Solutions Fall07 Midterm - SUGGESTED SOLUTION TO MID-TERM...

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SUGGESTED SOLUTION TO MID-TERM EXAM COMM 217 – Fall 2007 QUESTION 1 (1.5 mark each) 1. B 2. C 3. D 4. D 5. A 6. D 7. B 8. D 9. C 10.C
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QUESTION 2 (14 marks) Part A – 6 marks 1. Amount of note receivable = 50,000 – 20,000 = 30,000 Cash 20,000 Note Receivable 30,000 Sales 50,000 Cost of Goods Sold 18,000 Merchandise Inventory 18,000 2. Cash paid = 25,000 – 10,000 = 15,000 March 15 Deposit on Equipment 10,000 Cash 10,000 July 10 Equipment 35,000 Deposit on Equipment 10,000 Cash 25,000 3. Retained Earnings 67,000 Dividends payable 67,000 Part B – 8 marks 1. Supplies Expense = 5,500 + 7,000 – 2,000 = 10,500 Supplies Expense 10,500 Supplies Inventory 10,500 Revenue Earned = 2,500 x 75% = 1,875 Unearned Revenue 1,875 Consulting Revenue 1,875 Prepaid Rent = 12,000 – [(12,000/6) x 2 ] = 8,000 Prepaid Rent 8,000 Rent Expense 8,000 2. (2 marks) The company paid $12,000 for rental space for six months, from November 1, 2006 to April 30, 2007. Given that the rental space was used for two months only in 2006, the rent expense for 2006 should be equal to $4,000, which is the rent for November and December 2006. The remaining amount, $8,000, is paid in advance and will benefit the company in 2007, not in 2006. For this reason, the balance of the Rent Expense account should be reduced by $8,000. This is consistent with the matching principle. 2
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QUESTION 3: Part A (8 marks) Adjusting entries a) Salaries expense 3,500 Accrued salaries payable 3,500 b) Accrued interest receivable 600
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