Management 1A Spring 2011 Danny S. Litt EXAM 1 Solutions Section No: 1 I agree to have my grade posted by Student ID Number
________________ _________________ (Signature) (Signatu re)
(Student ID Number)
Name: ________________ PROBLEM 1 2 3 4 5 6 7 TOTAL
POINTS 25 25 35 25 25 25 40 200
SCORE
MANAGEMENT 1A NAME: __________________________ Problem 1
James Haley owned a sailboat and was tired of his current job. He decided to open a corporation that provides day sails to tourists in his hometown.
Required:
Prepare journal entries on this and the following page to record these transactions. No explanations are necessary.
Date
Accounts
Debit
May 1
Salary payable
20,000
Sailboat
90,000
Common stock
May 2
Office equipment
110,000
3,000
Cash
May 3
Sailing supplies
3,000
2,500
Accounts payable
May 4
Rent expense
2,500
500
Cash
May 5
Prepaid insurance
500
1,800
Cash
May 10
Cash
Credit
1,800
2,000 Sailing tour revenue
2,000
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May 12
Accounts receivable
MANAGEMENT 1A NAME: __________________________ 3,500
Sailing tour revenue
May 19
Accounts payable
3,500
2,500
Cash
May 22
Cash
2,500
3,500 Accounts receivable
May 25
Cash
3,500
2,750 Sailing tour revenue
May 31
Salary expense
2,750
1,000
Cash
May 31
Dividends Cash
1,000
2,000 2,000
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MANAGEMENT 1A NAME: __________________________ Problem 2
Prepare a November 30 balance sheet in proper form for Green Bay Delivery Service from the following alphabetical list of the accounts at November 30: Accounts receivable Accounts payable Building Cash Notes payable Office equipment Common stock Trucks
$10,000 18,000 28,000 8,000 45,000 12,000 ? 55,000
Required:
Prepare a classified balance sheet.
Green Bay Delivery Service Balance Sheet November 30 Assets Cash Accounts receivable Office equipment Building Trucks Total Assets
8,000 10,000 12,000 28,000 55,000 113,000
Liabilities Accounts payable Notes payable
18,000 45,000
Total Liabilities
63,000
Common stock Total liabilities & Equity
50,000 113,000
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MANAGEMENT 1A NAME: __________________________ Problem 3
The unadjusted trial balance of Bade Cleaning Service is entered on the partial work sheet below. Complete the work sheet using the following information: (a) (b) (c) (d) (e)
Salaries earned by employees that are unpaid and unrecorded, $4,000. An inventory of supplies showed $3,000 of unused supplies still on hand. Depreciation on automobiles, $30,000. Services paid in advance by customers of $12,000 have now been provided to customers. Advertising for November and December in the amount of $8,000 remains unpaid and unrecorded. Trial Balance
Accounts Cash Accounts Receivable Supplies Expense Automobiles Accum. Depreciation Accounts Payable Unearned fees Salaries Payable Capital Dividends Fees earned Salaries Rent expense Totals Supplies Expense Advertising Expense Depreciation Expense Totals Net Income Totals
Debit Credit 50,000 10,000 8,000 160,000 55,000 15,000 22,000
Debit
Credit
Adjusted T/B
Debit
Credit
Income Statement
Debit
Credit
Balance Sheet
Debit
Credit
55,000 45,000 275,400 125,000 24,400 422,400 422,400
Trial Balance
Accounts Cash Accounts Receivable Supplies Expense Automobiles Accum. Depreciation Accounts Payable Unearned fees Salaries Payable Capital Dividends Fees earned Salaries Rent expense Totals Supplies Expense Advertising Expense Depreciation Expense Totals Net Income Totals
Adjusting JE's
Debit Credit 50,000 10,000 8,000 160,000 55,000 15,000 22,000
Adjusting JE's
Debit
12,000
55,000 45,000 275,400 125,000 24,400 422,400 422,400
4,000
5,000 8,000 30,000 59,000
Adjusted T/B
Income Statement
Balance Sheet
Credit
