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CARLETON UNIVERSITY
BUSI 1001
Midterm Examination
DURATION: 2 hours NOTES:
- Non-programmable calculators without an alpha-storage capability may be used.
- No Palm Pilots, Pagers, Cellular Phones, PDAs or other electronic or telecommunication devices are allowed in the examination room.
- Question 1 is to be answered on the Scantron Sheet provided for this purpose. There are 3 other questions. These are to be answered in your exam booklet.
- The Scantron Sheet must be completed in pencil. The following information must be provided on the Scantron Sheet by filling in the appropriate bubbles: - name - student number - class section (Aor T) - answers for your questions
- At the end of the exam, hand in your Scantron Sheet and your answer booklet separately ensuring that your name, student number and section number are recorded on both documents. You may keep the exam.
Question 1 Multiple Choice (56 marks) There are 28 multiple choice questions.
2 marks for each question
Which of the following is not an advantage of the corporate form of business organization? a. No personal liability b. Easy to sell (transfer ownership) c. Simple to set up d. Easy to raise funds
External users want answers to all of the following questions except a. Is the company earning satisfactory income? b. Will the company be able to pay its debts as they come due? c. Will the company be able to afford employee pay raises this year? d. How does the company compare in profitability with competitors?
- Buying and selling products are examples of a. operating activities. b. investing activities. c. financing activities. d. delivering activities
- Dividends are reported on the a. statement of earnings. b. statement of retained earnings. c. balance sheet. d. statement of earnings and balance sheet.
- If the retained earnings account increases from the beginning of the year to the end of the year, then a. net earnings are less than dividends. b. a net loss is less than dividends. c. additional investments are less than net losses. d. net earnings are greater than dividends.
- A measure of profitability is the a. current ratio. b. debt to total assets ratio. c. return on assets ratio. d. working capital.
Use the following information for questions 7- 8.
Sweney Company had $250,000 of current assets and $90,000 of current liabilities before borrowing $60,000 from the bank with a 3-month note payable.
- What effect did the borrowing transaction have on the amount of Sweney Company's working capital? a. No effect b. $60,000 increase c. $90,000 increase d. $60,000 decrease
- What effect did the borrowing transaction have on Sweney Company's current ratio? a. The ratio remained unchanged. b. The change in the current ratio cannot be determined. c. The ratio decreased. d. The ratio increased.
- If a company fails to adjust an Unearned Rent account for rent that has been earned, what effect will this have on that month’s financial statements? a. Assets will be understated and revenues will be understated. b. Liabilities will be understated and revenues will be understated. c. Liabilities will be overstated and revenues will be understated. d. Assets will be overstated and revenues will be understated.
- If a company fails to adjust for accrued revenues a. liabilities will be understated and revenues will be understated. b. liabilities will be overstated and revenues will be understated. c. assets will be overstated and revenues will be understated. d. assets will be understated and revenues will be understated.
- A new accountant working for Theerajah Company records $800 Amortization Expense on store equipment as follows: Dr. Amortization Expense ............................................. 800 Cr. Cash .............................................................. 800
The effect of this entry is to a. adjust the accounts to their proper amounts on December 31. b. understate total assets on the balance sheet as of December 31. c. overstate the book value of the amortizable assets at December 31. d. understate the book value of the amortizable assets as of December 31.
- A post-closing trial balance will show a. zero balances for all accounts. b. zero balances for balance sheet accounts. c. only balance sheet accounts. d. only statement of earnings accounts.
- If goods in transit are shipped FOB destination, a. the seller has legal title to the goods until they are delivered. b. the buyer has legal title to the goods until they are delivered. c. the transportation company has legal title to the goods while the goods are in transit. d. no one has legal title to the goods until they are delivered.
- Amortization is the process of a. valuing an asset at its fair market value. b. increasing the value of an asset over its useful life in a rational and systematic manner. c. allocating the cost of an asset to expense over its useful life in a rational and systematic manner. d. writing down an asset to its real value each accounting period.
- Which of the following correctly identifies normal balances of accounts? a. Assets Debit Liabilities Credit Common Shares Credit Revenues Debit Expenses Credit
b. Assets Debit Liabilities Credit Common Shares Credit Revenues Credit Expenses Credit
c. Assets Credit Liabilities Debit Common Shares Debit Revenues Credit Expenses Debit
d. Assets Debit Liabilities Credit Common Shares Credit Revenues Credit Expenses Debit
- The Boralis Company's records were partially destroyed in a flood. The company does not know what sales have been for the year, but they do know all sales were on account. Also, the beginning accounts receivable balance was $37,000, and its accounts receivable balance at the time of the flood was $45,000. From the beginning of the year until the flood, cash collections from customers was $472,000. Given this information, what were The Boralis Company's sales?
a) $467, b) $480, c) $504, d) $549, e) $586,
- On January 1, 2000, the Worchester Company paid a total of $8,000 for January, February, March and April’s 2000 rent in advance. The company recorded this transaction by increasing the balance in the prepaid rent account. What will be the balance in the prepaid rent account as of March 31, 2000? a) $ b) $2, c) $4, d) $6, e) $8,
Question 2 ( 12 marks)
Instructions Bloor West Race Track wants to ensure that its net earnings are properly determined. For each of the following transactions below, prepare the adjusting entries only, if any, required on September 30, the end of the fiscal year.
(a) On September 1, paid rent on the track facility for three months, $180,000.
(b) On September 1, sold season tickets for admission to the racetrack. The racing season is year-round with 25 racing days each month. Season ticket sales totalled $900,000.
(c) On September 1, borrowed $150,000 from First Provincial Bank by issuing a 12% note payable due in three months.
(d) On September 5, schedules for 20 racing days in September, 25 racing days in October, and 15 racing days in November were printed for $3,000.
(e) The accountant for the concessions company reported that gross receipts for September were $140,000. Ten percent is due to Bloor West and will be remitted by October 10. (f) On September 1, purchased equipment which will be amortized at the rate of $2, per year.
Question 3 ( 20 marks)
The following items are taken from the financial statements of Mitchell Company for 2001:
Income Tax Expense $ 2, Accounts Payable 19, Accounts Receivable 4, Accumulated Amortization – Equipment 4, Bonds Payable 18, Cash 20, Common Shares 25, Cost of Goods Sold 12, Amortization Expense 4, Dividends 4, Equipment 48, Interest Expense 3, Land 7, Retained Earnings 16, Salaries Expense 5, Sales Revenue 32, Supplies 4,
Instructions Prepare a statement of earnings and a classified balance sheet for Mitchell Company.
Question 4 ( 12 marks)
For each of the following oversights, state whether total assets will be understated (U), overstated (O), or not affected (NA). RECORD YOUR ANSWERS IN YOUR EXAMINATION BOOKLET.
_____ 1. Failure to record revenue earned but not yet received.
_____ 2. Failure to record expired prepaid rent.
_____ 3. Failure to record accrued interest on the bank savings account.
_____ 4. Failure to record amortization.
_____ 5. Failure to record accrued salaries.
_____ 6. Failure to recognize the earned portion of unearned revenues.
