ACCT1115 Review Package Final Exam Fall 2013 SOLUTION · Review Package – Final Exam Fall 2013...
Transcript of ACCT1115 Review Package Final Exam Fall 2013 SOLUTION · Review Package – Final Exam Fall 2013...
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ACCT1115
Review Package – Final Exam
Fall 2013
SOLUTION
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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
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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
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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
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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, 2012. No dividends have been declared since 2009. All shares were issued in 2008.
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?
Total Dividends in Arrears = (2012 - 2009) x $6 x 3000 = $54000
Di Total Dividends = (2012 - 2009) x $6 x 3000 = $54000vidends in Arrears = (2012 - 2009) x $6 x 3000 = $54000
(b) Prepare the journal entry to record the declaration of the dividends
Date Account Title Debit Credit
Oct 15 Retained Earnings 250,000
Dividends Payable - Common Shares 196,000
Dividends Payable - Preferred Shares 54,000
To record dividends payable
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(c) Prepare the journal entry to record the payment of dividends on November 5th.
Date Account Title Debit Credit
Nov 5 Dividends Payable - Common Shares 196,000
Dividends Payable - Preferred Shares 54,000
Cash 250,000
To record payment of dividends
(d) Prepare the statement of retained earnings for the quarter ended December 31, 2012.
Wilman Inc.
Statement of Retained Earnings
For the quarter ended December 31, 2012
Retained Earnings, October 1, 2012 $620,000
Add: Net Income for the current quarter 750,000
$1,370,000
Less: Dividends 250,000
Retained Earnings, December 31, 2012 $1,120,000
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Part III Income Statement
Armad Inc.'s financial accounts contained the following amounts for the year ended December 31, 2013. Prepare a multi-step income statement for the year ended December 31, 2013.
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, 2013 Revenues Sales Revenue $3,500,000 Less Sales Discounts 50,500 Net Sales $3,449,500 Cost of Goods Sold 1,200,000 Gross Profit
$2,249,500
Operating Expenses Salaries Expense 300,000 Rent Expense 75,000 Utilities Expense 80,000 Total Operating Expenses
$455,000
Operating Income $1,794,500 Other Revenue and Expenses Interest Revenue 3,000 Income before Income Tax $1,797,500 Less: Income Tax Expense 360,600 Net Income $1,436,900
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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.
200000 5 a) Prepare the journal entry to record the issuance of the bonds.
Date Account Title Debit Credit Oct 1 Cash $200,000 Bonds Payable $200,000 Issue bonds at par
b) Record any necessary journal entry related to the bonds on December 31, 2012.
Date Account Title Debit Credit Dec 31 Interest Expense $2,500 Interest Payable $2,500 Accrued interest on bonds payable at year-end (200,000 x 5% x 3/12)
c) Record the first interest payment on March 31, 2013.
Date Account Title Debit Credit
Mar 31 Interest Expense $2,500
Interest Payable $2,500 Cash $ 5,000
Paid first semi-annual interest payment
d) Record the entry for maturity date, September 30, 2020.
Date Account Title Debit Credit
2020 Sept 30 Interest Expense $5,000
Cash
$ 5,000
Final interest payment
Sept 30 Bonds Payable $200,000
Cash $200,000
Retired bonds at maturity.
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Part V Inventory - Journal Entries
The following information was presented by the bookkeeper for NorthWave Inc. for the month of July, 2012.
Date Business Event
Jul 2 Received a loan from the bank for $300,000. The loan will require monthly payments and will be paid off over 4 years.
300000
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Jul 8 Purchased $240,000 of inventory on account from Beta Wholesalers, terms 2/10, net 30
240000
Jul 10 A portion of the inventory purchased from Beta Wholesalers was defective. NorthWave returned $600 of inventory to the supplier.
600
Jul 12 Sold products to SouthShore for $110,000 on account, terms 2/10, net 30; cost of goods sold was $44,000 for this transaction.
110000
Jul 14 SouthShore returned $2,200 of goods purchased on account. The cost of goods sold for the returned inventory is $1,320.
2200
Jul 15
Paid the amount owing to Beta Wholesalers.
Jul 17 Purchased goods from EastCoast Trading Inc. on account for $16,000 with terms of 3/10, net 30.
16000
Jul 18 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.
400
Jul 19 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.
85000
Jul 20 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.
900
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.
