Ramadan Al-Omari / Faculty of Commerce
Time : One hour / Department of Accounting
Mid-Term Second Semester 2011/2012
Name………………………………………….…… Student No……..……………………
Question No. 1 (10 Marks)
Rafah Beach Resort opened for business on June 1. Its trial balance before adjustments on August 31 is as follows (all figures are in US$):
Debit Credit
Cash 9,600
Supplies 3,300
Prepaid Insurance 6,000
Buildings 70,000
Accounts Payable 6,500
Unearned Rent Revenue 6,400
Capital 60,000
Rent Revenue 59,000
Repair Expense 3,600
Salaries Expense 30,000
Utilities Expense 9,400
______
131,900 131,900
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You are given the following additional information:
a. Insurance expires at the rate of $400 per month.
b. A count on August 31 shows $600 of supplies on hand.
c. Annual Depreciation is $3,000 on the buildings.
d. Unearned rent revenue of $4,100 was earned prior to August 31.
e. Salaries of $800 were unpaid at August 31.
You are required to prepare the adjusting journal entries on August 31 for the 3-month period June to August 31.
Question No. 2. (10 Marks)
Choose the correct answer:
According to the Accrual-Basis of Accounting
a. Transactions are recorded in the periods in which the events occur.
b. Revenues are recognized when earned, rather than when cash is received.
c. Expenses are recognized when incurred, rather than when paid.
d. All of the above
FOB shipping point means that
a. Ownership of the goods remains with the seller until the goods reach the buyer.
b. Ownership passes to the buyer only if the price of the shipment was paid in advance.
c. Ownership of the goods passes to the buyer when the public carrier accepts the goods from the seller.
d. Ownership remains with the seller until he receives the price of the goods.
Consigned Goods are goods
a. Held on behalf of other parties for sale, but without taking ownership of goods.
b. In transit.
c. That are already sold but not delivered to the buyer.
d. That were already purchased but not yet received.
According to Last-In-First-Out (LIFO)
a. Ending inventory is considered to be of the earlier purchases.
b. Ending inventory is considered to be of the latest purchases.
c. Inventory is calculated using the average cost.
d. Inventory is calculated on the basis of the lower of cost or market value.
Internal Control means methods and measures undertaken to
a. Safeguard assets and increase efficiency of operations.
b. Enhance accuracy and reliability of accounting records.
c. Ensure compliance with laws and regulations.
d. All of the above.
Average-Cost Allocates cost of goods available for sale on the basis of
a. FIFO method of inventory valuation.
b. Weighted average unit cost incurred.
c. LIFO method of inventory valuation.
d. Market price of inventory items.
Fraud is
a. An innocent mistake committed by an employee at a cost to the employer.
b. Coming late to work each morning.
c. Unfair treatment by the employer to the employee.
d. A dishonest act committed by an employee that results in a personal benefit to the employee at a cost to the employer.
In a service enterprise, revenue is considered to be earned at the time
a. The service is performed.
b. The service is ordered.
c. The service is contracted for.
d. None of the above.
According to the Cash-Basis of Accounting
a. Revenues are recognized when earned and expenses are recognized when incurred.
b. Revenues are recognized when cash is received, and expenses are recognized when cash is paid.
c. No transactions are recorded in books of accounts until the end of the month.
d. None of the above.
According to First-In-First-Out (FIFO)
a. Latest goods purchased are first to be sold.
b. Nothing is sold and nothing is purchased.
c. Goods are sent on consignment.
d. Earliest goods purchased are first to be sold.
Question No. 3 (10 Marks)
Barcelona Company Ltd is trying to determine the value of its ending inventory as of February 28, 2011, the Company’s year-end. For each of the following transactions you are required to:
i. Specify whether the item in question should be included in ending inventory; and
ii. Specify the amount in each case.
(a) On February 26, Barcelona Company Ltd shipped goods costing $1,000 to a customer and charged the customer $1,200. The goods were shipped with the terms FOB shipping point and the receiving report indicates that the customer received the goods on March 2.
(b) On February 26, Inter Milan Inc. shipped goods to Barcelona under the terms FOB shipping point. The invoice price was $450 plus $30 for freight. The receiving report indicates that the goods were received by Barcelona on March 2.
(c) Barcelona had $650 of inventory isolated in the warehouse. The inventory is designated for a customer who has requested that the goods be shipped on March 10.
(d) Also included in Barcelona’s warehouse is $900 of inventory that Real Madrid Ltd shipped to Barcelona on consignment.
(e) On February 26, Barcelona issued a purchase order to acquire goods costing $600. The goods were shipped with terms FOB destination on February 27. Barcelona received the goods on March 2.
(f) On February 26, Barcelona shipped goods to a customer under terms FOB destination. The invoice price was $750; the cost of the items was $500. The receiving report indicates that the goods were received by the customer on March 2.
GOOD LUCK