Midterm 2 19 September Fall 2017, questions and answers PDF

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Midterm examination n.o 2 draft with questions and answers. This includes chapters number 6-8 ...

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Wilfrid Laurier University, School of Business and Economics Introductory Financial Accounting BU 127 (all sections) Mid-Term Examination Sunday, November 19, 2017 10:00 – 11:30 am, (90 minutes) Number of pages: 10 including cover page

Important Instructions – Please Read Carefully 1. You should verify immediately that your examination paper is complete (10 pages). 2. Print your name, student number, and class section on the cover page. 3 .You should have been provided with a Scantron card on which you will record

your answers to examination multiple choice questions 1 to 14 inclusive. Please answer on the Scantron card in pencil only (preferably soft pencil). Any answers that you change must be erased completely. If the scan picks up multiple responses to a question you will receive a grade of zero on that question. 4. On the front of your Scantron card, ensure that you have printed the following: a. Your Class (this is your class Section letter) b. Your Name 5. On the back (the answer side) of your scanner card, ensure that you have entered and coded the following: a. Your nine-digit ID Number, left justified. (U of W students must fill in a ninedigit ID: your UW ID + 0) 6. You should answer problem-style questions 15 and 16 in the space provided. Answers should be in blue or black pen. 7. Use of reference materials and receipt of assistance from other students or providing assistance to other students will be penalized. (At a minimum, you would likely receive a zero score on the exam and other penalties might also be sought). 8. While you may use a calculator during the exam, a programmable calculator is not allowed. 9. To ensure that all students have the same information, neither the instructors nor the proctors will answer any questions during the examination period.

10.Please do not separate the pages of the examination paper – the entire paper must be handed in. Ensure that your Scantron card is handed in with your exam. Place it under the first page of your exam.

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BU127 Section Listing: Instructor James Moore John Young David Scallen Greg Clark

Section A1/A2 A3/A4 B BR

Time T R 11:30am-12:50 pm M W 11:30 am-12:50 pm M W 11:30 am-12:50 pm W F 10:00 am-11:20 am

Carolyn MacTavish David Scallen James Moore David Scallen James Moore James Moore

C D E P1 P2 P3

M W 1:00-2:20 pm T R 11:30am-12:50 pm T R 1:00-2:20 pm R 7:00-9:50 pm W 7:00-9:50 pm T 7:00-9:50 pm

Class Location LH1009 LH1009 SBE1220 Brantford Carnegie Building CB207 LH1009 LH1001 LH1009 LH1011 LH1011 LH1009

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Questions 1-14 Question 15 Question 16 Total

Marks 14 10 18 42

Student’s Score

Section 1: Multiple-Choice (14 marks) (each question is worth 1 mark) Instructions: To answer each of the following questions, clearly mark the letter of your answer in pencil on the scantron card provided, and circle the letter on the exam paper: 1. Which of the following statements is true? A. Long-lived tangible assets will not be used up within one year, but there is no minimum useful life for long-lived intangible assets. B. Items in a company's inventory that are not expected to be sold in the next year are considered longlived assets. C. All long-lived intangible assets must be expensed over a period of 40 years or less. D. Intangible assets with unlimited or indefinite lives are not amortized. 2. If a company capitalizes costs that should be expensed, how is its income statement for current period impacted? A. Net income will be lower than it should be. B. Revenues will be lower than they should be. C. Expenses will be lower than they should be. D. Assets will be lower than they should be. 3. The Gulp convenience store chain buys new soda machines for $450,000 and pays $50,000 for installation. One-half of the total cost is paid in cash; the other half is financed. How should the company record this transaction? A. Debit cash for $250,000, debit notes payable for $250,000, and credit equipment for $500,000. B. Debit equipment for $500,000, credit cash for $250,000, and credit notes payable for $250,000. C. Debit cash for $250,000, debit notes payable for $250,000 credit equipment for $450,000, and credit expenses for $50,000. D. Debit equipment for $450,000, debit expenses for $50,000, credit cash for $250,000, and credit notes payable for $250,000. 4. Ordinary repairs and maintenance always: A. are part of the asset cost of equipment and facilities. B. are recorded as expenses. C. are recorded as liabilities. D. improve the asset beyond the current accounting period. 5. Which of the following is not an amount that is needed to calculate straight-line depreciation? A. The cost of the asset. B. An estimate of the asset's useful economic life to the company. C. The amount that the company will get when it disposes of the asset. D. The cost the company will be required to incur to replace the asset. 6. A company expects to use equipment that cost $48,000 for ten years and then sell it for $6,000. Using the straight-line method, the company should report depreciation for the equipment of: A. $4,200 per year. B. $8,400 per year. C. $4,800 per year.

