MidTerm 5 February 2018, questions and answers PDF

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2018 Spring Prof. Jacky Chau ACCT 2111 Practice Mid-Term Exam (Answers) Section A: Multiple Choice Questions 1. An example of a current liability is A. unearned revenue. B. accumulated depreciation. C. long-term note payable. D. paid-in capital. E. retained earnings. 2. XYZ, Inc., acquired equipment...

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2018 Spring

Prof. Jacky Chau

ACCT 2111 Practice Mid-Term Exam (Answers) Section A: Multiple Choice Questions 1. An example of a current liability is A. unearned revenue. B. accumulated depreciation. C. long-term note payable. D. paid-in capital. E. retained earnings. 2. XYZ, Inc., acquired equipment for $19,000. XYZ, Inc., paid $6,000 in cash, with the balance due on a note. The effect of this transaction on XYZ, Inc., would be to A. increase the equipment account by $19,000, decrease the cash account by $6,000 and increase the notes payable account by $13,000. B. increase the equipment account by $19,000, decrease the cash account by $6,000, and decrease the notes receivable by $13,000. C. increase the equipment account by $6,000, and decrease the cash account by $6,000. D. increase the equipment account by $6,000, decrease the cash account by $6,000, and increase the notes payable account by $13,000. E. increase the equipment account by $19,000, and increase the notes payable account by $6,000. 3. ABC Industries sold inventory costing $300 for $600 on account. If ABC Industries operates under the accrual basis, what effect will this transaction have on the owners' equity side of the balance sheet? A. Increase owners' equity by $300 B. None, since the customer to whom the inventory was sold has not yet paid C. None, since sales and/or cost of goods sold are income statement accounts D. Increase owners' equity by $900 E. Decrease owners' equity by $300 4. Which of the following circumstances would result in an increase in income under the cash basis and an increase in income under the accrual basis? A. The sale of inventory on account, at a sales price in excess of cost B. The return of defective inventory purchased on account, where full credit was given C. Cash collection from a credit customer D. The expiration of prepaid rent E. The cash sale of inventory at a sales price in excess of cost 5. Which of the following is an example of revenue that may be realized but not yet earned? A. It is impossible to have revenue which is realized but not earned. B. A credit sale made to a customer with a weak credit history such that the collection of the outstanding receivable is questionable 1

2017 Spring

Prof. Jacky Chau

C. A credit sale made to a customer who has a prior history of previous sales and collection of the cash from those sales D. A customer paying in advance for goods to be delivered in the future E. The cash sale of a fixed asset, as opposed to the sale of inventory 6. ABC, Inc., purchased equipment for $60,000 on January 1, 20X9, and believes the equipment has a useful life of 60 months. What will be the effect of the equipment's depreciation on the balance sheet equation? A. There is no effect on the balance sheet equation. B. Increases the asset account of Equipment and increases Stockholders' Equity C. Increases the asset account of Equipment and decreases Stockholders' Equity D. Decreases the asset account of Equipment and decreases Stockholders' Equity E. Decreases the asset account of Equipment and increases Stockholders' Equity 7. The recording of expenses in the same time period as the related revenues are recognized is known as A. cost recovery. B. realization. C. matching. D. recognition. E. period costs. 8. When a portion of prepaid insurance expires, what will be the effect on the balance sheet equation? A. Without knowing the dollar amount of the transaction, the effect on the balance sheet equation cannot be determined. B. Total assets and total liabilities will go down by the exact same dollar amount. C. Total assets and total stockholders' equity will go down by the exact same dollar amount. D. This transaction affects only the income statement, so there will be no effect on the balance sheet. E. There will be no overall effect on total assets, because two different asset accounts will change by the exact dollar amount, with one increasing and the other decreasing. 9. Which of the following journal entries would be recorded if a business purchases equipment for $2,300 cash and supplies for $550 cash? A. Equipment 2,300 Supplies

550

Cash B.

Cash Equipment

2,850 2,300 550

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Accounts receivable C.

Cash

2,850 2,850

Equipment

2,300

Supplies D.

Equipment

550 2,850

Cash

2,300

Supplies E.

550

None of the above.

10. On April 1, 20X9, UFE Company paid $1,800 for rent on the building it occupies. This rent payment is for the 3-month period of April 1 to June 30, 20X9. Which of the following is the journal entry to be made on April 1, 20X9? A. Dr. Cr. Rent Expense 1,800 Prepaid Rent 1,800 B. Dr. Cr. Cash 1,800 Rent Expense 1,800 C. Dr. Cr. Prepaid Rent 1,800 Cash 1,800 D. Dr. Cr. Cash 1,800 Prepaid Rent 1,800 E. Dr. Cr. Prepaid Rent 1,800 Rent Expense 1,800 11. A business makes a payment of $2,300 on a note payable, consisting of a $300 interest payment and a $2,000 principal payment. Which of the following journal entries would be recorded? A. Cash 2,000

B.

