29 On March 1, Shogun Corporation borrowed $35,000 from its bank, and signed a 6 , 4 month bank loan Principal and interest are due on July 1 If Shoguns year end is May 31, the adjusting entry that it should prepare for interest on May 31 would be a Debit Interest Expense, $525 credit Interest Payable, $525 b Debit Interest Expense, $1,575 credit Interest Payable, $1,575 c Debit Bank Loan Payable, $700 credit Cash, $700 d Debit Interest Expense, $700 credit Interest Payable, $700 30 The balance in the Prepaid Rent account before adjustment at the end of the year is $12,000 and represents four months rent starting on October 1 The adjusting entry required on December 31 is a debit Prepaid Rent, $3,000 credit Rent Expense $3,000 b debit Prepaid Rent, $9,000 credit Rent Expense, $9,000 c debit Rent Expense, $12,000 credit Prepaid Rent, $12,000 d debit Rent Expense, $9,000 credit Prepaid Rent, $9,000 Use the following information to answer questions 31 and 32 The following data for Sorensen Company is presented below Cash $ 10,200 Accounts Receivable $ 24,000 Accounts Payable 32,760 Mortgage Payable (due 2020) 20,000 Inventory 17,000 Unearned Revenue 1,200 Equipment 220,000 Temporary Investments 6,400 Long term Notes Payable 50,000 Accumulated Depreciation 100,000 Common Shares 40,000 Retained Earnings 13,440 Prepaid Rent 1,600 Salaries Payable 12,000 The Mortgage Payable account is long term in nature The Temporary Investments account represents investments made in equity securities that will be sold within 3 months 31 Current assets amount to a $59,960 b $59,200 ($10,200 $6,400 $24,000 $17,000 1,600) c $52,800 d $51,200 32 Current liabilities amount to a $65,960 b $85,960 c $33,960 d $45,960 ($32,760 12,000 1,200) 33 If a $20,000 sale was made on July 8, 2013 with terms 3 10 net 45, and collection was made on September 20, the amount collected is a $19,400 b $19,600 c $20,000 (outside discount period) d $20,600 Question No 1 (continued) (80 marks) 34 Zanzibar Realty received a cheque for $18,000 on August 1, which represents a 6 month advance payment of rent on a building it rents to a client Unearned Rent Revenue was credited for the full $18,000 Financial statements will be prepared on November 30 Zanzibar should make the following adjusting entry on November 30 a debit Unearned Rent Revenue, $12,000 credit Rent Revenue, $12,000 b debit Rent Revenue, $12,000 credit Unearned Rent Revenue, $12,000 c debit Rent Revenue, $6,000 credit Unearned Rent Revenue, $18,000 d debit Unearned Rent Revenue, $6,000 credit Rent Revenue, $6,000 Use the following information to answer questions 35, 36, and 37 Lumberton Electronics limited reported the following data Cost of Goods Sold $117,000 Income Tax Expense 29,750 Operating Expenses 165,000 Sales 450,000 Sales Discounts 26,000 Sales Returns and Allowances 23,000 35 The amount of net sales to be reported on the Income Statement would be a $401,000 ($450,000 $26,000 $23,000) b $427,000 c $424,000 d $450,000 36 The profit margin ratio (rounded to four decimal places) would be a 0 2644 b 0 2226 ($401,000 $117,000 $165,000 $29,750) $401,000 c 0 1983 d 0 2968 37 Gross profit would be a $284,000 ($401,000 $117,000) b $303,250 c $310,000 d $333,000 38 A $3,400 debit to the Wages Expense account was incorrectly posted as a credit of $3,400 to the Wages Expense account What is the effect on the trial balance and on Wages Expense a No effect on the trial balance but Wages Expense is understated by $3,400 b The debit column of the trial balance is $2,200 too high and Wages Expense is overstated by $3,400 c No effect on the