Part D ( marks) amazonaws com
MGT120 H1F Financial Accounting I
Part A (10 marks) 1. A trial balance will not balance if: a) A journal entry to record a cash sale is posted twice b) The purchase of supplies on account is debited to Supplies and credited to cash c) A $100 cash dividend is debited to Dividends for $1,000 and credited to Cash for $100 d) A $450 payment on account is debited to Accounts Payable for $45 and credited to Cash for $45
2. Which of these statements about a general journal is false? a) It contains only revenue and expenses accounts b) It provides a chronological record of transactions c) It helps to locate errors because the debit and credit amounts for each entry can be readily compared d) It discloses the complete effect of a transaction in one place.
3. Kathy Krosby earned a salary of $400 for the last week of September. She will be paid on October 1. The adjusting entry for Kathy’s employer at September 30 is: a) No entry is required b) Salaries expense Salaries Payable c) Salaries expense Cash d) Salaries Payable Cash
400 400 400 400 400 400
4. Sanderson Corporation has a credit balance of $5,000 in its Allowance for Doubtful accounts before any adjustments are made. Based on an aging of its accounts receivable at the end of the period, the company estimates that $60,000 of its receivable are uncollectible. The amount of bad debts expense which should be reported for this accounting period is: a) $5,000 b) $55,000
1
c) $60,000 d) $65,000
5. Assume a company receives a bill for $10,000 for advertising done during the current year. If this bill is not yet recorded at the end of the year, what will the adjusting journal entry include? a) b) c) d)
debit to advertising expense of $10,000 credit to advertising expense of $10,000 debit to accrued liabilities of $10,000 credit to cash of $10,000
6. The Alabama Surfboard Company has four employees working 8 hours per day (Monday through Friday) shaping and glassing surfboards at $10 per hour. They receive their wages every Friday for that week’s work. If the end of the accounting period occurs on a Wednesday, the adjusting entry to record accrued wages would include a: a) b) c) d)
Debit to Wages expense of $320 Credit to Wages payable of $640 Credit to Wages expense of $960 Credit to Wages payable of $960
7. During the month of June, the following transactions occurred for ABC Company: June 1 Collected $5,000 rent from a tenant for the month of June June 15
Sold $1,000,000 in goods costing $750,000
June 17 June 18
Paid operating expenses of $50,000 arising from expenses incurred in May Collected $18,000 from customers on account
June 24
Purchased $800,000 inventory; paid 50% in cash
June 28
Incurred $75,000 operating expenses
June 30
Received a utilities bill ($2,000) for the month of June
Net income for the month of June is a) b) c) d)
$178,000 $173,000 $128,000 $180,000
2
8. In preparing its 2006 adjusting entries, the Clark Corporation neglected to adjust rental fees received in advance for the amount of rental fees earned during 2006. As a result of this error: a) 2006 net income is understated, the balance in retained earnings is understated, and liabilities are overstated b) 2006 net income is overstated, the balance in retained earnings is overstated, and liabilities are correctly stated c) 2006 net income is understated, the balance in retained earnings is understated, and liabilities are understated d) 2006 net income is overstated, the balance in retained earnings is correctly stated, and liabilities are understated
9. Bevo had a cash balance of $962 on August 31. This included a bank deposit of $87 that was in transit on the 31st. August 31st Bank Statement information: Bank statement balance NSF cheque Bank service charge Collection of notes receivable Cheques outstanding
$1,089 16 7 68 169
What is Bevo’s reconciled balance? a. b. c. d. e.
$920 $162 $1,007 $1,089 $1,176
3
10. Summerhill Corporation had the following trial balances at its year-end (before closing entries). All accounts had normal debit or credit balances. Dividends Cash Equipment Revenue Supplies expense Unearned revenue Wages expense Beginning retained earnings
$
The ending balance in Retained Earnings is: a. b. c. d.
