type of account is prepaid expense? 1) Asset 2) Liability 3) Expense 4) Owners' equity b. How would a transaction that increases an expense and decreases an asset be recorded? 1) Debit the asset and credit the expense 2) Debit the asset and debit the expense 3) Debit the expense and credit the asset 4) Credit the expense and credit the asset c. The following T-accounts reflect the correct posting of a journal entry on May 12 by Lennox Ltd.: Cash Accounts Payable 24,000 24,000 What transaction is represented by the posting? 1) A purchase of supplies by Lennox for $24,000 on credit 2) A purchase of supplies by Lennox for $24,000 cash 3) A payment made to a supplier by Lennox of $24,000 on account 4) A sale of goods by Lennox for $24,000 on credit FA1 Page 2 of 9 d. Which method of depreciation provides a constant expense over the life of an asset? 1) Specific identification 2) Units-of-production 3) Straight-line 4) Declining-balance e. A $4,650 debit to utilities expense was incorrectly posted as a $465 debit. What is the effect of this error on the trial balance and the utilities expense account? 1) The debit column of the trial balance would be $4,185 too low and utilities expense would be understated by $4,185. 2) The debit column of the trial balance would be $4,185 too high and utilities expense would be understated by $4,185. 3) The debit column of the trial balance would be $4,185 too low and utilities expense would be overstated by $4,185. 4) The debit column of the trial balance would be $4,185 too high and utilities expense would be overstated by $4,185. f. At March 31, 2015, JBL Company had assets of $500,000 and liabilities of $400,000. What percentage of the assets held by JBL at March 31, 2015, is financed by equity? 1) 0% 2) 20% 3) 45% 4) 80% g. On February 1, 2015, Barnes Ltd. purchased a new building for $400,000, paying $300,000 cash and signing a one-year note payable for the balance of $100,000. What is the effect of this business transaction on the accounting equation of Barnes? 1) Assets increase by $100,000, liabilities increase by $100,000, and equity increases by $100,000. 2) Assets increase by $400,000, liabilities increase by $100,000, and equity increases by $300,000. 3) Assets increase by $100,000, liabilities increase by $100,000, and equity does not change. 4) Assets increase by $300,000, liabilities increase by $100,000, and equity increases by $200,000. h. A $2,200 debit to salary expense was incorrectly posted as a credit of $2,200 to salary expense. What is the effect of this error on the trial balance and salary expense? 1) The debit column of the trial balance is $2,200 too low and salary expense is understated by $2,200. 2) The debit column of the trial balance is $2,200 too high and salary expense is overstated by $2,200. 3) The debit column of the trial balance is $4,400 too high and salary expense is overstated by $4,400. 4) The debit column of the trial balance is $4,400 too low and salary expense is understated by $4,400. i. What types of account balances are increased by debits? 1) Assets and liabilities 2) Assets and owners' equity 3) Assets and expenses 4) Assets and revenues Note: Use the following information to answer parts (j) to (l). Fitness Works is an exercise club. Members may join at any time during the year but must pay for a 12-month membership at the time of joining. The membership fees paid are initially recorded in the unearned membership fees account. Selected information from the unearned membership fees account of Fitness Works appears below: Unearned membership fees 120,000 Balance January 1, 2015 2015 180,000 Balance December 31, 2015 390,000 Credit entries during j. What was the amount of membership fees received by Fitness Works in 2015? 1) $180,000 2) $330,000 3) $390,000 4) $450,000 k. What was the amount of membership fees earned by Fitness Works in 2015? 1) $180,000 2) $330,000 3) $390,000 4) $450,000 l. How much money from membership fees did Fitness Works receive in 2014 for memberships in 2015? 1) $120,000 2) $180,000 3) $330,000 4) $390,000 m. There is a credit balance of $ 2,300 in the J. Smythe capital account before closing entries are made. For the year, total revenues are $42,500, total expenses are $32,400, and owner withdrawals are $6,000. What is the balance in the J. Smythe capital account on the year-end balance sheet? 1) $ 1,800 2) $ 6,400 3) $13,800 4) $18,400 n. A company has an asset that has a cost of $10,000 and accumulated depreciation of $7,840 at December 31, 2014, before recording depreciation expense for the year. The residual value of the asset is $2,000, the double-declining-balance of method of depreciation is used, and the useful life of the asset is five years. Depreciation expense for the year ended December 31, 2014, would equal which of the following amounts? 