York University AP/ADMS 2500.

03
Introduction to Financial Accounting
Midterm Examination #1 Database
Time: 3 hours for 40 questions

Fall 2014

Questions: 67

PART 1: Lucy Jones Convenience Store

Questions 1 to 25 are based on this case)
Your former grade 2 teacher, Lucy Jones, has opened Lucy Jones Convenience Store Ltd.
in a nearby strip mall. She began her business on October 1st, 2013. She invested on that
day $30,000 in share capital and her sister, Mary, contributed $10,000 as a loan to the firm.
The loan bears an annual interest of 10% and none has been paid to date.
Lucy found the business exciting and she seems to have been successful as a business
person but the question is how successful? The bank balance at September 30th 2014
shows $38,900 in Lucys chequing account. Lucy thinks that the bank balance shows that
her first year of operations was a real success and that if she wanted she can take money
from the company to pay her dividends.
She has no formal training as an accountant but does keep a summary of selected
transactions for the fiscal year ended September 30th, 2014:
Cost of merchandise purchases on account...$70,000
Wages paid to clerks (in cash)...$12,000
Rent paid for the first 14 months (in cash) .................................$7,000
Business taxes & licenses for the first 5 years of operation (in cash) ...$5,000
Office Supplies purchased (cash 80%, the rest on account)..$10,000
Miscellaneous expenses paid (in cash) ..$10,000
When the business was formed, a friendly insurance agent sold her a two year business
insurance policy with a premium of $6,600 for the two years. She paid cash for the policy
and included the bill in her miscellaneous expenses.
When she moved into the store she paid the previous occupant $15,000 for the existing
furniture and fixtures which she estimated would last her easily another five years.
During the year the convenience store sold merchandise for $93,000 of which $90,000 was
for cash and she collected all credit sales made except for $1,500. However, Lucy expected
to eventually only collect $400 from these outstanding receivables.
Lucy had recorded the cost of each item sold during the year and this totaled $65,000. At
September 30th 2014 she estimated office supplies on hand had a cost of $8,000 and the
cost of the merchandise still on hand was $3,000.

The bank had deducted interest and bank charges totaling $1,000 from the convenience
store bank account. The major portion of this was for interest on the demand loan from the
bank which has a principal amount of $15,000. This loan is fully secured by a government
savings bond that Lucy purchased for $15,000 for the firm when she first opened for
business. The current market value of this investment is $15,000. The convenience store
had received $400 interest on this investment and another $100 had been earned but not
accrued at year end.
Lucy maintains excellent relations with her suppliers and has never had a dispute of any
kind. She currently owes them $20,000. This balance includes the last cheque she wrote on
September 30th for $15,000. Office supplies are still owed, the owner of the shop is an old
family friend who told Lucy to pay him whenever she is sure that she is making money.
Lucy is not sure yet, therefore she still owes him the balance on account.
The clerks are paid $10 per hour and during the first 12 months of operations ended on
September 30th, 2014 they have worked a total of 1,500 hours.
Since the business is incorporated it has to pay income taxes to Revenue Canada. She
qualifies for the small business tax rate of 15%
Prepare T Accounts in Accrual Basis for Lucy Jones Convenience Store and then
answer the questions.
If you think that for some reason that an assumption is called for, then also state it clearly
on your exam paper (at the back of the pink scantron sheet).
This space is blank and can be used for your calculations
It is estimated that you will need 1 hour to prepare the T accounts, Income statement and
Balance Sheet

