review package - midterm fall 2013 midterm ex… · review package - midterm fall 2013 . part i...
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Part I Multiple Choice
1) How should you record the purchase of an expensive automobile?
a) Decrease cash, increase assets
b) Decrease cash, increase expenses c) Decrease cash, decrease net worth
d) Decrease cash, increase net worth
2) Which of the following businesses would be considered a service business?
a) Paper manufacturer
b) Retail store
c) Law firm
d) None of the available choices
3) 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
4) A business commences with owner's equity of $60,000 and a cash balance of $15,000 on September 1st. On the last day of September, the business prepays a maintenance contract of $12,000 for a one year service contract that will commence in October. The services will be delivered in equal amounts each month. Assuming no other transactions, what will be the value of cash and owners’ equity at the end of December?
a) Cash $3,000. Equity $57,000 b) Cash $13,000. Equity $60,000 c) Cash $3,000. Equity $45,000 d) Cash $13,000. Equity $57,000
5) Company ABC has not recognized $300 worth of prepaid insurance used at the end of its fiscal year. What happens to net income?
a) Net income would not be affected. b) Net income would be understated by $300.
c) It cannot be determined.
d) Net Income would be overstated by $300.
6) A typical accounting adjustment could be:
a) recognizing earned revenue
b) recognizing depreciation
c) recognizing prepaid expenses
d) all of the choices
7) Entries are recorded in the journal:
a) alphabetically
b) chronologically (by date)
c) in the order of account numbers used
d) randomly
8) The document which records the activities and balances of each specific account is called a:
a) journal
b) general Ledger
c) financial statement
d) trial balance
9) The trial balance lists:
a) all accounts in the general ledger and their balances
b) only income statement accounts
c) only balance sheet accounts
d) a summary of owner's equity
10) Which of the following accounts will NOT show on the post-closing trial balance?
a) Cash
b) Rent Expense
c) Accounts Payable
d) Owner's Equity
11) A post-closing trial balance contains:
a) assets and liabilities only
b) all zero balances
c) revenue and expenses only
d) assets, liabilities and owner’s equity
12) The Statement of Owner's Equity :
a) is used to determine the sources and uses of cash
b) is used to calculate ending Owners' equity so that it can be transferred to the income statement
c) reports any changes in equity over the reporting period
d) reflects increases due to losses and decreases due to profits
13) After closing revenues and expenses, but before closing the income summary account a successful company would show a:
a) zero balance in the income summary account b) debit balance in the income summary account c) credit balance in the income summary account d) debit balance in the owner's equity account
14) Cash is generated from day to day activities by:
a) Capital exceeding expenses
b) Gains on sale of stocks
c) Receiving gifts
d) Revenue exceeding expenses
15) What is a stakeholder?
a) All of the available choices
b) Somebody who has invested in a corporation c) Somebody who works in an organization
d) A supplier or client of a company
16) Which of the following best defines GAAP?
a) A stream of accounting
b) A characteristic of accounting
c) A professional accounting designation
d) A set of standards and acceptable ways of reporting accounting activities
17) Which of the following is the most commonly discussed trade-off of characteristics?
a) Reliability vs. Comparability
b) Relevance vs. Understandability
c) Comparability vs. Understandability
d) Relevance vs. Reliability
Part II GAAP Principles
Match each of the following GAAP principles to the appropriate description in the table below.
A. Business entity principle
B. Going concern principle
C. Monetary unit principle
D. Objectivity principle
E. Cost principle
F. Conservatism principle
Corresponding Letter Description
Conservatism principle The accountant should exercise the option that results in a lower
balance of assets, lower net income or a higher balance of debt.
Objectivity principle
Accounting transactions should be recorded on the basis of verifiable evidence.
Going concern principle Assumes that a business will continue to operate into the
foreseeable future.
Monetary unit principle Financial reports should be expressed in a single currency.
Business entity principle
Accounting for a business must be kept separate from the personal affairs of its owner or any other business.