1) $ 160 2) $ 864 3) $1,600 4) $2,160 FA1 Page 4 of 9 o. A company did not make an adjusting entry for $5,600 of accrued revenue when preparing its June 30, 2014, financial statements. What would be the impact on its assets, liabilities, and revenues of not making the appropriate adjusting entry? 1) Assets would be understated by $5,600, liabilities would be correctly stated, and revenues would be understated by $5,600. 2) Assets would be understated by $5,600, liabilities would be understated by $5,600, and revenues would be understated by $5,600. 3) Assets would be correctly stated, liabilities would be understated by $5,600, and revenues would be overstated by $5,600. 4) Assets would be overstated by $5,600, liabilities would be correctly stated, and revenues would be overstated by $5,600. 7 Question 2 Following are selected general ledger account balances, before any adjusting journal entries, for Outdoor Services Ltd. at March 31, 2015: Debit Credit Cash 3,971 Petty cash 250 Accounts receivable 495,000 Allowance for doubtful accounts 2,514 Non-strategic equity investment Geldt shares 28,000 The bank statement at March 31, 2015, showed a cash balance of $4,253. A review of the bank statement revealed the following information: Bank service charges: $27 NSF cheque, J. Hay: $812 A cheque for $560, in settlement of an account payable to JJ & Co., had been entered in the company's records as $650 Outstanding cheques: $1,364 A cheque, written by Outdoor Pool Services Co. in the amount of $333, was deducted from Outdoor Services bank account, in error, by the bank On March 29, 2015, the petty cash box contained receipts for miscellaneous supplies in the amount of $121 and cash of $105. Outdoor Services uses the balance sheet method to account for bad debt expense. The company has estimated that bad debts will equal 3% of accounts receivable. At March 31, 2015, the market value of Geldt shares equalled $31,000. Required 4 a. Prepare the bank reconciliation at March 31, 2015, as well as any adjusting journal entries resulting from the bank reconciliation. 1 b. Prepare the journal entry that would have been made to replenish the petty cash fund on March 29, 2015. 1 c. Prepare the adjusting journal entry to record bad debt expense for the year ended March 31, 2015. 1 d. Prepare the March 31, 2015, adjusting journal entry, if required, with respect to the nonstrategic equity investment. FA1 Page 5 of 9 4 Question 3 Josh, the owner of Hi-Tech Gadgets, has prepared the preliminary financial statements for the company for the year ended December 31, 2015. He has been doing the accounting for the company since it started three years ago. Because the company has been so successful, Josh thinks it is now time to sell the company. Based on the preliminary financial statements, net sales for 2015 are $1,000,000 and cost of goods sold is $600,000. Josh is unsure whether he has applied the lower of cost and net realizable value rule correctly to the company's inventory. The cost of the inventory on hand at December 31, 2015, is $300,000, but its net realizable value is only $100,000. Josh believes the decline in the value of the inventory is due to an excess supply in the market, but he believes the excess supply is only temporary and is confident that the net realizable value will be in excess of cost early next year. Therefore, he has recorded inventory at cost ($300,000) in the preliminary financial statements for the year ended December 31, 2015. He has come to you, a professional accountant, for advice on this issue. Required 1 a. Explain whether it is appropriate to ignore the lower of cost and net realizable value rule for inventory when the decline in inventory value is considered to be only temporary. 1 b. Based on the preliminary financial statements, determine the gross profit ratio of Hi-Tech Gadgets for the year ended December 31, 2015. 2 c. Prepare the adjusting journal entry that Hi-Tech Gadgets would make at December 31, 2015, to apply the lower of cost and net realizable value rule to its inventory. Explain whether the gross profit ratio of Hi-Tech Gadgets for the year ended December 31, 2015, would increase or decrease as a result of this adjusting journal entry. 6 Question 4 PV Ltd. is considering issuing 15-year bonds in the amount of $500,000 to finance the building of a new warehouse facility. The bonds will have a contract interest rate of 9% and will pay interest semi-annually on November 30 and May 31. Required 2 a. Assume the bonds are issued when the market interest rate is 10%. Determine the issue price of the bonds and prepare the journal entry to record the issuance. 1 b. Assume the bonds are issued when the market interest rate is 8%. Determine the issue price of the bonds. 