York University AP/Adms Introduction to Financial Accounting Midterm Examination Test Form B

Transcription

1 York University AP/Adms Introduction to Financial Accounting Midterm Examination Test Form B Time: 3.0 hours Winter 2010 March 5 th, 2010 Questions: 50 Instructions: 1. Only the mark sense sheet will be collected - - you may keep this midterm examination paper. Mark your answers on it for later reference. 2. Record your name and student number and answer all questions on the computer mark sense sheet provided with an HB (soft lead) pencil. Test Form is 'A' and Code is your Section (in the left column) Fill in the bubbles for your name and student number in pencil (your phone number is not required). Leave the last column of the student number BLANK 3. Calculators without alphanumeric programmable memories are the only aid allowed. The exam is three hours in length. Check that your exam contains 50 questions. Budget your time carefully. You should not spend more than 3.5 minutes per question, otherwise you will not finish the exam. 4. It is essential to transfer your answers to the grading sheet after each question in case the exam is interrupted by fire alarm and to double check your transfers. It is always a good idea to attempt the questions you deem easiest first as an interrupted exam may just mark your score based on questions attempted. The proctors will announce when there are 15 minutes remaining and any answers not transferred should be recorded at this time. No one is to leave their seats in the last 15 minutes. When time is called, the proctors will go down the rows collecting your answer sheets and this exam paper. They will not wait and they will not accept your sheet once they have passed. Any violation of this protocol will result in a grade of zero recorded for the exam. 5. In the event of a fire alarm, you are to leave your exam and answer sheet face down on your desk and immediately proceed outside with coats and all personal belongings. Print your surname on the back of the exam so you know which seat to return to. An invigilator will lead the group outside to a place of safety. There is to be no talking during the evacuation or outside. Most rooms are cleared within 30 minutes of the alarm. You will be told after this time whether to reenter the room and recommence the exam or to go home. You are reminded that cheating is a serious offense which can result in expulsion from university.

2 1. Which of the following is a liability? a) Allowance for Doubtful (Uncollectible) Accounts b) Bank overdraft c) Overpayment by a customer in paying his account balance d) Both (b) and (c) above e) None of the above 2. Which of the following accounts are increased by credits and decreased by debits? a) Purchase Returns & Allowances b) Allowance for Doubtful Accounts c) Retained Earnings d) Accumulated Depreciation e) All of the above 3. Axle Co. at December 31 has a credit balance of $30,000 in its Allowance for Doubtful Accounts account. It uses the aging method of determining its provision for doubtful accounts (bad debts). A review of its aged trial balance shows that an allowance of $30,000 is appropriate to properly allow for uncollectible accounts. The required adjusting entry at December 31 is: a) no adjusting entry is required. The current balance is appropriate b) would include a credit to an expense account of $30,000 c) would include a debit to an expense account of $30,000 d) would include a debit to an expense account of $60,000 e) would include a credit to an expense account of $60,000 A. The balance of Total Assets for Virtue Company is $500,000 on November 30. During November, the following took place: Sold $60,000 of inventory for cash Purchased a $100,000 machine for cash Increased accounts payable $50,000 by acquisitions of inventory on account Wrote off accounts receivable of $20,000 Total Assets for Virtue Company. on November 1 is: a) $500,000 b) $550,000 c) $450,000 d) $530,000

3 B. A Petty Cash Fund was established at $100. An examination of the contents of the strongbox shows $50 in currency and $50 in receipts. a) This could not occur without a violation of GAAP b) An adjusting journal entry would be required before a proper income statement could be constructed c) The $50 in receipts will be added to miscellaneous receipts (a revenue account) on the income statement d) The replenishment entry should not be made until there is no currency left in the box 6. Sales of $1000 are made by Acme Ltd. to Deuce Ltd. with sales terms of 2/10 net 30 and all the goods are returned by the customer within the discount period. Acme follows the gross method of recording sales and Deuce follows the net method of recording Purchases. Acme agrees to the return. a) The two journal entries by Acme and Deuce will be for different amounts. b) The two journal entries for Acme and Deuce will be for identical amounts. c) Acme will credit a contra account and reduce its receivable d) Deuce will debit a contra account and reduce its payable statements are correct 7. Which of the following statements about accruals and deferrals are correct? a) accruals represent expenses and revenues of the current period b) deferrals represent expenses and revenues of future periods c) accruals trigger cash flows in future periods d) deferrals represent cash flows that have already occurred e) all of the above are true 8. The order in which financial statements are prepared: a) does matter and the income statement must be first b) does matter and the balance sheet must be first c) does matter and the statement of retained earnings must be first d) does matter and the cash flow statement must be first e) does not matter 9. Deposits in transit shown on the company s bank reconciliation for June: a) are shown as decreases to the bank balance in the bank reconciliation b) are shown as increases to the general ledger cash account in the bank reconciliation c) are not reconciling items on the June bank reconciliation d) are shown in both sections of the June reconciliation e) None of the above

