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Midterm

Fall 2012 2nd midterm.pdf

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Department
Administrative Studies
Course
ADMS 2500
Professor
All Professors
Semester
Fall

Description
York University AP/Adms 2500.03 Introduction to Financial Accounting Midterm Examination #2 – Test Form A Fall 2012 Time: 3 hours Questions: 50 Instructions: 1. Submit: v Only the pink mark sense sheet will be collected: you may keep this midterm examination paper. Mark your answers on it for later referen.eThere are time value of money tables appended to the end of this examination and also some blank pages to do calculations. 2. Mark Sense Sheet: v Record your name and student number and answer all questions on the computer mark sense sheet provided with an HB (soft lead) pencil. Bring several pencils in case one breaks. The computer will not recognize ink or hard lead penci.s v Test Form is 'A' and Code is your Section (in the left col.mn) v Fill in the bubbles for your name and student number in pencil (your phone number is not required). Leave the last column of the student number BLANK . v If you change an answer, use a high quality eraser to completely remove the previous mark. If the computer senses two answers to a question, only the first scanned will be recognized. 3. Exam Aids: v Only calculators without alphanumeric programmable memories are allowed. It is strongly suggested you bring a couple of cheap 4 function computers to the exam in case one fails. Be prepared to be challenged by invigilators if you bring a “fancy” calculator. You may not use a cell phone ap as a calculator. v Compact foreign language/English dictionaries may be used. However, these will be examined by invigilators. If there are any loose pages or handwriting in the dictionary, it will be seized and you will be charged with academic dishonesty. Electronic dictionaries are banned. 4. Exam Strategy: v Careful budgeting of time on an accounting exam is essen tial. Bring a watch and check your progress regularly. Poor time management is the most common reason for poor exam performance in accounting. v It is always a good idea to attempt the questions you deem easiest first. In an interrupted exam that is not restarted, your exam will be scored based on questions attempted. v It is essential to transfer your answers to the grading sheet after each question in case the exam is interrupted by fire alarm. v The last ten minutes of an exam should be devoted to double c hecking your transfers. What you submit is what is graded. If you have not transferred your answers to the msense sheet at the end of the exam, the invigilator will not wait. Your answer sheet will be seized and it will be graded based on whatever questions have choices filled in. v Remember there is no penalty for guessing on a multiple choice computer graded exam. Submit a choice for every question. Also note that in 2500, choice (E) None of the above does indeed represent a frequent correct choice to questions. 1 5. Exam room regulations: v All personal belongings either on the floor or at the front of the exam room. All items on your desk will be examined by invigilators v Bring appropriate ID as proof of registration. You will be required to sign in and show appropriate documentation. Students without ID will be allowed to write the exam, but will be photographed and asked to submit registration and photo ID to the School of Administrative Studithe next day. v No student may leave the exam in the first hour. No student may start the exam after an hour. Students requiring restroom visits must be accompanied by an invigilator. v The proctors will announce when there are 15 minutes remaining and any answers not transferred should be recorded at this time. No one is to leave their seat in the last 10 minutes. v When time is called, the proctors will go down the rows collecting your answe r sheets and this exam paper. They will not wait and they will not accept your sheet once they have passed. Any violation of this protocol will result in a grade of zero recorded for the exam. 6. Fire Alarms v A frequent occurrence in York exams. In the eve nt of a fire alarm, you are to leave your exam and answer sheet face down on your desk and immediately proceed outside with coats and all personal belongings. Print your surname on the back of the exam so you know which seat to return to. An invigilator will lead the group outside to a place of safety. There is to be no talking during the evacuation or outside. Most rooms are cleared so that exams can recommence, within 30 minutes of the alarm. You will be told after this time whether to reenter the room and recommence the exam or to go home. 7. Academic Dishonesty v You are reminded that cheating is a serious offense which can result in expulsion from university v Exams at York are held in regular classrooms, which may involve tiered seating. Consequently, neck exercises are not allowed during exams. First instance of wandering eyes has the student relocated to the front of the room. Second instance results in seizure of paper. 