ACCOUNTING II

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QUESTION

Exercise 1: (40 points)
The company shows the following balances for certain current assets and current liabilities accounts at January 1, 2021 and December 31, 2021.
Account Jan 1 Dec 31
Inventory 3,500 11,500
Accounts receivable 9,500 9,600
Accounts payable 23,000 22,000
Salaries payable 15,000 11,000
Taxes payable 12,000 19,000

During the year, the company obtained a net income of $321,000
This net income includes the loss of $18,000 obtained in the sale of a plant asset. This asset was sold for a total price of $40,000,
Besides this, the company had recorded during year 2021 a depreciation expense of $44,000.
Also, during the year 2021 the company paid dividends for $16,000 to its stockholders and issued 6% preferred stocks for a total amount of $100,000. The preferred stocks dividends have been paid on December 31, 2021.
During year 2021, the company repaid a note payable for $29,000.
On January 1st, 2021, the balance of the cash account was $172,000
1.- Prepare a statement of cash flow separating cash flows from operating, investing and financing activities (30 points)
2.- Calculate the balance of the cash account at December 31. (10 points)

Exercise 2: (60 points)
During year 2021, Jackson Ltd. obtained an income after taxes from continuing activities of $877,000
During the month of February 2021, the company decided to sell a segment of activity. The segment generated losses before taxes prior to its disposal for $61,000.
The sale of the assets of the segment implied a gain before taxes of $10,000
In May 2021, an earthquake destroyed a facilities of the compamy causing losses for $40,000
Finally, the accountant of the company decided to change the depreciation method of the assets from double declining balance tostraight line method. This implied an additional income of $30,000
Tax rate is 25%.
1.- Prepare the income statement of the company and calculate the net income obtained in 2021 (30 points)
2.- Prepare the earning per share figure for each section of the income statement taking into account that the company had an average of 40,000 shares of common stocks outstanding throughout year 2021, and 8% preferred stocks outstanding for a total amount of $100,000. (30 points)

Rubrics

Descriptor
9-10 The student demonstrates an excellent understanding of the concepts.
8-8.9 The student demonstrates a good understanding of the concepts.
7-7.9 The student demonstrates a fair understanding of the concepts.
6-6.9 The student demonstrates some, but insufficient understanding of the concepts.
3-5.9 The student demonstrates insufficient understanding of the concepts. They may mention some relevant ideas or concepts, although it is clear that the relationship between them is not understood by the student.
1-2.9 The student demonstrates insufficient understanding of the concepts and does not mention any relevant ideas or concepts.
0 The student leaves the question blank or cheats.

Points are stated at the end of each question.

Sample Solutions
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