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ADMS2500F.MT05.pdf

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Department
Administrative Studies
Course
ADMS 2500
Professor
All Professors
Semester
Fall

Description
York University AK/ADMS 2500.03 Introduction to Financial Accounting Midterm Examination – Test Form B November 5, 2006 Answers Provided at End of Exam Paper Time: 3 hours Questions: 45 Instructions: 1. Only the mark sense sheet will be collected - - you may keep this midterm examination paper. Mark your answers on it for later reference. 2. Record your name and student number and answer all questions on the computer mark sense sheet provided.  Use an HB pencil  Test Form is 'B'  Bubble in BOTH columns of ‘Code’ with your Section  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. 3. Calculators are the only aid allowed. 4. The exam is three hours in length and will run from approximately 6:00 pm to 9:00 pm. Budget your time wisely. 5. It is prudent practice to transfer your answers to the grading sheet after each question, and to proof your transfers.  The proctors will announce when there are 10 minutes remaining and any answers not transferred should be recorded at this time.  No one is to leave their seats in the last 10 minutes.  When time is called, the proctors will go down the rows collecting your answer 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. Academic honesty requires that persons do not cheat (attempt to gain an improper advantage in an academic evaluation), Suspected breaches of academic honesty will be investigated and charges shall be laid if reasonable and probable grounds exist. 1 Choose the BEST answer to the following questions: 1. A credit entry will a) increase an expense b) increase a revenue c) decrease a liability d) decrease Owner's Equity e) none of the above 2. Which of the following accounts usually has a credit balance? a) Prepaid Expense b) Supplies c) Allowance for Uncollectible Accounts d) Inventories e) None of the above 3. XYZ Corporation signs a contract with a customer for the construction of a new $350,000 warehouse. At the signing on November 1st, XYZ Corporation receives a cheque for $35,000 as a deposit on the future construction. XYZ Corporation would recognize this transaction in its November Income Statement as a) Revenue of $350,000 b) Revenue of $35,000 c) Construction Cost of $35,000 d) Deferred Revenue of $350,000 e) None of the above 4. Ziebart Accounting has the following account balances at Dec. 31, 2005: Accounts payable 180 Cash 200 Owner's Equity ??? Accounts Receivable 100 Land 140 Supplies 70 Notes Payable ??? Equipment 124 If Notes Payable are $70, then Owner's Equity will be a) $634 b) $454 c) $250 d) $384 e) none of the above 2 5. Ztap Inc. received a $300 bill for utilities’ usage in 2006 that will be paid in 2007. This utilities cost will be recognized a) In 2006 in the Cash Basis Income Statement and 2006 in the Accrual Basis Income Statement b) In 2006 in the Cash Basis Income Statement and 2007 in the Accrual Basis Income Statement c) In 2007 in the Cash Basis Income Statement and 2006 in the Accrual Basis Income Statement d) In 2007 in the Cash Basis Income Statement and 2007 in the Accrual Basis Income Statement e) None of the above Use the following information for Questions 6 - 7: My Music completed the following transactions today: a. The owner (shareholder), Carlos Elder, received share capital in My Music, after investing $65,000 cash into the business. b. $1,600 of commissions were earned and collected today by My Music. c. My Music earned $1,250 in fees today; provided on credit. d. My Music collected $100 for commissions earned today. e. My Music provided $2,250 of consulting services for a customer who will pay within 30 days. f. My Music received $1,200 towards payment for the services provided in transaction (e). g. Completed work for a client on credit; $3,750 in fees. 6. My Music’s accrual basis Revenue today is a) $67,900 b) $8,950 c) $2,900 d) $8,850 e) none of the above 7. If the Income Statement for today were to be prepared on a cash basis instead, the ‘Revenue’ on a cash basis income statement would be reported as a) $67,900 b) $8,850 c) $8,950 d) $2,900 e) none of the above 3 Use the following information for Questions 8 - 20: Ghoulish Noise provides the sound effects for Halloween events. Ghoulish Noise commenced operations on October 1, 2005. Information about Ghoulish Noise's balance sheet accounts at September 30, 2006 is summarized as follows: Balance Sheet information at September 30, 2006 Cash $1,000 Accounts receivable, net of $5,000 Allowance for Uncollectible Accounts (Bad Debts) $49,000 Prepaid