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Date Account Title Debit Credit
Jul 2 Cash $300,000
Bank Loan $300,000
Received a loan from the bank
Jul 8 Inventory $240,000
Accounts Payable $240,000
Purchased inventory on account
Jul 10 Accounts Payable $600
Inventory $600
Returned defective goods
Jul 12 Accounts Receivable $110,000
Sales Revenue $110,000
Cost of Goods Sold $44,000
Inventory $44,000
Record sales on account
Jul 14 Sales Returns & Allowances $2,200
Accounts Receivable $2,200
Inventory $1,320
Cost of Goods Sold $1,320
Record sales return on account
Jul 15 Accounts Payable $239,400
Inventory
$4,788
Cash
$234,612
Paid supplier less discount.
Jul 17 Inventory $16,000
Accounts Payable $16,000
Purchased inventory on account
Jul 18 Accounts Payable $400
Inventory $400
Received an allowance for damaged inventory
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Date Account Title Debit Credit
Jul 19 Accounts Receivable $85,000
Sales Revenue $85,000
Cost of Goods Sold $34,000
Inventory $34,000
Record sales on account
Jul 20 Sales Returns & Allowances $900
Accounts Receivable
$900
Gave allowance to customer
Jul 23 Cash $107,800
Accounts Receivable $107,800
Received payment from customer
Jul 25 Cash $82,418
Sales Discounts $1,682
Ac Accounts Receivable $84,100
Received payment from customer less discount
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Part VI Corporations - Closing Entries
Match the following scenarios to the proper journal entry shown below:
A Close a proprietorship's net income B Close revenue accounts C Close expense accounts D Close a proprietorship's net loss E Close a corporation's net income F Close a corporation's net loss
CB Date Description Debit Credit
Dec 31 Sales $80,000 Income Summary $80,000
DC
Date Description Debit Credit Dec 31 Income Summary $56,700 Insurance Expense $2,700 Rent Expense $16,000 Salaries Expense $38,000
A FFF Date Description Debit Credit
Dec 31 Retained Earnings $24,000 Income Summary $24,000
FE
Date Description Debit Credit Dec 31 Income Summary $35,000 Retained Earnings $35,000
AB
Date Description Debit Credit Dec 31 Income Summary $52,000 Capital Account $52,000
ED
Date Description Debit Credit Dec 31 Capital Account $18,000 Income Summary $18,000
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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.
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a) Prepare the journal entry on May 15.
Date Account Title Debit Credit May 15 Cash $200,000 Unearned Revenue $200,000 To record sale of concert ticket passes
b) Prepare the journal entry on June 1. Assume the first concert has taken place.
Date Account Title Debit Credit
June 1 Unearned Revenue $50,000
Service Revenue $50,000
To record concert ticket revenues earned for June 1 concert. (200,000/4 concerts)
(200
c) Calculate the balance in the Unearned Revenue account at June 30, 2013? Answer: ________$150,000_____________________________
(200,000 – 50,000)
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Part VIII Financial Statements
Below, is Wallace Services' adjusted trial balance for the year ending September 30, 2013. Using this information, prepare the Multi-Step Income Statement, Statement of Retained Earnings and then the Classified Balance Sheet as at September 30, 2013.
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, 2014. • 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, 2013 and deducted from the retained earnings balance shown above.
