ACCT 110 - FINANCIAL ACCOUNTING 1

SAMPLE MIDTERM

*** KEY ***

TIME: 90 MINUTES

Question Type Possible Marks Achieved

1-16 Multiple Choice 16

16 Journal Entries 10

17 Adjusting Entries 6

18 Closing Entries 3

19 Financial 20
Statements

20 Other 5

Total 60

Letter Grade

NO EXPLANATIONS ARE REQUIRED FOR JOURNAL ENTRIES.

NAME ____________________________________ DATE _____________________________

ACCT 110 - Mock Midterm Page 1
MULTIPLE CHOICE. (15 Marks) Circle the one letter that best answers the question.

1. The purpose of a trial balance is:

a. To determine that journal entries are in balance before posting those entries to the ledger
b. To indicate the effects of business transactions upon ledger accounts
c. To prove the equality of debits and credits in the ledger
d. To make certain that none of the entries has been omitted

2. Communication of economic information to those people who need it involves

a. Identifying economic events

b. Measuring economic events in dollars and cents
c. Preparing and distributing accounting reports
d. Recording of financial transactions

3. The owner’s equity in a business may best be described as:

a. An economic resource that is owned by a business and is expected to provide future

benefits
b. An obligation of the business entity to its creditors
c. Profits that have been retained in the business rather than being withdrawn by the owners
d. Assets minus liabilities

4. A business organized as a corporation

a. Is owned by its shareholders

b. Is not a separate legal entity in most provinces
c. Requires that shareholders be personally liable for the debts of the business
d. Terminates when one of its original shareholders dies.

5. Posting:

a. Should be performed in account number order

b. Involves transferring all debits and credits on a journal page to the trial balance
c. Is accomplished by examining ledger accounts and seeing which ones need updating
d. Involves transferring journal entry information to ledger accounts

6. The time period assumption states that:

a. A transaction can only affect one period of time

b. Estimates should not be made if a transaction affects more than one time period
c. Adjustments to the enterprise’s accounts can only be made in the time period when the
business terminates its operations
d. The economic life of a business can be divided into artificial time periods

7. Another name for journal is:

a. Book of final entry

b. Book of original entry
c. Book of accounts
d. Book of source documents

8. Assets would be overstated if a necessary adjusting entry were omitted for:

a. Expired insurance
b. Accrued salaries owing to employees
c. Accrued interest earned
d. Revenue collected in advance during the period
ACCT 110 - Mock Midterm Page 2
9. The purpose of adjusting entries is to:

a. Correct errors made in the accounting records

b. Update the balance of the owner’s capital account for changes in owner’s equity
temporarily recorded in revenue and expense accounts
c. Prepare the revenue and expense accounts for recording the transactions of the next
accounting period
d. Bring an asset or liability account balance to its proper amount while also updating the
related expense or revenue account

10.The fiscal year of a business is usually determined by:

a. Canada Customs and Revenue Agency (formerly called Revenue Canada)

b. The Tax Act
c. The operating cycle of the business itself
d. Provincial securities and exchange commissions

11.Closing entries are made:

a. In order to terminate the business as an operating entity

b. So that all assets, liabilities, and owner’s capital accounts will have zero balances when the
next accounting period starts
c. To prepare accounts for recording the transactions of the next period
d. So that financial statements can be prepared

12.If the Revenue account has a credit balance at the end of the accounting cycle a closing
journal entry will include a:

a. Debit to the owner's capital account

b. Debit to the owner's drawing account
c. Credit to the owner's capital account
d. Credit to the owner's drawing account

13.The first step in the accounting cycle is

a. Adjusting entries
b. Journalizing transactions in the book of original entry
c. Analyzing transactions
d. Posting to the ledger

14.An intangible asset:

a. Derives its value from the rights and privileges granted to the owner
b. Is worthless because it has no physical substance
c. Is converted into a tangible asset during the operating cycle
d. Cannot be classified on the balance sheet because it lacks physical substance

15.The relationship between current assets and current liabilities is important in evaluating a
company’s:

a. Profitability
b. Liquidity
c. Market value
d. Accounting cycle

16.When talking to another person and you are indicating the balance of an account you only
need to tell the other person the dollar amount of the account without having to indicate that
the balance is either a debit or a credit – why?