1 c. Assume the bonds are issued when the market interest rate is 9%. Determine the issue price of the bonds and prepare the journal entry to record the issuance. 2 d. The president of PV is considering financing the new warehouse by issuing additional shares. As chief financial officer of the company, briefly explain two disadvantages of using bond financing over share financing for the president. FA1 Page 6 of 9 6 Question 5 NDG Company is a small retailer. All sales are in cash only and the company guarantees customers they will be satisfied with their purchase or their money will be refunded on return of the merchandise. The company uses a perpetual inventory system. The following are the summarized transactions of NDG for the month of July 2015: 1. Sales for the month were $75,000. The cost of the merchandise sold in July was $30,000. 2. Merchandise with a sales value of $3,000 was returned by customers during the month for a cash refund. This merchandise, which cost $1,200, was undamaged and returned to inventory. 3. Most customers pick up their merchandise at the NDG's store. However, NDG agreed to pay the delivery charge of $400 to have merchandise delivered to the home of a particularly good customer. 4. NDG purchased merchandise for $40,000, on account, from one supplier during July. The supplier offered terms of 2/15, n/30, FOB shipping point. 5. NDG paid $650 in freight charges to a shipping company to have its July merchandise purchases delivered to NDG's store. 6. The $40,000 account payable from the July purchase was paid in July, within the discount period. 7. Interest expense for the month, paid in cash, was $2,000. 8. Operating expenses, in addition to those listed in transactions 1 to 7, for the month of July 2015 were $30,000 and all were paid in cash during July. Required 4 a. Prepare journal entries to record the above transactions of NDG for the month of July 2015. 1 b. Prepare a multiple-step income statement for NDG for the month ended July 31, 2015. 1 c. You are a professional accountant and a friend of Nicholas, the owner of NDG. Nicholas tells you that the margins in his business are low and, therefore, the company needs to take advantage of all of the purchase discounts offered by its suppliers. Nicholas has instructed his staff to take the purchase discount even when payment is made after the discount period. Nicholas says it is up to the supplier to accept or reject the discount. Discuss the ethics of NDG's policy with respect to taking purchase discounts. 1.5 Question 6 Alan and Illona formed a partnership on January 1, 2008, to provide marketing services to clients. The partnership was successful in its first five years of business, which resulted in large capital account balances for each partner. At January 1, 2014, Alan's capital account balance equalled $508,000 and Illona's capital account balance equalled $550,000. The partnership agreement states that Alan will receive a salary allowance of $50,000 and Illona will receive a salary allowance of $56,000. The partnership agreement also states that each partner will receive an interest allowance equal to 6% of their beginning of the year capital account balance and any residual income or loss will be shared equally. As a result of poor economic conditions in 2014, the partnership's clients purchased less marketing services than normal. Partnership income for the year ended December 31, 2014, amounted to only $149,000. Required Prepare a statement showing the allocation of income for the year ended December 31, 2014, to each partner. FA1 Page 7 of 9 7 Question 7 SB Holdings Ltd. is a wholesaler of soybeans and it uses a perpetual inventory system to collect information about cost of goods sold and cost of inventory on hand. Its opening inventory and purchases of soybeans during the month of June 2015 were as follows: June 1 Opening inventory ................... 100,000 bushels @ $13.00/bushel = $ 1,300,000 June 3 Purchase ................................... 50,000 bushels @ $13.60/bushel = $ 680,000 June 28 Purchase ................................. 60,000 bushels @ $14.50/bushel = $ 870,000 SB Holdings made two sales of soybeans during the month of June 2015, as follows: June 10 Sale ........................................ 80,000 bushels@ $16/bushel June 29 Sale ........................................ 70,000 bushels@ $17/bushel Required 2 a. Calculate the dollar value of SB's inventory of soybeans at June 30, 2015, and cost of goods sold for soybeans for the month of June 2015, assuming SB uses the moving weighted average method of inventory costing. 