ACCT1115. Review Package - Quiz 2. Fall 2013

Transcription

1 ACCT1115 Review Package - Quiz 2 Fall 2013 Page 1 of 16

2 Part I Multiple Choice 1) A company has a $48,000 loan to be paid off over 24 months. Principal payments are $2,000 per month. The current and non-current portions of the loan after one month are: a) $24,000 current and $24,000 non-current b) $24,000 current and $22,000 non-current c) $22,000 current and $24,000 non-current d) $48,000 current and $0 non-current 2) In 2010, Delta Corporation reported sales revenue of $1,000,000, cost of goods sold of $600,000, salaries expense of $80,000, total assets of $1,400,000. What was the gross profit margin (gross margin percentage) for the year 2010? a) 60% b) 40% c) 30% d) 140% 3) Inventory as shown on the financial statements of a business: a) is recorded as a short-term liability b) is recorded as a non-current asset c) is recorded as a current asset d) is recorded as a non-current liability 4) Cost of goods sold is equal to: a) gross profit plus operating expenses b) gross profit less Revenue plus net income c) revenue less gross profit d) revenue plus gross profit 5) On May 1, a retail store purchased $3,000 worth of product from a supplier on account. A portion of the goods was defective so on May 5, the retail store returned 10% of the product. Which of the following journal entries should the retail store prepare to record the transaction on May 5? a) Debit accounts payable $300, credit inventory $300 b) Debit accounts payable $3,000, credit cash $2,700, credit cost of goods sold $300 c) Debit accounts payable $2,700, credit cash $2,700 d) Debit cash $2,700, debit inventory $300, credit accounts payable $3,000 6) In January, a company bought $50,000 worth of inventory which was paid for in February. The company then sold the entire inventory in February for $70,000 on account. The customer paid in March. Which of the following is correct? Assume the company uses a perpetual inventory system. a) Equity increased in February by $20,000 with a gross profit margin of 28.6% b) Equity increased in March with a gross profit of $20,000 and a gross profit margin of 28.6% c) Equity increased in March by $20,000 with a gross profit margin of 40% d) Equity decreased in January by $50,000 and increased in February by $20,000 Page 2 of 16

3 7) An accrued charge is one that is: a) a known liability and recognized in the previous period b) a known liability and recognized in the current period c) an unknown liability and estimated in the next period d) an unknown liability and recognized in the current period 8) A company sells $6,000 inventory on account to a customer. The inventory had a cost of $4,200. What would be the correct journal entry to record the sale? a) Dr. Cash $6,000, Cr. Sales $6,000, Dr. COGS $4,200, Cr. Inventory $4,200 b) Dr. Accounts Receivable $6,000, Cr. Sales $6,000, Dr. COGS $4,200, Cr. Inventory $4,200 c) Dr. Accounts Receivable $6,000, Cr. Sales $6,000, Dr. Inventory $4,200, Cr. COGS $4,200 d) Dr. Sales $6,000, Cr. Accounts Receivable $6,000, Dr. COGS $4,200, Cr. Inventory $4,200 9) As a result of inventory shrinkage: a) equity decreases b) there is no change to equity c) equity increases d) equity may or may not decrease depending on how much the shrinkage was 10) A company experiences inventory shrinkage and records the proper entry to account for it. As a result of this entry: a) gross profit will decrease and net income will increase b) gross profit will decrease and net income will decrease c) gross profit will increase and net income will increase d) gross profit will increase and net income will decrease 11) Jack decides to start his own corporation and invests $50,000 cash. Which of the following is the correct journal entry? a) Dr. Cash; Cr. Common Shares b) Dr. Inventory; Cr. Revenue c) Dr. Cash; Cr. Revenue d) Dr. Capital Account; Cr. Common Shares 12) On January 1, 2012, Michael invested cash of $80,000 into his newly formed corporation. That year, the corporation generated $20,000 of net income and paid half out in dividends. In 2013, the corporation generated $34,000 of net income and paid out half of it in dividends. Determine the ending shareholder s equity balance at the end of a) $97,000 b) $100,000 c) $134,000 d) $107,000 Page 3 of 16

4 13) A contra revenue account will usually have what kind of balance? a) no balance (it is contra) b) debit c) credit d) average 14) FOB destination means that: a) ownership of the items being purchased changes when the goods leave the purchaser s place of business b) ownership of the items being purchased changes when the goods arrive at the purchaser s place of business c) ownership of the items being purchased changes when the goods leave the seller s place of business d) ownership of the items being purchased changes when the goods arrive at the seller s place of business 15) A seller offers a 3% discount if payment is made within 15 days, otherwise the full amount is payable within 30 days. Which of the following is the correct term for this arrangement? a) 3/30, n15 b) 3/15, n30 c) n3, 15/30 d) 15/3, n30 16) Ozmi Company collects $23,000 cash for consulting work to be provided next month. How should this transaction be recorded? a) Increase accounts receivable; increase revenue b) Increase cash; decrease accounts receivable c) Increase cash; increase unearned revenue d) Increase cash; increase revenue Page 4 of 16

