Midterm 2010 solutionw marking

# Midterm 2010 solutionw marking - UNIVERSITY OF WATERLOO...

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UNIVERSITY OF WATERLOO School of Accounting and Finance AFM 101 Professor Shari Mann Professor Donna Psutka Professor Mindy Wolfe Mid-Term Examination Fall 2010 Date and Time: October 21, 2010, 6:30 – 8:00pm Pages: 17, including cover Name: _____SOLUTION____________ Student Number: ___________ Instructions: 1) Cordless calculators may be used. The calculator must be standalone with no other communication or data storage features. 2) Answers for the multiple-choice questions must be recorded on the UW answer card. All other questions must be answered in the space provided on the examination paper. Answers written outside of the provided space will not be graded. You must submit both this examination paper and the UW answer card. 3) Show details of all calculations. 4) The final page of the examination contains a list of ratios. For your convenience, this page may be detached from the examination paper. 5) Please verify that this examination paper has the appropriate number of pages. Question Maximum Marks Mark Awarded 1 12 2 19 3 22 4 8 5 25 Total 86 1

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Question 1 (12 Marks) West Mountain Trading Company has been in business for a few years and has net assets of \$1,276,000 and net liabilities of \$1,112,000 at the end of 2009. The company’s fiscal year end is December 31. Journalize the adjusting entry needed at December 31, 2009 for each of the following situations. You do not need to include explanations. Answers must appear in the space provided. a. The business received a loan for \$22,000 with a 9% interest rate on October 1. The principal and interest is due in 1 year. The original loan has been recorded but the interest has not. (1 point) (1 point) Interest Expense \$495 Interest payable \$495 \$22,000 * .09 * 3/12 b. Interest revenue of \$4,200 has been earned but not yet received. A/R \$4,200 (1 point) Interest Revenue \$4,200 (1 point) -just Revenue is okay c. On July 1, the firm collected \$12,600 rent in advance, and debited Cash and credited Unearned Rent Revenue. The tenant was paying for two years rent starting July 1, 2009. (1 point) (1 point) Unearned Rent Revenue \$3,150 Rent Revenue \$3,150 2
\$12,600/2 years = \$6,300/year * 6/12 d. Wages expense is \$1,900 per day – Monday through Friday- and the business pays employees each Friday. This year, December 31 falls on a Wednesday. (1 point) (1 point) Wages Expense \$5,700 Wages Payable \$5,700 (\$1,900 X 3 days) e. The unadjusted balance of the inventory account is \$2,600. The total cost of inventory on hand is \$1,200. (1 point) (1 point) COGS \$1,400 Inventory \$1,400 \$2,600-\$1,200 -cost of inventory is okay, inventory expense is not. f. Equipment was purchased on April 1st at a cost of \$160,000. The equipment’s useful life is seven years. The residual value is \$55,000. (1 point) (1 point) Amortization Expense \$11,250 Accumulated Amortization \$11,250 ((\$160,000-\$55,000)/7 years = \$15,000 *9/12 = \$11,250 3

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Question 2 (19 marks) Solomon Inc. sells ski equipment to retailers throughout North America. The firm’s fiscal year end is December 31. The following provides all of the account balances from the unadjusted trial balance at the end of 2010.
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## This note was uploaded on 05/23/2011 for the course AFM 101 taught by Professor Kennedy during the Winter '08 term at Waterloo.

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Midterm 2010 solutionw marking - UNIVERSITY OF WATERLOO...

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