1

香港中文大學

The Chinese University of Hong Kong

Midterm Examination 1st Term 2014-2015

Course Code & Title

ACCT 2111 A, B, and C

INTRODUCTORY FINANCIAL ACCOUNTING

Time allowed 時間: 1.5 hours 小時

Professor Jeff NG

Teaching Assistant Cliff LEE

Rules and Instructions:

1) This Midterm Exam is closed book and notes, which means that you are not to use any

materials when working on this exam.

2) No talking or communication of any kind during the exam.

3) No mobile phones, notebook computers, tablets, etc, not even in calculator mode.

4) A calculator may be used, but only for calculation. No notes are to be stored on

programmable calculators.

5) There are eleven (11) pages including this cover page. Please check that you have a

complete exam.

6) Please read, sign and date the student declaration of academic honesty below.

7) Show all calculations for full credit.

I acknowledge that I am aware of University policies and regulations on honesty in academic

work, and of the disciplinary guidelines and procedures applicable to breaches of such

policies and regulations, as contained in the website. I understand that I am not to discuss the

contents of this exam with anyone, including students in other sections of this course, until

after all exams have been graded and returned.

___________________

__________________

Signature

Date

Name (in English)

Student ID

ACCT 2111_________ Intro Fin Accounting

Course code Course title

2

SECTION A – MULTIPLE CHOICE (30 marks, 1.5 marks each)

Please select the most appropriate answer from each question below. Only one answer is

required from each question.

A1 – All of the following are true of Limited Companies in Hong Kong EXCEPT:

a) Limited Companies are legally distinct from its owners

b) Limited Company income is taxed

c) Dividends to Hong Kong shareholders are taxed

d) Limited Company shareholders elect the Board of Directors

A2 – What does IFRS stand for?

a) Institute of Financial and Regulatory Services

b) Institute for Financial Reporting Standards

c) International Fiscal Responsibility Standards

d) International Financial Reporting Standards

A3 – Which of the following is a FUNDAMENTAL Qualitative Characteristic of accounting?

a) Timeliness

b) Relevance

c) Understandability

d) Verifiability

A4 – Which of the following is an Asset?

a) Unearned Revenues

b) Prepaid Expenses

c) Accumulated Depreciation

d) Allowance for Uncollectible Accounts

A5 – Which of the following equations is accurate?

a) Assets + Shareholders’ Equity = Liabilities

b) Assets – Liabilities = Shareholders’ Equity

c) Assets = Liabilities – Shareholders’ Equity

d) Assets + Liabilities = Shareholders’ Equity

A6 – If assets increase $210,000 during a given period, and liabilities decrease $65,000

during the same period, shareholders’ equity must change by which amount?

a) Increase $145,000

b) Decrease $275,000

c) Decrease $145,000

d) Increase $275,000

3

A7 – A company issues share capital in exchange for $10,000 Cash. What is the journal entry

related to this transaction?

a) DR Share Capital and CR Cash

b) DR Cash and CR Share Capital

c) DR Dividends and CR Cash

d) DR Cash and CR Dividends

A8 – One of the primary purposes of the Trial Balance is to show that:

a) Asset = Liabilities + Owners’ Equity

b) Revenues – Expenses = Net Income

c) Debits = Credits

d) Contributed Capital + Retained Capital = Owners’ Equity

A9 – The left side of a T-account is always which of the following?

a) The increase side

b) The decrease side

c) The debit side

d) The credit side

A10 – Under accrual accounting, which of the following events results in revenue recognition?

a) Perform services on account

b) Receive cash from customers for future services

c) Purchase inventories on account

d) Pay cash to settle accounts payables

A11 – Which of the following is true regarding the objective of the matching principle?

a) Match expenses with revenues

b) Match liabilities with assets

c) Match contra-assets with assets

d) Match equity with revenues

A12 – Recording depreciation is an example of which type of adjusting entry?

a) Accrued expense

b) Accrued revenue

c) Deferred expense

d) Deferred revenue

4

A13 – ABC Company had a beginning cash balance of $8,000, paid cash of $10,000, and

ended the month with a cash balance of $4,000. How much was cash receipts during the

month?

a) $2,000

b) $6,000

c) $14,000

d) $22,000

A14 – Which of the following transactions results in an accrual when first recorded?

a) Purchase supplies on account

b) Perform services on account

c) Collect cash for unearned revenues

d) Pay cash for goods to be delivered next month

A15 – Which of the following transactions DOES NOT affect Accounts Receivables?

