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(ACCT2020)[2012](s)quiz~mflau^_48463.pdf
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HONG KONG UNIVERSITY OF SCIENCE & TECHNOLOGY DEPARTMENT OF ACCOUNTING ACCT 2020: INTODUCTION TO ACCOUNTING Dr. Charles Hsu Spring 2012 Quiz_2_Key March 21, 2012 Part I: MC Questions (10 points, 2 points each) ABDDA Part II: Problems Problem 1 (8 points) 1). All the required closing entries for Ward Company (5 points) a 1 pt, b 2 pts, c 1 pt, d 1 pt (Give partial credit)
a.
Service revenue
40,000



Income summary

40,000

b.
Income Summary
29,000



Operating expenses

17,000


Depreciation expense

8,000


Interest expense

4,000

c.
Income Summary
11,000



Owners capital

11,000

d.
Owners capital
3,000



Owners withdrawal

3,000


2). Determine the capital amount to be reported on its year-end balance sheet using the Owners Capital T-account (3 pts). (give partial credit- Owners withdrawal 1 pt; Net income 1 pt)
Owners Capital

Owners withdrawal $3,000
Balance $79,000 Net income $11,000


Ending Balance $87,000


Problem 2 (15 points) Prepare the general journal entries to record these activities. 1pt each except 2pts for the one on Dec 23.
31 Cost of goods sold 600 Merchandise Inventory 600

Problem 3 (7 points) Nolton Inc. reported the $87,000 cost of good sold, $25,000 Net income, and $165,000 total current assets on their financial statements for 2008. It was discovered early in 2010 that the ending inventory on December 31, 2007 was overstated by $6,000, and the ending inventory on December 31, 2008 was understated by $2,500. 1) Determine the correct amount of net income for 2008 and the correct amount of current assets that should have been reported at the end of 2008. (4 points) Corrected Net Income for 2008 = $25,000 + 6,000 + 2,500 = $33,500 (2 points) Corrected Total Current Assets at the end of 2008 = $165,000 + 2,500 = 167,500 (2 points) 2) Explain how the first error mentioned above (i.e. 2007 error) affects the amount of equity reported at the end of 2008. (3 points) Write your answer in the lines provided below. Only your answer in the lined space will be read and graded. Points will be deducted for irrelevant comments. You can use the extra space at the bottom of this page to organize and outline your thoughts. The overstatement of ending inventory of 2007 by $6,000 means that equity in 2007 was overstated by $6,000. (1 pt) It also means that the beginning inventory of 2008 was overstated by $6,000, and the equity of 2008 was understated by $6,000. (1 pt) The understatement of equity in 2008 exactly offsets the overstatement of equity in 2007 caused by the same error; therefore this error does not affect the amount of equity reported at the end of 2008. (1 pt)