The Chinese University of Hong Kong

Midterm Examination 1st Term 2014-2015

Course Code & Title
ACCT 2111 A, B, and C
INTRODUCTORY FINANCIAL ACCOUNTING
Time allowed : 1.5 hours
Professor Jeff NG
Teaching Assistant Cliff LEE
Rules and Instructions:
1) This Midterm Exam is closed book and notes, which means that you are not to use any
materials when working on this exam.
2) No talking or communication of any kind during the exam.
3) No mobile phones, notebook computers, tablets, etc, not even in calculator mode.
4) A calculator may be used, but only for calculation. No notes are to be stored on
programmable calculators.
5) There are eleven (11) pages including this cover page. Please check that you have a
complete exam.
6) Please read, sign and date the student declaration of academic honesty below.
7) Show all calculations for full credit.

I acknowledge that I am aware of University policies and regulations on honesty in academic

work, and of the disciplinary guidelines and procedures applicable to breaches of such
policies and regulations, as contained in the website. I understand that I am not to discuss the
contents of this exam with anyone, including students in other sections of this course, until
after all exams have been graded and returned.
___________________

__________________

Signature

Date

Name (in English)

Student ID

ACCT 2111_________

Intro Fin Accounting

Course code

Course title

SECTION A MULTIPLE CHOICE (30 marks, 1.5 marks each)

Please select the most appropriate answer from each question below. Only one answer is
required from each question.
A1 All of the following are true of Limited Companies in Hong Kong EXCEPT:
a)
b)
c)
d)

Limited Companies are legally distinct from its owners

Limited Company income is taxed
Dividends to Hong Kong shareholders are taxed
Limited Company shareholders elect the Board of Directors

A2 What does IFRS stand for?

a)
b)
c)
d)

Institute of Financial and Regulatory Services

Institute for Financial Reporting Standards
International Fiscal Responsibility Standards
International Financial Reporting Standards

A3 Which of the following is a FUNDAMENTAL Qualitative Characteristic of accounting?

a)
b)
c)
d)

Timeliness
Relevance
Understandability
Verifiability

A4 Which of the following is an Asset?

a)
b)
c)
d)

Unearned Revenues
Prepaid Expenses
Accumulated Depreciation
Allowance for Uncollectible Accounts

A5 Which of the following equations is accurate?

a)
b)
c)
d)

Assets + Shareholders Equity = Liabilities

Assets Liabilities = Shareholders Equity
Assets = Liabilities Shareholders Equity
Assets + Liabilities = Shareholders Equity

A6 If assets increase $210,000 during a given period, and liabilities decrease $65,000
during the same period, shareholders equity must change by which amount?
a)
b)
c)
d)

Increase $145,000
Decrease $275,000
Decrease $145,000
Increase $275,000

A7 A company issues share capital in exchange for $10,000 Cash. What is the journal entry
related to this transaction?
a)
b)
c)
d)

DR Share Capital and CR Cash

DR Cash and CR Share Capital
DR Dividends and CR Cash
DR Cash and CR Dividends

A8 One of the primary purposes of the Trial Balance is to show that:

a)
b)
c)
d)

Asset = Liabilities + Owners Equity

Revenues Expenses = Net Income
Debits = Credits
Contributed Capital + Retained Capital = Owners Equity

A9 The left side of a T-account is always which of the following?

a)
b)
c)
d)

The increase side

The decrease side
The debit side
The credit side

A10 Under accrual accounting, which of the following events results in revenue recognition?
a)
b)
c)
d)

Perform services on account

Receive cash from customers for future services
Purchase inventories on account
Pay cash to settle accounts payables

A11 Which of the following is true regarding the objective of the matching principle?
a)
b)
c)
d)

Match expenses with revenues

Match liabilities with assets
Match contra-assets with assets
Match equity with revenues

A12 Recording depreciation is an example of which type of adjusting entry?

a)
b)
c)
d)

Accrued expense
Accrued revenue
Deferred expense
Deferred revenue

A13 ABC Company had a beginning cash balance of $8,000, paid cash of $10,000, and
ended the month with a cash balance of $4,000. How much was cash receipts during the
month?
a)
b)
c)
d)

$2,000
$6,000
$14,000
$22,000

A14 Which of the following transactions results in an accrual when first recorded?
a)
b)
c)
d)

Purchase supplies on account

Perform services on account
Collect cash for unearned revenues
Pay cash for goods to be delivered next month

A15 Which of the following transactions DOES NOT affect Accounts Receivables?
a)
b)
c)
d)

Recording doubtful accounts expense

Selling goods on account
Collecting cash from customers on account
Writing off doubtful accounts

