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York University AP/ADMS 2500.03Introduction to Financial AccountingMidterm Examination #1 Database

Time: 3 hours for 40 questions Fall 2014 Questions: 67

PART 1: Lucy Jones Convenience Store

Questions 1 to 25 are based on this case)

Your former grade 2 teacher, Lucy Jones, has opened Lucy Jones Convenience Store Ltd.in a nearby strip mall. She began her business on October 1st, 2013. She invested on thatday $30,000 in share capital and her sister, Mary, contributed $10,000 as a loan to the firm.The loan bears an annual interest of 10% and none has been paid to date.

Lucy found the business exciting and she seems to have been successful as a businessperson but the question is how successful? The bank balance at September 30th 2014shows $38,900 in Lucys chequing account. Lucy thinks that the bank balance shows thather first year of operations was a real success and that if she wanted she can take moneyfrom the company to pay her dividends.

She has no formal training as an accountant but does keep a summary of selectedtransactions for the fiscal year ended September 30

th, 2014:

Cost of merchandise purchases on account...$70,000Wages paid to clerks (in cash)...$12,000Rent paid for the first 14 months (in cash) .................................$7,000Business taxes & licenses for the first 5 years of operation (in cash) ...$5,000Office Supplies purchased (cash 80%, the rest on account)..$10,000Miscellaneous expenses paid (in cash) ..$10,000

When the business was formed, a friendly insurance agent sold her a two year businessinsurance policy with a premium of $6,600 for the two years. She paid cash for the policyand included the bill in her miscellaneous expenses.

When she moved into the store she paid the previous occupant $15,000 for the existingfurniture and fixtures which she estimated would last her easily another five years.

During the year the convenience store sold merchandise for $93,000 of which $90,000 was

for cash and she collected all credit sales made except for $1,500. However, Lucy expectedto eventually only collect $400 from these outstanding receivables.

Lucy had recorded the cost of each item sold during the year and this totaled $65,000. AtSeptember 30

th2014 she estimated office supplies on hand had a cost of $8,000 and the

cost of the merchandise still on hand was $3,000.

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The bank had deducted interest and bank charges totaling $1,000 from the conveniencestore bank account. The major portion of this was for interest on the demand loan from thebank which has a principal amount of $15,000. This loan is fully secured by a governmentsavings bond that Lucy purchased for $15,000 for the firm when she first opened forbusiness. The current market value of this investment is $15,000. The convenience store

had received $400 interest on this investment and another $100 had been earned but notaccrued at year end.

Lucy maintains excellent relations with her suppliers and has never had a dispute of anykind. She currently owes them $20,000. This balance includes the last cheque she wrote onSeptember 30thfor $15,000. Office supplies are still owed, the owner of the shop is an oldfamily friend who told Lucy to pay him whenever she is sure that she is making money.Lucy is not sure yet, therefore she still owes him the balance on account.

The clerks are paid $10 per hour and during the first 12 months of operations ended onSeptember 30th, 2014 they have worked a total of 1,500 hours.

Since the business is incorporated it has to pay income taxes to Revenue Canada. Shequalifies for the small business tax rate of 15%

Prepare T Accounts in Accrual Basis for Lucy Jones Convenience Store and thenanswer the questions.If you think that for some reason that an assumption is called for, then also state it clearlyon your exam paper (at the back of the pink scantron sheet).

This space is blank and can be used for your calculations

It is estimated that you will need 1 hour to prepare the T accounts, Income statement and

Balance Sheet

This page is blank and may be used for your calculations




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Questions on LUCY JONES CONVENIENCE STORE CaseThis Section Questions 1-26 ONLY APPLIES TO ACCURAL ACCOUNTING forLucy Jones Convenience Store for the date ending September 30th:

1) What was the Cash balance (T account after AJE) at the end of the September 30?

A). less than $20,000B). between $20,001 and $30,000C). between $30,001 and $37,000D). between $37,001 and $39,000E). None of the above is correct

2). What is the balance of Prepaid Office Supplies as of September 30th(after AJE)?A). $0B). $2,000C). $8,000D). $10,000

E). None of the above is correct

3). What is the balance of Inventory to be reported in the Balance Sheet?A). $0B). $3,000C). $5,000D). $70,000E). None of the above is correct

4). What is the amount of Prepaid Insurance by September 30 (after AJE)?A). $0B). $3,000C). $3,300D). $6,600E). None of the above is correct

5). What is the total amount of Accounts Payable that Lucy Jones Convenience Storeowes as of September 30 (after AJE)?A). $70,000B). $50,000C). $22,000D). $0E). None of the above is correct

6). What is the balance of Prepaid Rent (before AJE)?A). $7,000B). $6,000C). $3,000D). $1,000E). None of the above is correct

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7). What was the salary and wages expense for the first year of operations (afterAJE)?

