Financial Reporting and Analysis

EXAMINATION QUESTION PAPER - Term paper

EXC 34521 Financial Reporting and Analysis

Department of Accounting, Auditing and Business Analytics

Start date: 03.04.2018 Time 09.00

Finish date: 08.05.2018 Time 12.00

Weight: 25% of EXC 3452

Total no. of pages: 4 incl. front page

No. of attachments files to question paper: 0

To be answered: In groups of 1 - 3 students.

Answer paper size: Unlimited excl. attachments

Max no. of answer paper attachment files:

3

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pdf

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TATO AS is a company situated in Oslo, Norway. The firm started operations on 1.1.2016. The firm buys and resells decoration items. The company pays no corporate tax, and there is no VAT. The statement of financial position as of 31.12.2017 (after two complete years of operations) was as follows:

Land 2,350,000 Building 12,500,000

Less: Accumulated Depreciation-Building 2,500,000- Net Buildings 10,000,000 Equipment 3,525,000

Less: Accumulated Depreciation-Equipment 1,410,000- Net Equipment 2,115,000 Fixtures & Fittings 2,350,000

Less: Accumulated Depreciation-Fixture & Fittings 470,000- Net Fixtures & Fittings 1,880,000 Total Fixed Assets 16,345,000

Inventories 2,467,500 Accounts Receivables 940,000

Less: Allowance for Doubtful Accounts 94,000- Net Accounts Receivables 846,000 Prepaid Expenses 176,250 Cash 86,200 Bank Deposits 940,000 Total Current Assets 4,515,950 Total Assets 20,860,950

Share Capital - Ordinary 7,050,000 Retained Earnings 418,300 Total Equity 7,468,300

Long-term Loan 7,618,700 Total Non-current Liabilities 7,618,700

Accounts Payable 1,457,000 Prepayments from Customers 940,000 Accrued Salaries 705,000 Accrued Interest 676,800 Other short-term Liabilities 1,995,150 Total Current Liabilities 5,773,950 Total Equity and Liabilities 20,860,950

Equity and Liabilities

Statement of Financial Position TATO AS

December 31, 2017 (in NOK) Assets

Below you will find the accounting transactions that occurred during 2018. Your task is to:

1. Post the journal. 2. Post the adjustment entries. 3. Close the books. 4. Prepare the Income Statement and the Statement of Financial Position as of

31.12.2018. 5. Prepare a Statement of Cash Flows following the indirect method as of

31.12.2018. 6. Comment on the firm’s financial position as of 31.12.2018.

Journal entries in 2018:

1. Paid the accrued salaries using bank deposits. 2. Sold goods on account 1,000,000 to Company A. 3. The company received 700,000 from a customer who bought the items in 2017. 4. Paid the accrued interest related to the long-term loan. 5. The firm purchased inventories on account 7,500,000 6. Company A paid for the goods. 7. Salary of 1,235,000 was paid out. 8. The firm sold goods on account to Company B for 10,500,000. 9. The company sold a machine on 30.6.2018. The machine had been purchased on

1.1.2016 for 1,500,000. Equipment is linearly depreciated with a useful life of 5 years and no residual value. The sales price was 1,250,000.

10. Paid phone bill of 34,500. 11. The firm sold goods on account for 1,500,000 to Company C. 12. Company B returned goods for 500,000. 13. Company B paid its remaining balance. 14. The firm paid for the inventory purchased in 5. 15. Company C paid its remaining balance obtaining 30,000 discount for prompt

payment. 16. Goods prepaid by customers in 2017 were delivered. 17. Lighting and heating were paid in cash 3,000,000. 18. The prepaid expenses per 31.12.17 related to heating. 19. Prepayment of expenses 1,000,000. 20. Company D purchased goods on account 3,000,000. 21. TATO repaid 1,000,000 of its remaining account payables.

Adjustments as of 31.12.2018:

1. Inventories per 31.12.2018: 3,000,000. 2. Accrued interest long- term loan: Interest is paid once a year (1. April – in

arrears). The company does not pay any instalments, only interest. The interest rate is 7 % p.a.

3. Bad debts are estimated to be 10% of receivables. 4. Depreciation Buildings: Original cost price is 12,500,000. Linear depreciation.

Useful life 10 years. No residual value. 5. Depreciation Equipment: Original cost price 3,525,000. Linear depreciation.

Useful life 5 years. No residual value. 6. Depreciation Fixture and Fittings: Original cost price 2,350,000. Linear

depreciation. Useful life 10 years. No residual value. 7. Accrued salaries to be paid out next year: 600,000. 8. The firm pays no taxes. 9. The firm pays no dividends.

In addition to the Financial Statement Accounts listed above, use the following accounts for your transactions:

• Sales Revenues • Salaries Expense • Depreciation Expense • Gain/Loss on Disposal of Plant Assets • Other Operating Expenses • Sales Returns and Allowances • Sales Discounts • Light and Heating Expense • Cost of Goods Sold • Interest Expense • Bad Debt Expense