York University AP/ADMS2500.

03 Introduction to Financial Accounting

Midterm Examination #1
Time: 2.5 hours

Winter 2011

Questions: 30

Instructions:
1. Submit: Only the pink mark sense sheet will be collected: you may keep this midterm examination
paper. Mark your answers on it for later reference. Ensure your name is on the pink mark sense sheet.

2. Mark Sense Sheet:

Record your name and student number and answer all questions on the computer mark sense
sheet provided with an HB (soft lead) pencil. Bring several pencils in case one breaks. The
computer will not recognize ink or hard lead pencils.
Test Form is for the exam version you are writing (A, B or C)' and Code is your Section (in the
left column).
Fill in the bubbles for your name and student number in pencil (your phone number is not
required). Leave the last column of the student number BLANK .
If you change an answer, use a high quality eraser to completely remove the previous mark. If the
computer senses two answers to a question, only the first scanned will be recognized.

3. Exam Aids:

Only calculators without alphanumeric programmable memories are allowed. It is strongly

suggested you bring a couple of cheap 4 function computers to the exam in case one fails. Be
prepared to be challenged by invigilators if you bring a fancy calculator.
Compact foreign language/English dictionaries may be used. However, these will be examined by
invigilators. If there are any loose pages or handwriting in the dictionary, it will be seized and you
will be charged with academic dishonesty.
In 2500, invigilators answer no questions of interpretation. They will pass along questions
regarding possible errors/ typos/missing data to the head invigilator. If you believe a question
contains an error and do not receive a response, make a detailed note on the back of your pink
Scantron sheet and submit it with your paper.

4. Exam Strategy

Careful budgeting of time on an accounting exam is essential. Bring a watch and check your
progress regularly. Poor time management is the most common reason for poor exam
performance in accounting.
It is always a good idea to attempt the questions you deem easiest first. In an interrupted exam
that is not restarted, your exam will be scored based on questions attempted.
It is essential to transfer your answers to the grading sheet after each question in case the exam is
interrupted by fire alarm.
The last ten minutes of an exam should be devoted to double checking your transfers. What you
submit is what is graded. If you have not transferred your answers to the mark sense sheet at the
end of the exam, the invigilator will not wait. Your answer sheet will be seized and it will be
graded based on whatever questions have choices filled in.
Remember there is no penalty for guessing on a multiple choice computer graded exam. Submit a
choice for every question. Also note that in 2500, None of the above does indeed represent a
frequent correct choice to questions.

5. Exam room regulations:

All personal belongings either on the floor or at the front of the exam room. All items on your
desk will be examined by invigilators
Bring appropriate ID as proof of registration. You will be required to sign in and show
appropriate documentation. Students without ID will be allowed to write the exam, but will be
photographed and asked to submit registration and photo ID to the School of Administrative
Studies the next day.
No student may leave the exam in the first hour. No student may start the exam after an hour.
Students requiring restroom visits must be accompanied by an invigilator.
The proctors will announce when there are 15 minutes remaining and any answers not transferred
should be recorded at this time. No one is to leave their seat in the last 15 minutes.
When time is called, the proctors will go down the rows collecting your answer sheets and this
exam paper. They will not wait and they will not accept your sheet once they have passed. Any
violation of this protocol will result in a grade of zero recorded for the exam.

6. Fire Alarms

A frequent occurrence in York exams. In the event of a fire alarm, you are to leave your exam
and answer sheet face down on your desk and immediately proceed outside with coats and all
personal belongings. Print your surname on the back of the exam so you know which seat to
return to. An invigilator will lead the group outside to a place of safety. There is to be no talking
during the evacuation or outside. Most rooms are cleared so that exams can recommence, within
30 minutes of the alarm. You will be told after this time whether to reenter the room and
recommence the exam or to go home.

7. Academic Dishonesty

You are reminded that cheating is a serious offense which can result in expulsion from university.
Exams at York are held in regular classrooms, which may involve tiered seating. Consequently,
neck exercises are not allowed during exams. First instance of wandering eyes has the student
relocated to the front of the room. Second instance results in seizure of paper.