4 Use the following information to answer questions 10 to 14: The 123 Accounting Company sells accounting videos. The following information has been extracted from the records of 123 Accounting Co.: January 1 Beginning Inventory 60 $10.00 each January 10 Bought 100 $11.00 each January 15 Bought 100 $13.00 each January 20 Sold 220 $20.00 each January 25 Bought 40 units at $15.00 each This blank page is for your rough work.

5 This blank page is for your rough work.

6 10. If 123 Accounting uses the FIFO cost flow assumption and the perpetual method for inventory, the gross profit for January, is a) $1,840 b) $1,760 c) $1,920 d) $1, If 123 Accounting uses the LIFO cost flow assumption and the periodic method for inventory, the ending inventory for January, is a) $820 b) $1,120 c) $1,760 d) $1, If 123 Accounting uses the weighted average method of inventory and the perpetual method then the average cost of each unit charged to cost of sales when the sale is made will be: a) $10 b) $10.63 c) $11.54 d) $ If 123 Accounting uses the weighted average method for inventory valuation and the periodic system then the unit cost charged to cost of sales when the sale is made would be: a) $10 b) $10.63 c) $11.54 d) $13.27 e) Some other amount 14. If prices are rising during the year (inflation) then 123 Accounting will show the highest net income under: a) FIFO b) LIFO c) Weighted Average (periodic) d) Weighted Average (perpetual) e) All methods will yield the same reported income End of 123 Accounting questions

7 15. NSF cheques (not sufficient funds): a) are shown as additions to the bank balance in the bank reconciliation b) are shown as additions to the general ledger cash account in the bank reconciliation c) should be reclassified as Accounts Payable with an adjusting entry d) should be re-deposited in the bank as soon as received e) None of the above 16. Which of these transactions did not result in revenue being reported: a) Sold merchandise for cash b) Sold merchandise on account c) Collected account receivable d) All of the above result in revenue being reported e) None of a, b, or c result in revenue being reported 17. Which of these accounts is not an expense? a. Depreciation b. Sales salaries c. Dividends d. Postage costs e. All of the above are expenses 18. The account Accumulated Depreciation reflects depreciation: a. for the most current period only b. taken since acquisition of the asset c. still to be taken on the asset in future periods d. equal to the amount of revenue from that asset e. equal to the salvage value of the asset 19. Ricker Ltd. completed its first year of operations in The general ledger shows that it paid dividends of $50,000, and had revenues of $400,000. If the balance of Retained Earnings after adjustments was $70,000, then expenses in 2009 must have been: a. $350,000 b. $330,000 c. $280,000 d. None of the above 20. Beginning and ending Total Assets for the year were $25,000 and $32,000 respectively. At year end, Owner s Equity was $20,000 and Liabilities were $4,000 larger than they were at the beginning of the year. If owner s drawings exceeded owner s investment made during this period, then what was Net Income or Net Loss for the year?

8 a. $5,000 net loss b. $13,000 net income c. $9,000 net income d. $5,000 net income e. cannot be determined from the data provided 21. In recording transactions: a. The word debit means to increase and the word credit means to decrease b. Assets and expenses are debited for decreases c. Liabilities and revenue are debited for increases d. Debits should be done in black and credits in red e. All of the above are untrue 22. The main goal of corporations in Canada is: a. profitability b. solvency c. growth d. fiscal responsibility e. two of the choices above share equal status as the primary goal 23. In the context of financial accounting, articulation refers to: a. how well written (how articulate) the financial statements are b. that the financial statements are interconnected (numbers from one are necessary to complete another) c. the fact that the financial statements relate to a specific time frame d. the need for footnotes to make the financial statements complete and meaningful e. none of the above 24. Canadian GAAP as defined in this course: a. is an acronym standing for generally agreed on accounting procedures b. must be used by all public corporations c. stresses the central role of cash in commerce by requiring the cash paradigm d. must be used by all organizations and individuals preparing financial statements regardless of size e. none of the above 25. The individual who invented double entry bookkeeping (which is based on the balance sheet equation) is: a. Bertolli b. Ravioli