Debit Credit Debit Credit Debit Credit 50,000 50,000 10,000 10,000 5,000 3,000 3,000 160,000 160,000 30,000 85,000 85,000 8,000 23,000 23,000 10,000 10,000 4,000 4,000 4,000 55,000 55,000 45,000 45,000 12,000 287,400 287,400 129,000 129,000 24,400 24,400 5,000 5,000 8,000 8,000 30,000 30,000 59,000 464,400 464,400 196,400 287,400 268,000 177,000 91,000 91,000 287,400 287,400 268,000 268,000
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MANAGEMENT 1A NAME: __________________________ Problem 4
Excalibur frequently has accrued expenses at the end of its fiscal year that should be recorded for proper financial statement presentation. Excalibur pays on a weekly basis and has $50,000 of accrued salaries incurred but not paid for June 30, its fiscal year-end. This consists of one day's accrued salaries for the week. Excalibur will pay its employees $250,000 on July 4; the one day of accrued salaries and the remaining four days for July salaries. Record the following entries: Required:
(a) (b) (c) (d)
Accrual of the salaries on June 30. Payment of the salaries on July 4, assuming that Excalibur does not prepare reversing entries. Assuming that Excalibur prepares reversing entries, reverse the adjusting entry made on June 30. Assuming that Excalibur prepares reversing entries, payment of the salaries on July 4. Date
Accounts
June 30
Salary expense
Debit
50,000
Salary payable
July 4
50,000
Salary payable
50,000
Salary expense
200,000
Cash
July 1
Salary payable
250,000
50,000
Salary expense
July 4
Salary expense Cash
Credit
50,000
250,000 250,000
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MANAGEMENT 1A NAME: __________________________ Problem 5
Shown below is Adventure Travel's adjusted trial balance as of the end of its annual accounting period:
Adjusted Trial Balance Cash Accounts Receivable Supplies Building Accumulated Depreciation—Building Long term notes payable Common Stock Dividends Sales Salaries expense Rent expense Depreciation expense - office equipment Advertising expense Office supplies expense Total
Debit 25,000 15,000 4,300 29,600
Credit
5,000 25,000 30,260 1,000 75,000 32,800 16,800 3,960 4,000 2,800 135,260
135,260
Required:
Prepare the necessary closing entries. Accounts
Fees earned
Debit
75,000
Income summary
Income summary
Credit
75,000
60,360
Salaries expense
32,800
Rent expense
16,800
Depreciation expense-Office equipment
3,960
Advertising expense
4,000
Office supplies expense
2,800
Income summary
14,640
Common Stock
Common Stock Dividends
14,640
1,000 1,000
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MANAGEMENT 1A NAME: __________________________ Problem 6
Salvo Co. had the following transactions in the last two months of its year ended December 31. Prepare entries for these transactions under the method that records prepaid expenses as expenses and records unearned revenues as revenues. Also prepare adjusting entries at the end of the year. No explanations are necessary. Required:
Date
Accounts
Nov 1
Insurance expense
Debit
11,400
Cash
Nov 5
Cash
11,400
8,000 Fees earned
Nov 7
Advertising expense
8,000
10,000
Cash
Dec 31
Prepaid insurance
10,000
9,500
Insurance expense(11,000x10/12x2)
Dec 31
Fees earned
9,500
2,500
Unearned fees
Dec 31
Credit
Prepaid advertising Advertising expense
2,500
1,500 1,500
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MANAGEMENT 1A NAME: __________________________ Problem 7
Attached are the financial statements for Target Corporation. Using this data, calculate the following ratios for 2010 and 2009 (be sure to identify the results for each year): 2010
Current Ratio
2009
2010 Current Assets Current Liabilities
17,213 = 10,070
Quick Ratio
2009 1.709
2010 Cash Marketable Sec A/R
2009
1,712 6,153
Quick Assets Current Liabilities
