ACCT
CC123
m1th16.pdf
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Fall 2016 Accounting 5101
Midterm I (Take-home: 40 points)
Name: ____________________________________________________________ Section _____
To get partial credit you must show all your workings. This exam is open-book, but must be done
independently. Good Luck!
_______________________________________________________________________________
Below is the balance sheet of Charlie's Chocolate Company as of January 1, 2016:
Assets Equities
Current Assets Liabilities
Current Liabilities:
Cash $ 3,200 Accounts Payable $ 3,700
Accounts Receivable 1,400 Long-term Debt 5,000
Inventory 22,000 _____
Prepaid Rent 800 Total Liabilities 8,700
27,400
Fixed assets Owners’ Equity
Property & Equipment 3,000 Paid-in-Capital 16,000
Accumulated Depreciation (1,000) Retained Earnings 4,700
2,000 Total Owners’ Equity 20,700
___
Total Assets 29,400 Total Equities 29,400
The following transactions occurred during January 2016:
1. Bought merchandise on account, $3,300, and placed it in inventory.
2. Merchandise was sold: on account $2,300, and for cash $8,100. Cost of goods sold for January,
to be determined.
3. Collected $850 cash from credit customers. Sales discount to credit customers totaled $50. The
company shows sales discount as a deduction from sales revenue in the income statement.
4. Payments to suppliers, $3,500.
5. Wages and salaries paid, $1,800 (cash). $1,000 salaries for the last week of January were paid
on February 1, instead of January 31, as was the usual practice.
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6. The company has an on-going contract to pay two months’ rent in advance. Paid rent for
February and March 2016, $1,600.
7. The annual interest rate on long-term debt is 12%. Renegotiations with the lender in January
2016 resulted in a change in the repayment schedule. Half the loan is to be repaid on September 30,
2016 and the balance on September 30, 2017. Consistent with common practice, the company
shows loans maturing within the next twelve months as the “current portion of long-term debt”.
8. The company provides depreciation on a straight-line basis. The estimated useful life of property
& equipment is 6 years, with a zero salvage value. (Round up to the nearest dollar.)
9. Inventory at the end of January 2016 equaled $21,100.
10. On January 31, the company disposed of equipment costing $1,000, one-half depreciated at the
end of January. Net proceeds is zero.
11. Cash dividends declared by the board of directors equaled $1,000. These were to be paid to
common stockholders on February 14, 2016.
12. The company's effective tax rate is 40%.
Required:
a. Prepare the balance sheet as of January 31, 2016 as well as the income statement for January
2016. [Incomplete outlines of the two statements are provided.]
b. Prepare journal entries made in January to record item (3) above and show the adjusting entry to
recognize the rent expense for January.
c. Suppose you had recognized all revenues and expenses appearing in the income statement on the
basis of cash received and cash paid, how much would the company show as its net income for
January 2016? What is this method of accounting called? Would this be a better measure of what
the company made during January 2016? Explain in brief.
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(a) Charlie's Chocolate Company Income Statement
for the month ended January 31, 2016
Net Sales Revenue
Cost of goods sold
_______________
Gross Margin
Other Expenses:
Wages & Salaries Expense
Rent Expense
Interest Expense
Depreciation Expense
_____________
Total
_______________
Income before Taxes
Tax Expense
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Charlie's Chocolate Company
Balance Sheet as at January 31, 2016
Assets Equities
Current Assets: Liabilities:
Current Liabilities:
Cash Accounts Payable
Accounts Receivable Interest payable
Inventory
Prepaid Rent
Long-term Debt
Fixed Assets: Owners' Equity:
Property & Equipment Paid-in-Capital
Accumulated Depreciation Retained Earnings
___________ ___________
Total Assets Total Equities
___________ ___________
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Workings:
Asset Accounts:
Cash Prepaid Rent
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Accounts Receivable Inventory
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Property & Equipment Accumulated Depreciation
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Liabilities & Owners’ Equity Accounts:
Accounts Payable _ Interest Payable
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Dividends Payable_ _ Retained Earnings
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Salaries Payable _ Taxes Payable _
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(b) Journal entries:
(c)
