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Midterm

Fall 2012 Practice midterm.doc

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Department
Business Administration
Course
BUS 251
Professor
Steve Gibson
Semester
Fall

Description
SAMPLE MIDTERM – BUS 251 Your midterm will also have theoretical questions where you will be asked to explain an accounting idea in words. You may want to review the sample ones on exam guidance or ones on mini-midterms. Section 1: THE ACCOUNTING CYCLE (40 MARKS = 40 MINUTES) Andy’s Yard Care Service Company Limited (AYC) Andy Smith has been operating for 3 years. The company provides lawn- mowing, tree trimming and weeding services to private restdences in the lower mainland. Andy incorporated the company on January 1 , 1996 and contributed equipment with a fair market value of $50,000 to the business in exchange for common shares valued at $10,000 and a $40,000 loan, payable to Andy. The following is the trial balance for AYC at January 1 , 1999: Debit Credit Cash $ 23,500 Accounts Receivable 18,000 Supplies Inventory (1) 1,000 Equipment (2) 50,000 Accounts Payable $ 6,000 Wages Payable 5,000 Loan Payable (3) 40,000 Accumulated Amortization – equipment 30,000 Common Shares 10,000 Retained Earnings 1,500 $ 92,500 $ 92,500 (1) Consists of fertilizer and topsoil, used in lawn care. (2) Contributed to the business January 1, 1996, estimated to have a 5 year useful life, with no residual value. (3) Shareholder loan payablthbears interest atst0% annually. Interest on the loan is paid on June 30 and December 31 each year. Andy does not anticipate receiving any payments on principal until the business becomes better established. REQUIRED: (28 marks for journal entries, 12 marks for balance sheet) i) Prepare journal entries for the 1999 information provided on the next page, or explain why no entry is required. (Clearly label each account affected, but detailed explanations for each entry are not required). CLEARLY STATE ANY ASSUMPTIONS THAT YOU FEEL ARE NECESSARY. 1 ii) Prepare any adjusting entries required at March 31 , 1999. It is not necessary to prepare an entry to close the accounts. iii) Prepare a balance sheet at March 31 , 1999, in good format. 2 INFORMATION FOR THE FIRST 3 MONTHS OF 1999 1. Services Revenue: The company billed customers $48,150 for work done between January 1 and March 31 . This included GST charged to customers of $3,150. (We did not cover GST so you can ignore) st 2. At March 31 1999 there was $6,000 owing from customers that had not yet been collected in cash. 3. Operating expenses (not including wages) incurred in the three months were $11,500. All operating expenses are initially on credit. st st 4. AYC paid $14,000 to suppliers between January 1 and March 31 , 1999. st st 5. Wages earned by employees between January 1 and March 31 , 1999 were st $8,500. There were no amounts owing to employees at March 31 , 1999. 6. Supplies inventory costing $1st00 was purchased for cash. A count in the storeroom on March 31 , 1999 showed that there were supplies costing $1,200 on hand. st 7. Andy purchased three new ride-on mowers on January 1 , 1999, for $6,000 each. He paid $10,000 in cash, and signed a note promising to pay the balance in nine months (the end of his busy summer season). There will be no interest paid on the note. The mowers are expected to have a 3 year life, with no salvage value. st 8. On March 31 , 1999, Andy signed a contract to purchase a fourth new ride-on mower. This mower will be delivered to Andy in July, and will cost $8,000. 9. Andy estimates that approximately $3,500 of the accounts receivable at January 1 , 1999, which have still not been collected at March 31 , 1999, willst not be collectible. 10.Andy estimates that income taxes for AYC will be $12,000 for the 1999 year. These taxes will be paid in March in the year 2000. Due to high start-up costs in the first three years of operation, AYC has not had to pay income taxes before the 1999 fiscal year. 3 Section 2: MULTIPLE CHOICE (20 QUESTIONS = 40 MARKS = 40 MINUTES) 1. Not covered 2. Which of the following would require an adjustment to the cash balance in the company’s accounting records if discovered through the bank reconciliation process: a) Outstanding deposits b) Outstanding cheques c) Bank service charges d) All of the above 3. Which one of the following would NOT be recorded as an asset by a business? a) Land not currently being used, but held for future development b) Accounts due from customers who have received products from the company c) A five year employment contract with the President, who has improved the company’s performance significantly d) Cash owing to the business from employees 4. Working capital is a measure of the company’s: a) Cash b) Ability to pay long-term debts c) Resources available to produce inventory for the next year’s business d) None of the above (are accurate definitions of working capital) 5. Which of the following transactions would result in a decrease in assets and a decrease in shareholders’ equity? a) Paying dividends payable b) Purchasing land for cash c) Paying the monthly electric bill d) Receiving cash on account 6. Which of the following would NOT be included on the Cash Flow Statement? a) The declaration of a dividend in the year b) The purchase of capital assets for cash during the year c) The repayment of long-term debt d) The issuance of common shares 4 7. Transactions that can have an effect on the decisions of shareholders are referred to by accountants as: a) Material b) Completed c) Unqualified d) Reliable 8. How much information to show on the financial statements and where to report it, are issues of: a) Recording b) Adjusting c) Transactional analysis d) Disclosure 9. Not covered 10. The income statement emerged as a standard financial statement based on a demand for which of the following? a) Performance measurement information b) Cash flow information c) Internal management information about the efficiency of operations d) Information regarding changes in owners’ claims on assets 11. Making sales on account results in which one of the following impacts on the balance sheet? a
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