This page is blank and may be used for your calculations

This page is blank and may be used for your calculations

This page is blank and may be used for your calculations

This page is blank and may be used for your calculations

Questions on LUCY JONES CONVENIENCE STORE Case

This Section Questions 1-26 ONLY APPLIES TO ACCURAL ACCOUNTING for
Lucy Jones Convenience Store for the date ending September 30th:
1) What was the Cash balance (T account after AJE) at the end of the September 30?
A). less than $20,000
B). between $20,001 and $30,000
C). between $30,001 and $37,000
D). between $37,001 and $39,000
E). None of the above is correct
2). What is the balance of Prepaid Office Supplies as of September 30th (after AJE)?
A). $0
B). $2,000
C). $8,000
D). $10,000
E). None of the above is correct
3). What is the balance of Inventory to be reported in the Balance Sheet?
A). $0
B). $3,000
C). $5,000
D). $70,000
E). None of the above is correct
4). What is the amount of Prepaid Insurance by September 30 (after AJE)?
A). $0
B). $3,000
C). $3,300
D). $6,600
E). None of the above is correct
5). What is the total amount of Accounts Payable that Lucy Jones Convenience Store
owes as of September 30 (after AJE)?
A). $70,000
B). $50,000
C). $22,000
D). $0
E). None of the above is correct
6). What is the balance of Prepaid Rent (before AJE)?
A). $7,000
B). $6,000
C). $3,000
D). $1,000
E). None of the above is correct

7). What was the salary and wages expense for the first year of operations (after
AJE)?
A). $0
B). $10
C). $1,500
D). $12,000
E). None of the above is correct

8). What was the total expenses for the first year of operations (after AJE)?
A). more than $90,001
B). between $90,000 and $40,001
C). between $40,000 and $30,001
D). between $30,000 and $20,000
E). None of the above is correct

9). What was the Net Income for the first year of operations?
A). negative (net loss)
B). between $195 and $1,200
C). between $1,201 and $5,000
D). between $5,001 and $6,100
E). None of the above is correct
10). The total for cost of goods sold for first year of operations is:
A). $0
B). $65,000
C). $67,000
D). $70,000
E). None of the above is correct

11). The total for miscellaneous expense for first year of operations is:
A). $0
B). $3,400
C). $6,700
D). $10,000
E). None of the above is correct

12). What is the total amount of Accounts Receivable to be reported in the balance
sheet of September 30?
A). $0
B). $1,100
C). $1,500
D). $3,000
E). None of the above is correct
4

13) What is the net value of Furniture/Equipment after AJE?

A). $0
B). $10,000
C). $12,000
D). $15,000
E). None of the above is correct
14) What is the balance of Furniture/Equipment shown in the Balance Sheet as of
September 30?
A). $0
B). $10,000
C). $12,000
D). $15,000
E). None of the above is correct
15). What was the total adjusted interest income earned to be reported in the Income
Statement?
A). $100
B). $400
C). $500
D). Not enough information given for this answer
E). None of the above is correct
16). What was the total adjusted rent expense to be reported in the Income
Statement?
A). $7,000
B). $6,000
C). $1,000
D). Not enough information given for this answer
E). None of the above is correct
17). The total revenues to be reported in the Income Statement are:
A). $65,000
B). $67,000
C). $90,000
D). $91,500
E). None of the above is correct
18). What is the total Office Supplies Expense to be reported in the Income
Statement?
A). $0
B). $2,000
C). $8,000
D). $10,000
E). None of the above is correct

19). What is the total business tax and licenses expense to be reported in the income
statement?
A). $5,000
B). $4,000
C). $2,500
D). $1,000
E). None of the above is correct
20). What is the amount of total current assets to be reported in the Balance Sheet?
A). between $35,001 and $41,000
B). between $41,001 and $44,000
C). between $44,001 and $46,000
D). between $46,001 and $52,000
E). None of the above is correct
21). What is the amount of total non current assets to be reported in the Balance
Sheet?
A). between $30,000 and $31,000
B). between $31,001 and $34,000
C). between $34,001 and $36,000
D). between $36,001 and $42,000
E). None of the above is correct

22). What are the Total of all Liabilities to be reported in the Balance Sheet?
A). between $35,001 and $41,000
B). between $41,001 and $44,000
C). between $44,001 and $46,000
D). between $46,001 and $52,000
E). None of the above is correct

23). What are the Total of Current Liabilities to be reported in the Balance Sheet?
A). between $35,001 and $41,000
B). between $41,001 and $44,000
C). between $44,001 and $46,000
D). between $46,001 and $52,000
E). None of the above is correct

24). In the Statement of Retained Earnings to be prepared for Lucy Jones

Convenience Store:
A). the closing balance is larger than the opening balance
B). the opening balance includes contributed capital (common shares)
C). the opening balance is zero
D). the closing balance is zero
E). None of the above is correct
6

