This review package is intended to test your understanding

This review package is intended to test your understanding

This review package is intended to test your understanding

Final Exam ReviewDISCLAIMER:This review package is intended to test your understanding of SOMEof the concepts in the chapters covered by the Final Exam (Chapter 1to 9). In NO WAY is this package intended as a comprehensive review.This review package DOES NOT cover every concept from everychapter. There are concepts that will be tested which have not beenreflected in this review package. This package is intended asadditional practice ONLY and students should make no assumptionsabout the final exam based on the questions included in this FinalExam Review.Students should review the contents of every chapter and the end ofchapter Practice Questions for a more comprehensive review of allconcepts in the course to date.SOLUTIONS:Solutions to the Final Exam Review package will not be released.Students are expected to attend class in order to check their solutionsto this review package.IMPORTANT:Students are encouraged to print off this review package and work onPAPER. That is because the final exam is a PAPER BASED TEST. Typinganswers into a computer DOES NOT DUPLICATE final exam conditions.Students are strongly recommended to print off this review packageand answer the questions in conditions that are similar to the finalexam (such as timing yourself, no aids at all, write in a quiet place,one sitting of 3 hours long).Students should be able to write this review package in approximately2 hours (since it does not include as many multiple choice questions asthe final exam will). The Final Exam will be 3 hours long.Multiple Choice Questions:Q1:Gross profit is calculated asA.B.C.D.E.Sales less cost of goods sold.Sales less operating expenses.Net sales less cost of goods sold.Net sales less operating expenses.Net sales less cost of goods sold and operating expenses.Q2:Cooper Inc. sells inventory to Greene Ltd. For $3,000, credit terms of 2/10, n/30, on May 12,FOB shipping point. The shipping costs are $120, paid in cash by the appropriate party. Greenereturns $600 of inventory on May 14 and pays the outstanding balance on May 22. Whatwould be the amount that Greene Ltd. paid Cooper?A.B.C.D.E.$2,469.60$2,400.00$3,057.60$2,352.00$3,645.60Q3:What of the following statements is TRUE about the difference between the single step andmultiple step income statement?A.B.C.D.E.Sales returns & allowance and sales discounts are only on the multiple step.Cost of goods sold is only on the multiple step.Profit from operations is only on the single step.Gross profit is only on the multiple step.Other revenues and other expenses is only on the single step.Q4:The following information is available for AKDE Inc.Accounts payableAccounts receivableCashCommon sharesDividends paidIncome tax expenseMisc. ExpensesOffice equipmentAccumulated depreciationPrepaid expenseRent expenseRetained earnings, beginningSalaries expenseService revenueUneared revenueUtilities expense8,00014,00010,00028,0006,0004,5003,50036,0006,0002,8003,00015,0007,00028,5002,000700What is the retained earnings that would be reported at the end of the year on the balancesheet?A.B.C.D.E.$18,800$16,000$18,000$24,800$20,800Q5:If total assets decreased by $14,000 and total equity increased by $6,000 during the year, thenthe amount and direction (increase or decrease) of the change in total liabilities would be:A.B.C.D.E.An increase of $8,000A decrease of $8,000An increase of $20,000A decrease of $20,000None of the above.Q6:Accounting information should be unbiased in order to increase it’sA.B.C.D.E.verifiability.understandability.faithfulness.comparability.relevance.Q7:The following information applies to both Q7 and Q8.The following information is available for Juddo Inc., a merchandising business in St. Catherines,Ontario. The business uses the perpetual inventory system and controls their inventory usingthe FIFO method.DateMay 1May 12May 22May 30Description Numberof UnitsOpening150Purchase50Sale158Purchase90Unit CostSellingPrice$4$5$12$6The value of ending inventory that would be reported on the balance sheet would be?A.B.C.D.E.