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 Chapters 1 through 13 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.

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 Part 1: Cash Section

JenCo’s 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 JenCo’s 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

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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

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Part 2: Accounts Receivable

SouthCo had credit sales of $1,900,000 in 2015. At year end, December 31, 2015 the company’s
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 Age of Accounts Unexpected Percentage

Accounts Receivable Receivable Uncollectible
$684,000 Not due (under 30 days) 1.30%
420,000 1 to 30 days past due 2.30%
60,000 31 to 60 days past due 6.00%
24,000 61 to 90 days past due 33.75%
6,000 Over 90 days past due 68.25%

Required:
a. Prepare the adjusting entry to record estimated bad debts expense for 2015.

Date Account Titles and Explanation Debit Credit

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

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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 Sales
Beginning: 400 units @ $23/unit April 1: 400 units
February 21: 100 units @ $24/unit

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.

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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. Caribou’s 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 asset’s 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

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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 straight-
line 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

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

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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?

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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.

Principal Interest Principal

Annual Portion of Portion of Balance at
Year Payment Payment Payment Year End
2015 73,189 49,989 23,200 182,011
2016 73,189 54,988 18,201 127,023
2017 73,189 60,487 12,702 66,536
2018 73,189 66,536 6,653 0

a. 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.

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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.
Balance
Date Description Debit Credit
Sheet Effect

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

Balance
Date Description Debit Credit
Sheet Effect

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Dec. 31 Declared the annual dividend on the preferred shares to be paid in cash. NOTE: dividends
have not yet been paid.

Date Description Debit Credit Balance

Sheet Effect

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.

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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 Credit

Retained Earnings 145,000
Income Summary 145,000

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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 2014
Cash $ 13 $ 92
Accounts Receivable (Net) 50 180
Inventory 150 210
Long-term Investment 300 400
Equipment 1,580 500
Less: Accumulated Depreciation (330) (282)
$ 1,763 $ 1,100

Liabilities and Equity

Accounts Payable $ 229 $ 190
Bonds Payable 300 100
Common Shares 1,000 450
Retained Earnings 234 360
$1,763 $ 1,100

Income Statement
For the Year Ended December 31, 2015
Sales $ 1,200
Cost of Goods Sold 980
Gross Profit $ 220
Operating Expenses
Depreciation Expense $ 48
Other Expenses 233 281
Net Income/(loss) $ (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?

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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.

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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 $ 1,500
Cost of Goods Sold 980
Gross Profit $ 520
Operating Expenses:
Depreciation Expense $ 48
Other Expenses 221 269
Operating Income $ 251
Other Revenues and Expenses
Interest Expense $ 12
Loss on Sale of Equipment 16 28
Net Income $ 223

Leon Creations Co. Comparative

Account Information
December 31, 2015 and 2014
2015 2014
Accounts Payable $ 129 $ 115
Accounts Receivable (Net) 310 180
Bonds Payable 610 100
Cash 75 42
Common Shares 850 450
Equipment 1,360 500
Inventory 250 210
Accumulated Depreciation 206 282
Long-term Investment 400 400
Retained Earnings 500 310
Salaries Payable 100 75

Following are industry averages:

Current Ratio 2.5:1 Inventory Turnover 5.5 times

Acid-Test (Quick) Ratio 1.4:1 Return on Assets 13.4%
Accounts Receivable Turnover 8.2 times Return on Equity 18.3%

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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 company’s Acid-Test Ratio favourable or unfavourable, compared to the industry average?

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

b. Is the company’s Accounts Receivable Turnover favourable or unfavourable, compared to the

industry average in 2015?

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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?