9 c. Pacioli d. Bookoli e. None of the above 26. The Cash Flow statement: a. must be the first statement completed when preparing the financial statement b. suffers from the deficiency that it does not reconcile to the net income of the company c. represents a proof of cash (shows the opening and closing balance and how the company goes from one to the other) d. can only be prepared if the cash paradigm is followed e. none of the above 27. The Annual Report for a corporation: a. Is just another way of saying ( a synonym for) the Annual Financial Statements for the Company b. must contain an MD&A section (management discussion and analysis) where the management of the company attempts to explain the significance of the numbers in the financial statements c. must contain comparative financial statements for five years d. is no longer prepared in Canada since financial statements are generated at least monthly e. none of the above 28. If debits do not equal credits in recording a journal entry: a. the trial balance is the principle tool for discovering this b. the financial statements should be issued with a footnote stating this c. a explanation as to why should be written in brackets under the journal entry d. the difference is the amount of revenue recorded on that transaction e. all of the above are correct statements 29. In the straight line depreciation formula you learned in this course: a. an equal charge against earnings will result each period b. salvage value (residual value) must be taken into account and this will necessarily increase the size of the reported expense c. the numerator of the fraction represents the gross cost of the asset d. the amount of charge (depreciation expense) will decrease each period as the depreciable base shrinks e. two of the choices above represent correct statements

10 30. If a company inadvertently (mistakenly) makes the same depreciation entry twice in a period then: a. the financial statements will not be out of balance b. Owner s Equity will be understated c. A future period will overstate reported net income d. The trial balance will not catch this e. All of the above are correct statements 31. Identify the false statement(s) in the five choices below: a. the account analysis equation is the principal tool to analyze activity in each and every general ledger account for the year b. all of the financial statements can be expressed as an algorithm (equation) c. the cash paradigm implies that revenues are recognized only when cash is received d. the accrual paradigm is not tied to cash flow in terms of when it recognizes revenue e. Not possible since all of the above are correct statements 32. Before reconciling to its bank statement Montgomery Medals Corporation's general ledger had a month-end balance in the cash account of $5,250. The bank reconciliation for the month contained the following items: Deposits in transit $750 Outstanding cheques $465 Interest earned $ 20 NSF cheque returned by bank $100 Bank service charge $ 10 Given the above information, what adjusted cash balance should Montgomery Medals Corporation s report at month-end? A) $4,500. B) $4,820. C) $5,160. D) $5,590.

11 33. An electronics retailer purchases $20,000 of computers for resale. The retailer spends $500 in transportation cost to get them from the supplier, $2,000 in labour and parts to upgrade the computers and $300 to advertise them. At this point, what amount should appear in the Inventory account for these computers? A) $20,000 B) $20,500 C) $22,500 D) $22, If a company returns an item to a supplier, the supplier will record the return as: A) sales returns and allowances. B) Shrinkage. C) sales discounts. D) purchase returns and allowances. 35. Over the past five years, a company had average annual credit sales of $320,000 and an average annual net write-offs of $2,000. Credit sales in the current year are $300,000. Using the percentage of credit sales method, what should the company record as an estimate of bad debt expense? A) $2,000 B) $1,875 C) $20,000 D) $6,000 Use the following information for Bilodeau Company for Questions Bilodeau Company was started by Scott Moir as an unincorporated business on Jan 1, 2007 and supplies portable electric stun guns similar to the American made TASER gun for use by law enforcement agencies. The guns cost Bilodeau $1,000 to buy from TASER and sell for $2,000. The company also provides training in the use of the guns and charges $500 per person. The stun guns are called persuaders Bilodeau s accounting records for January, its first month of operation are summarized as follows: Cash Receipts and revenues: Invested by owner, $100,000 Cash sales of persuaders $200,000 Total sales of persuaders including cash sales $500,000 Cash sales of training sessions $20,000 Sales of training sessions on account $40,000 Deposits received in advance for future orders of $70,000 persuaders

