FINANCIAL ACCOUNTING PRINCIPLES (BAT4M) FINAL EXAMINATION

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1 Canadian International Matriculation Programme Sunway College FINANCIAL ACCOUNTING PRINCIPLES (BAT4M) FINAL EXAMINATION Date : 5 December 2017 Time Length Lecturer : 8:30 a.m. 10:30 a.m. : 2 hours : Ms Rehnu Marimuthu & Ms Dafne Miranda Student Name : Period : Please read the following instructions carefully before you begin the examination: 1. This exam paper has 17 printed pages including cover page. 2. The examination is worth 20% of your final mark. 3. The examination consists of three parts. PARTS CONTENT MARKS A Multiple Choice Questions 20 (Knowledge & Understanding) B Thinking & Application 40 C Communication 24 Total All answers must be written in the space provided. 5. Answers must be written in standard English format for an academic audience. 6. Scientific or Graphing Calculator and only paper-based dictionaries are permitted. 7. Answers must be written in pen (black or blue only) or pencil. _ For office use only: K/U T/I C A TOTAL

2 PART A: MULTIPLE CHOICE QUESTIONS (K/U) Designate the best answer for each of the following questions. (20 Marks) 1. The assumption that the unit of measure remains sufficiently constant over time is part of the a. economic entity assumption. b. cost principle. c. historical cost principle. d. monetary unit assumption. 2. A basic assumption of accounting that requires activities of an entity be kept separate from the activities of its owner is referred to as the a. stand-alone concept. b. monetary unit assumption. c. corporate form of ownership. d. economic entity assumption. 3. Sam Ryo is the proprietor (owner) of Sam's, a retailer of golf apparel. When recording the financial transactions of Sam's, Sam does not record an entry for a car he purchased for personal use. Sam took out a personal loan to pay for the car. What accounting concept guides Sam's behavior in this situation? a. Pay back concept b. Economic entity assumption c. Cash basis concept d. Monetary unit assumption 4. The assumption that the unit of measure remains sufficiently constant over time is part of the a. economic entity assumption. b. cost principle. c. historical cost principle. d. monetary unit assumption.

3 5. A net loss will result during a time period when a. liabilities exceed assets. b. drawings exceed investments. c. expenses exceed revenues. d. revenues exceed expenses. 6. In recording an accounting transaction in a double-entry system a. the number of debit accounts must equal the number of credit accounts. b. there must always be entries made on both sides of the accounting equation. c. the amount of the debits must equal the amount of the credits. d. there must only be two accounts affected by any transaction. 7. Debits a. decrease both assets and liabilities. b. decrease liabilities and increase assets. c. increase both assets and liabilities. d. increase liabilities and decrease assets. 8. Which of the following is not true of the terms debit and credit? a. They can be abbreviated as Dr. and Cr. b. They can be interpreted to mean increase and decrease. c. They can be used to describe the balance of an account. d. They can be interpreted to mean left and right. 9. Which of the following statements is not true? a. Expenses increase owner s equity. b. Expenses have normal debit balances. c. Expenses decrease owner s equity. d. Expenses are a negative factor in the computation of net income. 10. A credit to a liability account a. indicates an increase in the amount owed to creditors. b. indicates a decrease in the amount owed to creditors. c. is an error. d. must be accompanied by a debit to an asset account.

4 11. A metal shop s employees work overtime to finish an order that is sold on 28 March. The office sends a statement to the customer in early April and payment is received by mid-april. The overtime wages should be expensed in a. March. b. April. c. the period when the workers receive their checks. d. either in March or April depending on when the pay period ends. 12. A law firm received $5,000 cash for legal services to be rendered in the future. The full amount was credited to the liability account Unearned Service Revenue. If the legal services have been rendered at the end of the accounting period and no adjusting entry is made, this would cause a. expenses to be overstated. b. net income to be overstated. c. liabilities to be understated. d. revenues to be understated. 13. Accumulated Depreciation is a. an expense account. b. an owner s equity account. c. a liability account. d. a contra asset account. 14. Adjusting entries are a. not necessary if the accounting system is operating properly. b. usually required before financial statements are prepared. c. made whenever management desires to change an account balance. d. made to balance sheet accounts only. 15. The cost of land does not include a. real estate brokers' commission. b. annual property taxes. c. accrued property taxes assumed by the purchaser. d. title fees.