$10,000 5000 3
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Wallace Services Inc. Income Statement For the year ended September 30, 2013
Revenue
Sales Revenue $23,000
Less Sales Discounts 460
Less Sales Returns and Allowances 400
Net Sales 22,140
Less Cost of Goods Sold 10,350
Gross Profit $11,790
Operating Expenses
Insurance Expense 400
Maintenance Expense 200
Rent Expense 850
Professional Fees Expense 150
Salaries Expense 1,600
Telephone Expense 100
Travel Expense 800
Depreciation Expense 350
Total Operating Expenses $4,450
Operating Income
$7,340
Other Revenue and Expenses
Interest Expense 50
Income before Income Taxes $7,290
Less Income Taxes 500
Net Income $6,790
Wallace Services Inc. Statement of Retained Earnings For the year ended September 30, 2013
Retained Earnings, October 1, 2012 $17,910
Add: Net Income $6,790
Subtotal $24,700
Less: Dividends $10,000
Retained Earnings, September 30, 2013 for Doubtful Accounts $14,700
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Wallace Services Inc. Classified Balance Sheet As at September 30, 2013
Assets
Current Assets
Cash $16,400
Accounts Receivable 5,200
Prepaid Insurance 1,800
Total Current Assets $23,400
Non-Current Assets
Property, Plant and Equipment $22,000
Less: Accumulated Depreciation 900
Total Non-Current Assets 21,100
Total Assets $44,500
Liabilities
Current Liabilities
Accounts Payable $ 7,500
Unearned Revenue 1,600
Current Portion of Bank Loan 5,000
Total Current Liabilities $14,100
Non-Current Liabilities
Bank Loan (net of current portion) 10,000
Total Liabilities $24,100
Shareholders’ Equity
Share Capital
Common shares unlimited number of shares authorized, 6,000 shares issued and outstanding
5,700
Retained Earnings 14,700
Total Shareholders’ Equity 20,400
Total Liabilities and Shareholders’ Equity $44,500
Total Shareholders' Equity $19,700
$43,800
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Part IX Adjusting Entries
Gordon Sparks Consulting had the following transactions for the month of January 2013:
Jan-01 Paid $3,300 for 3 months of rent in advance
3300 3
Jan-01 Paid $6,000 cash for a one-year insurance policy, in advance 6000 12
Jan-20 Prepaid for office supplies worth $1,980 with cash
1980 Jan-31 Recognized rent expense for January
Jan-31 Incurred one month of insurance expense Jan-31 Depreciation on property, plant and equipment was $500 for the month
Jan-31 Unearned revenue of $360 has been earned during January.
Jan-31 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.
Date Account Title
Debit Credit
Jan-01 Prepaid Rent 3,300
Cash 3,300
Paid 3 months of rent in advance
Jan-01 Prepaid Insurance 6,000
Cash 6,000
Paid one year of insurance
Jan-20 Office Supplies 1,980
Cash 1,980
To record the prepayment for office supplies
Jan-31 Rent Expense 1,100
Prepaid Rent 1,100
Recognize rent expense (3,300 / 3 months = 1,100)
Jan-31 Insurance Expense 500
Prepaid Insurance 500500
Used one month of insurance (6,000/12)
1,100
Recognize rent expense ($3300 / 3 months = 1,100)
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900 875
Date Account Title Debit Credit
Jan-31 Depreciation Expense 500
Accumulated Depreciation 500
Depreciation for one month
Jan-31 Unearned Revenue 360
Service Revenue 360363600
Revenue earned in January
Jan-31 Interest Expense 75
Interest Payable 75
Interest owing to the banke
Jan-31 Salaries Expense 150
Salaries Payable 150
Salaries owing
Jan-31 Office Supplies Expense 2,005
Office Supplies 2,005
Supplies used (900 + 1,980 – 875)
(900
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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
800
800
Drill Power 800
1,200
800
Router Power 2,400
2,300
2,300
Total Power Tools 4,600
4,300
4,300
Hammer Hand 900
800
800
Crowbar Hand 600
400
400
Total Hand Tools 1,500
1,200
3 1,2001,800
Primer Paint 2,200
2,300
2,200
Brush Paint 1,600
1,800
1,600
Total Paint Products 3,800 4,100 3,800
Total 9,900 9,600 8,900 9,300 9,600
Amount of Adjustment required:
1,000 600 300
Prepare the adjusting entry, if required, if LCM was applied using individual products.
Date Account Title Debit Credit Dec 31 Cost of Goods Sold 1,000 Inventory 1,000 To adjust inventory for LCM
Prepare the adjusting entry, if required, if LCM was applied using categories.
Date Account Title Debit Credit Dec 31 Cost of Goods Sold 600 Inventory 600 To adjust inventory for LCM
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Prepare the adjusting entry, if required, if LCM was applied using the total.
Date Account Title Debit Credit Dec 31 Cost of Goods Sold 300 Inventory 300 To adjust inventory for LCM
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Part XI Closing Entries Below is Fairlane Computers’ adjusted trial balance for the year ended December 31, 2012. 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
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Date Account Title Debit Credit
2012 Dec
31
Computer Service Revenue
38,820
Sales Revenue 65,900
Income Summary 104,720
Dec 31 Income Summary 59,110
Sales Discounts 524
Sales Returns & 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
Dec 31 Income Summary 45,610
Retained Earnings 45,610
(104,720 – 59,110)