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Note for current students using this exam for practice purposes: exam is formatted for LEGAL SIZE paper. CONCORDIA UNIVERSITY John Molson School of Business Department of Accountancy Course: Introduction to Financial Accounting Number: ACCO 230. 2 Sections: Sections A and B (S. Mroz); Section AA (S. Tamas) Examination: FINAL (3 hours) Date: December 19, 2009 No. of Pages: Ten (10), including this page. Ensure your copy is complete. Materials Allowed: Non-programmable / non-graphical calculators, and one ordinary dictionary, i. e. , not electronic. Pens, pencils, rulers, erasers. INSTRUCTIONS

Show all answers in the spaces provided. If space is insufficient, use the back of the page. answer questions, unless you think there is actually an error in the exam. Student name (please print very clearly) Section For grader’s use only Problem 1 (MC) Problem 2 Problem 3 Problem 4 Problem 5 Total page 1 PROBLEM 1 (18 marks; 16 minutes) Multiple-choice ID number Circle clearly (no overlap) the letter that corresponds to the best answer for each of the following. 1. Included in the balance sheet of J Ltd. on December 31, 2007 were total assets of $100,000 and total shareholders’ equity of $65,000.

During 2008 assets increased by 35,000 and the company reported net earnings of $15,000. Also during 2008 the the following statements is true? (a) Liabilities increased by $20,000 during 2008. (b) Liabilities increased by $35,000 during 2008. (c) Liabilities increased by $55,000 during 2008. (d) Liabilities increased by $29,000 during 2008. 2. It was discovered that the bookkeeper for U Ltd. had recorded a $200 deposit from a customer for service work to be performed in the future as follows: Dr. Unearned revenue $200; Cr. Cash $200. As a result of this entry (a) Cash is understated by $200 and Unearned revenue is understated by $200. ) Cash is understated by $400 and Unearned revenue is overstated by $400. (c) Cash is understated by $400 and Unearned revenue is understated by $400 (d) Cash is understated by $200 and Unearned revenue is overstated by $200. 3. A Ltd. shows a balance in Salaries Payable of $45,000 at the end of November. The next payroll amounting to $50,000 is to be paid in early December, and includes $5,000 of wages earned in December. What will be the Journal entry to record the payment of salaries? (a) Salaries Expense 50,000 Salaries Payable…………. 5000 Cash. ?” 45,000 (b) Salaries Expense Cash (c) Salaries Expense ??” Salaries Payable……………………………………… ??” Cash ??” (d) Salaries Expense Payable…………………………………………………………. Cash ??” ??” 5,000 4. During 2008 Z Ltd. incurred a net loss of $50,000 and issued $10,000 of common shares. On the company’s balance sheet as at December 31, 2008 Z Ltd. showed total assets of $1 50,000 and a retained earnings balance of $60,000. Which of the following statements is true if total liabilities decreased by $20,000 during 2008? a) Total assets at the end of 2007 were $210,000. b) Total assets at the end of 2007 were $90,000. (c) Total assets at the end of 2007 were $150,000. (d) Total assets at the end of 2007 were $60,000. 5. After the books were closed in 2008 it was discovered that the bookkeeper for N Ltd. had recorded the declaration of a cash dividend to be paid in 2009 as follows: Dr. Dividend expense $9,000; Cr. Cash $9,000. Regarding the 2008 financial statements, which of the following statements is true? (a) Cash is understated by $9,000 and Retained earnings is overstated by $9,000. b) Liabilities are understated by $9,000 but Retained earnings is neither overstated nor nderstated. (c) Net earnings are understated by $9,000 and working capital is understated by $9,000. (d) Net earnings are understated by $9,000 and Retained earnings is understated by $9,000. 6. A company reports cash provided by operating activities of $565,000, cash used by investing activities of $612,000, cash provided by financing activities of $12,000, net capital expenditures of $395,000, and dividends paid of $130,000. Its free cash flow is $40,000 $87,000. page 2 7.

Gillis Corporation sells merchandise on account for $1,000 to Mountain Corporation with credit terms of 2/10, n/30. Mountain returns $400 of merchandise that was seriously defective and at the same time includes a cheque to settle the account within the discount period. What entry does Gillis make upon receipt of the cheque? (a) Cash ??” Sales Returns and Allowances Accounts Receivable … 980 (b) Cash ??” Sales Returns and Allowances Sales Discounts Accounts Receivable 392 8 (c) Cash ??” Sales Returns and Discounts ??” Accounts 12 (d) Cash ??” Sales Discounts Sales Returns and Allowances Accounts 20 1 ,ooo 8.

