Management 1A Spring 2011 Danny S.

Litt EXAM 1 Solutions

Section No: 1
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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 May 1

Accounts Salary payable Sailboat Common stock

Debit 20,000 90,000

Credit

110,000

May 2

Office equipment Cash

3,000 3,000

May 3

Sailing supplies Accounts payable

2,500 2,500

May 4

Rent expense Cash

500 500

May 5

Prepaid insurance Cash

1,800 1,800

May 10

Cash Sailing tour revenue

2,000 2,000

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MANAGEMENT 1A NAME: __________________________

May 12 Accounts receivable Sailing tour revenue 3,500 3,500

May 19

Accounts payable Cash

2,500 2,500

May 22

Cash Accounts receivable

3,500 3,500

May 25

Cash Sailing tour revenue

2,750 2,750

May 31

Salary expense Cash

1,000 1,000

May 31

Dividends Cash

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 Required: Prepare a classified balance sheet. $10,000 18,000 28,000 8,000 45,000 12,000 ? 55,000

Green Bay Delivery Service Balance Sheet November 30

Assets Cash Accounts receivable Office equipment Building Trucks Total Assets Liabilities Accounts payable Notes payable Total Liabilities

8,000 10,000 12,000 28,000 55,000 113,000

18,000 45,000 63,000

Common stock 50,000 Total liabilities & Equity 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 Adjusting JE's Adjusted T/B Income Statement Balance Sheet

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 Debit 50,000 10,000 8,000 160,000 55,000 15,000 22,000 55,000 45,000 275,400 125,000 24,400 422,400 422,400

Credit

Debit

Credit

Debit

Credit

Debit

Credit

Trial Balance

Adjusting JE's

Adjusted T/B

Income Statement

Balance Sheet

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 Debit Credit 50,000 10,000 8,000 5,000 160,000 55,000 30,000 15,000 8,000 22,000 12,000 4,000 55,000 45,000 275,400 12,000 125,000 4,000 24,400 422,400 422,400 5,000 8,000 30,000 59,000 59,000

Debit Credit Debit Credit Debit Credit 50,000 50,000 10,000 10,000 3,000 3,000 160,000 160,000 85,000 85,000 23,000 23,000 10,000 10,000 4,000 4,000 55,000 55,000 45,000 45,000 287,400 287,400 129,000 129,000 24,400 24,400 5,000 5,000 8,000 8,000 30,000 30,000 464,400 464,400 196,400 287,400 268,000 177,000 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) Accrual of the salaries on June 30. (b) Payment of the salaries on July 4, assuming that Excalibur does not prepare reversing entries. (c) Assuming that Excalibur prepares reversing entries, reverse the adjusting entry made on June 30. (d) Assuming that Excalibur prepares reversing entries, payment of the salaries on July 4. Date June 30 Accounts Salary expense Salary payable Debit 50,000 Credit 50,000

July 4

Salary payable Salary expense Cash

50,000 200,000 250,000

July 1

Salary payable Salary expense

50,000 50,000

July 4

Salary expense Cash

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 DepreciationBuilding Long term notes payable Common Stock Dividends Sales Salaries expense Rent expense Depreciation expense - office equipment Advertising expense Office supplies expense Total
Required: Prepare the necessary closing entries. Accounts Fees earned Income summary Debit 75,000 Credit 75,000

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

Income summary Salaries expense Rent expense Depreciation expense-Office equipment Advertising expense Office supplies expense

60,360 32,800 16,800 3,960 4,000 2,800

Income summary Common Stock

14,640 14,640

Common Stock Dividends

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 Nov 1

Accounts Insurance expense Cash

Debit 11,400

Credit 11,400

Nov 5

Cash Fees earned

8,000 8,000

Nov 7

Advertising expense Cash

10,000 10,000

Dec 31

Prepaid insurance Insurance expense(11,000x10/12x2)

9,500 9,500

Dec 31

Fees earned Unearned fees

2,500 2,500

Dec 31

Prepaid advertising Advertising expense

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 2009

Current Ratio
Current Assets Current Liabilities

2010 17,213 = 10,070 1.709

2009 18,424 = 11,327 1.627

Quick Ratio
Cash Marketable Sec A/R Quick Assets Current Liabilities

2010 1,712 6,153 7,865 = 10,070

2009 2,200 6,966 9,166 = 11,327

0.781

0.809

Return on Sales
Net Income Sales
or

2010 2,920 = 67,390 4.333%

2009 2,488 = 65,357 3.807%

2010 EBIT (Operating Income) Sales 5,252 = 7.793% 67,390

2009 4,673 = 65,357 7.150%

Return on Equity
Net Income Average Equity Beg Equity End Equity

2010 2,920 = 18.940% 15,417 15,347 15,487 30,834

2009 2,488 = 17.124% 14,530 13,712 15,347 29,059

Gross Profit Margin Percentage Only for 2009 and 2010

2010 Revenue Cost of Revenue Gross Profit Sales 67,390 45,725 21,665 = 32.149% 67,390

2009 65,357 44,062 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 Basic earnings per share Diluted earnings per share Weighted average common shares outstanding Basic Diluted
See accompanying Notes to Consolidated Financial Statements.

2010 65,786 1,604 67,390 45,725 13,469 860 2,084 5,252

2009 63,435 1,922 65,357 44,062 13,078 1,521 2,023 4,673

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 2.87 2.86 770.4 773.6

$ $ $

83 677 (3) 757 4,495 1,575 2,920 $ 4.03 4.00 723.6 729.4 $ $

97 707 (3) 801 3,872 1,384 2,488 $ 3.31 3.30 752.0 754.8 $ $

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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

January 30, 2010

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

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

2010 $ 2,920 2,084 109 445 528 (145) (78) (417) (124) (212) 115 149 (103) 5,271 (2,129) 69 363 (47) (1,744) 1,011 (2,259) (609) (2,452) 294 (4,015) (488) 2,200 1,712 $ $

2009 2,488 2,023 103 364 1,185 143 (57) (474) (129) (114) 174 257 (82) 5,881 (1,729) 33 (10) 3 (1,703) (1,970) (496) (423) 47 (2,842) 1,336 864 2,200 $ $

2008 2,214 1,826 72 91 1,251 316 (458) 77 (99) (55) (389) (230) (186) 4,430 (3,547) 39 (823) (42) (4,373) (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

Common Stock Shares 818.7

Stock Par Value $68

Additional Paid-in Capital $2,656

Accumulated Other Comprehensive Income/(Loss) Pension and Derivative Other Instruments, Benefit Foreign Retained Liability Currency Earnings Adjustments and Other $12,761 2,214 $(134)

Total

$(44) $ 15,307 2,214

(376)

(376)

(2)

(2)

1,836 (67.2) 1.2 752.7 $ (5) 63 $ 106 (471) (3,061) (510) $ (471) (3,066) 106

2,762 $ 11,443 $ 2,488

(46) $ 13,712 2,488

(27)

(27)

(2)

(2)
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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 (9.9) 1.8 744.6 $ (1) 62 $ 157 (503) (481) (537) $ (503) (482) 157

2,919 $ 12,947 $ 2,920

(44) $ 15,347 2,920

(4)

(4)

2,920 (47.8) 7.2 704.0 (4) 1 $59 392 $3,311 (659) (2,510) $12,698 $(541) (659) (2,514) 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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