(ACCT2010)[2017](f)midterm~=in5mue0^_38655.pdf downloaded by cykim from http://petergao.net/ustpastpaper/down.php?course=ACCT2010&id=12 at 2019-10-08 07:48:28. Academic use within HKUST only.

Question 1 (25 marks)

(a) The ABC Corporation was formed on January 1, 2016. The three initial owners each
invested $100,000 cash and each received 10,000 shares of $1 par value common stock.
Below are selected transactions that were completed during January, 2016.

1. Issue shares of common stock to the owners.

2. Borrowed $80,000 on a one-year note payable.
3. Purchased land by signing a $70,000 note payable.
4. Paid $10,000 of accounts payable.
5. Purchased two service vehicles for cash at a cost of $24,000 each.
6. Purchased $2,000 of supplies on credit.

Prepare the journal entries on ABC's books for each transaction. Explanation for
each entry is not required.

(b) Below are four transactions that were completed during 2016 by Timber Lodge. The
annual accounting period ends on December 31. Each transaction will require an
adjusting entry at December 31, 2016.

Prepare the 2016 adjusting entries required for Timber Lodge.

(i) On July 1, 2016, Timber Lodge paid a two-year insurance premium for a policy on
its facilities. This transaction was recorded as follows:

Prepaid insurance 8,000

Cash 8,000

(ii) A tenant renting some storage space from Timber Lodge paid the December rent on
January 11, 2017. The rental agreement specifies a yearly rental of $9,000 payable
on monthly basis.

(iii) On September 1, 2016, Timber Lodge borrowed $25,000 cash and gave a one-year,
6%, note payable. The interest is payable on the note's due date of August 31, 2017.
The September 1, 2016 transaction was recorded as follows:

Cash 25,000
Note payable 25,000

(iv) On October 1, 2016, Timber Lodge collected $10,000 from a tenant for two years
rent beginning October 1, 2016. The $10,000 collection was recorded as follows:

Cash 10,000
Unearned rent revenue 10,000

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(ACCT2010)[2017](f)midterm~=in5mue0^_38655.pdf downloaded by cykim from http://petergao.net/ustpastpaper/down.php?course=ACCT2010&id=12 at 2019-10-08 07:48:28. Academic use within HKUST only.

Question 2 (30 marks)

(a) On January 1, 2016, Mr. Lee started a new retail shop with an initial investment of
$100,000 in exchange for 20,000 shares of $2 par value common stock. On June 30,
2016, the accounting records showed the following amounts:

Accounts Payable $2,000

Accounts Receivable $6,200
Cash $48,100
Common stock $ ??
Additional paid-in capital $ ??
Office Equipment $60,000
Office Supplies $3,500
Retained Earnings $5,800
Notes Payable $10,000

Prepare a balance sheet as of June 30, 2016. (Show your workings for the amounts
of common stock and additional paid-in capital.)

(b) On December 31, 2016, Pack-and-Deliver Company completed its first year of
operations. The following information has been provided for the year:

1. Sold packing supplies for $30,000 and provided $280,000 of delivery services.
2. All packing supplies sales were for cash.
3. Collected $212,000 of delivery service revenue.
4. Paid $15,000 cash to rent packing equipment, with $10,000 for rental in 2016 and the
remaining amount for rental in 2017.
5. Spent $4,000 cash to repair delivery equipment during the year.
6. Bought packing supplies at a total cost of $46,000 and paid for $25,000 of these
supplies. There were $20,000 of these supplies that have not yet been sold or used.
7. Paid employees $80,000 during the year.
8. Paid $16,000 for advertising for the year.
9. Paid $$55,000 to rent facilities. Pack-and-Deliver has not yet paid the $5,000 rent for
December, 2016.
10. Used $14,000 in fuel for the delivery equipment.
11. Sold investments for $8,000 that had been purchased earlier in the year for $7,000.
12. Ordered $500 in spare parts and supplies.
13. Income tax expense for the year is $18,000.