8. Special Instructions

This exam is divided into two parts. Part 1 is a case, which is related to a series of questions based
on that case. While an attempt has been to minimize the impact of the impact of carry-forward
errors in question design, some questions of necessity are related to multiple computations or
previous questions, so an error potentially can have multi-mark impact.
Part 2 are questions based on different and independent scenarios unrelated to the case of Part 1.
Double check your transfers to the pink scantron sheet.
The exam clearly indicates when a group of questions are related to a single data set. Otherwise,
assume each question is independent of the others.
With 150 minutes to do 30 questions, you should budget your time carefully and not spend more
than 5 minutes on a question. If you do, you risk not finishing the exam. A time honoured exam
strategy is to attempt the easiest questions first. This builds confidence, creates a bank of correct
answers if the exam is terminated by fire alarm and also builds a time cushion to spend extra time
on difficult questions.

9. Reminder
This is a reminder to Submit the pink mark sense sheet only, this exam paper will not be collected.
Ensure your name is on the pink mark sense sheet and that you have marked your answers in this
paper so you can check your answers when the correct answers are published.

PART 1: BRIANS FUNNY STUFF

(Questions 1 to 23 are based on this case)
Brian graduated from York University with his BAS, his parents and grandparents were very
proud and happy of this achievement. As a graduation gift, Brians Grandfather gave him
$55,000 to buy a car or start his own business.
So, on March 1, 2011, Brian started a small retail business called Funny Stuff. Funny Stuff
is a joke and novelty store. As a student, he worked at a few Joke and Novelty stores in the
country and made some good friends with their owners. Linda was a successful owner of four
stores in Montreal, and Sydney owned six stores in Vancouver and Calgary. Since he was very
good friends with them and Brain was just starting out in Toronto, both agreed to sell them their
stock at their cost to Brian.
The following is a list of transactions that occurred during the first month of operations of
Funny Stuff:
March
Description
1
Opened a business bank account with private resources for
$50,000 money given to Brian from his Grandfather as a
gift while the rest $5,000 are kept in cash
1
Signed 24 month rental contract for office space for $2,000
per month
2
Purchase Office Supplies for new business in cash
3
Paid one months rent by cheque
4
Bought goods to sell from Linda Paid Cash
5
Purchased Car: Salvage value $1,500, 36 months life
using Straight line method -, payment in two installments
on April 5th and May 5th
10
Purchased goods for sale on credit from Sydney
10
Cash sale of goods to various customers
11
Paid employees in cash for working 150 hours at $11.00
per hour
20
Purchased more goods on account from Linda to sell
22
Sold goods to Ann - On Account
24
Cash sales from Various customers
25
Paid employees in cash for working 200 hours at $11.00
per hour
26
Brian withdrew some cash for personnel reasons
28
Cheque received from Ann for payment
29
Paid office supplies in cash
30
telephone bill for $135 was received for the month of
March - payment due April 15th, 2011
30
Send cheque to Linda for payment
31
Send cheque to Sydney for payment
31
Paid next months rent with a cheque
31
Brian put in additional capital into the business (bank
deposit)

Amount
$55,000

$2,000 per month

for 2 years
$450
$2,000
$3,500
$41,100

$3,000
$9,000
$1,650
$10,000
$8,000
$6,000
$2,200
$500
$5,500
$250
$135
$8,000
$2,000
$2,000
$5,000

31
31
31

Additional information
All employees are paid $11.00 per hour, total hours worked
for the month of all employee 650
Inventory of Office Supplies showed that there was $365
remaining
Inventory available for sale was $4,500 at end of month

Prepare T Accounts in Accrual Basis for Funny Stuff and then answer the questions.

Questions on BRIANS FUNNY STUFF Case

This Section Questions 1-17 ONLY APPLIES TO ACCURAL ACCOUNTING for Funny
Stuff for the date ending March 31, 2011:
1).

