1st Mid term questions

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Vancouver Island University *

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Accounting

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Feb 20, 2024

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Name ___________________________________________  You may take the exam apart if you wish, but return ALL 7 pages , even if unused.  There are six multiple choice, two short answer and four problems for a total of 35 marks.  I cannot read your minds! State your assumptions if you have any uncertainty.  Watch your time; allow approximately 2 minutes per mark  Show all of your work on the blank pages provided. Do not crowd your work.  CHECK YOUR WORK. 1. ___ 2. ___ 3. ___ 4. ___ 5. ___ 6. ___ PART ONE – MULTIPLE CHOICE (1 mark each) Use the space above for your answers . 1. An accounts payable clerk also has access to the approved supplier master file for purchases. The control activity a. establishment of responsibility is violated. b. independent check of performance is violated. c. documentation procedures is violated. d. segregation of duties is violated. 2. In a perpetual inventory system, cost of goods sold is recorded a. on a daily basis. b. at the end of the accounting period. c. on an annual basis. d. with each sale. 3. An intangible asset a. derives its value from the rights and privileges it provides the owner. b. is a liability because it has no physical substance. c. is never amortized because it has an indefinite life. d. cannot be classified on the balance sheet because it lacks physical substance. 4. Selling terms 2/10, net 30 indicates which of the following? a. The purchaser is required to pay the entire bill within 10 days. b. The purchaser can take a 20% discount if they pay within 30 days. c. The purchaser can take a 2% discount if they pay within 10 days. d. The purchaser can take a 2% discount if they pay within 30 days. 5. Which of the following principles or assumptions requires that the activities of a business be kept distinct from those of its owner(s)? a. economic entity assumption. b. going concern assumption. c. monetary unit assumption. d. cost principle. 6. Mulva Store had a beginning merchandise inventory of $9,000. During the period, Purchases were $35,000; Purchase Returns, $1,500; and Freight in $3,000. A physical count of inventory at the end of the period revealed that $6,000 was still on hand. Using a periodic inventory system, the cost of goods sold was 1

a. $44,000. b. $39,500. c. $45,500. d. $42,500. PART TWO - SHORT ANSWER 1. Explain why trying to design an internal control system where there would be no possibilities of errors or theft might be impossible or impractical. (2 marks) 2. Explain the difference between (a) depreciation expense and accumulated depreciation, and (b) cost and carrying value. (2 marks) 2

PROBLEMS (marks as indicated) 1. Gza Coffee Equipment sells East Coast style coffee makers and uses a perpetual inventory system. Its inventory records show that on June 1, Gza had 12 units on hand at a cost of $220 each . Transactions related to purchase and sale of coffee makers in June were as follows: Per unit Date Transaction Units Cost Sales price June 10 Sale 3 $510 June 15 Sale 4 $510 June 20 Purchase 5 $230 June 25 Sale 8 $500 June 28 Purchase 6 $240 June 30 Sale 2 $485 Required: (5 marks) a. Calculate the ending inventory as at June 30 and the cost of goods sold for the month of June using the weighted average method. Prove the cost of goods sold calculations. You must show all of your work to get full marks. (4 marks) b. In times of rising purchase prices, which method, FIFO or Weighted Average, will give the most accurate ending inventory value and why? (1 mark) 2. The cash records of Takei Company show the following:  The June 30 bank reconciliation indicated that deposits in transit (outstanding deposits) totalled $390. 3

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During July the general ledger account Cash shows deposits of $9,800, but the bank statement indicates that only $9,540 in deposits were received during the month.  The June 30 bank reconciliation also reported outstanding cheques of $800. During the month of July, the Janzen Company books show that $11,070 of cheques were issued, yet the bank statement showed that $11,500 of cheques cleared the bank in July. There were no bank debit or credit memoranda and no errors were made by either the bank or the Takei Company. Required (3 marks) a. What were the deposits in transit (outstanding deposits) at July 31? b. What were the outstanding cheques at July 31? 4

3. The trial balance of EGO Company shown below does not balance. EGO COMPANY Trial Balance June 30, 2013 Debit Credit Cash ..................................................... $ 2,600 Accounts receivable ............................. 7,600 Supplies ............................................... 600 Equipment ........................................... 8,300 Accounts payable ................................. $ 9,766 K. West, capital .................................... 1,941 K. West, drawings ................................ 1,500 Service revenue ................................... 15,200 Wages expense .................................... 3,800 Repair expense .................................... 1,600 ______ Totals ................................................... $26,000 $26,907 An examination of the ledger and journal reveals the following errors:  Cash of $350 received from a customer on account was debited to Cash $530 and credited to Accounts Receivable $530.  A withdrawal of $300 by the owner was posted as a credit to K. West, Drawings, $300 and credit to Cash $300.  A debit of $300 was not posted to Wages Expense.  The purchase of equipment on account for $700 was recorded as a debit to Repair Expense and a credit to Accounts Payable for $700.  Services were performed on account for a customer, $510, for which Accounts Receivable was debited $510 and Service Revenue was credited $51.  A payment on account for $215 was credited to Cash for $215 and credited to Accounts Payable for $251. Required (6 marks) Prepare a corrected trial balance. Show your work. 5

4. The adjusted trial balance for Meth Concepts at December 31, 2013, as follows: METH CONCEPTS Adjusted Trial Balance Year Ended December 31, 2013 Debit Credit Petty cash ......................................................................... $ 400 Cash .................................................................................. 7,600 Accounts Receivable ......................................................... 16,000 Chemical Supplies ............................................................. 6,000 Prepaid Legal Fees ............................................................ 8,000 Laboratory Equipment ...................................................... 175,000 Accumulated Depreciation—Laboratory Equipment ........ $ 20,000 Trailer ................................................................................ 35,000 Accumulated Depreciation-Trailer .................................... 5,000 Accounts Payable .............................................................. 19,500 Interest Payable ................................................................ 500 Note Payable ..................................................................... 56,000 Salaries Payable ................................................................ 3,700 Unearned sales revenue ................................................... 14,300 W. White, Capital .............................................................. 109,000 W. White, Drawings .......................................................... 12,000 Sales Revenue ................................................................... 133,000 Advertising Expense ......................................................... 26,000 Depreciation Expense ....................................................... 12,000 Legal Fees Expense ........................................................... 4,000 Rent Expense .................................................................... 15,000 Salaries Expense ............................................................... 38,000 Chemical Supplies Expense ............................................... 6,000 _______ .......................................................................................... Totals ................................................................................ $361,000 $361,000 6 Debit Credit

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Required (11 marks) a. Calculate the balance of W. White, Capital that would appear on a balance sheet at December 31, 2013. (1 mark) b. Prepare a classified balance sheet for METH Concepts at December 31, 2013 assuming that 10 percent of the principle amount of the note payable is due on November 30 next year. (9 marks) c. Explain the purpose of closing entries. (1 mark) Put your answers for parts a and c on this page, use the next page for part b . Part a. Part c. Part b . 7