25). What is the total of Shareholders Equity reported in the balance sheet?
A). Negative amount
B). less than $30,000
C). exactly $30,000
D). more than $30,000
E). None of the above is correct
26). What is the maximum amount of dividends that can be paid based on the
financial statements you have just prepared?
A). $0
B). between $100 and $10,000
C). between $10,001 and $20,000
D). more than $20,001
E). None of the above is correct

This Section Question 27-33 ONLY APPLIES TO CASH BASIS ACCOUNTING for
Lucy Jones Convenience Store for the date ending September 30:
27).

What was the Cash balance at the end of the September 30?
A). less than $20,000
B). between $20,001 and $30,000
C). between $30,001 and $37,000
D). between $37,001 and $39,000
E). None of the above is correct

28). What is the amount of Business Tax and Licenses paid for the first year of
operations?
A).
$5,000
B).
$4,000
C).
$1,000
D).
$0
E). None of the above is correct
29). What is the amount of Rent paid for the first year of operations?
A).
$7,000
B).
$6,000
C).
$1,000
D).
$0
E). None of the above is correct
30). What is the total value of depreciation for the year ended on September 30th?
A).
$850
B).
$750
C).
$100
D).
$0
E). None of the above is correct
7

31). What is the interest expense for the sisters loan for the year ended on September
30th?
A). $0
B). $500
C). $1,000
D). $2,000
E). None of the above is correct
32). What is the office supplies expense for the year ended on September 30th?
A). $0
B). $2,000
C). $8,000
D). $10,000
E). None of the above is correct
33). What is the total expenses for Salaries and Wages for the year ended on
September 30th?
A).
$0
B).
$1,500
C).
$12,000
D).
$15,000
E). None of the above is correct

PART 2: INDEPENDENT QUESTIONS

(the remaining questions are totally unrelated to the case of Part 1)
This Section Question 34-67 ONLY APPLIES TO the information provided in each
question. They are not related to the Lucy Jones Convenience Store case.
34) On March 10, Frazier Company received merchandise for resale from its normal
supplier. The invoice price was $3,600 with terms of 2/10, n/30 for 100 units of Part #345.
The invoice was paid on March 17. Freight costs were $120 and the company paid $108 of
interest on a loan to buy the inventory. What is the unit cost that should be recorded
for each of the 100 units of Part # 345?
A) $36.00
B) $36.48
C) $37.20
D) $37.56
E) None of the above is correct

35) River Plate Company sold merchandise with an invoice price of $3,000 to Zoltan, Inc.,
with terms of 4/10, n/30. In the books of Zoltan, which of the following is the correct entry
to record the payment by Zoltan within the 10 days if the company uses the periodic
inventory system and the gross method to record purchases?
A) Dr Cash
2,880
Dr Sales Discount
120
Cr Accounts Receivable
3,000
B) Dr Accounts Receivable
3,000
Cr Cash
2,880
Cr Purchase Discount
120
C) Dr Accounts Payable
2,880
Cr Cash
2,880
D) Dr Purchases
2,880
Cr Cash
2,880
E) None of the above is correct

36) Failure to make an adjusting entry to recognize service revenue receivable would cause
which of the following?
A) An overstatement of assets, net income, and shareholders' equity.
B) An overstatement of assets and shareholders' equity and an understatement of net
income.
C) No effect on assets, liabilities, net income, nor shareholders' equity
D) An understatement of assets, net income, and shareholders' equity
E) None of the above is correct

37) Central Company sold goods for $5,000 to Western Company on March 12 on credit.
Terms of the sale were 2/10, n/30. At the time of the sale, Central recorded the transaction
by debiting accounts receivable for $5,000 and crediting sales revenue for $5,000. Western
paid the balance due, less the discount, on March 21. To record the March 21 transaction,
Central would debit which of the following?
A) Cash for $4,900.
B) Accounts receivable for $4,900
C) Cash for $5,000
D) Accounts receivable for $5,000.
E) None of the above is correct
38) The 2013 records of Crawford Company showed beginning inventory, $90,000; cost of
goods sold, $460,000; and ending inventory, $80,000. The purchases for 2013 equal
A) $470,000
B) $480,000
C) $450,000
D) $410,000
E) None of the above is correct

