HM 442 Hospitality Accounting

Midterm Exam
Spring 2010

Name___________________________________

Part 1 consists of 70 multiple choice and true-false questions. Part 2 of the exam consists of three problems. Please read
the instructions carefully and make sure you complete the problems as outlined. Do you work in pencil.

Part 1 – Multiple choice and true-false questions (1 point each)

1. These are business events of an economic nature and consequently the 1. _______
raw data of accounting.
A) Debits and credits B) Assets
C) Business transactions D) Investements

2. Thes are recorded in separate accounts to facilitate the preparation and 2. _______
communication of this information in the income statement.
A) Revenues and expenses
B) Liabilities and owners' equity
C) Accruals and deferrals
D) Cash flows

3. Economic information is generally: 3. _______

A) Posted at month end
B) Recorded as cash
C) Of little importance to organizations
D) Financial

4. Expenses decrease owners' equity and revenues increase owners’ 4. _______

equity.

5. This branch of accounting is designed to provide information to various 5. _______

management levels for the purpose of enhancing controls and
measuring performance as well as providing in-depth information as
the basis for management decisions
A) Financial accounting
B) Management accounting
C) Auditing
D) Accounting information systems

6. The systematic expensing of the cost of a long-lived asset (except land) 6. _______
is recorded in:
A) A contra asset account B) A liability account
C) An asset account D) A contra liability account

7. These are used to classify and summarize business transactions and are 7. _______
the basic element used in an accounting system.
A) Debits B) Credits C) Journals D) Accounts
 8. Increases in assets are recorded with debits and decreases recorded with 8. _______
credits.

9. According to the American Accounting Association this is “the process 9. _______

of identifying, measuring, and communicating economic information to
permit informed judgments and decisions by users of the information”
A) Reporting B) Accounting
C) Finance D) Auditing

10. This financial statement reveals the financial position of a business 10. ______
entity at a point in time.
A) Balance Sheet
B) Income Statement
C) Statement of Retained Earnings
D) Statement of Cash Flows

11. The mechanics of double entry accounting dictate that: 11. ______
A) Every transaction must be made twice
B) Every transaction affects the balance sheet and the income
statement
C) Every transaction affects and is recorded in at least two accounts
D) Every transaction must include a cash account

12. Increases in liabilities and owners’ equity are recorded with credits and 12. ______
decreases are recorded with debits.

13. These reverse the effects of adjusting entries made on the last day of the 13. ______
previous period and simplify the first journal entries related to the same
items during the next accounting period.
A) Adjusting journal entries B) Standard journal entries
C) Reversing journal entries D) Accrual journal entries

14. A limitation of the Balance Sheet is that it is based on the cost principle 14. ______
and therefore does not reflect current values of some assets.

15. This is used to prepare the income statement and balance sheet. 15. ______
A) The general journal B) Adjusted trial balance
C) Statement of cash flows D) Journal entries

16. This provides for recording the date of a transaction, titles of accounts 16. ______
used, explanation of the transaction , the page number of the ledger
account to which a transaction is transferred and the debit and credit
effects of the transaction on the accounts listed
A) Ledger B) Trial balance
C) T-accounts D) Journal

17. The major disadvantage of the corporate form of business organization 17. ______
is:
A) Limited liability B) Double taxation
C) Common shareholders D) Charter of incorporation
18. These are the obligations to pay money or other assets, or to render 18. ______
services, to an outside party either now or in the future.
A) Liabilities B) Assets
C) Owners' equity D) Expenses

19. The right side of an account is always called the credit side and the left 19. _____
side of an account is always called the debit side.

20. Transferring amounts recorded in the general journal to ledger accounts 20. ______
is called:
A) Journalizing B) Account adjustment
C) Analyzing transactions D) Posting

21. The balance of the income summary account is the: 21. ______
A) Net income (loss) for the period
B) Total of all revenues
C) Balance transferred to the income statement at the end of the
period
D) Net owners' equity balance prior to adjusments

22. Accrued items requiring adjustments at the end of the accounting 22. ______
period can include:
A) Revenues earned from unearned revenue accounts
B) Wage or utility expense incurred but paid in a future period
C) Prepaid items and depreciation expense
D) Amounts transferred to the balance sheet

23. Under the cash basis of accounting, sales are recognized when they 23. ______
occur (regardless of when cash is received) and expenses are recognized
when incurred (regardless of when payment is made).

