Spring ’21 North South University HHq1

School of Business, BBA

ACT 201

Introduction to Financial Accounting

Midterm-1

Time : 1 hr 20mins Full Marks:

30

1. Information related to Robusta Co., a merchandising company, is presented below.

 On April 5, purchased merchandise from Xavier Company for $25,000 terms 2/10,
net/30
 On April 6, paid freight costs of $900 on merchandise purchased from Xavier.
 On April 8, returned damaged merchandise to Xavier Company and was
granted a $4,000 credit for returned merchandise.
 On April 15, paid the amount due to Xavier Company in full.
 On April 16, sold $500,000 of merchandise to Trump Co., terms 2/10, n/30,
FOB shipping point. The cost of the merchandise sold was $350,000.
 On April 18, Trump Co. returned $27,000 of defected merchandise, purchased
on April 16. The scrap value of this defective merchandise was $12000.
 On April 26, Robusta Co., Company received the balance due from Trump Co.

Instructions
Prepare the journal entry to record the transaction under a perpetual inventory system. (7
Marks)
 2. Monbana Corp. hired a new accountant and the following errors were observed:

(a) Rent Received $430 have been credited to the Commissions Received account.

(b) Bank charges $34 have been debited to the Business Rates account.

(c) Completely omitted from the books is a payment of Motor Expenses by cheque $37.

(d) A purchase of a fax machine $242 has been entered in the Purchases account.

(e) Sales return $216 has been entered on the debit side of the purchase return account.

(f) Loan interest of $400 has been debited to the Van account.

(g) Cash taken for own use $84 has been credited to Drawings and debited to cash account.

Instructions

Prepare the journal entry required to correct the errors in the above transactions. (8
marks)
3. Elon Musk opened a Motel for business on May 1, 2020. His accountant has extracted the
following trial balance from his books of account as at May 31 2020.

Trial Balance

As at May 31 2020

Details Dr. Cr.

$ $

Cash 2500

Supplies 1900

Prepaid Insurance 2400

Land 15000

Lodge 70000

Furnituire 16800

Accounts Payable 5300

Unearned Revenue 3600

Mortgage Loan 35000

Musk, Capital 60000

Rent Revenue 9200

Advertise expense 500

Salaries expense 3000

Utilities Expense 1000

Total 113,100 113,100

 Notes: The following additional information is to be taken into account.

1. Insurance expires at the rate of $200 per month.

2. Supplies show $900 of unused supplies on May 31.

3. Depreciation $300 on the Lodge and $250 on furniture per month.

4. Mortgage interest 12% per year. The mortgage was taken on May 1.

5. Unearned rent of $1500 has been earned.

6. Salaries of $300 are accrued at May 31.

Instructions

Draw up the adjusted Journal and then complete the Worksheet, indicating the adjusted
Trial Balance, Income Statement & Balance sheet on May 31, 2020. (15 Marks)