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Lecture 3

MHR 405 Lecture 3: Midterm Additional Practice Questions - Solutions - 2016 02 27 - UPDATED (2)Exam


Department
Human Resources
Course Code
MHR 405
Professor
Bamidele Adekunle
Lecture
3

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Additional Midterm Practice Questions -
SOLUTIONS
PQMR-1
As you can see from the example of Tees Inc. in Chapter 2, both the preparers of financial information
and the external stakeholders, the users, have objectives (things they want from the business). The
owners of Tees Inc. want a loan and they need to provide financial information to get it. The bank, an
external stakeholder, wants financial information so they can decide on the amount of the loan as well
as whether the loan, plus interest, will be repaid by the business. Both parties need financial
information to meet their objectives.
PQMR-2
GAAP = Generally accepted accounting principles. The qualitative characteristics and
underlying assumptions are part of generally accepted accounting principles, called GAAP
(pronounced as gap). Preparers of accounting information use GAAP as a guideline when
preparing financial accounting information. The overall objective of GAAP is to provide
financial information about a business that is useful to external stakeholders for decision
making.
PQMR-3

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PQMR-3, continued
What is the problem with using the basic accounting equation to record all the business
activities?
Does not provide the necessary details for you to make decisions about your business.
For instance, you don't know if you have enough cash to repay your parents.
You don't know if the company has been profitable. To calculate this you would have to
do manual calculations!
You have no details about any of the elements, such as what makes up your assets?
PQMR-4
Tertiary because it is involved in providing services, which matches the definition of the
Tertiary sector (services provided to the public or other businesses)
Assets Liabilties Equity
7,500.00 7,500.00
5,000.00 5,000.00
60.00 60.00
-1,296.00
1,296.00
1,412.50 1,412.50
56.49 56.49
39.55 39.55
-39.55 -39.55
-565.00 -565.00
-56.49 -56.49
3,450.00 3,450.00
-1,237.50 -1,237.50
-144.00 -144.00
-590.00 -590.00
-24.99 -24.99
-108.00 -108.00
-1,568.54 -1,568.54
13,184.47 5,000.00 8,184.47

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PQMR-5
Cash
Accounts
Receivable
Inventory
Accounts
payable
Owner's
Capital
Retained
earnings
Sales Revenue
Sales returns
and
allowances
Sales
discounts
Cost of goods
sold
Shipping
Expenses
Opening
Balances
7,289.00 0.00 4,260.00 0.00 15,000.00 3,451.00 0.00 0.00 0.00 0.00 0.00
Jul-01
Jul-02 5,900.00 5,900.00
Jul-03 -130 130.00
Jul-07 -1,000.00 -1,000.00
Jul-08
6,800.00 6,800.00
Jul-09 -4,400.00 4,400.00
Jul-10 -100.00 100.00
Jul-11 -4,802.00 -98.00 -4,900.00
Jul-13 -900.00 -900.00
600.00 -600.00
Jul-14 -85.00 85.00
Jul-17 -920.00 920.00
Jul-18
Jul-19 5,841.00 -5,900.00 -59.00
Jul-20 120.00 -120.00
Jul-21
Jul-23 7,800.00 7,800.00
-5,600.00 5,600.00
Jul-24
Jul-27 -580.00 -580.00
Jul-28 7,003.40 -7,220.00 -216.60
Totals: 14,216.40 0.00 592.00 0.00 15,000.00 3,451.00 14,600.00 -1,480.00 -275.60 9,400.00 185.00
No entry
No entry
No entry
Liabilities
Equity
Owner's
Capital
Retained earnings
Profit
Revenue
Expenses
No entry
No entry
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