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NAME:__________________

Student ID:_____________

University of Guelph
College of Management & Economics
ACCT *2220 Introductory Financial Accounting
Term Test #1
February 5th, 2014
Version 1

Time:
Marks:

110 minutes
51

Instructions:
1. Record your name and student number on this exam
2. Write the all answers on this exam paper
3. Calculators are the only aid allowed.
4. The exam is 110 minutes in length. Budget your time wisely.
5. You are reminded that cheating is a serious offence, which can result
in expulsion from the university.













True or False Questions (5 Marks)



Instructions: Write TRUE beside answers that are true and write FALSE beside
answers that are false

1. An accounting transaction never affects more than one accounting period:
FALSE

2. Expenses paid before being used or consumed are initially recorded as
liabilities: FALSE

3. The cost of any depreciable asset less accumulated depreciation reflects the
carrying amount of the asset: TRUE

4. An asset purchased for $100,000 on the first day of the fiscal year with a
useful life of five years has an annual depreciation expense of $20,000: TRUE

5. Shareholders equity accounts are normally found in a debit balance: FALSE

Multiple Choice Questions (5 Marks)

1. Which of the following best describes what a T-Account is?
a. The left side of an account
b. The book of original entry in which transactions are recorded in
chronological order
c. The basic form of an account with the debit side and a credit side
showing the effect of transactions on the account
d. A system that records the dual effect of each transaction in
appropriate accounts

2. Which of the following is most likely to be considered a current liability?
a. Lease obligations
b. Pension obligations
c. Bank loan payable
d. Accounts Payable

3. Working Capital is calculated by:
a. Dividing current assets by current liabilities
b. Dividing current liabilities by current assets
c. Subtracting current liabilities from current assets
d. Subtracting current assets from current liabilities





4. Which of the following statements is true with respect to materiality:
a. It helps users make predictions about future events
b. It results when users can identify and understand similarities and
differences amount items
c. Applies when the omission or misstatement influences the decision
making of users
d. Ensures that the value of the information provided in financial
reporting is greater an the cost of providing it

5. Expenses:
a. Are normally considered assets
b. Are normally considered liabilities
c. Are initially recorded as debits
d. Are initially recorded as credits


Question 1 (20 Marks)
Pinkman Corporation began operations on January 2nd, 2013 and adjusts its
accounts annually. The following is a list of selected transactions:

Required:
a) For each of the above situations prepare the journal entry for the original
transaction and any adjusting entry that might be required on December 31st, 2013.
Write your answer in the space provided below each transaction and omit
explanations

1. Supplies were purchased on January 15th for $5000 on account. The supplies
on had at the end of the year amounted to $1000.

January 15 Supplies $5000


Accounts Payable $5000

December 31st Supplies Expense $4000



Supplies $4000

2. Pinkman purchased a truck on January 2nd, 2013 for $40,000. The truck was
estimated to have a useful life of four years.

January 2nd
Truck (Equipment) $40,000




Cash $40,000

December 31st
Deprecation Expense - $10,000




Accumulated Depreciation $10,000


3. Pinkman paid for 12 months of rent on January 2nd, 2013. The total amount
of the rent was $18,000.

January 1st
Prepaid Rent $18,000




Cash $18,000

December 31st
Rent Expense $18,000




Prepare Rent $18,000








4. On November 10th, 2013 Pinkman received $4500 from its customer to


provide service on December 15th, 2013.


November 10th




December 31st,







Cash $4500

Unearned Revenue $4500

Unearned Revenue $4500



Revenue $4500

5. On December 28th, 2013 Pinkman Provided service to a customer in the


amount of $2,500. The invoice will be prepared and mailed on January 5th,
2014.

December 28th Account receivable 2500



service revenue 2500

December 31st No Entry






















Question 2 (17 Marks)

The following is list of accounts and balances no particular order as at December


31st, 2012.
Accounts Payable
Equipment
Building
Cash

$32,900
10,900
30,200
1,850

Common Shares
Cost of Goods Sold
Dividends
Intangibles
Goodwill

46,300
244,200
400
12,450
3,950

Income Tax Expense


Retained Earnings, Jan 1

12,500
37,050

Required:
a) Prepare trial balance (in good form).
Account
Debit
Cash
1,850
Inventory
39,500
Prepaid Insurance
7,600
Other Current Assets
67,750
Land
26,250
Equipment
10,900
Building
30,200
Intangibles
12,450
Goodwill
3,950
Accounts Payable

Mortgage payable
Other Short Term Liabilities
Mortgage payable (long

term)

Note payable

Common Shares

Retained Earnings

Dividends
400
Sales
244,200
Cost of Goods Sold
Interest Expense
2,150
Operating Expenses
74,250
Tax Expenses
12,500
Total
533,950


Interest Expense
Land
Mortgage Payable
Mortgage Payable (Due in
One Year)
Merchandise Inventory
Notes Payable (Due 2015)
Operating Expenses
Other Current Assets
Other Short Term
Liabilities
Prepaid Expenses
Sales

Credit








32,900
6,300
12,200
10,050
19,150
46,300
37,050

370,000



533,950

$2,150
26,250
10,050
6,300
39,500
19,150
74,250
67,750
12,200
7,600
370,000

b) Calculate working capital (Note: show your work for any calculations made)



Current Assets-Current Liabilities

116,700 51,400 = $65,300

c) Calculate the current ratio (Note: show your work for any calculations made)

Current Assets/Current Liabilities
116,700/51,400 = 2.27



d) Calculate debt to total asset ratio (Note: show your work for any calculations
made)

Total Debt/Total Assets
80,600/200,450 = 40%


Question 3 (4 Marks)

The following is a summary of ratios for three companies. Assume you are a banker,
which company are you most likely to lend the money too? Support your answer by
specifically discussing liquidity, solvency and profitability.

Company A
Company B
Company C
Working Capital
181
180
190
Current Ratio
0.9:1
1.1:1
0.9:1
Debt to total Assets 30%
45%
34%
Earnings Per Share $1.51
$0.80
$1.50

Company A

Good Liquidity (Strong Current ratio or strong working capital)
- The Best Solvency ( Lowest Debt to total Asset ratio)

- The Best profitability (Highest Earnings Per share )

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