Case: The Accounting Cycle

University of Ontario Institute of Technology

School of Business and Information Technology

BUSI2160--Financial Accounting II

Midterm Examination

October 27, 2004

Instructions: Please Read Carefully

1. Record your name and student number on all materials you hand in, including the Scantron form, exam booklets, spreadsheet, and exam paper. You must hand in your exam paper. Failure to do so will result in a grade of zero on the exam.

2. The exam has 22 multiple choice questions and three other questions. You must answer all of the questions. Answer the multiple choice questions on the Scantron form. Answer Questions 2, 3, and 4 in the exam books provided. Please answer Question 2 in one exam book and Questions 3 and 4 in a second exam book.

3. You may use a non-text storing calculator during the exam. It is not permissible to share calculators during the exam. Calculators that store text are not permitted.

4. All materials not required to write the exam must be placed at the front of the room before the exam begins, except for your calculators and writing implements. Use only paper provided at the exam. If you require paper for rough work, use part of an exam booklet. Please do not tear pages from the exam booklets.

5. All questions (except for the multiple choice questions) must be answered in the exam books distributed at the exam. Any work handed in on materials not distributed at the exam will not be graded.

6. You have 180 minutes to write the exam.

7. The exam has seven () pages including this cover page. Make sure you have all the pages

8. You may not communicate with other students or people in any way during the exam. Failure to abide by this requirement may result in you receiving a grade on zero in the exam.

9. You may not use laptop computers, cell phones, pagers, or other communications devices during the exam.

10. If you wish to leave the exam room during the exam you must be escorted by a proctor. Please raise your hand for assistance if you wish to leave.

11. Please write in blue or black ink. Please write neatly--someone has to read your answers.

12. Good luck!

Question 1 (30 Marks)--Multiple Choice Questions--Respond to the following 22 multiple choice questions.

1. On January 2, 2005 a company purchases a piece of equipment for $100,000. The company will use the declining balance method to amortize the equipment, using a rate of 40%. The company estimates that that the equipment will have a useful life of five years and it will have no residual value. The company has a year end of December 31. What would be the amount of the amortization expense for the fiscal year ended December 31, 2007?

a. $14,400

b. $20,000

c. $24,000

d. $100,000

e. None of the above.

2. Refer to the information provided in question 1 regarding the piece of equipment that was purchased on January 2, 2005. What would be the net book value of the equipment (NBV) reported on the year end December 31, 2006 balance sheet?

a. $21,600

b. $24,000

c. $36,000

d. $100,000

e. None of the above.

3. On January 3, 2000 Exam Inc. purchased a piece of equipment for $100,000. Management estimated the equipment would have a useful life of ten years and amortized the equipment using the straight-line method. On April 1, 2004 Exam Inc. sold the equipment for $80,000. Calculate the gain or loss on the sale of the equipment. Exam Inc.'s year end is December 31.

a. $20,000 gain

b. $20,000 loss

c. $22,500 gain

d. $32,500 gain

e. There was no gain or loss.

4. Net book value for a capital asset equals

a. Cost - Accumulated amortization

b. Cost - Amortization expense

c. Net recoverable amount - Cost

d. Fair market value - Accumulated amortization

e. None of the above.

5. The CICA Handbook requires that research costs be expensed as incurred. This requirement represents a violation of which of the following accounting concepts?

a. Conservatism

b. Matching

c. Reliability

d. Recognition

e. a and b

6. Which of the following inventory valuation methods is best?

a. Average cost

b. FIFO

c. LIFO

d. Specific identification

e. Not enough information to respond.

Use the following information to answer questions 7-11:

On January 1, 2005 Evan Ltd. had 10,000 units in inventory. Of the inventory on hand on January 1, 2005, 6,000 were purchased on September 1, 2004 for $10 each and 4,000 units were purchased on December 1, 2004 for $11 each. On January 15, 2005 Evan purchased 3,000 more units of inventory for $12 each. On January 10, 2005 Evan delivered 5,000 units of inventory to customers. On January 20, 2005 Evan delivered 4,000 units of inventory to customers. The selling price of the units sold to customers during was $22 each. Evan recognizes its revenue when inventory is delivered to customers.

7. How much revenue would Evan report for January 2005?

a. $88,000

b. $100,000

c. $110,000

d. $198,000