ACCOUNTING FOR DECISION MAKING MID TERM TOTAL MARKS 100 TIME ALLOWED 3 HOURS SECTION 1 MAXIMUM MARKS

40 TIME ALLOWED 45 MINUTES QUESTION NO 1 (2 MARKS EACH) 20 MARKS I. Describe what is meant by unearned revenues and give two examples. II. Describe what is meant by prepaid expenses and give two examples. III. What is the difference between permanent accounts and temporary accounts and why does an accounting system have both types of accounts? IV. What is the purpose of the statement of cash flows? List the three major categories of cash flows and give an example of a cash transaction for each category. V. What is the purpose of the closing process? VI. List the four financial statements most frequently provided to external users. VII. Define the historical cost concept. VIII. Define the realization concept. IX. Define fair value. X. Discuss briefly why depreciation is charged. QUESTION NO 2 (1 MARK EACH) 10 MARKS IDENTIFY THE STATEMENT IS TRUE OR FALSE I. The primary function of financial accounting is to provide relevant financial information to parties external to business enterprises. II. Accrual accounting attempts to measure revenues and expenses that occurred during accounting periods so they equal net operating cash flow. III. Conservatism is a desired qualitative characteristic of accounting information. IV. Equity is a residual amount representing the owner's interest in the assets of the business. V. Debits increase asset accounts and decrease liability accounts. VI. Prepaid expenses are classified as current assets if the services purchased are expected to expire within twelve months or the operating cycle, if that is longer. VII. Property, plant, and equipment include machinery, equipment, and inventories. VIII. A change in depreciation method is accounted for by retrospectively revising prior years' financial statements. IX. Intangible assets usually are reported in the balance sheet as current assets. X. Accrued salaries and wages in a balance sheet represent salary and wages that have been earned by employees but not yet paid. QUESTION NO 3 (1 MARK EACH) 10 MARKS I. Which of the following groups is not among the external users for whom financial statements are prepared? A. Customers B. Suppliers C. Employees D. All of the above are external users of financial statements. II. Revenue should not be recognized until: A. The earnings process is complete and collection is reasonably assured. B. Contracts have been signed and payment has been received. C. Work has been performed and customer has been billed. D. Collection has been made and warrantees have expired. III. Tanias year end trial balance includes the following balances: $ Opening inventory 12,964 Trade receivables 43,728 Bank overdraft 5,872 Trade payables 28,627 Tanias closing inventory is valued at $11,625.Based on the above figures, what is the value of Tanias current assets? A. $33,818 B. $55,353 C. $56,692 D. $61,225

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A. B. C. D. V.

A. B. C. D. VI.

A. B. C. D. VII.

A. B. C. D. VIII.

A. B. C. D. IX. A. B. C. D. X. A. B. C. D.

On 1 March 2004 Andrew took out a loan for $50,000. The loan is to be repaid in five equal annual installments, with the first repayment falling due on 1 March 2006. How should the balance on the loan be reported on Andrews year-end balance sheet as at 30 April 2004? $50,000 as a current liability $50,000 as a non-current liability $10,000 as a current liability and $40,000 as a non-current liability $40,000 as a current liability and $10,000 as a non-current liability A non-current asset was purchased at the beginning of Year 1 for $2,400 and depreciated by 20% per annum by the reducing balance method. At the beginning of Year 4 it was sold for $1,200. The result of this was A loss on disposal of $240.00 A loss on disposal of $28.80 A profit on disposal of $28.80 A profit on disposal of $240.00 The net book value of a company's non-current assets was $200,000 at 1 August 20X8. During the year ended 31 July 20X9, the company sold non-current assets for $25,000 on which it made a loss of $5,000. The depreciation charge for the year was $20,000. What was the net book value of non-current assets at 31 July 20X9? $150,000 $155,000 $160,000 $180,000 On 1 June 20X9 a machine was sold which cost $20,000 on 31 July 20X5. The sale proceeds were $5,500. The depreciation policy for machinery is 20% pa straight line, with a full year being charged in the year of acquisition and none in the year of disposal. The year-end is 31 December. What is the profit or loss on disposal? Profit $834 Loss $834 Profit $1,500 Loss $1,500 On 1 June 20X9 a machine was sold which cost $20,000 on 31 July 20X5. Sale proceeds were $5,500 and the profit on disposal was $1,500. The depreciation policy for machinery is straight line with a full year being charged in the year of acquisition and none in the year of sale. What is the depreciation rate? 20% pa 25% pa 30% pa 35% pa A business buys a machine for $15,000. The depreciation policy for machinery is 15% pa reducing balance. What is the net book value of the machine after two years of use? $10,500 $10,837 $11,175 $12,750 A company has recorded its freehold property at its historical cost of $100,000. It now decides to record it at its market value of $280,000, by making which entries? Debit non-current assets 180,000 Credit revaluation reserve 180,000 Debit revaluation reserve 180,000 Credit non-current assets 180,000 Debit non-current assets 180,000 Credit income statement 180,000 Debit non-current assets 280,000 Credit revaluation reserve 280,000