7,865 = 10,070
Return on Sales
2,200 6,966
0.781
2010 Net Income Sales
2,920 = 67,390
1.627
18,424 = 11,327
0.809
9,166 = 11,327
2009 4.333%
2,488 = 65,357
3.807%
or
2010 5,252 = 7.793% 67,390
EBIT (Operating Income) Sales
Return on Equity
Gross Profit Margin Percentage Only for 2009 and 2010
2010
2009 4,673 = 65,357
7.150%
2009
Net Income Average Equity
2,920 = 18.940% 15,417
2,488 = 17.124% 14,530
Beg Equity End Equity
15,347 15,487 30,834
13,712 15,347 29,059
2010
2009
Revenue Cost of Revenue
67,390 45,725
65,357 44,062
Gross Profit Sales
21,665 = 32.149% 67,390
21,295 = 32.583% 65,357
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MANAGEMENT 1A NAME: __________________________ TARGET CORPORATION Consolidated Statements of Operations
(millions, except per share data) Sales Credit card revenues Total revenues Cost of sales Selling, general and administrative expenses Credit card expenses Depreciation and amortization Earnings before interest expense and income taxes Net interest expense Nonrecourse debt collateralized by credit card receivables Other interest expense Interest income Net interest expense Earnings before income taxes Provision for income taxes Net earnings
$
$
2010 65,786 1,604 67,390 45,725 13,469 860 2,084 5,252
$
83 677 (3) 757 4,495 1,575 2,920 $
2009 63,435 1,922 65,357 44,062 13,078 1,521 2,023 4,673
$
97 707 (3) 801 3,872 1,384 2,488 $
2008 62,884 2,064 64,948 44,157 12,954 1,609 1,826 4,402
167 727 (28) 866 3,536 1,322 2,214
Basic earnings per share
$
4.03
$
3.31
$
2.87
Diluted earnings per share
$
4.00
$
3.30
$
2.86
Weighted average common shares outstanding Basic Diluted
723.6 729.4
752.0 754.8
770.4 773.6
See accompanying Notes to Consolidated Financial Statements.
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MANAGEMENT 1A NAME: __________________________ TARGET CORPORATION Consolidated Statements of Financial Position
(millions, except footnotes) Assets Cash and cash equivalents, including marketable securities of $1,129 and $1,617 Credit card receivables, net of allowance of $690 and $1,016 Inventory Other current assets Total current assets Property and equipment Land Buildings and improvements Fixtures and equipment Computer hardware and software Construction-in-progress Accumulated depreciation Property and equipment, net Other noncurrent assets Total assets Liabilities and shareholders' investment Accounts payable Accrued and other current liabilities Unsecured debt and other borrowings Nonrecourse debt collateralized by credit card receivables Total current liabilities Unsecured debt and other borrowings Nonrecourse debt collateralized by credit card receivables Deferred income taxes Other noncurrent liabilities Total noncurrent liabilities Shareholders' investment Common stock Additional paid-in-capital Retained earnings Accumulated other comprehensive loss Total shareholders' investment Total liabilities and shareholders' investment
January 29, 2011
$
$ $
$
1,712 6,153 7,596 1,752 17,213 5,928 23,081 4,939 2,533 567 (11,555) 25,493 999 43,705 6,625 3,326 119 — 10,070 11,653 3,954 934 1,607 18,148 59 3,311 12,698 (581) 15,487 43,705
January 30, 2010
$
$ $
$
2,200 6,966 7,179 2,079 18,424 5,793 22,152 4,743 2,575 502 (10,485) 25,280 829 44,533 6,511 3,120 796 900 11,327 10,643 4,475 835 1,906 17,859 62 2,919 12,947 (581) 15,347 44,533
Common Stock Authorized 6,000,000,000 shares, $0.0833 par value; 704,038,218 shares issued and outstanding at January 29, 2011; 744,644,454 shares issued and outstanding at January 30, 2010. Preferred Stock Authorized 5,000,000 shares, $0.01 par value; no shares were issued or outstanding at January 29, 2011 or January 30, 2010.
See accompanying Notes to Consolidated Financial Statements.
