ACCT 253

Introductory Financial Accounting

Practice Examination (Version 1)
This practice examination is one of three provided in this course, and represents the level of difficulty and
breadth of topics on the actual Final Examination. The questions cover many but not all of the learning
objectives in Lessons 1 through 12 inclusive. This practice examination contains approximately the same
number of questions as on the actual Final Examination and should take you 3 hours to write. The actual
Final Examination is 3 hours in length, so you should aim to complete this practice examination within 3
hours.
Solutions are provided at the end of this practice examination.
A formula sheet is provided on page 24. The same formula sheet is provided as part of the actual Final
Examination.

Part 1: Cash
Section I
JenCos accountant was preparing the bank reconciliation for April. In reviewing the transactions
posted to the bank account, the accountant discovered that cheque #9 for delivery expense, posted
on the bank statement for $2,100, was recorded by JenCos bookkeeper correctly as $1,200. Other
reductions in the April bank statement included an NSF cheque for $4,000 from a customer
(deposited in March), a bank loan payment for $2,000, interest from the bank loan for $100, and
bank service charges for $40. The bank statement included a deposit of $3,200 on April 28 for the
collection of a note.

Required:
Prepare the necessary journal entries to bring the General Ledger Cash Account into agreement with
the adjusted balance on the bank reconciliation.
Date

Account Titles and Explanation

Debit

Credit

Section II
Scarlett Ltd. had a petty cash fund for $180. At the end of June, the fund contained $50 cash, $36.40 for
postage stamps, $77.20 for travel expenses, and $24.55 for office supplies that were used immediately.
The company also decided to decrease its petty cash fund to $150.
Required:
Record the entries to replenish and decrease petty cash for June.
Date

Account Titles and Explanation

Debit

Credit

Part 2: Accounts Receivable

SouthCo had credit sales of $1,900,000 in 2015. At year end, December 31, 2015 the companys
Allowance for Doubtful Accounts had an unadjusted credit balance of $18,000. The accountant for
SouthCo has prepared a schedule of the December 31, 2015 accounts receivable by age and, on the basis
of past experience, has estimated the percentage of the receivables in each age category that will become
uncollectible. This information is summarized as follows.
December 31, 2015
Accounts Receivable
$684,000
420,000
60,000
24,000
6,000

Age of Accounts
Receivable
Not due (under 30 days)
1 to 30 days past due
31 to 60 days past due
61 to 90 days past due
Over 90 days past due

Unexpected Percentage
Uncollectible
1.30%
2.30%
6.00%
33.75%
68.25%

Required:
a.

Prepare the adjusting entry to record estimated bad debts expense for 2015.
Date

b.

Account Titles and Explanation

Debit

Credit

Show how accounts receivable will be reported on the December 31, 2015 balance sheet.

Part 3: Inventory Costing

Section I
The Biotech Company has the following purchases and sales during the year ended December 31, 2015:
Inventory and Purchases
Beginning: 400 units @ $23/unit
February 21: 100 units @ $24/unit

Sales
April 1: 400 units

Purchase Return
Mar 16: 20 units @ $23/unit
The units have a selling price of $25.00 per unit. Biotech Company uses a perpetual inventory system.
Required: Calculate the dollar value of cost of goods sold, ending inventory, and gross profit under each
of the following inventory cost flow assumptions:
FIFO

Moving Weighted Average

Cost of goods sold

Ending inventory
Gross profit

Section II
Explain how the merchandise inventory account is checked for accuracy at year end and show any journal
entries that may result.

Part 4: Property, Plant and Equipment Assets

Caribou Inc. acquired a new roller press on March 29, 2015 for $160,000. The machine has a 5-year life
and a residual value of $40,000. Caribous year end is December 31. Depreciation is calculated to the
nearest whole month.
Section I
Required: Calculate depreciation for the first three years of the assets useful life by completing the
following schedule.
Year

Straight-Line Depreciation

Double-Declining Balance Depreciation

Section II
Assume that the roller press was sold on January 1, 2017 for $39,000 and that the straight-line method was
used to depreciate the asset.
Required: Prepare the journal entry to record the sale.
Date

Account Titles and Explanation

Debit

Credit

Section III
Independent of Sections I and II, assume that during 2017 new information came forward regarding the
roller press so that the useful life and residual value were changed to a total of 8 years and $15,000,
respectively.
Required: Calculate depreciation expense for the year ended December 31, 2017. Assume the straightline method to the nearest whole month.
Date

Account Titles and Explanation

Debit

Credit

Section IV
On July 25, 2015 Fox Fixtures purchased land and a building for a total price of $580,000 paying cash of
$70,000 and borrowing the balance from the bank. The bank appraised the land at $330,000 and the
building at $220,000.
Required: Prepare the entry to record the purchase on July 25.
Date

Account Titles and Explanation

Debit

Credit

Section V
Identify and explain three ways in which a corporation might raise funds to finance the purchase of
property, plant and equipment assets.

