York University AP/Adms 2500.03
Introduction to Financial Accounting
Midterm Examination #2 – Test Form A
Time: 3.0 hours Questions: 50
1. Submit: Only the pink mark sense sheet will be collected: you may keep this midterm examination paper. Mark your answeatern it for l
2. Mark Sense Sheet:
• 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 pencils
• Test Form is 'A' and Code is your Section (in the left column)
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3. Exam Aids:
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function computers to the exam in case one fails. Be p repared to be challenged by invigilators if you bring a “fancy” calculator.
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loose pages or handwriting in the dictionary, it will be seized and you will be charged with academic dishonesty.
• In 2500, invigilators answer no questions of interpretation. They will pass along questions regarding possible errors/ typos/ missing
data to the head invigilator. If you believe a question contains an error and do not receive a response, make a detailed note on the
front of your exam and submit it with your answer sheet.
4. Exam Strategy • Careful budgeting of time on an accounting exam is essential. Bring a watch and check your progress regul arly. Poor time management is
the most common reason for poor exam performance in accounting.
• 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 question s attempted.
• It is essential to transfer your answers to the grading sheet after each question in case the exam is interrupted by fire ala rm.
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note that in 2500, choice (E) None of the above does indeed represent a frequent correct choice to questions.
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Most rooms are cleared so that exams can recommence, within 30 minutes of the alarm. You will be t old after this time whether to reenter
the room and recommence the exam or to go home.
7. Academic Dishonesty
• You are reminded that cheating is a serious offense which can result in expulsion from university
2 • 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.
Questions 1 to 5 are based on the following information about Guinevere Company
Guinevere Company has the following data extracted from its Accounts Receivable records at June 30, 2011
Customer Balance Current 31 -75 days Over 75 days
A $8,000 $5,000 $2,000 $1,000
B $2,000 - $2,000 -
C $4,000 $4,000 - -
D $9,000 $2,000 $1,000 $6,000
E $3,000 $2,000 - $1,000
F $6,000 $6,000 - -
G $7,000 $3,000 $3,000 $1,000
Totals $39,000 $22,000 $8,000 $9,000
• Guinevere’s sales terms are 1/15 n/30 and it records sales at the gross amount of the invoice.
• Guinevere’s year end is June 30
• The unadjusted balance in the Allowance for Doubtful Accounts at June 30 is $8,000 dr.
• Guinevere makes average sales of $2,000,000 per year and averages write offs of uncollectible balances of $100,000 per year.
• Sales for the year ended June 30, 2010 are $1,400,000 credit sales and $400,000 cash sales
• Guinevere has a very conservative receivables management strategy.
• No adjusting entries have been recorded at June 30
Use the remaining space on this page and the back of the page for your calculations
3 QUESTION 1
If Guinevere uses the Allowance Method (percentage of sales) to estimate bad debts, the adjusting entry at June 30 to record the
provision for uncollectible accounts would involve a credit to the “Allowance for Uncollectible Accounts” of:
E) Some other amount
If Guinevere used the Allowance Method (aging) to estimate bad debts and by a detailed review of the above aged trial balance
decided that an allowance of $30,000 was appropriate, then the adjusting entry on June 30 would involve a credit to the “Allowance
for Uncollectible Accounts” of:
E) Some other amount
Assume that Guinevere does an aging analysis and adjusts its Allowance to a $20,000 credit balance on June 30 and on July 4 it
reads in the Toronto Star that customer F has gone bankrupt. Guinevere should:
A) Say some unprintable words but make no accounting entry
B) Make an entry debiting bad debt expense for $6,000
C) Make an entry debiting bad debt expense for $10,000
D) Make an entry crediting bad debt expense for $6,000
E) None of the above are correct statements
4 QUESTION 4
Assume the same information as in Question 3 (Customer F going bankrupt July 4). Assume also that on August 25 Guinevere
receives a cheque in the mail from F Company for $6,000 with the following note attached. “The company has reorganized and is
trying to restore its credit rating with all its former suppliers. Please accept this cheque with our apologies”. Guinevere should:
A) Make a debit to Cash and credit Miscellaneous Income
B) Make a debit to Cash and credit Uncollectible Accounts Expense
C) Make a debit to Cash and a credit to Accounts Receivable (after first reversing the write-off entry)
D) Make a debit to Cash and a credit to “Advances from Customers”
E) Some other entry
Assume that Guinevere had always been allowed under Canadian GAAP to use the Direct Write-Off Method because it had never
experienced any bad debt losses in its history as a company. There isn’t even an Allowance” account in its General Ledger Chart of
Accounts. Under this assumption, the adjusting entry June 30 to record the provision for uncollectible accounts would involve:
A) A debit to “Uncollectible Accounts Expense”
