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MGT120H 2006 Winter Test and Test Solution.pdf

by OC2

Department
Management
Course Code
MGT120H5
Professor
Elisa Zuliani
Study Guide
Midterm

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MGT120 H1F
Financial Accounting I
Part A (10 marks)
1. On December 1, 2003, Blue Mountain Snow Removal Service Ltd. receives
$1,800 in advance for an agreement to remove snow from a client’s parking lot
during the months of December, January, and February. As of December 31, 2003,
Blue Mountain Snow Removal Service Ltd:
a. would have a $1,200 liability to its client under accrual accounting, and would
have a $1,800 liability to its client under cash-basis accounting
b. would have recognized $600 revenue under accrual accounting, and would
have recognized $1,800 revenue under cash-basis accounting
c. would have a $0 liability to its client under accrual accounting, and would
have a $1,200 liability to its client under cash-basis accounting
d. would have recognized $600 cash under accrual accounting, and would have
recognized 1,800 cash under cash-basis accounting
2. If a bookkeeper mistakenly recorded a disbursement of $48 instead of the correct
amount of $84, the error would be shown on the bank reconciliation as a:
a. $36 deduction to the books
b. $36 addition from the books
c. $48 addition to the books
d. $48 deduction from the books
3. On October 25, 2003, Jefferson & Cole Corp. prints a cheque for November’s rent
payment. Jefferson & Cole Corp. mails the cheque on October 27 to the landlord.
The landlord receives the cheque October 31 and cashes the cheque on November
2. When should Jefferson & Cole Corp. record the rent expense associated with
this transaction?
a. October 25, 2003
b. October 27, 2003
c. November 30, 2003
d. November 2, 2003
4. Mitchell & Frank Incorporated use the percentage-of-sales method to estimate
uncollectible receivables. Net credit sales for the current year amount to
$1,000,000 and management estimates 3% will be uncollectible. Allowance for
Doubtful Accounts prior to adjustment has a debit balance of $1,900. The amount
of expense reported on the income statement will be:
a. $31,900
b. $30,000
c. $28,100

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d. $1,900

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5. An owner investment of a building, valued at $100,000 with an $80,000
outstanding mortgage, into the business would:
a. increase assets by $20,000
b. increase assets by $80,000
c. increase shareholders’ equity by $20,000
d. increase shareholders’ equity by $100,000
6. The collection of cash from a customer on account would:
a. increase net income and shareholders’ equity
b. increase assets and decrease liabilities
c. increase assets and increase net income
d. have no effect on net income or shareholders’ equity
7. Under the allowance method for estimating uncollectible accounts, the entry to
write off an account:
a. reduces total assets
b. reduces net income
c. has no effect on total assets
d. increases net income
8. After a customer’s account has been written off under the allowance method, the
customer sends the company the amount owed. Before the receipt of cash can be
recorded, the company must first:
a. debit Allowance for Uncollectible Accounts
b. credit Uncollectible-Account Expense
c. debit Accounts Receivable
d. credit Accounts Receivable
9. On October 31 of the current year, a contract was signed and a cheque received
for services to be performed by October 31 of the following year. The Unearned
Service Revenue account was credited for $4,800. Assuming services were
performed evenly during the remainder of the year, the adjusting entry on
December 31 will involve a:
a. credit to Service Revenue $800
b. credit to Service Revenue for $4,000
c. credit to Unearned Service Revenue $800
d. debit to Unearned Service Revenue $4,000
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