$205 $175 $180 $245
4
5 250 150 400 200 70 60 40
Part B (20 marks) On September 1, 2006, Amanda invested $10,000 to form a new business called, "Dance from your Heart Ltd." and received 1,000 common shares. She would provide dance lessons in all types of dance including jazz, ballet, tap, hip-hop and acrobatics. She is targeting students ages 3 to 18 years of age. Also on September 1st she went to a car dealership and bought a used truck with the company logo for $20,000 by paying $5,000 down and obtained a bank loan for the balance of $15,000 to be repaid over four years. The interest of 10% is to be paid every September 1st. She expects the truck to last at least four years. On September 2nd, she spent $4,200 to purchase ballet bars, mats and other equipment necessary for her business. She paid 10% down with the balance due in 30 days. The equipment is expected to last five years. She rented space in a building for the dance studio costing $500 a month and paid two months' rent in advance. Amanda is very excited about her new venture, she offered a special promotion to her customers, they could either pay her $2,000 for 10 months of unlimited classes for the September to June dance season or they can pay $50 per month per dance class. Listed below are additional transactions that took place during the month of September. Sept 1 Registration began and was a great success. She had 20 students sign up for the $2,000 prepaid option of dance class. She also had 30 students sign up for the month of September for 80 classes of dance that they will pay for on a monthly basis of $50/class per month. 1 Amanda decided to get liability insurance for her business. The premiums are $600 per year. The premium was paid in cash on September 1, 2007 8 She received several phone calls from students anxious to sign up for the dance special. 14 A dividend of $500 was declared and paid to Amanda. 17 Amanda decided to hire her good friend Sofia to help her out with the teaching. They agreed that Sofia would work from Monday to Friday evenings beginning on Monday, Sept 20th. They agreed upon a weekly salary of $500 to be paid every Friday. 24
She paid Sofia for one week's salary and paid $2,000 in dividends to herself.
30
Amanda received a telephone bill for $50 and a utilities bill in the amount of $140. Both bills are payable in 30 days. Operating expenses of $1,500 were paid in cash. She also expects to pay 45% income taxes.
30
Classes began this month and Amanda’s business is off to a great starts. She estimated that $2,000 of the cash he had received in advance had been earned.
Oct 1 Since this was Friday, she paid Sofia for one week's salary.
5
Required (extra blank pages are provided at the end of the test) 1. Prepare an income statement and a classified balance sheet for the month of September in good form. (16 marks) 2. Compute the current ratio and debt ratio for the month of September. Include the formula in your answer. Based on your answer, state whether these two ratios are strong or weak by giving one reason for each. (4 marks).
6
Part C (15 marks) The following information pertains to the accounts receivable of Elizabeth Corporation for the year ended December 31: 1. Net sales: $1,500,000. 2. A recent study shows that the industry’s uncollectible accounts expense over the past few years is approximately 1 percent of its total net sales. The company is considered one of the most representative companies in the industry. 3. Accounts receivable aging schedule: Number of Days Outstanding 1-30 31-60 61-90 91 and over Total
Accounts Receivable $ 70,000 40,000 20,000 9,000 $139,000
Percentage Considered Uncollectible 0% 20% 35% 50%
Total Estimated Uncollectible -$8,000 7,000 4,500 $19,500
Required: 1. Prepare a journal entry to record the uncollectible accounts expense assuming the percentage of sales method is used. (2 marks)
2. Prepare a journal entry to record the uncollectible accounts expense assuming the aging of receivables method is used. (3 marks)
7
3. Assume that the company is not able to collect $695 from one of its customers. Prepare a journal entry to record this write off. (2 marks)
4. Assume that the company was able to recover $375 of an accounts receivable previously written off. Record the journal entries for the recovery of this accounts receivable.(4 marks)
5. Assume that the company’s accounts receivable ratio is 8 times, indicate whether the following transactions would increase (I), decrease (D), or have no effect (NE). (4 marks) a.________ b. _______ c. _______ d. _______
