Sample midterm exam with solution-2

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1100

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Accounting

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May 13, 2024

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ACC 1100 Sample Midterm Exam QUESTION ONE For each of transactions 1 through 5 below, indicate the effect on the components of the accounting equation in the table below. If the transaction has no effect on a particular component, write clearly “NE” for “NO EFFECT.” The first transaction is given as an example. Example: Issued common shares to investors for $50,000 in cash. 1. Performed services. Customer agreed to pay $1,200 next month. 2. Declared and paid a cash dividend of $3,000. 3. Purchased $300 of office supplies on account 4. Paid $500 for utilities for the current month. 5. Paid $600 on accounts payable. Current Non-Current Current Non-Current Common Retained Assets Assets Liabilities Liabilities Share Earnings Example +50,000 NE NE NE +50,000 NE 1. 2. 3. 4. 5. For each of the events numbered 6 through 10 below, prepare in the space provided any journal entry necessary on the date the event occurred. If no journal is necessary, write clearly “NO ENTRY.” Do not provide explanations. Abbreviations are acceptable as long as the meaning is clear. 6. Received $500 cash from a customer for services to be provided next month. 7. Paid $120,000 to acquire land for an office site. 8. Paid $1,500 for employee salaries for current month. 9. Bought equipment for $20,000, paying $5,000 in cash and issuing a note for the remaining balance. 10. Sold inventory for $22,000 cash. The sold inventory items were initially purchased at the cost of $13,000. 1

ACC 1100 Sample Midterm Exam QUESTION TWO The following is the unadjusted trial balance for ABC Manufacturing Inc. as prepared for December 31, 2019, its fiscal year end. ABC Manufacturing and Consulting Inc. Unadjusted Trial Balance as at December 31, 2019 Dr. Cr. Accounts payable $37,000 Accounts receivable $56,000 Accumulated depreciation, equipment 29,600 Administrative expense 6,800 Cash 27,800 Common stock 130,000 Cost of goods sold 40,200 Equipment 153,200 Insurance expense 48,000 Interest expense 1800 Land 90,000 Merchandise inventory 64,000 Note payable 60,000 Prepaid building maintenance 48,000 Retained earnings 41,600 Sales revenue 382,000 Supplies expense 8,00 Supplies inventory 38,800 Deferred revenue 18,400 Salaries expense 116,000 $698,600 $698,600 Required The following supplementary information has become available after the unadjusted trial balance was prepared. Prepare any adjusting journal entries necessary to record each of the following pieces of information and bring Springer’s accounts up to date on December 31, 2019. If no additional journal entry is needed, write “No Journal Entry Required .” Springer follows the accrual basis of accounting. a. During December, ABC’s accountant had recorded the $500 collection of cash from a credit customer with a debit to Sales revenue and a credit to Accounts Payable. b. According to a physical count taken at December 31, ABC had $39,600 supplies inventory on hand. 2

ACC 1100 Sample Midterm Exam c. ABC pays employees every two weeks. Employees work 5 days per week, never on Saturdays or Sundays. Total salaries for one pay period (two weeks) is $16,800. The last entry and payment of salaries was made on Friday, December 27, 2019. Employees worked until December 31 (Tuesday), 2019. d. During December, ABC provided consulting services to a client in the amount of $2,700. The client had previously paid a $1000 deposit which was recorded as Deferred Revenues. No other entries relating to this client have been made. e. ABC renews its building maintenance contract every year, on March 1 st . The annual cost is charged entirely to Prepaid building maintenance upon contract purchase. The cost of this year’s policy was $40,800. The January 1, 2019 balance in the Prepaid building maintenance account was $7,200. No entries relating to Building maintenance expense have been made during the current year. f. The equipment was purchased in 2016. It is expected to have a useful life of 12 years after which its salvage value is expected to be $20,000. No depreciation expense has been recorded during the current year. g. According to the firm’s preliminary calculations, income tax for the year will be $18,000 and are due April 30, 2020. h. The Note payable was acquired on January 31st, 2019. Terms of the note include an interest rate of 6% per year, payable on January 31 st and July 31 st of each year. The interest payment made during 2019 has already been recorded. 3