a) Recording doubtful accounts expense

b) Selling goods on account

c) Collecting cash from customers on account

d) Writing off doubtful accounts

A16 – Using up supplies that were previously purchased on account results in which of the

following entries?

a) Debit Accounts Payable and Credit Supplies

b) Debit Supplies and Credit Accounts Payable

c) Debit Supplies Expense and Credit Supplies

d) Debit Supplies and Credit Supplies Expense

A17 – Which of the following adjustments are made to the BOOK side of a bank

reconciliation?

a) Outstanding Checks

b) Check returned indicating that there was Non-Sufficient Funds (NSF)

c) Deposit in Transit

d) Bank error

A18 – Bears Company issues a 3-month note on December 1 for $100,000 with a stated

interest rate of 12%. What is the amount of interest revenue recorded by Bears Company on

December 31, the end of the fiscal year?

a) $0

b) $1,000

c) $4,000

d) $12,000

5

A19 – Accounts receivables that that a company cannot collect from customers are known by

all of the following names EXCEPT which?

a) Bad debts

b) Factoring

c) Uncollectible accounts

d) Doubtful accounts

A20 – Under the allowance method, writing off accounts receivable results in what income

statement impact(s)?

a) Increase bad debt expense

b) Reduce revenues

c) Both a) and b)

d) Neither a) nor b)

6

SECTION B – SHORT ANSWERS (33 marks)

This section requires you to write short answers or make simple calculations for each

question. Note that the questions are independent of each other. That is, B2 does not follow

from B1 and requires separate calculations.

B1 –ADJUSTING ENTRIES

Hong Kong Motor Company (HKMC) issues monthly financial statements.

REQUIREMENT: Record the adjusting entries HKMC needs to make at the end of October

2014.

At the end of September 2014 HKMC’s balance sheet showed an Unearned Revenues

balance of $18,250. During the month of October 2014, HKMC collected $242,000 from

customers, all recorded as a CR to Unearned Revenues. At the end of October, HKMC

calculates that it still owes its customers $58,000 in Unearned Revenues. The total cost of

these items sold was $120,000.

DR Unearned Revenues $202,250

CR Sales Revenues $202,250

DR Cost of Goods Sold $120,000

CR Inventory $120,000

HKMC pays its employees a total of $24,000 each Friday for work up through Wednesday

because the accountant needs two days to make calculations and issue the checks. This year,

October 31 is on a Friday. On this day, the accountant for HKMC issued the payroll checks

and debited salary expense $24,000 and credited cash $24,000.

DR Salary Expense $9,600

CR Salaries Payable $9,600

The unadjusted balance of HKMC’s Supplies account is $6,290. A count of total supplies on

hand is $1,800 on 31 October, 2014.

DR Supplies Expense $4,490

CR Supplies $4,490

7

B2 – THE ACCOUNTING CYCLE

REQUIREMENT: Put the following steps of the Accounting Cycle in order of when they

occur each period.

Closing Entries Analyze Transactions Financial Statements

Trial Balance Journal Entries Post-Closing Trial Balance

Adjusted Trial Balance Post to Ledger Adjusting Entries

1) Analyze Transactions

2) Journal Entries

3) Post to Ledger

4) Trial Balance

5) Adjusting Entries

6) Adjusted Trial Balance

7) Financial Statements

8) Closing Entries

9) Post-Closing Trial Balance

B3 – CLOSING ENTRIES

REQUIREMENT: Record the three types of Closing Entries that are required at the end of

each accounting period. (Hint: Think of what accounts are closed and what they are closed to).

No numbers are necessary.

DR Revenues

CR Retained Earnings

DR Retained Earnings

CR Expenses

DR Retained Earnings

CR Dividends

8

B4 – ALLOWANCE FOR DOUBTFUL ACCOUNTS

Eye Phone Limited (EPL) has a significant amount of accounts receivables. EPL began

September 2014 with $1,234,567 in gross accounts receivables and an allowance for doubtful

accounts balance of $234,567.

During September 2014, EPL has sales on account totaling $2,222,222 and wrote off

$314,159 of accounts receivables. At the end of September 2014, EPL’s aging-of-accounts-

receivables schedule shows the following amounts:

Eye Phone Limited (EPL)

Aging-of-Accounts-Receivables

September 2014 (ending balance)

Not yet

due

1-30 days 31-60 days 61-90 days Over 90

days

Accounts

Receivables

864,335 966,225 600,064 435,478 ? =

276,528

Estimated %

Uncollectible

0.9% 2% 5.3% 18% 35%

Estimated

Allowance

7,779.0 19,324.5 31,803.4 78,386.0 96,784.8

REQUIREMENT: Prepare T-Accounts for Accounts Receivables, Allowance for Doubtful

Accounts, and Bad Debt Expense for the month of September 2014.

