Midterm+A - A ACCT 101: Introduction to Accounting for...

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Unformatted text preview: A ACCT 101: Introduction to Accounting for Business Majors Midterm Examination Fall 2009 Name: Student ID: Section No: Instructions: Please write your name, student ID, lecture section number on this page. Answer the questions within the space provided on the exam paper. You may use the back of the pages as scratch paper. You need to hand in all pages of the exam. Please make sure you have all 22 pages of the exam (11 pages’ questions, 11 pages for your solutions). Watch your time carefully and keep moving on the exam. Try your best to attempt all questions on the exam. If you feel that there is a missing piece of information in a question, make an assumption, write your assumption, and proceed with your answer. Proctors would not respond to queries about the interpretation of exam questions. Do your best to understand and answer exam questions. 1 Problem I: Multiple­choice questions (30 points; 35 mins) 1. Which of the following effects on financial statement are not possible as a result of a transaction? A. Increase stockholders' equity and increase an asset. B. Increase a liability and decrease an asset. C. Increase an asset and decrease an asset. D. Decrease stockholders' equity and increase a liability. 2. On October 1, 2009, Adams Company paid $4,000 for a two‐year insurance policy on the building. The accounting period ends December 31. At the end of 2009, the financial statements should report: On the Balance Sheet On the Income Statement A. Prepaid insurance, $4,000 Insurance expense, $0. B. Prepaid insurance, $0 Insurance expense, $4,000. C. Prepaid insurance, $2,000 Insurance expense, $2,000. D. Prepaid insurance, $3,500 Insurance expense, $500. 3. Regency is a mail order clothing retailer. All items are shipped to customers FOB shipping point and must be prepaid by the customer before any items are shipped. At what point should Regency recognize revenue? A. At the time of shipping B. When the goods reach the customer C. When payment is received D. When the goods are placed into inventory 4. Oakwood Company had accounts receivable of $750,000 and an allowance for doubtful accounts of the $21,500 just prior to writing off an uncollectable account receivable from Hyland Company of $5,000. The net realizable value of accounts receivable as shown by the accounting record before and after the write‐off was as follows: After Before A. $750,000 $745,000 B. $728,500 $733,500 C. $728,500 $723,500 D. $728,500 $728,500 2 5. Given: Current Assets $30,000 Non‐current Assets 70,000 Non‐current Liabilities 40,000 If Current Assets exceed Current Liabilities by $10,000, Owners’ Equity amounts to: A. $40,000 B. $50,000 C. $60,000 D. $70,000 6. If a $10,000 sale is made on January 12 with terms 2/10, n/30 and collection is made on January 20, the amount collected is: A. $8,000 B. $9,800 C. $10,000 D. $10,200 7. Which statement about cash or accrual basis accounting is true? A. Under the accrual basis of income measurement, an attempt is made to match expenses with revenues. B. A Prepaid Rent account will be found on the balance sheet of a company using the cash basis of income measurement. C. The cash basisof income measurement is required under generally accepted accounting principles. D. An advantage of cash basis of income measurement is that it does not postpone revenue recognition. 8. What is the effect on a company’s balance sheet equation as the result of selling inventory at a price in excess of its cost? A. It will cause no change in total assets as the decrease in inventory is offset by increases in other asset accounts. B. It will cause an increase in total assets and an increase in total liabilities. C. It cannot be determined until the exact dollar amount of the transaction is known. D. It will cause an increase in total assets and an increase in stockholders’ equity. 3 9. In preparing the Balance Sheet of 2009 for the Accounting Club (fiscal year end is December 31), their bookkeeping service forgot to record Accrued Wages to some workers for December 2009 which will be paid in the first week of January 2010. The effect of this on the Balance Sheet of 2009 is Assets Liabilities Owners’ Equity A. Overstated Understated Overstated B. No effect Overstated Overstated C. No effect No effect Overstated D. No effect Understated Overstated 10. Beta Company reported Sales Revenue of $4,600,000 in its income statement for the year ended December 31, 2010. Additional information is as follows: December 31, 2009 December 31, 2010 Accounts Receivable $1,000,000 $1,300,000 Allowance of Doubtful Accounts (60,000) (110,000) Beta wrote off uncollectible accounts totaling $20,000 during 2010. Assume all sales are made on account, cash collections during 2010 is A. $4,900,000 B. $4,350,000 C. $4,300,000 D. $4,280,000 11. Which of the following statements associated with the allowance method is false? A. The write‐off of an uncollectible account reduces net income. B. The write‐off of an uncollectible account does not affect total current assets. C. The write‐off of an uncollectible account does not affect current liabilities. D. The write‐off of an uncollectible account does not affect the income statement. 