Cost principle Accounting for purchases must be recorded at their values on the
date of purchase.
Part III Transactions - Revenue & Expense
Complete the chart using the transactions below. Under the "Account Type" column, fill the cells with one of the following: Asset, Liability, Revenue or Expense. The first one has been done for you.
May 1 Paid cash for travel expenses incurred on this day $2,000 May 2 Paid cash for a one year insurance policy $1,800 May 12 Paid cash for telephone bill that was received and recorded last month $300 May 20 Received cash from a customer for service to be performed next month $800
May 25 Received a maintenance invoice for work completed in May, which will be paid next month $400
Date Account Name Account Type Increase or Decrease Amount
May 1 Travel Expense Expense Increase $2,000
Cash Asset Decrease $2,000
May 2 Prepaid Expense Asset Increase $1,800
Cash Asset Decrease $1,800
May 12 Accounts Payable Liability Decrease $300
Cash Asset Decrease $300
May 20 Cash Asset Increase $800
Unearned Revenue Liability Increase $800
May 25 Maintenance Expense Expense Increase $400
Accounts Payable Liability Increase $400
Part IV Adjusting Entries
Below, is Reality Services' unadjusted trial balance at the end of December 2012. Adjusting entries have not yet been made. Use the trial balance and the information below to complete the journal entries.
DR CR Cash $2,000 Accounts Receivable 3,500 Prepaid Insurance 2,400 Office Supplies 750 Property, Plant & Equipment 8,000 Accumulated Depreciation $0 Accounts Payable 4,400 Unearned Revenue 1,200 Bank Loan 2,800 Capital Account 3,000 Owner's Drawings 1,000 Service Revenue 10,000 Depreciation Expense 0 Insurance Expense 0 Interest Expense 0 Maintenance Expense 800 Supplies Expense 0 Rent Expense 1,400 Salaries Expense 550 Telephone Expense 300 Travel Expense 700 Total $21,400 $21,400
Dec 31 A physical count showed that $300 of office supplies are still on hand
Dec 31 The property, plant and equipment was purchased at the beginning of the year and is expected to last 5 years and no residual value
Dec 31 Of the balance of unearned revenue, $720 has been earned
Dec 31 The amount in prepaid insurance is for an annual policy that was paid and commences on September 1, 2012
Dec 31 Interest of $240 was owed on the bank loan, but was unpaid at December 31st
Dec 31 Unrecorded reality services completed but not yet collected from customers at December 31
st amounted to $500.
Journal Date Account Title and Explanation DR CR
Dec 31 Supplies Expense $450 Office Supplies $450 Adjust office supplies Dec 31 Depreciation Expense $1,600 Accumulated Depreciation $1,600 Depreciate PPE Dec 31 Unearned Revenue $720 Service Revenue $720 Adjust for revenue earned Dec 31 Insurance Expense $800 Prepaid Insurance $800 Adjust for 4 months of insurance
Part V Business Bookkeeping - Full Accounting Cycle
Charles Ly is the owner of Gamma Services. He has hired you to update the transactions for his business. Charles has provided you with the opening balances and a list of transactions for the month of April. The company’s Chart of Accounts is also included as shown below.