5 Part II Lower of Cost or Market On March 31, 2013 a company has three types of products: gadgets, widgets and gizmos. The cost of each type is listed below. Complete the table by applying the lower of cost or market. Lower of Cost or Market Applied to Description Category Cost Market Individual Category Total Gadget 1 Gadgets Gadget 2 Gadgets Total Gadgets Widget A Widgets Widget B Widgets Total Widgets Gizmo 1 Gizmo Gizmo 2 Gizmo Total Gizmos Total 1,000 5,000 6, ,500 1,750 3,250 9, ,200 5,000 6,100 6, ,450 1,450 2,000 1,750 3,450 3,250 9,850 9,220 9,370 9,370 Amount of Adjustment required: Prepare the required entry, if required, if LCM was applied using the Individual value. Date Account Title Debit Credit March 31 Cost of Goods Sold 150 Inventory 150 To adjust inventory for LCM Prepare the adjusting entry, if required, if LCM was applied using the category value. Date Account Title Debit Credit No entry required Page 5 of 16

6 Prepare the adjusting entry, if required, if LCM was applied using the total value. Date Account Title Debit Credit No entry required Page 6 of 16

7 Part III Inventory - Journal Entries NorthWave Inc. has provided you with the following transactions for the month of July, 2013: Date Business Transaction Jul 8 Purchased $240,000 of inventory on account, terms 2/10, net Jul 9 Paid $240 cash for freight bill for transportation of inventory purchased on July Jul 10 Jul 12 A portion of the inventory from the above purchase was defective. NorthWave returned $600 worth of inventory to the supplier. Sold $110,000, of products to SouthShore on account, terms 2/10, net 30; cost of goods sold was $44,000 for this transaction Jul 14 Customer from Jul 12 purchase paid their amount owing Jul 21 Jul 22 A customer returned $1,700 of goods purchased on account. The cost of goods sold for the returned inventory is $1,020. Purchased goods from EastCoast Inc. on account for $16,000 with terms of 3/10, net 30. Jul 23 Made a cash sale of $12,000. The cost of goods sold for this transaction was $7, Jul 25 Required: Paid up amount owing to EastCoast Inc. from Jul 22 purchase $205,740 Journalize the above transactions assuming that NorthWave uses a perpetual inventory system. Journal entry descriptions are NOT required. Page 7 of 16

8 Date Account Title DR CR Jul 8 Inventory $240,000 Accounts Payable $240,000 Purchased inventory on account Jul 9 Inventory $240 Cash $240 Paid freight bill Jul 10 Accounts Payable $600 Inventory $600 Returned defective goods Jul 12 Accounts Receivable $110,000 Sales Revenue $110,000 Cost of Goods Sold $44,000 Inventory $44,000 Record sales on account Jul 14 Cash $107,800 Sales Discount $2,200 Accounts Receivable $110,000 Record sales discount provided for customer Jul 21 Sales Returns & Allowances $1,700 Accounts Receivable $1,700 Inventory $1,020 Cost of Goods Sold $1,020 Customer returned goods purchased on account Jul 22 Inventory $16,000 Accounts Payable $16,000 Purchased goods on account Jul 23 Cash $12,000 Sales Revenue $12,000 Cost of Goods Sold $7,200 Inventory $7,200 To record cash sale of goods Page 8 of 16

9 Date Account Title DR CR Jul 25 Accounts Payable $16,000 Cash $15,520 Inventory $480 Paid amount owing Page 9 of 16

10 Part IV Notes Payable On May 1, 2013, Landon Horton Inc. borrowed $100,000 from the bank. To that effect, Landon Horton signed a $100,000, 10-month, 12% per annum note. Landon Horton has a year-end of December Prepare the journal entry for Landon Horton: Journal entry descriptions are NOT required. a) On the date the note was signed Date Account Title DR CR May 1 Cash $100,000 Notes Payable $100,000 To record a 10-month, 12% note payable b) At year-end Date Account Title DR CR Dec 31 Interest Expense $8,000 Interest Payable $8,000 To record accrued interest at year-end c) On March 1, 2014 when the note is repaid. Date Account Title DR CR Mar 1 Notes Payable $100,000 Interest Payable $8,000 Interest Expense $2,000 Cash $110,000 To record repayment of note and additional interest Page 10 of 16