Part 5: Current and Long-term Liabilities

Section I
Software Company initiated a product warranty on January 1, 2015. For the year ended December 31,
2015, it was estimated that the warranty costs would approximate 3% of the total net sales of $1,000,000.
During 2015, 531 units were actually replaced at a cost to Software Company of $45 each.
Required:
Assume no entries regarding the warranty have been processed prior to the year end.
a. Prepare the adjusting entry to record the estimated warranty liability for the year ended
December 31, 2015.
Date

Account Titles and Explanation

Debit

Credit

b. What is the adjusted balance in the Estimated Warranty Liability account at December 31, 2015?

c.

Assume now that warranty is based on units sold instead of sales. What would be the
estimated warranty liability if the cost of goods sold was 60% of sales?

Section II
On January 1, 2015, Eastman Store borrowed $232,000 from the bank. Interest is calculated at the rate of
10% and the term of the note is 4 years. Four equal annual payments will be made in the amount of
$73,189 each December 31. The payment schedule is shown below.

Year
2015
2016
2017
2018
a.

Annual
Payment
73,189
73,189
73,189
73,189

Principal
Portion of
Payment
49,989
54,988
60,487
66,536

Interest
Portion of
Payment
23,200
18,201
12,702
6,653

Principal
Balance at
Year End
182,011
127,023
66,536
0

Show how Eastman Store will report the note on the December 31, 2016 balance sheet.

Section III
Explain why the current portion of long-term debt must be disclosed on the balance sheet as a current
liability.

10

Part 6: Corporate Transactions

Johnson Inc. was incorporated in 2015. The company is authorized to issue 20,000 shares of $2.50
preferred cumulative shares, and an unlimited number of common shares.
At December 31, 2015, Johnson Inc.s records showed that 7,000 preferred shares and 25,000 common
shares had been issued at an average price of $15 and $7 per share respectively. Also, retained earnings
had a balance of $129,000 on this date. In 2016, some entries were not recorded in error, as detailed
below.
Section I
Required: Record the missing entries for each of the following transactions that took place during
2016, which was Johnson Inc.s second year of operations. Additionally, indicate whether each debit
and credit causes assets, liabilities, or equity to increase (+) or decrease () or has no effect (NE).
Jan. 10 Issued 18,000 common shares in exchange for equipment valued at $153,000.
Date

Description

Debit

Credit

Balance
Sheet Effect

Dec. 31 Johnson Inc.s net income for 2016 was $25,000. Prepare the closing entry.
Date

Description

Debit

11

Credit

Balance
Sheet Effect

Dec. 31 Declared the annual dividend on the preferred shares to be paid in cash. NOTE: dividends
have not yet been paid.
Balance
Sheet Effect
Date
Description
Debit
Credit

Section II
Required: Prepare, in proper form, the Statement of Changes in Equity for Johnson Inc. for the year
ended December 31, 2016 after adjusting for the missed entries.

12

Section III
ABC Inc. just completed its first year of operations and reported a net income of $1.5 million. Should
ABC Inc.s board of directors declare a cash dividend? Explain why or why not.

Section IV
Explain why the following entry was recorded and what it means.
Account Titles and Explanation

Debit

Retained Earnings

145,000

Income Summary

Credit
145,000

13

Part 7: Statement of Cash Flows

Section I
Following are financial statements and additional information for Walker Corporation.
Walker Corporation
Comparative Balance Sheet
December 31, 2015 and 2014
Assets
2015
Cash
$ 13
Accounts Receivable (Net)
50
Inventory
150
Long-term Investment
300
Equipment
1,580
Less: Accumulated Depreciation
(330)
$ 1,763
Liabilities and Equity
Accounts Payable
Bonds Payable
Common Shares
Retained Earnings