Cash

Notes payable

2,300

Interest expense

300

2,300

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C.

Prof. Jacky Chau

Notes payable

2,000

Interest expense

300

Notes payable

2,000

Interest expense

300

Cash

D.

Notes payable Cash

2,300 2,000

Interest expense

E.

2,300

300

None of the above.

12. A business owner took a withdrawal. Which of the following would be TRUE? A. Owner's equity would decrease. B. Net income would decrease. C. Total assets would increase. D. There would be no effect on total assets. E. None of the above is TRUE. 13. Given the following complete list of balances, what will be the total credits in the trial balance, assuming no errors exist in the accounts? 1. Retained Earnings $ 28,000 2. Merchandise Inventory 9,000 3. Accumulated Depreciation 5,000 4. Sales 42,000 5. Selling Expenses 11,000 6. Accounts Receivable $ 7,000 7. Cost of Goods Sold 22,000 8. Accounts Payable ? 9. Cash 5,000 10. Equipment 33,000 Note: The accounts payable records were damaged by a flood, and the company is not certain what the correct balance should be. A) $72,000 4

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B) $69,000 C) $58,000 D) $87,000 E) Due to the damage of the accounts payable records, it is impossible to determine the amount of the total credits on the trial balance. 14. Don Aikido, Inc., paid $500 to the local newspaper for advertising that will begin in 10 days and continue for the following 3 weeks. How would Don Aikido record this transaction? A. Debit Cash and credit Advertising Expense for $500 B. Debit Prepaid Advertising and credit Advertising Expense for $500 C. Debit Advertising Expense and credit Prepaid Advertising for $500 D. Debit Cash and credit Prepaid Advertising for $500 E. Debit Prepaid Advertising and credit Cash for $500 15. The table below represents ABC Company's supplies account. Please supply the missing amount. Beginning supplies ?

A. B. C. D. E.

Supplies purchased

8,000

Supplies expense

10,000

Ending supplies

4,000

$2,000 $6,000 $12,000 $22,000 None of the above

16. The adjusting entry to record accrued interest receivable has what effect on the basic accounting equation? A. Increase assets, increase liabilities B. Decrease assets, decrease liabilities C. Increase assets, increase stockholders' equity D. Increase assets, decrease stockholders' equity E. Decrease liabilities, increase stockholders' equity 17. ABC Company paid 9 months rent in advance amounting to $10,800. At the end of the first month, the proper entry would include a A. debit to Prepaid Rent for $10,800. B. credit to Rent Expense for $10,800. C. debit to Rent Expense for $9,600. D. debit to Rent Expense for $1,200. E. debit to Prepaid Rent for $1,200. 18. The entry to record the cash payment of salaries that had previously been accrued has what effect on the basic accounting equation? 5

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Prof. Jacky Chau

A. Decrease liabilities, decrease assets B. Decrease liabilities, decrease stockholders' equity C. Decrease assets, decrease stockholders' equity D. Decrease assets, increase stockholders' equity E. Decrease assets, increase liabilities 19. Failure to record depreciation at year-end will A. overstate total liabilities. B. understate assets. C. overstate assets. D. understate owners' equity. E. overstate revenue. 20. A company with net sales of 1,642,500, a beginning balance of net receivables of $187,500, and an ending balance of net receivables of $235,500 has a days’ sales in receivables (rounded) of: A. 42 days. B. 47 days. C. 52 days. D. 56 days. E. 62 days. 21. The following account balances were extracted from the accounting records of A and D Corporation: Accounts Receivable $110,000 Allowance for Uncollectible $35,000 Accounts Uncollectible-Account Expense $60,000 What is the net realizable value of the accounts receivable? A. $145,000 B. $110,000 C. $ 75,000 D. $ 50,000 E. $ 25,000 22. Company A has a Note Receivable of $5,000. The note will be collected in installments. $1,000 is due within a year and the remainder is due after a year. The classification of the note on the balance sheet is: A. all $5,000 is a current asset. B. all $5,000 is a long term asset. C. $1,000 is a current asset and $4,000 is a long term asset. D. $4,000 is a current asset and $1,000 is a long term asset. E. all $5,000 is a current liability.