Accounts Receivables

Beginning Balance 1,234,567

Sales on Account 2,222,222

Write-offs 314,159

3,142,630

Allowance for Doubtful Accounts

Write-off 314,159

234,567

Bad Debt Expense 313,670

234,078

Bad Debt Expense

313,670

313,670

9

SECTION C – LONG QUESTION (37 marks)

On 1 January 2010, you founded Orange Fruits Limited (OFL) for $50,000 cash in exchange

for all of the share capital. Your company sells exotic imported fruit. On 31 December 2013,

OFL’s balance sheet showed the following amounts:

Orange Fruits Limited

Balance Sheet

Month ending 31 December 2013

ASSETS LIABILITIES & OWNERS’ EQUITY

Cash 22,500 Accounts Payable 2,196

Accounts Receivables 12,000 Unearned Revenues 2,000

Allowance for bad debts (1,343)

Inventories 9,861

Supplies 4,428 Share Capital 50,000

Notes Receivable 10,000 Retained Earnings 3,250

57,446 57,446

REQUIREMENT 1: Journalize the following transactions, all occurring during 2014 (no

explanations necessary):

REQUIREMENT 2: Fill in the balance sheet for month ending 31 January 2014 (on page

11). Ignore taxes when computing Retained Earnings.

January 1: Pay $6,000 cash for 6 months of rent, beginning on 1 January 2014.

DR Prepaid Rent $6,000

CR Cash $6,000

(DR Prepaid Rent $5,000 and DR Rent Expense $1,000 also ok)

January 8: Purchase $5,220 inventories (fruit), paying an additional $500 for delivery and

$50 for insurance on the delivery – FOB shipping point, all paid in cash.

DR Inventory $5,770

CR Cash $5,770

(DR Inventory 5,220, Delivery Expense 500, Insurance Expense 50, also ok)

January 12: Ship $6,200 fruit to customers, including $2,000 for customers that paid for the

fruit in December 2013. The remaining purchases are on account. This fruit cost OFL $3,900.

OFL also incurs delivery charges of $100, on account – FOB destination.

DR Unearned Revenues $2,000

DR Accounts Receivable $4,200

CR Sales Revenues $6,200

DR Cost of Goods Sold $3,900

CR Inventory $3,900

DR Delivery Expense $100

CR Account Payable $100

10

January 13: Receive $500 of supplies in exchange for $500 of fruit (at cost).

DR Supplies $500

CR Inventory $500

January 18: Collect $4,700 cash to settle accounts receivables. Also write off $500 accounts

receivables.

DR Cash $4,700

DR Allowance $500

CR Accounts Receivables $5,200

January 25: Pay $1,200 to settle accounts payables.

DR Accounts Payables $1,200

CR Cash $1,200

January 31: Pay salary expense for the month of $4,000 in cash.

DR Salary Expense $4,000

CR Cash $4,000

January 31: A physical count reveals that there are $3,800 supplies on hand. Interest on the

note receivable is 1.5% per month. An aging-of-receivables analysis reveals that the amount

of allowance for bad debts should be $1,300. Record the adjusting entries needed for these

transactions.

DR Supplies Expense $1,128

CR Supplies $1,128

DR Interest Receivables $150

CR Interest Revenue $150

DR Bad Debt Expense $457

CR Allowance $457

Somewhere, you need to recognize Rent Expense of $1,000 for the month. Either on Jan 1 or

Jan 31.

11

January 31: Record any closing entries required for the month ending 31 January 2014.

DR Retained Earnings $3,235

DR Sales Revenue $6,200

DR Interest Revenue $150

CR Delivery Expense $100

CR Salary Expense $4,000

CR Supplies Expense $1,128

CR Bad Debt Expense $457

CR Rent Expense $1,000

CR Cost of Goods Sold $2,900

Orange Fruits Limited

Balance Sheet

Month ending 31 January 2014

ASSETS LIABILITIES & OWNERS’ EQUITY

Cash

13,230 Accounts Payable 1,096

Accounts Receivables

11,000 Unearned Revenues 0

Allowance for bad debts

-1,300

Inventories

9,231 or

8,681

Supplies

3,800 Share Capital 50,000

Notes Receivable

10,000 Retained Earnings 15 or (535)

Interest Receivable

150

Prepaid Rent

5,000

TOTAL ASSETS

51,111 TOTAL LIAB & S/E 51,111

Answers here can be slightly different, especially Inventories and Retained Earnings if

your January 8 entry is the alternate entry.