ACT 201

Midterm Exam Fall 2021

SHA1
Total marks : 65

Time: 1 Hour 45 minutes for exam and additional 15 minutes to upload the script.

1. The following information relates to ABC Company:

A. Joe Tribianni started the ABC Company on 1 March 2020, with $85,000.

B. On March 3, Joe Tribianni purchased few equipments that will be used for the business. The
total cost of the equipments were $16,000. The owner paid half of the amount in cash
immediately and signed a 5- month, 8% notes payables for the remaining amount.

C. On March 3, Joe Tribianni also purchased one apartment floor of a commercial building for
$10,000, that will be used as the corporate office for ABC Company.

D. On March 5, the company paid $700, for advertising the opening of ABC Company.

E. On March 10, Joe Tribianni received $26,000 from clients for services performed.

F. On March 11, the company sent bills to it’s customers, worth $1,500.

G. On March 12, ABC Company purchased supplies worth $2,300, on account.

H. On March 15, ABC Company sold goods to it’s customers worth $5,000, on account.

I. On March 19, Joe Tribianni withdrew $2,000 from the business for personal use.

J. On March 20, ABC Company owner paid salary and wages of $20,000, to it’s employees, for
the month of March.

K. On March 21, Joe Tribianni paid $1,000 out of the balance that was due from March 12. The
remainder will be paid later.

L. On March 22, the company sold goods and received $4,000.

M. On March 25, Joe Tribianni received payment from previously billed customers, from March
11.

N. On March 28, ABC Company paid rent of $2,400, for the current month.
O. On March 28, ABC Company received electricity bill of $1,000 and paid the amount in cash.

P. On March 30, Joe Tribianni received $2,200 from a client for services that will be performed
and completed in May 30.

Required:

i. Journalise the above mentioned transactions. (16 marks).

ii. Prepare the Income Statement for ABC Company, for the month ended March 31, 2020. (5
marks)

iii. Prepare the Balance Sheet for ABC Company, for the month ended March 31, 2020. (9 marks)

2. XYZ Company analysed each of its accounts on the last day of December 2020, the following
information are available:

A. Services related to unearned service revenue of $3,000 has now been earned.

B. Salaries of $10,000 are still accrued.

C. XYZ Company earned $1,200 from it’s customers, but has not been recorded yet.

D. XYZ Company purchased material supplies worth $25,000 on the first day of the year (this
transaction is already recorded in the books). An inventory count on the last day of the year
(December 31) revealed unused supplies worth $3,000 are still on hand.

E. Prepaid insurance of $1200 has expired.

Required:
a. Write the adjusting journal entries for the above mentioned transactions. (5 marks)
b. State the type of adjusting entry (only the name) for the above mentioned transactions. (5
marks)
c. Assume that the accountant of XYZ Company made an error in recording Transaction C. The
accountant recorded the journal as $2,100, instead of $1,200. Write the incorrect and correcting
entry in relation to the error made. (2 marks).
3. Charles & Charles Company is a new client of M&S Company. This client made it’s first
purchase of merchandise on December 21, worth $15,000. The seller provided credit terms of 1/8,
n/45 and transportation terms of FOB Destinations. The following information is available:
i. The merchandise sold had a cost of $8,300.
ii. The goods were delivered to the client on December 22, the same day freight cost of $130 was
paid.
iii. Some of the goods delivered were damaged, therefore the client returned merchandise worth
$1,000, back to the seller. The goods were returned on December 23.
iv. The returned goods had a cost of $555.
v. On December 29, the client made the final settlement of the money due to the seller.

Required:
a. Prepare the journal entries that will be included in the books of M&S Company and in the
books of Charles & Charles Company. (Assume that M&S Company uses perpetual inventory
system and Charles & Charles Company uses periodic inventory system) (10 Marks).

4. Thames Consultation firm received $2,000 on December 20 from it’s client, for consultation
service that will be completed on January 20, next year. Write the journal entry for December 20
and January 20. (4 Marks)

5. Debenhams Ltd pays salaries to it’s employees worth $7,000, every 15 calendar days. The last
salary was paid on November 20, next salary payment will be made on December 5.

Required:
a. Write the adjusting journal entry that should be recorded on November 30. (4 Marks)
b. Write the journal entry that should be recored on December 5, when the salary is paid to the
employees. (5 Marks)

GOOD LUCK !!