39) On January 1, 2013, Houston Company purchased a delivery truck that cost $56,000.
Cash of $26,000 was paid, and the balance of $30,000 was payable on January 31, 2014.
The truck has an estimated useful life of four years and no residual value. Considering only
these facts, depreciation expense (on the truck) for 2013, would be
A) $14,000
B) $7,500.
C) $6,500
D) $56,000
E) None of the above is correct
40) Failure to make an adjusting entry to recognize accrued salaries payable would cause
which of the following?
A) An understatement of expenses and liabilities and an overstatement of
shareholders' equity
B) An overstatement of expenses and liabilities
C) An understatement of expenses, liabilities and shareholders' equity
D) An understatement of assets and shareholders' equity
E) None of the above is correct
41) If a business declared and paid a $500 dividend, it would appear on which of the
following?
A) Income statement only.
B) Balance sheet only
C) Statement of retained earnings and cash flow statement
D) Statement of retained earnings only.
E) None of the above is correct

10

42) Accrued expenses which must be recorded in adjusting entries represent which of the
following?
A) Expenses incurred but not yet paid
B) Expenses incurred but not recorded or paid
C) Expenses paid in advance.
D) Expenses paid in advance and not recorded.
E) None of the above is correct

43) Which of the following would be an example of an investing activity in the cash flow
statement?
A) Purchasing equipment for cash
B) Buying inventory from a supplier on credit
C) Selling shares to investors for cash
D) Repaying the principal on a bank loan
E) None of the above is correct

44) In what order are assets are listed on a balance sheet?

A) Dollar amount (largest first).
B) Date of acquisition (earliest first).
C) Ease of conversion to cash
D) Importance to the operation of the business
E) None of the above is correct

45) The periodicity assumption is the basis for which of the following?
A) Dividing the activities of a business into a series of time periods for accounting and
reporting purposes.
B) The cutoff of revenue recognition only
C) Keeping the company's transactions separate from the owners' transactions.
D) The cutoff of expense recognition only.
E) None of the above is correct

46) Which of the following phases of the accounting information processing cycle is
performed at the end of the accounting period?
A) Adjusting entries
B) Peer reviews
C) Liquidation
D) Transaction entries
E) None of the above is correct

11

47) During 2013, its second year in operation, Banner Company delivered goods to
customers for which customers paid or promised to pay $5,800,000. The amount of cash
collected from customers was $5,960,000. The amount of accounts receivable at the
beginning of 2013 was $1,200,000.What is the amount of sales revenue that Banner should
report on its income statement for 2013?
A) $4,650,000.
B) $4,760,000
C) $5,850,000.
D) $5,960,000.
E) None of the above is correct

48) What is the income statement equation?

A) Assets - Liabilities = Shareholders' Equity.
B) Assets + Shareholders' equity = Liabilities.
C) Net income = Revenues - Expenses
D) Expenses - Net income = Revenues
E) None of the above is correct

49) Borrowing $100,000 of cash from First National Bank would do which of the
following?
A) Increase cash by a credit
B) Increase notes payable by a debit
C) Increase notes payable by a credit
D) Decrease cash by a debit
E) None of the above is correct

50) A company purchases $25,000 of inventory in March 2014 and will pay for it in April
2014, which of the following statements is false?
A) The company will report accounts payable of $25,000 in March 2014.
B) The statement of cash flows will report an operating cash outflow of $25,000 in
April 2014.
C) The income statement will report the $25,000 as cost of goods sold in March 2014
when they are purchased.
D) None of the above is false
E) All of the above are false

12

Use the following set up to answer questions 51 to 53

On June 30, 2014, the balance sheet of Zorab & Co. showed total assets of $400,000, total
liabilities of $300,000, and owner's equity of $100,000. The following transactions
occurred in July of 2004:
1. The owner invested an additional $70,000 cash in the business.
2. The business purchased equipment for $150,000, paying $60,000 cash and issuing a note
payable for $90,000.
3. The business paid off $40,000 of its accounts payable.

