ap/adms 2500.3.0 section a fall 2015 - accounting ... 2500.3.0 section a fall 2015 midterm 1...

AP/ADMS 2500.3.0 SECTION A Fall 2015

MIDTERM 1 AccountingDoesntSuck.com

AccountingDoesntSuck.com Past Exams ∙ Step-by-Step Solutions ∙ Interactive Quizzes

Part 1 - Case #1: Ricky Rock Wrestling for Fun Questions 1 to 30 are

based on this case

Richard Brandt graduated from York University with his BAS although he spent more time in the gym than in the classrooms and libraries. His parents and

grandparents were very proud and happy of this achievement. As a graduation gift, Richard’s Grandparents gave him $50,000 to start his own business. So, on

September 1, 2015, Richard started a small business called “Ricky Rock Wrestling for Fun”. “Ricky Rock” offers a party package designed for active kids, teen and

adults that want to learn and practice wrestling activities for fun by learning how to perform headlocks, leg scissors and other tricks. As a student, he learn and

practiced Greco-Roman wrestling and built an impressive body. Now graduated

from university he has decided to continue with his passion of wrestling but added a spin to make money. In one tournament in 2013 Richard meet Linda who was

competing for a US university team and she mentioned that she was working on girls birthday parties focused on wrestling. In June 2015 Richard contacted Linda

and told her about his idea and Linda shared with him all documentation she has prepared in these years including: brochure to be distributed to potential

customers, personal cards, party themes, parties activities, schedules and agendas, etc. During August Richard has completed his business plan and was

ready to launch ‘Ricky Rock Wresting for Fun’ in the GTA. The following is a list of transactions that occurred during the first month of operations:




September Description Amount

1 Opened a business bank account with the $50,000

received as a gift from the Grandparents

$50,000

1 Signed 12 month commercial insurance contract

for any liability that might emerge from the activity.

$600 per

month for 1 year

2 Purchase in cash costumes of famous wrestlers to

wear at parties. The costumes can last 2 years.

$600

3 Paid in cash the set up of the web site. It expects

to last the whole life of this business.

$2,000

4 Collected the brochures and presentation cards to

be used in promoting the business. One third is

paid in cash while the rest will be paid on October 5th.

$300

5 First event organized and delivered. Birthday party for a 5 years old boy. Received the payment in

cash.

$1,000

6 Second event organized and delivered as part of a series of activities organized by a charity to raise

funds. One third is paid in cash while the rest will be paid by the Charity Organization on October

5th.

$3,000

8 Labour day, no events, no work so Richard goes to

the gym and does a double routine (the rest of the days he just does a simple routine of 2.5 hours).

12 Third event organized and delivered. Birthday

party for a 7 years old boy. Parents promise to pay in a few days.

$1,000

15 Pays first 2 months of insurance $1,200

19 & 20 Fourth event organized and delivered. Provided one of the activities of a corporate team building

extravaganza weekend. The contract signed says the payment will be effective in 30 days with a

cheque.

$2,000

23 Paid the gym membership for September, October,

November and December

$2,000

24 Telephone bill for $150 was received for the month of September - payment due October 5th

$150

26 Fifth event organized and delivered. Birthday party for a 4 years old boy. Received payment in cash.

$1,000




26 One of the parents at the birthday party for a 4

years old boy hires him for his son’s birthday party on October 10th. Received payment in cash.

$1,000

29 Received the payment for the birthday party for

the 7 years old boy of September 12th

$1000

30 Richard pays to his parents a rent for using the car

for business purposes and to go and come back from the gym.

$200

30 Richard promised to pay on October 6th to his

parents the extra charge that comes in the insurance premium of their cars for having him as

an additional driver (male under 25).

$800

Additional information

30 Inventory of brochures and cards showed that two

thirds of them are still available (not used)

$200

Prepare “T” Accounts in ACCRUAL Basis for this case using the following chart of accounts and then answer the questions.