A). $0B). $10C). $1,500

D). $12,000E). None of the above is correct

8). What was the total expenses for the first year of operations (after AJE)?A). more than $90,001B). between $90,000 and $40,001C). between $40,000 and $30,001D). between $30,000 and $20,000E). None of the above is correct

9). What was the Net Income for the first year of operations?A). negative (net loss)B). between $195 and $1,200C). between $1,201 and $5,000D). between $5,001 and $6,100E). None of the above is correct

10). The total for cost of goods sold for first year of operations is:A). $0B). $65,000C). $67,000D). $70,000E). None of the above is correct

11). The total for miscellaneous expense for first year of operations is:A). $0B). $3,400C). $6,700D). $10,000E). None of the above is correct

12). What is the total amount of Accounts Receivable to be reported in the balancesheet of September 30?A). $0B). $1,100C). $1,500D). $3,000E). None of the above is correct

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13) What is the net value of Furniture/Equipment after AJE?A). $0B). $10,000C). $12,000D). $15,000


14) What is the balance of Furniture/Equipment shown in the Balance Sheet as ofSeptember 30?A). $0B). $10,000C). $12,000D). $15,000E). None of the above is correct

15). What was the total adjusted interest income earned to be reported in the Income

Statement?A). $100B). $400C). $500D). Not enough information given for this answerE). None of the above is correct

16). What was the total adjusted rent expense to be reported in the IncomeStatement?

A). $7,000B). $6,000C). $1,000D). Not enough information given for this answerE). None of the above is correct

17). The total revenues to be reported in the Income Statement are:A). $65,000B). $67,000C). $90,000D). $91,500E). None of the above is correct

18). What is the total Office Supplies Expense to be reported in the IncomeStatement?

A). $0B). $2,000C). $8,000D). $10,000E). None of the above is correct

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19). What is the total business tax and licenses expense to be reported in the incomestatement?

A). $5,000B). $4,000C). $2,500


20). What is the amount of total current assets to be reported in the Balance Sheet?A). between $35,001 and $41,000B). between $41,001 and $44,000C). between $44,001 and $46,000D). between $46,001 and $52,000E). None of the above is correct

21). What is the amount of total non current assets to be reported in the Balance

Sheet? A). between $30,000 and $31,000B). between $31,001 and $34,000C). between $34,001 and $36,000D). between $36,001 and $42,000E). None of the above is correct

22). What are the Total of all Liabilities to be reported in the Balance Sheet?A). between $35,001 and $41,000B). between $41,001 and $44,000C). between $44,001 and $46,000D). between $46,001 and $52,000E). None of the above is correct

23). What are the Total of Current Liabilities to be reported in the Balance Sheet?A). between $35,001 and $41,000B). between $41,001 and $44,000C). between $44,001 and $46,000D). between $46,001 and $52,000E). None of the above is correct

24). In the Statement of Retained Earnings to be prepared for Lucy JonesConvenience Store:A). the closing balance is larger than the opening balanceB). the opening balance includes contributed capital (common shares)C). the opening balance is zeroD). the closing balance is zeroE). None of the above is correct

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25). What is the total of Shareholders Equity reported in the balance sheet?A). Negative amountB). less than $30,000C). exactly $30,000D). more than $30,000


26). What is the maximum amount of dividends that can be paid based on thefinancial statements you have just prepared?

A). $0B). between $100 and $10,000C). between $10,001 and $20,000D). more than $20,001E). None of the above is correct

This Section Question 27-33 ONLY APPLIES TO CASH BASIS ACCOUNTING forLucy Jones Convenience Store for the date ending September 30:

27). What was the Cash balance at the end of the September 30?A). less than $20,000B). between $20,001 and $30,000C). between $30,001 and $37,000D). between $37,001 and $39,000E). None of the above is correct

28). What is the amount of Business Tax and Licenses paid for the first year ofoperations?

