acc2001 aug 2011 practice exam questions

8/14/2019 ACC2001 Aug 2011 Practice Exam Questions

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QUESTION 1

Born to Play, Inc., is a popular source of musical instruments for professional and amateurmusicians. The company's accountants make necessary adjusting entries monthly, and theymake all closing entries annually. Born to Play is growing rapidly and prides itself on having

no long-term liabilities. The company's year-end is 31 December and has provided thefollowing unadjusted trial balance at 31December 2010:

$ Dr CrCash $45,000

Accounts receivable 125,000

Allowance for doubtful accounts $5,000

Inventory 250,000

Office supplies 1,200

Prepaid insurance 6,600

Building and fixtures 1,791,000

Accumulated depreciation 800,000

Land 89,800

Accounts payable 70,000

Unearned customer deposits 8,000

Income tax payable 75,000

Share Capital 1,000,000

Retained earnings 240,200

Revaluation reserve (for land) 6,000

Revenue 1,600,000

Cost of goods sold 958,000

Bank service charges 200Bad debts expense 9,000

Salary expense 395,000

Office supplies expense 400

Insurance expense 6,400

Utilities expense 3,600

Depreciation expense 48,000

Income tax expense 75,000

3,804,200 3,804,200

Additional information:

1. The company's most recent bank statement reports a balance of $46,975. Included with thebank statement was a $2,500 cheque from Sing Ding Ting, a professional musician, chargedback to Born to Play as NSF. The bank's monthly service charge was $25. Three chequeswritten by Born to Play to suppliers of merchandise inventory had not been cleared by the

bank for payment as at the statement date. These cheques included: no. 507, $4,000; no. 511,$9,000; and no. 521, $8,000. Deposits made by Born to Play of $16,500 had reached the

bank too late for inclusion in the current statement. The company prepares a bankreconciliation at the end of each month.2. During December, $6,400 of accounts receivable were written off as uncollectible. A

recent aging of the company's accounts receivable helped management to conclude that anallowance for doubtful accounts of $8,500 was needed at 31 December 2010.


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3. The company uses a perpetual inventory system. A year-end physical count revealed thatseveral guitars reported in the inventory records were missing. The cost of the missing unitsamounted to $1,350. This amount is not considered significant relative to the total cost ofinventory on hand.4. At 31 December, approximately $900 in office supplies remained on hand.5. The company pays for its insurance policies 12 months in advance. Its most recent

payment was made on 1 November 2010. The cost of this policy was slightly higher than thecost of coverage for the previous 12 months.6. Depreciation expense related to the company's building and fixtures is $5,000 for themonth ending 31 December 2010.7. Although Born to Play carries an extensive inventory, it is not uncommon for musicians toorder custom guitars made to their exact specifications. Manufacturers do not allow anysales returns of custom-made guitars. Thus, all customers must pay in advance for thesespecial orders. The entire sales amount is collected at the time a custom order is placed, and

it is credited to an account entitled "Unearned Customer Deposits." As at 31 December,$4,800 of these deposits remained unearned. Assume that the cost of goods sold and thereduction in inventory associated with all custom orders is recorded when the custommerchandise is delivered to customers. Thus, the adjusting entry requires only a decrease tounearned customer deposits and an increase to revenue.8. Accrued income tax payable for the entire year ending 31 December 2010 total $81,000.

No income tax payments are due until early 2011.9. Land is revalued to $92,300 on 31 December 2010.

Required:

a) Prepare all necessary journal entries as at 31 December 2010. Ignore closing entries.Dates and descriptions are not required.b) Prepare the income statement for the year ended 31 December 2010.c) Prepare the classified statement of financial position (balance sheet) as at 31 December

2010.


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QUESTION 2

Note from Dr Winston Kwok: Will be similar to those articles you encountered as CriticalThinking questions in your tutorials. This is on a well-known company which was in thenews recently and also mentioned during my lecture.

QUESTION 3Following are selected balance sheet accounts of Winston Corp. at 31 December 2009 and2008. Also presented are selected income statement information for the year ended 31December 2009, and additional information.

Selected Balance Sheet Accounts 2009 2008______________________________________________________________________

Assets

Accounts receivable $ 34,000 $ 24,000Property, plant, and equipment 277,000 247,000Accumulated depreciation (178,000) (167,000)

Liabilities and Shareholders' EquityNotes payable 49,000 46,000Dividends payable 8,000 5,000Share capital-ordinary, no-par value 31,000 22,000Retained earnings 104,000 91,000

Selected Income Statement Information for the Year Ended 31 December 2009______________________________________________________________________

Sales revenue $ 155,000Depreciation 33,000Gain on sale of equipment 13,000Income before taxes 40,000

Net income 28,000

Additional information:

a. Accounts receivable relate to sales of merchandise.b. During 2009, equipment costing $40,000 was sold for cash.c. During 2009, $20,000 of notes payable were issued in exchange for property, plant, andequipment.

Continued on next page


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Required:

Items 1 through 5 represent activities that will be reported in Winston's statement of cashflows for the year ended 31 December 2009.For each item, write down: The $ amount that should be reported in Winston's 2009 statement of cash flows. The category in which the amount should be reported in the statement of cash flows. WriteO for Operating activity, I for Investing activity, and F for Financing activity. If you thinkthe item can be classified in more than one category, write down all the possible categories.

$ Amount Category______________________________________________________________________

1. Cash collections from customers (direct method). _______ ______

2. Payments for purchase of property, plant, and equipment. _______ ______

3. Proceeds from sale of equipment. _______ ______

4. Cash dividends paid. _______ ______

5. Repayment or retirement of notes payable. _______ ______

Note from Dr Winston Kwok: The above does not imply that only the direct method will be

examined. Your final exam question may be on the direct or indirect method, or both.

acc2001 aug 2011 practice exam questions

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