51) As of July 31, 2014 the amount reported in total assets was:
A) 400,000
B) 550,000
C) 450,000
D) 460,000
E) None of the above is correct

52) As of July 31, 2014 the amount reported in total liabilities was:
A) 300,000
B) 350,000
C) 390,000
D) 430,000
E) None of the above is correct
53) As of July 31, 2014 the amount reported in total owners equity was:
A) 100,000
B) 150,000
C) 170,000
D) 250,000
E) None of the above is correct

13

54) Evans Corporation's retained earnings increased by $300,000 during the year Also
during the year, dividends totaling $75,000 were declared and paid to shareholders.
Evans Corporation's net income for the year was.
A) $75,000
B) $225,000
C) $300,000
D) $375,000
E) None of the above is correct
55) Coleman Inc. reports total assets and total liabilities of $225,000 and $100,000,
respectively, at the conclusion of its first year of business. The company earned $75,000
during the first year and distributed $30,000 in dividends. What was the firm's contributed
capital?
A) $125,000
B) $95,000
C) $80,000
D. $50,000
E) None of the above is correct
56) A firm's gross profit on net sales is 35% The firm had net sales of $400,000 and net
cost of purchases of $280,000. If the beginning inventory was $40,000, how much was the
ending inventory?
A) $180,000
B) $60,000
C) $20,000
D) $40,000
E) None of the above is correct
57) Which of the following combinations of trial balance totals does not indicate a
transposition error?
A) $65,470 debit and $64,570 credit
B) $32,540 debit and $35,420 credit
C) $25,670 debit and $26,670 credit
D) $14,517 debit and $15,471 credit
E) None of the above is correct
58) Apartments-for-Rent Corporation received cash of $7,200 on August 1, 2014 for one
year's rent in advance and recorded the transaction with a credit to Rent Revenue. The
December 31, 2014 adjusting entry shall be:
A. Debit Rent Revenue and credit Unearned Rent, $3,000
B. Debit Rent Revenue and credit Unearned Rent, $4,200
C. Debit Unearned Rent and credit Rent Revenue, $3,000
D. Debit Cash and credit Unearned Rent, $4,200
E) None of the above is correct

14

Use the following set up to answer questions 59 to 62

Every summer the Kramer Music Society sponsors a series of six classical music concerts.
For 2014, two concerts monthly are scheduled for June, July, and August.
Season tickets are on sale June 1-16, 2014 (the first concert is June 16), and cost $48 for
the six concerts. Tickets for individual concerts cost $10 each and go on sale June 15,
2014. The Society sold 600 season tickets during June 1-16 and credited the $28,800
proceeds to the Unearned Ticket Revenue account. The concerts are given in a pavilion
located in a city park. The Society rents the facility from the city for $500 per concert.
The city requires advance payment for all concerts by June 5. On June 3, 2014, the Society
mailed a $3,000 cheque to the city and debited the amount to the Prepaid Rent account. The
Society incurs no other rent costs. The two concerts for June were presented as scheduled.
Individual tickets sold for the June concerts totaled $6,000 and were credited to the Ticket
Revenue account. Other than the season tickets sold during June 1-16, no advance tickets
have been sold by June 30 for the July and August concerts.
59) After preparing the necessary adjusting entries and posting them, what is the
June 30, 2014, balance of Prepaid Rent?
A) 3,000
B) 2,000
C) 1,000
D) 0
E) None of the above is correct
60) After preparing the necessary adjusting entries and posting them, what is the
June 30, 2014, balance of Unearned Ticket Revenue?
A) 34,800
B) 28,800
C) 22,800
D) 12,200
E) None of the above is correct
61) After preparing the necessary adjusting entries and posting them, what is the
June 30, 2014, balance of Ticket Revenue?
A) 0
B) 6,000
C) 9,600
D) 15,600
E) None of the above is correct
62) After preparing the necessary adjusting entries and posting them, what is the
June 30, 2014, balance of Rent Expense?
A) 3,000
B) 2,000
C) 1,000
D) 0
E) None of the above is correct

