Idterm XAM: Acct Pring Nstructor Peter HEN

(ACCT2010)[2014](s)midterm~=0uuid1_d^_58488.pdf downloaded by twbfung from http://petergao.net/ustpastpaper/down.php?course=ACCT2010&id=5 at 2017-10-19 02:12:33. Academic use within HKUST only.
ACCT 2010 SPRING 2014

INSTRUCTOR: PETER CHEN
M IDTERM E XAM
NAME (PRINT): ........................................................................................
STUDENT ID: ..........................................................................................
CLASS SECTION:  L09

 L10
 L11
INSTRUCTIONS:
 Make sure that your paper contains 12 pages.
 You have two hours to complete this exam.
 Enter your answers to the multiple-choice questions into the table on p. 2.
Make sure that you choose the best answer.
 Answer the Part II long-answer questions in the space provided. Show your
work.
 Please do not use your own paper.
DATE: March 24, 2014
Questions Marks Allocated Marks Earned

Part I: MC 40
Part II: Problem 1 20

Problem 2 20
Problem 3 20
Total 100
1

Answer Sheet for PART I:
(Please do NOT tear off this page from the question and answer book)
Enter the answers in CAPITAL LETTERS:
1. 11.
2. 12.
3. 13.
4. 14.
5. 15.
6. 16.
7. 17.
8. 18.
9. 19.
10. 20.
2

Part I: Multiple-Choice Questions
Multiple choice: Please indicate the correct answer to each question in the bracket.
[C ] 1. Which of the following transactions would cause retained earnings to increase?
A. Collection of accounts receivable from a customer.

B. Loan from a bank.
C. Sale of service to a customer.
D. Wages payable to employees.
E. None of above
[B ] 2. Which of the following effects on financial statement are not possible as a result of a transaction?
A. Increase stockholders' equity and increase an asset.

B. Increase a liability and decrease an asset.
C. Increase an asset and decrease an asset.
D. Decrease stockholders' equity and increase a liability.
E. None of above.
[D ] 3. On October 1, 2010, Adams Company paid $4,000 for a two-year insurance policy on the
building. The accounting period ends December 31. At the end of 2010, the financial
statements should report
On the Balance Sheet On the Income Statement

A. Prepaid insurance, $4,000 Insurance expense, $0.
B. Prepaid insurance, $0 Insurance expense, $4,000.
C. Prepaid insurance, $2,000 Insurance expense, $2,000.
D. Prepaid insurance, $3,500 Insurance expense, $500.
E. None of above.
[B ] 4. At the beginning of 2011, Buck Corporation had assets of $540,000 and liabilities of $320,000.
During the year, assets increased by $50,000 and liabilities decreased by $10,000. What was
the total amount of stockholders' equity at the end of 2011?
A. $220,000
B. $280,000
C. $380,000
D. $500,000
E. None of above.
[C ] 5. Failure to make an adjusting entry to recognize accrued wages payable would cause an
A. understatement of expenses, liabilities and stockholders' equity.

B. overstatement of expenses and liabilities.
C. understatement of expenses and liabilities and an overstatement of stockholders' equity.
D. understatement of assets and stockholders' equity.
E. None of above.
3

[C ] 6. During 2011, Sensa Corporation incurred operating expenses amounting to $100,000 of which
$75,000 was paid in cash; the rest will be paid in January 2012. Transaction analysis of
operating expenses for 2011 should reflect the following:
A. decrease stockholders' equity, $75,000; decrease assets, $75,000.

B. decrease assets, $100,000; decrease stockholders' equity, $100,000.
C. decrease stockholders' equity, $100,000; decrease assets, $75,000; increase liabilities, $25,000.
D. decrease assets, $100,000; increase liabilities, $25,000; decrease stockholders' equity, $100,000.
E. None of above
[B ] 7. Which of the following errors would most likely lead to an overstatement of income?
A. Recording revenue in the next year when the cash is collected from the customer, although the
products are sold in the current year.
B. Failure to record an expense incurred in the current period.
C. Recording an expense incurred this year although the cash is paid next year.
D. Failure to adjust unearned rent revenue account for the portion of rent earned this year.
E. None of above.
[A ] 8. Which one of the following accounts would not be closed at the end of the accounting year?
A. Prepaid expense.
B. Utilities expense.
C. Sales revenue.
D. Wages expense.
E. None of above
4

[A ] 9. Which of the following transactions would cause cash inflow from a financing activity for
Boeing Corporation?
A. Sold shares of Boeing Corporation to investors.