trial balance but the Wages Expense is understated by $6,800 d The debit column of the trial balance is $6,800 too low and Wages Expense is understated by $6,800 Question No 1 (continued) (80 marks) Use the following information to answer questions 39, 40 and 41 Beech Tree Limited reported the following information for 2015 Current Assets $18,000 Net Sales $40,000 Current Liabilities 8,000 Total Liabilities 10,000 Average Assets 80,000 Shareholders Equity 50,000 Total Assets 60,000 Market Price per Share $0 12 Profit 18,000 Weighted Average Number of Common Shares 26,000 39 The earnings per share ratio (rounded to four decimal places) for 2015 is a $0 9231 b $0 4444 c $0 6923 ($18,000 26,000 shares) d $0 5385 40 The price earnings ratio for 2015 is a 4 4875 times b 7 6925 times c 3 7033 times d 5 7692 times ($0 6923 $0 12) 41 Assume Beech Tree Limited wanted to borrow $75,000 from a local bank on January 2, 2016 What immediate effect, if any, would this transaction have on Beech Trees current ratio a Cannot be determined from the data given b The ratio would decrease c The ratio would increase d The ratio would remain unchanged 42 Net sales are $400,000 and cost of goods sold is $310,000 If operating expenses are $58,000, other revenues and gains are $10,000, and income tax expense is 20 of income before taxes, the profit margin ratio is a 9 4 b 8 4 $400,000 $310,000 $58,000 $10,000 (20 x $42,000) $400,000 c 6 2 d 8 9 43 A company purchased a depreciable asset for $40,000 on July 1, 2014 The estimated useful life of the asset is 5 years If the company uses straight line depreciation, what is the balance in the accumulated depreciation account and what would the carrying amount of the asset be on December 31, 2015 a the accumulated depreciation would be $16,000 and the carrying amount would be $24,000 b the accumulated depreciation would be $16,000 and the carrying amount would be $56,000 c the accumulated depreciation would be $12,000 and the carrying amount would be $52,500 d the accumulated depreciation would be $12,000 and the carrying amount would be $28,000 Question No 1 (continued) (80 marks) 44 Pumping Iron Ventures is an exercise club Members may join at any time during the year but must pay for a 12 month membership at the time of joining The membership fees paid for in cash are initially recorded in the unearned membership fees account Selected information from the unearned membership fees account of Pumping Iron Ventures for 2015 appears below Unearned Membership Fees T Account 120,000 Balance January 1, 2015 390,000 credit entries during 2015 180,000 Balance December 31, 2015 The amount of fees received and the amount of fees earned, respectively, by Pumping iron Ventures in 2015 is a $510,000 fees received and $330,000 fees earned b $390,000 fees received and $330,000 fees earned c $510,000 fees received and $180,000 fees earned d $390,000 fees received and $180,000 fees earned 45 Which of the following describes how payments to suppliers made within the purchase discounts period are recorded in a perpetual inventory system a Reduce Cash, reduce accounts payable b Reduce Cash, Reduce accounts payable, reduce inventory c Reduce cash, reduce accounts payable, increase purchase discounts d Reduce Cash, reduce accounts payable, decrease purchase discounts 46 The following sequence of transactions took place during June for Ace Company June 3 Purchase goods costing $2,200 from Zip Co with terms 2 10, net 30 June 5 Returned goods costing $1,200 to Zip Co for full credit June 6 Purchased goods costing $2,000 from Nadda Co with terms 2 