Name____________________________________________
Seat Number Odd__
AMIS 521
Winter Quarter 2004
Midterm Examination
Instructions - READ CAREFULLY!
1.
The exam consists of 6 parts and has 10 pages, including the cover sheet
and two pages for scratch work. Be sure that you have a compete exam
before beginning. If not, raise your hand, and I will give you another copy.
2.
Essentially I am placing you under standardized examination conditions to
give you practice. From the time that I start the exam, you will have until the
end of our regular class period (18 minutes after the hour) to complete it.
3.
Print your name and seat number on this cover sheet of the exam. Place
your seat number only on the top of every page to ensure that you receive
credit for your work if the pages should become separated during the grading
process.
4.
No questions of any kind are permitted during the exam. If you are unsure
about information in a question, make a reasonable assumption and write it
prominently on the page.
5.
Use only the paper provided with the exam. All pages, even if blank, must be
returned with the exam. Those with missing pages will receive no credit for
the exam.
6.
If you are still in the room when I call time, stop writing immediately and
place your writing instrument on the desk. Failure to do so will cost you
40 points.
7.
Upon completion of your examination, arrange your pages in numerical order
and place your exam on the table in front of the room.
8.
If you finish early, check your work to avoid careless errors. If you wish to
leave early, place your exam on the table in front of the room and leave
quietly in consideration of those remaining. Please be considerate of your
fellow students and shut the door quietly when you leave.
Part 1: [48 pts.] Listed below are several accounting terms (numbered 1-30).
1. Accruals
2. AICPA
3. Balance sheet
4. Comparability
5. Comprehensive income
6. Cost Effectiveness
7. Current liabilities
8. Deferrals
9. Distributions to owners
10. Expenses
11. FASB
12. Gains
13. Going concern assumption
14. Income statement
15. Investments by owners
16. Liabilities
17. Liquidity
18. Losses
19. Matching principle
20. Materiality
21. Predictive value
22. Realization principle
23. Relevance
24. Reliability
25. Representational faithfulness
26. Revenues
27. SEC
28. Solvency
29. Timeliness
30. Uncollectible accounts
REQUIRED: Using the numerical labels in the above list, indicate in the blank boxes
below which term best relates to the following phrases/descriptions:
ANSWERS
PHRASE/DESCRIPTION
15
Transfers of resources in exchange for common and preferred stock.
8
Assets or liabilities created when cash flows precede recognition in income.
7
Is a major component of working capital.
29
Information is available prior to the decision.
21
Information confirms expectations.
28
The debt to equity ratio is used to measure it.
11
Its EITF Issues are considered part of GAAP.
26
Increases in equity from the sale of goods and/or services.
18
Net outflows from peripheral transactions.
12
Net inflows generally reported as part of nonoperating income
13
Assumes an entity will continue to operate indefinitely.
23
Pertinent to the decision at hand.
20
Concerns the decision making impact of both the amount and nature of an item.
6
Considers the value of information compared to the effort to acquire it.
5
All changes in equity except owner transactions.
16
Claims of non-owners against the assets of a business.
2
Part 2 : [70 pts.] In the box below each item, prepare journal entries to record the
following transactions for Daisy King Ice Cream Company’s first week of existence. If
an entry is not required, state "No Entry."
a.) Started business by issuing 10,000 shares of capital stock for $20,000.
Cash
20,000
Capital stock
20,000
b.) Purchased equipment for $4,500, paying $1,000 down and issuing stock for the
remaining balance.
Equipment
Cash
Capital stock
4,500
1,000
3,500
c.) Purchased $2,600 of supplies on account, terms 3/15, n30.
Supplies 2,600
A/P
2,600
d.) Recorded sales of $1,200 for the first week.
A/R
1,200
Sales revenue 1,200
e.) Recorded depreciation on equipment, $250.
Depreciation expense 250
Equipment- Accumulated depreciation 250
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f.) Signed a franchise agreement to pay royalties of 5% of sales..
No Entry
g.) Leased a building for three years at $1,500 per month and paid six months' rent in
advance
Prepaid rent
Cash
9,000
9,000
h.) Paid weekly wages of $1,800
Wages expense
Cash
1,800
1,800
i.) Paid royalties due on first week's sales.
Royalties expense 60
Cash
60
j.) Paid for supplies purchased in item (c).
A/P
2,600
Cash
2522
Supplies
78
4
Part 3 : [60 pts.] You are reviewing O’Brien Inc.’s adjusted trial balance for the year ended
12/31/03. You notice several omissions and incorrect items during your review, some
of which are noted below. For each, determine what effect, if any, these items would
have on the stated components of O’Brien Inc.’s 2003 Income Statement and
12/31/2003 Balance Sheet if no corrections are made. Assume no income taxes.
Use the following code for your answers. You need not include any dollar amounts.
