MGMT60000

Accounting for Managers

Professor Nan

Name_______________
Section_____________

Mid-term Exam 1- Version D

Solution
Instructions:
This is a close-book, close-notes exam. You are allowed to use a non-programming calculator.
There are two parts with totally 100 points (Part I : 45 points, and Part II: 55 points). Partial credits will
be awarded for Part II.
For Part I, please clearly fill the scantron test form with your answers using a #2 pencil. Only the
answers on your scantron form will be graded. For Part II, please write your answers on the pages
provided.
Make sure your name and section are legible and your answer is neatly presented. For the scantron test
form, make sure you fill in your name, student identification number (Purdue ID number, starting
with 00), and the test form (exam version).

Part I: Multiple choice questions. Please circle the right answer (45 points, 3 points each)
1. Highmark Co. reported the following in 2013 financial statements: total assets $105,000, total
liabilities $75,000, contributed capital $20,000, net income $40,000, dividends $1,000. What was the
retained earnings reported in its 2013 Balance Sheet?
A. $39,000
C. $10,000

B. $30,000
D. $35,000

2. JCPenny paid $8,000 to Parkside Mall for rent for the next 6 month. The $8,000 should be recognized
as JCPennys ____ and Parkside Malls_____.
A. Prepaid Expense; Unearned Revenue
B. Rent Payable; Account Receivable
C. Account Receivable; Rent Payable
D. Rent Expense; Rent Revenue
3. Which one is NOT a current asset?
A. Prepaid expense
C. Supplies

B. Patent
D. Inventory

4. Homedepot purchased 100 dishwashers for $50,000. This is a cash outflow from____ activities.
A. Operating
B. Investing
C. Financing
D. None of the above
5. Yellowstone Co. lent a $60,000 loan to Bluemountain Co. as a note receivable. The $60,000 is cash
flow from _______activities for Yellowstone and cash flow from ______activities for Bluemountain.
A. operating, investing
B. investing, financing
C. financing, financing
D. operating, financing
6. Kingston Co. declared a dividend of $1 per share on its 100,000 shares of common stock on Dec 15,
2012, and the dividends will be distributed in cash to shareholders on January 10, 2013. Which of the
following is true?
A. Kingstons 2012 net income is reduced by $100,000 because of the dividends
B. Kingstons liabilities increase by $100,000 on Dec 15, 2012
C. Kingston should recognize an adjusting entry for the dividend because this is a transaction that cut
across two periods.
D. Kingstons assets decrease by $100,000 on Dec 15, 2012

7. In the 2006 balance sheet of Wen Co., total assets is $50,000, stockholders equity is $26,000, and
current assets is $18,000. Wen Co. does not have long-term liabilities. What is its current ratio for 2006?
A. 0.80
B. 0.75
C. 0.69
D. 0.36

8. Which of the following is NOT a permanent account?

A. Dividends
C. Accumulated depreciation

B. Prepaid insurance
D. Common stock

9. Assume Bestbuy purchased 200 thumb drives from a supplier at $8 each and sold 100 thumb drives at
a retail selling price of $15 each. What is the total COGS incurred?
A. $800
B. $1,600
C. $1,500
D. $700

10. During 2013, KRN Co. had a $30,000 increase in accounts payable, a $50,000 increase in
prepaid expense, a $80,000 decrease in unearned revenue, and a $35,000 increase of PPE. The
depreciation expense in 2013 is $4,000. The 2013 Net Income is $500,000. What is the cash
flows from operating activities in 2013?
A. $504,000
B. $404,000
C. $604,000
D. $336,000
11. Bayer is a pharmaceutics company. Bayer spent $200,000 on research and developed a new
medicine for cancer, and obtains a patent for the medicine. The market value of this patent is
estimated to be $500,000. In Bayers Balance Sheet, the patents book value should be
A. $200,000
B. $500,000
C. $0
D. unknown
12. Which of the following direct effects on the accounting equation is not possible as a result of
transaction analysis?
A. Increase stockholders' equity and increase an asset.
B. Increase a liability and decrease an asset.
C. Increase an asset and decrease an asset.
D. Decrease stockholders' equity and decrease an asset.
13. Which of the following is an example of revenue or expense recognized in the current
period's income statement?
A. Cash received from a client before the lawyer represents them in court.
B. Inventory purchased by a retail store.
C. Wage costs owed to employees who worked during the period.
D. Cash collected for goods we shipped to a customer two months ago.
14. In 2016, Boilermaker Co. has a total revenue of $50,000, a total expense of $35,000, a gain
of $500 and it distributed $1,000 dividends to its shareholders during 2016. What is
Boilermakers 2016 earnings?
A. $15,000
B. $15,500
C. $14,500
D. $50,000