A). $5,000B). $4,000C). $1,000D). $0E). None of the above is correct

29). What is the amount of Rent paid for the first year of operations?A). $7,000B). $6,000C). $1,000D). $0E). None of the above is correct

30). What is the total value of depreciation for the year ended on September 30th?A). $850B). $750C). $100D). $0E). None of the above is correct

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31). What is the interest expense for the sisters loan for the year ended on September30th?

A). $0B). $500C). $1,000


32). What is the office supplies expense for the year ended on September 30th?A). $0B). $2,000C). $8,000D). $10,000E). None of the above is correct

33). What is the total expenses for Salaries and Wages for the year ended on

September 30

th

?A). $0B). $1,500C). $12,000D). $15,000E). None of the above is correct

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PART 2: INDEPENDENT QUESTIONS(the remaining questions are totally unrelated to the case of Part 1)

This Section Question 34-67 ONLY APPLIES TO the information provided in eachquestion. They are not related to the Lucy Jones Convenience Store case.

34) On March 10, Frazier Company received merchandise for resale from its normalsupplier. The invoice price was $3,600 with terms of 2/10, n/30 for 100 units of Part #345.The invoice was paid on March 17. Freight costs were $120 and the company paid $108 ofinterest on a loan to buy the inventory. What is the unit cost that should be recordedfor each of the 100 units of Part # 345?A) $36.00B) $36.48C) $37.20D) $37.56E) None of the above is correct

35) River Plate Company sold merchandise with an invoice price of $3,000 to Zoltan, Inc.,with terms of 4/10, n/30. In the books of Zoltan, which of the following is the correct entryto record the payment by Zoltan within the 10 days if the company uses the periodicinventory system and the gross method to record purchases?A) Dr Cash 2,880

Dr Sales Discount 120Cr Accounts Receivable 3,000

B) Dr Accounts Receivable 3,000Cr Cash 2,880Cr Purchase Discount 120

C) Dr Accounts Payable 2,880Cr Cash 2,880

D) Dr Purchases 2,880Cr Cash 2,880

E) None of the above is correct

36) Failure to make an adjusting entry to recognize service revenue receivable would causewhich of the following?A) An overstatement of assets, net income, and shareholders' equity.B) An overstatement of assets and shareholders' equity and an understatement of netincome.C) No effect on assets, liabilities, net income, nor shareholders' equityD) An understatement of assets, net income, and shareholders' equityE) None of the above is correct

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37) Central Company sold goods for $5,000 to Western Company on March 12 on credit.Terms of the sale were 2/10, n/30. At the time of the sale, Central recorded the transactionby debiting accounts receivable for $5,000 and crediting sales revenue for $5,000. Westernpaid the balance due, less the discount, on March 21. To record the March 21 transaction,Central would debit which of the following?

A) Cash for $4,900.B) Accounts receivable for $4,900C) Cash for $5,000D) Accounts receivable for $5,000.E) None of the above is correct

38) The 2013 records of Crawford Company showed beginning inventory, $90,000; cost ofgoods sold, $460,000; and ending inventory, $80,000. The purchases for 2013 equalA) $470,000B) $480,000C) $450,000

D) $410,000E) None of the above is correct

39) On January 1, 2013, Houston Company purchased a delivery truck that cost $56,000.Cash of $26,000 was paid, and the balance of $30,000 was payable on January 31, 2014.The truck has an estimated useful life of four years and no residual value. Considering onlythese facts, depreciation expense (on the truck) for 2013, would beA) $14,000B) $7,500.C) $6,500D) $56,000E) None of the above is correct

40) Failure to make an adjusting entry to recognize accrued salaries payable would causewhich of the following?A) An understatement of expenses and liabilities and an overstatement ofshareholders' equityB) An overstatement of expenses and liabilitiesC) An understatement of expenses, liabilities and shareholders' equityD) An understatement of assets and shareholders' equityE) None of the above is correct

41) If a business declared and paid a $500 dividend, it would appear on which of thefollowing?A) Income statement only.B) Balance sheet onlyC) Statement of retained earnings and cash flow statementD) Statement of retained earnings only.E) None of the above is correct

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42) Accrued expenses which must be recorded in adjusting entries represent which of thefollowing?A) Expenses incurred but not yet paidB) Expenses incurred but not recorded or paidC) Expenses paid in advance.

