acct1115 review package final exam fall 2013 solution · review package – final exam fall 2013...

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ACCT1115

Review Package – Final Exam

Fall 2013

SOLUTION

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Part I Multiple Choice

Circle the best answer.

1) You own a house valued at $100,000 with an outstanding mortgage of $70,000. You pay your first month's installment of $900 ($700 interest and $200 principal). The correct entry should be:

a) decrease cash by $900, decrease mortgage by $900 b) decrease cash by $900, decrease mortgage principal by $200, decrease net worth by $700

c) decrease cash by $900, decrease net worth by $900 d) decrease cash by $900, decrease mortgage principal by $200, increase interest expense by $900

2) A transaction that involves the balance sheet does not always impact net worth.

a) Depends on the value

b) FALSE

c) TRUE

d) Depends on the accounting policy

3) Examples of assets include:

a) cash, prepaid expenses, unearned revenue

b) cash, accounts receivable, salaries expense

c) cash, accounts receivable, unearned revenue, revenue

d) cash, accounts receivable, office supplies

4) The relationship between a change in cash and a change in equity is best expressed by which of the following statements?

a) A decrease in cash causes a decrease in equity b) An increase in cash causes a decrease in equity c) An increase in cash causes an increase in equity d) There is no necessary relationship between a change in cash and a change in equity

5) 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

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6) On January 1, a company received advanced membership payments of $600 from a customer for the next 6 months. The membership is in effect immediately. By how much would the company's equity have changed by March 31?

a) $0 b) $100 c) $200 d) $300

7) When recording journal entries, a good control is to:

a) total the debits and credits to see if they balance

b) enter all credits first before all debits or vice versa

c) record entries using even dollar amounts (rounded up)

d) enter the journal entries alphabetically

8) Which one of the following is a temporary account?

a) Unearned Revenue

b) Bank Loan

c) Prepaid Expenses

d) Service Revenue

9) A high tech company reported sales of $220,000, cost of goods sold of $150,000 and inventory of $60,000. Gross profit for the period was:

a) $60,000 b) $70,000 c) $10,000 d) $90,000

10) Two categories of shares are:

a) common and uncommon

b) debt and equity

c) common and preferred

d) common and retained

11) Shares already issued and eligible for trading on the secondary market are called:

a) par-value shares

b) outstanding shares

c) authorized shares

d) none of the choices

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12) Suppose John starts a new company and deposits $100,000 into the new business. If he creates 10,000 shares, each share will be worth:

a) $8 b) $10 c) $5 d) $20

13) Expenses incurred to run the day-to-day operations of a company are known as:

a) other expenses

b) operating income

c) operating expenses

d) other income

14) What items are required to calculate the ending retained earnings?

a) Beginning retained earnings, gross profit, and dividends

b) Beginning retained earnings, net income and dividends

c) Ending retained earnings, gross profit, and dividends

d) Ending retained earnings, net income, and dividends

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Part II Dividends - Common and Preferred

On October 1, 2012, the financial records of Wilman Inc. showed the following balances: Authorized: 200,000 $6 cumulative preferred shares unlimited number of common shares Issued: 3,000 preferred shares $360,000 35,000 common shares $1,300,000 Retained Earnings $620,000

On October 15, 2012, Wilman Inc. declared $250,000 of dividends payable to all shareholders on November 5, 2012. No dividends have been declared since 2009. All shares were issued in 2008.

During the quarter ending December 31, 2012, the company earned net income of $750,000.

(a) How much does Wilman owe the preferred shareholders in dividends?

Total Dividends in Arrears = (2012 - 2009) x $6 x 3000 = $54000

Di Total Dividends = (2012 - 2009) x $6 x 3000 = $54000vidends in Arrears = (2012 - 2009) x $6 x 3000 = $54000

(b) Prepare the journal entry to record the declaration of the dividends

Date Account Title Debit Credit

Oct 15 Retained Earnings 250,000

Dividends Payable - Common Shares 196,000

Dividends Payable - Preferred Shares 54,000

To record dividends payable

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(c) Prepare the journal entry to record the payment of dividends on November 5th.