B. Sold shares of Mobil Corporation to investors.
C. Sold used equipment, which had been used in the production of aircraft.
D. Both A and B create financing cash inflow.
E. None of above.
[A ] 10. ABC Corporation reported the following amounts at the end of the first year of operations:
total assets $300,000; total liabilities $160,000; contributed capital $100,000; $20,000 dividends;
and revenue $400,000. Retained earnings and total expenses would be
A. Retained earnings $40,000 and expenses $340,000.

B. Retained earnings $40,000 and expenses $360,000.
C. Retained earnings $140,000 and expenses $240,000.
D. Retained earnings $140,000 and expenses $260,000.
E. None of above.
[B ] 11. Which of the following statements is false?
A. The journal entry to write-off an uncollectible account receivable does not affect current assets.
B. The journal entry to write-off an uncollectible account receivable decreases net income.
C. The journal entry to record bad debt expense decreases retained earnings.
D. The journal entry to record bad debt expense decreases current assets.
E. None of above.
[C ] 12. Which of the following statements correctly describes the effect of recording the collection of a
$10,000 account receivable for which a 2% sales discount was recorded at the time of collection?
A. Net sales will increase $9,800.

B. Accounts receivable will decrease $9,800.
C. Gross profit will decrease $200.
D. Current assets will remain the same.
E. None of above.
[E ] 13. Which of the following transactions will result in a decrease in the receivable turnover ratio?
A. Collecting an account receivable.

B. Selling inventory on account.
C. Writing off an uncollectible account receivable.
D. The journal entry to record bad debt expense.
E. None of above.
5

[C ] 14. A company purchased goods on credit with credit terms of 3/15, n/45. Although the company
does not have cash available to pay within the discount period, the manager of the company is
considering borrowing money to take advantage of the discount. In order to make the appropriate
decision, the manager computed the annual interest rate associated with the sales discount. Which
of the following is the annual interest rate?
A. 18%.
B. 25%.
C. 38%.
D. 56%.
E. None of above.
[C ] 15. Upon completing an aging analysis of accounts receivable, the accountant for Rosco Works aged
the accounts receivable and estimated that $5,000 of the $98,000 accounts receivable balance would
be uncollectible. The allowance for doubtful accounts had a $400 debit balance at year-end prior to
adjustment. How much is bad debt expense?
A. $400
B. $4,600
C. $5,400
D. $5,000
E. None of above.
[A ] 16. At year end, Chief Company has a balance of $10,000 in accounts receivable of which $1,000 is
more than 30 days overdue and the rest is not due yet. Chief has a credit balance of $100 in the
allowance for doubtful accounts before any year-end adjustments. Chief estimates that 1% of undue
accounts and 10% of accounts over thirty days are uncollectible. How much is bad debt expense?
A. $90
B. $100
C. $190
D. $290
E. None of above.
[C ] 17. Which of the following is included within current assets on a balance sheet?
A. Land used in daily operations.
B. A truck used in daily operations.
C. Inventory which takes two years to manufacture.
D. Intangible assets
E. None of above.
[D ] 18. Which of the following correctly describes the effects of recording deferred revenues when cash is
received from a customer?
A. Revenues are increased.
B. Liabilities are not affected.
C. Retained earnings increases.
D. Net income is not affected.
E. None of above.
6

[D ] 19. What is the effect on the financial statements when a company fails to record depreciation expense
at year-end?
A. Net income is overstated and stockholders’ equity is understated.
B. Expenses are understated and stockholders’ equity is understated.
C. Expenses are understated and liabilities are overstated.
D. Net income is overstated and assets are overstated.
E. None of above.
[C ] 20. The following journal entry for Alpha Co.

Accounts Receivable 1,200
Allowance for Doubtful Accounts 1,200
would be made when:
A. A customer announced bankruptcy.
B. A customer pays the account balance.
C. A previously written-off customer pays the outstanding balance.
D. Estimated uncollectible receivables are too low.
E. None of above.
7

Part II: Problems

Problem 1 (20 marks)
Betty’s Beauty Salon unadjusted trial balance for the current year is as follows:
Betty’s Beauty Salon