D) Expenses paid in advance and not recorded.E) None of the above is correct

43) Which of the following would be an example of an investing activity in the cash flowstatement?A) Purchasing equipment for cashB) Buying inventory from a supplier on creditC) Selling shares to investors for cashD) Repaying the principal on a bank loanE) None of the above is correct

44) In what order are assets are listed on a balance sheet?A) Dollar amount (largest first).B) Date of acquisition (earliest first).C) Ease of conversion to cashD) Importance to the operation of the businessE) None of the above is correct

45) The periodicity assumption is the basis for which of the following?A) Dividing the activities of a business into a series of time periods for accounting andreporting purposes.B) The cutoff of revenue recognition onlyC) Keeping the company's transactions separate from the owners' transactions.D) The cutoff of expense recognition only.E) None of the above is correct

46) Which of the following phases of the accounting information processing cycle isperformed at the end of the accounting period?A) Adjusting entriesB) Peer reviewsC) LiquidationD) Transaction entriesE) None of the above is correct

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47) During 2013, its second year in operation, Banner Company delivered goods tocustomers for which customers paid or promised to pay $5,800,000. The amount of cashcollected from customers was $5,960,000. The amount of accounts receivable at thebeginning of 2013 was $1,200,000.What is the amount of sales revenue that Banner shouldreport on its income statement for 2013?

A) $4,650,000.B) $4,760,000C) $5,850,000.D) $5,960,000.E) None of the above is correct

48) What is the income statement equation?A) Assets - Liabilities = Shareholders' Equity.B) Assets + Shareholders' equity = Liabilities.

C) Net income = Revenues - ExpensesD) Expenses - Net income = RevenuesE) None of the above is correct

49) Borrowing $100,000 of cash from First National Bank would do which of thefollowing?A) Increase cash by a creditB) Increase notes payable by a debit

C) Increase notes payable by a creditD) Decrease cash by a debitE) None of the above is correct

50) A company purchases $25,000 of inventory in March 2014 and will pay for it in April2014, which of the following statements is false?A) The company will report accounts payable of $25,000 in March 2014.B) The statement of cash flows will report an operating cash outflow of $25,000 inApril 2014.

C) The income statement will report the $25,000 as cost of goods sold in March 2014when they are purchased.D) None of the above is falseE) All of the above are false

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Use the following set up to answer questions 51 to 53On June 30, 2014, the balance sheet of Zorab & Co. showed total assets of $400,000, totalliabilities of $300,000, and owner's equity of $100,000. The following transactionsoccurred in July of 2004:1. The owner invested an additional $70,000 cash in the business.

2. The business purchased equipment for $150,000, paying $60,000 cash and issuing a notepayable for $90,000.3. The business paid off $40,000 of its accounts payable.

51) As of July 31, 2014 the amount reported in total assets was:A) 400,000B) 550,000C) 450,000D) 460,000E) None of the above is correct

52) As of July 31, 2014 the amount reported in total liabilities was:A) 300,000B) 350,000C) 390,000D) 430,000E) None of the above is correct

53) As of July 31, 2014 the amount reported in total owners equity was:A) 100,000B) 150,000C) 170,000D) 250,000E) None of the above is correct

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54) Evans Corporation's retained earnings increased by $300,000 during the year Alsoduring the year, dividends totaling $75,000 were declared and paid to shareholders.Evans Corporation's net income for the year was.A) $75,000B) $225,000

C) $300,000D) $375,000E) None of the above is correct

55) Coleman Inc. reports total assets and total liabilities of $225,000 and $100,000,respectively, at the conclusion of its first year of business. The company earned $75,000during the first year and distributed $30,000 in dividends. What was the firm's contributedcapital?A) $125,000B) $95,000C) $80,000

D. $50,000E) None of the above is correct

56) A firm's gross profit on net sales is 35% The firm had net sales of $400,000 and netcost of purchases of $280,000. If the beginning inventory was $40,000, how much was theending inventory?A) $180,000B) $60,000C) $20,000D) $40,000E) None of the above is correct

57) Which of the following combinations of trial balance totals does not indicate atransposition error?A) $65,470 debit and $64,570 creditB) $32,540 debit and $35,420 creditC) $25,670 debit and $26,670 creditD) $14,517 debit and $15,471 creditE) None of the above is correct

58) Apartments-for-Rent Corporation received cash of $7,200 on August 1, 2014 for oneyear's rent in advance and recorded the transaction with a credit to Rent Revenue. TheDecember 31, 2014 adjusting entry shall be:A. Debit Rent Revenue and credit Unearned Rent, $3,000B. Debit Rent Revenue and credit Unearned Rent, $4,200C. Debit Unearned Rent and credit Rent Revenue, $3,000D. Debit Cash and credit Unearned Rent, $4,200E) None of the above is correct