10, net 30 June 11 Paid the balance owed to Zip Co June 22 Paid Nadda in full If Ace had no inventory on hand on June 1, what is the cost of inventory on hand on June 30 assuming Ace uses a perpetual inventory system a $2,940 b $2,960 c $2,980 ($4,200 $1,200 $20 ) $20 ($2,200 $1,200 x 2 ) d $3,020 47 Assume a companys current ratio to be 1 8 and working capital equal to $32,000 Total current assets must be a $68,000 b $72,000 x y 1 8 x 1 8y 1 8y y $32,000 y $40,000 x $40,000 $32,000 c $76,000 d $80,000 Question No 1 (continued) (80 marks) 48 To record the sale of goods for cash under a perpetual inventory system a Two journal entries are necessary one to record the receipt of cash and sales revenue, and one to record the cost of the goods sold and reduction in merchandise inventory b Only one journal entry is necessary to record the receipt of cash and the sales revenue c Two journal entries are necessary one to record the receipt of cash and the reduction of inventory, and the other to record the cost of goods sold and the sales revenue d One journal entry is necessary to record the cost of goods sold and the reduction of inventory 49 When goods are purchased for resale by a company using a periodic inventory system a Purchases are debited to the beginning Merchandise Inventory account b Purchases are debited to Finished Goods Inventory account c Purchases are debited to the Purchases account d Purchases are debited to the Cost of Goods Sold account 50 Given the following activities Payment of cash dividends to shareholders $ 75,000 Payment of interest on a bank loan 35,000 Purchase of machinery 195,000 Payment on mortgage payable 200,000 Payment made to repair machinery 65,000 Purchase of inventory 15,000 The cash outflows for investing and financing activities are a Investing $195,000 financing $300,000 b Investing $185,000 financing $275,000 c Investing $185,000 financing $300,000 d Investing $195,000 financing $275,000 51 On June 1, 2015, Bonita Company borrowed $40,000 from First National Bank and signed a 1 year note payable The loan plus 8 interest must be repaid on the maturity date If Bonitas year end is December 31, the amount of interest payable to be reported on Bonitas Statement of Financial position would be (rounded to the nearest dollar) a $1,867 ($40,000 x 8 x7 12) b $0 c $1,333 d $3,200 52 Wayne Summers earned a salary of $750 since he was paid last in mid November and he will be paid on December 1 The adjusting entry to be recorded by Waynes employer at November 30 would be a Salaries Payable 750 Cash 750 b Salaries Payable 750 Salary Expense 750 c Salaries Expense 750 Salary Payable 750 d No journal entry is required because payday is not until the next day Question No 1 (continued) (80 marks) 53 Maple Corporation sells merchandise on account for $3,000 to Marshmallow Corporation with credit terms of 2 15, n 45 Marshmallow returns $600 of merchandise that was damaged, along with a cheque to settle the account within the discount period What is the amount of the cheque a $2,352 ($3,000 $600) x 98 b $2,400 c $2,940 d $2,940 54 On December 31, 2015 Greenhouse reported a balance of $104,000 in its Retained Earnings account During the year, the company reported a net loss of $14,000 and had also issued additional common shares for $30,000 cash On January 1, 2015 Greenhouse Company reported a balance in its Retained Earnings account of $121,000 and a balance of $370,000 in its Common Shares account The amount of dividends paid by Greenhouse during 2015 was a $3,000 ($121,000 x $14,000 $104,000) x $3,000 b $11,000 c $33,000 d $41,000