D. $9,600 per year.

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7. The Widget Tool and Die Company buys a $400,000 stamping machine that has an estimated residual value of $20,000. The company expects the machine to produce two million units. It makes 400,000 units during the current period. If the units-of-production method is used, the depreciation rate is: A. $0.95 per unit. B. $0.19 per unit. C. $0.05 per unit. D. $1.00 per unit. 8. The Widget Tool and Die Company buys a $400,000 stamping machine that has an estimated residual value of $20,000. The company expects the machine to produce two million units. It makes 400,000 units during the current period. If the units-of-production method is used, the depreciation expense for this period is: A. $80,000. B. $400,000. C. $76,000. D. $380,000. 9. A machine is purchased on January 1, 2016, for $90,000. It is expected to have a useful life of five years and a residual value of $5,000. The company closes its books on December 31. Under the doubledeclining balance method, what is the total amount of depreciation to be expensed during the 2017 fiscal year (year 2 of 5)? A. $21,600 B. $22,000 C. $22,400 D. $34,000 10. A piece of equipment was acquired on January 1, 2017, at a cost of $22,000, with an estimated residual value of $2,000 and an estimated useful life of four years. The company uses the doubledeclining-balance method. What is its book value at December 31, 2018? A. $5,500 B. $10,000 C. $11,000 D. $12,000

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11. After the early years of an asset's life, accelerated depreciation methods: A. cause an asset to be carried at a higher book value than the straight-line method. B. cause an asset to be carried at a lower book value than the straight-line method. C. cause an asset to be carried at the same book value as the straight-line method. D. cannot be used if the resulting book value will be significantly different from that which would result from using the straight-line method. 12. Which of the following statements most appropriately describes the purpose of depreciation of a long-lived tangible asset? A. To indicate how the asset has physically deteriorated. B. To show that the asset will eventually and gradually become obsolete. C. To record that the asset's market value declines over time. D. To match the cost of the asset to the period in which it generates revenue. 13. When a company determines that estimated future cash flows from an asset are different from the book value of the asset, it records: A. an asset impairment gain, if the value of the cash flows exceeds the asset's book value. B. an asset impairment loss, if the value of the cash flows exceeds the asset's book value. C. an asset impairment gain, if the asset's book value exceeds the value of the cash flows. D. an asset impairment loss, if the asset's book value exceeds the value of the cash flows. 14. A company sells a piece of equipment half-way through the accounting period. The straight-line rate of depreciation on the equipment is $40,000 a year. Before recording the asset sale, the company should debit: A. depreciation expense for $40,000 and credit long-lived assets for $40,000. B. accumulated depreciation for $40,000 and credit cash for $40,000. C. depreciation expense for $20,000 and credit accumulated depreciation for $20,000. D. cash for $20,000 and credit depreciation expense for $20,000.

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Answer Questions 15 and 16 in pen (blue or black ink): Question 15 (10 marks) Laurier Landscaping has hired you to reconcile its October 31, 2017 bank statement and general ledger cash account. For October, the general ledger Cash account showed the following:

Date

Explanation

Oct. 1

Opening balance

Oct. 4

Deposit from Customer A Cheque # 202

Debit

Credit

Balance $ 8,500 dr

7,000

Oct. 6

15,500

3,200

12,300

3,600

8,700

Cheque # 203 Oct. 8 Oct. 10

Deposit from Customer B Cheque # 204

8,000

Oct. 19

16,700 1,400

15,300

4,300

11,000

Cheque # 205 Oct. 20 Oct. 31

Deposit from Customer C

6,000

17,000

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The June bank statement, just received, showed the following:

Date

Explanation

Oct. 1

Opening balance

Oct. 3

Cheque # 201

Oct. 6

Deposit Cheque # 202

Oct. 8

Subtractions

Additions

Balance $ 9,500

1,000

8,500 7,000

15,500

3,200

12,300

3,800

8,500

Cheque # 203 Oct. 9 Oct. 12

Deposit

7,000

15,500

Oct. 24

Cheque # 205

4,300

11,200

Oct. 31

Bank charges

10

11,190

At September 30, 2017, Cheque # 201 for $1,000 was outstanding. There were no other outstanding cheques or deposits in transit at September 30, 2017. An investigation into differences in the general ledger and the bank statement revealed that Cheque # 203 was incorrectly recorded as $3,600 in the general ledger when the proper amount should be $3,800. Cheque # 203 was for the purchase of supplies inventory. In addition, the bank incorrectly recorded the deposit from Customer B as $7,000 when in fact $8,000 had been deposited. The bank has been made aware of the error and has agreed to correct it in November.

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Required A. Prepare the reconciliation using the format below:

Laurier Landscaping Bank Reconciliation October 31, 2017 Balance per books

$

Balance per bank

Additions

Additions

Subtractions

Subtractions

Adjusted book balance

$

Adjusted bank balance

$...