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Use the following set up to answer questions 59 to 62Every summer the Kramer Music Society sponsors a series of six classical music concerts.For 2014, two concerts monthly are scheduled for June, July, and August.Season tickets are on sale June 1-16, 2014 (the first concert is June 16), and cost $48 forthe six concerts. Tickets for individual concerts cost $10 each and go on sale June 15,

2014. The Society sold 600 season tickets during June 1-16 and credited the $28,800proceeds to the Unearned Ticket Revenue account. The concerts are given in a pavilionlocated in a city park. The Society rents the facility from the city for $500 per concert.The city requires advance payment for all concerts by June 5. On June 3, 2014, the Societymailed a $3,000 cheque to the city and debited the amount to the Prepaid Rent account. TheSociety incurs no other rent costs. The two concerts for June were presented as scheduled.Individual tickets sold for the June concerts totaled $6,000 and were credited to the TicketRevenue account. Other than the season tickets sold during June 1-16, no advance ticketshave been sold by June 30 for the July and August concerts.

59) After preparing the necessary adjusting entries and posting them, what is the

June 30, 2014, balance of Prepaid Rent?A) 3,000B) 2,000C) 1,000D) 0E) None of the above is correct

60) After preparing the necessary adjusting entries and posting them, what is theJune 30, 2014, balance of Unearned Ticket Revenue?A) 34,800B) 28,800C) 22,800D) 12,200E) None of the above is correct

61) After preparing the necessary adjusting entries and posting them, what is theJune 30, 2014, balance of Ticket Revenue?A) 0B) 6,000C) 9,600D) 15,600E) None of the above is correct

62) After preparing the necessary adjusting entries and posting them, what is theJune 30, 2014, balance of Rent Expense?A) 3,000B) 2,000C) 1,000D) 0E) None of the above is correct

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Use the following set up to answer questions 63 to 67The following account balances, in alphabetical order, are from the general ledger of Anil'sHacking Service at January 31, 2014. The firm's accounting year began on January 1. Allaccounts had normal balances.Accounts Payable $ 1,100 Anil. Drawing $2,750 Accounts Receivable $10,400

Prepaid Insurance $880 Advertising Expense $150 Rent Expense $640Cash $6,800 Salaries Expense $3,200 Service Fees $16,200Supplies Expense $2,250 Insurance Expense $80 Supplies on Hand $8,420Anil, Capital, January 1 $18,500 Utilities Expense $230

63) The net income reported for January 2014 is:A) $26,500B) $25,400C) $9,650D) $1,100E) None of the above is correct

64) The total of current assets in the balance sheet as of January 31, 2014 is:A) $26,500B) $25,400C) $9,650D) $1,100E) None of the above is correct

65) The total of non current assets in the balance sheet as of January 31, 2014 is:A) $26,500B) $25,400C) $9,650D) $1,100E) None of the above is correct

66) The total of owners equity in the balance sheet as of January 31, 2014 is:A) $26,500B) $25,400C) $9,650D) $1,100E) None of the above is correct

67) The total of retained earnings in the balance sheet as of January 31, 2014 is:A) $30,900B) $25,400C) $18,500D) $15,750E) None of the above is correct

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SolutionsQuestions on LUCY JONES CONVENIENCE STORE CaseThis Section Questions 1-20 ONLY APPLIES TO ACCURAL ACCOUNTING forLucy Jones Convenience Store for the date ending September 30th:

1) What was the Cash balance (T account after AJE) at the end of the September 30?ANS: B it is $23,900

2). What is the balance of Prepaid Office Supplies as of September 30th(after AJE)?ANS: C it is $8,000

3). What is the balance of Inventory to be reported in the Balance Sheet?ANS: B it is $3,000 after the AJE

4). What is the amount of Prepaid Insurance by September 30 (after AJE)?ANS: C it is $3,300

5). What is the total amount of Accounts Payable that Lucy Jones Convenience Storeowes as of September 30 (after AJE)?

Two answers are accepted. If asked about Trade Payables then it is E (it is $20,000,the other $2,000 are office supplies payable). If asked Payables then it can be also C(both trade and office supplies payable)

6). What is the balance of Prepaid Rent (before AJE)?ANS: A it is $7,000 before the AJE.