Insurance $1,000  for three month policy with coverage effective September 1 – November 30 Computer and Sound Equipment, cost $36,000  acquired on October 1, 2005 Accumulated Amortization – computer and sound equipment $12,000 Total Assets $75,000 Advances from Customers for October 2006 events $20,000 Note Payable less Discount $39,600  Ghoulish Noise issued this note to acquire the Computer and sound equipment – the Note, a promise to pay $43,560 on September 30, 2007, was issued on October 1, 2005 to acquire the Computer and Sound Equipment. Share Capital $10,000  Sam Scream acquired all the 5,000 common shares of Ghoulish Noise when the corporation was formed October 1, 2005 Retained Earnings $5,400 Total Liabilities and Shareholder’s Equity $75,000 Cash Receipts for October 2006 were as follows: Cash collected from customers for events held before October 1, 2006 $48,000 Cash collected for October, 2006 performances $80,000 Cash received in advance for an October, 2007 performance $15,000 Cash Disbursements for October 2006 were as follows: Cash paid for music rights for music used at October events $2,000 Transportation charges paid $4,000 Wages paid $3,000 Dividends declared and paid $60,000 Other Information:  Ghoulish Noise billed customers $93,000 for October performance: $113,000 for the work done, less $20,000 received in advance.  Transportation costs of $3,000 are still owed at October 31, 2006  Wages of $2,500 are still owed to employees at October 31, 2006  One account receivable for $1,500 was written-off in October 4  Cheque #103 paying transportation costs of $4,000 did not clear the bank until November. All other cheques issued and deposits made cleared in October.  Present value tables are attached at the end of this exam. 8. Based on the information given for Ghoulish Noise, the company should report Net Cash Flow from Operations for October, 2006 of a) $134,000 b) $119,000 c) $59,000 d) $74,000 e) none of the above 9. Based on the information given for Ghoulish Noise, the company’s Bank Statement at October 31, 2006 should show a bank account balance of a) $75,000 b) $74,000 c) $79,000 d) $123,000 e) none of the above 10. Based on the information given for Ghoulish Noise, the company should report gross Accounts Receivable on its October 31, 2006 Balance Sheet totaling a) $74,000 b) $19,000 c) $14,000 d) $17,500 e) none of the above 11. Based on the information given for Ghoulish Noise, if the company reviewed its Allowance for Uncollectible Accounts (Bad Debts) and determined that no adjustment was required at the end of October, the company should report Allowance for Uncollectible Accounts on its October 31, 2006 Balance Sheet totaling a) $5,000 b) $6,500 c) $3,500 d) $0 e) none of the above 5 12. Based on the information given for Ghoulish Noise, the company should report Accumulated Amortization – computer and sound equipment on its October 31, 2006 Balance Sheet totaling a) $13,000 b) $1,000 c) $12,000 d) $23,000 e) none of the above 13. Based on the information given for Ghoulish Noise, the company should report Advances from Customers on its October 31, 2006 Balance Sheet totaling a) $15,000 b) $20,000 c) $0 d) cannot be determined from the information given e) none of the above 14. Based on the information given for Ghoulish Noise, the company should report Revenue on its Income Statement for October of a) $143,000 b) $113,000 c) $128,000 d) $93,000 e) none of the above 15. Based on the information given for Ghoulish Noise, ignoring taxes and interest expense, the company should report Expenses (other than taxes and interest) on its Income Statement for October of a) $15,500 b) $14,500 c) $16,000 d) $9,000 e) none of the above 6 16. Based on the information given for Ghoulish Noise, Ghoulish Noise is organized as a) an income trust b) a corporation c) a proprietorship d) a partnership e) none of the above 17. Based on the information given for Ghoulish Noise, if the company did NOT record an interest expense on the Note Payable for October, a) the trial balance would not balance b) its assets would be overstated and its expenses understated the company would be better positioned to have options for income measurement in November c) its liabilities would be understated and its expenses understated d) none of the above 18. Based on the information given for Ghoulish Noise, the interest rate per annum on the Note Payable is, a) 8% b) 9% c) 10% d) 12% e) none of the above 19. Based on the information given for Ghoulish Noise, the Board of Directors of Ghoulish Noise declared and paid a dividend on October 10 of a) 80% of Total Assets b) $6 per share c) $12 per share d) cannot be determined from the information