15

Use the following set up to answer questions 63 to 67

The following account balances, in alphabetical order, are from the general ledger of Anil's
Hacking Service at January 31, 2014. The firm's accounting year began on January 1. All
accounts had normal balances.
Accounts Payable $ 1,100
Anil. Drawing $2,750
Accounts Receivable $10,400
Prepaid Insurance $880
Advertising Expense $150 Rent Expense $640
Cash $6,800
Salaries Expense $3,200
Service Fees $16,200
Supplies Expense $2,250
Insurance Expense $80
Supplies on Hand $8,420
Anil, Capital, January 1 $18,500
Utilities Expense $230
63) The net income reported for January 2014 is:
A) $26,500
B) $25,400
C) $9,650
D) $1,100
E) None of the above is correct
64) The total of current assets in the balance sheet as of January 31, 2014 is:
A) $26,500
B) $25,400
C) $9,650
D) $1,100
E) None of the above is correct
65) The total of non current assets in the balance sheet as of January 31, 2014 is:
A) $26,500
B) $25,400
C) $9,650
D) $1,100
E) None of the above is correct

66) The total of owners equity in the balance sheet as of January 31, 2014 is:
A) $26,500
B) $25,400
C) $9,650
D) $1,100
E) None of the above is correct
67) The total of retained earnings in the balance sheet as of January 31, 2014 is:
A) $30,900
B) $25,400
C) $18,500
D) $15,750
E) None of the above is correct

16

Solutions
Questions on LUCY JONES CONVENIENCE STORE Case
This Section Questions 1-20 ONLY APPLIES TO ACCURAL ACCOUNTING for
Lucy Jones Convenience Store for the date ending September 30th:
1) What was the Cash balance (T account after AJE) at the end of the September 30?
ANS: B it is $23,900
2). What is the balance of Prepaid Office Supplies as of September 30th (after AJE)?
ANS: C it is $8,000
3). What is the balance of Inventory to be reported in the Balance Sheet?
ANS: B it is $3,000 after the AJE
4). What is the amount of Prepaid Insurance by September 30 (after AJE)?
ANS: C it is $3,300
5). What is the total amount of Accounts Payable that Lucy Jones Convenience Store
owes as of September 30 (after AJE)?
Two answers are accepted. If asked about Trade Payables then it is E (it is $20,000,
the other $2,000 are office supplies payable). If asked Payables then it can be also C
(both trade and office supplies payable)
6). What is the balance of Prepaid Rent (before AJE)?
ANS: A it is $7,000 before the AJE.
7). What was the salary and wages expense for the first year of operations (after
AJE)?
ANS: E it is $15,000 = 1,500 hours x $10 per hour
8). What was the total expenses for the first year of operations (after AJE)?
Two answers are accepted. In the Income Statement, Expenses do not include Cost of
Goods Sold, therefore C or $36,800 is the correct answer. Alternatively when asked
about expenses without indicating specifically to the Income Statement presentation,
A is also correct (expenses plus COGS).
9). What was the Net Income for the first year of operations?
ANS: A it is a loss of 10,300
10). The total for cost of goods sold for first year of operations is:
ANS: C it is $67,000 because the 2,000 that are not in the inventory are lost and as
such they have to be recognized as CGS
11). The total for miscellaneous expense for first year of operations is:
ANS: B it is $3,400 calculated as $10,000 - $6,600 of insurance (expense + prepaid)

17

12). What is the total amount of Accounts Receivable to be reported in the balance
sheet of September 30?
ANS: E it is $400
13) What is the net value of Furniture/Equipment after AJE?
ANS: C it is $12,000 because the depreciation is accounted for when determining the
net value
14) What is the balance of Furniture/Equipment shown in the Balance Sheet as of
September 30?
ANS: D it is $15,000 because the depreciation goes in another line
15). What was the total adjusted interest income earned to be reported in the Income
Statement?
ANS: C it is $500
16). What was the total adjusted rent expense to be reported in the Income
Statement?
ANS: B it is $6,000
17). The total revenues to be reported in the Income Statement are:
ANS: E it is $93,000
18). What is the total Office Supplies Expense to be reported in the Income
Statement?
ANS: B it is $2,000
19). What is the total business tax and licenses expense to be reported in the income
statement?
ANS: D it is $1,000
20). What is the amount of total current assets to be reported in the Balance Sheet?
ANS: A it is $40,700 because prepaid business and taxes has only $1,000 current and
the other $3,000 is non current.
21). What is the amount of total non current assets to be reported in the Balance
Sheet?
ANS: A it is $30,000 because prepaid business and taxes has only $1,000 current and
the other $3,000 is non current.
22). What are the Total of all Liabilities to be reported in the Balance Sheet?
ANS: D it is $51,000
23). What are the Total of Current Liabilities to be reported in the Balance Sheet?
ANS: A it is $41,000