Recorded sales on account. Collected amounts owing from customers Recorded bad expense for the year Wrote off an account from a customer as uncollectible
8
MGT120 Test #1 Summer 2007 Part A (10 marks) 1. c 2. a 3. b 4. b 5. a 6. d 7. a 8. a 9. c 10. b Part B ( 20 marks)
1-Sep
1-Sep
2-Sep
1-Sep
1-Sep
1-Sep
1-Sep
14-Sep
24-Sep
Cash Common shares
10,000
Truck Cash Car Loan
20,000
10,000
5,000 15,000
Dance equipment Cash Accounts payable
4,200
Prepaid Rent Cash
1500
420 3780
1500
Cash Unearned Revenue
40,000 40,000
Cash Revenue
4,000 4,000
Prepaid Insurance Cash
600
Dividends Cash
500
Salaries expense Cash
500
600
500
500
9
Sept 24
Dividends Cash 30-Sep
Adjusting journal entries 30-Sep
2000 2000
Telephone expense Utilities expense Accounts payable
50 140
Operating expenses Cash
1500
190
1500
Amortization expense - truck Accumulated amortization - truck
417 417
$20,000 / 4years / 12 months = $417 30-Sep
Amortization expense - equipment Accumulated amortization equipment
70 70
$4,200/5 years / 12 months = $70 30-Sep
Interest expense Interest payable
125 125
$15,000 x 10%/ 12 months = $125 30-Sep
30-Sep
Rent Expense Prepaid Rent
500 500
Insurance Expense Prepaid insurance
50 50
$600 / 12 months - $50 30-Sep
30-Sep
Unearned revenue Revenue
2000
Salaries expense Salaries payable
400
2000
400
$500/5 days x 4 days 30-Sep
Income tax expense Income tax payable Net income x 45%
10
1034 1034
Dance from your Heart Ltd Income Statement for the month ended September 30, 2006 Revenue
$ 6,000
Expenses Salaries expense Telephone expense Utilities expense operating expenses Amortization expense - truck Amortization expense - equipment Interest expense Rent expense Total expenses
$
900 50 140 1500 417 70 125 500 3702
Net Income Income tax expense
$ 2,298 1,034
Net income
$ 1,264
11
Dance from your Heart Ltd Balance Sheet September 30, 2006 Assets Current Assets Cash Prepaid Rent Total Current Assets Capital Assets: Truck Less: Accumulated amortization Truck - net book value
$ 42,580 1,000 $ 43,580 20,000 417 19,583
Dance equipment Less: Accumulated amortization Dance equipment - net book value Total Capital assets
4,200 70 4,130 23,713
Total Assets Liabilities Current Liabilities Accounts payable Unearned revenue Interest payable Salaries payable Income tax payable Total current liabilities
$ 67,293
$
3,970 38,000 125 400 1,034 $ 43,529
Car loan
15,000
Total liabilities Shareholder's Equity Common shares Retained Earnings: Opening retaining earnings Add: Income Statement Less: Dividends Closing Retaining earnings
$ 58,529
$ 10,000
1,264 (2,500) (1,236)
Total Shareholder's Equity
$ 8,764
Total liabilities & Shareholder's equity
$ 67,293
(0)
12
Current Ratio =
Current Assets
=
43,580
=
43,529 1.00
=
58,529
Current Liabilities
Debt Ratio
total liabilities total assets
67,293 =
0.87
- supported discussion indicating that a current ratio of 1.50 indicates a strong cash flow - supported discussion indicating that a debt ratio of less than .70 indicates the company strong ability to pay back its debts
Part c (15 marks) 1. Dec. 31 Uncollectible accounts expense Allowance for Uncollectible accounts ($1,500,000 net sales x 1%) 2. Dec. 31
3. June 10
4. Sept 30
15,000
Uncollectible accounts expense 19,500 Allowance for Uncollectible accounts To record the uncollectible accounts expense for the year
15,000
Allowance for Uncollectible accounts Accounts receivable To write off an uncollectible account
695 695
Accounts receivable Allowance for Uncollectible accounts To reinstate account previously written off
375
Cash
375
Accounts receivable To record collection of reinstated receivable 5. (a) (b) (c) (d)
15,000
Decrease Increase Increase No effect
13
375
375
Part A (10 marks) 1. A trial balance will not balance if: a) A journal entry to record a cash sale is posted twice b) The purchase of supplies on account is debited to Supplies and credited to cash c) A $100 cash dividend is debited to Dividends for $1,000 and credited to Cash for $100 d) A $450 payment on account is debited to Accounts Payable for $45 and credited to Cash for $45
2. Which of these statements about a general journal is false? a) It contains only revenue and expenses accounts b) It provides a chronological record of transactions c) It helps to locate errors because the debit and credit amounts for each entry can be readily compared d) It discloses the complete effect of a transaction in one place.