12. Which of the following would cause the accounts receivable turnover ratio to increase? A. Reducing the time it takes to collect accounts from customer. B. Increasing sales revenue at a faster rate than the rate of increase in accounts receivable. C. Strengthening our credit and collection policies resulting in reduced receivables while sales remain constant. D. All of the above cause the ratio to increase. 4 13. When credit terms for a sale are 2/15, n/40, the customer saves by paying the bill early. Approximately what percent would this savings amount to on an annual basis? A. 18%. B. 20%. C. 30%. D. 37%. 14. If a customer pays her bill after her account has already been written off, the company receiving the payment should record the account reinstatement with A. a credit to bad debt expense. B. a credit to allowance for doubtful accounts. C. a credit to cash. D. a debit to bad debt expense. 15. The 2009 records of Coleman Company showed beginning inventory, $100,000; cost of goods sold, $450,000; and ending inventory, $80,000. The purchases for 2009 equal A. $450,000. B. $410,000. C. $430,000. D. $420,000. 16. Lauer Corporation uses the periodic inventory system and the following information about their laptop computer is available: Date Transaction Number of Units Cost per Unit January 1st Beginning Inventory 100 $ 800 May 5th Purchase 200 $ 900 Purchase 300 $1,000 August 10th Purchase 200 $1,050 October 15th During the year, 750 laptop computers were sold. What was ending inventory and cost of goods sold on 12/31 under the LIFO cost flow assumption? A. $56,000 and $714,000. B. $45,000 and $725,000. C. $40,000 and $730,000. D. None of the answers is correct. 5 17. On March 10, Anthony Company received merchandise for resale from its normal supplier. The price was $3,600 with terms of 2/10, n/30 for 100 units of Part #345. The invoice was paid on March 17. Freight costs were $120 and the company paid $108 of interest on a loan to buy the inventory. What is the unit cost that should be recorded for each of the 100 units of Part # 345? A. $36.48 B. $37.20 C. $36.00 D. $37.56 18. When prices are rising: A. LIFO will result in lower net income and a higher inventory valuation than will FIFO. B. LIFO will result in higher net income and lower inventory valuation than will FIFO. C. FIFO will result in lower net income and a lower inventory valuation than will LIFO. D. FIFO will result in higher net income and a higher inventory valuation than will LIFO. 19. During the audit of Montane Company's 2010 financial statements, the auditors discovered that the 2010 ending inventory had been overstated by $8,000. Before the effect of this error, 2010 pretax income had been computed as $100,000. What should be reported as the correct 2010 pretax income before taxes? A. $ 92,000. B. $100,000. C. $108,000. D. None of the other answers is correct. 20. Two systems are used in accounting for inventory—perpetual and periodic. Which of the following statements is correct? A. In a perpetual inventory system, the inventory account is not changed for each purchase during the accounting period. B. In a perpetual inventory system, cost of goods sold is recorded at the time of each sale during the accounting period. C. In a periodic inventory system, cost of goods sold is recorded at the time of each sale during the accounting period. D. In a periodic inventory system, the inventory account is increased for each purchase during the accounting period. 6 Problem II (5 points; 5 mins) The Hang Hau Company (THHC) made the following sales in 2008: 1) Sold merchandise to customer A for $500,000 who charged her purchase on her Visa credit card. Visa charges THHC 2 percent credit card fee. 2) Sold merchandise to customer B at an invoice price of $200,000 (total) on credit terms 2/10, n/30. Customer B paid the invoice within the discount period. 3) Ten days after making the payment, Customer B returned five defective units to THHC and received cash refund. The invoice price of those five units was $10,000. 