ACC 1100 Sample Midterm Exam QUESTION THREE Selected information from the financial statements of Bradley, Incorporated, are presented below. All monetary amounts are in thousands of dollars except for per share items . Bradley, Incorporated Year-End Statement of Financial Position (all amounts in thousands of Canadian dollars) 2020 2019 Cash $50 $40 Short-term investments 35 35 Accounts receivable 150 100 Inventory 140 120 Property, plant and equipment (net) 350 400 $725 $695 Accounts payable $12 $80 Accrued liabilities 30 40 Income taxes payable 20 10 Note payable 300 300 Common shares 70 70 Retained earnings 293 195 $725 $695  Property, plant and equipment are shown net of accumulated depreciation and are non- current. All other assets are current.  2020 gross profit and cost of goods sold were $460 and $440, respectively.  The Note Payable represents a loan from Montreal-Dominion Bank on which Bradley pays interest annually. The loan must be repaid in 2028. All other liabilities are current.  Interest expense for 2020 was $30.  Income tax expense for 2020 was $60 and income tax rate for 2020 was 25%.  There were 75,000 (Seventy-five thousand) common shares outstanding throughout the 2020 fiscal year.  Common shares of Bradley closed at $26.40 per share on December 31, 2020. Required Using the data on the previous page related to Bradley, Inc., calculate the 2020 financial ratios listed below. Show all of your calculations clearly. Express profit margin, return on assets, debt to total assets and dividend yield as percentages. Round off all calculations and final answers to two decimal places. a) Current ratio b) Profit margin c) Return on assets d) Inventory turnover e) Debt to total assets f) Dividend yield g) Times interest earned 4

ACC 1100 Sample Midterm Exam QUESTION FOUR Assume the year end for Oblix Company is December 31. Selected transactions of fiscal year 2018 for Oblix Company are presented below. All accounts are in normal balance : a. Beginning balance account receivable, $8,162; beginning balance allowance for doubtful accounts, $272. b. Service revenue all on account, $75,906. c. Collections on account, $74,628. d. Write-offs of uncollectible accounts receivable, $200. e. Recovered an account receivable that had been previously been written off, $100. f. Aging schedule of accounts receivable at year-end: Days Outstanding Outstanding Amount % Estimated to be Uncollectible Within 60 days $6,000 1% Within 90 days $2,000 4% > 90 days $1,240 10% Required: 1. Prepare the journal entry to write off uncollectible account receivable in 2018. 2. Prepare the journal entry to record recovery of uncollectible accounts receivable in 2018. 3. Prepare the journal entry of 2018 bad debt expenses. 5

ACC 1100 Sample Midterm Exam QUESTION FIVE The cash balance of Bison Corporation was 14,426 as at October 31, 2020. The balance of bank statement on the same day was $9,926. Following summarizes the differences between bank and books: 1. Deposits in transit as at September 30 was $1,108. 2. Deposits recorded in the books and bank during October were 9,630 and $7,410. 3. Outstanding cheques as at October 31 amounted to $136. 4. Electronic receipts from customers totaled $814, but these receipts have not yet been recorded by Bison in October. 5. Interest revenue earned in October totaled $307 and it hasn’t been recorded by Bison. 6. The bank returned an NSF cheque in the amount of $2,211 that deposited on October 13. The cheque was a payment on a customer’s account. 7. The bank charged Bison $188 for services in October, including $158 for bank service changes and $30 for processing the NSF cheque. 8. The bank made a mistake in processing a payment of $522 as $552. Required: 1. Prepare any necessary journal entries for bank reconciliation as at October 31, 2020. 2. What is the reconciled balance of cash as at October 31, 2020? 6

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