The opening balances for the month of April are as follows: Gamma Services
Balance Sheet
As at March 31, 2010
Assets Liabilities Cash $22,000 Accounts Payable $10,500 Accounts Receivable 9,000 Unearned Revenue 4,500 Prepaid Insurance 0 Bank Loan 8,000 Property, Plant & Equipment 8,000 Accumulated Depreciation (2,000) Total Liabilities 23,000
Owners' Equity
14,000
Total Assets
$37,000 Total Liabilities & Owners' Equity $37,000
Transactions for the month of April: Apr 2 Provided services to a customer, who paid cash $5,000
Apr 4 Prepaid insurance for one year $1,200 Apr 7 Paid cash to reduce the balance of accounts payable $200 Apr 10 Provided services to a customer, who will pay later $4,000 Apr 12 Obtained a loan from the bank $10,000 Apr 13 Purchased equipment with cash $9,500 Apr 17 Paid the telephone bill $200 Apr 20 Paid salaries to employees $4,000 Apr 28 The owner withdrew cash for personal use $700 Apr 30 Paid interest on the bank loan $150 Adjustments Apr 30 Recognized prepaid insurance for this month $100 Apr 30 Recorded deprecation on equipment $400 Apr 30 Recognized unearned that has now become earned $1,800
The Chart of Accounts (GL No.) is shown below:
Account Description Account
#
Account Description Account
# ASSETS
REVENUE
Cash 101
Service Revenue 400 Accounts Receivable 105
Interest Revenue 410
Prepaid Insurance 110
EXPENSES Property, Plant & Equipment 120
Advertising Expense 505
Accumulated Depreciation 130
Insurance Expense 510
Maintenance Expense 515
LIABILITIES
Professional Fees Expense 520 Accounts Payable 200
Rent Expense 525
Unearned Revenue 205
Salaries Expense 530 Bank Loan 210
Telephone Expense 535
Depreciation Expense 540 OWNER'S EQUITY
Interest Expense 545
Capital Account 300 Owner's Drawing 310 Income Summary 315
Required: a) Journalize the transactions.
b) Post the transactions to the General Ledger. c) Prepare the adjusted trial balance. d) Prepare the closing journal entries. Assume the company uses the income summary method.
e) Post the closing entries to the General Ledger. f) Prepare the post-closing trial balance.
Journal Date Account Title & Explanation PR DR CR
Apr 2 Cash 101 $5,000
Service Revenue 400 $5,000
Sold product to customer for cash
Apr 4 Prepaid Insurance 110 $1,200
Cash 101 $1,200
To record the prepayment of insurance
Apr 7 Accounts Payable 200 $200
Cash 101 $200
To record payment to reduce accounts payable
Apr 10 Accounts Receivable 105 $4,000
Service Revenue 400 $4,000
Sold product to a customer on account
Apr 12 Cash 101 $10,000
Bank Loan 210 $10,000
To record the loan from the bank
Apr 13 Property, Plant & Equipment 120 $9,500
Cash 101 $9,500
To record purchase of equipment
Apr 17 Telephone Expense 535 $200
Cash 101 $200
To record payment for telephone
Apr 20 Salaries Expense 530 $4,000
Cash 101 $4,000
To record payment for salaries
Apr 28 Owner's Drawing 310 $700
Cash 101 $700
To record owner's drawings
Apr 30 Interest Expense 545 $150
Cash 101 $150
To record payment of loan interest
Date Account Title & Explanation DR CR
Adjustments:
Apr 30 Insurance Expense 510 $100
Prepaid Insurance 110 $100
To adjust prepaid insurance
Apr 30 Depreciation Expense 540 $400
Accumulated Depreciation 130 $400
To record depreciation
Apr 30 Unearned Revenue 205 $1,800
Service Revenue 400 $1,800
To record earned revenue
