BAT4M

Final Culminating Activity

Question Booklet

BAT4M, Financial Accounting Principles, Grade 12, University/College Preparation

INSTRUCTIONS TO STUDENT
1. Students may use a calculator and notes for this activity.
2. Read all instructions and questions carefully before starting the final
culminating activity
3. Record answers in the answer booklet
4. You must submit both the question and answer booklets to the Dropbox

Part Mark Out of

A 20
B 10
C 8
D 12
Total 50

PART A
MULTIPLE CHOICE
(20 marks)

1. Equipment was purchased for $25 000 and after three years has a net book
value of $10 000. Assume that the equipment has no salvage value. If the
company uses straight-line amortization, what is the useful life of the equipment?
a. 3 years.
b. 4 years.
c. 5 years
d. 6 years.

2. Ramsey Company typically sells subscriptions on an annual basis, and publishes

six times a year. The magazine sells 50 000 subscriptions in January at $15
each. What entry is made in January to record the sale of the subscriptions?
 a. DR Subscriptions Receivable 750 000
CR Subscription Revenue 750 000

b. DR Cash 750 000

CR Unearned Subscription Revenue 750 000

c. DR Subscriptions Receivable 125 000

CR Unearned Subscription Revenue 125 000

d. DR Prepaid Subscriptions 750 000

CR Cash
750
000

3. Indicate the respective effects of the declaration of a cash dividend on the

following balance sheet sections:
Total Assets Total Liabilities Total Shareholders' Equity
a. Increase Decrease
No change
b. No change Increase
Decrease
c. Decrease Increase
Decrease
d. Decrease No change
Increase

4. The beginning inventory of Martin's Pro Shop was $180 000. If the cost of goods
sold was $450 000 and ending inventory was $140 000 the purchases must have
been:
a. $400 000 c. $530 000
b. $410 000 d. $590 000

5. A corporation differs from a proprietorship and a partnership in that

a. assets and liabilities are presented differently on the balance sheet.
b. a corporation is considered a separate legal entity for taxation
purposes.
c. the cost principle only applies to proprietorships and partnerships.
d. the owners of the corporation do not have a claim on the net assets
of the business.

6. Identify the effect the declaration of a stock dividend has on total contributed
capital, retained earnings, and shareholders’ equity.
Total Contributed Capital Retained Earnings Shareholders’ Equity
a. Increase
 Decrease
Decrease
b. No effect
Increase
Increase
c. Decrease
Decrease
No effect
d. Increase
Decrease
No effect

7. Chan Inc. has a net income of $1 000 000 for 2015, and there are 400 000
common shares issued. Dividends declared and paid during the year amounted
to $200 000 on the preferred shares and $300 000 on the common shares. The
earnings per share for 2015 is:
a. $2.50.
b. $0.75.
c. $2.00.
d. $1.25.

8. Before making any year-end adjustments, the net income of McCabe Company
was $60 000. However, the following adjustments were necessary: office
supplies used $1 200, services performed for clients but not yet recorded or
collected for $900, interest accrued on note payable $500. After recording these
adjustments the net income would be:
a. $57 300 c. $58 800
b. $59 200 d. $59 700

9. If the inventory at the end of the current year is understated and the error is
never caught, the effect is to:
a. Understate income this year and overstate income next year
b. Overstate income this year and understate income next year
c. Understate income this year with no effect on income next year
d. Overstate the cost of goods sold, but have no effect upon net income

10. The accountant for The Closet Company forgot to make an adjusting entry to
record depreciation for the current year. The effect of this error would be:
a. An overstatement of net income and an understatement of assets
b. An understatement of assets and an understatement of owner's equity
c. An overstatement of assets, net income, and owner's equity
d. An overstatement of assets and of net income and an
understatement of owner's equity.
11. At the start of the current year, Mitchell Corporation, had a credit balance in the
Allowance for Doubtful Accounts account of $2 200. At the end of the year an
adjusting entry for 2% of sales was made for uncollectible accounts. Sales for
the year were $700 000 and $10 300 of accounts receivable were written off as
worthless. No recoveries of accounts previously written off were made during the
year. The year-end financial statements should show:
a. Bad Debts expense with a debit balance of $24 300
b. Allowance for Doubtful Accounts with a credit balance of $5 900
c. Allowance for Doubtful Accounts with a credit balance of $16 200
d. Bad Debts expense with a debit balance of $10 300