SECTION TWO ATTEMPT ANY FOUR QUESTION 15 MARKS EACH QUESTION NO 4 Presented below are the trial balance and the other information related to Yorkis Perez, a consulting engineer. YORKIS PEREZ, CONSULTING ENGINEER TRIAL BALANCE DECEMBER 31, 2010 Debit Credit Cash $ 29,500 Accounts Receivable 49,600 Allowance for Doubtful Accounts $ 750 Engineering Supplies Inventory 1,960 Prepaid Insurance 1,100 Furniture and Equipment 25,000 Accumulated DepreciationFurniture and Equipment 6,250 Notes Payable 7,200 Yorkis Perez, Capital 35,010 Service Revenue 100,000 Rent Expense 9,750 Office Salaries Expense 30,500 Heat, Light, and Water Expense 1,080 Miscellaneous Office Expense 720 -------------------------------$149,210 $149,210 -------------------------------1. Fees received in advance from clients $6,000. 2. Services performed for clients that were not recorded by December 31, $4,900. 3. Bad debt expense for the year is $1,430. 4. Insurance expired during the year $480. 5. Furniture and equipment is being depreciated at 10% per year. 6. Yorkis Perez gave the bank a 90-day, 10% note for $7,200 on December 1, 2010. 7. Rent of the building is $750 per month. The rent for 2010 has been paid, as has that for January 2011. 8. Office salaries earned but unpaid December 31, 2010, $2,510. Instructions (a) From the trial balance and other information given, prepare annual adjusting entries as of December 31, 2010. (b) Prepare an income statement for 2010, balance sheet. Yorkis Perez withdrew $17,000 cash for personal use during the year. QUESTION NO 5 Prepare the following adjusting entries at August 31 for Walgreens. (a) Interest on notes payable of $300 is accrued. (b) Fees earned but unbilled total $1,400. (c) Salaries earned by employees of $700 have not been recorded. (d) Bad debt expense for year is $900. Use the following account titles: Service Revenue, Accounts Receivable, Interest Expense, Interest Payable, Salaries Expense, Salaries Payable, Allowance for Doubtful Accounts, and Bad Debt Expense.