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29. On March 1, Shogun Corporation borrowed $35,000 from its bank, and signed a 6%, 4-month bank loan. Principal and interest are due on July

29.	On March 1, Shogun Corporation borrowed $35,000 from its bank, and signed a 6%, 4-month bank loan. Principal and interest are due on July 1. If Shoguns year end is May 31, the adjusting entry that it should prepare for interest on May 31 would be:

	a.	Debit Interest Expense, $525; credit Interest Payable, $525.
	b.	Debit Interest Expense, $1,575; credit Interest Payable, $1,575.
	c.	Debit Bank Loan Payable, $700; credit Cash, $700.
	d.	Debit Interest Expense, $700; credit Interest Payable, $700.

30.	The balance in the Prepaid Rent account before adjustment at the end of the year is $12,000 and represents four months rent starting on October 1. The adjusting entry required on December 31 is:

	a.	debit Prepaid Rent, $3,000; credit Rent Expense $3,000.
	b.	debit Prepaid Rent, $9,000; credit Rent Expense, $9,000.
	c.	debit Rent Expense, $12,000; credit Prepaid Rent, $12,000.
	d.	debit Rent Expense, $9,000; credit Prepaid Rent, $9,000.

Use the following information to answer questions 31 and 32:

The following data for Sorensen Company is presented below:

Cash	$ 10,200	Accounts Receivable	$ 24,000
Accounts Payable	32,760	Mortgage Payable (due 2020)	20,000
Inventory	17,000	Unearned Revenue	1,200
Equipment	220,000	Temporary Investments	6,400
Long-term Notes Payable	50,000	Accumulated Depreciation	100,000
Common Shares	40,000	Retained Earnings	13,440
Prepaid Rent	1,600	Salaries Payable	12,000

The Mortgage Payable account is long-term in nature. The Temporary Investments account represents investments made in equity securities that will be sold within 3 months.

31.	Current assets amount to:

	a.	$59,960
	b.	$59,200 ($10,200 + $6,400 + $24,000 + $17,000 + 1,600)
	c.	$52,800
	d.	$51,200

32.	Current liabilities amount to:

	a.	$65,960
	b.	$85,960
	c.	$33,960
	d.	$45,960 ($32,760 + 12,000 + 1,200)

33.	If a $20,000 sale was made on July 8, 2013 with terms 3/10 net 45, and collection was made on September 20, the amount collected is:

	a.	$19,400
	b.	$19,600
	c.	$20,000 (outside discount period)
	d.	$20,600

Question No. 1 (continued) (80 marks)

34.	Zanzibar Realty received a cheque for $18,000 on August 1, which represents a 6-month advance payment of rent on a building it rents to a client. Unearned Rent Revenue was credited for the full $18,000. Financial statements will be prepared on November 30. Zanzibar should make the following adjusting entry on November 30:

	a.	debit Unearned Rent Revenue, $12,000; credit Rent Revenue, $12,000.
	b.	debit Rent Revenue, $12,000; credit Unearned Rent Revenue, $12,000.
	c.	debit Rent Revenue, $6,000; credit Unearned Rent Revenue, $18,000.
	d.	debit Unearned Rent Revenue, $6,000; credit Rent Revenue, $6,000.

Use the following information to answer questions 35, 36, and 37.

Lumberton Electronics limited reported the following data:

Cost of Goods Sold........................ $117,000

Income Tax Expense...................... 29,750

Operating Expenses........................ 165,000

Sales................................................ 450,000

Sales Discounts.............................. 26,000

Sales Returns and Allowances....... 23,000

35.	The amount of net sales to be reported on the Income Statement would be:

	a.	$401,000 ($450,000 ? $26,000 ? $23,000)
	b.	$427,000
	c.	$424,000
	d.	$450,000

36.	The profit margin ratio (rounded to four decimal places) would be:

	a.	0.2644
	b.	0.2226 ($401,000 ? $117,000 ? $165,000 ? $29,750)/$401,000
	c.	0.1983
	d.	0.2968

37.	Gross profit would be:

	a.	$284,000 ($401,000 ? $117,000)
	b.	$303,250
	c.	$310,000
	d.	$333,000

38.	A $3,400 debit to the Wages Expense account was incorrectly posted as a credit of $3,400 to the Wages Expense account. What is the effect on the trial balance and on Wages Expense?

	a.	No effect on the trial balance but Wages Expense is understated by $3,400.
	b.	The debit column of the trial balance is $2,200 too high and Wages Expense is overstated by $3,400.
	c.	No effect on the trial balance but the Wages Expense is understated by $6,800.
	d.	The debit column of the trial balance is $6,800 too low and Wages Expense is understated by $6,800.

Question No. 1 (continued) (80 marks)

Use the following information to answer questions 39, 40 and 41.