3. Kathy Krosby earned a salary of $400 for the last week of September. She will be paid on October 1. The adjusting entry for Kathy’s employer at September 30 is: a) No entry is required b) Salaries expense Salaries Payable c) Salaries expense Cash d) Salaries Payable Cash
400 400 400 400 400 400
4. Sanderson Corporation has a credit balance of $5,000 in its Allowance for Doubtful accounts before any adjustments are made. Based on an aging of its accounts receivable at the end of the period, the company estimates that $60,000 of its receivable are uncollectible. The amount of bad debts expense which should be reported for this accounting period is: a) $5,000 b) $55,000
1
c) $60,000 d) $65,000
5. Assume a company receives a bill for $10,000 for advertising done during the current year. If this bill is not yet recorded at the end of the year, what will the adjusting journal entry include? a) b) c) d)
debit to advertising expense of $10,000 credit to advertising expense of $10,000 debit to accrued liabilities of $10,000 credit to cash of $10,000
6. The Alabama Surfboard Company has four employees working 8 hours per day (Monday through Friday) shaping and glassing surfboards at $10 per hour. They receive their wages every Friday for that week’s work. If the end of the accounting period occurs on a Wednesday, the adjusting entry to record accrued wages would include a: a) b) c) d)
Debit to Wages expense of $320 Credit to Wages payable of $640 Credit to Wages expense of $960 Credit to Wages payable of $960
7. During the month of June, the following transactions occurred for ABC Company: June 1 Collected $5,000 rent from a tenant for the month of June June 15
Sold $1,000,000 in goods costing $750,000
June 17 June 18
Paid operating expenses of $50,000 arising from expenses incurred in May Collected $18,000 from customers on account
June 24
Purchased $800,000 inventory; paid 50% in cash
June 28
Incurred $75,000 operating expenses
June 30
Received a utilities bill ($2,000) for the month of June
Net income for the month of June is a) b) c) d)
$178,000 $173,000 $128,000 $180,000
2
8. In preparing its 2006 adjusting entries, the Clark Corporation neglected to adjust rental fees received in advance for the amount of rental fees earned during 2006. As a result of this error: a) 2006 net income is understated, the balance in retained earnings is understated, and liabilities are overstated b) 2006 net income is overstated, the balance in retained earnings is overstated, and liabilities are correctly stated c) 2006 net income is understated, the balance in retained earnings is understated, and liabilities are understated d) 2006 net income is overstated, the balance in retained earnings is correctly stated, and liabilities are understated
9. Bevo had a cash balance of $962 on August 31. This included a bank deposit of $87 that was in transit on the 31st. August 31st Bank Statement information: Bank statement balance NSF cheque Bank service charge Collection of notes receivable Cheques outstanding
$1,089 16 7 68 169
What is Bevo’s reconciled balance? a. b. c. d. e.
$920 $162 $1,007 $1,089 $1,176
3
10. Summerhill Corporation had the following trial balances at its year-end (before closing entries). All accounts had normal debit or credit balances. Dividends Cash Equipment Revenue Supplies expense Unearned revenue Wages expense Beginning retained earnings
$
The ending balance in Retained Earnings is: a. b. c. d.
