Acct 560 Introduction to financial accounting

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Practice Exam 1 – Acct 560 (Introduction to financial accounting)

Microsoft & Alphabet

July 2018

General instructions:

1. Read each problem carefully before beginning. In completing this exam, you may use your textbook, course material, and your course notes and references. However, you may not seek help from any other person or use any resource. Note you will not have access to text books, course material for the in class final exam. Rather, you can bring one sheet (8 ½* 11 inch, both sides) Note Sheet. You may want to begin preparing your exam Note Sheet as you complete this practice exam.

2. Format for your solution: Please (1) put your name on each page, (2) label each question clearly, (3) answer all the questions, (4) present your solution in the proper order

3. This practice exam will not be graded but a solution is provided along with this exam. You are strongly encouraged to complete this exam prior to viewing the solution file.

Part 1: VGTech. Inc. Transactions

In the summer of 2015, Vincent, an engineer and George, a computer science graduate started their business journey. They are ambitious to design a most safe and user-friendly computer. Past technology innovation had significantly changed people’s life. After years of user research and design, the core components of VGTech, Inc. came together and their ideas quickly became a success. In early 2016, Vincent and George named their business VGTech, and filed articles of incorporation in New York. This is the business story of VGTech. .

I – Startup Transactions

Vincent filed articles of VGTech with the state of New York in 2016. The articles of incorporation authorized 5,000 shares of common stock each with par value of $1. The following transactions also occurred on March 1^st 2016.

Requirement 1: Use the information below to record transactions 1 – 5 using the journal and ledger approach.

1. Vincent transferred $500,000 cash to the corporation in exchange for 2,000 shares of stock.

2. VGTech received a bank loan of $400,000. The loan agreement required VGTech to repay the note on March 1, 2030 along with 6% interest.

3. VGTech acquired office supplies for a total of $800 cash.

4. VGTech signed a manufacture contract with outsource company. The first order of 500 computers were received on April 1^st 2016, the payment was made when the inventory delivered. The cost of each is $1,000. The company plan to sell to at $8,000 dollar per unit.

5. On November 10^th, 2016, George bought a new luxury car for himself to celebrate his new success, which cost $20,000, including tax.

Requirement 3: Use the information below to record transactions 6 – 8 using the journal and ledger approach.

6. On April 15, 2016, VGTech sold 20 computers for $160,000 cash. The inventories are those acquired in transaction 4 above.

7. During the third quarter of 2016, VGTech sold 300 computers as total. The products were all delivered by the end of September. VGTech received $1,800,000 in cash, and the remained amount is expected to be collected by the end of 2016.

8. The total wages for the year was $ 50,000 and will be paid on December 31, 2016.

Requirement 4: Use the information below to record transactions using the journal and ledger approach.

9. On December 31, 2016, the accountant wanted to make adjusting entries. He considered the following activities during year 2016.

a. The total advertisement expense for this year was $7,000. The amount has not been paid by the end of 2016.

b. The interest expense had not been recorded during the year. (Suppose it has not been paid)

c. VGTech signed a rental agreement regarding of the Los Angeles Office. The advance payment will be made on September1^st, 2018.

Part 2: Identify Balance Sheets and Income Statements items

Column 1 lists a variety of accounts. Indicate the account type in Column 2 whether it is an asset, liability, equity, revenue, expense, or contra account. Identify the financial statements where the account should typically appear in one of the Columns 3,4 and 5.

Part 3: Interpret the expanded presentation of the Income Statement.

Interpret the expanded Income Statements of Microsoft in the attachment. Pick out 2 items that you believe are most important to discuss.

Examples include, but are not limited to:

● Revenue

● gross margin percentage,

● operating income percentage,

● tax rate,

● net income,

● changes in these measures over time,

● And any other trends or aspects of the income statement that you think might be of interest to financial analysts.

Item 1

Item 2

Part 4: Interpret the expanded presentation of the balance sheets

Interpret the expanded Balance Sheets of Alphabet in the attachment. Pick out 2 items that you believe are most important to discuss.

Examples include, but are not limited to:

● liquidity

● capital structure,

● mix of assets,

● changes over the years,

● And any other trends or aspects of the balance sheet that you think might be of interest to financial analysts.

Your solution should be about two paragraphs:

Item 1

Item 2