(ACCT2010)[2011](f)quiz~=cy3j8^_86167.pdf downloaded by khtsuiac from http://petergao.net/ustpastpaper/down.php?course=ACCT2010&id=0 at 2018-11-07 23:54:15. Academic use within HKUST only.

ACCT2010 Principles of Accounting I

FALL 2011
QUIZ II

Name:

Student ID:

Section #:

 This is a closed book quiz.

 Please write your name, student ID, lecture section number on this page (put in the time
of the section if you do not know the section number).
 Please sign the agreement below.
 Answer all the questions within the space provided on the answer sheets.
 No pencil is allowed.

I agree that I will not discuss the content of the quiz with anyone before October 14, 2011.

Signature:

Required 1) Required 2) Required 3) Required 4) Total

Max Points 12 28 14 6 60
Grades
(ACCT2010)[2011](f)quiz~=cy3j8^_86167.pdf downloaded by khtsuiac from http://petergao.net/ustpastpaper/down.php?course=ACCT2010&id=0 at 2018-11-07 23:54:15. Academic use within HKUST only.

Question:

TST Rental Corporation has been operating for five years. The income statement of the company
for fiscal year ended December 31, 2009 is given below:

TST Rental Corporation

Income Statement
For the Year Ended December 31, 2009

Revenues            
Rental revenue           $2,500
Expenses            
Supplies expense           600
Wage expense           1,000
Depreciation expense           200
Pretax Income           700
Income tax expense           200
Net income           $500

The company did not pay any dividend in 2009.

During 2010, the company completed the transactions given below:

A. Incurred employee wage expense of $1,200. Payment will be made in January 2011.
B. On January 1, paid $600 for a two-year premium for insurance policy covering the
equipment. The transaction was properly recorded on that date.
C. On January 1, rented storage place to customer A and received cash payment of $8,000 for
two years starting from January 1, 2010. The transaction was properly recorded on that date.
D. On July 1, borrowed $10,000 from a local bank and signed an 8 percent (annual interest rate)
note for that amount. The principal and interest are payable on the maturity date, June 30,
2011.
E. The estimated income tax expense for the year is $500. Payment will be made in 2011.
F. The estimated depreciation expense on the equipment for the year is $300.
G. The supplies on hand at December 31 are $1,200 and $1,000 respectively for 2009 and 2010.
During 2010, TST purchased supplies totaling $500 in cash.

1
(ACCT2010)[2011](f)quiz~=cy3j8^_86167.pdf downloaded by khtsuiac from http://petergao.net/ustpastpaper/down.php?course=ACCT2010&id=0 at 2018-11-07 23:54:15. Academic use within HKUST only.

The company uses the following accounts for financial reporting.

Code Account Code Account

A Cash M Dividend payable
B Accounts receivable N Contributed capital
C Prepaid expense O Retained earnings
D Supplies P Rental revenue
E Equipment Q Interest income
F Accumulated depreciation R Cost of goods sold
G Accounts payable S Supplies expense
H Unearned revenue T Wage expense
I Interest payable U Insurance expense
J Wages payable V Depreciation expense
K Income tax payable W Interest expense
L Notes payable X Income tax expense

Required:

1) Prepare the closing entry for fiscal year 2009. Note: Please use the account titles from the
above lists (12 points).
2) Prepare all adjusting entries that are to be recorded at the end of year 2010. For each
adjustment, indicate whether the adjustment relates to deferred revenue, deferred
expense, accrued revenue, or accrued expense. Note: please only record adjusting entries
and use the account titles from the above lists (38 points).
3) Compute the net income for year ended December 31, 2010. Show your calculations (14
points).
4) How much would be the net income for year of 2010 had the company used cash basis
accounting? Show your calculations (6 points).

2
(ACCT2010)[2011](f)quiz~=cy3j8^_86167.pdf downloaded by khtsuiac from http://petergao.net/ustpastpaper/down.php?course=ACCT2010&id=0 at 2018-11-07 23:54:15. Academic use within HKUST only.

Answers:

1) Prepare the closing entry for fiscal year 2009. Note: Please use the account titles from the
above lists (12 points).

Account Titles Debit Credit

Rental revenue 2,500
Supplies expense 600
Wage expense 1,000
Depreciation expense 200
Income tax expense 200
Retained earnings 500

2) Prepare all adjusting entries that are to be recorded at the end of year 2010. For each
adjustment, indicate whether the adjustment relates to deferred revenue, deferred expense,
accrued revenue, or accrued expense. Note: please only record adjusting entries and use the
account titles from the above lists (28 points).

A. Type of adjustment: Accrued expense

Account Titles Debit Credit

Wage Expense 1,200
Wage payable 1,200

B. (5 points) Type of adjustment: Deferred Expense

Account Titles Debit Credit

Insurance expense 300
Prepaid expense 300

3
(ACCT2010)[2011](f)quiz~=cy3j8^_86167.pdf downloaded by khtsuiac from http://petergao.net/ustpastpaper/down.php?course=ACCT2010&id=0 at 2018-11-07 23:54:15. Academic use within HKUST only.

C. (5 points) Type of adjustment: Deferred Revenue

Account Titles Debit Credit

Unearned revenue 4,000
Rental revenue 4,000

D. (5 points) Type of adjustment: Accrued expense

Account Titles Debit Credit

Interest expense 400
Interest payable 400

E. (4 points) Type of adjustment: Accrued expense

Account Titles Debit Credit

Income tax expense 500
Income tax payable 500

F. (4 points) Type of adjustment: Deferred expense

Account Titles Debit Credit

Depreciation expense 300
Accumulated depreciation 300

G. (5 points) Type of adjustment: Deferred expense

Account Titles Debit Credit

Supplies expense 700
Supplies 700

4
(ACCT2010)[2011](f)quiz~=cy3j8^_86167.pdf downloaded by khtsuiac from http://petergao.net/ustpastpaper/down.php?course=ACCT2010&id=0 at 2018-11-07 23:54:15. Academic use within HKUST only.

3) Compute the net income for year ended December 31, 2010. Show your calculations (14
points).

Net income
= Rental Revenue –Supplies expense–Wage expense–insurance expense–depreciation expense
–interest expense–income tax expense
=4,000-700-1,200-300-300-400-500
=600
  
  
  
  
  
  
  
  

4) How much would be the net income for year of 2010 had the company used cash basis
accounting? Show your calculations (6 points).

Cash basis Net income

= Cash received from customers-cash paid to suppliers-cash paid to employees
=8,000-(600+500)-0
=6,900