Sample Final Exam B (mock) · Mock paper — built from course content · worked-solution

• #accounting
• #past-paper
• #worked-solution
• #journal-entries
• #deferred-revenue
• #depreciation
• #stock-options
• #black-scholes
• #revenue-recognition
• #asc-606

1. Q1 — Full accounting cycle with deferred revenue & a disposal (40 pts)

   Brightwave Ltd is incorporated on 1 January 2025. During its first year:

   1. 1 Jan — Founders contribute $150,000 cash for 150,000 common shares ($0.10 par).
   2. 1 Jan — Buy office equipment for $24,000 cash; 4-year life, straight-line, no salvage.
   3. 1 Jan — Buy a delivery van for $8,000 cash; 4-year life, straight-line, no salvage.
   4. 1 Apr — A customer pays $60,000 in advance for a 12-month service contract (Apr 2025 – Mar 2026).
   5. 1 Oct — Sell the van for $6,000 cash.
   6. 1 Jan — Draw an $80,000 bank loan at 5% p.a.; interest paid each 1 January for the prior year, principal a bullet.
   7. Rent is $3,000/month, paid on the 1st. Payroll is $8,000/month, accrued at month-end and paid the 5th of the next month.
   8. Other services delivered (invoiced Net 30) total $70,000; $50,000 is collected by year-end.

   Required: (a) the key journal entries (including the van disposal), (b) the Income Statement, (c) the Balance Sheet at 31 Dec 2025, and (d) the current ratio, quick ratio, debt-to-equity and net profit margin.

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2. Q2 — Employee stock options: how they're valued & expensed (15 pts)

   On 1 January 2025, Brightwave Ltd grants an employee 20,000 stock options, exercisable at $15 (the current share price), vesting over 4 years — a 1-year cliff, then monthly. A Black-Scholes model values each option at $6.00 at the grant date.

   (a) In one or two sentences, say what the Black-Scholes model measures, and for each input state whether an increase raises or lowers the option's value: share-price volatility, exercise (strike) price, time to expiry, dividend yield. (b) What, if anything, is recorded on the grant date? (c) Compute the 2025 compensation expense and give the journal entry. (d) The employee resigns on 30 June 2026. How many options have vested, and what happens to (i) the expense already recognised and (ii) the unvested options?

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3. Q3 — Revenue recognition: allocating a bundled contract (15 pts)

   On 1 October 2025, SoftCo signs a $120,000 contract that bundles two things: a perpetual software licence (standalone selling price $100,000) and 12 months of hosting & support (standalone selling price $50,000). The licence is delivered (downloaded) immediately; hosting runs Oct 2025 – Sep 2026.

   Required: work through the five-step ASC 606 / IFRS 15 model, allocate the transaction price, and state how much revenue SoftCo recognises in 2025 and how much is deferred.

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4. Q4 — True/False with explanation (30 pts)

   For each of the following 10 statements, indicate whether it is True or False and give a one-line justification. (3 points each.)

   1. Deferred (unearned) revenue is a liability, not revenue, until the good or service is delivered.
   2. A favourable price variance always means the purchasing department performed well.
   3. EBITDA is a reliable proxy for cash flow because it always equals cash generated from operations.
   4. Under the matching principle, expenses are recognised in the same period as the revenues they help generate.
   5. Non-controlling interest (NCI) is reported within equity on the consolidated balance sheet.
   6. Prepaid insurance is recorded as an expense in full at the time of payment.
   7. A liquidation preference gives preferred shareholders the right to receive their capital back before common shareholders in an exit.
   8. The Rule of 40 says a healthy software company's revenue growth rate plus its profit margin should be at least 40%.
   9. Transfer pricing refers to the price charged on transactions between two independent, unrelated companies.
   10. In a bullet loan, the entire principal is repaid at maturity rather than in periodic instalments.
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