ACC1701 – AY2324 Sem1

Mock Midterm Test 1

ANSWER SOLUTION
*UPDATED SEPT 28, 2023*
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Question #: 1
A company's income statement reports all of the following except:

A. The revenues it earned

✓B. The assets it owned
C. The net profit or loss it earned
D. The time period over which its earnings occurred.
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Question #: 2
Paxton Computer Services had $600,000 in assets and $250,000 in liabilities at the beginning of the year.
By the end of the year, assets had decreased by $150,000 while its liabilities remained the same. Its return
on assets (ROA) for the year is 8%. What is its net income for the year?

✓A. $42,000
B. $22,000
C. $30,000
D. $36,000

Net Income = 8% x [600,000 + (600,000-150,000))/2] = 42,000

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Question #: 3
The transactions carried out by Galaxy Corporation during the year caused an increase in total assets of
$75,000 and a decrease in total liabilities of $9,000. If no additional share capital was issued during the
year and the net income for the year is $126,000, how much dividends was paid during the year?

A. $84,000
B. $66,000
C. $60,000
✓D. $42,000

Equity = Assets - Liabilities

Increase in Equity: $75,000 - (-$9,000) = 84,000
Dividends: 126,000 - 84,000 = $42,000

ACC1701 AY2324 Sem1 Mock Midterm Test 1 Solution *Updated Sept 28, 2023* Page 1 of 15
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Question #: 4
At the beginning of January of the current year, Lil-Orchid Art Gallery reflected a normal balance of
$52,000 for accounts receivable. During January, the company collected $14,800 from customers on
account and provided additional services to customers on account totaling $12,500. Additionally, during
January one customer paid Lil-Orchid $5,000 for services to be provided in the future. At the end of
January, the balance in the accounts receivable account should be:

A. $54,700.
✓B. $49,700.
C. $54,300.
D. $49,300.

$52,000 beginning balance - $14,800 of collections + $12,500 of additional services on credit = $49,700.
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Question #: 5
A debit entry is used to record:

A. A decrease in rent expense.

B. A decrease in accounts receivable.
✓C. A decrease in an unearned revenue.
D. A decrease in prepaid rent.
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Question #: 6
Lalita Industries purchased a factory equipment for $12,000, and paid half of it immediately. The general
journal entry made to record this transaction will include a:

✓A. Credit to Accounts Payable for $6,000.

B. Debit to Cash for $6,000.
C. Credit to Factory Equipment for $12,000.
D. Credit to Cash for $12,000
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Question #: 7
The purchase of Inventory on credit for $3,000 was posted to the trial balance as a $3,000 debit to
Inventory and a $3,000 debit to Accounts Payable. What effect would this error have on the trial balance?

A. The total of the Debit column of the trial balance will exceed the total of the Credit column by
$3,000.
B. The total of the Credit column of the trial balance will exceed the total of the Debit column by

ACC1701 AY2324 Sem1 Mock Midterm Test 1 Solution *Updated Sept 28, 2023* Page 2 of 15
 $3,000.
✓C. The total of the Debit column of the trial balance will exceed the total of the Credit column by
$6,000.
D. The total of the Credit column of the trial balance will exceed the total of the Debit column by
$6,000
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Question #: 8
On June 30, Hugo Company had a normal balance of $5,000 in its Cash account. During the month of
June, Hugo collected $12,200 for its cash sales and disbursed a total of $11,500 for its operating expenses.
Hugo operates on a purely cash basis. What was the balance in the Cash account at the beginning of June?

✓A. Cash account had a $4,300 debit balance.

B. Cash account had a $4,300 credit balance.
C. Cash account had a $5,700 debit balance.
D. Cash account had a $5,700 credit balance.

Beg. Bal. + $12,200 - $11,500 = $5,000

Beg. Bal = $5,000 – $12,200 + $11,500 = $4,300
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Question #: 9
Supreme Moon Property Holdings, a calendar-year company, had the following transactions during 2022:
• On March1, rented a shophouse to Aqua Cloud Enterprise. Supreme Moon received one year's
worth of rent in the amount of $300,000 on March 1.

• On September 30, collected $45,000 cash commission from its customer Sun Energy Corp for
helping to sell one of Sun's manufacturing facility in September.