Account: Cash GL No: 101 Date: 2010 Description PR DR CR Balance (DR or CR) Opening Balance $22,000 DR Apr 2 J1 $5,000 $27,000 DR
Apr 4 J1 $1,200 $25,800 DR
Apr 7 J1 $200 $25,600 DR
Apr 12 J1 $10,000 $35,600 DR
Apr 13 J1 $9,500 $26,100 DR
Apr 17 J1 $200 $25,900 DR
Apr 20 J1 $4,000 $21,900 DR
Apr 28 J1 $700 $21,200 DR
Apr 30 J1 $150 $21,050 DR
Account: Accounts Receivable GL No: 105 Date: 2010 Description PR DR CR Balance (DR or CR) Opening Balance $9,000 DR Apr 10 J1 $4,000 $13,000 DR
Account: Prepaid Insurance GL No: 110 Date: 2010 Description PR DR CR Balance (DR or CR) Opening Balance $0 DR Apr 4 J1 $1,200 $1,200 DR
Apr 30 To adjust prepaid insurance J1 $100 $1,100 DR
Account: Property, Plant & Equipment GL No: 120 Date: 2010 Description PR DR CR Balance (DR or CR) Opening Balance $8,000 DR Apr 13 J1 $9,500 $17,500 DR
Account: Accumulated Depreciation GL No: 130 Date: 2010 Description PR DR CR Balance (DR or CR) Opening Balance $2,000 CR Apr 30 To record depreciation J1 $400 $2,400 CR
Account: Accounts Payable GL No: 200 Date: 2010 Description PR DR CR Balance (DR or CR) Opening Balance $10,500 CR Apr 7 J1 $200 $10,300 CR
Account: Unearned Revenue GL No: 205 Date: 2010 Description PR DR CR Balance (DR or CR) Opening Balance $4,500 CR Apr 30 To record earned revenue J1 $1,800 $2,700 CR
Account: Bank Loan GL No: 210
Date: 2010 Description PR DR CR Balance (DR or CR) Opening Balance $8,000 CR
Apr 12 J1 $10,000 $18,000 CR
Account: Capital Account GL No: 300 Date: 2010 Description PR DR CR Balance (DR or CR) Opening Balance $14,000 CR
Apr 30 Clear income summary J1 $5,950 $19,950 CR
Apr 30 Clear income summary J1 $700 $19,250 CR
Account: Owner's Drawing GL No: 310 Date: 2010 Description PR DR CR Balance (DR or CR)
Apr 28 J1 $700 $700 DR
Apr 30 Clear income summary J1 $700 $0 DR
Account: Income Summary GL No: 315 Date: 2010 Description PR DR CR Balance (DR or CR) Apr 30 Clear the revenue account J1 $10,800 $10,800 CR
Apr 30 Clear the expense accounts J1 $4,850 $5,950 CR
Apr 30 Clear income summary J1 $5,950 $0 CR
Account: Service Revenue GL No: 400 Date: 2010 Description PR DR CR Balance (DR or CR) Apr 2 J1 $5,000 $5,000 CR
Apr 10 J1 $4,000 $9,000 CR
Apr 30 To record earned revenue J1 $1,800 $10,800 CR
Apr 30 Clear the revenue account J1 $10,800 $0 CR
Account: Advertising Expense GL No: 505 Date: 2010 Description PR DR CR Balance (DR or CR)
Account: Insurance Expense GL No: 510 Date: 2010 Description PR DR CR Balance (DR or CR) Apr 30 To adjust prepaid insurance J1 $100 $100 DR
Apr 30 Clear the expense accounts J1 $100 $0 CR
Account: Maintenance Expense GL No: 515
Date: 2010 Description PR DR CR Balance (DR or CR)
Account: Professional Fees Expense GL No: 520 Date: 2010 Description PR DR CR Balance (DR or CR)
Account: Rent Expense GL No: 525 Date: 2010 Description PR DR CR Balance (DR or CR)
Account: Salaries Expense GL No: 530 Date: 2010 Description PR DR CR Balance (DR or CR) Apr 20 J1 $4,000 $4,000 DR
Apr 30 Clear the expense accounts J1 $4,000 $0 DR
Account: Telephone Expense GL No: 535 Date: 2010 Description PR DR CR Balance (DR or CR) Apr 17 J1 $200 $200 DR
Apr 30 Clear the expense accounts J1 $200 $0 DR
Account: Depreciation Expense GL No: 540
Date: 2010 Description PR DR CR Balance (DR or CR) Apr 30 To record depreciation J1 $400 $400 DR
Apr 30 Clear the expense accounts J1 $400 $0 DR
