ACCT 212 MIDTERM EXAM
ACCT 212 MIDTERM EXAM
1.
Question :
(TCO 1) The Accounting Equation is used to develop the organization's financial
... [Show More] reports. (1) Describe what assets value would be if Liabilities are $12,000 and Owners' Equity is $50,000 by showing the Accounting Equation (10 points), and (2) provide an example of two asset accounts that could contain the value. (10 points)
Student Answer: Equity= Assets- Liabilities Liabilities = Assets - Equity 50,000-12,000= 38,000 Two types of asset accounts that can contain value are notes receivable, and merchandise inventory.
Instructor Explanation: Textbook pages 11-12. Assets = $12,000 + $50,000 = $62,000. Cash and inventory are examples.
Points Received: 16 of 20
Comments:
Question 2. Question : (TCO 1) The financial statements present a company to the public in financial terms. (1) Which financial statement should be prepared first and why (10 points), and (2) explain what information this financial statement provides. (10 points)
Student Answer: The income statement or statement of operation is the first to be prepared. This reports the revenues and expenses for the specified period. The income statement reports two main things. The first is revenues and gains and the second is expenses and losses. We also find the net income after subtracting the expenses from revenue. Net income is the most important item in financial statements.
Instructor Explanation: Textbook pages 15-21. Income Statement. Compares revenue to expenses.
Points Received: 20 of 20
Comments:
Question 3. Question : (TCO 1) The accounting profession follows a set of guidelines for measurement and disclosure of financial information called the Generally Accepted Accounting Principles (GAAP). (1) Explain what the Going-concern Assumption is (10 points) and (2) provide an example of its application. (10 points)
Student Answer: The going concern is one of the fundamental assumptions in accounting on the basis of which financial statements are prepared. Possible indications of going concern problems are high financial risks arising from increased gearing level rendering the company vulnerable to delays in payment of interest. A merchandising company has a current ratio below 0.5. A creditor 1,000,000 demanded payment which the company could not make. The creditor requested the court to liquidate the business and recover his debts and the court grants the order. The company is no longer a going concern.
Instructor Explanation: Textbook pages 6-9. Assume that the entity will continue to operate long enough to use existing assets. Depreciation is an example.
Points Received: 20 of 20
Comments:
Question 4. Question : (TCO 2) Transaction analysis results in the development of a journal entry. A building is purchased for $535,000. (1) Name the accounts impacted and how to use the format account name/debit or credit/dollar amount (10 points), and (2) explain how the Accounting Equation is impacted. (10 points)
Student Answer: Building Debit 535,000 Cash Credit 535,000 This transaction would only affect the asset side of the accounting equation. Buildings are an asset account would increase. Cash is also an asset account would decrease by the same amount. The changes would offset each other because they are both asset accounts. The net change to the accounting equation would be zero.
Instructor Explanation: Textbook page 64. Building/Debit/$535,000 and Cash/Credit/$535,000. Assets are increased and decreased by the same amount so the Accounting Equation is in balance.
Points Received: 20 of 20
Comments:
Question 5. Question : (TCO 3) Adjusting Entries are required at the end of the period to ensure that accrual accounting principles are applied. At the beginning of the month, $1,350 of office supplies were purchased. There was not a beginning balance and the one purchase was the only one for the month. At the end of the month, $500 of supplies remained. Develop the adjusting entry. (1) Name the accounts impacted and how using the format account name/debit or credit/dollar amount (10 points), and (2) explain how the Accounting Equation is impacted. (10 points)
Student Answer: Accounts affected are office supplies accounts and account payable. Store and office supplies should be posted as a single debit total to your general ledger. Office supplies accounts is an asset account and is increased with the purchase. Accounts payable is a liability account and is also increased with purchase. Asset(increase)= Equity+Liability(increase)
Instructor Explanation: Textbook page 143. Supplies Expense/Debit/$850 and Office Supplies/Credit/$850. Assets and Owners' Equity decrease and the Accounting Equation is in balance.
Points Received: 16 of 20
Comments:
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Question 1. Question : (TCO 5) Internal Controls are required to safeguard assets and to ensure ethical business practices. (1) Identify and explain the reason for any two of the five components of internal control (10 points) and (2) provide examples of how your two selected components of internal control will meet the goal of safeguarding assets and promoting ethical business practices. (15 points)
Student Answer: Control environment refers to the overall attitudes, awareness and actions of the directors and managers of an entity concern the entity's internal controls and importance in the entity. Control activities are those policies and procedures that help ensure that management directives are carried out. Control environments influences the day to day activities of an entity. For example, in an entity with a good control environment, where management take an active role in maintaining efficient internal controls, there is likely to be a disciplined and structured approach. Conversely, an entity with a weak control environment is more likely to be less effective in performing such tasks. Control activities include activities designed to prevent or to detect and correct errors. Such activities include authorization control over computerized applications, reconciliations, segregation of duties, and ect. Control activities are important because these activities ensure the objectives of internal controls are met.
Instructor Explanation: Textbook page 235 and Exhibit 4-4. The five components are control environment, risk assessment, information system, control procedures, and monitoring of controls. Examples will probably come from graded discussions.
Points Received: 25 of 25
Comments:
Question 2. Question : (TCO 5) The bank account as a control device helps to protect cash. One of the requirements is to conduct periodic bank statement reconciliations. Using the following data, complete the bank statement reconciliation for J & J Flooring, Inc. (Use the format shown on page 251 of your textbook.) (25 points)
•The bank statement indicated a service charge of $56.
•J & J made a deposit on May 31, but this deposit did not appear on the bank statement, $1,451.
•A credit memo in the bank statement indicated a bank collection of a note for $1,300 with interest received of $16. This item was dated May 18.
•Also included in the bank statement was a debit memo for a NSF check for $314 from Barney Smythe.
•Checks #1406 for $1,342, #1610 for $1,609, and #1825 for $857 were written by J & J and sent to the respective companies, but these checks do not appear on the bank statement.
•The balance on the bank statement as of May 31 was $13,019.
•The Cash account on Janus’ books showed an amount of $9,716.
Student Answer: Bank Balances as per Book- $13,019 Service Charges not recorded- $56 +Deposit not shown in pass book- $1,451 - Collection not recorded- $-1,316 + Debit Memo not recorded in cash book- $314 - Cheques issues not presented- $-4,076 + Expenses not recorded- $268 Bank Balance as per Cash Book- $9,716
Instructor Explanation: Bank Reconciliation for Janus Jutes, Inc. for May 31, 201X
Balance per book $9,716 Balance per bank $13,019
ADD: ADD:
Note receivable collection 1,300 Deposits in transit 1,451
Interest revenue 16 1,316
LESS: LESS:
NSF check--Barney Smythe 314 Outstanding checks:
Bank service charge 56 370 1406 1,342
1610 1,609
Adjusted book balance $10,662 1825 857 3,808
Adj. bank balance $10,662
Points Received: 20 of 25
Comments: [Show Less]