02 Jan a. Calculate bad debtsexpense
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ADM1340
MID TERMEXAM IntroductoryFinancialAccounting
Winter 2014
QuestionNo. 1
Select the bestanswer for each of the followingmultiple-choiceitemsandenteryouranswer on the Scantron Sheetprovided. Failureto usethe Scranton Sheet will resultinzero marks for Question No. 1. Onlyone answer will be accepted for each question. Thereis no penaltyfor guessing. Noaccount willbetaken of anyexplanations provided.
Items 1 to11 are eachworth one mark.
1.In orderforaccountinginformation tobe relevant, it must
a. haveverylittle cost.
b. help predictfutureevents or confirmpriorexpectations.
c. beverifiable.
d. beusedbyalotof different organizations.
2. Workingcapital is ameasureof a. comparability.
b. liquidity.
c. profitability. d. solvency.
3. A liquidityratio measures the
a. profitor operatingsuccess of acompanyover a period oftime. b. abilityof a companyto survive overalongperiod of time.
c. short-termability ofa company to pay its maturing obligations andtomeet unexpected needs for cash.
d. percentageof total financingprovided bycreditors.
4. A weakness of the current ratio is a. the difficultyof thecalculation.
b. that itdoesn’t takeinto account the compositionofthe current assets.
c. that it is rarelyusedbysophisticated analysts.
d. that itcan be expressed as a percentage, as arate, or as a proportion.
5. Which one of the followingis a fundamental qualitative characteristic?
a. Relevance
b. Timeliness
c. Understandability d. Comparability
6. Accountinginformation should beneutral in order to enhance a. faithful representation
b. materiality.
c. comparability.
d. understandability.
7. On a classified statement of financial position, currentassets areoften listed a. in alphabetical order.
b. with thelargest dollaramounts first.
c. intheorderinwhichtheyare expectedto beconvertedinto cash.
d. in theorder ofacquisition.
8.Long-livedassets without physical substanceare
a. listed directlyundercurrent assets on thestatement of financial position.
b. not listed on the statement of financial position because theydo not havephysical substance. c. intangible assets.
d. listed as a long-term investment on thestatement of financial position.
9. The classification andnormal balanceof theunearnedrevenueaccount is a. asset, debit
b. liability, credit.
c. revenues, credit.
d. shareholders’ equity, credit.
10.Ingeneral, revenuerecognition occurs a. when cash is received
b. whenit is earned.
c. when expenses are incurred.
d. in theperiod that income taxes are paid.
11. Recordingtransactions that affect a company’s financial statements in the periods in which
theyoccurratherthan when cash is received or paid is called a. time period accounting
b. the cash basisofaccounting. c. monetaryaccounting.
d. the accrual basisofaccounting.
12. What is the total amount of working capital?
Current assets
$ 9,000
Net sales
$ 20,000
Current liabilities
4,000
Total liabilities
5,000
Average assets
40,000
Shareholders’ equity
25,000
Total assets
30,000
Market priceof shares
$2
Profit
9,000
Weighted averagenumber of common shares
18,000
a. $2,000 b. $4,000 c. $5,000 d. $7,000
13. What arethe earning per share?
Current assets
$ 9,000
Net sales
$ 20,000
Current liabilities
4,000
Total liabilities
5,000
Average assets
40,000
Shareholders’ equity
25,000
Total assets
30,000
Market priceof shares
$2
Profit
9,000
Weighted averagenumber of common shares
18,000
a. $0.36 b. $0.50 c. $0.80 d. $1.11
14. What is the debt to total assets?
Current assets
$ 9,000
Net sales
$ 20,000
Current liabilities
4,000
Total liabilities
5,000
Average assets
40,000
Shareholders’ equity
25,000
Total assets
30,000
Market priceof shares
$2
Profit
9,000
Weighted averagenumber of common shares
18,000
a. 12.5% b. 20.0% c. 75.0% d. 16.7%
15. The current assets ofKeyCorporation are $360,000. The current liabilities are$240,000. The current ratio expressed asa ratio is
a. 150% b. 1.5:1 c. 0.7:1
d. $360,000 ÷ $240,000
16.
Operatingexpenses
$ 45,000
Sales returns andallowances
25,000
Sales discounts
16,000
Sales
210,000
Cost of goods sold
79,000
Income taxexpense
11,000
Theprofitmargin would be a. 16.2%.
b. 20.1%. c. 26.6%. d. 41.0%.
17.If acompanyhas netsales of $500,000 andcost of goods sold of $350,000, the gross profit margin is
a. 15%. b. 30%. c. 70%. d. 100%.
18. AyeCorp sells $10,000 of goods onaccount in the currentyearand collects $7,500 ofthis.It incurs $6,000 in expenses on account duringthecurrentyear and pays $4,000 ofthem. Aye would report whatamountof profitunder thecash and accrual bases of accounting, respectively? a. $4,000 on the cash basis and $3,500 on the accrual basis
b. $3,500 onthe cash basisand$4,000 on theaccrual basis
c. $6,000 on the cash basis and $3,500 on the accrual basis d. $1,500 on the cash basis and $6,000 on the accrual basis
19. BenzInc. shows thefollowingaccount balances forlast month:
Purchases
$28,000
Sales Returns and Allowances
4,000
PurchaseDiscounts
2,500
FreightIn
1,875
Freight Out
2,500
The cost ofgoods purchased forlast month is
a. $25,875 b. $27,375 c. $29,875 d. $30,500
20. Stylish Shoe Storereported beginningmerchandise inventoryof $15,000. Duringtheperiod, purchaseswere$70,000; purchasereturns, $2,000;and freight in $5,000. Aphysicalcount of inventoryat the end of theperiod revealed that $10,000 was still on hand. Thecost ofgoods available for sale was
a. $78,000 b. $82,000 c. $88,000 d. $92,000
21. Forlast month, the followingdata weretaken from the ledger ofShanghaiInc:
Purchases
$ 100,000
PurchaseReturnsand Allowances
1,200
PurchaseDiscounts
600
FreightIn
3,000
Beginning Inventory
18,000
Ending Inventory
19,200
What was the cost ofgoods sold?