1 b. Assume instead that SB Holdings uses the first-in, first-out (FIFO) method of inventory costing. Explain whether the dollar value of SB Holding's inventory of soybeans at June 30, 2015, would be higher or lower than it was under the moving weighted average method of inventory costing. (You are not required to calculate the dollar value of SB's inventory using FIFO.) 1 c. Briefly explain which inventory costing method, FIFO or moving weighted average, would produce the highest cash flow for SB Holdings for the month of June 2015. 2 d. During its physical inventory count at June 30, 2015, SB Holdings incorrectly included the contents of a storage container in the count. The 5,000 bushels of soybeans in the storage container were part of the sale on June 29 and SB Holdings was holding the soybeans until the customer could arrange delivery. Assume the cost of the 5,000 bushels of soybeans was $72,500. Identify the effect (dollar amount and overstated or understated) of this error on SB's gross profit for the year ended June 30, 2015. Assuming inventory is properly counted at June 30, 2016, identify the effect of the June 30, 2015, inventory count error (dollar amount and overstated or understated) on SB's gross profit for the year ended June 30, 2016. 1 e. SB's merchandise turnover ratio is 12 for the year ended June 30, 2015. The industry average turnover ratio is 18. Explain what the merchandise turnover ratio is and whether SB's merchandise turnover is better or worse than the industry average. FA1 Page 8 of 9 5 Question 8 Petros Ltd. is a real estate development company. During 2014 the company made the following new real estate purchases and sale: On March 4, 2014, the company paid $2,150,000 to purchase land that was previously used as a gas station and auto body shop. Petros paid $51,000 to have an environmental analysis performed and $13,000 to remove tires and other hazardous material found on the property. In addition, Petros paid $2,000 to have the grass cut for March through December 2014. On June 13, 2014, the company paid $4,500,000 to purchase land and a building, making a cash down payment of $1,000,000 and signing a fiveyear note payable for the rest. At the time of purchase the land had a fair market value of $3,500,000 and the building had a fair market value of $1,500,000. On September 1, 2014, Petros sold land and a building for $2,910,000 cash. The land had a cost of $1,900,000. The building had a cost of $900,000 and accumulated depreciation of $50,000, after recording depreciation on the building up to the date of sale. Required 1 a. Calculate the amount at which the land purchased in March would be recorded on the books of Petros at December 31, 2014. 2 b. Prepare the journal entry to record the June 13, 2014, purchase of land and a building. 2 c. Prepare the journal entry to record the September 1, 2014, sale of land and a building. 6 Question 9 On June 1, 2014, Mohamed and Hem started a business, MH Exports, which was organized as a corporation. The corporation was authorized to issue an unlimited number of common shares and an unlimited number of $3 cumulative preferred shares. On June 1, 2014, the corporation issued Mohamed 500 common shares in exchange for $50,000 cash and it issued Hem 500 common shares in exchange for $30,000 cash and a vehicle with a market value of $20,000. A friend of Hem's agreed to invest in the new business and on June 1, 2014, was issued 300 preferred shares in exchange for $15,000 cash. On May 15, 2015, the corporation declared its first dividend in the amount of $5,000. The dividend was to be paid out on June 1, 2015. Required 2 a. Prepare the journal entry(ies) to record the issuance of shares to Mohamed, Hem, and Hem's friend. 11/2 b. Preferred shares were issued to Hem's friend instead of common shares on the recommendation of an advisor to Mohamed and Hem. Explain why an advisor would suggest that preferred rather than common shares be offered to Hem's friend. 11/2 c. Prepare the equity section of the balance sheet as it would appear on June 1, 2014. 1 d. Prepare the entry to record the declaration of the dividend on May 15, 2015. Indicate how much of the dividend will be paid to the preferred shareholder and how much will be paid to the common shareholders. END OF ASSIGNMENT50 Homework CGA-CANADA FINANCIAL ACCOUNTING FUNDAMENTALS [FA1] ASSIGNMENT #3 (Updated to the 2014/2015 Module Notes) Time: 3 Hours Note: This assignment is similar in form, length, and difficulty to the actual FA1 final examination; however, because of its placement in the course, it will cover content in Modules 1 through 9 inclusive. The emphasis of each module in this assignment is based on the weightings in the examination blueprint, adjusted for the absence of Module 10 material. The FA1 final examination will cover all 10 modules, as indicated in the examination blueprint. This assignment will allow you to gauge your readiness for the final examination and to better target your exam study, based on the performance feedback you receive from your