5 16. When an account becomes uncollectible and must be written off, a. Allowance for Doubtful Accounts should be credited. b. Accounts Receivable should be credited. c. Bad Debt Expense should be credited. d. Sales Revenue should be debited. 17. A debit balance in the Allowance for Doubtful Accounts a. is the normal balance for that account. b. indicates that actual bad debt write-offs have exceeded previous allowance for doubtful accounts. c. indicates that actual bad debt write-offs have been less than what was estimated. d. cannot occur if the percentage of sales method of estimating bad debts is used. 18. Python Company sells merchandise on account for $5,000 to Monte Company with credit terms of 2/10, n/30. Monte Company returns $1,500 of merchandise that was damaged, along with a check to settle the account within the discount period. What is the amount of the check? a. $3,430 b. $4,000 c. $4,900 d. $4, If the total debit column exceeds the total credit column of the income statement columns on a worksheet, then the company has a. earned net income for the period. b. an error because debits do not equal credits. c. suffered a net loss for the period. d. to make an adjusting entry. 20. The custodian of a company asset should a. has access to the accounting records for that asset. b. be someone outside the company. c. not have access to the accounting records for that asset. d. be an accountant.

6 PART B: THINKING & APPLICATION Question 1 (40 marks) Journalise the following business transactions. If any of the transactions involve more than two accounts, journalise as a COMPOUND ENTRY. Explanations/narrations NOT required. For any of the following that is NOT a transaction, answer as No Entry and STATE the related accounting guideline. (11 marks) i. Owner invests $120,000 into the business. $115,000 was deposited into the business s bank account. The balance was placed in the business s cash register. ii. Hired an accounts clerk at a salary of $1,800 payable monthly. iii. Owner purchased supplies worth $3,500 using personal credit card. iv. Purchased equipment for $9,000, paying 70% of amount by standing order and the remaining 30% signed a 30-day, note payable. v. Billed clients for services provided amount to $4,000.

7 vi. Paid $2,800 for the current month s rent with business s debit card. vii. Received a bill for $600 for advertising for the current month. viii. Paid accounts clerk monthly salary via online transfer from owner s personal bank account. ix. Owner withdrew $2,000 from the business s cash register to pay for son s tuition fees. x. Received a check for $2,500 from a client in payment on account for commissions billed in transaction (v).

8 Question 2 The bookkeeper for Darrel Johnston Auto Repair made a number of errors in journalizing and posting, as described below. Prepare the necessary correcting entries. (14 marks) i. A debit posting of $600 to Accounts Payable was omitted. ii. A debit posting of $700 for Prepaid Insurance was debited to Insurance Expense. iii. A collection from a customer of $150 in payment of its account owed was journalized and posted as a debit to Cash $150 and a credit to Owner s Capital $150. iv. A credit posting of $530 to Accounts Payable was made twice.

9 v. A cash purchase of supplies for $350 was journalized and posted as a debit to Supplies $35 and a credit to Cash $35. vi. A debit of $658 to Rent Expense was credited to Rent Expense as $568. vii. An account receivable in the amount of $3,000 was collected in full. The collection was recorded by a debit to Cash for $3,000 and a debit to Accounts Payable for $3,000. viii. An account payable was paid by issuing a check for $600. The payment was recorded by debiting Accounts Payable $600 and crediting Accounts Receivable $600.