18

24). In the Statement of Retained Earnings to be prepared for Lucy Jones

Convenience Store:
ANS: C the opening balance is zero because there are no retained earnings as this is
the first year of operations.
25). What is the total of Shareholders Equity reported in the balance sheet?
ANS: B it is $19,700
26). What is the maximum amount of dividends that can be paid based on the
financial statements you have just prepared?
ANS: A the company incurred in a loss therefore there are no retained earnings to be
distributed as dividend.
This Section Question 21-25 ONLY APPLIES TO CASH BASIS ACCOUNTING for
Lucy Jones Convenience Store for the date ending September 30:
27). What was the Cash balance at the end of the September 30?
ANS: B it is $23,900
28). What is the amount of Business Tax and Licenses paid for the first year of
operations?
ANS: A all amounts paid are counted as expense of the period
29). What is the amount of Rent paid for the first year of operations?
ANS: A all amounts paid are counted as expense of the period
30). What is the total value of depreciation for the year ended on September 30th?
ANS: D depreciation concept does not exist in cash accounting
31). What is the interest expense for the sisters loan for the year ended on September
30th?
ANS: A if not paid, not an expense yet
32). What is the office supplies expense for the year ended on September 30th?
ANS: D all amounts paid are accounted as expense
33). What is the total expenses for Salaries and Wages for the year ended on
September 30th?
ANS: C only the portion paid

19

Solution to the mini case Lucy Jones Convenience Store

Lucy Jones' Convenience Store
Dr
Cash
Cr Contributed Capital (common shares)

30000

Dr

Cash
Long term Payable

10000

Cr

70000

Cr

Purchases
Accounts Payable

12000

Cr

Wages Expense
Cash

7000

Cr

Prepaid rent
Cash
Prepaid business tax and licenses
Cash

5000

Cr

10000

Cr
Cr

Prepaid Office Supplies

Cash
Office supplies Payable
Miscelaneous Expenses
Cash

10000

Cr

6600

Cr

Prepaid Insurance
Miscelaneous Expense

15000

Cr

Furniture and equipment

Cash

91500
1500

Cr

Cash
Accounts receivable
Sales Revenue
Cash
Bank loan

15000

Cr

15000

Cr

Long term investment

Cash

50000

Cr

Accounts Payable
Cash

Dr

Dr
Dr
Dr
Dr

Dr
Dr
Dr
Dr
Dr
Dr
Dr

Dr

10000
70000

Cost of Goods Sold

Inventory
Purchases

1000
67000
3000
70000

6000

7000

Rent Expense
Prepaid rent
Business Tax and lic. Expens
Prepaid business tax and lic.

1000

5000

Office Supplies Expense

Prepaid Office Supplies

2000

Insurance Expense
Prepaid Insurance

3300

Depreciation Expense
Accum.Depreciation

3000

Bad debt expense

Accounts receivable

1100

Bank Expenses
Cash

1000

8000
2000

3000
6000
1000
2000

10000
6600
15000

3300
3000
1100

93000
15000
15000

Cash
Interest receivable
Interest income earned

50000

1000
400
100
500
91200

91200

348600

Balance Sheet
Cash
Prepaid rent
Prepaid business tax and license

Interest Expense
Wages Expense
Rent Expense
Business Tax and lic.
Expense
Office Supplies Expense
Miscelaneous Expenses
Insurance Expense
Depreciation Expense
Bad debt expense