Prepare an income statement for Pack-and-Deliver Company for the year ended
December 31, 2016.

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(ACCT2010)[2017](f)midterm~=in5mue0^_38655.pdf downloaded by cykim from http://petergao.net/ustpastpaper/down.php?course=ACCT2010&id=12 at 2019-10-08 07:48:28. Academic use within HKUST only.

Question 3 (24 marks)

(a) Asia Company sold $10,000 of goods to Euro Company on credit on May 1. At the time
of the sale, Asia recorded a debit to Accounts Receivable and a credit to Sales Revenue
for $10,000. Terms were 2/10, n/30.
Prepare the journal entries for Asia Company for each of the following independent
situations:
(i) Euro paid the balance due, less the discount, on May 10.
(ii) Euro returned half of the goods for credit on May 4. Euro paid the balance due, less
the discount, on May 10.
(iii) Euro paid its bill on May 30 (there were no sales returns).

(b) Prior to the year-end adjustment to record bad debt expense for 2016 the general ledger
of Stickler Company included the following accounts and balances:
Allowance for Doubtful Accounts $ 1,000 credit balance
Bad Debt Expense 0
Accounts Receivable 200,000
For the year 2016: Cash collections on accounts receivable amounted to $450,000. Sales
revenue amounted to $800,000, of which 75% was on credit, and it was estimated that
2% of these credit sales made in 2016 would ultimately become uncollectible.
Calculate and determine the following amounts:
(i) Bad debt expense for 2016.
(ii) Adjusted balance of the allowance for doubtful accounts on December 31, 2016.
(iii) Net realizable value of accounts receivable on December 31, 2016.

(c) A comparison of the balance in Cottonwood Company's cash account per its books and
the bank statement dated April 30, 2016 revealed the following information:
Item Amount
Ending Cash balance per books (unadjusted) $5,520
Ending balance per bank statement (as of April 30, 2016) 5,170
Customer’s NSF check returned by bank shown on the bank statement 300
Outstanding checks at the end of April 870
Deposit in transit at the end of April 1,100
Error made by Cottonwood in recording a check paid to a supplier during 50
April-$550 was credited to Cash when the proper amount was $500; the
bank properly recorded the check as $500 when it cleared the bank
Bank service charge for April 20
Interest paid by bank 150

Prepare a bank reconciliation for the above discrepancies between the bank
statement and the accounting records.

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(ACCT2010)[2017](f)midterm~=in5mue0^_38655.pdf downloaded by cykim from http://petergao.net/ustpastpaper/down.php?course=ACCT2010&id=12 at 2019-10-08 07:48:28. Academic use within HKUST only.

Question 4 (21 marks)

(a) Hopkins Company reported the following information related to inventory and sales:

Units Unit Cost

Beginning inventory 1,000 $20
Purchase No. 1 7,000 $22
Purchase No. 2 2,000 $23

A total of 8,000 units were sold at $35 per unit.

Compute the following amounts assuming a periodic inventory system. Write the
following table format in your answer book:

Inventory Costing Sales Cost of Goods Gross Ending

Method Revenue Sold Profit Inventory
Average cost
FIFO
LIFO

(b) Sideline Company reported net income for 2015 of $70,000 and in 2016 of $84,000 (both
after income taxes at a 30% rate). It was discovered in 2016 that the ending inventory for
2015 was understated by $2,000 (before any income tax effect).

Calculate the correct net income (after income tax of 30%) for both 2015 and 2016.

(c) Cutting Edge Technologies reported the following information in its 2016 annual report:

(In millions)
Net sales revenue $18,860
Cost of sales 11,010
December 31, 2015 inventory 1,840
December 31, 2016 inventory 1,550

Calculate the inventory turnover ratio (round your answer to two decimal places)
and the average days to sell inventory (round your answer to a whole number).