• On November 2, performed and completed appraisal services in the amount of $28,000 for Skye
Inc. Supreme Moon had only collected payment on half of the amount from Skye.

• On December 15, received $33,000 cash from a client for services that will be performed during
2023.

• Incurred operating expenses of $165,000, of which 60% was paid during the year.

• On December 1, paid $16,800 on a fire insurance policy that will start in March of 2023.

What is Supreme Moon's cash-basis net income?

✓A. $276,200
B. $290,200
C. $224,200
D. $210,200

ACC1701 AY2324 Sem1 Mock Midterm Test 1 Solution *Updated Sept 28, 2023* Page 3 of 15
Rent revenue 300,000
Commission revenue 45,000
Appraisal revenue 14,000
Other services revenue 33,000
Less Op Exp (165k x 60%) (99,000)
Less insurance exp (16,800)
Net Income 276,200

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Question #: 10
Supreme Moon Property Holdings, a calendar-year company, had the following transactions during 2022:
• On March 1, rented a shophouse to Aqua Cloud Enterprise. Supreme Moon received one year's
worth of rent in the amount of $300,000 on March 1.

• On September 30, collected $45,000 cash commission from its customer Sun Energy Corp for
helping to sell one of Sun's manufacturing facility in September.

• On November 2, performed and completed appraisal services in the amount of $28,000 for Skye
Inc. Supreme Moon had only collected payment on half of the amount from Skye.

• On December 15, received $33,000 cash from a client for services that will be performed during
2023.

• Incurred operating expenses of $165,000, of which 60% was paid during the year.

• On December 1, paid $16,800 on a fire insurance policy that will start in March of 2023.

What is Supreme Moon's accrual-basis net income?

✓A. $158,000
B. $208,000
C. $174,200
D. $276,200

Rent revenue 250,000

Commission revenue 45,000
Appraisal revenue 28,000
Less Op Exp (165,000)
Net Income 158,000
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ACC1701 AY2324 Sem1 Mock Midterm Test 1 Solution *Updated Sept 28, 2023* Page 4 of 15
Question #: 11
Dong Fang Corporation issued financial statements for the year ended December 31, 2022 and reported
Total Assets of $800,000, Total Liabilities of $620,000 and Net Income of $47,000.
However, Dong Fang Corporation had FAILED to include the following:
• Revenues of $12,000, originally recorded as unearned, have been earned by the end of the year.

• Revenues of $4,500 have been earned by the end of the year, even though payment has not been
collected.

• Rent of $8,800, originally recorded as prepaid, have been incurred by the end of the year.

• Salaries of $4,200 have been incurred by the end of the year, but payment has not been made to
the employees.

What is the correct amount of Total Assets it should have reported on its Dec 31, 2022 financial
statements?

✓A. $795,700
B. $804,300
C. $788,100
D. $800,000

The following table shows the calculation for Questions 11 to 13.

Net
Assets Liabilities Equity
Profit
Reported
Amount $800,000 $620,000 $180,000 $47,000
(Incorrect)
Adjustments:
Unearned Rev -12000 12,000 12,000
Accrued Rev 4,500 4,500 4,500
Prepaid rent -8,800 -8,800 -8,800
Accrued Exp 4,200 -4,200 -4,200
Correct
$795,700 $612,200 $183,500 $50,500
Amount
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Question #: 12
Dong Fang Corporation issued financial statements for the year ended December 31, 2022 and reported
Total Assets of $800,000, Total Liabilities of $620,000 and Net Income of $47,000.
However, Dong Fang Corporation had FAILED to include the following:
• Revenues of $12,000, originally recorded as unearned, have been earned by the end of the year.

• Revenues of $4,500 have been earned by the end of the year, even though payment has not been
collected.

ACC1701 AY2324 Sem1 Mock Midterm Test 1 Solution *Updated Sept 28, 2023* Page 5 of 15
• Rent of $8,800, originally recorded as prepaid, have been incurred by the end of the year.

• Salaries of $4,200 have been incurred by the end of the year, but payment has not been made to
the employees.

What is the correct amount of Total Liabilities it should have reported on its Dec 31, 2022 financial
statements?