marker. To get the most benefit from the assignment, complete it under exam conditions within the three-hour time limit. The total marks for this assignment are 50, and it is worth 5% of your final grade. The total marks for the final examination are 100 and it will be worth 70% of your final grade. Marks 7.5 Question 1 Select the best answer for each of the following unrelated items. Answer each of these items in your examination booklet by giving the number of your choice. For example, if the best answer for item (a) is (1), write (a)(1) in your examination booklet. If more than one answer is given for an item, that item will not be marked. Incorrect answers will be marked as zero. Marks will not be awarded for explanations. Note: 1/2 mark each a. What type of account is prepaid expense? 1) Asset 2) Liability 3) Expense 4) Owners' equity b. How would a transaction that increases an expense and decreases an asset be recorded? 1) Debit the asset and credit the expense 2) Debit the asset and debit the expense 3) Debit the expense and credit the asset 4) Credit the expense and credit the asset c. The following T-accounts reflect the correct posting of a journal entry on May 12 by Lennox Ltd.: Cash Accounts Payable 24,000 24,000 What transaction is represented by the posting? 1) A purchase of supplies by Lennox for $24,000 on credit 2) A purchase of supplies by Lennox for $24,000 cash 3) A payment made to a supplier by Lennox of $24,000 on account 4) A sale of goods by Lennox for $24,000 on credit FA1 Page 2 of 9 d. Which method of depreciation provides a constant expense over the life of an asset? 1) Specific identification 2) Units-of-production 3) Straight-line 4) Declining-balance e. A $4,650 debit to utilities expense was incorrectly posted as a $465 debit. What is the effect of this error on the trial balance and the utilities expense account? 1) The debit column of the trial balance would be $4,185 too low and utilities expense would be understated by $4,185. 2) The debit column of the trial balance would be $4,185 too high and utilities expense would be understated by $4,185. 3) The debit column of the trial balance would be $4,185 too low and utilities expense would be overstated by $4,185. 4) The debit column of the trial balance would be $4,185 too high and utilities expense would be overstated by $4,185. f. At March 31, 2015, JBL Company had assets of $500,000 and liabilities of $400,000. What percentage of the assets held by JBL at March 31, 2015, is financed by equity? 1) 0% 2) 20% 3) 45% 4) 80% g. On February 1, 2015, Barnes Ltd. purchased a new building for $400,000, paying $300,000 cash and signing a one-year note payable for the balance of $100,000. What is the effect of this business transaction on the accounting equation of Barnes? 1) Assets increase by $100,000, liabilities increase by $100,000, and equity increases by $100,000. 2) Assets increase by $400,000, liabilities increase by $100,000, and equity increases by $300,000. 3) Assets increase by $100,000, liabilities increase by $100,000, and equity does not change. 4) Assets increase by $300,000, liabilities increase by $100,000, and equity increases by $200,000. h. A $2,200 debit to salary expense was incorrectly posted as a credit of $2,200 to salary expense. What is the effect of this error on the trial balance and salary expense? 1) The debit column of the trial balance is $2,200 too low and salary expense is understated by $2,200. 2) The debit column of the trial balance is $2,200 too high and salary expense is overstated by $2,200. 3) The debit column of the trial balance is $4,400 too high and salary expense is overstated by $4,400. 4) The debit column of the trial balance is $4,400 too low and salary expense is understated by $4,400. i. What types of account balances are increased by debits? 1) Assets and liabilities 2) Assets and owners' equity 3) Assets and expenses 4) Assets and revenues Note: Use the following information to answer parts (j) to (l). Fitness Works is an exercise club. Members may join at any time during the year but must pay for a 12-month membership at the time of joining. The membership fees paid are initially recorded in the unearned membership fees account. Selected information from the unearned membership fees account of Fitness Works appears below: Unearned membership fees 120,000 Balance January 1, 2015 2015 180,000 Balance December 31, 2015 390,000 Credit entries during j. What was the amount of membership fees received by Fitness Works in 2015? 1) $180,000 2) $330,000 3) $390,000 4) $450,000 k. What was the amount of membership fees earned by Fitness Works in 2015? 1) $180,000 2) $330,000 3) $390,000 4) $450,000 l. How much money from membership fees did Fitness Works receive in 2014 for memberships in 2015? 