$850$210$750$640None of the above.Q8:Of the following businesses which is unlikely to choose specific identification to control theirinventory?A.B.C.D.E.Piano storeCar dealershipHardware storeAntique storeCustom made jewellery designerFER-1Olivita Inc. is a merchandising business that sells to retail stores all over Canada, owned by OliveVitanni. This is their 4th year of operations and, due to their rapid expansion, Olive isconcerned about her accounts receivable balance at year end. In order to grow the business allcustomers have been offered credit terms 3/10, n/45, which Olive believes results in fasterpayment of the outstanding accounts receivable. She also believes that it creates higher salesbecause only her business is offering such favourable (good) credit terms. At December 31,2016, the current year end, Olive has the following information about the activities during2016:Total gross credit sales during 2016 (therewere no cash sales)Cost of goods sold during 2016Write offs during 2016Allowance for doubtful accounts at year end,after all write offs but before the adjustmentfor uncollectible accountsSales returns (sales & cost of goods soldrespectively)Sales discountsAccounts receivable balance at year end$984,750$541,620$18,460$+2,500$17,200, $9,460$17,085$139,530What was the opening balance in the Allowance for Doubtful Account?Opening AFDA, January 1, 2016:Calculations:For the past 3 years Olive has been using 12% of accounts receivable in order to estimate herending accounts receivable. Given this information calculate Olive’s opening balance inaccounts receivable.Opening A/R, January 1, 2016:Calculations:FER-1, continuedGiven the information, above, what were the cash collections during 2016?Cash collections during 2016:Calculations:Do all the required entries for 2016 EXCEPT the estimate for the uncollectable accounts. (Thechart is provided on the next page.)If Olive used the same 12% of total accounts receivable what would her estimated uncollectibleaccounts be?Estimated Uncollectible accounts:Calculations:Explain to Olive what the aging of accounts receivable is and why she might want to use thatmethod to estimate the uncollectible accounts receivable instead of 12% of accountsreceivable.Olive has provided you with the following aging of accounts receivable and the percentagesthat she feels apply given the last few years of write offs and what she expects in the future re:the economy.Continued on the next page.FER-1, continuedAmountEstimatedPercentageUncollectableCurrent80,0001%1 – 30 days overdue31,37015%31 – 60 days overdue15,44025%Over 61 days overdue12,72065%CategoryTotal$139,530Calculate Olive’s estimated uncollectible accounts (round each number to the nearest dollar)and record the entry on the chart provided.Estimated Uncollectible accounts:Calculations:Calculate all the ending balances for the chart after you make the entry for the estimateduncollectible accounts. Provide the multiple step income statement down to the gross profitline.InventoryAccounts payableOwner’s CapitalRetained EarningsOpeningbalancesN/AN/AN/AN/AN/ATotals:N/AN/AN/AN/AN/ABad debt expenseCost of goods soldSales DiscountsLiabilities Owner’sCapitalSales returnsand allowancesSales RevenueAllowance fordoubtful accountsAccountsReceivableCashAssetsEquityRetained EarningsProfitRevenueExpensesFER-2The following transactions related to equipment purchased by Olive for Olivita Inc. in 2015. Thebusiness’s year end is December 31.DateJune 1June 3June 6July 1July 1DescriptionPurchased equipment for $30,000, paying $22,000 cash and the remainder asaccounts payable, due in 45 days.Paid shipping charges on the equipment of $500Paid installation and testing costs of $950Paid for a 1 year insurance policy, $1,800.Began using the equipment. The estimated residual value is $1,450 and the usefullife is 5 years.Paid off the outstanding accounts payable related to the equipment.July 30Mar. 31,2018The business sells the equipment for $17,000 cash.Olivita Inc. only record depreciation at the end of every year.Record all the entries to July 30, 2015, in the expanded accounting equation.OpeningN/AN/AContinued on the next page.AccountspayableCashEquipmentAssetN/AN/AMisc. ExpenseEquityRetained EarningsLiabilities Owners’ProfitCapitalRevenueExpensesN/AN/AN/AN/AFER-2, continuedComplete the chart, below, for December 31, 2015, 2016, 2017, and 2018.DateDepreciation AccumulatedExpenseDepreciationBook ValueDec. 