FACULTY OF
ECONOMIC AND ADMINISTRATIVE SCIENCES
DEPARTMENT
OF MANAGEMENT & DEPARTMENT OF ECONOMICS
MAN 201
PRINCIPLES OF ACCOUNTING I
MIDTERM EXAM
I
Instructor: ALI COSKUN
Duration: 90 Minutes October 26, 2005
QUESTIONS
QUESTION
1
Ford
Fenn is the founder and president of Kidney
Construction, a real estate development venture. The business transactions during April while
the company was being organized are listed below.
Apr. 1 Issued 2,000 shares of capital stock in
exchange for $150,000 cash. This cash is deposited in a bank account in
Security Bank.
Apr. 6 The Company purchased office facilities
for $200,000, of which $80,000 was applicable to the land, and $120,000 to the
building, paying $70,000 cash and signing a 12 month, 8% note payable for the
balance of the purchase price.
Apr. 10 Computer equipment was
purchased from PCWorld for $50,000 cash.
Apr. 12 Office furnishings were purchased from
Fred’s Furniture at a cost of $10,000. A
$1,000 cash payment was made at the time of purchase, and an agreement was made
to pay the remaining balance in two equal installments.
Apr. 20 The company
billed customers $23,000 on account for services rendered. Customers are required to make full payment
within 20 days.
Apr. 25 Kidney discovered that
it paid too much for a computer printer purchased on April 10. The unit should have cost only $1,050, but
Kidney was charged $1,550. PCWorld promised to refund the difference within seven
days.
Apr. 27 Mailed Fred’s Furniture the first installment
due on the account payable for office furnishings purchased on April 12.
Apr. 28 Obtained a loan from
First Bank in the amount of $50,000. Signed a note payable.
Apr. 28 Paid employees $ 5,000
for salaries.
Apr. 29 Received the amount
from PCWorld in full settlement of the account
receivable created on April 25.
Apr. 30 A cash dividend totaling $3,000 was
declared and paid to the company’s stockholders.
a.
Prepare journal entries to record the above
transactions.
Select the
appropriate account titles from the following chart of accounts:
Cash Land Accounts
Receivable
Building Service Revenue Notes
Payable
Office
Furnishings Accounts
Payable Computer Systems
Capital
Stock Salaries
Expense
b.
Post each transaction to the appropriate ledger
accounts.
c.
Prepared a trial balance dated April 30, 2005.
QUESTION 2
Troy
Pamona is the founder and manager of New City
Playhouse. The business needs to obtain
a bank loan to finance the production of its next play. As part of the loan application, Pamona was asked to prepare a balance sheet for the
business. He prepared the following
balance sheet, which is arranged correctly but which contains several errors
with respect to such concepts as the business entity and the valuation of
assets, liabilities, and owner’s equity.
Balance Sheet
September 30, 2005
Cash........................................ $
22,200 Liabilities:
Accounts Receivable................... 100,100 Accounts Payable................ $ 15,000
Props and Costumes....................... 2,000 Salaries Payable..................... 31,200
Theater Building.......................... 25,000 Total Liabilities.............. $46,200
Lighting Equipment....................... 9,100 Owner’s Equity:
Automobile.................................. 22,000
_______ Capital................................ 134,200
Total....................................... $180,400 Total .................................. $180,400
In
discussions with Pamona and by reviewing the accounting
records of New City Playhouse, you discover the following facts:
1.
When Pamona founded
New City Playhouse several years ago, he invested $80,000 in the business. However, Live Theatre, Inc.,
recently offered to buy his business for $134,200. Therefore, he listed this amount as his
equity in the above balance sheet.
2.
The accounts receivable, listed as $100,100,
include $18,000 owed to the business by Artistic Tours. The remaining $82,100 is Pamona’s
estimate of future ticket sales from September 30 through the end of the year
(December 31).
3.
The amount of cash, $22,200, includes $17,000
in the company’s bank account, $3,100 on hand in the company’s safe, and $2,100
in Pamona’s personal savings account.
4.
Salaries payable include $18,000 offered to Aslý Korkmaz to play the lead
role in a new play opening next December and $13,200 still owed to stagehands
for work done through September 30.
5.
New City Playhouse rents the theater building
from Delf International at a rate of $5,000 a
month. The $25,000 shown in the balance
sheet represents the rent paid for next five months. Delf International
acquired the building seven years ago at a cost of $140,000.
6.
The automobile is Pamona’s
classic 1935 Packard, which he purchased two years ago for $12,000. He recently saw a similar car advertised for
sale at $22,000. He does not use the car
in the business.
7.
The lighting equipment was purchased on
September 26 at a cost of $9,100, but the stage manager says that it isn’t
worth a dime.
8.
The accounts payable include business debts of
$14,000 and the $1,000 balance of Pamona’s personal
VISA card.
9.
Pamona explains to
you that the props and costumes were purchased several days ago for $19,000.
The business paid $2,000 of this amount in cash and issued a note payable to
Actor’s Supply Co. for the remainder of the purchase price ($17,000). As this note is not due until January of next
year, it was not included among the company’s liabilities.
Prepare
a corrected balance sheet for New City Playhouse at September 30, 2005.