24. This form of business organization, a business owned by a single 24. ______
individual, is the most common form in the hospitality industry.
A) C Corporation B) Limited Liability Company
C) Sole Proprietorship D) General Partnership

25. These are things of value that a company owns. 25. ______
A) Assets B) Liabilities
C) Owners' Equity D) Reveneus

26. The normal balance of an account is the kind of balance that an account 26. ______
generally shows.

27. Thes accounts are called real accounts that are never closed. 27. ______
A) Income statement accounts
B) Summary accounts
C) Revenue and expense accounts
D) Balance sheet accounts

28. This allows a more meaningful evaluation of business operations 28. ______
because it more accurately matches expenses with revenue.
A) Cash basis accounting B) Accrual basis accounting
C) Income statement D) GAAP
29. Under this form of business organization, a business is owned by two or 29. ______
more people joined in a non-corporate manner through an oral or
written agreement.
A) General Partnership B) S Corporation
C) Sole Proprietorship D) Limited Liability Company

30. A balanced trial balance is proof that all transactions have been 30. ______
recorded properly.

31. Two things are common with every end-of-period adjusting entry; each 31. ______
entry involves a balance sheet account and income statement account;
and:
A) All entries are reversed in the next accounting period
B) No adjusting entries involve cash
C) All involve cash
D) End-of-period financial statements are not affected

32. This financial statement shows the results of operations for a period of 32. ______
time.
A) Income statement B) Balance Sheet
C) Income Summary D) Statement of Cash Flows

33. This branch of accounting involves reviewing and evaluating 33. ______
documents, records, and control systems.
A) Managerial accounting B) Financial accounting
C) Auditing D) Cost accounting

34. The difference between the total debits and credits of an account is 34. ______
called the:
A) Journal entry B) Balance
C) Net income (loss) D) Trial balance

35. This generally accepted accounting principle states that when a 35. ______
transaction is recorded, the transaction price (cost) establishes the value
of the product or service purchased.
A) Matching B) Recognition
C) Cost D) Business Entity

36. This serves as the link between the income statement and the balance 36. ______
sheet.
A) Statement of owners’ equity
B) Statement of cash flows
C) Statement of income and expense
D) Profit and loss statement

37. The general equation for calculating cost of goods sold is: 37. ______
A) Ending inventory + beginning inventory - purchases
B) Beginning inventory + purchases — ending inventory
C) Goods available + beginning inventory
D) Purchases - ending inventory - beginning inventory
38. Total liabilities and owners’ equity show: 38. ______

A) How company resources (assets) are currently financed

B) The net income (loss) for the period
C) The net worth of the organization
D) How efficiently assets are being used to produce revenue

39. This branch of accounting involves accounting for revenues, expenses, 39. ______
assets and liabilities as well as the basic account processes of recording,
classifying, and summarizing transactions.
A) Cost accounting B) Auditing
C) Managerial accounting D) Financial Accounting

40. This generally accepted accounting principle states that financial 40. ______
statements must provide information on all the facts pertinent to the
interpretation of the financial statements.
A) Full disclosure B) Cost
C) Recognition D) Matching

41. Accrual basis accounting generally requires that several adjusting 41. ______
entries be recorded at the end of the accounting period.

42. These are the backbone of the accounting system. 42. ______
A) Debits and credits
B) Financial statements
C) Asset, liabilities, and owners' equity
D) Cash flows

43. The fundamental accounting equation states: 43. ______

A) Assets = Liabilities + Owners’ Equity
B) Revenues - expenses = net income
C) Liabilities = owners' equity
D) Assets + revenues = expenses

44. A group of accounts is defined as a: 44. ______

A) Journal B) Chart of accounts
C) Ledger D) Schedule

45. The expenses section of an income statement includes: 45. ______

A) Owners withdraws and deferred expenses
B) Outflows related to the accounting period and expenses that were
incurred in the process of producing revenue
C) Current and fixed assets
D) Inflows related to the accounting period and expenses that were
incurred in the process of producing revenue

46. When looking at financial statements, creditors are primarily interested 46. ______
in:
A) Net income
B) A firm’s ability to pay its bills
C) Deposits and escrows
D) Amount of cash in the bank
47. Once financial statements are prepared and approved, nominal accounts 47. ______
are closed often through a clearing account called the Income Summary.