2014
$ 92
180
210
400
500
(282)
$ 1,100

$ 229
300
1,000
234
$1,763

$ 190
100
450
360
$ 1,100

Income Statement
For the Year Ended December 31, 2015

Sales
Cost of Goods Sold
Gross Profit
Operating Expenses
Depreciation Expense
Other Expenses
Net Income/(loss)

$ 48
233

$ 1,200
980
$ 220
281
$ (61)

Equipment worth $1,080 was purchased by paying $530 in cash and issuing common shares for the
remainder.
Long-term investments were sold for book value.
Required:
a) Using the indirect method, prepare, in good form, a Statement of Cash Flows for the year ended
December 31, 2015.
b) Calculate the days sales in inventory. If the industry average for days sales in inventory is 60
days, how is this company performing compared to the industry average?
14

15

Section II
When using the indirect method to prepare a statement of cash flows, explain the meaning of net cash
inflows (outflows) from operating activities.

16

Part 8: Financial Statement Analysis

Leon Creations Co. sells art supplies to retail outlets. The Leon Creations financial statements are shown
below:
Leon Creations Co.
Income Statement
For the Year Ended December 31, 2015

Sales
Cost of Goods Sold
Gross Profit
Operating Expenses:
Depreciation Expense
Other Expenses
Operating Income
Other Revenues and Expenses
Interest Expense
Loss on Sale of Equipment
Net Income

$ 48
221
$ 12
16

Leon Creations Co. Comparative

Account Information
December 31, 2015 and 2014

2015
$ 129
310
610
75
850
1,360
250
206
400
500
100

Accounts Payable
Accounts Receivable (Net)
Bonds Payable
Cash
Common Shares
Equipment
Inventory
Accumulated Depreciation
Long-term Investment
Retained Earnings
Salaries Payable

$ 1,500
980
$ 520
269
$ 251
28
$ 223

2014
$ 115
180
100
42
450
500
210
282
400
310
75

Following are industry averages:

Current Ratio
Acid-Test (Quick) Ratio
Accounts Receivable Turnover

2.5:1 Inventory Turnover

1.4:1 Return on Assets
8.2 times Return on Equity

17

5.5 times
13.4%
18.3%

Required: Round all calculations to two (2) decimal places.

1. a. Calculate the Acid-Test Ratio for 2015. What type of ratio is this and what is its purpose?

b. Is the companys Acid-Test Ratio favourable or unfavourable, compared to the industry average?

2. a. Calculate the Accounts Receivable Turnover for 2015.

b. Is the companys Accounts Receivable Turnover favourable or unfavourable, compared to the

industry average in 2015?

18

3. Do Leon Creations assets generate profits favourably or unfavourably, compared to the

industry average in 2015? (Show appropriate calculations.) What type of ratio is this?

19

Part 9: Financial Statements

The following information appeared on the alphabetized adjusted trial balance of Jacks Used Books Inc.
for the year ended June 30, 2015. Assume all accounts have a normal balance.
Accounts payable.......................................................................
Accounts receivable ..................................................................
Accumulated depreciation, equipment ......................................
Advertising expense...................................................................
Allowance for doubtful accounts...............................................
Cash............................................................................................
Cost of goods sold .....................................................................
Delivery expense .......................................................................
Depreciation expense ................................................................
Equipment..................................................................................
Interest income...........................................................................
Common shares .........................................................................
Preferred shares .........................................................................
Retained earnings.......................................................................
Cash dividends...........................................................................
Merchandise inventory...............................................................
Notes payable ($3,000 is due by June 30, 2016).......................
Notes receivable (due in 2018) .................................................
Office supplies...........................................................................
Long-term investment ...............................
Copyright ..................................................................................
Office supplies expense ............................................................
Patent.........................................................................................
Petty cash ..................................................................................
Rent expense..............................................................................
Salaries expense ........................................................................
Salaries payable ........................................................................
Sales ..........................................................................................
Sales returns and allowances......................................................
Unearned sales...........................................................................

1,800
29,000
3,800
20,000
1,400
10,000
123,900
4,875
5,000
15,000
2,000
49,325
40,000
50,000
46,000
17,000
7,000
14,000
750
75,000
25,000
1,200
2,500
500
17,900
41,750
950
314,000
22,000
1,100

Section I
Required: Using the information above, prepare a classified balance sheetin proper formaton the
following pages. Abbreviations are acceptable.