A consulting firm received $6,840 cash in advance for services to be rendered in the he services were actually performed by the end of the accounting period and no adjusting entry is made, this would cause (a) Revenues to be overstated and assets to be understated. (b) Revenues to be overstated and liabilities to be understated. (c) Revenues to be overstated and liabilities to be overstated (d) Revenues to be overstated and assets to be overstated 9. It was discovered that the bookkeeper for V Ltd. had recorded a $90 payment on account to a supplier as follows: Dr. Accounts receivable $90; Cr.

Cash $90. As a result of this entry (a) Accounts receivable is overstated by $90 and Accounts payable s overstated by $90. (b) Accounts payable is overstated by $90 and Accounts receivable is understated by $90. (c) Accounts payable is understated by $90 and Accounts receivable is understated by $90. (d) Accounts receivable is overstated by $90 and Accounts payable is understated by $90. 10. Which of the following accounts would not be closed at the end of the accounting period? (a) Deposits from customers. (b) Dividends declared. (c) Interest income. (d) All of the above accounts would be closed. 11.

A legal firm received $2,000 cash in advance for legal services to be rendered in the uture. The full amount was credited to Unearned Service Revenue. If the legal services were actually provided by the end of the accounting period and no adjusting entry is made, this would cause (a) Assets to be understated. (b) Shareholders’ equity to be overstated. (c) Liabilities to be understated. (d) Revenues to be understated. 12. If a company fails to adjust the Prepaid Rent account for rent that has expired, what effect will this have on that month’s financial statements? (a) Expenses will be understated and working capital will be understated. b) Working apital will be overstated and net earnings and shareholders’ equity will be overstated. (c) Assets will be overstated and net earnings and shareholders’ equity will be understated. (d) Expenses will be overstated and net earnings and shareholders’ equity will be understated. PROBLEM 2 (19 marks; 38 minutes) Accounting for bonds payable Laverne Ltd. uses the effective interest method to amortize bond discount or premium, as required by International Financial Reporting Standards. The following information appeared on the company’s balance sheet on June 30, 2010, the end of its fiscal year (amounts are correct).

Current liabilities: Bond interest payable $ 450,000 Long-term liabilities: Bonds payable, 6% annual rate, due July 1, 2019 $14,010??30 The face value of the bonds is $1 and they were issued on July 1, 2009 when the market rate (annual) for similar bonds was 7%. Interest is paid semi-annually on January 1 and July 1, respectively. The company only adjusts its accounts annually. Required Bond interest expense for the six months ending June 30, 2010 was correctly determined to be $489,010. Show the Journal entry that Laverne actually made to record accrued interest expense on June 30, 2010. (3 marks)

Show the Journal entry to record the payment of interest on July 1, 2010. (1. 5 marks) Show the Journal entry to record interest expense on January 1 , 2011. (4. 5 marks) Assume that immediately after the payment of interest on January 1, 2011 Laverne redeems one-half (50%) of the bonds for cash at 101 . Show the Journal entry to record this redemption. (“At 101 ” is a term used in the course, and students are expected to know its meaning). (6. 5 marks) page 4 PROBLEM 2, cont’d What will be the effect on the following financial items immediately after the transaction in Requirement (4) only (improves, deteriorates, or no change)?

No calculations are required for Requirement (5). (a) Debt to Total Assets ratio (78 % before transaction) (1. 15 before transaction) (c) Working capital (d) Free cash flow (3. 5 marks) PROBLEM 3 Preparation of cash flow statement (16 marks; 32 minutes) (b) Current ratio Below are the summary balance sheets for KB Ltd. as at Dec. 31, 2009 and 2008, respectively: Cash Accounts receivable Merchandise inventory Prepaid rent Fixed assets Accumulated depreciaition Total Assets 2009 $ 12,000 53,000 29,000 14,000 367,000 (80,000) 2008 $ 90,000 62,000 32,000 9,000 270,000 (30,000) $433,000 Accounts payable

Interest payable Income taxes payable Notes payable Common shares Retained earnings Total Liabilities and Equity $ 21,000 4,000 10,ooo 110,000 250,000 $395,000 $ 34,000 2,500 5,500 1 oo,ooo 191,000 Income statement information for 2009 is shown below: Sales Cost of goods sold Gross profit Depreciation expense Rent expense Other operating expenses Operating income Interest expense Gain on disposal of fixed assets Income tax expense Net earnings $ 850,000 580,000 65,000 13,000 57,000 135,000 22,000 1 52,000 64,000 $ 88,000 Additional information Fixed assets were acquired for $170,000 cash during 2009.

Also during 2009, fixed assets were disposed of in exchange for cash (the amount can be derived). 2. Accounts payable relates only to transactions with suppliers of merchandise inventory. 3. Ninety-percent (90%) of all sales are made on credit. Prepare in proper form a complete cash flow statement (all sections) for the year 2009. Use the indirect method for the operating section of the statement. Show your answer on the next page. page 5 Problem 3, Answer page 6 PROBLEM 4 Financial ratios The following summary information relates to T Inc. for 2009 and 2008, respectively. Assets

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