ACC220 test 1 2014 vA(1)SOLUTIONS-1.docx

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Department
Business Administration - Accounting & Financial Planning
Course Code
Business Administration - Accounting & Financial Planning ACC220
Professor
Ramonagirdauskas

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Seneca College of Applied Arts and Technology SCHOOLOFACCOUNTING AND FINANCIALSERVICES Term Test 1 - VERSION A SOLUTIONS Semester Subject Code WINTER 2014 __ Accounting Basics II ACC220 FAMILY NAME/SURNAME: ________________________________ GIVEN NAME: ________________________________ STUDENT NO.: ________________________________ CLASS SECTION: ________________________________ DATE: February , 2014 TIME ALLOWED: 100 minutes TOTAL MARKS: 88 marks (20% of final mark) AIDS ALLOWED: Calculator (non-programmable) Question 1 12 Question 2 14 Question 3 4 Question 4 26 Question 5 5 Question 6 6 Question 7 5 Question 8 16 TOTAL 88 1 PROFESSORS: Peter Alpaugh, Wayne Campbell, Ramona Girdauskas, Ebhana Hardy-Henry, Michael Longworth, Debbie Looijie, Gary Miller APPROVED BY: ______________________________________________________________________ Karen Murkar, Chair, School of Accounting and Financial Services QUESTION 1 MULTIPLE CHOICE (12 MARKS) Circle the letter next to the best answer OR enter your answer in pencil on the Grade Master card, if supplied. 1. On July 1, 2011, Yukon Minerals Co. purchased the mineral rights to a granite deposit for $700,000. It is estimated that the recoverable granite will be 400,000 tonnes. During 2011, 100,000 tonnes of granite was extracted and 60,000 tonnes were sold. The amount of the depreciation expense to be included in cost of goods sold for 2011 would be: a. $87,500. b. $52,500. c.$105,000. d. $175,000. 2. Which of the following statements is correct? a. all research and development costs should be capitalized. b. development costs are always capitalized. c. research costs should always be expensed as incurred. d. all research and development costs should be expensed as incurred. 3. If an intangible asset with an indefinite life becomes impaired, the asset must be a. written up to cost. b. written down to fair value. c.sold at its net realizable value. d. No adjustment is required and a loss will be recorded when the intangible asset is sold. 4. The current portion of long-term debt should a. be paid immediately. b. be reclassified as a current liability. c.be classified as a long-term liability. d. not be separated from the long-term portion of debt. 5. Under IFRS, if the company has a contingent liability a. the amount must be disclosed in the notes but not disclosed on the balance sheet. b. the amount must be disclosed in the notes and shown on the financial statements. c. the amount should be shown on the balance sheet but not disclosed in the notes. d. the amount should not be disclosed on either the balance sheet or in the notes. 6. Which revenue recognition method would most likely be used by a retailer? a. point of sale. b. upon cash collection. c.during production. d. upon receipt of the order. 7. The cost benefit constraint a. means that assets and revenues be estimated at the lower end of their range. b. means that assets and revenues be estimated at the higher end of their range. c.means that the value of the information must exceed the cost to produce it. d. means that the information would influence the decision of a statement user. 8. Under International Financial Reporting Standards, the models which companies can choose to account for their long-lived assets are: a. Cost model and units-of-production model b. Units-of-production model and diminishing-balance model c. Revaluation model and straight-line model d. Cost model and revaluation model 9. For the year ended December 31, 2011, Akito Co. has net sales of $1,000,000 and profit of $290,000. Total assets on January 1, 2011 were $1,750,000 and total assets at December 31, 2011 are $1,245,000. Akito’s return on assets for 2011 is a. 19.4%. b. 23.3%. c.66.8%. d. 80.3%. 10 . Development costs a. are always expensed when incurred. b. cannot be recorded separately from research costs. c.can be capitalized if it can be shown that the costs will provide future benefits. d. are intangible assets that are not depreciated. 