12 Interest revenue from bank investments (shown separately in income statement in bottom section and is not reflected in Gross Profit) $1000 Cash Disbursements and expenses: Cheque #1 paid Major Holdings for rent for January $10,000 Cheque #2 paid to Careful Insurance the premium for $2,000 2 months effective January 1st Cheque #3 Paid salaries and benefits to employees $10,000 Cheque #4 Scott Moir s withdrawal of cash for personal $5,000 use from the business on January 25 th Cheue #5 Paid $1000 to Police World News for January $1000 advertising Cheque #6 Established a Petty Cash fund by drawing a $100 $100 cheque to cash Cheque #7 Purchase of machinery & equipment $60,000 Other Information: 1. Because customers are all government agencies, they are exempt from paying PST or GST 2. At the end of January Bilodeau has decided to adopt the percentage of sales method for estimating its required bad debt provision and has set the rate at 5% of credit sales. No adjusting entry has been made yet to set up the allowance. 3. No collections on account have been made by January 31 on January sales 4. Bought machinery and equipment on January 1. Moir estimates that the January straight line depreciation will be $3000, although no entry has been booked yet. 5. Bilodeau provides free delivery of its product by Fed Ex anywhere in North America and treats this as a selling expense. Total freight charges for January are $1000. The invoice from Fed Ex was received on January 31 but has not been recorded yet. The invoice from TASER was also received on January 31 and has yet to be recorded. These will be set up as payables in the adjusting entries for the month. 6. There is no ending inventory of persuaders at January 31. It has not yet acquired the inventory to fill the orders represented by the advance deposits. 7. Ignore all income and payroll taxes in this problem 8. Use the rest of this page for your calculations. It is suggested that you set up T accounts to record the above transactions as a basis for answering the subsequent questions. This blank page is for your rough work.

13 This blank page is for your rough work.

14 36. Bilodeau s unadjusted Trial Balance totals on January 31 are: a) $865,000 b) $662, 000 c) $702,000 d) $927, Bilodeau s should report Cash on its January 31 st Balance Sheet (all cash accounts are aggregated) of a) $288,000 b) $303,000 c) $311,000 d) $318, The adjusting journal entry to set up the required provision for bad debts would be for: a) $15,000 b) $20,000 c) $17,000 d) $22, If Bilodeau decided to write off a $5,000 receivable at month end it would: a) debit an expense account b) credit an allowance account c) debit an asset account d) do nothing as the percentage of sales method has allowed for such an event statements are correct 40. After Bilodeau books the adjusting entry for depreciation in January a) Total Assets will stay the same as before the entry b) A contra account will increase the net balance of the Machinery and Equipment Account c) Net income will be unaffected d) The Machinery & Equipment general ledger account will have a smaller balance 41. Cost of Sales for the month for Bilodeau is:

15 a) zero because invoices received January 31 will be reflected as February expenses b) shown as a selling expense along with delivery expense c) $250,000 d) $500,000 e) not determinable from the information provided 42. Bilodeau s January 31 adjustments (not including setting up unrecorded liabilities) would total: a) $21,000 b) $25,000 c) $31,000 d) $291, Gross Profit for Bilodeau for January would be a) $560,000 b) $500,000 c) $309,000 d) $310,000 amounts 44. The $70,000 cash received in advance by Bilodeau would: a) be reflected in both the balance sheet and the income statement b) be a reconciling item on the bank reconciliation c) reduce reported revenue for January since it sits in a contra account to Revenue d) show separately in assets as deposits received in advance 45. Cash basis income for Bilodeau for January (if defined as Cash revenues minus Cash paid for expenses): a) would be the same as accrual income b) would be less than accrual income c) would be more than accrual income d) is acceptable as an accounting method for Bilodeau since it is unincorporated e) is not determinable from the information provided 46. The withdrawal of $5,000 in funds by Scott Moir would represent:

16 a) a reduction of reported earnings for Bilodeau b) a reduction of owner s equity for Bilodeau c) an asset for Bilodeau since funds taken out of a business by owners in Canada must be repaid d) not show in the financial statements of Bilodeau for Janaury 47. January Net Income for Bilodeau would be: a. $233,000 b. $241,000 c. $267,000 d. $270,000 e. some other amount End of Bilodeau questions Revenue should not be recognized by a firm: a) until title to the goods sold has passed if goods are in transit at year end b) normally before goods are shipped c) when cash is received if the accrual method is being used d) a, b and c are all correct statements e) a, b and c are all incorrect statements 49. A corporation with total shareholders equity of $85,000 paid a $10,000 business debt owed to a supplier. As a result of this transaction, total stockholders equity a. Did not change. b. Increased by $10,000. c. Decreased by $10,000. d. Increased by some other amount e. Decreased by some other amount 50. Which of the following is a contra account? a). Trade discounts given from list price for volume purchases b). Bad debt expense c). Petty cash d). Freight out (delivery expense to deliver merchandise to customers) e). None of the above are contra accounts End of the Exam