Trial Balance
As of December 31
Cash ...................................................................... $ 4,200
Prepaid insurance .................................................. 1,480
Shop supplies ......................................................... 990
Shop equipment ..................................................... 3,860
Accumulated depreciation–shop equipment ............ $ 770
Building ................................................................ 57,500
Accumulated depreciation–building ........................ 3,840
Land ..................................................................... 55,000
Unearned rent........................................................ 1,600
Long-term notes payable ........................................ 50,000
Bella Hanson, Capital ............................................ 49,860
Rent earned ........................................................... 2,400
Fees earned ........................................................... 23,400
Wages expense ...................................................... 3,200
Utilities expense..................................................... 690
Property taxes expense ........................................... 600
Interest expense ..................................................... 4,350 _______
Totals .................................................................... $131,870 $131,870
Additional information:
a. An insurance policy examination showed $1,240 of expired insurance.
b. An inventory count showed $210 of unused shop supplies still available.
c. Depreciation expense on shop equipment, $350.
d. Depreciation expense on the building, $2,220.
e. A beautician is behind on space rental payments, and this $200 of accrued revenues was
unrecorded at the time the trial balance was prepared.
f. $800 of the Unearned Rent account balance was earned by year-end.
g. The one employee, a receptionist, works a five-day workweek at $50 per day. The employee was
paid last week but has worked four days this week for which she has not been paid.
h. Three months’ property taxes, totaling $450, have accrued. This additional amount of property
taxes expense has not been recorded.
i. One month’s interest on the note payable, $600, has accrued but is unrecorded.
j. On December 31 of current year, company signs a contract with Asian Model Inc. to provide hair
services for two events next year. Asian Model paid $10,000 cash as deposit for the services.
8

Required:
Based on the above information, prepare the adjusting journal entries (without explanations but with
references) for Betty’s Beauty Salon.
a. Insurance expense ................................................... 1,240

Prepaid insurance ............................................. 1,240
b. Shop supplies expense ............................................. 780
Shop supplies.................................................... 780
(Calculation: $990 – 210 = 780 used)
c. Depreciation expense, Shop equipment .................... 350

Accumulated depreciation – Shop equipment ..... 350
d. Depreciation expense, Building ................................ 2,220

Accumulated depreciation – Building ................ 2,250
e. Accounts receivable ................................................. 200

Rent earned ...................................................... 200
f. Unearned rent ......................................................... 800

Rent earned ...................................................... 800
g. Wages expense ........................................................ 200

Wages payable.................................................. 200
(Calculation: $50/day x 4 days = $200)
h. Property taxes expense ............................................ 450

Property taxes payable ...................................... 450
i. Interest expense ....................................................... 600
Interest payable................................................. 600

Cash
j 10000
Unearned revenue 10000
9

Problem 2 (20 marks)
The following data were taken from the records of Lillas Pastia Co. for the year ended December 31,
2010:
Sales of merchandise for cash $150,000

Sales of merchandise on credit 800,000
Sales returns and allowances 10,000
Selling expenses 80,000
Cost of goods sold 610,000
Administrative expenses 90,000
The following items have not been included in above amounts:

Estimated bad debt expense is 1% of credit sales.
The income tax rate is 35%.
10,000 of shares of common stock are outstanding.
Requirements:
1. Based on the above data, prepare a multiple-step income statement (including gross profit, pretax
income, and earnings per share).
2. Compute the gross profit ratio
Solution:
A.
Lillas Pastia Co.
Income Statement
For the Year Ended December 31, 2010
Sales revenues ($150,000 + $800,000) $ 950,000

Less Sales returns and allowances 10,000
Net sales revenues 940,000
Less cost of goods sold 610,000
Gross profit on sales 330,000
Operating expenses:
Selling expenses $ 80,000
Administrative expenses 90,000
Bad debt expense ($800,000 × 1%) 8,000
Total operating expenses 178,000
Pretax income 152,000
Income tax expense ($152,000 × 35%) 53,200
Net Income $ 98,800
Earnings Per Share ($98,800  10,000) $ 9.88
B.
1. $330,000/$940,000 = 35.1%
10

Problem 3. Long calculation questions (20 Marks)
Belkou Company began operations on January 1, 2009. Its first year’s sales were $1,000,000, which were 60%
on credit. On December 31, 2009, the management estimated that 1% of all credit sales would probably be
uncollectible. At the same time, the company wrote off accounts worth $3,500. Before the estimation of bad
debt expense and the write-off of bad debt, the gross amount of accounts receivable had a debit balance of
$75,000.
Required:
(1) Accounts Receivable @Dec 31, 2009: $ 71,500 (4 points)

(2) Less: Allowance for Doubtful Accounts @ Dec 31, 2009 $ 2,500 (4 points)
Net value of Accounts Receivable @ Dec 31, 2009 $ 69,000
Calculation procedures:
Accounts Receivable @Dec 31, 2009 = 75,000 - 3,500 =$71,500
Allowance for Doubtful Accounts @ Dec 31, 2009 = 1,000,000*60%*1%-3,500= $2,500
On December 31, 2010, the balances in selected accounts were: gross amount of accounts receivable
$85,000; allowance for doubtful accounts $4,500 (debit balance); sales $1,500,000 (70% on credit). The bad
debt expense for 2010 had not been determined or recorded.
After reviewing the write-off of bad debts that occurred during 2010, the company decided that aging of
accounts receivable method is a more appropriate method to control and monitor accounts receivable.
Therefore, the company switched to aging analysis method and prepared the following aging schedule for
accounts receivable by the end of 2010:
Age Amount Estimated percentage
of uncollectible accounts
Not due yet $50,000 1%