A. $620,000
✓B. $612,200
C. $627,800
D. $616,500
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Question #: 13
Dong Fang Corporation issued financial statements for the year ended December 31, 2022 and reported
Total Assets of $800,000, Total Liabilities of $620,000 and Net Income of $47,000.
However, Dong Fang Corporation had FAILED to include the followings:
• Revenues of $12,000, originally recorded as unearned, have been earned by the end of the year.

• Revenues of $4,500 have been earned by the end of the year, even though payment has not been
collected.

• Rent of $8,800, originally recorded as prepaid, have been incurred by the end of the year.

• Salaries of $4,200 have been incurred by the end of the year. but payment has not been made to
the employees.

What is the correct amount of Net Income it should have reported on its Dec 31, 2022 financial
statements?

A. $47,300
B. $50,200
C. $43,500
✓D. $50,500
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Question #: 14
Black Dragon Co. mistakenly forgot to record depreciation expense on its office equipment at the end the
accounting period. What is the effect of this omission on its financial statements prepared?

A. Assets overstated and equity understated.

B. Assets and equity both understated.
C. Assets understated and equity overstated.

ACC1701 AY2324 Sem1 Mock Midterm Test 1 Solution *Updated Sept 28, 2023* Page 6 of 15
 ✓D. Assets and equity both overstated.
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Question #: 15
An annual reporting period consisting of any twelve consecutive months is known as:

✓A. Fiscal year.

B. Calendar year.
C. Interim financial period.
D. Seasonal year.
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Question #: 16
The following information is available for Didi Inc. before closing the accounts. After the closing process,
what is the balance of the Retained Earnings account?

Share capital 100,000

Retained earnings 15,000
Dividends 8,000
Dividends Payable 5,000
Sales Revenue 162,000
Salaries Expense 38,000
Depreciation Expense 4,000
Insurance Expense 3,300
Rent Expense 21,000
Prepaid Rent 7,000

A. $110,700
✓B. $102,700
C. $98,700
D. $95,700

Net Income = 162k – 38k – 4k -3.3k -21k = 95.7k

End RE = Beg RE - NI – Div
= 15k + 95.7k – 8k
= 102,700
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Question #: 17
Temporary accounts include all of the following except:

A. Consulting revenue.

ACC1701 AY2324 Sem1 Mock Midterm Test 1 Solution *Updated Sept 28, 2023* Page 7 of 15
 B. Dividends.
C. Salaries expense.
✓D. Prepaid expense.
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Question #: 18
The Income Statement and Statement of Financial Position of Qing Cang Systems Pte. Ltd. for the year
ended December 31, 2022 are shown below:

If during the year-end audit, the auditor found that a collection of an account receivable for $5,500 was
previously recorded twice, what will the corrected financial statements reflect after the auditor corrects the
error?
(Note: This is an independent scenario and is not connected to any other questions in this midterm
assessment)

A. Total Assets of $805,000; Total Liabilities of 178,700; Net Income of $110,800.

B. Total Assets of $810,500; Total Liabilities of 189,200; Net Income of $116,300.
C. Total Assets of $799,500; Total Liabilities of $178,700; Net Income of $110,800.
✓D. Total Assets of $805,000; Total Liabilities of $183,700 ; Net Income of $116,300.

Correcting Journal Entry is:

Dr AR 5,500
Cr Cash 5,500
 Assets = 805,000 + 5,500 – 5,500 = 805,000
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ACC1701 AY2324 Sem1 Mock Midterm Test 1 Solution *Updated Sept 28, 2023* Page 8 of 15
Question #: 19
The Income Statement and Statement of Financial Position of Qing Cang Systems Pte. Ltd. for the year
ended December 31, 2022 are shown below:

What is the Debt Ratio of Qing Cang Systems Pte. Ltd.

✓A. 0.228
B. 0.236
C. 0.124
D. 0.296

Debt Ratio = 183,700 / 805,000 = 0.228

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ACC1701 AY2324 Sem1 Mock Midterm Test 1 Solution *Updated Sept 28, 2023* Page 9 of 15
Question #: 20
The Income Statement and Statement of Financial Position of Qing Cang Systems Pte. Ltd. for the year
ended December 31, 2022 are shown below:

During the year-end audit, the auditor found that the company had borrowed $1,000,000 from a bank
during the period, but the transaction was incorrectly recorded into long term debt as $100,000.
Additionally, accrued interest expense was incorrectly recorded as $12,000 instead of $120,000 for the
period.
What is the corrected Debt Ratio after the auditor corrects the errors?
(Note: This is an independent scenario and is not connected to any other questions in this midterm
assessment)