Beech Tree Limited reported the following information for 2015:

Current Assets.................... $18,000 Net Sales............................................ $40,000

Current Liabilities............... 8,000 Total Liabilities.................................... 10,000

Average Assets................... 80,000 Shareholders Equity............................. 50,000

Total Assets........................ 60,000 Market Price per Share.......................... $0.12

Profit................................... 18,000 Weighted Average Number

of Common Shares............................... 26,000

39.	The earnings per share ratio (rounded to four decimal places) for 2015 is:

	a.	$0.9231
	b.	$0.4444
	c.	$0.6923 ($18,000 / 26,000 shares)
	d.	$0.5385

40.	The price earnings ratio for 2015 is:

	a.	4.4875 times.
	b.	7.6925 times.
	c.	3.7033 times.
	d.	5.7692 times. ($0.6923 / $0.12)

41.	Assume Beech Tree Limited wanted to borrow $75,000 from a local bank on January 2, 2016. What immediate effect, if any, would this transaction have on Beech Trees current ratio?

	a.	Cannot be determined from the data given.
	b.	The ratio would decrease.
	c.	The ratio would increase.
	d.	The ratio would remain unchanged.

42.	Net sales are $400,000 and cost of goods sold is $310,000. If operating expenses are $58,000, other revenues and gains are $10,000, and income tax expense is 20% of income before taxes, the profit margin ratio is:

	a.	9.4%
	b.	8.4% [$400,000 ? $310,000 ? $58,000 + $10,000 ? (20% x $42,000)] / $400,000
	c.	6.2%
	d.	8.9%

43.	A company purchased a depreciable asset for $40,000 on July 1, 2014. The estimated useful life of the asset is 5 years. If the company uses straight-line depreciation, what is the balance in the accumulated depreciation account and what would the carrying amount of the asset be on December 31, 2015?

	a.	the accumulated depreciation would be $16,000 and the carrying amount would be $24,000.
	b.	the accumulated depreciation would be $16,000 and the carrying amount would be $56,000.
	c.	the accumulated depreciation would be $12,000 and the carrying amount would be $52,500.
	d.	the accumulated depreciation would be $12,000 and the carrying amount would be $28,000.

Question No. 1 (continued) (80 marks)

44.

Pumping Iron Ventures is an exercise club. Members may join at any time during the year but must pay for a 12-month membership at the time of joining. The membership fees paid for in cash are initially recorded in the unearned membership fees account. Selected information from the unearned membership fees account of Pumping Iron Ventures for 2015 appears below:


Unearned Membership Fees T-Account
	120,000 Balance January 1, 2015
	390,000 credit entries during 2015
	180,000 Balance December 31, 2015

The amount of fees received and the amount of fees earned, respectively, by Pumping iron Ventures in 2015 is:

$510,000 fees received and $330,000 fees earned.

$390,000 fees received and $330,000 fees earned.

$510,000 fees received and $180,000 fees earned.

$390,000 fees received and $180,000 fees earned.

45.	Which of the following describes how payments to suppliers made within the purchase discounts period are recorded in a perpetual inventory system?

	a.	Reduce Cash, reduce accounts payable.
	b.	Reduce Cash, Reduce accounts payable, reduce inventory.
	c.	Reduce cash, reduce accounts payable, increase purchase discounts.
	d.	Reduce Cash, reduce accounts payable, decrease purchase discounts.