a. $ 19,200 b. $100,000 c. $101,200 d. $119,200
22. Westcom Corporation’sgoods in transitat December 31 include (1)sales madeFOB destination, (2) sales made FOBshippingpoint, (3) purchases made FOBdestination, and (4) purchases madeFOBshippingpoint. Which items should beincluded in Westcom’s inventoryat December 31?
a. (2) and(3) b. (1)and(4) c. (1) and(3) d. (2) and (4)
**** ENDOFMULTIPLE CHOICE ****
QuestionNo. 2
FINEP Manufacturingproduces and sells cars. The companyadjusts its accounts annually. On
December 31,2013 the FINEP’s unadjusted trial balancewas as follows.
FINEP manufacturing UnadjustedTrialBalance December31, 2013
Cash
Accounts receivable
Supplies
Prepaid insurance
Equipment
Accumulated depreciation—equipment
Accounts payable Salaries payable Unearned revenue
BankLoan (dueMay2018) Common shares
Retained earnings
Revenues Salaryexpense Rent Expense Interest expense
Advertising expense
Debits
20,000
15,000
6,000
6,000
30,000
32,000
10,000
9,000
12,000
140,000
Credits
15,000
3,000
2,000
5,000
20,000
12,000
40,000
43,000
140,000
Additional information:
1) Theinsurance,whichhasaone-yearterm,wassignedandeffectiveonAugust1,2013.
The companypaid $6,000 forthe insurance.
2) The companyperformsacountonDecember31,2013anditrevealsthatthecompany has $200 worth of supplies on hand.
3) The bankloansignedonDecember1,2013hasaninterestrateof9%peryear.That interest is payable at thebeginningofeach month.
4) Thecompanyusesstraightlinedepreciationtodepreciateitsassets andtheequipment has a useful lifeof 6yearsand a residual valueof zero.
Required:
Preparethe adjustment entriesrequiredat December 31,2013 (showyourcalculations):
Question No. 3
OnSeptember1,WildernessInchadaninventoryof18backpacksatacostof$30each.The
company uses a perpetual inventory system. During September, the following transactions occurred.
Sept. 4 Purchased 35 backpacksat $30 eachfrom Back Packs Unlimited, terms 3/10, n/30.
6 Received creditof$150forthereturnof5backpackspurchasedonSept.4that weredefective.
9 Sold 20 backpacks for $50 each to UniversitySupply, terms 2/10, n/30.
14 Paid Back Packs Unlimited in full.
18 Received payment fromUniversitySupply.
Instructions
Record the September transactions forWildernessInc.
Question No. 4
SafetyHelmets has thefollowinginventoryrecords for February2014
Date Description Units Cost
Feb 1
Beginninginventory
100
$8
5
Purchase
60
9
22
Purchase
150
9
24
Sales
(300)
28
Purchase
90
10
· The300 units sold on February24generated salesrevenueof $6,770
· The companyis consideringthe followingthreecombinations to use forits inventory costing:
1. FIFO –perpetual
2. Average-perpetual
3. Average-periodic
Required:
a) Which one of thethree combinations will enable the companyto report thehighestgross
profitforthe month?Provide abrief logical explanation foryour answer using no numerical calculations.
b) Calculate the gross profit based onyour answer inpart (a)above.
c) Which oneof thethree combinations will enable the companyto report thelowestgross profitforthe month?Calculatethe amountof this gross profit.
d) Will the amount of gross profitreported under the FIFO-Periodic combination (not listed in thethree combinationsbeing considered) equalthe amountof thegross profitin part (b) above?Answer Yes or No with a brieflogicalexplanation foryour answer,usingno numerical calculations .
QuestionNo. 5
PrinceInc.generated$2.5million increditsales during thecurrentyear.Basedonpast experience,itisestimatedthat1.5% of allcreditsaleswillprove to be uncollectible. The balanceoftheallowancefordoubtfulaccounts atDecember31is$6,900creditbefore theyearendadjustmentfor uncollectibleaccounts. Accountsreceivable atDecember 31 consistsof the following:
Account Classification Amount
Current ………………………………………. $1,900,000
1-30 days past due …………………………
150,000
31-60 dayspast due ……………………….
90,000
61-90 days past due ……………………….
50,000
Over 90 days past due ……………………
20,000
Required:
a. Calculate bad debts expense and record therelated journal entry forthe currentyear using the percentageof creditsales method.
b. Princehas decided to write off allthe accounts that wereover 90 days past due.
Record the journalentry.
c. Show howAccounts Receivablewillbepresentedon the December31 balancesheet, with appropriateaccountbalances,followingtheabove adjustments.
d. Oneof the customers whose $3,000 account waswritten off paid in full.Record the journal entry.
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