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

• #accounting
• #past-paper
• #worked-solution
• #inventory
• #cost-of-goods-sold
• #dividends
• #dcf
• #equity-method
• #ratio-analysis

1. Q1 — Full cycle: a goods retailer with inventory, COGS & a dividend (40 pts)

   Northwind Traders (a goods retailer) is incorporated on 1 January 2025. During its first year:

   1. 1 Jan — Founders contribute $300,000 cash for 300,000 common shares ($0.10 par).
   2. 1 Jan — Draw a $120,000 bank loan at 10% p.a., repaid in 3 equal annual principal instalments of $40,000 starting 1 Jan 2026; interest is paid each 1 January for the prior year.
   3. 1 Jan — Buy store equipment for $40,000; 5-year life, straight-line, no salvage.
   4. 1 Jul — Pay $24,000 for 12 months of rent (Jul 2025 – Jun 2026).
   5. During the year — Buy $180,000 of inventory for cash. Goods that cost $150,000 are sold for $260,000 (invoiced Net 30); $220,000 is collected by year-end. Ending inventory is therefore $30,000.
   6. Salaries are $60,000 for the year; December's $5,000 is unpaid at year-end (accrued).
   7. 20 Dec — Declare and pay a $10,000 cash dividend.
   8. Corporate tax rate is 23%, paid the following year.

   Required: (a) the headline journal entries (tag each B/S or I/S), (b) the Income Statement, (c) the Balance Sheet at 31 Dec 2025, and (d) gross margin, current ratio, quick ratio, inventory turnover, net margin and ROE.

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2. Q2 — DCF valuation (15 pts)

   Northwind is valuing a small brand it may acquire, BrightBox. The forecast free cash flows ($000s) are:

   Year	1	2	3	4	5
   Free cash flow	20	30	40	50	60

   Use a WACC of 10% and a long-run growth rate of 2% beyond year 5.

   Required: compute the terminal value, the present value of the cash flows and the terminal value, and the enterprise value. Comment on what drives the answer.

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3. Q3 — Equity method (associate) (15 pts)

   On 1 January 2025, Northwind buys 30% of Kettle Ltd for $600,000, giving it significant influence (but not control). During 2025 Kettle reports a net profit of $400,000 and pays total dividends of $100,000.

   Required: state which accounting method applies and why, give the journal entries, compute the carrying value of the investment at 31 Dec 2025, and state what appears in Northwind's income statement.

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

   For each statement, indicate True or False and give a one-line justification. (3 points each.)

   1. Cost of goods sold is recognised when the goods are sold, not when they are purchased.
   2. A dividend paid to shareholders is recorded as an expense on the income statement.
   3. Gross profit is sales revenue minus all operating expenses.
   4. Under the equity method, the investor increases the carrying value of its investment by its share of the associate's profit.
   5. Inventory is reported on the balance sheet as an asset until it is sold.
   6. In a discounted cash flow valuation, the terminal value is often the largest single component of the total value.
   7. The portion of a long-term loan due within the next 12 months is classified as a current liability.
   8. Retained earnings equals cumulative net income less any dividends declared.
   9. A higher inventory turnover ratio necessarily means the company is performing worse.
   10. The quick ratio excludes inventory from current assets.
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