7). What was the salary and wages expense for the first year of operations (afterAJE)?ANS: E it is $15,000 = 1,500 hours x $10 per hour

8). What was the total expenses for the first year of operations (after AJE)?Two answers are accepted. In the Income Statement, Expenses do not include Cost ofGoods Sold, therefore C or $36,800 is the correct answer. Alternatively when askedabout expenses without indicating specifically to the Income Statement presentation,A is also correct (expenses plus COGS).

9). What was the Net Income for the first year of operations?ANS: A it is a loss of 10,300

10). The total for cost of goods sold for first year of operations is:ANS: C it is $67,000 because the 2,000 that are not in the inventory are lost and assuch they have to be recognized as CGS

11). The total for miscellaneous expense for first year of operations is:ANS: B it is $3,400 calculated as $10,000 - $6,600 of insurance (expense + prepaid)

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12). What is the total amount of Accounts Receivable to be reported in the balancesheet of September 30?

ANS: E it is $400

13) What is the net value of Furniture/Equipment after AJE?

ANS: C it is $12,000 because the depreciation is accounted for when determining thenet value

14) What is the balance of Furniture/Equipment shown in the Balance Sheet as ofSeptember 30?

ANS: D it is $15,000 because the depreciation goes in another line

15). What was the total adjusted interest income earned to be reported in the IncomeStatement?ANS: C it is $500

16). What was the total adjusted rent expense to be reported in the IncomeStatement?ANS: B it is $6,000

17). The total revenues to be reported in the Income Statement are:ANS: E it is $93,000

18). What is the total Office Supplies Expense to be reported in the IncomeStatement?ANS: B it is $2,000

19). What is the total business tax and licenses expense to be reported in the incomestatement?ANS: D it is $1,000

20). What is the amount of total current assets to be reported in the Balance Sheet?ANS: A it is $40,700 because prepaid business and taxes has only $1,000 current andthe other $3,000 is non current.

21). What is the amount of total non current assets to be reported in the BalanceSheet?ANS: A it is $30,000 because prepaid business and taxes has only $1,000 current andthe other $3,000 is non current.

22). What are the Total of all Liabilities to be reported in the Balance Sheet?ANS: D it is $51,000

23). What are the Total of Current Liabilities to be reported in the Balance Sheet?ANS: A it is $41,000

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24). In the Statement of Retained Earnings to be prepared for Lucy JonesConvenience Store:

ANS: C the opening balance is zero because there are no retained earnings as this isthe first year of operations.

25). What is the total of Shareholders Equity reported in the balance sheet?ANS: B it is $19,700

26). What is the maximum amount of dividends that can be paid based on thefinancial statements you have just prepared?ANS: A the company incurred in a loss therefore there are no retained earnings to bedistributed as dividend.

This Section Question 21-25 ONLY APPLIES TO CASH BASIS ACCOUNTING forLucy Jones Convenience Store for the date ending September 30:

27). What was the Cash balance at the end of the September 30?ANS: B it is $23,900

28). What is the amount of Business Tax and Licenses paid for the first year ofoperations?ANS: A all amounts paid are counted as expense of the period

29). What is the amount of Rent paid for the first year of operations?ANS: A all amounts paid are counted as expense of the period

30). What is the total value of depreciation for the year ended on September 30th?ANS: D depreciation concept does not exist in cash accounting

31). What is the interest expense for the sisters loan for the year ended on September30th?

ANS: A if not paid, not an expense yet

32). What is the office supplies expense for the year ended on September 30th?ANS: D all amounts paid are accounted as expense

33). What is the total expenses for Salaries and Wages for the year ended onSeptember 30th?

ANS: C only the portion paid

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Solution to the mini case Lucy Jones Convenience StoreLucy Jones' Convenience StoreDr Cash 30000 AJE

Cr Contributed Capital (common shares) 30000

Dr Cash 10000 Interest Expense 1000Cr Long term Payable 10000 Interest Payable 1000

Dr Purchases 70000 Cost of Goods Sold 67000

Cr Accounts Payable 70000 Inventory 3000Purchases 70000

Dr Wages Expense 12000 Wages Expense 3000Cr Cash 12000 Wages payable 3000

Dr Prepaid rent 7000 Rent Expense 6000Cr Cash 7000 Prepaid rent 6000

Dr Prepaid business tax and licenses 5000 Business Tax and lic. Expens 1000Cr Cash 5000 Prepaid business tax and lic. 1000