What was the Cash balance at the end of the March 31, 2011?
A).
$80,500
B).
$57,950
C).
$11,450
D).
$46,500

2).

What was the Cost of inventory sold for the month of March 2011?
A).
$4,500
B).
$11,500
C).
$12,000
D).
$16,500

3).

What is the amount of Prepaid Rent for the date ending March 31, 2011?
A).
$2,000
B).
$0
C).
$4,000
D).
$$48,000

4).

What is the total amount of all of the Accounts Payable for inventory purchases that
Funny Stuff owes as of March 31, 2011?
A).
$1,000
B).
$3,000
C).
$2,000
D).
$44,100

5).

What was the value of depreciation for the car for the month of March?
A).
$1,141.67
B).
$1,100
C).
$513.75
D).
$1,000

6).

What was the payroll expense for the month of March 2011?
A).
$3,300
B).
$3,850
C).
$2,200
D).
$7,150

7).

What was the total unadjusted expenses for the month of March 2011?
A).
$3,985
B).
$15,985
C).
$22,720
D).
No enough information given for this answer

8).

What was the Net Income for Funny Stuff for the month of March?
A).
$2,815
B).
$280
C).
$1,650
D).
$3,650

9).

The total expenses for Phone and Office for the month of March are:
A).
$470
B).
$0
C).
No enough information given for this answer
D).
$335

10).

The Unadjusted Trail Balance Sheet Balances for March 31, 2011 are:
A).
Dr $65,315 Cr $65,315
B).
Dr $126,735 Cr $126,735
C).
Dr $75,500 Cr $88,000
D).
Dr $131,135 Cr $131,135

11).

What is the total amount of all of the Accounts Receivable that Funny Stuff is
owed as of March 31, 2011?
A).
$2,500
B).
$5,500
C).
$8,000
D).
$13,500

12) What is the balance of Accounts Payables that Funny Stuff owes for the car purchase
as of March 31, 2011?
A).
$3,000
B).
$40,000
C).
$44,100
D).
$41,100

13).

What was the total adjusted expenses for the month of March 2011?
A).
$3,985
B).
$15,985
C).
$22,720
D).
No enough information given for this answer

14).

The total revenues for the month of March are:

A).
$15,000
B).
$23,000
C).
No enough information given for this answer
D).
$6,000

15).

The Adjusted Trail Balance Sheet Balances for March 31, 2011 are:
A).
Dr $65,315 Cr $65,315
B).
Dr $126,735 Cr $126,735
C).
Dr $75,500 Cr $88,000
D).
Dr $131,135 Cr $131,135

16).

What are the Total of all Assets for Funny Stuff, at the end of March 2011?
A).
$108,415
B).
$107,315
C).
$107,180
D).
$16,850

17).

What are the Total of all Liabilities for Funny Stuff at the end of March 2011?
A).
$47,535
B).
$3,000
C).
$106,900
D).
$65,315

This Section Question 18-23 ONLY APPLIES TO CASH BASIS ACCOUNTING for
Funny Stuff for the date ending March 31, 2011:
18).

What was the Cash balance at the end of the March 31, 2011?
A).
$80,500
B).
$57,950
C).
$11,450
D).
$20,000

19).

What is the amount of Prepaid Rent for the date ending March 31, 2011?
A).
$2,000
B).
$0
C).
$4,000
D).
$$48,000

20).

What was the value of depreciation for the car for the month of March?
A).
$1,141.67
B).
$1,100
C).
$513.75
D).
$0

21).

What was the payroll expense for the month of March 2011?
A).
$3,300
B).
$3,850
C).
$2,200
D).
$7,150

22).

What was the Net Income for Funny Stuff for the month of March?
A).
$2,815
B).
$280
C).
$2,680
D).
$1,580

23).

The total expenses for Phone for the month of March are:
A).
$470
B).
$0
C).
No enough information given for this answer
D).
$335

PART 2: INDEPENDENT QUESTIONS

(the remaining questions are totally unrelated to the case of Part 1)
This Section Question 24-30 ONLY APPLIES TO the information provided in each
question. They are not related to the Funny Stuff case.