20

21

22

Section II
Assume total assets, liabilities, and equity at June 30, 2014 for Jacks Used Books Inc. were
$120,000, $75,000, and $45,000, respectively. Explain whether the balance sheet was
strengthened or not from June 30, 2014 to June 30, 2015.

23

Formula Sheet
Current ratio
Acid-test ratio
Accounts receivable
turnover
Accounts receivable
collection period
Merchandise turnover

Current assets___
Current liabilities
= Quick current assets_
Current liabilities
= Net credit sales (or revenues)_
Average net accounts receivable
= Average net accounts receivable x 365
Net credit sales (or revenues)
=

Cost of goods sold______

Average merchandise inventory
Average merchandise inventory_ x 365
Cost of goods sold
Total liabilities x 100
Total assets
Total equity x 100
Total assets
Total liabilities
Total equity
Income from operations
Interest expense
Net income_ ___ x 100
Net sales (or revenues)
Income from operations x 100
Net sales
Gross profit from sales x 100
Net sales
Net sales______ x 100
Average total assets
Income from operations x 100
Average total assets
Net income_____ x 100
Average equity

Days sales in inventory

Debt ratio

Equity ratio

Debt to equity

Times interest earned

Net profit ratio

Operating profit ratio

Gross profit ratio

Sales to total assets ratio

Return on total assets

Return on equity

Book value per common share

= Total equity (paid-in capital for preferred shares + dividends in arrears)

Book value per preferred share

= Paid-in capital for preferred shares + dividends in arrears

Number of preferred shares outstanding
=
(Net income preferred dividends)______
Average number of common shares outstanding
= Market price per share
Earnings per share
= Annual dividends per share x 100
Market price per share

Earnings per share

Price-earnings ratio
Dividend yield

Number of common shares outstanding

ACCT 253
Introductory Financial Accounting
Sample Final Examination (Version 1)
Suggested Solutions
Part 1: Cash
Section I
Date
Apr. 30

Account Titles and Explanation

Cash
Notes Receivable

Debit
3,200

30 Accounts Receivable
Cash

4,000

30 Notes Payable
Interest Expense
Cash

2,000
100

30 Service Charge Expense

Cash

Credit
3,200

4,000

2,100

40

40

Section II

Date
June

Account Titles and Explanation

Debit

Postage expense

36.40

Travel expense

77.20

Office supplies expense

24.55

Credit

Cash over

8.15

Petty cash

30.00

Cash

100.00

25

Part 2: Accounts Receivable

a.
Date
Dec. 31

Account Titles and Explanation

Bad Debts Expense
Allowance for Doubtful Accts.
34,347 18,000 = 16,347

Debit
16,347

b.
Assets
Current assets
Accounts receivable
Less: AFDA

$1,194,0001
34,3472
$1,159,653

Calculations:
1.
2.

684,000 + 420,000 + 60,000 + 24,000 + 6,000 = 1,194,000

18,000 + 16,347 = 34,347

26

Credit
16,347

Part 3: Inventory Costing

Section I

Cost of goods sold

Ending inventory
Gross profit

FIFO
9,2201
1,9202
7803

Moving
Weighted
Average
9,2844
1,8564
7165

Calculations:
1.
2.
3.
4.

( 3 8 0 @ 23) + (20 @ 24) = 9,220

(80 @ 24) = 1,920
10,000 9,220 = 780
Purchases
400 @ 23
100 @ 24
(20)@ 23 return

Cost of Sales

400 @ 23.21 = 9,284

Cost of goods sold = 9,2844

5.

Ending Inventory
9,200/400 = 23.00
11,600/500 = 23.20
11,140/480=23.21
1,856/80 = 23.20
Ending inventory = $1,8564

10,000 9,284 = 716

Section II
A physical inventory count would be conducted to compare the actual inventory on hand to
the unadjusted inventory balance in the accounting records. The difference, known as
shrinkage, would be debited to COGS and credited to Merchandise Inventory.