B) A debit to “ Allowance for Uncollectible Accounts”
C) No entry to be made
D) A credit to “Uncollectible Accounts Expense”
E) A credit to Accounts Receivable
End of Guinevere questions
Deuce Company counts its inventory of tires prior to preparing monthly financial statements on June 30. It uses the periodic
inventory system. The warehouse actually contained 6884 tires, but the count team reported back to the accountant that there were
6284 tires and this number was used to adjust the accounting records. As a result of this, net income reported for the month ended
June 30 would be:
C) Correctly stated
5 D) There is insufficient information provided to make an assessment
Sweet Company has the following information in its accounting records:
Sales year to date $5,000,000
Average mark-up on cost 20%
Cost of Goods Sold year to date would then be:
E) Some other amount
Hot Pepper Company had the following information in its accounting records at year end:
Inventory Cost $4,000,000
It estimates the net realizable value of this inventory is $3,500,000. As a result of this information Culpepper would:
A) Make no journal entry
B) Make a journal entry debiting a gain on market appreciation for $500,000
C) Make a journal entry debiting the allowance for inventory valuation for $500,000
D) Make a journal entry debiting a loss on inventory decline for $500,000
E) Make a journal entry crediting the allowance for inventory valuation for $500,000
Gringo Company has just been formed and is deciding on its accounting policies for the first time. It wants an inventory costing flow
assumption that results in the lowest reported profits. Prices have been falling for the past two years and there is no end in sight to
this trend. Dingo would select the:
A) LIFO method
B) FIFO method
C) Average Cost Method
6 D) Gross Profit method
E) Retail method
Juan Valdez buys a Mexican Government Savings Bond for $30,000 Canadian Funds. The market rate of interest in Mexico is 10%
and interest is compounded semi-annually. At the end of four years, Juan’s investment will be worth (rounded to the nearest dollar):
E) None of the above
Li Na wants to have $40,000 saved up when she starts college in 6 years. Money is worth 8% and all investment opportunities she is
looking at are compounded quarterly. How much should she deposit now?
E) Some other amount
Donald Frump invests an inheritance of $50,000 into an investment account that pays simple interest at 6% per annum and leaves it
there for 48 months. The investment company sends him a cheque after 48 months. He immediately takes this cheque and buys an
annuity from an insurance company that sends him an annual cheque for 10 years. The annuity is based on an effective interest rate
of 6%, money compounded annually. How much will the annual cheque be (rounded to the nearest dollar)?
7 E) $11,339
F) Cannot be determined from the data provided
Needy Company wants to raise money from the issue of bonds and the Board of Directors authorizes the issue of $9,000,000 of
bonds in $1,000 denominations with interest paid semi-annually to run for a term of 12 years until maturity. At the time of issue the
stated rate of interest on the bonds is 6% and the market rate of interest is 4%. The proceeds from the bond issue will be:
E) Some other amount
Quinine Company has a 12/31 year end and buys a bottling machine to use in its manufacturing plant on September 12, 2009. The
cost of the machine is $300,000. Taxes, duty and freight on the machine totaled $30,000. Expected salvage value is for the scrap
value of the metal and is thought to be $10,000. The company uses the units of production method and the machine is expected to
last 5,000 machine hours. Actual usage in 2009 was 600 hours and in 2010 1,400 hours Depreciation expense recorded in 2010
(E) Some other amount
Attack Company buys a factory for $9,000,000 on Jan 1 2004 with an estimated life of 30 years and no salvage value and depreciates
the building using the straight line method. On January 1, 2006 it adds a $1,000,000 addition to the building. On January 1, 2007 it
8 revises the estimated life remaining to be 15 years. Attack always rounds its annual depreciation provision to the nearest dollar. The
fiscal year end is December 31. Based on the information given, Attack’s depreciation recorded in 2007 would be:
E) None of the above
Wabanaki Company has a machine with a cost of $200,000 and accumulated depreciation of $140,000. It trades with another
company for a dissimilar machine that has an estimated fair market value of $80,000 and also has to give the other company
$10,000. The new machine would be set up on Wabanaki’s books at:
E) None of the above
Wolf Company has a patent that is 50% amortized sitting on the balance sheet with a carrying value of $100,000. Another company
infringes on the patent and Wolf sues. It incurs legal costs of $300,000 but wins the lawsuit. Wolf should:
a) Write off the patent
b) Stop amortizing the $100,000 as it has shown it has permanent value
c) Capitalize the legal costs and continue amortization
d) Restore the patent to its original value of $200,000 and restart the amortization process
e) None of the above
Use the following information on Zenith Company to answer questions 18 to 22
9 The Zenith Company sells tablet computers for outdoor use that are waterproof, shock resistant and run on solar power. The
following information has been extracted from the records of Zenith:
January 1 Beginning Inventor