given e) none of the above 7 20. Based on the information given for Ghoulish Noise, if Sam Scream sold all his shares of Ghoulish Noise to his friend for $3 per share on October 1, 2006 a) Common Shares will be reported as $15,000 on October 31, 2006 b) Ghoulish Noise will report a Gain on Sale of Shares on its October income statement c) Ghoulish Noise’s will record the sale with a debit to Cash of $15,000 d) All of the above e) none of the above ------------------------------------- end of Ghoulish Noise questions -------------------------------- 21. The Matrix Company's balance sheet data on August 31, 2006 and September 30, 2006 was as follows: August 31, 2006 September 30, 2006 Total assets $200,000 $250,000 Total liabilities $162,000 $183,000 If the owners of Matrix had invested $30,000 in the business during September and made no withdrawals, Matrix's income (loss) for September was: a) $29,000 b) $67,000 c) $1,000 d) ($1,000) e) none of the above 22. An accountant erroneously debits Rent Expense $500 and credits Cash $500. The correct entry should have been to debit Prepaid Rent $500 and credit Cash $500. As a result of this error a) assets are overstated by $500 b) expenses are understated by $500 c) the trial balance does not balance d) the cash balance is correct e) none of the above 23. Adjusting entries are necessary in order to a) measure properly the period's income b) bring asset accounts to correct balances c) bring liability accounts to correct balances d) all of the above e) none of the above 8 Use the following information for questions 24 - 26 Computer makers including Dell, Apple, Toshiba and Lenovo are recalling almost ten million Sony batteries used in laptop computers. The recalls followed evidence that, in certain circumstances, the batteries could overheat and catch fire. Sony is the manufacturer of all the batteries being recalled. Dell, Apple, Toshiba, Lenovo and any other computer maker using the recalled batteries will ultimately claim reimbursement from Sony. According to Sony’s October 19, 2006 press release, Sony has estimated and accrued costs of 51 billion yen ($429m; £230m) to deal with the costs of its recent laptop battery recall. Partially as a result of this global battery recall, the electronics giant has also cut its pre-tax profit forecast for the year to 31 March 2007 by 53% to 70 billion yen. Sony said its yearly profits would also be hit by the delay to the launch of its new Playstation3 games console in some markets and a reduced retail price in Japan. 24. Based on the information given about the battery recall, prior to its October 19, 2006 announcements Sony had forecasted pre-tax profits would be a) 70 billion yen b) 53 billion yen c) 132.1 billion yen d) 148.9 billion yen e) none of the above 25. Based on the information given about the battery recall, from Sony’s perspective, the accrued costs of 51 billion yen for the battery recall a) are material b) explain the entire change in the pre-tax profit forecast for the year to March 2007 c) will be accounted for prospectively on a cash basis d) will be an expense incurred by Sony’s customers, the computer makers, not Sony e) none of the above 26. Based on the information given about the battery recall, if the accrual of 51 billion yen were not made, Sony would have violated a) the matching principle b) historical cost principle c) the cost benefit assumption d) the separate entity assumption e) none of the above --------------------------- end of Sony battery recall questions ---------------- 9 Use the following information for questions 27 - 29 On December 31, 2006, Lyryx Consulting prepared an income statement and balance sheet but failed to take into account four adjusting entries. The income statement, prepared on this incorrect balance, reflected pretax income of $28,000. The balance sheet (before the effect of income taxes) reflected total assets, $96,000; total liabilities, $45,000; and shareholders' equity, $51,000. The data for the four adjusting entries follow: a. Amortization for the year on equipment that cost $54,000 was not recorded. The equipment's useful life is 10 years and its residual value is $5,000. b. Wages amounting to $4,000 for the last three days of December 2006 were not paid and not recorded (the next pay date is January 10, 2007). c. An amount of $5,100 was collected on December 1, 2006, for rental of office space for the period December 1, 2006 to February 28, 2007. The $5,100 was credited in full to Unearned Rent Revenue when collected. Complete the following table to correct the financial statements for the effects of the three errors. If an amou
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