11 Part V Current vs. Non-Current Identify each of the following accounts using the appropriate balance sheet category. Current Asset Non-Current Asset Current Liability Non-Current Liability Shareholders' Equity Accounts Payable Account Name Current Liability Category Accounts Receivable Current Asset Furniture Non-Current Asset Current Portion of Bank Loan Current Liability Unearned Revenue Current Liability Retained Earnings Shareholders' Equity Equipment Non-Current Asset Cash Current Asset Common Shares Shareholders' Equity Long-term Portion of Bank Loan Non-Current Liability Page 11 of 16

12 Part VI Formal Financial Statements Below is Canduro Inc. trail balance for the year ended June 30, Based on the information provided, answer the required questions. The trial balance is presented in alphabetical order. Canduro Inc. Trial Balance As at June30, 2013 Account Title Debit Credit Accounts Payable $8,900 Accounts Receivable $6,100 Accumulated Depreciation 1,200 Bank Loan (See Note 1) 21,000 Cash 19,000 Common Shares 10,000 Cost of Goods Sold 13,500 Depreciation Expense 700 Dividends 3,500 Insurance Expense 600 Interest Expense 120 Interest Revenue 280 Inventory 18,000 Maintenance Expense 590 Prepaid Insurance 3,250 Professional Fees Expense 260 Property, Plant & Equipment 25,000 Rent Expense 1,000 Retained Earnings 24,470 Salaries Expense 2,500 Sales Discounts 1,100 Sales Returns and Allowances 840 Sales Revenue 30,000 Telephone Expense 90 Travel Expense 1,400 Unearned Revenue 1,700 Total $97,550 $97,550 Note 1: The bank loan is payable over 5 years and principal of $4,200 will be paid by June 30, Page 12 of 16

13 Required: a) Prepare a multistep income statement for the year ended June 30, b) Determine the gross margin percentage for the year ended June 30, c) Calculate the ending retained earnings balance at June 30, d) Prepare a Classified Balance Sheet at June 30, a) Canduro Inc. Income Statement For the Year Ended June 30, 2013 Sales Revenue $30,000 Less Sales Discounts (1,100) Less Sales Returns and Allowances (840) Net Sales 28,060 Less Cost of Goods Sold (13,500) Gross Profit 14,560 Operating Expenses Insurance Expense $600 Maintenance Expense 590 Rent Expense 1,000 Professional Fees Expense 260 Salaries Expense 2,500 Telephone Expense 90 Travel Expense 1,400 Depreciation Expense 700 Total Operating Expenses (7,140) Income from Operations 7,420 Other Revenue and Expenses Interest Revenue 280 Interest Expense (120) 160 Net Income $7,580 b) Page 13 of 16

14 c) Gross Margin Percentage = Gross Profit Sales 100 = ($14,560 /$28,060) * 100 = % d) Canduro Inc. Balance Sheet As at June 30, 2013 Assets Current Assets Cash $19,000 Accounts Receivable 6,100 Prepaid Insurance 3,250 Inventory 18,000 Total Current Assets $46,350 Non-Current Assets Property, Plant & Equipment 25,000 Accumulated Depreciation (1,200) Total Non-Current Assets 23,800 Total Assets $70,150 Liabilities Current Liabilities Accounts Payable 8,900 Unearned Revenue 1,700 Bank Loan - Current Portion 4,200 Total Current Liabilities $14,800 Non-Current Liabilities Bank Loan - Non-Current Portion 16,800 Total Non-Current Liabilities 16,800 Total Liabilities 31,600 Shareholders' Equity Common Shares 10,000 Retained Earnings 28,550 Total Shareholders' Equity 38,550 Liabilities & Owner's Equity $70,150 Page 14 of 16

15 Part VII Merchandising Co. Closing Entries The year-end trial balance for Volane Inc. is shown below: Volane Inc. Trial Balance December 31, 2012 Account Title DR CR Cash 100,000 Accounts Receivable 70,000 Prepaid Insurance 15,000 Property, Plant & Equipment 50,000 Accumulated Depreciation 5,000 Accounts Payable 50,000 Unearned Revenue 43,000 Common Shares 115,000 Retained Earnings 15,600 Sales Revenue 65,000 Sales Discount 8,500 Sales Returns & Allowances 6,000 Cost of Goods Sold 40,000 Rent Expense 2,200 Depreciation Expense 1,900 Totals 293, ,600 Prepare the journal entries to close the appropriate accounts on December 31, 2012 using the income summary. Assume the company uses perpetual inventory system. Journal entry descriptions are NOT required. Date Account Title DR CR Dec 31 Sales Revenue $65,000 Income Summary $65,000 To close the revenue accounts Dec 31 Income Summary $58,600 Sales Discount $8,500 Sales Returns & Allowances $6,000 Cost of Goods Sold $40,000 Rent Expense $2,200 Depreciation Expense $1,900 To close the expense accounts Page 15 of 16

16 Date Account Title DR CR Dec 31 Income Summary $6,400 Retained Earnings $6,400 To close the income summary account Page 16 of 16