$205 $175 $180 $245
4
5 250 150 400 200 70 60 40
Part B (20 marks) On September 1, 2006, Amanda invested $10,000 to form a new business called, "Dance from your Heart Ltd." and received 1,000 common shares. She would provide dance lessons in all types of dance including jazz, ballet, tap, hip-hop and acrobatics. She is targeting students ages 3 to 18 years of age. Also on September 1st she went to a car dealership and bought a used truck with the company logo for $20,000 by paying $5,000 down and obtained a bank loan for the balance of $15,000 to be repaid over four years. The interest of 10% is to be paid every September 1st. She expects the truck to last at least four years. On September 2nd, she spent $4,200 to purchase ballet bars, mats and other equipment necessary for her business. She paid 10% down with the balance due in 30 days. The equipment is expected to last five years. She rented space in a building for the dance studio costing $500 a month and paid two months' rent in advance. Amanda is very excited about her new venture, she offered a special promotion to her customers, they could either pay her $2,000 for 10 months of unlimited classes for the September to June dance season or they can pay $50 per month per dance class. Listed below are additional transactions that took place during the month of September. Sept 1 Registration began and was a great success. She had 20 students sign up for the $2,000 prepaid option of dance class. She also had 30 students sign up for the month of September for 80 classes of dance that they will pay for on a monthly basis of $50/class per month. 1 Amanda decided to get liability insurance for her business. The premiums are $600 per year. The premium was paid in cash on September 1, 2007 8 She received several phone calls from students anxious to sign up for the dance special. 14 A dividend of $500 was declared and paid to Amanda. 17 Amanda decided to hire her good friend Sofia to help her out with the teaching. They agreed that Sofia would work from Monday to Friday evenings beginning on Monday, Sept 20th. They agreed upon a weekly salary of $500 to be paid every Friday. 24
She paid Sofia for one week's salary and paid $2,000 in dividends to herself.
30
Amanda received a telephone bill for $50 and a utilities bill in the amount of $140. Both bills are payable in 30 days. Operating expenses of $1,500 were paid in cash. She also expects to pay 45% income taxes.
30
Classes began this month and Amanda’s business is off to a great starts. She estimated that $2,000 of the cash he had received in advance had been earned.
Oct 1 Since this was Friday, she paid Sofia for one week's salary.
5
Required (extra blank pages are provided at the end of the test) 1. Prepare an income statement and a classified balance sheet for the month of September in good form. (16 marks) 2. Compute the current ratio and debt ratio for the month of September. Include the formula in your answer. Based on your answer, state whether these two ratios are strong or weak by giving one reason for each. (4 marks).
6
Part C (15 marks) The following information pertains to the accounts receivable of Elizabeth Corporation for the year ended December 31: 1. Net sales: $1,500,000. 2. A recent study shows that the industry’s uncollectible accounts expense over the past few years is approximately 1 percent of its total net sales. The company is considered one of the most representative companies in the industry. 3. Accounts receivable aging schedule: Number of Days Outstanding 1-30 31-60 61-90 91 and over Total
Accounts Receivable $ 70,000 40,000 20,000 9,000 $139,000
Percentage Considered Uncollectible 0% 20% 35% 50%
Total Estimated Uncollectible -$8,000 7,000 4,500 $19,500
Required: 1. Prepare a journal entry to record the uncollectible accounts expense assuming the percentage of sales method is used. (2 marks)
2. Prepare a journal entry to record the uncollectible accounts expense assuming the aging of receivables method is used. (3 marks)
7
3. Assume that the company is not able to collect $695 from one of its customers. Prepare a journal entry to record this write off. (2 marks)