A16 Using up supplies that were previously purchased on account results in which of the
following entries?
a)
b)
c)
d)

Debit Accounts Payable and Credit Supplies

Debit Supplies and Credit Accounts Payable
Debit Supplies Expense and Credit Supplies
Debit Supplies and Credit Supplies Expense

A17 Which of the following adjustments are made to the BOOK side of a bank
reconciliation?
a)
b)
c)
d)

Outstanding Checks
Check returned indicating that there was Non-Sufficient Funds (NSF)
Deposit in Transit
Bank error

A18 Bears Company issues a 3-month note on December 1 for $100,000 with a stated
interest rate of 12%. What is the amount of interest revenue recorded by Bears Company on
December 31, the end of the fiscal year?
a)
b)
c)
d)

$0
$1,000
$4,000
$12,000

A19 Accounts receivables that that a company cannot collect from customers are known by
all of the following names EXCEPT which?
a)
b)
c)
d)

Bad debts
Factoring
Uncollectible accounts
Doubtful accounts

A20 Under the allowance method, writing off accounts receivable results in what income
statement impact(s)?
a)
b)
c)
d)

Increase bad debt expense

Reduce revenues
Both a) and b)
Neither a) nor b)

SECTION B SHORT ANSWERS (33 marks)

This section requires you to write short answers or make simple calculations for each
question. Note that the questions are independent of each other. That is, B2 does not follow
from B1 and requires separate calculations.
B1 ADJUSTING ENTRIES
Hong Kong Motor Company (HKMC) issues monthly financial statements.
REQUIREMENT: Record the adjusting entries HKMC needs to make at the end of October
2014.
At the end of September 2014 HKMCs balance sheet showed an Unearned Revenues
balance of $18,250. During the month of October 2014, HKMC collected $242,000 from
customers, all recorded as a CR to Unearned Revenues. At the end of October, HKMC
calculates that it still owes its customers $58,000 in Unearned Revenues. The total cost of
these items sold was $120,000.
DR Unearned Revenues

$202,250

CR Sales Revenues
DR Cost of Goods Sold

$202,250
$120,000

CR Inventory

$120,000

HKMC pays its employees a total of $24,000 each Friday for work up through Wednesday
because the accountant needs two days to make calculations and issue the checks. This year,
October 31 is on a Friday. On this day, the accountant for HKMC issued the payroll checks
and debited salary expense $24,000 and credited cash $24,000.
DR Salary Expense

$9,600

CR Salaries Payable

$9,600

The unadjusted balance of HKMCs Supplies account is $6,290. A count of total supplies on
hand is $1,800 on 31 October, 2014.
DR Supplies Expense
CR Supplies

$4,490
$4,490

B2 THE ACCOUNTING CYCLE

REQUIREMENT: Put the following steps of the Accounting Cycle in order of when they
occur each period.
Closing Entries
Trial Balance
Adjusted Trial Balance

Analyze Transactions
Journal Entries
Post to Ledger

Financial Statements
Post-Closing Trial Balance
Adjusting Entries

1) Analyze Transactions
2) Journal Entries
3) Post to Ledger
4) Trial Balance
5) Adjusting Entries
6) Adjusted Trial Balance
7) Financial Statements
8) Closing Entries
9) Post-Closing Trial Balance
B3 CLOSING ENTRIES
REQUIREMENT: Record the three types of Closing Entries that are required at the end of
each accounting period. (Hint: Think of what accounts are closed and what they are closed to).
No numbers are necessary.
DR Revenues
CR Retained Earnings
DR Retained Earnings
CR Expenses
DR Retained Earnings
CR Dividends

B4 ALLOWANCE FOR DOUBTFUL ACCOUNTS

Eye Phone Limited (EPL) has a significant amount of accounts receivables. EPL began
September 2014 with $1,234,567 in gross accounts receivables and an allowance for doubtful
accounts balance of $234,567.
During September 2014, EPL has sales on account totaling $2,222,222 and wrote off
$314,159 of accounts receivables. At the end of September 2014, EPLs aging-of-accountsreceivables schedule shows the following amounts:

Accounts
Receivables
Estimated %
Uncollectible
Estimated
Allowance

Eye Phone Limited (EPL)

Aging-of-Accounts-Receivables
September 2014 (ending balance)
Not yet
1-30 days 31-60 days 61-90 days
due
864,335
966,225
600,064
435,478
0.9%

2%

5.3%

18%

Over 90
days
?=
276,528
35%

7,779.0

19,324.5

31,803.4

78,386.0

96,784.8

REQUIREMENT: Prepare T-Accounts for Accounts Receivables, Allowance for Doubtful

Accounts, and Bad Debt Expense for the month of September 2014.
Accounts Receivables
Beginning Balance 1,234,567
Sales on Account 2,222,222

