TT3_Fall_2010

TT3_Fall_2010 - Name MEMORIAL UNIVERSITY OF NEWFOUNDLAND...

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Unformatted text preview: Name: MEMORIAL UNIVERSITY OF NEWFOUNDLAND FACULTY OF BUSINESS BUSINESS 1101 TERM TEST # 3 - Value - 20% of your final grade November 2010 Version 1 Question 1 2 3 Marks 25 22 53 100 Suggested Time 19 minutes 16 minutes 40 minutes 75 minutes Penalty if exam is not passed in on time Instructions: 1. 2. 3. 4. NO QUESTIONS WILL BE ANSWERED BY THE INVIGILATOR. Please include with your written answers any assumptions that you feel are necessary. Only logical assumptions will be considered. This entire exam must be returned to the University. Please be neat and logical. Budget your time. Please use a pen or dark pencil. Do NOT TEAR PAGES out of your answer booklet or this test paper. As noted on your course outline, communication devices may not be accessed during exams. You may use a basic four-function calculator. Please turn off the ringer on your phone or Blackberry! 1. 25 marks: suggested time - 19 minutes On this and the next page, you are provided with information for Snow Inc. (Please have consideration for other students and do not tear pages out of your exam or book.) The problem continues on the next page. As well: The bank deducted amounts from Snow’s account for service charges, an insurance payment, and for an NSF (bounced) cheque from a customer. The bank deposited funds it collected from one of Snow’s customers. The bank did not make any mistakes. The correction of any errors in recording cheques should be made to accounts payable. The correction of any errors in recording cash receipts should be made to accounts receivable. Required: a) In your answer booklets, prepare a bank reconciliation for Snow Inc. for October 31, 2010. As was done in class, you need to show the reconciled balance for both the bank and the company. (15 marks) b) Prepare, in proper format, any necessary adjusting journal entries. You may omit explanations from your journal entries. (10 marks) 1 #1 (continued) Answer this question in your answer book, not on this test paper. The marker will not see anything that you write on this paper for this question. 2 2. 22 marks: suggested time - 16 minutes Part A: 8 marks For each of the following, indicate whether the statement is True (T) or False (F) by placing a T or F in the space by the statement. Unclear answers will not be graded. Each one is worth one mark. # 1. T or F Statement Goods that have been purchased FOB destination but are in transit, should be excluded from the buyer’s physical count of goods. 2. An effective system of internal control centralizes functions in a single capable individual. 3. A periodic inventory system requires a detailed inventory record of inventory items. 4. An aging of accounts receivable schedule is based on the premise that the longer the period an account remains unpaid, the greater the probability that it will eventually not be collected. Under the allowance method for uncollectible accounts, the net realizable value of receivables is the same both before and after an account has been written off. 5. 6. An error that overstates the ending inventory will also cause net earnings for the period to be overstated. 7. The extent of internal control features adopted by a company must be evaluated in terms of cost-benefit. 8. Accountants believe that the write down from cost to net realizable value should not be made in the period in which the price decline occurs. Bonus question: 2 marks Answer on this paper. You are a student at Memorial University of Newfoundland. To whom is this university dedicated as a memorial? 3 Part B – 5 marks Miller Pharmacy reported cost of goods sold as follows: Beginning inventory Cost of goods purchased Cost of goods available for sale Ending inventory Cost of goods sold 2009 $ 54,000 847,000 901,000 64,000 $837,000 2010 $ 64,000 891,000 955,000 55,000 $900,000 In 2009 Mr. Miller included in its ending inventory, $850 of merchandise belonging to Nova Craft Producers that Miller Pharmacy was holding on consignment. Instructions Assuming the error had not been corrected and that all other amounts are correct for 2009 and 2010, circle the appropriate statement to describe the effect of the inventory error on the following: 1. Total assets for 2009 Overstated Understated Correct 2. Cost of Goods Sold 2009 Overstated Understated Correct 3. Net Earnings 2009 Overstated Understated Correct 4. Net Earnings 2010 Overstated Understated Correct 5. Retained Earnings 2010 Overstated Understated Correct 4 Part C (9 marks) On this paper, circle the most appropriate answer. Unclear answers will not be graded. Each question is worth one mark. 1. A merchandiser will produce earnings from operations of exactly $0 when (a) net sales equals cost of goods sold. (b) cost of goods sold equals gross margin. (c) operating expenses equal net sales. (d) gross profit equals operating expenses. 2. If goods in transit are shipped FOB destination, (a) the seller has legal title to the goods until they are delivered. (b) the buyer has legal title to the goods during transit. (c) the transportation company has legal title to the goods while the goods are in transit. (d) no one has legal title to the goods until they are delivered. 3. The cost of goods available for sale is allocated between (a) beginning inventory and ending inventory. (b) beginning inventory and cost of goods on hand. (c) ending inventory and cost of goods sold. (d) beginning inventory and cost of goods purchased. 