Nov 5 Dividends Payable - Common Shares 196,000

Dividends Payable - Preferred Shares 54,000

Cash 250,000

To record payment of dividends

(d) Prepare the statement of retained earnings for the quarter ended December 31, 2012.

Wilman Inc.

Statement of Retained Earnings

For the quarter ended December 31, 2012

Retained Earnings, October 1, 2012 $620,000

Add: Net Income for the current quarter 750,000

$1,370,000

Less: Dividends 250,000

Retained Earnings, December 31, 2012 $1,120,000

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Part III Income Statement

Armad Inc.'s financial accounts contained the following amounts for the year ended December 31, 2013. Prepare a multi-step income statement for the year ended December 31, 2013.

Cost of Goods Sold $1,200,000 Interest Revenue 3,000 Income Tax Expense 360,600 Salaries Expense 300,000 Sales Revenue 3,500,000 Rent Expense 75,000

Utilities Expense 80,000

Sales Discounts 50,500

Armad Inc. Income Statement For the year ended December 31, 2013 Revenues Sales Revenue $3,500,000 Less Sales Discounts 50,500 Net Sales $3,449,500 Cost of Goods Sold 1,200,000 Gross Profit

$2,249,500

Operating Expenses Salaries Expense 300,000 Rent Expense 75,000 Utilities Expense 80,000 Total Operating Expenses

$455,000

Operating Income $1,794,500 Other Revenue and Expenses Interest Revenue 3,000 Income before Income Tax $1,797,500 Less: Income Tax Expense 360,600 Net Income $1,436,900

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Part IV Bonds Payable

On October 1st, 2012, a company issues $200,000 worth of bonds at par with an interest rate of 5%. The bonds have a term of 8 years with interest paid semi-annually on March 31st and September 30th. The company has a December 31st year-end. Answer the following questions pertaining to this scenario.

200000 5 a) Prepare the journal entry to record the issuance of the bonds.

Date Account Title Debit Credit Oct 1 Cash $200,000 Bonds Payable $200,000 Issue bonds at par

b) Record any necessary journal entry related to the bonds on December 31, 2012.

Date Account Title Debit Credit Dec 31 Interest Expense $2,500 Interest Payable $2,500 Accrued interest on bonds payable at year-end (200,000 x 5% x 3/12)

c) Record the first interest payment on March 31, 2013.


Mar 31 Interest Expense $2,500

Interest Payable $2,500 Cash $ 5,000

Paid first semi-annual interest payment

d) Record the entry for maturity date, September 30, 2020.


2020 Sept 30 Interest Expense $5,000

Cash

$ 5,000

Final interest payment

Sept 30 Bonds Payable $200,000

Cash $200,000

Retired bonds at maturity.

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Part V Inventory - Journal Entries

The following information was presented by the bookkeeper for NorthWave Inc. for the month of July, 2012.

Date Business Event

Jul 2 Received a loan from the bank for $300,000. The loan will require monthly payments and will be paid off over 4 years.

300000

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Jul 8 Purchased $240,000 of inventory on account from Beta Wholesalers, terms 2/10, net 30

240000

Jul 10 A portion of the inventory purchased from Beta Wholesalers was defective. NorthWave returned $600 of inventory to the supplier.

600

Jul 12 Sold products to SouthShore for $110,000 on account, terms 2/10, net 30; cost of goods sold was $44,000 for this transaction.

110000

Jul 14 SouthShore returned $2,200 of goods purchased on account. The cost of goods sold for the returned inventory is $1,320.

2200

Jul 15

Paid the amount owing to Beta Wholesalers.

Jul 17 Purchased goods from EastCoast Trading Inc. on account for $16,000 with terms of 3/10, net 30.