Revenues Cash

Telephone Expense Brochures Car Rent Expenses Accounts Receivables

Car Rent Insurance Expense Prepaid Insurance

Costumes Expense Prepaid Gym Membership Brochures Expense Costumes

Gym Membership Expense Accumulated Depreciation Costumes Insurance Expense Web Site (intangible asset)

Advances From Customers Accounts Payable Owner’s Equity Costumes Depreciation Expense

Telephone Payable

If you think that for some reason that an assumption is called for, then also state

it clearly on your exam paper (at the back of the pink scantron sheet). It is estimated that you will need 30 minutes to prepare the T accounts, Income

statement and Balance Sheet




Part 1: Questions on the Case #1 This Section Questions ONLY APPLIES

TO ACCURAL ACCOUNTING for the case for the date ending September 30th:

1) At the end of the accounting period (Sep 30th, T account after AJE),

what is the balance of Cash/Bank account (use only one account for all

cash/cheque transactions)

A) More than $49,000

B) $ 49,000 C) $ 48,900

D) $ 48,000

E) Less than $48,000


what is the balance of Costumes account?

A) $ 0

B) $ 300 C) $ 575

D) $ 600 E) None of the above is correct


what is the balance of Costumes Expense Account?

A) $ 0 B) $ 300

C) $ 575 D) $ 600

E) None of the above is correct





what is the balance of Accounts Receivables?

A) $ 4,000

B) $ 5,000 C) $ 2,000

D) $ 3,000 E) None of the above is correct


what is the balance of Prepaid Insurance?

A) $ 0 B) $ 600

C) $ 1,200 D) $ 7,200



what is the balance of Car rent Expense?

A) $ 0 B) $ 100

C) $ 200 D) $ 400



what is the balance of Insurance Expense?

A) $ 0

B) $ 600 C) $ 1,200






what is the balance of Accounts Payable?

A) $ 200

B) $ 800 C) $ 1,000



what is the balance of Advances from Customers?

A) $ 3,000 B) $ 0

C) $ 2,000 D) $ 1,000


10) At the end of the accounting period (Sep 30th, T account after AJE but

before preparing the Income Statement), what is the balance of

Owner's equity?

A) $ 50,000 B) $ 42,000

C) $ 49,000 D) $ 0



what is the balance of Accumulated Depreciation Costumes?

A) $ 0

B) $ 25 Credit Balance C) $ 25 Debit Balance

D) $ 25 Neutral balance






what is the balance of Revenues?

A) more than $9,000

B) Between $8,000 and $9,000 C) Between $6,000 and $7,999

D) Between $5,000 and $5,999 E) less than $5,000


what is the Net income/Net Loss?

A) more than $5,800 B) Between $5,800 and 5,026

C) Between $5,025 and 3,901 D) Between $3,900 and $3,700

E) less than $3,700


what is the total of Current Assets?

A) Less than $48,000 B) Between $48,000 and $48,999

C) Between $49,000 and $54,999 D) Between $55,000 and $55,500

E) More than $55,500


what is the total of Assets?



D) Between $50,000 and $52,999 E) Less than $50,000





what is the total of Non Current Liabilities?



D) Between $100 and $1,999 E) Less than $100




This Section Question ONLY APPLIES TO CASH BASIS ACCOUNTING for

the case #1 for the date ending September 30: Prepare “T” Accounts in CASH Basis for this case using the following chart of

accounts and then answer the questions. Revenues Expense on Web site

Car rent Expenses Insurance Expense Car Rent Insurance Expense Brochures Expense

Costumes Expense Gym Membership Expense Telephone Expense Cash

Owner’s Equity Costumes Depreciation Expense Advances From Customers Accounts Payable



statement and Balance Sheet





TO CASH ACCOUNTING for the case for the date ending September 30th:



cash/cheque transactions).

A) More than $50,000 B) $ 49,000

C) $ 48,900 D) $ 48,000

E) Less than $45,000


what is the balance of Brochures?