48. This is the measure of an operation’s ability to convert assets to cash. 48. ______
A) Flexibility B) Cash flow
C) Net income D) Liquidity

49. Under this form of business organization certain owners may not 49. ______
actively participate in managing the business.
A) General partnership B) Unlimited partnership
C) Limited partnership D) S Corporation

50. This financial statement shows cash inflows and outflows for a period of 50. ______
time.
A) Statement of cash flows
B) Statement of income and expenses
C) Statement of liquidity
D) Statement of profits and loss

51. Because they decrease owners’ equity, these are recorded with a debit. 51. ______
A) Liabilities B) Expenses
C) Revenue D) Assets

52. Journal entries involving three or more accounts are called: 52. ______
A) Complex journal entries B) Various journal entries
C) Extended journal entries D) Compound journal entries

53. Adjustments to cost of goods sold may be necessary because: 53. ______
A) Not all goods may have been purchased
B) Not all goods were available for sale
C) Not all goods may have been used for direct sales to customers
D) Not all goods may have been used in the month they were
purchased

54. A Mortgage Payable differs from a Notes Payable in that a mortgage is 54. ______
an obligation:
A) Secured by real property
B) To a bank
C) Not involving a signed agreement
D) Secured by personal assets

55. Under this form of business organization, owners are not separable 55. ______
from the business, are legally responsible for all business debts, and
have unlimited liability.
A) C Corporation B) Limited Liability Company
C) Sole Proprietorship D) General Partnership

56. The generally accepted accounting principle of matching requires that: 56. ______
A) Assets be matched to liabilities and owners' equity
B) Expenses be matched with the revenues they generate
C) Revenues be matched with the sales generated
D) Expenses be matched with the liabilities used to finance them
57. Transactions involving investment, withdraw of assets, revenues earned 57. ______
and expenses incurred affect:
A) Assets B) Net income (loss)
C) The income statement D) Owners’ Equity

58. This is a listing of accounts numbered according to their classification 58. ______
and formated in order of balance sheet items to income statement items.
A) List of accounts B) Chart of accounts
C) Ledger D) Journal

59. When looking at financial statements, owners and potential owners are 59. ______
primarily interested in
A) Potential returns on investement
B) Cash in the bank
C) The company's ability to pay it's bills
D) Managment structure

60. This Other Asset item reflects the portion of the market value of a 60. ______
business entity not directly attributable to its assets and liabilities.
A) Deposits B) Patents
C) Deferred items D) Goodwill

61. The balance of the income summary account is: 61. ______
A) Always a credit balance
B) Closed to the owners’ capital account
C) Closed to the income statement
D) Always a debit balance

62. Because they increase owners’ equity, these are recorded with a credit. 62. ______
A) Assets B) Revenues
C) Expenses D) Owners' equity

63. The fundamental accounting equation shows that there are two types of 63. ______
claims on assets.
A) Claims of crditors and claims of banks
B) Claims of investors and claims of owners
C) Calims of owners and claims of the govenment
D) Claims of owners and claims of creditors

64. This is prepared to test the equality of debits and credits. 64. ______
A) Trial balance of accounts B) Journal entries
C) Financial statements D) Balance sheet

65. Deferred items requiring adjustments at the end of the accounting 65. ______
period can include:
A) Wage or utility expense incurred but paid in a future period
B) Amounts transferred to the balance sheet
C) Prepaid item and depreciation expenses
D) Revenues earned from unearned revenue accounts
66. This is used by owners and investors to assess the performance of a 66. ______
company over a period of time and is thought to be a more reliable
measure than net income alone.
A) Income statements B) Balance sheets
C) Earnings per share D) Retained earnings