12. Greer Imports sold a plant asset for cash of $31 000. The accumulated
amortization amounted to $42 000 and a loss of $2 000 was recognized on the
sale. Under these circumstances, the original cost of the asset must have been:
a. $29 000 c. $75 000
b. $74 000 d. $77 000

13. Early in 2015, Youngblut Co. purchased the Red Dog Mine at a cost of $7 000
000. The mine was estimated to contain 500 000 tonnes of ore and to have a
residual value of $1 000 000 after mining operations are completed. During
2015, 100 000 tonnes of ore were removed from the mine. At the end of 2015,
the book value of the mine is:
a. $7 000 000 c. $5
800 000
b. $6 000 000 d. $4
800 000

14. The accountant for Northern Company made an error in posting from the journal
to the ledger. She posted a debit to Office Furniture as a debit to the account
receivable of E. Lewis, a customer. The procedure most likely to disclose this
error would be:
a. recalculating all the balances in the ledger
b. checking the journal for equality of debits and credits
c. sending a statement to the customer in question
d. taking a trial balance

15. Which of the following is ordinarily computed and reported as part of a

corporation's financial statements?
a. The current ratio
b. Book value per share
c. The return on assets
d. Earnings per share

16. Which one of the following accounts for a proprietorship is not closed at the end
 of an accounting period?
a. Owner's Capital account
b. Owner's Drawings account
c. Service Revenue account
d. Insurance Expense account

17. In evaluating a company’s ability to repay a 60-day loan, a creditor would

probably be MOST interested in which of the following ratios?
a. the debt ratio
b. the acid test ratio
c. the price-earnings ratio
d. the number of times interest earned

18. At the end of the current year, Western Corporation has a current ratio of 2:1.
Which of the following transactions will decrease the current ratio?
a. issuance of long-term bonds at a premium
b. sale of merchandise on account at a price above cost
c. sale of plant assets for less than book value
d. declaration of a cash dividend on common shares

19. An accounts payable clerk also has access to the approved supplier master file
for purchases. The control principle of
a. establishment of responsibility is violated.
b. independent internal verification is violated.
c. documentation procedures is violated.
d. segregation of duties is violated.

20. The balance sheet of a partnership will

a. report retained earnings below the partnership capital accounts.
b. show a separate capital account for each partner.
c. show a separate drawings account for each partner.
d. show the amount of income that was distributed to each partner.
PART B
Operating Guidelines
(10 marks)

Instructions: Read each of the situations described below and decide whether each
situation illustrates a violation of operating guidelines or accepted accounting practices.
Designate the guideline or practice that is most clearly violated using the following
codes:

Codes
A. Business entity concept B. Monetary unit assumption
C. Time period assumption D. Going concern assumption
E. Revenue recognition principle F. Matching principle
G. Materiality H. Full disclosure principle
I. Cost principle J. Conservatism
K. No violation of operating guidelines

Situations
1. Joe Winowski, owner of the Trudeau Hotel, contributed $60 000 of capital to his
business in 2015. This contribution was reported as revenue on the 2015 income
statement.
2. Carson Paperweights values the marble it has in inventory at its expected selling
price since this is its expected value to the business. The marble's expected
selling price exceeds the price Carson paid for it.
3. Ming Company reports its inventory at cost even though current replacement
cost is significantly below cost.
4. Bailey's Novelties has 100 000 whistling dolls in inventory at a cost of $5 each.
Only eight were sold last month. Not wanting to write off this inventory and report
a loss, Bailey has decided not to issue financial statements until at least half of
the dolls have been sold.
5. Antonio's Pizza is being liquidated because it has sustained losses for many
years. It continues to amortize its assets and prepare financial statements on the
cost basis.
6. Jim Jenkins, president of Jenkins Machinery, took a power saw out of inventory
to use as a birthday present for his son.
7. Blake Industries has developed an automobile engine that will run on lake water
instead of gasoline, while providing equal performance. They have chosen not to
release reports of this engine to the public.
8. Sam Linberg made no entry to record amortization on its equipment for 2015.
9. Stevens Brokerage bought each of its 5 000 employees new staplers for their
desks. Each stapler cost $10 and was embossed with the company's logo. Since
Stevens expenses assets that cost less than $25, no asset was recorded.
10. Joyner Lumber Company lost all of its standing timber due to a major forest fire
early in January of 2015. The trees were not insured. No mention was made of
this loss in Joyner's 2014 financial statements (which were published in March
2015), since the trees were still growing on December 31, 2014.