1) $120,000 2) $180,000 3) $330,000 4) $390,000 m. There is a credit balance of $ 2,300 in the J. Smythe capital account before closing entries are made. For the year, total revenues are $42,500, total expenses are $32,400, and owner withdrawals are $6,000. What is the balance in the J. Smythe capital account on the year-end balance sheet? 1) $ 1,800 2) $ 6,400 3) $13,800 4) $18,400 n. A company has an asset that has a cost of $10,000 and accumulated depreciation of $7,840 at December 31, 2014, before recording depreciation expense for the year. The residual value of the asset is $2,000, the double-declining-balance of method of depreciation is used, and the useful life of the asset is five years. Depreciation expense for the year ended December 31, 2014, would equal which of the following amounts? 1) $ 160 2) $ 864 3) $1,600 4) $2,160 FA1 Page 4 of 9 o. A company did not make an adjusting entry for $5,600 of accrued revenue when preparing its June 30, 2014, financial statements. What would be the impact on its assets, liabilities, and revenues of not making the appropriate adjusting entry? 1) Assets would be understated by $5,600, liabilities would be correctly stated, and revenues would be understated by $5,600. 2) Assets would be understated by $5,600, liabilities would be understated by $5,600, and revenues would be understated by $5,600. 3) Assets would be correctly stated, liabilities would be understated by $5,600, and revenues would be overstated by $5,600. 4) Assets would be overstated by $5,600, liabilities would be correctly stated, and revenues would be overstated by $5,600. 7 Question 2 Following are selected general ledger account balances, before any adjusting journal entries, for Outdoor Services Ltd. at March 31, 2015: Debit Credit Cash 3,971 Petty cash 250 Accounts receivable 495,000 Allowance for doubtful accounts 2,514 Non-strategic equity investment Geldt shares 28,000 The bank statement at March 31, 2015, showed a cash balance of $4,253. A review of the bank statement revealed the following information: Bank service charges: $27 NSF cheque, J. Hay: $812 A cheque for $560, in settlement of an account payable to JJ & Co., had been entered in the company's records as $650 Outstanding cheques: $1,364 A cheque, written by Outdoor Pool Services Co. in the amount of $333, was deducted from Outdoor Services bank account, in error, by the bank On March 29, 2015, the petty cash box contained receipts for miscellaneous supplies in the amount of $121 and cash of $105. Outdoor Services uses the balance sheet method to account for bad debt expense. The company has estimated that bad debts will equal 3% of accounts receivable. At March 31, 2015, the market value of Geldt shares equalled $31,000. Required 4 a. Prepare the bank reconciliation at March 31, 2015, as well as any adjusting journal entries resulting from the bank reconciliation. 1 b. Prepare the journal entry that would have been made to replenish the petty cash fund on March 29, 2015. 1 c. Prepare the adjusting journal entry to record bad debt expense for the year ended March 31, 2015. 1 d. Prepare the March 31, 2015, adjusting journal entry, if required, with respect to the nonstrategic equity investment. FA1 Page 5 of 9 4 Question 3 Josh, the owner of Hi-Tech Gadgets, has prepared the preliminary financial statements for the company for the year ended December 31, 2015. He has been doing the accounting for the company since it started three years ago. Because the company has been so successful, Josh thinks it is now time to sell the company. Based on the preliminary financial statements, net sales for 2015 are $1,000,000 and cost of goods sold is $600,000. Josh is unsure whether he has applied the lower of cost and net realizable value rule correctly to the company's inventory. The cost of the inventory on hand at December 31, 2015, is $300,000, but its net realizable value is only $100,000. Josh believes the decline in the value of the inventory is due to an excess supply in the market, but he believes the excess supply is only temporary and is confident that the net realizable value will be in excess of cost early next year. Therefore, he has recorded inventory at cost ($300,000) in the preliminary financial statements for the year ended December 31, 2015. He has come to you, a professional accountant, for advice on this issue. Required 1 a. Explain whether it is appropriate to ignore the lower of cost and net realizable value rule for inventory when the decline in inventory value is considered to be only temporary. 1 b. Based on the preliminary financial statements, determine the gross profit ratio of Hi-Tech Gadgets for the year ended December 31, 2015. 