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Part 9: Financial Statements
The following information appeared on the alphabetized adjusted trial balance of Jack’s Used Books Inc.
for the year ended June 30, 2015. Assume all accounts have a normal balance.
Accounts payable....................................................................... $ 1,800
Accounts receivable .................................................................. 29,000
Accumulated depreciation, equipment ...................................... 3,800
Advertising expense................................................................... 20,000
Allowance for doubtful accounts............................................... 1,400
Cash............................................................................................ 10,000
Cost of goods sold ..................................................................... 123,900
Delivery expense ....................................................................... 4,875
Depreciation expense ................................................................ 5,000
Equipment.................................................................................. 15,000
Interest income........................................................................... 2,000
Common shares ......................................................................... 49,325
Preferred shares ......................................................................... 40,000
Retained earnings....................................................................... 50,000
Cash dividends........................................................................... 46,000
Merchandise inventory............................................................... 17,000
Notes payable ($3,000 is due by June 30, 2016)....................... 7,000
Notes receivable (due in 2018) ................................................. 14,000
Office supplies........................................................................... 750
Long-term investment…………………… ............................... 75,000
Copyright .................................................................................. 25,000
Office supplies expense ............................................................ 1,200
Patent......................................................................................... 2,500
Petty cash .................................................................................. 500
Rent expense.............................................................................. 17,900
Salaries expense ........................................................................ 41,750
Salaries payable ........................................................................ 950
Sales .......................................................................................... 314,000
Sales returns and allowances...................................................... 22,000
Unearned sales........................................................................... 1,100

Section I
Required: Using the information above, prepare a classified balance sheet—in proper format—on the
following pages. Abbreviations are acceptable.

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Section II
Assume total assets, liabilities, and equity at June 30, 2014 for Jack’s 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.

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Current ratio
Acid-test ratio
Accounts receivable
turnover
Accounts receivable
collection period
Merchandise turnover
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
Book value per preferred share
Earnings per share
Price-earnings ratio
Dividend yield
Formula Sheet
= 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
= Total equity – (paid-in capital for preferred shares + dividends in arrears)
Number of common shares outstanding
= 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
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 ACCT 253
Introductory Financial Accounting
Sample Final Examination (Version 1)

Suggested Solutions

Part 1: Cash

Section I

Date Account Titles and Explanation Debit Credit

Apr. 30 Cash 3,200
Notes Receivable 3,200

30 Accounts Receivable 4,000

Cash 4,000

30 Notes Payable 2,000

Interest Expense 100
Cash 2,100

30 Service Charge Expense 40

Cash 40

Section II

Date Account Titles and Explanation Debit Credit

June
Postage expense 36.40
Travel expense 77.20
Office supplies expense 24.55
Cash over 8.15
Petty cash 30.00
Cash 100.00

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Part 2: Accounts Receivable

a.

Date Account Titles and Explanation Debit Credit

Dec. 31 Bad Debts Expense 16,347
Allowance for Doubtful Accts. 16,347
34,347 – 18,000 = 16,347

b.
Assets
Current assets
1
Accounts receivable $1,194,000
2
Less: AFDA 34,347
$1,159,653

Calculations:
1. 684,000 + 420,000 + 60,000 + 24,000 + 6,000 = 1,194,000
2. 18,000 + 16,347 = 34,347

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Part 3: Inventory Costing

Section I

Moving
Weighted
FIFO Average
Cost of goods sold 9,2201 9,2844
Ending inventory 1,9202 1,8564
Gross profit 7803 7165

Calculations:

1. ( 3 8 0 @ 23) + (20 @ 24) = 9,220

2. (80 @ 24) = 1,920
3. 10,000 – 9,220 = 780
4.
Purchases Cost of Sales Ending Inventory
400 @ 23 – 9,200/400 = 23.00
100 @ 24 – 11,600/500 = 23.20
(20)@ 23 return – 11,140/480=23.21
400 @ 23.21 = 9,284 1,856/80 = 23.20
Cost of goods sold = 9,2844 Ending inventory = $1,8564

5. 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.

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

24,000 x 9/12 = 18,000 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 Account Titles and Explanation Debit Credit

Jan. 1 Accumulated depreciation 42,000
Cash 39,000
Loss 79,000
Machine 160,000

Section III

Date Account Titles and Explanation Debit Credit

Dec. 31 Depreciation expense 16,480
Accumulated depreciation 16,480
160,000 – 42,000-15,000 = 103,000;
103,000/(8 yrs – 21/12 = 6.25 yrs) = 16,480

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 Section IV

Date Account Titles and Explanation Debit Credit

July 25 Land 348,000
Building 232,000
Cash 70,000
Note payable 510,000

Calculations:
Appraised
Values Allocation of Cost
Land 330,000 ÷ 550,000 x 580,000 = 348,000
Building 220,000 ÷ 550,000 x 580,000 = 232,000
Totals 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.

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 Part 5: Current and Long-term Liabilities

Section I

a.