Account: Interest Expense GL No: 545 Date: 2010 Description PR DR CR Balance (DR or CR) Apr 30 J1 $150 $150 DR
Apr 30 Clear the expense accounts J1 $150 $0 DR
Gamma Services
Adjusted Trial Balance
April 30, 2010
Account Titles DR CR DR CR DR CR
DR
Cash $21,050
$21,050
$21,050
Accounts Receivable 13,000
$13,000
13,000
Prepaid Insurance 1,100
$1,100
1,200
Property, Plant & Equipment 17,500
$17,500
17,500
Accumulated Depreciation $2,400
$2,400 Accounts Payable 10,300
$10,300
Unearned Revenue 2,700
$2,700 Bank Loan 18,000
$18,000
Capital Account 14,000
$14,000 Owner's Drawing 700
$700
Service Revenue 10,800
$10,800 Advertising Expense 0 $0
0
Insurance Expense 100 $100
0
Maintenance Expense 0 $0
0
Professional Fees Expense 0 $0
0
Rent Expense 0 $0
0
Salaries Expense 4,000 $4,000
4,000
Telephone Expense 200 $200
200
Depreciation Expense 400 $400
0
Interest Expense 150 $150
150
Totals $58,200 $58,200 $4,850 $10,800 $52,650 $48,100
$57,100
Net Profit (Loss)
$5,950
$5,950 Total $58,200 $58,200 $10,800 $10,800 $52,650 $54,050
Gamma Services
Income Statement
For the Month Ending April 30, 2010
$10,800
$0
100
0
0
0
4,000
200
400
150
4,850
$5,950
Gamma Services
Statement of Owner's Equity
For the Month Ending April 30, 2010
Opening Capital Account
$14,000
Add: Net Income $5,950 Less: Owner's Drawings (700) Ending Capital Account $19,250
Gamma Services Balance Sheet April 30, 2010 $21,050 13,000 1,100 $17,500 (2,400) 15,100
$50,250
$10,300 2,700 18,000
$31,000
19,250
$50,250
Closing Entries: Date Account Title & Explanation DR CR
Apr 30 Service Revenue $10,800 Income Summary $10,800 Clear the revenue account Apr 30 Income Summary $4,850 Insurance Expense $100 Salaries Expense $4,000 Telephone Expense $200 Depreciation Expense $400 Interest Expense $150 Clear the expense accounts Apr 30 Income Summary $5,950 Capital Account $5,950 Clear income summary Apr 30 Capital Account $700 Owner's Drawing $700 To close owner's drawings
Gamma Services Post-Closing Trial Balance April 30, 2010 Account DR CR Cash $21,050 Accounts Receivable 13,000 Prepaid Insurance 1,100 Property, Plant & Equipment 17,500 Accumulated Depreciation $2,400 Accounts Payable 10,300 Unearned Revenue 2,700 Bank Loan 18,000 Capital Account 19,250 Total $52,650 $52,650
Part VI Worksheet
Vius Company unadjusted trial balance is shown below, at the end of December 2011. Adjusting entries have not yet been made.
DR CR Cash $6,000 Accounts Receivable 3,000 Prepaid Insurance 2,400 Office Supplies 1,000 Property, Plant & Equipment 10,000 Accumulated Depreciation $0 Accounts Payable 5,000 Unearned Revenue 1,400 Bank Loan 3,500 Capital Account 9,250 Owner's Drawings 800 Service Revenue 9,000 Depreciation Expense 0 Insurance Expense 0 Interest Expense 0 Maintenance Expense 700 Supplies Expense 0 Rent Expense 2,100 Salaries Expense 900 Telephone Expense 500 Travel Expense 750 Total $28,150 $28,150
Dec 31 A physical count showed that $400 of supplies are still on hand
Dec 31
The property, plant and equipment was purchased at the beginning of the year and is expected to last 4 years and no residual value
4
Dec 31 Of the balance of unearned revenue, $840 has been earned
Dec 31
The amount in prepaid insurance is for an annual policy that was paid on October 1, 2011
Required: Complete the worksheet by using the trial balance and the information given.