2 c. Prepare the adjusting journal entry that Hi-Tech Gadgets would make at December 31, 2015, to apply the lower of cost and net realizable value rule to its inventory. Explain whether the gross profit ratio of Hi-Tech Gadgets for the year ended December 31, 2015, would increase or decrease as a result of this adjusting journal entry. 6 Question 4 PV Ltd. is considering issuing 15-year bonds in the amount of $500,000 to finance the building of a new warehouse facility. The bonds will have a contract interest rate of 9% and will pay interest semi-annually on November 30 and May 31. Required 2 a. Assume the bonds are issued when the market interest rate is 10%. Determine the issue price of the bonds and prepare the journal entry to record the issuance. 1 b. Assume the bonds are issued when the market interest rate is 8%. Determine the issue price of the bonds. 1 c. Assume the bonds are issued when the market interest rate is 9%. Determine the issue price of the bonds and prepare the journal entry to record the issuance. 2 d. The president of PV is considering financing the new warehouse by issuing additional shares. As chief financial officer of the company, briefly explain two disadvantages of using bond financing over share financing for the president. FA1 Page 6 of 9 6 Question 5 NDG Company is a small retailer. All sales are in cash only and the company guarantees customers they will be satisfied with their purchase or their money will be refunded on return of the merchandise. The company uses a perpetual inventory system. The following are the summarized transactions of NDG for the month of July 2015: 1. Sales for the month were $75,000. The cost of the merchandise sold in July was $30,000. 2. Merchandise with a sales value of $3,000 was returned by customers during the month for a cash refund. This merchandise, which cost $1,200, was undamaged and returned to inventory. 3. Most customers pick up their merchandise at the NDG's store. However, NDG agreed to pay the delivery charge of $400 to have merchandise delivered to the home of a particularly good customer. 4. NDG purchased merchandise for $40,000, on account, from one supplier during July. The supplier offered terms of 2/15, n/30, FOB shipping point. 5. NDG paid $650 in freight charges to a shipping company to have its July merchandise purchases delivered to NDG's store. 6. The $40,000 account payable from the July purchase was paid in July, within the discount period. 7. Interest expense for the month, paid in cash, was $2,000. 8. Operating expenses, in addition to those listed in transactions 1 to 7, for the month of July 2015 were $30,000 and all were paid in cash during July. Required 4 a. Prepare journal entries to record the above transactions of NDG for the month of July 2015. 1 b. Prepare a multiple-step income statement for NDG for the month ended July 31, 2015. 1 c. You are a professional accountant and a friend of Nicholas, the owner of NDG. Nicholas tells you that the margins in his business are low and, therefore, the company needs to take advantage of all of the purchase discounts offered by its suppliers. Nicholas has instructed his staff to take the purchase discount even when payment is made after the discount period. Nicholas says it is up to the supplier to accept or reject the discount. Discuss the ethics of NDG's policy with respect to taking purchase discounts. 1.5 Question 6 Alan and Illona formed a partnership on January 1, 2008, to provide marketing services to clients. The partnership was successful in its first five years of business, which resulted in large capital account balances for each partner. At January 1, 2014, Alan's capital account balance equalled $508,000 and Illona's capital account balance equalled $550,000. The partnership agreement states that Alan will receive a salary allowance of $50,000 and Illona will receive a salary allowance of $56,000. The partnership agreement also states that each partner will receive an interest allowance equal to 6% of their beginning of the year capital account balance and any residual income or loss will be shared equally. As a result of poor economic conditions in 2014, the partnership's clients purchased less marketing services than normal. Partnership income for the year ended December 31, 2014, amounted to only $149,000. Required Prepare a statement showing the allocation of income for the year ended December 31, 2014, to each partner. FA1 Page 7 of 9 7 Question 7 SB Holdings Ltd. is a wholesaler of soybeans and it uses a perpetual inventory system to collect information about cost of goods sold and cost of inventory on hand. Its opening inventory and purchases of soybeans during the month of June 2015 were as follows: June 1 Opening inventory ................... 100,000 bushels @ $13.00/bushel = $ 1,300,000 June 3 Purchase ................................... 50,000 bushels @ $13.60/bushel = $ 680,000 June 28 Purchase ................................. 