Solution to Midterm #1, October 2

ID#: ____________ NAME: _______________________________________ SEC: ______ Grade out of 15 Q1: __________ Q2: __________ Total : __________ MOUNT ALLISON UNIVERSITY DEPARTMENT of COMMERCE COMM 2101 Brent White Financial Accounting October 2, 2023 VERSION 1.1 QUESTION ONE: MULTIPLE CHOICE (5 marks): REQUIRED - Circle the letter of the best answer for each multiple-choice question . 1. Chapter Two of our textbook lays out a four enhancing qualities of useful information. Which one of the following items is not one of the four enhancing qualities? a. Comparability b. Verifiability c. Consistency d. Timeliness e. Understandability 2. Which of these statements about users of a company’s financial statements is not correct? a. Human resource staff at a company using Financial Statements for hiring projections are internal users. b. Tax officials such as the Canada Revenue Agency auditors are external users. c. Bankers and other creditors are both external users d. Stockholders in a public company are internal users. e. Suppliers judging a company’s credit worthiness are external users. 3. Bartholomew Ltd has assets of $9500 and shareholders’ equity of $4000. What are the liabilities of Bartholomew? a. $5,500 b. $13,500 c. $2,000 d. UNABLE TO DETERMINE BASED ON INFORMATION PROVIDED e. $9,500 4. A DEBIT is the normal balance for which account listed below? a. Common Shares account b. Accounts payable c. Fuel expense account d. Accounts Receivable e. Responses c and d are both correct

COMM2101 Term Test #1, Version 1.1 2 5. A trial balance will be out of balance if: a. The same journal entry is posted twice b. There is a DR to Cash and a CR to Accounts Payable of $1500 to record a cheque c. The bookkeeper posted a $1000 dividend as Dr Dividends $500 Cr Cash $500 d. The bookkeeper posted a $1000 dividend as Dr Dividends $100 Cr Cash $1000 e. It is impossible to say without more knowledge of the bookkeeper’s work pattern. 6. Buying property, plant and equipment is an example of a(n): a. long-lived asset activity. b. financing activity. c. investing activity . d. operating activity . e. good planning. 7. A General Ledger A. shows all of a company’s accounts in alphabetical order. B. is the same thing as an adjusted trial balance . C. provides a chronological record of transactions. D. All of the above. E None of the above. 8. The last step in the closing entries is: a. Close the revenue accounts to Income Summary. b. Close the general ledger to the trial balance and the general journal c. Close the revenue accounts to Income Summary. d. Close retained earnings to dividends e. Close dividends to retained earnings 9. Which one of the following statements shows a company’s total financing activity for the period? a. Statement of Cash Flows b. Statement of Financing Activity c. Balance Sheet/Statement of Financial Position d. Statement of Changes in Equity e. Income Statement/Statement of Earnings 10. Mavis Mallete is a lawyer. She obtains a new client on the last day of February. She does the work for this client in March and bills the client in April. She receives the payment in full for this invoice in May. When should Mavis recognize the revenue from this engagement? A. February. B. March . C. April. D. May E All of the above are acceptable under GAAP but not under IFRS

COMM2101 Term Test #1, Version 1.1 4 b) On August 1 Campus Radio Company received $60,000 from Bank One, a major sponsor. This $60,000 will provide Bank One with sole sponsorship privileges for the next two university football seasons on Campus Radio. Campus Radio will broadcast each of the university football team’s 10 games during the next two seasons; the seasons will last from September through late November. Campus Radio’s year end is December 31 and it makes adjusting journal entries at year end. 1. August 1, 2023 Transaction entry (1/2 mark): Date Account Debit Credit August 1 Cash $60,000 Deferred Revenue $60,000 1/2 mark right; 0 marks wrong 2. December 31, 2023 Adjusting journal entry (1 mark): Date Account Debit Credit Dec 31 Deferred Revenue $30,000 Sponsorship Revenue (or just “Revenue”) $30,000 To record season’s revenue from Bank One $60,000*1/2 1/2 mark right accounts; 1/2 marks amount

COMM2101 Term Test #1, Version 1.1 5 c) On July 1, Fleet Services Company purchased 3 new delivery trucks that cost $50,000 each for a total of $150,000. The company paid $50,000 in cash and placed the balance on account. The trucks are expected to have a useful life of 5 years. Fleet Services has a December 31 st year end and makes adjusting journal entries at year end. 1. July 1, Transaction entry (1/2 mark): Date Account Debit Credit July 1 Equipment – Trucks $150,000 Cash $50,000 Accounts Payable $100,000 1/2 mark right; 0 marks wrong 2. December 31, Adjusting journal entry (1.0 mark): Date Account Debit Credit Dec 31 Depreciation (or Amortization)Expense $15,000 Accumulated Depreciation Trucks etc $15,000 $150,000/5 years*6/12 months 1/2 mark right accounts; 1/2 marks amount

COMM2101 Term Test #1, Version 1.1 7 e) Cook Electric has a $500 monthly maintenance contract with Whetston Apartments. Cook bills Whetston Apartments on the 10 th the following month for the services provided in the previous month and allows the client 30 days to pay. Cook Electric has a December 31 st year end and makes adjusting journal entries monthly. 1. December 10, 2023 Transaction entry (1/2 mark): Date Account Debit Credit DEC 10 Accounts Receivable $500 Service Revenue (or Revenue) $500 1/2 mark right; 0 marks wrong 2. December 31, Adjusting journal entry (1 mark): Date Account Debit Credit Dec 31 Accounts Receivable $500 Service Revenue (or Revenue) $500 To record AJE for Dec maintenance revenue 1/2 mark right; 0 marks wrong 3. January 10, 2024 Transaction entry (1/2 mark): Date Account Debit Credit JAN 10 No Entry Required; Cook Electric has set up the A/R by the AJE Also ok Cash $500 A/R $500

COMM2101 Term Test #1, Version 1.1 8 f) Carbon Recycling Ltd. has a $10,000 weekly payroll. The company has an August 31 st year end and makes adjusting journal entries at year end. The payroll covers a five-day work week from Monday to Friday and the plant is closed on the weekend. Carbon Rescue employees are paid on Monday for their work of the previous week. 1. Monday, August 28, 2023 Transaction entry (1/2 mark): Date Account Debit Credit Aug 28 Wages expense, Salary Expense, etc $10,000 Cash $10,000 1/2 mark right; 0 marks wrong 2. August 31, 2023 Adjusting journal entry (1 mark): Date Account Debit Credit Aug 31 Wages expense, Salary Expense, etc $8,000 Salaries Payable $8,000 $10,000*4 days/5 days = $8,000 1/2 mark right a/cs; 1/2 mark amount/calc 1. Monday, Sept 4, 2023 Transaction entry (1/2 mark): Date Account Debit Credit Aug 28 Wages expense, Salary Expense, etc $2,000 Salaries Payable $8,000 Cash $10,000 1/2 mark right; 0 marks wrong