PART C
Inventory
(8 marks)

Fryer Inc. earns much of its revenue from the sale of a single product. The company
uses a periodic inventory system. For the most recent year, the inventory quantities,
purchases, and sales of this product were:

Number Cost
of units per unit

Inventory, January 1 8 000 $10.50

First purchase (April 10) 10 300 $11.00
 Second purchase (May 30) 12 400 $11.25
Third purchase (Sept 30) 9 600 $11.20
Fourth purchase (Dec 16) 7 700 $11.30
Goods available for sale 48 000

Units sold during the year 37 200

Inventory, December 31 10 800

Required: Compute the cost of the December 31 inventory and the cost of goods
sold for the product during the year using:
a) first-in, first-out basis
b) last-in, first-out basis
c) average-cost method

PART D
Shareholder's Equity
(12 marks)

The following two independent cases presented require preparation of the shareholders'
equity section of a balance sheet.

CASE A: In 2014, Randy Martin began operating NEK Inc., a chain of men's shirt
retailers. The corporation was authorized to issue unlimited shares of no-par value
common stock and unlimited shares of $9 cumulative, no par value, preferred stock. 10
000 shares of the preferred stock were issued for a total of $900 000 and 45 000 shares
of common stock were issued at $40 per share. During the first three years of its
existence, NEK Inc. earned a total of $776 000 and paid yearly dividends of $3 per
share on the common stock, in addition to the regular dividends on the preferred stock.
During 2017, however, the corporation incurred a loss of $71 000 and paid no
dividends.

CASE B: Jeff Bowman organized Version Corporation in January 2014. The

corporation issued one third of its 120 000 authorized shares of no par value common
stock at $20 per share. On January 7, 2016, the corporation sold at $120 each 5 000
shares of $9, no-par value, cumulative preferred stock (with unlimited shares
authorized). Version suffered losses in its first two years, reporting a deficit of $320 000
at the end of 2015. During 2016 and 2017 combined, the company earned a total of
$950 000. Dividends of $1.50 per share were paid on common stocks in 2016 and
$4.50 per share in 2017. Preferred shares were paid as required in 2016 and 2017.

REQUIRED:

1. Begin by calculating the retained earnings (deficit) as of December 31, 2017 for each
case (show your work). Then, prepare the shareholders' equity section of the
balance sheet for each corporation at December 31, 2017.
2. Write a brief memo to a potential investor, explaining which of the above companies
represents the better investment.

BAT4M
Final Examination
Answer Booklet

BAT4M, Financial Accounting Principles, Grade 12, University/College Preparation

INSTRUCTIONS TO STUDENT
1. Students may use a calculator for this final culminating task
2. Read all instructions and questions carefully before starting the
examination.
3. Use your time wisely and base the amount of time spent on each question
on the number of marks the question is worth.
4. Record answers in the question booklet
5. You must submit both the question and answer booklets to the dropbox

Part Mark Out of

A 20
B 10
C 8
D 12
Total 50

PART A MULTIPLE CHOICE 20 marks

Highlight the best response for each question.

1. A B C D

2. A B C D

3. A B C D

4. A B C D
5. A B C D

6. A B C D

7. A B C D

8. A B C D

9. A B C D

10. A B C D

11. A B C D

12. A B C D

13. A B C D

14. A B C D

15. A B C D

16. A B C D

17. A B C D

18. A B C D

19. A B C D

20. A B C D

PART B
Operating Guidelines
(10 marks)

Codes

A. Business entity concept B. Monetary unit assumption

C. Time period assumption D. Going concern assumption
E. Revenue recognition principle F. Matching principle
G. Materiality H. Full disclosure principle
I. Cost principle J. Conservatism
K. No violation of operating guidelines

1.
 2.
3.
4.
5.
6.
7.
8.
9.
10.

PART C
Inventory
(8 marks)
 PART D
Shareholder's Equity
(12 marks)

CASE A

Calculation of Retained Earnings

Balance Sheet (partial)

Shareholders' Equity

CASE B
Calculation of Retained Earnings

Balance Sheet (partial)

Shareholders' Equity