16000

Jul 18 Some of the inventory purchased from EastCoast Trading Inc. was slightly damaged. NorthWave decided to keep the inventory and was given a $400 allowance from East Coast.

400

Jul 19 Sold products to West Island for $85,000 on account, terms 2/10, net 30; cost of goods sold was $34,000 for this transaction.

85000

Jul 20 West Island discovered some scratches on some of the products they purchased on Jul 19. They will keep the product and NorthWave gave a $900 allowance to West Island.

900

Jul 26 Received payment from SouthShore.

Jul 27 Received payment from West Island.

Required:

Journalize the above transactions assuming that NorthWave uses a perpetual inventory system.

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Jul 2 Cash $300,000

Bank Loan $300,000

Received a loan from the bank

Jul 8 Inventory $240,000

Accounts Payable $240,000

Purchased inventory on account

Jul 10 Accounts Payable $600

Inventory $600

Returned defective goods

Jul 12 Accounts Receivable $110,000

Sales Revenue $110,000

Cost of Goods Sold $44,000

Inventory $44,000

Record sales on account

Jul 14 Sales Returns & Allowances $2,200

Accounts Receivable $2,200

Inventory $1,320


Record sales return on account

Jul 15 Accounts Payable $239,400

Inventory

$4,788

Cash

$234,612

Paid supplier less discount.

Jul 17 Inventory $16,000

Accounts Payable $16,000

Purchased inventory on account

Jul 18 Accounts Payable $400

Inventory $400

Received an allowance for damaged inventory

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Jul 19 Accounts Receivable $85,000



Inventory $34,000

Record sales on account

Jul 20 Sales Returns & Allowances $900

Accounts Receivable

$900

Gave allowance to customer

Jul 23 Cash $107,800

Accounts Receivable $107,800

Received payment from customer

Jul 25 Cash $82,418

Sales Discounts $1,682

Ac Accounts Receivable $84,100

Received payment from customer less discount

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Part VI Corporations - Closing Entries

Match the following scenarios to the proper journal entry shown below:

A Close a proprietorship's net income B Close revenue accounts C Close expense accounts D Close a proprietorship's net loss E Close a corporation's net income F Close a corporation's net loss

CB Date Description Debit Credit

Dec 31 Sales $80,000 Income Summary $80,000

DC

Date Description Debit Credit Dec 31 Income Summary $56,700 Insurance Expense $2,700 Rent Expense $16,000 Salaries Expense $38,000

A FFF Date Description Debit Credit

Dec 31 Retained Earnings $24,000 Income Summary $24,000

FE

Date Description Debit Credit Dec 31 Income Summary $35,000 Retained Earnings $35,000

AB

Date Description Debit Credit Dec 31 Income Summary $52,000 Capital Account $52,000

ED

Date Description Debit Credit Dec 31 Capital Account $18,000 Income Summary $18,000

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Part VII Unearned Revenue

The Bright Kids, a newly formed rock band, sells 2,000 passes on May 15, 2013 at an average price of $100 each good for four upcoming concerts that will take place on June 1

st, July 1

st, August 1

st and September 1st.

2000 10

a) Prepare the journal entry on May 15.

Date Account Title Debit Credit May 15 Cash $200,000 Unearned Revenue $200,000 To record sale of concert ticket passes

b) Prepare the journal entry on June 1. Assume the first concert has taken place.


June 1 Unearned Revenue $50,000

Service Revenue $50,000

To record concert ticket revenues earned for June 1 concert. (200,000/4 concerts)

(200

c) Calculate the balance in the Unearned Revenue account at June 30, 2013? Answer: ________$150,000_____________________________

(200,000 – 50,000)

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Part VIII Financial Statements

Below, is Wallace Services' adjusted trial balance for the year ending September 30, 2013. Using this information, prepare the Multi-Step Income Statement, Statement of Retained Earnings and then the Classified Balance Sheet as at September 30, 2013.