31, 2015Dec. 31, 2016Dec. 31, 2017Mar. 31, 2018Record all the entries for each yearend, starting from December 31, 2015, and ending on March31, 2018. Be sure to record ALL the entries!BalancesLoss on saleDepreciationExpenseGain on SaleAccumulatedDepreciationEquipmentCashAssetAccounts payableEquityRetained EarningsLiabilities Owners’ProfitCapitalRevenueExpensesFER-3You run a merchandising business and this is your 3rd year of operations. A few of thetransactions for the year are provided below.Oct 1Oct 31Nov 1Nov 1Nov 20Nov 30Dec 1Dec. 31Dec. 31Dec. 31Dec. 31You borrow $50,000 from the bank at an interest rate of 6% for 4 years.Accrue interest on the loan.Pay interest on the loan.A customer of yours pays you $6,000 in advance for 6 months of services, to beprovided evenly over the next 6 months. Services start immediately.Your accountant tells you that you owe Revenue Canada $8,550 on the incomefrom the business. You have not paid any income taxes yet this year.Accrue interest on the loan.Pay interest on the loan.You pay Revenue Canada for the taxes owing.Accrue additional income tax for the income earned in November and December,$1,280.Accrue interest on the loan.Recognize the revenue earned from the client who paid you on November 1.Record all the necessary transactions into the expanded accounting equation using accountnames.The expanded accounting equation is on the next page.FER-3, continuedOct. 1Oct. 31Nov. 1Nov. 1Nov. 20Nov. 30Dec. 1Dec. 31Dec. 31Dec. 31Dec. 31Income taxexpenseInterestExpenseServiceRevenueLoanPayableIncome TaxPayableUnearnedRevenueInterestPayableLiabilitiesEquipmentCashAssetEquityRetained EarningsOwners’ProfitCapitalRevenueExpensesFER-4Recently Olive, the owner of Olivita Inc., hired an employee. The employee is paid on the lastday of every month for the services provided during the month. Olive hired the employee onNovember 1, 2016. The following are the transactions with regards to the employee for themonth of November:Nov. 1Hired Adam Ali. He started November1. Adam works 5 days a week, Monday toFriday, for 7.5 hours every day. He is paid $15 per hour. The following amountswere withheld at source: CPP of $21.40, EI of $7.69, and EIT of $219.Olive pays Adam Ali and records the appropriate amount of employee benefits.Olive paid the amounts owed the government.Nov. 30Dec. 12Record all the necessary transactions into the expanded accounting equation using accountnames.AssetsLiabilitiesEquityEmployeeBenefitsExpenseSalaryExpenseEmployeeIncome TaxesPayableEI PayableCPP PayableCashDateOwner’sRetained EarningsCapital RevenueExpensesFER-5Below is the comparative income statement for Bleaue Inc. for 2016 and 2015. Prepare avertical analysis for each year and comment on the results.Vertical2016Net salesCost of goods soldGross profitOperating expensesProfit before income taxIncome tax expenseProfitAnalysis800,000480,000320,000192,000128,00032,00096,000Vertical2015Analysis600,000330,000270,000162,000108,00027,00081,000Comments:FER-6Bleaue Inc. has also provided the following selected accounts from the comparative balancesheet. Complete a horizontal analysis and comment on the results.Accounts receivableInventoryTotal assetsComments:December 31,20161,040,0001,360,0008,800,000December 31,2015.900,0001,300,0008,000,000HorizontalAnalysisFER-7Provided below is the statement of cash flows for Bleaue Inc. for December 31, 2016. Bleaue isa merchandising business that has decided to start selling to customers in USA and they areplanning for the increased inventory they will have to carry in order to meet the orders fromnew US customers. This year the business’s profit (net income) was $138,000.Analyze the statement of cash flows given the information above and on the statement of cashflows. Do you feel that the business is doing well? Are there any areas of concern that you seebased on the information provided?Bleaue Inc.Statement of Cash FlowsYear Ended December 31, 2016Operating activitiesCash receipts from customers$766,000Cash payments:To suppliers$606,000For operating expenses48,000For interest expense8,000For income tax10,000Net cash provided by operating activities94,000Investing activitiesSale of equipment12,000Purchase of equipment-119,000Net cash provided by investing activities-107,000Financing activitiesRepayment of mortgage-24,000Issue of common shares15,000Payment of cash dividend-14,000Net cash used by financing activities-23,000Net increase in cash-36,000Cash, January 1128,450Cash, December 31$92,450Comments about the cash flow from operations:Comments about the cash flow from investing activities:Comments about the cash flow from financing activities:Any additional comments:End of the review package!!Remember that studying for the final exam ONLY fromthe questions in this package is not recommended. Besure to study from each chapter, both from the Checkyour Understanding questions, In Class DemoQuestions, and Practice Questions.We will not wish you good luck because, as ThomasEdison noted, the harder you work the more luck youwill have!!So, work hard.

 

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