67. These are claims of the business owners to assets. 67. ______
A) Earnings B) Owners’ equity
C) Current assets D) Income summary

68. Double-entry bookkeeping is based on: 68. ______

A) The matching principle
B) The laws of business nature
C) The business entity principle
D) The fundamental accounting equation

69. This is a cumulative measure of the amount of company assets that 69. ______
comes from profitable operations rather than fund raising.
A) Statement of cash flows
B) Statement of income and expenses
C) Statement of retained earnings
D) Statement of oowners' equity

70. These accounts are closed at the end of each accounting year into the 70. ______
Owners’ Equity account.
A) Asset, liability , and owners' equity accounts
B) Income summary accounts
C) Both the real and nominal accounts
D) Revenue, expense and drawing accounts
Trial Balance of Accounts - July 30, 2008
dr. c r.
Cash - House Funds $ 2,500
Cash - General Ac c ount $ 38,000
Cash - Payroll Ac c ount $ 1,265
Credit Card Rec ievables $ 13,008
Ac c ounts Rec ievable $ 645
Food Inventory $ 24,205
Beverage Inventory $ 3,611
Prepaid Insuranc e $ 600
Land $ 125,000
Building $ 160,000
Ac c umulated Deprec iation - Building $ 2,462
Furniture and Fixtures $ 38,000
Ac c umulated Deprec iation - Furniture and Fixtures $ 1,900
Equipment $ 15,700
Ac c umulated Deprec iation - Equipment $ 785
Deposit $ 3,000
Goodwill $ 15,000
Ac c ounts Payable $ 17,621
Advanc ed Deposits $ 20,000
Taxes Payable $ 1,564
Wages Payable $ -
Utilities Payable $ -
Current Portion - Long-Term Debt $ 20,000
Long-Term Debt $ 180,000
Owner's Capital Ac c ount $ 173,751
Owner's Drawing Ac c ount $ 30,000
Food S ales $ 67,237
Food Allowanc es $ 230
Beverage S ales $ 12,800
Beverage Allowanc es
Cost of Food S ales $ 123
Cost of Beverage S ales
Wage Expense $ 14,632
Employee Benefits $ 732
Food Operating S upplies $ 3,484
Beverage Operating S upplies $ 716
Administrative and General Expense $ 2,788
S ales and Marketing Expense $ 1,520
Maintenanc e Expense $ 900
Utilities Expense $ 1,145
Oc c upanc y Expense $ 1,200
Interest Expense $ 116
Deprec iation and Amortization Expense
Inc ome Taxes
$ 498,120 $ 498,120
Problem 1 – 10 points

Given the above trial balance, compile journal entries (with explanations) for the following transactions and prepare a
trial balance as of July 31, 2008

1. Food sale for July 31 - $2,731 of which $1,789 was cash sales and the remainder credit card sales
2. Beverage sales for July 31 - $456 of which 325 was cash sales and the remainder credit card sales
3. Issued check to food vendor for $7,989
4. Issued check to beverage vendor for $356
5. Banquet sales for July 31 - $1,600
a. Sales are divided as $1,250 in food sales and $350 in beverage sales
b. $1,000 cash was paid on transaction and the remainder transferred from advanced deposits
6. Received food delivery of $458 on account
7. Received Beverage delivery of $123 on account
 P ag e x x x

General Journal
Dat e Acco unt s/Ex p lanat io n P /R De b it C re d it
Trial Balance of Accounts - July 31, 2008
dr. c r.
Cash - House Funds
Cash - General Ac c ount
Cash - Payroll Ac c ount
Credit Card Rec ievables
Ac c ounts Rec ievable
Food Invenetory
Beverage Inventory
Prepaid Insuranc e
Land
Building
Ac c umulated Deprec iation - Building
Furniture and Fixtures
Ac c umulated Deprec iation - Furniture and Fixtures
Equipment
Ac c umulated Deprec iation - Equipment
Deposit
Goodwill
Ac c ounts Payable
Advanc ed Deposits
Taxes Payable
Wages Payable
Utilities Payable
Current Portion - Long-Term Debt
Long-Term Debt
Owner's Capital Ac c ount
Owner's Drawing Ac c ount
Food S ales
Food Allowanc es
Beverage S ales
Beverage Allowanc es
Cost of Food S ales
Cost of Beverage S ales
Wage Expense
Employee Benefits
Food Operating S upplies
Beverage Operating S upplies
Administrative and General Expense
S ales and Marketing Expense
Maintenanc e Expense
Utilities Expense
Oc c upanc y Expense
Interest Expense
Deprec iation and Amortization Expense
Inc ome Taxes
Problem 2 – 10 Points