Date Account Titles and Explanation Debit Credit

Dec. 31 Warranty expense 30,000
Estimated warranty liability 30,000
3% x 1,000,000 = 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.

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 Part 6: Corporate Transactions

Section I

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

Balance
Date Description Debit Credit Sheet
Effect
Jan. 10 Equipment 153,000 +Assets

Common shares 153,000 + Equity

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

Balance
Date Description Debit Credit Sheet
Effect
Dec. N/A
Income summary 25,000
31
Retained earnings 25,000 + Equity

Dec. 31 Declared the annual dividend on the preferred shares to be paid in cash. NOTE:
dividends have not yet been paid.

Balance
Date Description Debit Credit Sheet Effect
Dec. R/E or Cash dividends 17,500 - Equity
31
Dividends payable 17,500 + Liabilities

2.50 x 7,000 = 17,500

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

Preferred Common Retained Total

Shares Shares Earnings Equity

Balance, Jan. 1 $ 105,000 $ 175,000 $ 129,000 $ 409,000

Issuance of shares 153,000 153,000

Net income 25,000 25,000

Dividends (17,500) (17,500)

Balance, Dec. 31 $ 105,000 $ 328,000 $ 136,500 $ 569,500

Section III

ABC’s 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 Credit

Retained Earnings 145,000

Income Summary 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.

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 Part 7: Statement of Cash Flows

Section I
a)
Walker Corporation
Statement of Cash Flows
Year ended December 31, 2015

Operating activities:
Net loss ....................................................... $ (61)
Depreciation expense ....................................... 48
Decrease in accounts receivable ....................... 130
Increase in accounts payable ............................ 39
Decrease in inventory......................................... 60
Cash inflow from operating activities ................ $ 216
Investing activities:
Purchase of equipment ...................................... $(530)
Proceeds from sale of investments .................... 100
Cash outflow from investing activities............... (430)
Financing activities:
Issued bonds ..................................................... $ 200
Paid dividends ................................................... (65)
Cash inflow from financing activities ................. 135
Net decrease in cash ............................................ $ (79)
Beginning cash balance ....................................... 92
Ending cash balance ............................................ $ 13

NOTE: Equipment was purchased by paying cash of $530 and issuing common shares for
$550.

b) Days’ sales in inventory: [(150 + 210)/2]/980 X 365 = 67.04 days

The days’ sales in inventory ratio is a measure that evaluates the liquidity of a company’s
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 unfavourable because it takes a greater
number of days to sell (67.04 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.

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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 company’s ability to pay its short-
term 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) / 2] = 6.12 times/year or every 59.64 days (365/6.12)

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 company’s rate is every 59.6
days (365/6.12) compared to industry’s 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) / 2] x 100 = 15.5%

which is higher (more favourable) than the industry average

This ratio is an example of a profitability ratio.

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Part 9: Financial Statements
Section I Jack’s Used Books Inc.
Balance Sheet
June 30, 2015
Assets
Current assets: .................................................
Cash................................................................ $10,500
Accounts receivable........................................ $29,000
Less: Allowance for doubtful accounts........... 1,400 27,600
Merchandise inventory ................................... 17,000
Office supplies ................................................ 750
Total current assets........................................ $ 55,850
Long-term investments:
Long term investment..................................... $75,000
Notes receivable ............................................. 14,000
Total long-term investments........................... 89,000
Property, plant and equipment:
Equipment ...................................................... $15,000
Less: Accumulated depreciation ................ 3,800 11,200
Intangible assets:
Copyright........................................................ $25,000
Patent............................................................ 2,500
Total intangible assets.................................... 27,500
Total assets........................................................... $183,550
Liabilities
Current liabilities:
Accounts payable........................................... $1,800
Current portion of long-term note payable .... 3,000
Salaries payable ............................................ 950
Unearned sales .............................................. 1,100
Total current liabilities................................... $6,850
Long-term liabilities:
Notes payable, less $3,000 current portion ... 4,000
Total liabilities.................................................... $ 10,850
Equity
Contributed capital:
Preferred shares .......................................... $40,000
Common shares ........................................... 49,325
Total contributed capital............................. $89,325
Retained earnings*............................................ 83,375
Total equity ................................. 172,700
Total liabilities and equity............... $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.

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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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