Account Title Debit Credit Cash $16,400 Accounts Receivable 5,200 Prepaid Insurance 1,800 Property, Plant & Equipment 22,000 Accumulated Depreciation $900 Accounts Payable 7,500 Unearned Revenue 1,600 Bank Loan 15,000 Common Shares 5,700 Retained Earnings 7,910 Sales Revenue 23,000 Sales Discounts 460 Sales Returns and Allowances 400 Cost of Goods Sold 10,350 Insurance Expense 400 Maintenance Expense 200 Rent Expense 850 Professional Fees Expense 150 Salaries Expense 1,600 Telephone Expense 100 Travel Expense 800 Interest Expense 50 Depreciation Expense 350 Income Tax Expense 500

Total $61,610 $61,610

• The bank loan is payable over 3 years and $5,000 will be paid by September 30, 2014. • The corporation is authorized to issue an unlimited number of common shares. At September 30, 2013, there are 6,000 shares outstanding. • Dividends of $10,000 were declared and paid on July 31, 2013 and deducted from the retained earnings balance shown above.

$10,000 5000 3

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Wallace Services Inc. Income Statement For the year ended September 30, 2013

Revenue


Less Sales Discounts 460

Less Sales Returns and Allowances 400

Net Sales 22,140

Less Cost of Goods Sold 10,350

Gross Profit $11,790

Operating Expenses

Insurance Expense 400

Maintenance Expense 200

Rent Expense 850

Professional Fees Expense 150

Salaries Expense 1,600

Telephone Expense 100

Travel Expense 800

Depreciation Expense 350

Total Operating Expenses $4,450

Operating Income

$7,340

Other Revenue and Expenses

Interest Expense 50

Income before Income Taxes $7,290

Less Income Taxes 500

Net Income $6,790

Wallace Services Inc. Statement of Retained Earnings For the year ended September 30, 2013

Retained Earnings, October 1, 2012 $17,910

Add: Net Income $6,790

Subtotal $24,700

Less: Dividends $10,000

Retained Earnings, September 30, 2013 for Doubtful Accounts $14,700

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Wallace Services Inc. Classified Balance Sheet As at September 30, 2013

Assets

Current Assets

Cash $16,400

Accounts Receivable 5,200

Prepaid Insurance 1,800

Total Current Assets $23,400

Non-Current Assets

Property, Plant and Equipment $22,000

Less: Accumulated Depreciation 900

Total Non-Current Assets 21,100

Total Assets $44,500

Liabilities

Current Liabilities

Accounts Payable $ 7,500

Unearned Revenue 1,600

Current Portion of Bank Loan 5,000

Total Current Liabilities $14,100

Non-Current Liabilities

Bank Loan (net of current portion) 10,000

Total Liabilities $24,100

Shareholders’ Equity

Share Capital

Common shares unlimited number of shares authorized, 6,000 shares issued and outstanding

5,700

Retained Earnings 14,700

Total Shareholders’ Equity 20,400

Total Liabilities and Shareholders’ Equity $44,500

Total Shareholders' Equity $19,700

$43,800

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Part IX Adjusting Entries

Gordon Sparks Consulting had the following transactions for the month of January 2013:

Jan-01 Paid $3,300 for 3 months of rent in advance

3300 3

Jan-01 Paid $6,000 cash for a one-year insurance policy, in advance 6000 12

Jan-20 Prepaid for office supplies worth $1,980 with cash

1980 Jan-31 Recognized rent expense for January

Jan-31 Incurred one month of insurance expense Jan-31 Depreciation on property, plant and equipment was $500 for the month

Jan-31 Unearned revenue of $360 has been earned during January.

Jan-31 Interest of $75 is accrued and owed on the bank loan.

Jan-31 Accrued salary expense for January $150. Jan-31 There were $900 worth of office supplies at the beginning of January and $875 at the end of the month.

Required: Part A: Prepare the journal entries for the above transactions.