QUESTION NO 6 Stephen King, D.D.S., opened a dental practice on January 1, 2010. During the first month of operations the following transactions occurred. 1. Performed services for patients who had dental plan insurance. At January 31, $750 of such services was earned but not yet billed to the insurance companies. 2. Utility expenses incurred but not paid prior to January 31 totaled $520. 3. Purchased dental equipment on January 1 for $80,000, paying $20,000 in cash and signing a $60,000, 3-year note payable. The equipment depreciates $400 per month. Interest is $500 per month. 4. Purchased a one-year malpractice insurance policy on January 1 for $15,000. 5. Purchased $1,600 of dental supplies. On January 31, determined that $400 of supplies were on hand. Instructions Prepare the adjusting entries on January 31. (Omit explanations.) Account titles are: Accumulated DepreciationDental Equipment; Depreciation Expense; Service Revenue; Accounts Receivable; Insurance Expense; Interest Expense; Interest Payable; Prepaid Insurance; Supplies; Supplies Expense; Utilities Expense; and Utilities Payable. QUESTION NO 7 Listed below are the transactions of Yasunari Kawabata, D.D.S., for the month of September. Sept. 1 Kawabata begins practice as a dentist and invests $20,000 cash. 2 Purchases furniture and dental equipment on account from Green Jacket Co. for $17,280. 4 Pays rent for office space, $680 for the month. 4 Employs a receptionist, Michael Bradley. 5 Purchases dental supplies for cash, $942. 8 Receives cash of $1,690 from patients for services performed. 10 Pays miscellaneous office expenses, $430. 14 Bills patients $5,820 for services performed. 18 Pays Green Jacket Co. on account, $3,600. 19 Withdraws $3,000 cash from the business for personal use. 20 Receives $980 from patients on account. 25 Bills patients $2,110 for services performed. 30 Pays the following expenses in cash: office salaries $1,800; miscellaneous office expenses $85. 30 Dental supplies used during September, $330. Instructions (a) Enter the transactions shown above in appropriate general ledger accounts (use T-accounts). Use the following ledger accounts: Cash; Accounts Receivable; Supplies on Hand; Furniture and Equipment; Accumulated Depreciation; Accounts Payable; Yasunari Kawabata, Capital; Service Revenue; Rent Expense; Miscellaneous Office Expense; Office Salaries Expense; Supplies Expense; Depreciation Expense; and Income Summary. Allow 10 lines for the Cash and Income Summary accounts, and 5 lines for each of the other accounts needed. Record depreciation using a 5-year life on the furniture and equipment, the straight-line method, and no salvage value. Do not use a drawing account. (b) Prepare a trial balance. (c) Prepare an income statement, a statement of owners equity, and an classified balance sheet.

QUESTION NO 8 Allegro Supply Company, a newly formed corporation, incurred the following expenditures related to Land, to Buildings, and to Machinery and Equipment. Abstract companys fee for title search $ 520 Architects fees 3,170 Cash paid for land and dilapidated building thereon 92,000 Removal of old building $20,000 Less: Salvage 5,500 14,500 Interest on short-term loans during construction 7,400 Excavation before construction for basement 19,000 Machinery purchased (subject to 2% cash discount, which was not taken) 65,000 Freight on machinery purchased 1,340 Storage charges on machinery, necessitated by noncompletion of building when machinery was delivered 2,180 New building constructed (building construction took 6 months from date of purchase of land and old building) 485,000 Assessment by city for drainage project 1,600 Hauling charges for delivery of machinery from storage to new building 620 Installation of machinery 2,000 Trees, shrubs, and other landscaping after completion of building 5,400 Instructions Determine the amounts that should be debited to Land, to Buildings, and to Machinery and Equipment. Assume the benefits of capitalizing interest during construction exceed QUESTION NO 9 I. Presented below is information related to Morrow Manufacturing Corporation. Asset Cost Estimated Salvage Estimated Life (in years) A $40,500 $5,500 10 B 33,600 4,800 9 C 36,000 3,600 8 D 19,000 1,500 7 E 23,500 2,500 6 Instructions (a) Compute the rate of depreciation per year to be applied to the plant under the composite method. (b) Prepare the adjusting entry necessary at the end of the year to record depreciation for the year. (c) Prepare the entry to record the sale of Asset D for cash of $5,000. It was used for 6 years, and depreciation was entered under the composite method. In 1983, Abraham Company completed the construction of a building at a cost of $1,900,000 and first occupied it in January 1984. It was estimated that the building will have a useful life of 40 years and a salvage value of $60,000 at the end of that time. Early in 1994, an addition to the building was constructed at a cost of $470,000. At that time it was estimated that the remaining life of the building would be, as originally estimated, an additional 30 years, and that the addition would have a life of 30 years, and a salvage value of $20,000. In 2012, it is determined that the probable life of the building and addition will extend to the end of 2043 or 20 years beyond the original estimate. Instructions (a) Using the straight-line method, compute the annual depreciation that would have been charged from 1984 through 1993. (b) Compute the annual depreciation that would have been charged from 1994 through 2011. (c) Prepare the entry, if necessary, to adjust the account balances because of the revision of the estimated life in 2012. (d) Compute the annual depreciation to be charged beginning with 2012. II.