Vius Company
Worksheet
December 31, 2011
Unadjusted Trial
Balance Adjustments
Adjusted Trial Balance
Account Titles DR CR DR CR DR CR
Cash $6,000 $6,000
Accounts Receivable 3,000 3,000
Prepaid Insurance 2,400 600 1,800
Office Supplies 1,000 600 400
Property, Plant & Equipment 10,000 10,000
Accumulated Depreciation $0 2,500 $2,500
Accounts Payable 5,000 5,000
Unearned Revenue 1,400 840 560
Bank Loan 3,500 3,500
Capital Account 9,250 9,250
Owner's Drawings 800 800
Service Revenue 9,000 840 9,840
Depreciation Expense 0 2,500 2,500
Insurance Expense 0 600 600
Interest Expense 0 0
Maintenance Expense 700 700
Supplies Expense 0 600 600
Rent Expense 2,100 2,100
Salaries Expense 900 900
Telephone Expense 500 500
Travel Expense 750 750
Total $28,150 $28,150 $4,540 $4,540 $30,650 $30,650
Part VII Closing Entries
Below is the year-end trial balance for Serava Marketing :
Serava Marketing Trial Balance For the period ending December 31, 2012 Account # Account Title DR CR 101 Cash 20,000 105 Accounts Receivable 10,000 110 Prepaid Insurance 6,000 200 Accounts Payable 3,500 205 Unearned Revenue 3,000 300 Capital Account 30,000 305 Owner's Drawing 1,800 401 Service Revenue 6,000 510 Insurance Expense 2,400 520 Rent Expense 1,200 530 Depreciation Expense 1,100 Totals 42,500 42,500
Prepare the journal entries to close the appropriate accounts using the income summary.
Date Description DR CR Dec 31 Service Revenue $6,000 Income Summary $6,000 To close the revenue accounts Dec 31 Income Summary $4,700 Insurance Expense $2,400 Rent Expense $1,200 Depreciation Expense $1,100 To close the expense accounts Dec 31 Income Summary $1,300 Capital Account $1,300 To close the income summary account Dec 31 Capital Account $1,800 Owner's Drawing $1,800
Part VIII Financial Statements
Shown below is Voxa Marketing financial accounting information for the year ended July 31, 2012. Assume no additional owner's investments occurred during the year.
Voxa Marketing
List of Accounts
July 31, 2012
Account Titles Balance Accounts Payable $5,000 Accounts Receivable 4,000 Accumulated Depreciation 400
Bank Loan 3,500 Capital Account 2,370 Cash 2,800 Depreciation Expense 400 Insurance Expense 300 Maintenance Expense 200 Owner's Drawings 800 Prepaid Insurance 2,400 Property, Plant & Equipment 6,400 Rent Expense 1,000 Service Revenue 7,600 Telephone Expense 500 Travel Expense 850 Unearned Revenue 780
Required: Using this information, prepare the Income Statement, Statement of Owners' Equity and then the Balance Sheet as at July 31, 2012.
Voxa Marketing Income Statement For the Year Ended July 31, 2012 Service Revenue
$7,600
Expenses Insurance Expense 300 Maintenance Expense 200 Rent Expense 1,000 Telephone Expense 500 Travel Expense 850 Depreciation Expense 400
Total Expenses 3,250 Net Income (Loss)
$4,350
Voxa Marketing Statement of Owner's Equity For the Year Ending July 31, 2012 Owners' Equity at July 1, 2012 $2,370
Add Additional Investments $0 Add Net Income (Loss) 4,350 Subtotal 6,720 Subtract Owner's Drawings
800
Owners' Equity at July 31, 2012 $5,920
Voxa Marketing Balance Sheet As at July 31, 2012 Assets Cash $2,800 Accounts Receivable 4,000 Prepaid Insurance 2,400 Property, Plant & Equipment
6,000
Total Assets $15,200 Liabilities Accounts Payable $5,000 Unearned Revenue 780 Bank Loan 3,500 Total Liabilities
$9,280
Owner's Equity 5,920 Liabilities & Owner's Equity $15,200