Date Account Title

Debit Credit

Jan-01 Prepaid Rent 3,300

Cash 3,300

Paid 3 months of rent in advance

Jan-01 Prepaid Insurance 6,000

Cash 6,000

Paid one year of insurance

Jan-20 Office Supplies 1,980

Cash 1,980

To record the prepayment for office supplies

Jan-31 Rent Expense 1,100

Prepaid Rent 1,100

Recognize rent expense (3,300 / 3 months = 1,100)

Jan-31 Insurance Expense 500

Prepaid Insurance 500500

Used one month of insurance (6,000/12)

1,100

Recognize rent expense ($3300 / 3 months = 1,100)

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900 875


Jan-31 Depreciation Expense 500

Accumulated Depreciation 500

Depreciation for one month

Jan-31 Unearned Revenue 360

Service Revenue 360363600

Revenue earned in January

Jan-31 Interest Expense 75

Interest Payable 75

Interest owing to the banke

Jan-31 Salaries Expense 150

Salaries Payable 150

Salaries owing

Jan-31 Office Supplies Expense 2,005

Office Supplies 2,005

Supplies used (900 + 1,980 – 875)

(900

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Part X Lower of Cost or Market

On December 31, 2012 a company has three types of products: power tools, hand tools and paint products. The cost of each type is listed below. Complete the table by applying the lower of cost or market.

Lower of Cost or Market Applied to

Description Category Cost Market Individual Category Total

Jigsaw Power 1,400

800

800

Drill Power 800

1,200

800

Router Power 2,400

2,300

2,300

Total Power Tools 4,600

4,300

4,300

Hammer Hand 900

800

800

Crowbar Hand 600

400

400

Total Hand Tools 1,500

1,200

3 1,2001,800

Primer Paint 2,200

2,300

2,200

Brush Paint 1,600

1,800

1,600

Total Paint Products 3,800 4,100 3,800

Total 9,900 9,600 8,900 9,300 9,600

Amount of Adjustment required:

1,000 600 300

Prepare the adjusting entry, if required, if LCM was applied using individual products.

Date Account Title Debit Credit Dec 31 Cost of Goods Sold 1,000 Inventory 1,000 To adjust inventory for LCM

Prepare the adjusting entry, if required, if LCM was applied using categories.

Date Account Title Debit Credit Dec 31 Cost of Goods Sold 600 Inventory 600 To adjust inventory for LCM

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Prepare the adjusting entry, if required, if LCM was applied using the total.

Date Account Title Debit Credit Dec 31 Cost of Goods Sold 300 Inventory 300 To adjust inventory for LCM

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Part XI Closing Entries Below is Fairlane Computers’ adjusted trial balance for the year ended December 31, 2012. Using this information,

prepare the closing entries on the form on the next page. The company uses the income summary account for

closing.

Debit Credit

Cash $16,800

Accounts Receivable 640

Inventory 13,400

Computer Supplies 250

Prepaid Expenses 9,100

Equipment 144,000

Accumulated depreciation $27,800

Accounts Payable 8,250

Wages Payable 4,400

Common Shares 40,400


Computer Services Revenue 38,820

Sales Revenue 65,900

Sales discounts 524

Sales returns and allowances 1,200

Cost of Goods Sold 18,900

Depreciation expense 15,800

Wage expense 7,900

Insurance expense 4,850

Rent expense 7,200

Supplies expense 1,220

Advertising expense 1,516

Totals $243,300 $243,300

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2012 Dec

31

Computer Service Revenue

38,820

Sales Revenue 65,900

Income Summary 104,720

Dec 31 Income Summary 59,110

Sales Discounts 524

Sales Returns & Allowances 1,200

Cost of Goods Sold 18,900

Depreciation Expense 15,800

Wage expense 7,900

Insurance expense 4,850

Rent expense 7,200

Supplies expense 1,220

Advertising expense 1,516

Dec 31 Income Summary 45,610


(104,720 – 59,110)

acct1115 review package final exam fall 2013 solution · review package – final exam fall 2013...

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