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Section B: Short Questions 1. Stockholders' equity at the beginning and end of the period amounts to $16,000 and $19,000, respectively. Assets at the beginning and end of the period amount to $26,000 and $21,000, respectively. Liabilities at the beginning of the period were $10,000. What are the liabilities at the end of the period? 21000-26000 = (X-10000) + (19000-16000) X= 2000 2. SA Company's January 1, 2017, balance sheet showed total assets of $500,000, total liabilities of $400,000, and total stockholders' equity of $100,000. There were no beginning retained earnings. During the month of January, SA Company earned revenues of $120,000 and incurred expenses of $30,000. No other transactions occurred. What amount did SA Company's stockholders' equity account increase by in January? 120000-30000=90000 3. The OKC Company had the following balances in its stockholders' equity accounts as of December 31, 20X9: Contributed Capital $53,000 Retained Earnings $31,000 During the year ended December 31, 20X9, the OKC Company generated $36,000 in net income, and declared and paid $16,000 in dividends. What was the ending balance in the retained earnings account at December 31, 20X8? X+36000-16000=31000 X = 11000 (credit) 4. Given the following balances, what would the total debits in the trial balance equal? 1. Equipment $52,000 2. Accounts Payable 1,000 3. Sales 51,000 4. Accumulated Depreciation 3,000 5. Accounts Receivable 4,000 6. Retained Earnings 13,000 7. Salary Expense 4,000 8. Cash 12,000 9. Paid-in Capital 10,000 10. Cost of Goods Sold 25,000 52000+4000+4000+12000+25000= 97000 5. On May 1, 20X9, the NB Company paid 6 months' insurance in advance, covering the period of May 1 to October 31, 20X9. The total payment was $5,400. At the time of the payment, the entire amount was used to increase the balance in the Prepaid Insurance account. What will be the balance in the Prepaid Insurance account as of May 31, 20X9? 7

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5400 – (5400/6) = 4500 (debit) 6. Given the following transactions, what is the balance in the cash account? 1. The owner started the company by investing $8,900 cash. 2. The company paid $3,000 for 6 months' rent in advance. 3. The company acquired $2,400 in merchandise inventory with two-thirds of the purchase on account. 4. The company sold merchandise inventory costing $1,500 for $3,100 on account. 8900-3000-2400/3 = 5100 (debit) 7. ZYX Corporation uses the aging-of-receivables method to estimate uncollectibles. Receivables amounting to $2,000,000 are overdue by more than 30 days, and management estimates 2% will be uncollectible. All other receivables are deemed to be collectible. Allowance for Uncollectible Accounts prior to adjustment has a debit balance of $1,900. What will be the amount of expense reported on the income statement and the balance in Allowance for Uncollectible Accounts, respectively? Balance Sheet: Ending Balance of Allowance for Uncollectible Accounts = 2,000,000 * 2% = 40,000 Income Statement: Bad Debt Expense = 40,000 – 1,900 = 38,100

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Section C: Long Questions 1. Analyze the effect of following two accounting errors made by VX Inc during the fiscal year 2016: (1) Sales on account of $100,000 were mistakenly recorded as cash sales. (2) Advance rent payment of $100,000 for next fiscal year's rent, was mistakenly recognized as rent expense. What are the effect of the above two accounting errors on the fiscal 2016 financial statements? (a) (b) (c) (d) (e)

2016 net income Retained earnings at the end of fiscal year 2016 Total asset at the end of fiscal year 2016 Total liability at the end of fiscal year 2016 Total equity at the end of fiscal year 2016

What should have been done in 2016: (1) DR Account Receivable 100000 CR Revenue 100000 (2) DR Prepaid Rent 100000 CR Cash 100000 What was done incorrectly in 2016: (3) DR Cash 100000 CR Revenue 100000 (4) DR Rent Expense 100000 CR Cash 100000 (a) (b) (c) (d) (e)

2016 net income is understated by 100000. Retained earnings is understated by 100000. Total asset is understated by 100000. Total liability is not affected. Total equity is understated by 100000.

2. During 2017, HKG Corp. had the following events occur: • 1 Jan: Received $100,000 in exchange for 10,000 shares of common stock (no par value) • 1 Jan: Hired warehouse/marketing supervisor at salary of $2,000 per month (paid on the 7th of each month after actual work month has elapsed) • 1 Jan: Prepaid $4,500 to landlord for 3 months rent on warehouse • 10 Jan: Purchased $55,000 (10,000 units) of inventory on credit • 19 Jan: Paid $55,000 to inventory vendor • 22 Jan: Sold 2,000 units of inventory on credit for $26,000 • 3 Feb: Sold 3,000 units of inventory for $39,000 cash • 7 Feb: Paid $2,000 cash for radio advertisements • 13 Feb: Received payment of $26,000 from Jan 22nd customer Required (ignore income taxes): 1. Record all journal entries for the January transactions. 9

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2. 3. 4. 5. 6.

Prof. Jacky Chau

Record the end of January adjusting (passive transaction) journal entries for rent and salaries. Prepare a Balance Sheet and an Income Statement dated January 30, 2017. Record all journal entries for the February transactions. Record all the end of February adjusting (passive transaction) journal entries for rent and salaries. Prepare a Balance Sheet and an Income Statement dated February 28, 2017.

Please refer to the solutions on review slides shown in class this week.

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