a. The other person probably does not know what a debit or credit is so you do not want to
confuse them
b. This will not matter because everyone outside of the business world will not know about
debits and credits and so there is no point in providing this extra information
c. In the business world everyone should know the ALORE debit/credit balance rules and
therefore they will know the correct balance based upon Normal balance rules
d. In Australia the debit/credit rules are backwards
ACCT 110 - Mock Midterm Page 3
JOURNAL ENTRIES. (10 Marks) Gordon’s Gardening Services has the following
accounts (among others) in its ledger:
Cash Prepaid Rent Unearned Gardening Fees Gardening Revenue
Accounts Receivable Gardening Equipment Gill Gordon, Capital Rent Expense
Office Supplies Accounts Payable Gill Gordon, Drawing Salaries Expense
Use the general journal form provided to prepare general journal entries to record the following
transactions. If you require an account that does not exist, create it:

May 1 Owner invested $10,000 cash and $5,000 gardening equipment to begin the business
2 Borrowed $12,000 from bank, issuing promissory note
4 Purchased office furniture for $4,300 paying $1,800 cash, balance due in 30 days
5 Billed clients for gardening services, $3,100
11 Received $400 from customer for payment in advance for future services
18 Received $2,200 on account from customers
19 Paid $800 on account to his suppliers of office furniture
20 Accepted promissory note from customer for $2,000 for services rendered
25 Gill withdrew $1,500 for personal use
26 Gill decided to give his daughter one of the office desks ($100) for her personal use
20XX ACCOUNT TITLES AND EXPLANATION REF DEBIT CREDIT

May 1 Cash 10,000

Gardening Equipment 5,000
Gill Gordon, Capital 15,000

2 Cash 12,000
Note Payable 12,000

4 Office Furniture 4,300

Cash 1,800
Accounts Payable 2,500

5 Accounts Receivable 3,100

Gardening Revenue 3,100

11 Cash 400
Unearned Gardening Fees 400

18 Cash 2,200
Accounts Receivable 2,200

19 Accounts Payable 800

Cash 800

20 Notes Receivable 2,000

Gardening Revenue 2,000

25 Gill Gordon, Drawing 1,500

Cash 1,500

26 Gill Gordon, Drawing 100

Office Furniture 100
ACCT 110 - Mock Midterm Page 4
ADJUSTING ENTRIES. (6 Marks) Selected accounts of Zodiac Predictions are shown
below as of January 31 of the current year before any adjusting entries have been made. The
accounting year began on January 1.

Debit Credit

Office Supplies 450

Office Equipment 13,400
Unearned Prediction Fees 1,600
Predictions Revenue 1,200

Use the following information to prepare the necessary January 31 adjusting entries for the
month of January (use the general journal form below):

a. Office Equipment is expected to last 4 years with an estimated scrap value of $1,200
b. An actual count of office supplies indicated that $330 were left at the end of January
c. Predictions given in January but not yet billed to customers, $200
d. Interest accrued on bank loan at January 31, but not yet paid is $125
e. Last month, Zodiac Predictions received $1,600 in advance from its customers. Half of
these fees have been earned in January
f. Interest accrued during January on note receivable $85

20XX ACCOUNT TITLES AND EXPLANATION REF DEBIT CREDIT

Adjusting Entries
Jan 31 Depreciation Expense 254
Accumulated Depreciation – Office Equip 254

31 Office Supplies Expense 120

Office Supplies 120

31 Accounts Receivable 200

Predictions Revenue 200

31 Interest Expense 125

Interest Payable 125

31 Unearned Prediction Fees 800

Predictions Revenue 800

31 Interest Receivable 85
Interest Revenue 85
ACCT 110 - Mock Midterm Page 5
CLOSING ENTRIES. (3 Marks) The following accounts for Reimer Delivery Service appear
on the adjusted Trial Balance of January 31. Record the closing entries.

Debit Credit

Cash 20,000
Accounts Receivable 2,300
Office Supplies 900
Truck 28,800
Accumulated Depreciation - Truck 3,200
Accounts Payable 3,400
Unearned Revenue 400
Notes Payable (due in 2 years) 8,800
Jake Reimer, Capital 17,350
Jake Reimer, Drawing 4,000
Revenue from Deliveries 25,000
Office Supplies Expense 150
Salaries Expense 1,200
Depreciation Expense - Truck 800

20XX ACCOUNT TITLES AND EXPLANATION REF DEBIT CREDIT

Jan 31 Revenue from Deliveries 25,000

Jake Reimer, Capital 25,000

31 Jake Reimer, Capital 2,150

Office Supplies Expense 150
Salaries Expense 1,200
Amortization Expense – Truck 800

31 Jake Reimer, Capital 4,000

Jake Reimer, Drawing 4000
ACCT 110 - Mock Midterm Page 6
FINANCIAL STATEMENTS

(a) INCOME STATEMENT. (4 Marks) Using the information given in the previous
question for Reimer Delivery Service, prepare an income statement for the month of January
on the form provided below:

REIMER DELIVERY SERVICE

Income Statement

For the Month Ended January 31, 20XX

Revenue

Revenue from Deliveries $25,000

Expenses

Office Supplies Expense $ 150

Salaries Expense 1,200

Depreciation Expense - Truck 800

Total Expenses 2,150

Net Income $22,850

(b) STATEMENT OF OWNER’S EQUITY. (6 Marks) Using the information given in the two
previous questions, prepare a Statement of Owner’s Equity for Reimer Delivery Service on the
form provided below. On January 1, J. Reimer Capital account balance was $11,000, and during
the month Jake invested an additional $6,350.

REIMER DELIVERY SERVICE

Statement of Owner's Equity

For the Month Ended January 31, 20XX

Jake Reimer, Capital, January 1, 20XX $11,000

Add: Net Income $22,850

Additional investment 6,350

Subtotal 29,200

Less: Jake Reimer, Drawing 4,000

Increase in Owner’s Equity 25,200

Jake Reimer, Capital, January 31, 20XX $36,200

ACCT 110 - Mock Midterm Page 7
(c) BALANCE SHEET. (10 Marks) Using the information given in the previous questions,
prepare a classified Balance Sheet for Reimer Delivery Service on the form provided below:

REIMER DELIVERY SERVICE

Balance Sheet
January 31, 20XX

ASSETS
Current Assets
Cash $20,000
Accounts Receivable 2,300
Office Supplies 900
Total Current Assets $23,200
Capital Assets
Truck 28,800
Less Accumulated Depreciation 3,200
Total Capital Assets 25,600
TOTAL ASSETS $48,800

LIABILITIES AND OWNER'S EQUITY

Liabilities
Current Liabilities
Accounts Payable $3,400
Unearned Revenue 400
Total Current Liabilities $3,800
Long-Term Liabilities
Notes Payable 8,800
Total Long-Term Liabilities 8,800
Total Liabilities 12,600
Owner’s Equity
Jake Reimer, Capital 36,200
TOTAL LIABILITIES AND OWNER'S EQUITY $48,800

1. What is the book value of the truck? $25,600 ($28,800 – 3,200)

2. What does this book value number tell you about the truck?
The book value indicates that the capital asset is being amortized and the value number is just the
difference between the asset cost and its related accumulated amortization amount
ACCT 110 - Mock Midterm Page 8
OTHER. (5 Marks) The following unadjusted trial balance has been put together incorrectly.
Based solely upon the information available, rebuild the trial balance so that the end product
accurately reflects what it should look like.

Original
Moss Driving School
Post-Closing Trial Balance
For the Month Ending September 31, 2002

Cash $2,230
Accounts recievable 65
Prepaid Insurance 500
Furniture 600
Less accumulated depreciation, furniture 50 550
Store equipment 16,200
Less accumulated depreciation, store equipment 270
Accounts payable 875
Unearned driving lessons 420
Speedy Moss, Capital 18,000
Speedy Moss, Withdrawals 900
Driving lessons revenue 2,000
Depreciation expense, furniture 50
Depreciation expense, store equipment 270
Insurance expense 100
Rent expense 500
Wages expense 125
Hydro expense 75 ______

Totals $21,185 $22,595

Corrected
Moss Driving School
Unadjusted Trial Balance
September 30, 2002

Cash $2,230
Accounts receivable 65
Prepaid Insurance 600
Furniture 600
Store equipment 16,200
Accounts payable 875
Unearned driving lessons 420
Speedy Moss, Capital 18,000
Speedy Moss, Withdrawals 900
Driving lessons revenue 2,000
Rent expense 500
Wages expense 125
Hydro expense 75 ______

Totals $21,295 $21,295

• Title is wrong – not post close TB should say Unadjusted

• September only has 30 days
• A trial balance is always only listed for a set date and not for a period of time
• Because this is an unadjusted TB then there should be no depreciation expense and because
the amount of the expense equals the amount in the accumulated depreciation accounts then
this says that this is the first period for depreciation and therefore there should be no balances
in the accumulated depreciation accounts
• You have prepaid Insurance so again the insurance expense is an adjusting entry and this
should not be done yet and the amount gets added back into the prepaid insurance
• Withdrawals is a debit balance and was on the wrong side
• Unearned driving lessons is a credit balance (a liability) and therefore is on the wrong side
• You do not show a calculation such as the amortization calculation shown above
Please note: this final question of the exam will be on a variety of topics.
Acct110samplemidtermKey.docx (Fall 2015)