MGAB01 FINANCIAL ACCOUNTING I – 2013 Fall

True or False Questions

1. T
2. F
3. F
4. T
5. T
6. T
7. T
8. F
9. T
10. F
11. T
12. F

Multiple Choice Questions

1. E
2. D
3. B
4. C
5. D
6. E
7. C
8. B
9. E
10. D
11. C
12. E
13. C
14. C
15. D

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 MGAB01 FINANCIAL ACCOUNTING I – 2013 Fall
Problems

Problem #1
Cash Wages Payable Wages Expense
Oct 5 400 Oct 31 240 Oct 5 400
Oct 12 400 Oct 12 400
Oct 19 400 Oct 19 400
Oct 26 400 Oct 26 400
Oct 31 240
(1,600) 240 1,840

Blade Company's October Income Statement should show $1,840 of wages expense and its October 31 Balance Sheet should show a
$240 liability for wages payable. The wages earned by its employee but unpaid on October 31 are an example of an accrued expense.

Long Company
General Journal
Date Account and Explanation DR CR
Nov 2 Wages Payable 240
Salary Expense 160
Cash 400
Salary payment November 2 (3 days accrued in October)

Problem #2

Rent Receivable Unearned Rent Rent Revenue

Dec 31 475 Dec 31 1,200 Nov 1 3,600 Dec 31 335,500
Dec 31 1,200
Dec 31 475

475 2,400 337,175

After the foregoing adjustments are entered in the accounts, the company’s Rent Revenue account has a $337,175 balance.
Its Unearned Revenue account has a $2,400 balance and this should
Page 2 ofbe
6 included in the company’s Balance Sheet as a
liability. Likewise, the company’s Rent Receivable account has a $475 balance, and this should appear on its Balance
Sheet as part of Accounts Receivable.
 MGAB01 FINANCIAL ACCOUNTING I – 2013 Fall
Problem #3
Patel Limited
General Journal
Error Account and Explanation DR CR
a Accounts Payable 5,000
Accounts Receivable 5,000
To correct the supplier payment of $5,000 incorrectly debited to A/P
b Interest Expense 1,650
Interest Income/Revenue 1,650
To correct the interest income incorrectly credited to interest expense
c Office Supplies 8,200
Office Equipment 8,200
To correct the purchase of office supplies incorrectly debited to office equipment
c Office Supplies Expense 8,200
(as Office Equipment 8,200
expense) To correct the purchase and use of office supplies incorrectly debited to office equipment

Shareholders' Retained Net

Error Assets Liabilities Revenue Expenses
Equity Earnings Income
a
Overstated by Overstated by No No No No No
$5,000 $5,000 Effect Effect Effect Effect Effect

b
No No No No No Understated by Understated by
Effect Effect Effect Effect Effect $1,650 $1,650

c Understated by Understated by Understated by Overstated by

No No No
Amortization on Amortization on Amortization on Amortization on
Effect * Effect Effect
$8,200 ** $8,200 ** $8,200 ** $8,200**
* No effect because it just reallocates between two assets
** Assuming Depreciation was calculated based on the balance in Office Equipment that was overstated by $8,200
c
(as Overstated by No Overstated by Page
Overstated
3 of 6 by Overstated by No Understated by
expense) $8,200 Effect $8,200 $8,200 $8,200 Effect $8,200
 MGAB01 FINANCIAL ACCOUNTING I – 2013 Fall
For each of the independent situations given below:
(a) Prepare all journal entries necessary to record what has happened in the fiscal year ended December 31, 2011. (18 marks)
(b) State the effect (increase, decrease, or no effect) of each journal entry in (a) on Net Income, Total Assets, and Total Liabilities for 2011. (16
marks)

1. June 7, 2011 - Inventory which cost $12,000 is sold for $17,000 (cash of $5,000 and the balance due in 30 days).

2 marks 1.5 marks

Assets Liabilities Net Income
Dr Cash 5,000 Increase NC Increase
Dr Accounts receivable 12,000
Cr Revenue 17,000

2 marks 1.5 marks

Assets Liabilities Net Income
Dr Cost of goods sold 12,000 Decrease NC Decrease
Cr Inventory 12,000
1 mark 1 mark
Assets Liabilities Net Income
Dr Cash 12,000 NC NC NC
Cr Accounts receivable 12,000

2. July 1, 2011 – Annual rent of $36,000 is paid in cash. This covers the period July 1, 2011 – June 30, 2012.

1 mark 1.5 marks

Assets Liabilities Net Income
Dr Prepaid expenses 36,000 NC NC NC
Cr Cash 36,000
2 marks 1.5 marks
Assets Liabilities Net Income
Dr Rent expense 18,000 Decrease NC Decrease
Cr Prepaid expenses 18,000

3. January 15, 2011 – Wages of $21,000 are paid. These wages are for work done in the month of December, 2010.

1 mark 1.5 marks

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 MGAB01 FINANCIAL ACCOUNTING I – 2013 Fall
Assets Liabilities Net Income
Dr Wages payable 21,000 Decrease Decrease NC
Cr Cash 21,000

4. January 15, 2012 - Wages of $23,000 are paid. These wages are for work done in the month of December, 2011.

2 marks 1.5 marks

Assets Liabilities Net Income
Dr Wages expense 23,000 NC Increase Decrease
Cr Wages payable 23,000

5. October 1, 2011 – Equipment costing $450,000 is purchased for $80,000 cash and the rest on credit. The equipment is expected to last for 5
years and have no residual value.

2 marks 1.5 marks

Assets Liabilities Net
Income
Dr Equipment 450,000 Increase Increase NC
Cr Cash 80,000
Cr Loan payable 370,000
2 marks 1.5 marks
Assets Liabilities Net Income
Dr Depreciation exp 22,500 Decrease NC Decrease
Cr Accumulated depreciation - 22,500
equipment

6. November 1, 2011 – Payment of $510,000 is received for services that are to be provided evenly over three months starting at the date of
payment.

1 mark 1.5 marks

Assets Liabilities Net
Income
Dr Cash 510,000 Increase Increase NC
Cr Unearned revenue 510,000
2 marks 1.5 marks
Assets Liabilities Net Income
Dr Unearned revenue 340,000 NC Decrease Increase

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 MGAB01 FINANCIAL ACCOUNTING I – 2013 Fall
Cr Revenue 340,000

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