Use the following information for questions 24 and 25.

The following amounts have been extracted from the accounts of Sell-It at its year-end,
December 31, 1999:
Sales
$50,000
Cost of Goods Sold $43,000
Inventory
$10,000
Account Payable
$ 8,000

24). The gross profit which Sell-it would report is

A) $50,000
B) $40,000
C) $7,000
D) $15,000
25) If an error were made computing Sell-its ending inventory and inventory were
understated by $2,000 then:
A) gross profit is understated by $2,000
B) liabilities are overstated by $2,000
C) net income is overstated by $2,000
D) none of the above

26) A firm's gross profit on net sales is 30% The firm had net sales of $420,000
and net cost of purchases of $280,000. If the beginning inventory was
$40,000, how much was the ending inventory?
A) $126,000
B) $60,000
C) $26,000
D) $40,000

Use the following information for questions 27 and 28. The following information relates to
December 31 adjustments for Ashley Print, a printing company. For each question Prepare
the required December 31 adjusting entries in general journal form.
27) All maintenance work on Ashley Print's equipment is handled by Prompt Repair
Company under an agreement whereby Ashley Print pays a fixed monthly charge of $125.
Ashley Print paid four months' service charge in advance on December 1, debiting Prepaid
Maintenance for $500.
A) Dr. Maintenance Expense $125 and Cr. Prepaid Maintenance $125
B) Dr. Prepaid Maintenance $125 and Cr. Maintenance Expense $125
C) Dr. Maintenance Expense $375 and Cr. Prepaid Maintenance $375
D) Dr. Prepaid Maintenance $375 and Cr. Maintenance Expense $125
28) Ashley Print received $1,000 during December for printing services to be performed
during the following year. When received, this amount was credited to Printing Fees.
A) Dr. Cash $1,000 and Cr. Printing Fees $1,000
B) Dr. Accounts Receivables $1,000 and Cr. Printing Fees $1,000
C) Dr. Unearned Printing Fees $1,000 and Cr. Printing Fees $1,000
D) Dr. Printing Fees $1,000 and Cr. Unearned printing Fees $1,000

29) On June 30, 2004, 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.
Which of the following balances as of July 31, 2004 is correct:
A) Total assets $580,000
B) Total liabilities $350,000
C) Owner's equity $100,000
D) No enough information given for this answer

30) The ending balance of the Accounts Receivable account was $9,000. Services billed to
customers for the period were $21,500, and collections on account from customers were
$23,600. What was the beginning balance of Accounts Receivable?
A) $33,500
B) $14,100
C) $11,100
D) $33,100
End of exam

SOLUTIONS
Question Answer
Accrual
1
B
Cash at hand:
T account side (transaction) Amount
Dr (1) 5,000
Cr (3) 450
Cr (5) 3,500
Dr (8) 9,000
Cr (9) 1,650
Dr (12) 6,000
Cr (13) 2,200
Cr (14) 500
Cr (16) 250
$20,000
$8,550
Balance of cash at hand: Dr 11,450

Question Answer
- Cash
18
B Should be same as accrual
Cash at hand:
T account side (transaction) Amount
Dr (1) 5,000
Cr (3) 450
Cr (5) 3,500
Dr (8) 9,000
Cr (9) 1,650
Dr (12) 6,000
Cr (13) 2,200
Cr (14) 500
Cr (16) 250
$20,000
$8,550
Balance: Dr 11,450

Cash at Bank:
T account side (transaction) Amount
Dr (1) 50,000
Cr (4) 2,000
Dr (15) 5,500
Cr (18) 8,200
Cr (19) 2,000
Dr (21) 5,000
Cr (20) 2,000
$60,500
$14,000
Balance for Bank account: Dr 46,500