10 Question 3 Bali Company is a manufacturing company. Bali Company ventured into the market on 1 January At 31 December 2017, Bali Company reported the following as plant assets. Land $14,400,000 Buildings $40,000,000 Less: Accumulated Depreciation-Buildings ($9,900,000) $30,100,000 Equipment $340,000 Less: Accumulated Depreciation-Equipment ($165,920) $174,080 Total Plant Assets $44,674,080 The company uses straight-line method for buildings and equipment. The buildings are estimated to have a 50-year useful life and no salvage value. The equipment is estimated to have a 10-year useful life and no salvage value. (a) Journalise the following selected cash transactions that occurred: Feb. 1 Purchased land for $210,000. (10 marks) May 31 Sold equipment that cost $75,000 when purchased on 1 January The equipment was sold for $45,000.

11 Sept. 1 Sold land purchased on 31 December 2008 for $2,000,000. The land cost $780,000. Nov. 30 Purchased equipment for $90,000. Dec. 31 Retired equipment that cost $150,000 when purchased on 1 January No salvage value was received.

12 (b) Record the adjusting entries for depreciation for 2018 for the following non-current assets: (5 marks) i. Buildings ii. Equipment

13 PART C: COMMUNICATION Question (24 marks) The trial balance before adjustment of Pan Company contained the following information: Pan Company Trial Balance as at 31 December 2014 Debit Credit Equipment $ 120,000 Cash 3,300 Accounts Receivable 20,000 Allowance for Doubtful Debts 4,500 Merchandise Inventory 2,850 Cost of Goods Sold 302,000 Accounts Payable 1,400 Notes Payable 60,000 Owner s Capital 50,000 Owner s Drawings 23,000 Sales 492,750 Sales Discount 7,500 Sales Return & Allowances 20,000 Supplies 11,500 Freight-out 2,300 Advertising Expense 15,000 Interest Expense 19,200 Salaries and Wages Expense 53,000 Utilities Expense 18,000 Interest Revenue 18,000 Total 622, ,150 a) Using the adjusting information given for each question, journalize the appropriate annual adjusting entries at 31 December 2014, assuming no adjusting entry has been made until year end. i. The balance of the Notes Payable consists of a note for 6 months at an annual interest rate of 9%, dated 1 September (1.5 marks)

14 ii. The equipment was purchased on 31 March 2014, for $120,000. It has an estimated life of 5 years and an estimated salvage value of $24,000. The equipment is depreciated using the declining-balance method. Under the declining-balance method, Pan Company uses the double-declining rate. (1.5 marks) iii. Pan Company began the year with a $3,000 balance in the Supplies account. During the year, $8,500 worth of additional office supplies were purchased. A physical count of office supplies on hand at the end of the year revealed that $6,400 worth of supplies had been used during the year. (1.5 marks)

15 iv. Pan Company uses the allowance method to estimate uncollectible accounts receivable. The company produced the following aging of the accounts receivable at year-end. (2 marks) Number of Days Past Due Customer Total ($) Over 120 Accounts Receivable 20,000 7,700 4,600 3,900 2,300 1,500 Estimated Percentage Uncollectible 1% 4% 5% 8% Total Estimated Bad Debts 20% b) Using the following other additional information and taking into consideration the adjustments made in (a), prepare the required financial statements. Other additional information: 1. Equipment is used 20% by Selling Department and 80% by Administrative Department. 2. Pan Company uses a perpetual inventory system.

16 (i) Prepare a multiple-step income statement for the year ended December 31, (11 marks)

17 (ii) Prepare a classified balance sheet as at December 31, (6.5 marks)

FINANCIAL ACCOUNTING PRINCIPLES (BAT4M) FINAL EXAMINATION

Canadian International Matriculation Programme Sunway College FINANCIAL ACCOUNTING PRINCIPLES (BAT4M) FINAL EXAMINATION Date : 8 December 2015 Time Length Lecturer : 8:30 a.m. 10:30 a.m. : 2 hours : Ms