60,000 bushels @ $14.50/bushel = $ 870,000 SB Holdings made two sales of soybeans during the month of June 2015, as follows: June 10 Sale ........................................ 80,000 bushels@ $16/bushel June 29 Sale ........................................ 70,000 bushels@ $17/bushel Required 2 a. Calculate the dollar value of SB's inventory of soybeans at June 30, 2015, and cost of goods sold for soybeans for the month of June 2015, assuming SB uses the moving weighted average method of inventory costing. 1 b. Assume instead that SB Holdings uses the first-in, first-out (FIFO) method of inventory costing. Explain whether the dollar value of SB Holding's inventory of soybeans at June 30, 2015, would be higher or lower than it was under the moving weighted average method of inventory costing. (You are not required to calculate the dollar value of SB's inventory using FIFO.) 1 c. Briefly explain which inventory costing method, FIFO or moving weighted average, would produce the highest cash flow for SB Holdings for the month of June 2015. 2 d. During its physical inventory count at June 30, 2015, SB Holdings incorrectly included the contents of a storage container in the count. The 5,000 bushels of soybeans in the storage container were part of the sale on June 29 and SB Holdings was holding the soybeans until the customer could arrange delivery. Assume the cost of the 5,000 bushels of soybeans was $72,500. Identify the effect (dollar amount and overstated or understated) of this error on SB's gross profit for the year ended June 30, 2015. Assuming inventory is properly counted at June 30, 2016, identify the effect of the June 30, 2015, inventory count error (dollar amount and overstated or understated) on SB's gross profit for the year ended June 30, 2016. 1 e. SB's merchandise turnover ratio is 12 for the year ended June 30, 2015. The industry average turnover ratio is 18. Explain what the merchandise turnover ratio is and whether SB's merchandise turnover is better or worse than the industry average. FA1 Page 8 of 9 5 Question 8 Petros Ltd. is a real estate development company. During 2014 the company made the following new real estate purchases and sale: On March 4, 2014, the company paid $2,150,000 to purchase land that was previously used as a gas station and auto body shop. Petros paid $51,000 to have an environmental analysis performed and $13,000 to remove tires and other hazardous material found on the property. In addition, Petros paid $2,000 to have the grass cut for March through December 2014. On June 13, 2014, the company paid $4,500,000 to purchase land and a building, making a cash down payment of $1,000,000 and signing a fiveyear note payable for the rest. At the time of purchase the land had a fair market value of $3,500,000 and the building had a fair market value of $1,500,000. On September 1, 2014, Petros sold land and a building for $2,910,000 cash. The land had a cost of $1,900,000. The building had a cost of $900,000 and accumulated depreciation of $50,000, after recording depreciation on the building up to the date of sale. Required 1 a. Calculate the amount at which the land purchased in March would be recorded on the books of Petros at December 31, 2014. 2 b. Prepare the journal entry to record the June 13, 2014, purchase of land and a building. 2 c. Prepare the journal entry to record the September 1, 2014, sale of land and a building. 6 Question 9 On June 1, 2014, Mohamed and Hem started a business, MH Exports, which was organized as a corporation. The corporation was authorized to issue an unlimited number of common shares and an unlimited number of $3 cumulative preferred shares. On June 1, 2014, the corporation issued Mohamed 500 common shares in exchange for $50,000 cash and it issued Hem 500 common shares in exchange for $30,000 cash and a vehicle with a market value of $20,000. A friend of Hem's agreed to invest in the new business and on June 1, 2014, was issued 300 preferred shares in exchange for $15,000 cash. On May 15, 2015, the corporation declared its first dividend in the amount of $5,000. The dividend was to be paid out on June 1, 2015. Required 2 a. Prepare the journal entry(ies) to record the issuance of shares to Mohamed, Hem, and Hem's friend. 11/2 b. Preferred shares were issued to Hem's friend instead of common shares on the recommendation of an advisor to Mohamed and Hem. Explain why an advisor would suggest that preferred rather than common shares be offered to Hem's friend. 11/2 c. Prepare the equity section of the balance sheet as it would appear on June 1, 2014. 1 d. Prepare the entry to record the declaration of the dividend on May 15, 2015. Indicate how much of the dividend will be paid to the preferred shareholder and how much will be paid to the common shareholders. END OF ASSIGNMENT50