8. Special Instructions: Asking questions of Invigilators v IN 2500, INVIGILATORS ANSWER NO QUESTIONS OF INTERPRETATION. Your invigilator may not have even taken accounting. v Accounting exams contain so many numbers that some times typos creep into the exam questions despite proofreading. If you notice what appears to be a typo ask the nearest invigilator. They will pass along questions regarding possible errors/ typos/missing data to the head invigilator. If there is a typo and it is caught early during the exam, a correction will be announced and placed on the front board. Typos caugh t late in the exam will just result in that particular question not being scored by the computer. If you believe a question contains an error and do not receive a response during the exam then this is an issue for you to send an email to your instructor post exam. 2 QUESTION 1 (the first four questions all pertain to the bank reconciliation for Alpha Ltd) The accounting records of Alpha Ltd. show that the following adjusting journal entry was made in the general journal in the month of October. The $8,000 also shows as a credit in Alpha’s October bank statement. Dr Cash 8,000 Cr Note Receivable 8,000 (collection of Note by bank on Alpha’s behalf) As a well educated and trained accounting student you would rightfully conclude that in the October bank reconciliation for Alpha that the $8,000 shows as: A) An addition in the reconciliation (i.e., there is a plus sign in front of the number) B) A deduction in the reconciliation (minus sign in front of the number) C) It shows both as a deduction and as an addition in the reconciliation D) It doesn’t show in the reconciliation at all. It comes from some other source. QUESTION 2 In the same bank reconciliation there is reference to a cheque recorded in Alpha’s Cash Disbursements Journal as $329 when in fact the amount actually written on the cheque is $392. The latter number is correct. The appropriate reconciling amount in the reconciliation would show as: A) An addition in the reconciliation (i.e., there is a plus sign in front of the number) B) A deduction in the reconciliation (minus sign in front of the number) C) It shows both as a deduction and as an addition in the reconciliation D) It doesn’t show in the reconciliation. It comes from some other source. QUESTION 3 In the same bank reconciliation for Alpha Ltd. there is reference to an NSF (not sufficient funds) cheque of $2,000 from a customer. It would show in the reconciliation as: A) An addition in the reconciliation (i.e., there is a plus sign in front of the number) B) A deduction in the reconciliation (minus sign in front of the number) C) It shows both as a deduction and as an addition in the reconciliation D) It doesn’t show in the reconciliation. It comes from some other source. QUESTION 4 In the same bank reconciliation for Alpha Ltd. there is reference to an O/S (outstanding) cheque of $999. This amount would show in the bank reconciliation as: A) An addition in the reconciliation (i.e., there is a plus sign in front of the number) B) A deduction in the reconciliation (minus sign in front of the number) C) It shows both as a deduction and as an addition in the reconciliation D) It doesn’t show in the reconciliation. It comes from some other source. 3 QUESTION 5 Confused Co. has a Petty Cash account which was established at the amount of $200 and has never been changed. Before preparing the latest balance sheet, Jill, the accountant, actually looks in the petty cash box and sees no currency and only receipts. She reflected on this situation, notes that the bank reconciliation for the same period showed the bank and ledger accounts for cash properly reconciled, and then decided to make the following replenishment journal entry: Dr Petty Cash 200 Cr Cash 200 A) Jill has made the correct replenishment entry B) Jill has made the wrong replenishment entry C) There are multiple errors here, but they counteract each other so the ultimate effect is that all financial statement amounts are correctly stated. D) We need more information to decide whether there has been a GAAP violation. ****The next four questions ( 6 to 10) all relate to data for Tictoc Ltd.