Given the following information, calculate the cost of good sold (food) for the month of July, compile journal entries (with
explanations) and complete entries to the ledger accounts

Beginning inventory - $6,731

Purchases - $17,932
Ending inventory - $5,922
Beverage to food - $98
Food to beverage - $128
Cost of employee meals - $3,100
Promotional food expense - $680 Cost of Goods Sold (food) $___________________

P ag e x x

General Journal
Dat e Acco unt s/Ex p lanat io n P /R De b it C re d it
Account Name : Food Inve ntory Acct. No. 1210
D ate Ac c ount/Expl anati on P/R De b it C re d it Balance
July 1 Beginning Inventory 6 7 3 1 00
July 12 Purchases 8 9 6 6 00 1 5 6 9 7 00
22 Purchases 8 5 0 8 00 2 4 2 0 5 00
31 Purchases 4 5 8 00 2 4 6 6 3 00

Account Name : Be ve rage Inve ntory Acct. No. 1220

D ate Ac c ount/Expl anati on P/R De b it C re d it Balance
July 1 Beginning Inventory 3 6 1 1 00
31 Purchases 1 2 3 00 3 7 3 4 00

Account Name : Cost of Food Sold Acct. No. 5210

D ate Ac c ount/Expl anati on P/R De b it C re d it Balance
July 30 Direct Purchase 1 2 3 00

Account Name : Employe e Me als Acct. No. 5377

D ate Ac c ount/Expl anati on P/R De b it C re d it Balance

Account Name : Promotional Expe nse Acct. No. 5490

D ate Ac c ount/Expl anati on P/R De b it C re d it Balance
Problem 3 – 10 Points

Using the following adjusted trial balance:

1. Prepare the Income Statement, Balance Sheet and the Statement of Owners Equity
2. Prepare the journal entries necessary to close the temporary accounts to the income summary and the entries
necessary to close the income summary to Owners’ Equity

Adjusted Trial Balance of Accounts - July 31, 2008

dr. c r.
Cash $ 25,450
Ac c ounts Rec ievable $ 1,284
Food Inventory $ 6,723
Beverage Inventory $ 1,287
Prepaid Insuranc e $ 750
Land $ 86,000
Building $ 125,000
Ac c umulated Deprec iation - Building $ 1,250
FF&E $ 45,900
Ac c umulated Deprec iation - FF&E $ 4,590
Ac c ounts Payable $ 12,884
Advanc ed Deposits $ 600
Wages Payable $ 680
Utilities Payable $ 477
Current Portion - Long-Term Debt $ 14,400
Long-Term Debt $ 201,600
Owner's Capital Ac c ount $ 66,601
Owner's Drawing Ac c ount $ 25,000
Food S ales $ 86,045
Food Allowanc es $ 120
Beverage S ales $ 15,300
Beverage Allowanc es $ 50
Cost of Food S ales $ 30,976
Cost of Beverage S ales $ 2,448
Wage Expense $ 21,280
Employee Benefits $ 5,621
Food Operating S upplies $ 5,421
Beverage Operating S upplies $ 677
Administrative and General Expense $ 5,321
S ales and Marketing Expense $ 3,500
Maintenanc e Expense $ 600
Utilities Expense $ 1,250
Oc c upanc y Expense $ 8,678
Interest Expense $ 116
Deprec iation and Amortization Expense $ 975
$ 404,427 $ 404,427
Income Statement

Balance Sheet

Statement of Owners’ Equity

 P ag e x x

General Journal
Dat e Acco unt s/Ex p lanat io n P /R De b it C re d it