N = No Effect
O = Overstated
U = Understated
Be sure to make an entry for each answer cell in the table below! Blank cells will be
considered as wrong answers.
Additional Information
The count of ending inventory
included items which were never
ordered or recorded by O’Brien. The
items were returned to the supplier on
January 4, 2004
Recorded payment of an account
payable by a debit to an expense
account and a credit to cash
Bad debts were estimated as 5% of
outstanding receivables for O’Brien.
The bookkeeper erroneously recorded
15% at year end.
The journal entry for depreciation on
equipment for 2002 was recorded for
$33,000. It should have been $6,000.
Recorded unearned service revenue
when it collected cash from a
customer in December. The services
sold will not be provided until
January 2003.
Stock dividends declared and issued
in December 2002 were unrecorded.
12/31/03
Assets
12/31/03
Liabilities
12/31/03
Owners’
Equity
2003
Revenues
2003
Expenses
O
N
O
N
U
N
O
U
N
O
U
N
U
N
O
U
N
U
N
N
N
N
N
N
N
N
N
N
N
N
5
Part 4 : [48 pts.] In the space provided give the appropriate journal entries to record the
adjustments. Each item is independent of the others. If no entry is needed, write “No entry”
Papa’s Pastry Shoppe borrowed $12,000 at 9% interest on May 1, 2003, with principal and
interest due on October 31, 2003. The company's fiscal year ends June 30, 2003. What
adjusting entry would the company record on June 30, 2003?
Interest Expense 180
Interest Payable
180
On May 1, 2003, Time Magazine sold 600 one-year subscriptions for $81 each. The total
amount received was credited to Unearned subscriptions revenue. What would be the required
adjusting entry at December 31, 2003?
Unearned subscription revenue 32,400
Subscription revenue
32,400
Bland Foods purchased a two-year fire and extended coverage insurance policy on August 1,
2003, and charged the $6,400 premium to Insurance expense. At its December 31, 2003, yearend, Bland Foods should record what entry?
Prepaid insurance
5,067
Insurance expense
5,067
On December 31, 2002, Typical Fashions had balances in its Accounts receivable and
Allowance for uncollectible accounts of $48,400 and $720, respectively. During 2003, Typical
Fashions wrote off $940 in Accounts receivable and determined that there should be an
Allowance for uncollectible accounts of $1,140 at December 31, 2003. Bad debt expense for
2003 would be recorded as:
Bad debt expense
1,360
Allowance for uncollectible accounts 1,360
6
Part 5: [54 pts.]
Indicate whether each of the actions listed below will immediately increase (I), decrease
(D), or have no effect (N) on the ratios shown. Assume working capital is positive and
each ratio is greater than 1.0 before the action is taken.
Debt-toequity ratio
Acid-test ratio
Working
Capital
Purchase advertising services on
30-day credit
N
I
D
Collection of three months rent, in
advance, from tenant
I
D
N
Write off of accounts receivable as
uncollectible
N
N
N
Purchase of equipment using a
short-term note payable
I
D
D
Ordinary sale of merchandise under
normal business conditions
D
I
I
Cash sale of land for a loss
I
I
I
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Part 6 : [120 pts.] The chief accountant for Tomassini Corporation provides you with the
company’s most recent financial data. The accountant has asked for your help in determining
some missing figures to be used in the company’s financial statements. Assume that all sales and
inventory purchases are on account.
2003 CASH FLOW ITEMS (all $ in millions)
Cash Collected From Customers
91?
Cash Paid to Suppliers
30?
Cash Paid for S& A Costs
(30)
Cash Paid for Income Taxes
(11)
Cash Received From Sale Of Equipment
44?
Cash Paid for Land Acquisition
(60)
Cash Received from Issue of Common Stock
$13
Cash Paid for Dividends to Common Stockholders
(6)
2003 INCOME STATEMENT (all $ in millions)
Sales Revenue
Cost Of Goods Sold
Bad Debts Expense
Depreciation Expense
Selling & Administrative Expenses
Income before Taxes
Income Tax Expense
Loss on the Sale of Equipment (net of $4 tax savings)
NET INCOME
BALANCE SHEET (all $ in millions)
Cash
Accounts Receivable
less: Allowance for Uncollectible Accounts
Inventory
Property, Plant & Equipment
less: Accumulated Depreciation
Accounts Payable to Suppliers
Dividends Payable
Payables for Selling & Administration
Income Taxes Payable
Common Stock
Retained Earnings
$104
(40)
(3)
16?
(14)
$31
7?
(16)
$8
12/31/03
$30
88
(6)
60
285
(40)
??
$55
5
??
10?
??
90
12/31/02
19
80
(8)
80
330
(65)
??
$65
1
??
18
??
92?
??
??
REQUIRED: Compute the missing numbers denoted in bold above and place
your answers next to the question marks. Show and label supporting
computations clearly on the back of the preceding page.
8