4. Assume that the company was able to recover $375 of an accounts receivable previously written off. Record the journal entries for the recovery of this accounts receivable.(4 marks)
5. Assume that the company’s accounts receivable ratio is 8 times, indicate whether the following transactions would increase (I), decrease (D), or have no effect (NE). (4 marks) a.________ b. _______ c. _______ d. _______
Recorded sales on account. Collected amounts owing from customers Recorded bad expense for the year Wrote off an account from a customer as uncollectible
8
MGT120 Test #1 Summer 2007 Part A (10 marks) 1. c 2. a 3. b 4. b 5. a 6. d 7. a 8. a 9. c 10. b Part B ( 20 marks)
1-Sep
1-Sep
2-Sep
1-Sep
1-Sep
1-Sep
1-Sep
14-Sep
24-Sep
Cash Common shares
10,000
Truck Cash Car Loan
20,000
10,000
5,000 15,000
Dance equipment Cash Accounts payable
4,200
Prepaid Rent Cash
1500
420 3780
1500
Cash Unearned Revenue
40,000 40,000
Cash Revenue
4,000 4,000
Prepaid Insurance Cash
600
Dividends Cash
500
Salaries expense Cash
500
600
500
500
9
Sept 24
Dividends Cash 30-Sep
Adjusting journal entries 30-Sep
2000 2000
Telephone expense Utilities expense Accounts payable
50 140
Operating expenses Cash
1500
190
1500
Amortization expense - truck Accumulated amortization - truck
417 417
$20,000 / 4years / 12 months = $417 30-Sep
Amortization expense - equipment Accumulated amortization equipment
70 70
$4,200/5 years / 12 months = $70 30-Sep
Interest expense Interest payable
125 125
$15,000 x 10%/ 12 months = $125 30-Sep
30-Sep
Rent Expense Prepaid Rent
500 500
Insurance Expense Prepaid insurance
50 50
$600 / 12 months - $50 30-Sep
30-Sep
Unearned revenue Revenue
2000
Salaries expense Salaries payable
400
2000
400
$500/5 days x 4 days 30-Sep
Income tax expense Income tax payable Net income x 45%
10
1034 1034
Dance from your Heart Ltd Income Statement for the month ended September 30, 2006 Revenue
$ 6,000
Expenses Salaries expense Telephone expense Utilities expense operating expenses Amortization expense - truck Amortization expense - equipment Interest expense Rent expense Total expenses
$
900 50 140 1500 417 70 125 500 3702
Net Income Income tax expense
$ 2,298 1,034
Net income
$ 1,264
11
Dance from your Heart Ltd Balance Sheet September 30, 2006 Assets Current Assets Cash Prepaid Rent Total Current Assets Capital Assets: Truck Less: Accumulated amortization Truck - net book value
$ 42,580 1,000 $ 43,580 20,000 417 19,583
Dance equipment Less: Accumulated amortization Dance equipment - net book value Total Capital assets
4,200 70 4,130 23,713
Total Assets Liabilities Current Liabilities Accounts payable Unearned revenue Interest payable Salaries payable Income tax payable Total current liabilities
$ 67,293
$
3,970 38,000 125 400 1,034 $ 43,529
Car loan
15,000
Total liabilities Shareholder's Equity Common shares Retained Earnings: Opening retaining earnings Add: Income Statement Less: Dividends Closing Retaining earnings
$ 58,529
$ 10,000
1,264 (2,500) (1,236)
Total Shareholder's Equity
$ 8,764
Total liabilities & Shareholder's equity
$ 67,293
(0)
12
Current Ratio =
Current Assets
=
43,580
=
43,529 1.00
=
58,529
Current Liabilities
Debt Ratio
total liabilities total assets
67,293 =
0.87
- supported discussion indicating that a current ratio of 1.50 indicates a strong cash flow - supported discussion indicating that a debt ratio of less than .70 indicates the company strong ability to pay back its debts
Part c (15 marks) 1. Dec. 31 Uncollectible accounts expense Allowance for Uncollectible accounts ($1,500,000 net sales x 1%) 2. Dec. 31
3. June 10
4. Sept 30
15,000
Uncollectible accounts expense 19,500 Allowance for Uncollectible accounts To record the uncollectible accounts expense for the year
15,000
Allowance for Uncollectible accounts Accounts receivable To write off an uncollectible account
695 695
Accounts receivable Allowance for Uncollectible accounts To reinstate account previously written off
375
Cash
375
Accounts receivable To record collection of reinstated receivable 5. (a) (b) (c) (d)
15,000
Decrease Increase Increase No effect
13
375
375