A) $ 100 B) $ 150

C) $ 200 D) $ 300




A) $ 4,000

B) $ 5,000 C) $ 2,000



what is the balance of Prepaid Insurance?

A) $ 0

B) $ 600 C) $ 1,200






what is the balance of Car Rent Insurance Expense?

A) $ 0

B) $ 400 C) $ 800



what is the balance of Costumes Depreciation Expense?

A) $ 25 B) $ 575

C) $ 0 D) $ 600



what is the balance of Gym Membership Expense?

A) $ 2,000 B) $ 1,500

C) $ 500 D) $ 0




A) $ 300

B) $ 800 C) $ 1,100






what is the balance of Owner's equity?

A) $ 50,000

B) $ 42,000 C) $ 49,000



what is the balance of Accumulated Depreciation Costumes?

A) $ 0 B) $ 25 Credit Balance

C) $ 25 Debit Balance D) $ 25 Neutral balance




A) more than $5,800 B) Between $4,126 and $ 5,800

C) Between $3,901 and $4,125 D) Between $3,900 and $3,700

E) less than $3,700


what is the total of Current Assets?

A) Less than $49,000


D) Between $53,000 and $55,500 E) More than $55,500





what is the total of Non Current Assets?

A) More than $3,000

B) $ 2,575 C) $ 2,000

D) $ 575 E) Less than $500



A) More than $10,000 B) Between $6,000 and $10,000

C) Between $2,000 and $5,999 D) Between $100 and $1,999

E) Less than $100




PART 2: Case #2: Questions 31 to 42 are based on this case

During our first class in this course we have a complex example covering the transactions of the first month of operations of Tops in Topiary Company

(President & founder: Edward Scissorhands). At the end of the example the following financial statements were prepared:

TOPS IN TOPIARY - INCOME STATEMENT FOR the month of May

Revenue $2,540 Expenses:

Rent Expense $500 Advertising Expense $500

Wages Expense $200 $1,200

Net Income $1,340

TOPS IN TOPIARY - STATEMENT OF OWNER'S EQUITY FOR the month of MAY

Owner's Equity at May 1 $0 plus: Investment 2,000

plus: Net Income 1,340 less: Withdrawals 0

Owner's Equity at May 31 $3,340

TOPS IN TOPIARY - BALANCE SHEET AS OF MAY 31 ASSETS LIABILITES AND OWNER'S EQUITY

Current Assets: Current Liabilities: Cash $1,380 Accounts Payable $800

Accounts Receivable $1,500 Advances from Customers $200 Prepaid Rent $ 500

Prepaid Advertising $ 500 Supplies $ 100 $3,980

Equipment $ 360 Owner's Equity $3,340

Total Assets $4,340 Total Liabilities & OE $4,340




During June the following transactions occurred:

1) Paid the helper the $200 owed from works done in May (the amount owed

is in Accounts Payable). 2) Completed the job for which the customer paid $200 in May. Tops in

Topiary collected $1000 in cash once finished. 3) Paid $500 for the rent of July.

4) At the end of June notices that there are no supplies left. Makes a note to buy some in July.

5) At the end of June notices that there are few flyers left (used for advertising) worth $100 and decides to order some for July. Before ordering,

the printer (supplier of flyers) asks to be paid $500 of the amount owed for

the flyers done in May. Tops in Topiary pays $500. 6) In June collected in cash $3,000 for 3 jobs are done for a total of $4,200,

the rest is owed in account by the customers. 7) In June decided to start depreciating the equipment bought for $360 that

is expected to last for 3 years. 8) In June 23rd Edward Scissorhands withdrew some cash for personal

reasons ($3,000).

Prepare “T” Accounts in ACCRUAL Basis for this case and then answer the questions.



statement, Statement of Owner’s Equity and Balance Sheet





TO ACCURAL ACCOUNTING for the case for the date ending June 30th:

31) At the end of the accounting period (June 30th, T account after AJE),


cash/cheque transactions)


C) Between $1,200 and $1,599 D) Between $800 and $1,199

E) Less than $800




C) Between $1,000 and $1,999 D) Between $500 and $999

E) Less than $500


what is the balance of Prepaid Rent?

