ACCT1115. Review Package Final Exam

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1 ACCT1115 Review Package Final Exam Fall

2 Part I Multiple Choice Circle the best answer. 1) You own a house valued at $100,000 with an outstanding mortgage of $70,000. You pay your first month's installment of $900 ($700 interest and $200 principal). The correct entry should be: a) decrease cash by $900, decrease mortgage by $900 b) decrease cash by $900, decrease mortgage principal by $200, decrease net worth by $700 c) decrease cash by $900, decrease net worth by $900 d) decrease cash by $900, decrease mortgage principal by $200, increase interest expense by $900 2) A transaction that involves the balance sheet does not always impact net worth. a) Depends on the value b) FALSE c) TRUE d) Depends on the accounting policy 3) Examples of assets include: a) cash, prepaid expenses, unearned revenue b) cash, accounts receivable, salaries expense c) cash, accounts receivable, unearned revenue, revenue d) cash, accounts receivable, office supplies 4) The relationship between a change in cash and a change in equity is best expressed by which of the following statements? a) A decrease in cash causes a decrease in equity b) An increase in cash causes a decrease in equity c) An increase in cash causes an increase in equity d) There is no necessary relationship between a change in cash and a change in equity 5) Controls: a) are a system of rules that govern international businesses b) include procedures that are used to check and regulate business operations systematically c) are financial goals that a business works towards d) none of the choices 2

3 6) On January 1, a company received advanced membership payments of $600 from a customer for the next 6 months. The membership is in effect immediately. By how much would the company's equity have changed by March 31? a) $0 b) $100 c) $200 d) $300 7) When recording journal entries, a good control is to: a) total the debits and credits to see if they balance b) enter all credits first before all debits or vice versa c) record entries using even dollar amounts (rounded up) d) enter the journal entries alphabetically 8) Which one of the following is a temporary account? a) Unearned Revenue b) Bank Loan c) Prepaid Expenses d) Service Revenue 9) A high tech company reported sales of $220,000, cost of goods sold of $150,000 and inventory of $60,000. Gross profit for the period was: a) $60,000 b) $70,000 c) $10,000 d) $90,000 10) Two categories of shares are: a) common and uncommon b) debt and equity c) common and preferred d) common and retained 11) Shares already issued and eligible for trading on the secondary market are called: a) par-value shares b) outstanding shares c) authorized shares d) none of the choices 3

4 12) Suppose John starts a new company and deposits $100,000 into the new business. If he creates 10,000 shares, each share will be worth: a) $8 b) $10 c) $5 d) $20 13) Expenses incurred to run the day-to-day operations of a company are known as: a) other expenses b) operating income c) operating expenses d) other income 14) What items are required to calculate the ending retained earnings? a) Beginning retained earnings, gross profit, and dividends b) Beginning retained earnings, net income and dividends c) Ending retained earnings, gross profit, and dividends d) Ending retained earnings, net income, and dividends 4

5 Part II Dividends - Common and Preferred On October 1, 2012, the financial records of Wilman Inc. showed the following balances: Authorized: 200,000 $6 cumulative preferred shares unlimited number of common shares Issued: 3,000 preferred shares $360,000 35,000 common shares $1,300,000 Retained Earnings $620,000 On October 15, 2012, Wilman Inc. declared $250,000 of dividends payable to all shareholders on November 5, No dividends have been declared since All shares were issued in During the quarter ending December 31, 2012, the company earned net income of $750,000. (a) How much does Wilman owe the preferred shareholders in dividends? (b) Prepare the journal entry to record the declaration of the dividends 5

6 (c) Prepare the journal entry to record the payment of dividends on November 5th. (d) Prepare the statement of retained earnings for the quarter ended December 31, Wilman Inc. Statement of Retained Earnings For the quarter ended December 31,

7 Part III Income Statement Armad Inc.'s financial accounts contained the following amounts for the year ended December 31, Prepare a multi-step income statement for the year ended December 31, Cost of Goods Sold $1,200,000 Interest Revenue 3,000 Income Tax Expense 360,600 Salaries Expense 300,000 Sales Revenue 3,500,000 Rent Expense 75,000 Utilities Expense 80,000 Sales Discounts 50,500 Armad Inc. Income Statement For the year ended December 31,

8 Part IV Bonds Payable On October 1st, 2012, a company issues $200,000 worth of bonds at par with an interest rate of 5%. The bonds have a term of 8 years with interest paid semi-annually on March 31st and September 30th. The company has a December 31st year-end. Answer the following questions pertaining to this scenario. a) Prepare the journal entry to record the issuance of the bonds. b) Record any necessary journal entry related to the bonds on December 31, c) Record the first interest payment on March 31, d) Record the entry for maturity date, September 30,

9 Part V Inventory - Journal Entries The following information was presented by the bookkeeper for NorthWave Inc. for the month of July, Date Jul 2 Business Event Received a loan from the bank for $300,000. The loan will require monthly payments and will be paid off over 4 years. Jul 8 Purchased $240,000 of inventory on account from Beta Wholesalers, terms 2/10, net 30 Jul 10 Jul 12 Jul 14 Jul 15 Jul 17 Jul 18 Jul 19 Jul 20 A portion of the inventory purchased from Beta Wholesalers was defective. NorthWave returned $600 of inventory to the supplier. Sold products to SouthShore for $110,000 on account, terms 2/10, net 30; cost of goods sold was $44,000 for this transaction. SouthShore returned $2,200 of goods purchased on account. The cost of goods sold for the returned inventory is $1,320. Paid the amount owing to Beta Wholesalers. Purchased goods from EastCoast Trading Inc. on account for $16,000 with terms of 3/10, net 30. Some of the inventory purchased from EastCoast Trading Inc. was slightly damaged. NorthWave decided to keep the inventory and was given a $400 allowance from East Coast. Sold products to West Island for $85,000 on account, terms 2/10, net 30; cost of goods sold was $34,000 for this transaction. West Island discovered some scratches on some of the products they purchased on Jul 19. They will keep the product and NorthWave gave a $900 allowance to West Island. Jul 26 Received payment from SouthShore. Jul 27 Received payment from West Island. Required: Journalize the above transactions assuming that NorthWave uses a perpetual inventory system. 9