46.	The following sequence of transactions took place during June for Ace Company: June 3: Purchase goods costing $2,200 from Zip Co. with terms 2/10, net 30. June 5: Returned goods costing $1,200 to Zip Co. for full credit. June 6: Purchased goods costing $2,000 from Nadda Co. with terms 2/10, net 30. June 11: Paid the balance owed to Zip Co. June 22: Paid Nadda in full. If Ace had no inventory on hand on June 1, what is the cost of inventory on hand on June 30 assuming Ace uses a perpetual inventory system?

	a.	$2,940
	b.	$2,960
	c.	$2,980 ($4,200 ? $1,200 ? $20) $20 = ($2,200 ? $1,200 x 2%)
	d.	$3,020

47.	Assume a companys current ratio to be 1.8 and working capital equal to $32,000. Total current assets must be:

	a.	$68,000
	b.	$72,000 x/y=1.8; x=1.8y; 1.8y ? y = $32,000; y = $40,000; x = $40,000 + $32,000
	c.	$76,000
	d.	$80,000

Question No. 1 (continued) (80 marks)

48.	To record the sale of goods for cash under a perpetual inventory system:

	a.	Two journal entries are necessary: one to record the receipt of cash and sales revenue, and one to record the cost of the goods sold and reduction in merchandise inventory.
	b.	Only one journal entry is necessary to record the receipt of cash and the sales revenue.
	c.	Two journal entries are necessary: one to record the receipt of cash and the reduction of inventory, and the other to record the cost of goods sold and the sales revenue.
	d.	One journal entry is necessary to record the cost of goods sold and the reduction of inventory.

49.	When goods are purchased for resale by a company using a periodic inventory system:

	a.	Purchases are debited to the beginning Merchandise Inventory account.
	b.	Purchases are debited to Finished Goods Inventory account.
	c.	Purchases are debited to the Purchases account.
	d.	Purchases are debited to the Cost of Goods Sold account.

50.	Given the following activities: Payment of cash dividends to shareholders $ 75,000 Payment of interest on a bank loan 35,000 Purchase of machinery 195,000 Payment on mortgage payable 200,000 Payment made to repair machinery 65,000 Purchase of inventory 15,000 The cash outflows for investing and financing activities are:

	a.	Investing $195,000; financing $300,000
	b.	Investing $185,000; financing $275,000
	c.	Investing $185,000; financing $300,000
	d.	Investing $195,000; financing $275,000

51.	On June 1, 2015, Bonita Company borrowed $40,000 from First National Bank and signed a 1-year note payable. The loan plus 8% interest must be repaid on the maturity date. If Bonitas year-end is December 31, the amount of interest payable to be reported on Bonitas Statement of Financial position would be (rounded to the nearest dollar):

	a.	$1,867 ($40,000 x 8% x7/12)
	b.	$0
	c.	$1,333
	d.	$3,200

52.	Wayne Summers earned a salary of $750 since he was paid last in mid-November and he will be paid on December 1. The adjusting entry to be recorded by Waynes employer at November 30 would be:

	a.	Salaries Payable . . . . . . 750 Cash . . . . . . . . . . . . 750
	b.	Salaries Payable . . . . . . 750 Salary Expense . . . . 750
	c.	Salaries Expense . . . . . . 750 Salary Payable . . . . 750
	d.	No journal entry is required because payday is not until the next day.

Question No. 1 (continued) (80 marks)

53.	Maple Corporation sells merchandise on account for $3,000 to Marshmallow Corporation with credit terms of 2/15, n/45. Marshmallow returns $600 of merchandise that was damaged, along with a cheque to settle the account within the discount period. What is the amount of the cheque?

	a.	$2,352 ($3,000 ? $600) x 98%
	b.	$2,400
	c.	$2,940
	d.	$2,940

54.	On December 31, 2015 Greenhouse reported a balance of $104,000 in its Retained Earnings account. During the year, the company reported a net loss of $14,000 and had also issued additional common shares for $30,000 cash. On January 1, 2015 Greenhouse Company reported a balance in its Retained Earnings account of $121,000 and a balance of $370,000 in its Common Shares account. The amount of dividends paid by Greenhouse during 2015 was:

	a.	$3,000 ($121,000 ? x ? $14,000 = $104,000); x = $3,000
	b.	$11,000
	c.	$33,000
	d.	$41,000