15. On May 2nd, 2013, a client called Gourmet Carter to order $1,000 foods for a reception in
June. The client stopped by on May 15th and left a check of $500, and promised to pay the
remaining balance upon the delivery of foods to the June reception. Gourmet Carter delivered the
foods to the reception on June 10, 2013.
A. Gourmet Carter should recognize $1,000 sales revenue on May 2nd.
B. Gourmet Carter should recognize $500 sales revenue on May 15th.
C. Gourmet Carter should recognize $1,000 sales revenue on June 10th.
D. None of the above is correct.
Part II. Problems (55 points)
Sakura Restaurant was incorporated on November 1, 2012 in West Lafayette, IN.
a) On Nov 1, 2012, Sakura Restaurant issued 10,000 shares of common shares at $11 per
share. The par value per share is $1.
b) On Nov 1, 2012, Sakura Restaurant paid $6,000 for the rent for the following six months.
c) On Nov 1, 2012, Sakura Restaurant purchased a cooking equipment for $48,000. The
useful life of the equipment is estimated to be 4 years, and Basil Cafe uses straight-line
depreciation method (assuming the residual value is zero).
d) On December 1, 2012, Sakura Restaurant borrowed $36,000 from Grey House Co. and
signed a 2-year note. The note has an annual interest rate of 10%, and the first interest
payment is due on May 31, 2013.
e) Sakura Restaurant pays its employees monthly salary on the first day of next month (that
is, Sakura Restaurant pays November salary on December 1, and pays December salary
on January 1). Each months payroll is $8,000.
f) On Dec 5, 2012, Sakura Restaurant received a $2,500 check from Krannert for breakfast
foods and coffee for a MBA job fair conference in January 2013.
g) On December 23, 2012, Sakura Restaurant provided dinner and drinks to Wabash Co. for
a large year-end banquet, charging $50,000. Wabash paid $20,000 in cash on December
23, and promised to pay the balance on January 15, 2013.
1.
2.
3.
4.

Record all journal entries before Dec 31, 2012. (16 points)
Record adjusting entries for the year of 2012. (8 points)
Compose 2012 Income Statement. (10 points)
Compose the Balance Sheet at Dec 31, 2012. (21 points)

To the grader/TA:
For pure calculation mistakes, the deduction of points is 1pt.
If a student makes a mistake in an early question in a problem, and that mistake affects the
later questions, then for the later questions if the student shows that he/she is solving the
problem with the correct method, the following consequential mistakes due to the earlier
mistake cost additional 1 more credit in total to avoid accumulated deductions.

1.
a) 11/1/2012 Cash

110,000
Common Stock
Additional Paid In Capital
b) 11/1/2012 Prepaid Rent Expense 6,000

10,000
100,000

(3 pt)

Cash
c) 11/1/2012 PPE
d) 11/1/2012 Cash

48,000
Cash

48,000

36,000
Notes Payable

e) 12/1/2012 Salary Expense

Cash
f) 12/5/2012 Cash

6,000

36,000

(2pt)
(2pt)
(2pt)

8,000
8,000

2,500
Unearned Revenue 2,500

(2pt)
(2pt)

g) 12/23/2012 Cash
20,000
Accounts Receivable 30,000
Sales Revenue (or Service Revenue) 50,000
(3pt)
2.
Adjusting entries:
12/31/2012
Rent Expense
2,000
Prepaid Rent Expense
2,000
(6,000/6 x 2=2,000)
Depreciation Expense 2,000
Accumulated Depreciation 2,000

(48,000/4x2/12)

Interest Expense
300
Interest Payable

(36,000x10% /12)

300

Salary Expense
8,000
Salary Payable
8,000
[Note to TA: each entry takes 2 points. Any inclusion of wrong items for adjusting
entry costs 2 points each.]
3.
Sakura Restaurant Income Statement
For the year ended at 12/31/2012
Revenues:
Sales (or Service Revenue)
50,000
Total Revenue
50,000
Expenses:
Rent Expense
Depreciation Expense
Salary Expense
Interest Expense

2,000
2,000
16,000
300

Total Expense

20,300

Net Income

29,700

[Note to TA: The title of income statement takes 1 point (should show the Income
Statement is for a period of time). Each revenue/expense item takes 1.5 points. The
final net income number takes 1.5 points. Any inclusion of wrong items costs 1.5
points each.]
4.
Sakura Restaurant Balance Sheet
At 12/31/2012
Assets:
Cash
106,500
Prepaid Rent Expense
4,000
Accounts Receivable
30,000
PPE
48,000
Less: Accumulated Depreciation (2,000)
Total Assets

186,500

Liabilities:
Unearned Revenue
Interest Payable
Salary Payable
Notes Payable

2,500
300
8,000
36,000

Total Liabilities

46,800

Stockholders Equity:
Common Stock
APIC
Retained Earnings

10,000
100,000
29,700

Total SE

139,700

Total Liabilities and SE

186,500

[Note to TA: The title of balance sheet takes 1 point (should show it is a snapshot at
12/31/2012). Each asset/liability/SE item takes 1.5 points. Balanced A and L+SE take
2 points.]