4. If beginning inventory is understated by $10,000, the effect of this error in the current period is (a) (b) (c) (d) Cost of Goods Sold Understated Overstated Understated Overstated Net Earnings Understated Overstated Overstated Understated . 5. Inventory that originally cost $10,000 was written down to its net realizable value of $8,500 in the last accounting period. At the end of the current accounting period the net realizable value is determined to be $10,500. At what amount should the inventory be reported on the current period’s balance sheet? (a) $10,000 (b) $10,500 (c) $8,500 (d) $9,500 6. Internal controls may be limited by each of the following except (a) the size of the business. (b) the human element. (c) bonding of employees. (d) collusion. 5 7. All of the following are examples of a control activity except (a) using prenumbered documents. (b) reconciling the bank statement. (c) insistence that employees work overtime. (d) insistence that employees take vacations. 8. An employee who makes the sale, ships the goods and bills the customer violates which control activity? (a) Authorization of transactions and activities (b) Documentation (c) Segregation of duties (d) Human resource controls 9. If employees are bonded, (a) it means that they are not allowed to handle cash. (b) they have worked for the company for at least 10 years. (c) they have been insured against misappropriation of assets. (d) it is impossible for them to steal from the company. 6 3. 53 marks: suggested time - 40 minutes You are provided with the following transactions for Loon Inc. Date October 1 October 2 October 5 October 6 October 7 October 10 October 12 October 18 October 31 Transaction Purchased $35,000 of inventory, on credit from Hawk Inc. Terms were 2/10, n/30 FOB shipping point. The appropriate party paid $225 in shipping costs related to the October 1st purchase to Fedex. Sold $12,000 of goods, on credit to Eagle Corp. Terms were 1/10, n/30 FOB destination. The inventory cost Loon Inc. $10,200. The appropriate party paid $123 in shipping costs related to the October 5th purchase to Fedex. Eagle Corp. returned to Loon Inc. goods worth $1,500. The goods had cost Loon Inc. $1,275. Loon Inc. paid Hawk Inc. the amount owing for the October 1 purchase. Loon Inc. received from Eagle Corp. the amount owing. Loon Inc. wrote off as uncollectible an accounts receivable of Mallard Inc. of $900. The balance in Loon Inc.’s accounts receivable account from all customers is $62,000. Loon Inc.’s allowance for doubtful accounts currently has a $2,000 debit balance in it. Loon estimates that uncollectible accounts receivable are equal to 5% of gross accounts receivable and makes the necessary adjusting journal entry. Required: a) Prepare journal entries, in proper format, for all transactions of Loon Inc. Loon uses the perpetual method of accounting for inventory. You may omit explanations from your journal entries. (38 marks) b) Prepare all relevant journal entries for Eagle Corp. Eagle uses the periodic method of accounting for inventory. You may omit explanations from your journal entries. (15 marks) Answer this question in your answer book, not on this test paper. The marker will not see anything that you write on this paper for this question. 7 B1101 November test Fall 2010 Version 1 solution 8 # 1. T or F T 2. F 3. 4. F T 5. T 6. T 7. T 8. F Statement Goods that have been purchased FOB destination but are in transit, should be excluded from the buyer’s physical count of goods. An effective system of internal control centralizes functions in a single capable individual. A periodic inventory system requires a detailed inventory record of inventory items. An aging of accounts receivable schedule is based on the premise that the longer the period an account remains unpaid, the greater the probability that it will eventually not be collected. Under the allowance method for uncollectible accounts, the net realizable value of receivables is the same both before and after an account has been written off. An error that overstates the ending inventory will also cause net earnings for the period to be overstated. The extent of internal control features adopted by a company must be evaluated in terms of cost-benefit. Accountants believe that the write down from cost to net realizable value should not be made in the period in which the price decline occurs. 9 www.mun.ca/memorial/history/ The college was established as a memorial to the Newfoundlanders who had lost their lives on active service during the First World War; it was later rededicated to also encompass those lost in the Second World War. Note that at the time of the World Wars, Newfoundland was its own country, not yet part of Canada. Part B – 5 Marks 1. Total assets for 2009 Overstated Understated 2. Cost of Goods Sold 2009 Overstated Understated Correct 3. Net Earnings 2009 Overstated Understated 4. Net Earnings 2010 Overstated Understated Correct 5. Retained Earnings 2010 Overstated Understated MCQ 1 2 3 4 5 6 D A C C A C 7 8 9 C C C 10 Correct Correct Correct Marks are deducted for making entries in part b for transactions not related to Eagle. 11 12 13 ...
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This note was uploaded on 10/18/2011 for the course COMM 293 taught by Professor Jackes during the Spring '08 term at UBC.

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