4) Sold merchandise to Customer C for cash, $300,000. Required: Assume that Sales Returns and Allowances, Sales Discounts and Credit Card Discounts are treated as contra‐revenues; show how the accounts related to the preceding sale should be reported on the 2008 income statement. (5 points) 7 Problem III (15 points; 20 mins) On January 1, 2008, Stivers Company has the following accounts and balances: Accounts Receivable (gross) $200,000 debit balance Allowance for Doubtful Accounts $ 1,000 credit balance Sales revenue during 2008 amounted to $800,000, of which 75% was on credit. Cash collections on accounts receivable during 2008 amounted to $450,000. On December 31, 2008, the management made the following two adjusting entries: (A) $10,000 from customer J. Law was determined to be uncollectible and written off by Stivers; (B) after writing off the bad‐debt in (A), the management estimated the bad debt expense based on the age of the remaining balance of accounts receivable that haven’t been collected by December 31, 2008 Age Amount Estimated percentage of uncollectible accounts Not due yet 60% of remaining gross A/R 1% Up to one year past due 30% of remaining gross A/R 5% Over one year past due 10% of remaining gross A/R 30% Required: 1) After the above entries were posted to the ledger, please calculate the balances of the allowance for doubtful accounts, bad debt expense and accounts receivable (gross). For “accounts receivable (gross)” and “allowance for doubtful accounts”, please indicate clearly whether the balance is a debit or a credit. (12 points) 2) Assuming that Stivers used percentage of credit sales method and the estimated bad debt rate was 2 percent of credit sales, calculate and journalize the bad debt expense for year 2008. (3 points) 8 Problem IV (20 points; 20 mins) Nobana Corp uses a periodic inventory system. At the end of the annual accounting period, December 31, 2012, a physical count shows that the company has 800 units of inventory on hand. The accounting records show the following information for inventory during 2012: Date Transaction Units Unit Cost January 1, 2012 Beginning Inventory 600 $2.5 February 10 Purchase No. 1 200 $3 May 15 Purchase No. 2 400 $3.5 August 5 Purchase No. 3 300 $4 October 1 Purchase No. 4 400 $4.5 November 8 Purchase No. 5 500 $5 Assuming that Generally Accepted Accounting Principles (GAAP) allows the company to choose one of the following three costing methods: (i) Weighted average cost; (ii) First in, first out; (iii) Last in, first out. Required: 1) What is the amount of goods available for sale for year 2012? (2 points) 2) Determine the amount of the ending inventory and cost of goods sold under the weighted average cost method. (6 points) 3) Determine the amount of the ending inventory and cost of goods sold under the FIFO method. (6 points) 4) If the company uses the LIFO method instead of FIFO, do you expect the cost of goods sold under LIFO to be higher or lower? Explain your answer without going through all the calculations. (2 points) 5) Suppose that the replacement cost for the inventory items drops to $4 per unit at December 31, 2012. What would be the cost of goods sold for year 2012 under the FIFO accounting method? What would be the cost of goods sold under the weighted average inventory costing method? (4 points) 9 Problem V (30 points; 40 mins) On January 1, 2009, Wish Me Good Luck Inc had the following account balances: Account Titles Debit Credit Cash $ 10,000 Accounts receivable 4,000 Inventory 8,000 Equipment 12,000 Accumulated depreciation (on equipment) $ 2,000 Accounts payable 7,000 Interest payable Income taxes payable Unearned service revenue Notes payable Contributed capital (15,000 shares) 15,000 Retained earnings 10,000 Sales revenue Depreciation expense Income tax expense Interest expense Cost of goods sold Selling expense Totals $ 34,000 $ 34,000 The following transactions occurred during 2009: a. Borrowed $20,000 cash on July 1, 2009, signing a three‐year note payable with annual interest rate of 10 percent. b. Made sales for 2009, $65,000, including $9,000 on credit and the rest for cash. c. Incurred $4,000 in selling expense for 2009, including $2,000 on credit and the rest paid in cash. d. Purchased additional inventory of $42,000, including $4,000 paid in cash and the rest on credit. e. Signed a three‐year $300,000 service contract to start January 15, 2010 and receive a $3,000 deposit for the work. f. Declared and paid cash dividends, $10,000. Data for adjusting entries: g. Inventory counted on December 31, 2009, $12,000 (hint: recognize cost of goods sold). (3 points) h. Depreciation for the year on the equipment, $2,000. i. Interest accrued on interest payable (to be computed). (2 points) j. Income tax expense was $4,000, payable in 2010. 10 Required: 1) Prepare journal entries for the above transactions, using the account names in the above table only. (13 points) 2) Prepare a classified (multiple‐Step) consolidated income statement showing the following subtotals: gross profit, income from operation, and income before income taxes. Include a presentation of basic earnings per share. (8 points) 3) Prepare the closing entry. (4 points) 4) Calculate the amount of total assets that will appear in the balance sheet at December 31, 2009. (5 points) 11 ...
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This note was uploaded on 12/28/2010 for the course BUSINESS A ACCT101 taught by Professor Haifengyou during the Fall '10 term at HKUST.

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