Accounting 201Unit Test II
Instructor: Tracy Gillis VERSION ONE Fall 2011
* You can take the exam apart if you wish, but return ALL pages, even if unused. * There are six multiple choice questions and four problems for a total of 35 marks. * Watch your time, 1.8 minutes per mark
* Show all of your work on the blank pages provided. Do not crowd your work.
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Multiple Choice (1.5 marks each – put the letter of the best answer in the box above)
1.In order for accounting information to be relevant, it must
a.have very little cost.
b.be used by a lot of different firms.
c.not be reported to the public.
d.have predictive or confirmatory value.
2.Current liabilities are usually listed
a.after long-term debt on the balance sheet.
b.in order of liquidity on the balance sheet.
c.in order of maturity on the balance sheet.
d.in increasing order of magnitude on the balance sheet.
3.Under Canadian GAAP for Private Enterprises (ASPE), if a contingent loss is deemed unlikely to occur, it should be
a.recorded as a liability in the financial statements.
b.disclosed in the notes to the financial statements.
c.disclosed in the notes if the loss would result in a substantial negative effect on the company’s financial position.
d.The potential loss should never be recorded or disclosed as its outcome is determined to be unlikely.
4.The accounting for warranty costs is based on the concept of matching expenses with revenues, which requires that the estimated cost of honouring warranty contracts should be recognized as an expense
a.when the product is brought in for repairs.
b.in the period in which the product was sold.
c.at the end of the warranty period.
d.only if the repairs are expected to be made within one year.
5.For Canadian private companies that are not reporting under IFRS, if dependable estimates of costs and progress cannot be reliably measured on a long-term contract situation, then the
a.zero profit method should be used.
b.revenue should be recognized at the completion date.
c.percentage-of-completion method should be used.
d.contract should not be accepted.
6.Frodo and Merry share partnership profits and losses in the ratio of 6:4. Frodo's capital account balance is $80,000 and Merry’s capital account balance is $50,000. Pippen is admitted to the partnership by investing $90,000 and is to receive a 25% ownership interest. Frodo, Merry, and Pippen's capital balances after Pippen's investment will be
Frodo Merry Pippen
Problems – marks as indicated
1.At December 31, 2011, before adjusting entries, the following account balances were found in the general ledger of Precision Services. This is Precision’s second year end.
Accounts receivable$ 120,000 Debit
Allowance for doubtful accounts3,200 Credit
Sales revenue (all on account)975,000 Credit
Sales discounts15,000 Debit
Bad debts expensenil
Precision’s management is not sure how they want to account for possible bad debts, and has asked for your assistance in demonstrating alternative outcomes.
Required (6 marks)
(a)Of the accounts receivable, management is certain that two accounts totalling $1,000 are definitely uncollectible and want them written off before estimating remaining bad debts. Record the journal entry for this write off.
(b)Assume that the bad debts are to be estimated as 1.5% of credit sales. Prepare the adjusting entry to record this estimate....