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MANAGEMENT 1A NAME: __________________________ TARGET CORPORATION Consolidated Statements of Cash Flows
(millions) Operating activities Net earnings Reconciliation to cash flow Depreciation and amortization Share-based compensation expense Deferred income taxes Bad debt expense Non-cash (gains)/losses and other, net Changes in operating accounts: Accounts receivable originated at Target Inventory Other current assets Other noncurrent assets Accounts payable Accrued and other current liabilities Other noncurrent liabilities Cash flow provided by operations Investing activities Expenditures for property and equipment Proceeds from disposal of property and equipment Change in accounts receivable originated at third parties Other investments Cash flow required for investing activities Financing activities Reductions of short-term notes payable Additions to long-term debt Reductions of long-term debt Dividends paid Repurchase of stock Stock option exercises and related tax benefit Other Cash flow required for financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year
2009
2010 $
$
2,920
$
2,488
2008 $
2,214
2,084 109 445 528 (145)
2,023 103 364 1,185 143
1,826 72 91 1,251 316
(78) (417) (124) (212) 115 149 (103) 5,271
(57) (474) (129) (114) 174 257 (82) 5,881
(458) 77 (99) (55) (389) (230) (186) 4,430
(2,129) 69 363 (47) (1,744)
(1,729) 33 (10) 3 (1,703)
(3,547) 39 (823) (42) (4,373)
— 1,011 (2,259) (609) (2,452) 294 — (4,015) (488) 2,200 1,712 $
— — (1,970) (496) (423) 47 — (2,842) 1,336 864 2,200 $
(500) 3,557 (1,455) (465) (2,815) 43 (8) (1,643) (1,586) 2,450 864
Cash paid for income taxes was $1,259, $1,040 and $1,399 during 2010, 2009 and 2008, respectively. Cash paid for interest (net of interest capitalized) was $752, $805 and $873 during 2010, 2009 and 2008, respectively. See accompanying Notes to Consolidated Financial Statements.
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MANAGEMENT 1A NAME: __________________________ TARGET CORPORATION Consolidated Statements of Shareholders' Investment
(millions, except footnotes) February 2, 2008 Net earnings Other comprehensive income/(loss) Pension and other benefit liability adjustments, net of taxes of $242 Net change on cash flow hedges, net of taxes of $2 Total comprehensive income Dividends declared Repurchase of stock Stock options and awards January 31, 2009 Net earnings Other comprehensive income/(loss) Pension and other benefit liability adjustments, net of taxes of $17 Net change on cash flow hedges, net of taxes of $2 Currency translation adjustment, net of taxes
Accumulated Other Comprehensive Income/(Loss) Pension and Derivative Other Instruments, Benefit Foreign Retained Liability Currency Earnings Adjustments and Other
Common Stock Shares
Stock Par Value
Additional Paid-in Capital
818.7 —
$68 —
$2,656 —
$12,761 2,214
$(134) —
—
—
—
—
(376)
—
—
—
—
—
Total
$(44) $ 15,307 — 2,214
—
(2)
(376)
(2)
1,836 —
—
(471)
—
—
(471)
(67.2)
(5)
—
(3,061)
—
—
(3,066)
1.2
—
—
—
—
752.7 $ —
63 $ —
106
—
2,762 $ 11,443 $ — 2,488
(510) $ —
106
(46) $ 13,712 — 2,488
—
—
—
—
(27)
—
(27)
—
—
—
—
—
4
4
—
—
—
—
—
(2)
(2) Page | 13
MANAGEMENT 1A NAME: __________________________ of $0 Total comprehensive income Dividends declared Repurchase of stock Stock options and awards January 30, 2010 Net earnings Other comprehensive income/(loss) Pension and other benefit liability adjustments, net of taxes of $4 Net change on cash flow hedges, net of taxes of $2 Currency translation adjustment, net of taxes of $1 Total comprehensive income Dividends declared Repurchase of stock Stock options and awards January 29, 2011
2,463 —
—
—
(503)
—
—
(503)
(9.9)
(1)
—
(481)
—
—
(482)
1.8
—
—
—
157
744.6 $ —
62 $ —
157
—
2,919 $ 12,947 $ 2,920 —
(537) $ —
(44) $ 15,347 2,920 —
—
—
—
—
(4)
—
(4)
—
—
—
—
—
3
3
—
—
—
—
—
1
1
2,920
—
—
(659)
—
—
(659)
(47.8)
(4)
—
(2,510)
—
—
(2,514)
7.2
1
392
—
—
—
704.0
$59
$3,311
$12,698
—
$(541)
393
$(40) $ 15,487
Dividends declared per share were $0.92, $0.67 and $0.62 in 2010, 2009 and 2008, respectively. See accompanying Notes to Consolidated Financial Statements.
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