A) $1,500

B) $1,000 C) $500

D) $0 E) None of the above is correct


what is the balance of Equipment?

A) $360

B) $350 C) $340







A) $1,200

B) $800 C) $200



what is the balance of Revenues?

A) $5,400 B) $5,200

C) $4,200 D) $4,000



what is the balance of Rent Expense?

A) $0 B) $250

C) $750 D) $1,000



what is the balance of Depreciation Expense?

A) 360

B) $20 C) $10







A) more than $5,000


D) Between $3,000 and $3,999 E) less than $3,000


what is the total of Non Current Assets?

A) Less than $100 B) Between $100 and $199

C) Between $200 and $299 D) Between $300 and $350

E) More than $350



A) Less than $100 B) Between $100 and $199

C) Between $200 and $299 D) Between $300 and $400

E) More than $400


what is the total of Owner's Equity including the Net Income/Net Loss

of the period?

A) Less than $2,000


D) Between $4,500 and $5,500

E) More than $5,500




PART 3: INDEPENDENT QUESTIONS (the remaining questions are totally

unrelated to the cases of Parts 1 and 2) This Section Question ONLY APPLIES TO the information provided in each

question. They are not related to the case.

Use the following information for questions 43 and 44.

The following amounts have been extracted from the accounts of Sell-It at its yearend, December 31, 1999:

Sales $50,000

Cost of

Goods Sold

$43,000

Inventory $10,000

Account Payable

$ 8,000

43) The gross profit which Sell-it would report is

A) $50,000 B) $40,000

C) $7,000 D) $15,000

E) none of the above

44) If an error were made computing Sell-its ending inventory and

inventory were understated by $2,000 then:

A) gross profit is understated by $2,000

B) liabilities are overstated by $2,000 C) net income is overstated by $2,000

D) none of the above E) cannot be answered with the data provided.




45) A firm's gross profit on net sales is 30% The firm had net sales of

$400,000 and net cost of purchases of $250,000. If the beginning

inventory was $40,000, how much was the ending inventory?

A) $126,000

B) $60,000 C) $26,000

D) $40,000 E) none of the above

46) Which of the following combinations of trial balance totals does not

indicate a transposition error?

A) $65,470 debit and $64,570 credit

B) $32,340 debit and $35,420 credit

C) $27,650 debit and $26,570 credit D) $14,517 debit and $15,471 credit

E) none of the above

47) On January 1, 2007, the ledger of Conglomo Corporation correctly

showed supplies inventory of $900. During 2007, supplies purchases

amounted to $6,000. A count (inventory) of supplies on hand at

December 31, 2007, showed $1,800. The 2007 income statement

should report supplies expense amounting to

A) $6,000 B) $1,800

C) $5,100 D) $6,900

E) None of the above is correct.




48) Which of the following describes adjusting entries?

A) they frequently change at least one income statement account

balance and one balance sheet account balance. B) they usually are recorded as of the 15th day of the accounting

period. C) they are primarily used to change account balances because of

accounting errors that have been made. D) all of the statements are correct

E) None of the above is correct.

49) Owner's withdrawals

A) Happens when an owner withdraws the right of other companies to do business with the firm

B) Are a return of invested capital to the owner C) Are an expense of doing business

D) Are not allowed E) None of the above is correct.

50) Which of the following defines liabilities?

A) Probable debts or obligations of an entity as a result of future transactions which will be paid with assets or services.

B) Probable debts or obligations of an entity as a result of past transactions which will be paid with assets or services.

C) Possible debts or obligations of an entity as a result of past transactions which will be paid with assets or services.

D) Possible debts or obligations of an entity as a result of future

transactions which will be paid with assets or services. E) None of the above is correct.

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