✓A. 0.699
B. 0.636
C. 0.657
D. 0.611

Correcting Journal Entry

Dr Cash 900,000
Dr Interest Exp 108,000
Cr Long-Term Debt 900,000
Cr Interest Payable 108,000
Corrected Debt Ratio = (183,700 + 900,000 + 108,000) / (805,000 + 900,000) = 0.699

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ACC1701 AY2324 Sem1 Mock Midterm Test 1 Solution *Updated Sept 28, 2023* Page 10 of 15
Question #: 21
Jackson Entertainment Inc. had incorrectly recorded the purchase of $20,000 worth of Audio Equipment
into Inventory, and also recorded Cost of Goods Sold of $6,500 on the incorrectly recorded Inventory.
What is the correcting journal entry to fix this error?

A. Dr Audio Equipment $20,000

Cr Inventory $20,000
B. Dr Audio Equipment $20,000
Dr Accounts Payable $6,500
Cr Inventory $20,000
Cr COGS $6,500
C. Dr Audio Equipment $20,000
Dr COGS $6,500
Cr Inventory $26,500
✓D. Dr Audio Equipment $20,000
Cr Inventory $13,500
Cr COGS $6,500
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Question #: 22
You are designing a system of internal accounting control for your company. Which of the following
recommendations would you most likely suggest to your company for implementation?

A. To increase efficiency, an employee should be in charge of the whole purchasing and payment
process.
✓B. Different levels of authorization for various employees according to their responsibility and
authority.
C. Employees should not be rotated between different branches of the company so as to obtain the
benefit of understanding the local customer base.
D. Only hire Certified Public Accounts as internal auditors of the company.
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Question #: 23
Saina Sports Company uses the allowance method of accounting for uncollectible accounts. The following
summary schedule was prepared from an aging of accounts receivable outstanding on December 31 of the
current year.

Estimated Percentage of
No. of Days Outstanding Amount
Uncollectible
0 - 60 days $200,000 3%
60 - 120 days $110,000 15%
Over 120 days $90,000 45%

ACC1701 AY2324 Sem1 Mock Midterm Test 1 Solution *Updated Sept 28, 2023* Page 11 of 15
The following additional information is available for the current year:
• Net credit sales for the year is $1,100,000

• Loss allowance at January 1 is $52,000 (normal balance)

• Accounts receivable written off during the period is $60,000.

If Saina Sports Company bases its estimate of uncollectible accounts on the aging of accounts receivable,
Expected Credit Loss for the current year ending December 31 is

A. $55,000
B. $60,000
✓C. $71,000
D. $63,000

No. of Days Amount Estimated % uncollectible

Outstanding Uncollectible amount
0 - 60 days $200,000 3% $6,000
60 - 120 days $110,000 15% $16,500
Over 120 days $90,000 45% $40,500
Total $63,000
ECL = 63,000 – 52,000 – (60,000) = 71,000
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Question #: 24
Lan Hua Pharmaceuticals Inc. uses the allowance method of accounting for uncollectible accounts and is
on a calendar year end. On Jan 1, 2022, the balance of its Loss Allowance account is $68,000. During the
period of 2022, Lan Hua managed to collect $8,500 from an account which was previously written off in
2021. Choose the most correct statement from the following:

✓A. The loss allowance account for the period of 2022 will have a credit entry of $8,500.
B. The loss allowance account will have an ending balance of $76,500 at the end of 2022.
C. The expected credit loss account for the period of 2022 will have a credit entry of $8,500.
D. The expected credit loss account will have an ending balance of $76,500 at the end of 2022.
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Question #: 25
Which of the following statements is false?