27

Part 4: Property, Plant and Equipment Assets

Section I
Year

Straight-Line Depreciation

Double-Declining Balance Depreciation

2015

160,000 40,000/5 = 24,000/yr;

24,000 x 9/12 = 18,000

2/5 = .4 or 40%; 160,000 x 40% x

9/12 = 48,000

2016

24,000

(160,000 48,000) x 40% = 44,800

2017

24,000

(160,000 48,000 44,800) x 40% =

26,880

Section II
Date
Jan. 1

Account Titles and Explanation

Accumulated depreciation
Cash
Loss
Machine

Debit
42,000
39,000
79,000

Credit

160,000

Section III
Date
Dec. 31

Account Titles and Explanation

Depreciation expense
Accumulated depreciation
160,000 42,000-15,000 = 103,000;
103,000/(8 yrs 21/12 = 6.25 yrs) = 16,480

28

Debit
16,480

Credit
16,480

Section IV
Date
July 25

Account Titles and Explanation

Land
Building
Cash
Note payable

Debit
348,000
232,000

Calculations:
Appraised
Land
Building
Totals

Values
Allocation of Cost
330,000 550,000 x 580,000 = 348,000
220,000 550,000 x 580,000 = 232,000
550,000
580,000

Section V
PPE assets might be financed through:
1. the issuance of preferred and/or common shares
2. the issuance of debt
3. the exchange of existing assets (i.e., cash, PPE)
4. a combination of 1 and/or 2 and/or 3.

29

Credit

70,000
510,000

Part 5: Current and Long-term Liabilities

Section I
a.
Date
Dec. 31

Account Titles and Explanation

Warranty expense
Estimated warranty liability
3% x 1,000,000 = 30,000

Debit
30,000

Credit
30,000

b. 30,000 23,895 = 6,105

c.

$1,000,000 X 60% = 600,000 COGS X 3% = $18,000 estimated warranty liability

based on units sold.

Section II
a.

Liabilities
Current liabilities: __$60,487
Long-term liabilities:
$66,536

Section III
The current portion of long-term debt must be disclosed on the balance sheet as a current
liability to ensure decision makers are aware of the obligations that are due within the next
12-month period. If current liabilities are not disclosed appropriately, the balance sheet might
create the impression that there are sufficient current assets to pay current liabilities when the
opposite might be true.

30

Part 6: Corporate Transactions

Section I
Jan. 10 Issued 18,000 common shares in exchange for equipment valued at $153,000.
Date
Jan. 10

Description

Debit

Equipment

Balance
Sheet
Effect
+Assets

Credit

153,000

Common shares

+ Equity

153,000

Dec. 31 Johnson Inc.s net income for 2016 was $25,000. Prepare the closing entry.

Date
Dec.
31

Description

Debit

Income summary

Balance
Sheet
Effect
N/A

Credit

25,000

Retained earnings

+ Equity

25,000

Dec. 31 Declared the annual dividend on the preferred shares to be paid in cash.

dividends have not yet been paid.

Date
Dec.
31

Description

Debit

R/E or Cash dividends

Credit

17,500

Dividends payable

17,500

2.50 x 7,000 = 17,500

31

NOTE:

Balance
Sheet Effect
- Equity
+ Liabilities

Section II
Johnson Inc.
Statement of Changes in Equity
Year ended December 31, 2016

Preferred
Shares
Balance, Jan. 1

$ 105,000

Issuance of shares

Common
Shares

Retained
Earnings

Total
Equity

$ 175,000

$ 129,000

$ 409,000

153,000

Net income
Dividends
Balance, Dec. 31

$ 105,000

$ 328,000

153,000
25,000

25,000

(17,500)

(17,500)

$ 136,500

$ 569,500

Section III
ABCs board of directors may decide to use the net income for company growth given that it
has just completed its first year of operations. Additionally, the income may be used to pay
down debt. New businesses typically do not pay dividends in their early, high growth period.
Section IV
Account Titles and Explanation

Debit

Retained Earnings

145,000

Income Summary

Credit

145,000

This is the entry to close the net loss of $145,000 to retained earnings. The temporary accounts
of revenues and expenses were closed into the income summary. The balance in the income
summary must be equal to the net income/loss shown on the income statement as a check that all
revenues and expenses were closed properly. Once that has been confirmed, the balance in the
income summary is then transferred to retained earnings which is a permanent account. The
temporary account balances will have zero balances so that the next accounting period can track
performance specifically for that period.

32

Part 7: Statement of Cash Flows

Section I
a)

Walker Corporation
Statement of Cash Flows
Year ended December 31, 2015

Operating activities:
Net loss .......................................................
Depreciation expense .......................................
Decrease in accounts receivable .......................
Increase in accounts payable ............................
Decrease in inventory.........................................
Cash inflow from operating activities ................
Investing activities:
Purchase of equipment ......................................
Proceeds from sale of investments ....................
Cash outflow from investing activities...............
Financing activities:
Issued bonds .....................................................
Paid dividends ...................................................
Cash inflow from financing activities .................
Net decrease in cash ............................................
Beginning cash balance .......................................
Ending cash balance ............................................