1000
15000
6000

Prepaid Office Supplies

Prepaid Insurance
Inventory
Accounts receivable

Bank Expenses
Total expenses
Interest income earned

1000
2000
3400
3300
3000
1100

1000

3000

93000
67000
26000

Net Income (loss)

Interest Expense
Interest Payable

Wages Expense
Wages payable

12000

348600

Income Statement
Sales Revenue
Cost of Goods Sold
Gross Mg

AJE
30000

23900
1000
1000
8000
3300
3000
400

Interest Payable
Accounts Payable
Wages payable
Office supplies Payable
Bank Loan
Current liabilities

1000
20000
3000
2000
15000
41000

10000
10000

Interest receivable
Total current assets

100
40700

Long term Payable

Non Current Liabilities

15000
-3000
15000

Contributed Capital (com.shares)

Retained earnings
Owners equity

1000
36800

Furniture and equipment

Accum.Depreciation
Long term investment
Prepaid business tax and
licenses
Total non current assets

500
10300

Total assets

70700

30000
-10300
19700

3000
30000

70700

Statement of retained earnings

Opening balance
0
Net income(loss)
-10300
Closing balance
-10300

20

PART 2: INDEPENDENT QUESTIONS

(the remaining questions are totally unrelated to the case of Part 1)
This Section Question 26-40 ONLY APPLIES TO the information provided in each
question. They are not related to the Lucy Jones Convenience Store case.
Quiz Mod 5
34) ANS: [($3,600 x 98%) + 120] 100 = $36.48
35) ANS E Dr Accounts Payable
Cr Cash
Cr Purchase Discount

3,000
2,880
120

36) ANS D
37) ANS A Cash 4,900
38) ANS C 450,000
Module 4
39) ANS A 14,000
40) ANS A
41) ANS C
42) ANS B
43) ANS A
44) AND C
Module 3 quiz
45) ANS A
46) ANS A
47) ANS: E 5,800,000
48) ANS C
49) ANS: C
50) ANS C

21

Problems from book

Modules 1 and 2 (5 questions all exams)
PROBLEM 04 BALANCE SHEET EQUATION
51) ANS: E it is $520,000
52) ANS: B it is 350,000
53) ANS: C it is 170,000
ANS
Using the accounting equation we have:
Assets
= Liabilities
+ Owners equity
400,000
=
300,000
+
100,000
1
70,000
70,000
2 150,000 60,000 =
90,000
3
-40,000
= -40,000
Totals 520,000
= 350,000
+ 170,000
54) ANS D
Increase in owners equity = additional paid in capital + net income dividends
300,000
= 0
+
X
- 75,000
Solving for X, we have X = 300,000 + 75,000
X = 375,000
55) ANS C
Using the accounting equation assets = liabilities + owners equity
225,000 = 100,000 + 125,000
Owners equity = paid in capital + net income dividends
125,000
= X
+ 75,000 - 30,000
Solving for X, we have X = 125,000 75,000 + 30,000; X = 80,000
Module 3 and 4 (13 questions Alt exam only)
56) ANS B
Sales 400,000
Gross profit 35% = 140,000
Therefore CGS is 260,000
Beginning inventory + purchases = sent to CGS + Ending inventory
40,000
+ 280,000 = 260,000
+ X
Solving for X we have X = 40,000 + 280,000 260,000 ; X = 60,000
57) ANS C
A transposition error occurs when the order of digits in a number are
switched. It is detected when the difference is divisible by 9. Alternative C is the only one
not divisible by 9.
58) ANS B expense for 2014 is 3,000 while the rest belongs to 2015

22

Use the following set up to answer questions 59 to 62

59) ANS B 2,000
60) ANS E, it is 19,200
61) ANS D 9,600 + 6,000
62) ANS C 1,000

Use the following set up to answer questions 63 to 67

63) ANS C calculated as: 16,200 150 640 3,200 2,250 80 - 230
64) ANS A, it is 10,400 + 880 + 6,800 + 8,420
65) ANS E, it is zero, theres none
66) ANS B it is calculated as 18,500 + 9,650 2,750
67) ANS E, it is 6,900 calculated as 9,650 2,750

23