11 . In recording the acquisition cost of an entire business, a. goodwill is recorded as the excess of cost over the fair value of net identifiable assets. b. assets are recorded at the seller's carrying amounts. c.goodwill, if it exists, is never recorded. d. goodwill is recorded as the excess of cost over the carrying amount of net identifiable assets. 12 . The amount of sales tax (GST and PST or HST) collected by a retail store when making sales is a. a miscellaneous revenue for the store. b. a current liability. c.not recorded because it is a tax paid by the customer. d. will increase the profit of the company. 3 QUESTION 2 (14 MARKS) A beginning accountant for Alpaugh Tractor Company recorded the following transactions in the records of the company for the year ended December 31, 2013. The controller has questioned the appropriateness of the entries since she thinks that they have not been recorded in accordance with generally accepted accounting principles(GAAP). Profit for the year, including the entries described below, is $200,000. 1. On January 1,2013 the company president took a personal vacation trip to the Greece. The trip cost $3,000. The accountant recorded the entry as follows: Travel Expense 3,000 Accounts Payable 3,000 2. Merchandise inventory which cost $14,000 had a current net realizable value of $22,000. The accountant made the following entry as a result: Merchandise Inventory 8,000 Inventory Gain 8,000 3. Equipment with a fair market value of $15,000 was acquired in a liquidation sale for cash at a cost of $10,000. The accountant recorded the transaction as follows: Equipment 15,000 Cash 10,000 Gain on Purchase of Equipment 5,000 4. On December 24, Alpaugh received a written sales order for 10 tractors. The tractors will be shipped in January 2014. Accounts Receivable 158,000 Sales 158,000 Cost of Goods Sold 56,500 Inventory 56,500 REQUIRED: (a) For each of the above entries indicate the accounting assumption, principle, or constraint that was violated, if any and prepare the necessary journal entry to correct the original entry. Explain why you think the entry is incorrect. (3 marks each) 1. Economic Entity A/P 3,000 Travel Expense 3,000 OR Drawings 3,000 Travel Expense 3,000 OR A/R 3,000 Travel Expense 3,000 2. Cost Principle Inventory Gain 8,000 Merchandise Inventory 8,000 3. Cost Principle Gain 5,000 Equipment 5,000 4. Revenue Recognition Criteria #1 and 2 - Sales 158,000 A/R 158,000 Inventory 56,500 CGS 56,500 (b) What will be the corrected profit after you have done the correcting entries? $200,000 + 3,000 – 8,000 - 5,000 - 158,000 + 56,500 = $88,500 5 QUESTION 3 (4 MARKS) Presented below are selected qualitative characteristics of accounting information. 1. Relevance 2. Neutrality 3. Verifiability 4. Timeliness 5. Faithful representation 6. Comparability 7. Understandability REQUIRED(1/2 mark each)Students may have different answers so If you think their answer is correct mark it accordingly. For each of the following situations, indicate which qualitative characteristic(s) was violated. _5___(a) Girdauskas Ltd. reported its merchandise inventory at a net realizable value of $25,000. The company's auditors disagree with this value and estimated the net realizable value to be $20,000. 4____(b) Hardy-Henry Corporation does not issue its annual financial statements for the year ended December 31, 2013, until December 2014. _6___(c) Hurst Mining Ltd. is the only company in the mining industry that uses the straight-line method to depreciate its mining equipment. _6___(d) Longworth Ltd. switches inventory cost formulas from average to FIFO and back to average in a three-year period. _2__(e) Looijie Ltd. intentionally recorded revenue in 2013 for sales made in 2014 to ensure that management would receive their bonuses, which were based on profits. _7___(f) Miller Talk Corporation used terminology in its financial statements and notes to the financial statements that is not commonly used in financial reporting and did not provide explanations of the terminology. _1___(g) Campbell Ltd., a multinational drilling company, reported separately its paper, paper clips, and pens in the balance sheet rather than reporting a single line item for office supplies. Total office supplies were $5,000 . _5___(h) Cooper Health Foods Ltd.
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