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12 Part VI Corporations - Closing Entries Match the following scenarios to the proper journal entry shown below: A B C D E F Close a proprietorship's net income Close revenue accounts Close expense accounts Close a proprietorship's net loss Close a corporation's net income Close a corporation's net loss Date Description Debit Credit Dec 31 Sales $80,000 Income Summary $80,000 Date Description Debit Credit Dec 31 Income Summary $56,700 Insurance Expense $2,700 Rent Expense $16,000 Salaries Expense $38,000 Date Description Debit Credit Dec 31 Retained Earnings $24,000 Income Summary $24,000 Date Description Debit Credit Dec 31 Income Summary $35,000 Retained Earnings $35,000 Date Description Debit Credit Dec 31 Income Summary $52,000 Capital Account $52,000 Date Description Debit Credit Dec 31 Capital Account $18,000 Income Summary $18,000 12

13 Part VII Unearned Revenue The Bright Kids, a newly formed rock band, sells 2,000 passes on May 15, 2013 at an average price of $100 each good for four upcoming concerts that will take place on June 1 st, July 1 st, August 1 st and September 1st. a) Prepare the journal entry on May 15. b) Prepare the journal entry on June 1. Assume the first concert has taken place. c) Calculate the balance in the Unearned Revenue account at June 30, 2013? Answer: 13

14 Part VIII Financial Statements Below, is Wallace Services' adjusted trial balance for the year ending September 30, Using this information, prepare the Multi-Step Income Statement, Statement of Retained Earnings and then the Classified Balance Sheet as at September 30, Account Title Debit Credit Cash $16,400 Accounts Receivable 5,200 Prepaid Insurance 1,800 Property, Plant & Equipment 22,000 Accumulated Depreciation $900 Accounts Payable 7,500 Unearned Revenue 1,600 Bank Loan 15,000 Common Shares 5,700 Retained Earnings 7,910 Sales Revenue 23,000 Sales Discounts 460 Sales Returns and Allowances 400 Cost of Goods Sold 10,350 Insurance Expense 400 Maintenance Expense 200 Rent Expense 850 Professional Fees Expense 150 Salaries Expense 1,600 Telephone Expense 100 Travel Expense 800 Interest Expense 50 Depreciation Expense 350 Income Tax Expense 500 Total $61,610 $61,610 The bank loan is payable over 3 years and $5,000 will be paid by September 30, The corporation is authorized to issue an unlimited number of common shares. At September 30, 2013, there are 6,000 shares outstanding. Dividends of $10,000 were declared and paid on July 31,

15 Wallace Services Inc. Income Statement For the year ended September 30, 2013 Wallace Services Inc. Statement of Retained Earnings For the year ended September 30,

16 Wallace Services Inc. Classified Balance Sheet As at September 30,

17 Part IX Adjusting Entries Gordon Sparks Consulting had the following transactions for the month of January 2013: Jan-01 Jan-01 Jan-20 Jan-31 Jan-31 Jan-31 Jan-31 Jan-31 Paid $3,300 for 3 months of rent in advance Paid $6,000 cash for a one-year insurance policy, in advance Prepaid for office supplies worth $1,980 with cash Recognized rent expense for January Incurred one month of insurance expense Depreciation on property, plant and equipment was $500 for the month Unearned revenue of $360 has been earned during January. Interest of $75 is accrued and owed on the bank loan. Jan-31 Accrued salary expense for January $150. Jan-31 There were $900 worth of office supplies at the beginning of January and $875 at the end of the month. Required: Part A: Prepare the journal entries for the above transactions. 17

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19 Part X Lower of Cost or Market On December 31, 2012 a company has three types of products: power tools, hand tools and paint products. 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 Jigsaw Power 1,400 Drill Power 800 Router Power 2, ,200 2,300 Total Power Tools Hammer Hand 900 Crowbar Hand Total Hand Tools Primer Paint 2,200 Brush Paint 1,600 Total Paint Products 2,300 1,800 Total Amount of Adjustment required: Prepare the adjusting entry, if required, if LCM was applied using individual products. Prepare the adjusting entry, if required, if LCM was applied using categories. 19

20 Prepare the adjusting entry, if required, if LCM was applied using the total. 20

21 Part XI Closing Entries Below is Fairlane Computers adjusted trial balance for the year ended December 31, Using this information, prepare the closing entries on the form on the next page. The company uses the income summary account for closing. Debit Credit Cash $16,800 Accounts Receivable 640 Inventory 13,400 Computer Supplies 250 Prepaid Expenses 9,100 Equipment 144,000 Accumulated depreciation $27,800 Accounts Payable 8,250 Wages Payable 4,400 Common Shares 40,400 Retained Earnings 57,730 Computer Services Revenue 38,820 Sales Revenue 65,900 Sales discounts 524 Sales returns and allowances 1,200 Cost of Goods Sold 18,900 Depreciation expense 15,800 Wage expense 7,900 Insurance expense 4,850 Rent expense 7,200 Supplies expense 1,220 Advertising expense 1,516 Totals $243,300 $243,300 21

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ACCT1115. Review Package - Quiz 2. Fall 2013

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