Write-offs 314,159

3,142,630

Allowance for Doubtful Accounts

234,567
Write-off 314,159

Bad Debt Expense 313,670

234,078

Bad Debt Expense

313,670

313,670

SECTION C LONG QUESTION (37 marks)

On 1 January 2010, you founded Orange Fruits Limited (OFL) for $50,000 cash in exchange
for all of the share capital. Your company sells exotic imported fruit. On 31 December 2013,
OFLs balance sheet showed the following amounts:
Orange Fruits Limited
Balance Sheet
Month ending 31 December 2013
ASSETS
Cash
Accounts Receivables
Allowance for bad debts
Inventories
Supplies
Notes Receivable

22,500
12,000
(1,343)
9,861
4,428
10,000
57,446

LIABILITIES & OWNERS EQUITY

Accounts Payable
2,196
Unearned Revenues
2,000

Share Capital
Retained Earnings

50,000
3,250
57,446

REQUIREMENT 1: Journalize the following transactions, all occurring during 2014 (no
explanations necessary):
REQUIREMENT 2: Fill in the balance sheet for month ending 31 January 2014 (on page
11). Ignore taxes when computing Retained Earnings.
January 1: Pay $6,000 cash for 6 months of rent, beginning on 1 January 2014.
DR Prepaid Rent
$6,000
CR Cash
$6,000
(DR Prepaid Rent $5,000 and DR Rent Expense $1,000 also ok)
January 8: Purchase $5,220 inventories (fruit), paying an additional $500 for delivery and
$50 for insurance on the delivery FOB shipping point, all paid in cash.
DR Inventory
$5,770
CR Cash
$5,770
(DR Inventory 5,220, Delivery Expense 500, Insurance Expense 50, also ok)
January 12: Ship $6,200 fruit to customers, including $2,000 for customers that paid for the
fruit in December 2013. The remaining purchases are on account. This fruit cost OFL $3,900.
OFL also incurs delivery charges of $100, on account FOB destination.
DR Unearned Revenues
$2,000
DR Accounts Receivable
$4,200
CR Sales Revenues
$6,200
DR Cost of Goods Sold
$3,900
CR Inventory
$3,900
DR Delivery Expense
$100
CR Account Payable
$100

January 13: Receive $500 of supplies in exchange for $500 of fruit (at cost).
DR Supplies
CR Inventory

$500
$500

January 18: Collect $4,700 cash to settle accounts receivables. Also write off $500 accounts
receivables.
DR Cash
$4,700
DR Allowance
$500
CR Accounts Receivables $5,200

January 25: Pay $1,200 to settle accounts payables.

DR Accounts Payables
CR Cash

$1,200
$1,200

January 31: Pay salary expense for the month of $4,000 in cash.
DR Salary Expense
CR Cash

$4,000
$4,000

January 31: A physical count reveals that there are $3,800 supplies on hand. Interest on the
note receivable is 1.5% per month. An aging-of-receivables analysis reveals that the amount
of allowance for bad debts should be $1,300. Record the adjusting entries needed for these
transactions.
DR Supplies Expense
$1,128
CR Supplies
$1,128
DR Interest Receivables
$150
CR Interest Revenue
$150
DR Bad Debt Expense
$457
CR Allowance
$457
Somewhere, you need to recognize Rent Expense of $1,000 for the month. Either on Jan 1 or
Jan 31.

10

January 31: Record any closing entries required for the month ending 31 January 2014.
DR Retained Earnings
$3,235
DR Sales Revenue
$6,200
DR Interest Revenue
$150
CR Delivery Expense
$100
CR Salary Expense
$4,000
CR Supplies Expense
$1,128
CR Bad Debt Expense
$457
CR Rent Expense
$1,000
CR Cost of Goods Sold
$2,900

Orange Fruits Limited

Balance Sheet
Month ending 31 January 2014

Cash

13,230

LIABILITIES & OWNERS EQUITY

Accounts Payable
1,096

Accounts Receivables

11,000

Unearned Revenues

Allowance for bad debts

-1,300

ASSETS

Inventories
Supplies
Notes Receivable
Interest Receivable
Prepaid Rent
TOTAL ASSETS

9,231 or
8,681
3,800

Share Capital

10,000

Retained Earnings

50,000
15 or (535)

150
5,000
51,111

TOTAL LIAB & S/E

51,111

Answers here can be slightly different, especially Inventories and Retained Earnings if
your January 8 entry is the alternate entry.

11