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Midterm exam, answers
Intoduction to Financial Accounting (ACCT 1220)
University of Guelph
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Friday Group A Multiple Choice - 15 marks (1 mark each – circle the letter of your answer, or tick the box where applicable) Use this information to answer MC questions 1 to 5: The following information is taken from the financial statements of Clove Plc. The number of Clove’s shares is 100,000. Account Cash Accounts receivable Inventory Supplies Prepaid insurance Land Buildings Less: accumulated depreciation - buildings Equipment Less: accumulated depreciation - equipment Goodwill Unearned revenues Accounts payable Salaries payable Bank loan payable Mortgage payable Common shares Retained earnings Dividends declared Rent revenue Sales revenue Cost of goods sold Salaries expense Office expense Depreciation expense Interest expense Income tax expense in $ 43,072 14,320 23,878 3,600 14,000 320,000 240,000 200,000 48,000 36,000 48,000 7,300 9,540 19,772 45,500 53,600 100,000 141,579 60,000 15,000 579,644 103,876 216,889 23,500 18,000 22,500 8,300 1 1 mark for each correct answer 1) What is the working capital of Cloves Plc? a) b) c) d) 2 : 1 3 : 1 $383,158 $62,258 2) What is Cloves’ debt-to-total-assets ratio? a) b) c) d) 49% 37% 26% 23% 3) How much are Clove’s total assets (in $)? a) b) c) d) 372,000 420,000 518,870 990,870 4) Clove’s shareholder’s equity (in $) is … a) b) c) d) 241,579 181,579 141,579 100,000 5) What is Clove’s earnings per share (in $) for this accounting period? a) b) c) d) 1 1 2 5 ***** 6) Which statement about the unearned revenues is correct? a) b) c) d) Unearned revenues increase the net income of the company when recorded Unearned revenues are considered a current asset Unearned revenues should not be recorded as they have not taken place yet Unearned revenues are considered a current liability 2 For each of the following statements, indicate whether it is true or false. 1 mark for each correct answer 11) Purchasing vehicles on account decreases the total balance in the statement of financial position. ☐ True ☒ False (increases) 12) Expense accounts increase on the debit side. ☒ True ☐ False 13) If a company pays for an insurance in advance, then the prepaid insurance account has to be debited and the accounts receivable have to be credited. ☐ True ☒ False (cash) 14) Liability accounts increase on the credit side. ☒ True ☐ False 15) If a company has a high net income, it demonstrates high solvency. ☐ True ☒ False (A company can have high debt relative to assets and also have a high net income) ***** 4 Question One (20 marks): The bookkeeper of Barley Corp. recorded the following transactions in March 2017. 1 mark for each box Date March 2 March 2 March 9 March 15 March 17 Business transaction of Barley Corp. Barley has recently raised new funds and uses some of it to buy new equipment The company pays back a bank loan Barley Corp. purchased office supplies on account The company pays one year’s rent in advance in cash Barley Corp pays for the office supplies purchased earlier this month Amount in $ 160,000 Debit Credit Cash 80,000 Equipment (the funds are irrelevant here) Bank Loan 7,500 Office Supplies 24,000 Prepaid Rent Accounts Payable (A/P) Cash 7,500 A/P Cash Cash a) Indicate which account has been debited and which account has been credited by the bookkeeper (if done correctly). Please use the columns above. (10 marks) b) Assume that the bookkeeper has already posted the journal to the general ledger. For every account of the above accounts, classify them accordingly as current assets, noncurrent assets, current liabilities, shareholders equity, revenue or expense account. Please use the table below for your answer. (6 marks) c) Prepare a complete t-account for the Cash account. Assume that it had an opening balance of 200,000. Please use the space below for your answer. (4 marks) Table to use for answer (b) (1 point for each correct classification) Account Classification Equipment Non-current asset Cash Current asset Bank loan Non-current liability Office Supplies Current assets (if students used “Office Supply expense” and classified it as “expense” that’s correct too. But “expense” has to be explicit in the name of the account) 5 Commented [d1]: Non-current liabilities are missing in the list Question Two (15 marks) The bookkeeper for Savory Corp. made the following errors in journalizing and posting: 1. A credit posting of $300 to Accounts Receivable was omitted 2. A debit posting of $1,200 for Prepaid Insurance was debited to Insurance Expense 3. A collection on account of $100 was journalized and posted as a $100 debit to Cash and $100 credit to Service Revenue. 4. A cash purchase of supplies for $250 was journalized and posted as a $250 debit to Supplies and a $25 credit to Cash 5. A debit of $465 to Advertising Expense was posted as $456. For each error, indicate: (a) Whether the trial balance will balance (yes or no) (b) The amount of the difference if the trial balance will not balance. Please insert the difference amount 0 otherwise. (c) The trial balance column (debit or credit) which will have the larger total due to this error Please use the table below. Spare rows can be used for comments or corrections if needed. 1 mark for each box Error (a) Yes / No (b) Amount (c) Larger debit / credit (1) No 300 Debit (2) Yes 0 n/a (3) Yes 0 n/a (4) No 225 Debit (5) No 9 Credit 7
Midterm exam, answers
Course: Intoduction to Financial Accounting (ACCT 1220)
University: University of Guelph
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