Dr Prepaid Office Supplies 10000 Office Supplies Expense 2000Cr Cash 8000 Prepaid Office Supplies 2000Cr Office supplies Payable 2000

Dr Miscelaneous Expenses 10000Cr Cash 10000

Dr Prepaid Insurance 6600 Insurance Expense 3300

Cr Miscelaneous Expense 6600 Prepaid Insurance 3300Dr Furniture and equipment 15000 Depreciation Expense 3000

Cr Cash 15000 Accum.Depreciation 3000

Dr Cash 91500 Bad debt expense 1100Dr Accounts receivable 1500 Accounts receivable 1100

Cr Sales Revenue 93000

Dr Cash 15000 Bank Expenses 1000Cr Bank loan 15000 Cash 1000

Dr Long term investment 15000 Cash 400Cr Cash 15000 Interest receivable 100

Interest income earned 500Dr Accounts Payable 50000

Cr Cash 50000 91200 91200

348600 348600

Income Statement Balance SheetSales Revenue 93000 Cash 23900 Interest Payable 1000Cost of Goods Sold 67000 Prepaid rent 1000 Accounts Payable 20000

Gross Mg 26000 Prepaid business tax and licens 1000 Wages payable 3000

Prepaid Office Supplies 8000Office supplies PayableBank Loan

200015000

Interest Expense 1000 Prepaid Insurance 3300 Current liabilities 41000Wages Expense 15000 Inventory 3000

Rent Expense 6000 Accounts receivable 400Business Tax and lic.Expense 1000 Interest receivable 100 Long term Payable 10000

Office Supplies Expense 2000 Total current assets 40700 Non Current Liabilities 10000Miscelaneous Expenses 3400Insurance Expense 3300 Furniture and equipment 15000 Contributed Capital (com.shares) 30000Depreciation Expense 3000 Accum.Depreciation -3000 Retained earnings -10300

Bad debt expense 1100 Long term investment 15000 Owners equity 19700

Bank Expenses 1000Prepaid business tax andlicenses 3000

Total expenses 36800 Total non current assets 30000

Interest income earned 500

Net Income (loss)-

10300 Total assets 70700 70700

Statement of retained earningsOpening balance 0

Net income(loss) -10300Closing balance -10300

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Problems from book

Modules 1 and 2 (5 questions all exams)PROBLEM 04 BALANCE SHEET EQUATION51) ANS: E it is $520,000

52) ANS: B it is 350,000

53) ANS: C it is 170,000ANSUsing the accounting equation we have:

Assets = Liabilities + Owners equity400,000 = 300,000 + 100,000

1 70,000 70,0002 150,000 60,000 = 90,0003 -40,000 = -40,000

Totals 520,000 = 350,000 + 170,000

54) ANS DIncrease in owners equity = additional paid in capital + net income dividends300,000 = 0 + X - 75,000Solving for X, we have X = 300,000 + 75,000

X = 375,000

55) ANS CUsing the accounting equation assets = liabilities + owners equity225,000 = 100,000 + 125,000Owners equity = paid in capital + net income dividends125,000 = X + 75,000 - 30,000Solving for X, we have X = 125,000 75,000 + 30,000; X = 80,000

Module 3 and 4 (13 questions Alt exam only)56) ANS BSales 400,000Gross profit 35% = 140,000Therefore CGS is 260,000Beginning inventory + purchases = sent to CGS + Ending inventory40,000 + 280,000 = 260,000 + X

Solving for X we have X = 40,000 + 280,000 260,000 ; X = 60,000

57) ANS C A transposition error occurs when the order of digits in a number areswitched. It is detected when the difference is divisible by 9. Alternative C is the only onenot divisible by 9.

58) ANS B expense for 2014 is 3,000 while the rest belongs to 2015

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Use the following set up to answer questions 59 to 6259) ANS B 2,000

60) ANS E, it is 19,200

61) ANS D 9,600 + 6,000

62) ANS C 1,000

Use the following set up to answer questions 63 to 6763) ANS C calculated as: 16,200 150 640 3,200 2,250 80 - 230

64) ANS A, it is 10,400 + 880 + 6,800 + 8,420

65) ANS E, it is zero, theres none

66) ANS B it is calculated as 18,500 + 9,650 2,750

67) ANS E, it is 6,900 calculated as 9,650 2,750

mt1 f14 adms2500

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