$ (61)
48
130
39
60

$ 216

$(530)
100
(430)
$ 200
(65)

135
$ (79)
92
$ 13

NOTE: Equipment was purchased by paying cash of $530 and issuing common shares for
$550.
b) Days sales in inventory:

150/980 X 365 = 55.87 days

Days sales in inventory ratio is a measure that evaluates the liquidity of a companys inventory
and how quickly inventory is converted into sales. If the industry average is 60 days for
inventory to sell, then Walker Corp. performance is favourable because it takes fewer days to sell
(55.87 days) compared to the industry average of 60 days.

Section II
Net cash inflows (outflows) from operating activities reflect the net income or net loss
expressed as a cash value, since the operating activities section of a statement of cash flows
adjusts accrual net income as reported on the income statement to a cash basis net income.

33

Part 8: Financial Statement Analysis

1. a. Calculate the Acid-Test Ratio for 2015.
75 + 310 = 1.68:1
129 + 100
This is a liquidity ratio that is a more rigorous test of a companys ability to pay its
shortterm debts as they come due. Inventory and prepaid expenses are excluded from this
ratio and only the most liquid assets are included.
b. Is the company's Acid-Test Ratio favourable or unfavourable, compared to the industry
average?
It is favourable relative to the industry average.
2. a. Calculate the Accounts Receivable Turnover for 2015.
1,500 + (310 + 180) = 6.12 times/year or every 59.64 days (365/6.12)
2
b. Is the company's Accounts Receivable Turnover favourable or unfavourable,
compared to the industry average in 2015?
It is unfavourable relative to the industry average because the company's turnover rate of
6.12 is lower than the industry rate of 8.2 times. In days, the companys rate is every 59.6
days (365/6.12) compared to industrys every 44.5 days (365/8.2) which represents the
average number of days to collect accounts receivable.
3. Do Leon Creations assets generate profits favourably or unfavourably, compared to the
industry average in 2015? (Show appropriate calculations.)
Return on total assets =
251 + (2,189 + 1,050) X 100 = 15.5%
2
which is higher (more favourable) than the industry average
This ratio is an example of a profitability ratio.

34

Part 9: Financial Statements

Section I

Jacks Used Books Inc.

Balance Sheet
June 30, 2015

Assets
Current assets: .................................................
Cash................................................................
Accounts receivable........................................
Less: Allowance for doubtful accounts...........
Merchandise inventory ...................................
Office supplies ................................................
Total current assets........................................
Long-term investments:
Long term investment.....................................
Notes receivable .............................................

$29,000
1,400

$10,500
27,600
17,000
750
$ 55,850
$75,000
14,000

Total long-term investments...........................

Property, plant and equipment:
Equipment ......................................................
Less: Accumulated depreciation ................

89,000
$15,000
3,800

Intangible assets:
Copyright........................................................
Patent............................................................

$25,000
2,500

Total intangible assets....................................

Total assets...........................................................
Liabilities
Current liabilities:
Accounts payable...........................................
Current portion of long-term note payable ....
Salaries payable ............................................
Unearned sales ..............................................
Total current liabilities...................................
Long-term liabilities:
Notes payable, less $3,000 current portion ...
Total liabilities....................................................
Equity
Contributed capital:
Preferred shares ..........................................
Common shares ...........................................
Total contributed capital.............................
Retained earnings*............................................
Total equity .................................
Total liabilities and equity...............

11,200

27,500
$183,550

$1,800
3,000
950
1,100
$6,850
4,000
$ 10,850

$40,000
49,325
$89,325
83,375
172,700
$183,550

*Calculated as beginning retained earnings of $50,000 + net income of $79,375

dividends of $46,000 = $83,375 retained earnings at the end of the period.

35

Section II
The balance sheet was strengthened from June 30, 2014 to June 30, 2015. Debt financing
(percentage of liabilities to total assets) decreased significantly, from 62.5% at June 30, 2014
($75,000/$120,000 X 100) to 5.91% at June 30, 2015 ($10,850/$183,550 X 100). Equity
financing (percentage of equity to total assets) increased from 37.5% at June 30, 2014
($45,000/$120,000 X 100) to 94.09% at June 30, 2015 ($172,700/$183,550 X 100).

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