A. The journal entry to record bad debt expense decreases current assets.
B. The journal entry to record bad debt expense decreases retained earnings.
✓C. The journal entry to write-off an uncollectible account receivable decreases operating income.
D. The journal entry to write-off an uncollectible account receivable does not affect current assets.
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ACC1701 AY2324 Sem1 Mock Midterm Test 1 Solution *Updated Sept 28, 2023* Page 12 of 15
Question #: 26
Majestic Line Company is reconciling its bank statement for the month of April using the following
information:

Cash balance per Company books on

$ 8,750
April 30
Deposits in transit at month-end $ 980
Outstanding checks at month-end $ 2,105
Bank charges $ 30
Collection of payment from Majestic’s
customer by the bank on Majestic’s $ 560
behalf
NSF check from one of Majestic’s
$ 1,200
customer

The adjusted cash balance per Majestic’s books on April 30 is:

A. $9,355
✓B. $8,080
C. $7,625
D. $7,520

Adjusted book balance = 8,750 +560 - 30 - 1,200 = 8,080

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Question #: 27
Kamala’s bank statement at the end of July showed an ending balance of $29,600.
Kamala's bank reconciliation for the period showed adjustments for the following:
• deposit in transit of $1,200
• outstanding checks of $1,600
• NSF check of $560
• bank service charges of $24
• direct transfer of $1,200 from a customer for payment on its accounts receivable (customer did not
inform Kamala when the direct transfer was made to Kamala's bank account)

What was the cash balance at the end of July on Kamala's books before the adjustments for items on the
bank reconciliation?

✓A. $28,584
B. $29,200
C. $29,816
D. $30,984

Adjusted bank balance = 29,600 +1,200 – 1,600 = 29,200

Adjusted book balance = adjusted bank balance = 29,200
ACC1701 AY2324 Sem1 Mock Midterm Test 1 Solution *Updated Sept 28, 2023* Page 13 of 15
 Adjusted book balance = Unadjusted book balance + direct transfer – NSF check – bank fees
29,200 = Unadjusted book balance + 1,200 – 560 – 24
Unadjusted book balance = 29,200 – 1,200 + 560 + 24
= 28,584
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Question #: 28
Which of the following demonstrates poor internal control procedure for Royal Rani Co?

✓A. Royal Rani’s accounting staff makes cash deposits and records the journal entries related to cash,
while the accounting manager prepares the bank reconciliation.
B. Royal Rani’s finance controller, who does no bookkeeping, prepares the bank reconciliation each
month.
C. Royal Rani’s finance controller signs all checks after the accounting staff prepares the supporting
documents and the accounting manager reviews it.
D. Royal Rani’s sales staff prepares the cash deposits relating to sales and submits the deposit slips to
the accounting staff, who records the sales collections into the accounting system.
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Question #: 29
On March 1, 2022, TokTok Company accepted an $80,000, 6-month, 6% note from one of its trading
partners. Both the principal and interest are due at the maturity of the note. TokTok is on a June 30 fiscal
year end. Which of the following is most likely to be part of TokTok's journal entry on the date of the
note's maturiy?

A. Credit to Interest Income of $1,600.

✓B. Credit to Interest Income of $800
C. Credit to Interest Income of $2,400.
D. Credit to Interest Income of $4,800.

2 months interest: 80,000 x 6% x2/12 800

Journal entry at 31 August, 2022:

Dr. Cash $82,400
Cr Interest Income $800
Cr. Interest Receivable $1,600
Cr Notes Receivable $80,000
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Question #: 30
On 1st November 2022, SubZero Company receives a $10,800, 3 months, 10% note from customer Aaron
Wok. What entry should be made on the maturity date of the note assuming that Aaron Wok pays the note
in full at maturity?

ACC1701 AY2324 Sem1 Mock Midterm Test 1 Solution *Updated Sept 28, 2023* Page 14 of 15
 A. Debit Cash $10,800; credit Notes Receivable $10,800.
B. Debit Cash $11,070; credit Interest Revenue $270; credit Notes Receivable $10,800.
C. Debit Cash $10,800; debit Interest Receivable $270; credit Interest Revenue $270; credit Notes
Receivable $10,800.
✓D. Debit Cash $11,070; credit Interest Revenue $90; credit Interest Receivable $180; credit Notes
Receivable $10,800.

Interest for 2022 = 10,800 x 10% x 2/12 = 180  accrued in 2022 into Interest Receivable
Interest for 2023 = 10,800 x 10% x 1/12 = 90  recognized as interest income in 2023
Total Cash received = 10,800 + 180 + 90 = 11,070
Therefore journal entry:
Dr Cash 11,070
Cr Interest Receivable 180
Cr Interest Revenue 90
Cr Notes Receivable 10,800

END OF MOCK MIDTERM TEST 1

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