**** Tictoc Ltd. has the following trial balance for receivables at October 31 2012. Customer Invoice date Amount A Oct 15 $13,000 B Aug 25 $25,000 C Oct 26 $6,000 D July 31 $20,000 E Oct 14 $18,000 F Oct 22 $22,000 Total $104,000 Prior to preparing the month end financial statements, the accountant performed a collectability review on these receivables and concluded that customer B’s ability to pay seemed highly suspect, but the other customers all had good reasons for being late. She also noted the Allowance for Doubtful Accounts in the general ledger has an unadjusted debit balance of $5,000 at October 31. QUESTION 6 From strictly the information above it is clear that Tictoc follows which accounting method for handling uncollectible receivables: A) Direct write off method B) Allowance method (aging) C) Realizable value method 4 D) Aged Collectability method E) None of the above QUESTION 7 Assume that Tictoc’s accountant finishes her collectability review and decides that only the balance from customer B is suspect. All other overdue accounts have good explanations. She should make an adjusting entry which would have the following charge to an account: A) Uncollectible accounts expense $25,000 dr B) Uncollectible accounts expense $20,000 dr C) Uncollectible accounts expense $25,000 cr D) Uncollectible accounts expense $20,000 cr E) None of the above QUESTION 8 Assume that customer B did not pay its account and in November 2012, the accountant for Tictoc decided to write off the account. The charge (debit) to expense as part of this write off entry would be: A) $0 B) $5,000 C) $10,000 D) $25,000 E) Some other amount QUESTION 9 Assume that in December 2012, without warning or notice that Tictoc receives a cheque in the mail for $15,0000 from customer B with a brief note attached saying “Our apologies, remaining monies to follow shortly”. After following proper GAAP procedure regarding making appropriate journal entry(s) to process this event the balance in Customer B’s account would show as: A) $0 B) $5,000 C) $10,000 D) $15,000 E) some other amount 5 QUESTION 10 Assume that Tictoc’s sales policies are to charge overdue interest at 20% per annum on overdue accounts. Terms are n/30 for all sales to all customers. On October 31 how much interest should be charged to customer D’s account? (all choices rounded to the nearest dollar) A) $0 B) $334 C) $667 D) $778 E) Some other amount ****end of questions relating to Tictoc ltd.**** QUESTION 11 Barney Rubble won $250,000 in the lottery today. He decides to immediately put in into an investment account that pays 4% per annum and in ten years (his retirement date) will use the accumulated proceeds to buy an annuity from Gibralter Insurance company that will send him an annual cheque for 20 years. He expects interest rates to stay constant over the whole period and money is compounded annually. What will be his annual cheque from Gibralter? A) $27,230 B) $5,671 C) $12,427 D) $35,336 E) Some other amount                 6 QUESTION 12 If you had a choice of investing at TD bank $1,000 at simple interest for 5 years at 8% or $1,000 at Royal Bank with compound interest @ 6% for 5 years (money compounded semiannually), which would you choose? Royal also gives you a $25 bonus up front for opening an account with them. A) TD B) Royal C) they both provide identical returns D) there is not enough information to answer this question QUESTION 13 Max Co. buys a new machine and agrees to pay for the machine with the following terms. There is no down payment and Max sends a cheque in for $200,000 for each of the next six years. Money is worth 6% per annum and is compounded semi-annually. Max would capitalize this machine at: A) $0 (you cant capitalize it until it is fully paid for) B) $200,000 (and each year the capitalization would be increased by another $200,000) C) The gross amount of the obligation ($1,200,000) D) $1,990,800 E) Some other amount QUESTION 14. If $3,425,940 is the FV (future value) of an investment and $1,000,000 is the PV (present value) of that same investment and compounding occurs annually, then what is the annual market rate of interest in effect. A) 5 percent B) 6 percent C) 7 percent D) 8 percent E) Some other percentage 7 QUESTION 15 Undecided Ltd. purchases a plot of land and pays cash then ten months later turns around and sells the land back to the original vendor for the exact same amount it originally paid but takes back a note for the full amount. The note is due in six months and bears interest at 4%. Wiki will record: A) A gain on the sale B) A loss on the sale C) Neither a gain nor a loss on the sale D) Not record this as a sale until payment in full is received E) There is insufficient information to answer this question QUESTION 16 The rate of inflation in Canada this year as announced by Stats Canada is negative 1.2% ( i.e., the economy is experiencing deflation. A new company (Newbie Ltd.) is formed this year and understandably wants to maximize its reported earnings to look good to its banker when it applies for a loan. Ignoring what GAAP allows or does not allow, the inventory method that will produce the highest reported profit is A) LIFO B) FIFO C) Weighted Average D) Specific Identification E) FISH QUESTION 17 Peabody Ltd. returns $800 worth of merchandise purchased from a supplier and receives full credit. Peabody uses the perpetual weighted average inventory method. This transaction w
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