Cash in banks:
T account side (transaction) Amount
Dr (1) 50,000
Cr (4) 2,000
Dr (15) 5,500
Cr (18) 8,200
Cr (19) 2,000
Dr (21) 5,000
Cr (20) 2,000
$60,500
$14,000
Balance: Dr 46,500

Total cash: Dr $57,950

19

Total balance Dr $57,950

B Cash accounting

C
Purchases: 3,500 + 3,000 + 10,000
Ending Inventory 4,500
A

20

D Cash accounting

B Common mistake: include the car payable

21

B Cash accounting. Only the paid portion

22

A Based on the Rock Star example,

students should be able to find it as
follows:

Purchase price 41,100

Salvage value 1,500
Months to depreciate 36

D Wages paid and accrued

A Before adjustments only 3 expenses were

recorded:
Wages for $1,650 and $2,200
Telephone for $135
B
A Paid and accrued has to be added

8
9

23

NI accrual
280
Decreased by an additional
month paid of rent
($2,000)
Increased by wages not paid yet
$3,300
Increased by telephone not paid yet 135
Depreciation not to be deducted
1,100
NI cash basis
$2,815
B The bill was received but not paid,
therefore theres no expense.

10

Question Answer
Other
- Accrual
Question
10
B The unadjusted trail balance is composed 24
as follows:
Cash
11,450
Bank
46,500
AR
2,500
Inventory
16,500
Office Sup
700
Prepaid rent
4,000
Car
41,100
Teleph payable
135
AP inventory
3,000
AP car
41,100
OE
59,500
Teleph expense
135
Wages expense 3,850
Revenues
23,000
Totals
126,735
126,735
11
25
A

12

13

14

D This new question has been added to

make students realize that are 2 types of
accounts payable: for inventory and the car.
The two installments are in April and May,
therefore as March 31st the whole amount is
still owed.
C After adjustments we have the 3 original
ones (Wages for $1,650 and $2,200 plus
Telephone for $135) and we add the
following ones:
Wages
3,300
Office supplies
335
Depreciation
1,100
Rent
2,000
COGS
12,000
Total
22,720
B

26

Answer
C
Sales COGS = Gross profit
50,000 43,000 = 7,000

A Sales COGS = Gross profit

COGS = beginning balance + purchases
ending balance
If ending balance is understated, then
COGS is overstated and Gross profit is
understated.
C If CGS is 70% of sales then it is
$294,000
Beginning balance + purchases COGS =
ending inventory
40,000 + 280,000 294,000 = 26,000

27

A Only one month has been consumed,

therefore the $125 of that month has to be
removed from prepaid maintenance (asset)
and included as an expense in the Income
statement.

28

D The revenues of $1,000 cannot be

recognized yet as the service was not
provided.

11

15

16

17

D The adjusted trail balance is composed as

follows:
Cash
11,450
Bank
46,500
AR
2,500
Inventory
4,500
Office Sup
365
Prepaid rent
2,000
Car
41,100
Accum Deprec
1,100
Teleph payable
135
AP inventory
3,000
AP car
41,100
Wages payable
3,300
OE
59,500
Teleph expense
135
Wages expense 7,150
Off Suplies exp
335
Rent exp
2,000
Depreciation exp 1,100
COGS
12,000
Revenues
23,000
Totals
131,135
131,135
B By adding all assets we end up with a
total of $107,315
Cash
11,450
Bank
46,500
AR
2,500
Inventory
4,500
Office Sup
365
Prepaid rent
2,000
Car
41,100
Accum Deprec (1,100)
Total assets
107,315
A By adding all liabilities we end up with a
total of $47,535
Teleph payable
135
AP inventory
3,000
AP car
41,100
Wages payable
3,300

29

30

B
Impact of transactions
Assets
Liabilities
400,000
300,000
1 70,000
2 150,000
90,000
3 (40,000)
(40,000)
$520,000
$350,000

OE
100,000
70,000
(60,000)
$170,000

C
Ending balance + collections bills =
beginning balance
9,000 + 23,600 21,500 = 11,100

12