Up to one year past due $30,000 5%
More than one year past due $ 5,000 30%
$85,000
Required:
(3) The amount of bad debts that were written off during 2010 = $ 7,000 ( 4 points)
Calculation procedures: $2,500 + $4,500 = 7,000
(4) Bad debt expense for 2010 = $ 8,000 (4 points)

Calculation procedures: (50,000*1%+ 30,000*5%+5,000*30%) + $4,500 = $8,000
(5) Receivable Turnover for 2010 =1,500,000/[(69,000+81,500)/2]=19.93 (4 point)

Or Receivable Turnover for 2010 =1,500,000*70%/[(69,000+81,500)/2]=13.95 (4 points)
11

Reference: Ratios
Current Assets
Current Ratio =
Current Liabilities
Sales (or Operating) Revenues

Total Asset Turnover Ratio =
Average Total Assets
Net Income
Net Profit Margin =
Net Sales (or Operating Revenues)
Net Income
Return on Assets =
Average Total Assets
Net Income Net Sales

Return on Assets = ×
Net Sales Average Total Assets
Net Sales
Receivables Turnover =
Average Net Trade Accounts Receivable
365
Average Collection Period =
Receivables Turnover
Cost of Goods Sold

Inventory Turnover =
Average Inventory
365
Average Days to Sell Inventory =
Inventory Turnover
12

Idterm XAM: Acct Pring Nstructor Peter HEN

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(ACCT2010)[2014](s)midterm~=0uuid1_d^_58488.pdf downloaded by twbfung from http://petergao.net/ustpastpaper/down.php?course=ACCT2010&id=5 at 2017-10-19 02:12:33. Academic use within HKUST only.

ACCT 2010 SPRING 2014

NAME (PRINT): ........................................................................................

STUDENT ID: ..........................................................................................

CLASS SECTION:  L09

DATE: March 24, 2014

Questions Marks Allocated Marks Earned

Part II: Problem 1 20

ACCT 2010 SPRING 2014

ACCT 2010 SPRING 2014

[C ] 1. Which of the following transactions would cause retained earnings to increase?

A. Collection of accounts receivable from a customer.

A. Increase stockholders' equity and increase an asset.

On the Balance Sheet On the Income Statement

A. understatement of expenses, liabilities and stockholders' equity.

ACCT 2010 SPRING 2014

A. decrease stockholders' equity, $75,000; decrease assets, $75,000.

ACCT 2010 SPRING 2014

A. Sold shares of Boeing Corporation to investors.

A. Retained earnings $40,000 and expenses $340,000.

[B ] 11. Which of the following statements is false?

A. Net sales will increase $9,800.

A. Collecting an account receivable.

ACCT 2010 SPRING 2014

ACCT 2010 SPRING 2014

[C ] 20. The following journal entry for Alpha Co.

ACCT 2010 SPRING 2014

Part II: Problems

Betty’s Beauty Salon

ACCT 2010 SPRING 2014

a. Insurance expense ................................................... 1,240

b. Shop supplies expense ............................................. 780

Shop supplies.................................................... 780

(Calculation: $990 – 210 = 780 used)

c. Depreciation expense, Shop equipment .................... 350

d. Depreciation expense, Building ................................ 2,220

e. Accounts receivable ................................................. 200

f. Unearned rent ......................................................... 800

g. Wages expense ........................................................ 200

(Calculation: $50/day x 4 days = $200)

h. Property taxes expense ............................................ 450

i. Interest expense ....................................................... 600

Interest payable................................................. 600

ACCT 2010 SPRING 2014

Sales of merchandise for cash $150,000

The following items have not been included in above amounts:

Sales revenues ($150,000 + $800,000) $ 950,000

Earnings Per Share ($98,800  10,000) $ 9.88

ACCT 2010 SPRING 2014

Problem 3. Long calculation questions (20 Marks)

(1) Accounts Receivable @Dec 31, 2009: $ 71,500 (4 points)

Accounts Receivable @Dec 31, 2009 = 75,000 - 3,500 =$71,500

Allowance for Doubtful Accounts @ Dec 31, 2009 = 1,000,000*60%*1%-3,500= $2,500

Not due yet $50,000 1%

(4) Bad debt expense for 2010 = $ 8,000 (4 points)

(5) Receivable Turnover for 2010 =1,500,000/[(69,000+81,500)/2]=19.93 (4 point)

ACCT 2010 SPRING 2014

Sales (or Operating) Revenues

Net Income Net Sales

Cost of Goods Sold

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Allowance for Doubtful Accounts @ Dec 31, 2009 = 1,000,00060%1%-3,500= $2,500