hts.StevenWood.com

INSTRUCTIONS:

Answer the multiple choice questions on the answer sheet provided. Answer all other questions in exam booklets. (Yes, you may detach the answer sheet.)

A calculator and a standard English dictionary are permitted aids. No other aids or notes are permitted.

Allocate your time carefully!

PART A: Multiple Choice (19 marks)

PART B: Procedural (36 marks)

Select three questions from this section.

Each question is worth 12 marks.

Write your answer in the exam booklet. Part marks will only be given for full solutions.

1. This data was collected from the Young Company.

a) Prepare the bank reconciliation statement for the Young Company. (9 marks)

b) Prepare journal entries to update the accounting records. (3 marks)

 

	Young Company
	Bank Reconciliation
	31-Oct
Balance per bank statement, October 31				$3,290.00
Add:
Deposit in transit, Nov 30			$480.00
Cheque of Restless Co charged to our account by bank in error			105.00 ------------	585.00 --------------------
				$3,875.00
Deduct: Outstanding cheques				805.00 -------------------
Adjusted cash balance				$3,070.00 =======
Balance per cash account, October 31				$3,681.00
Add:
Note receivable collected by bank			$570.00
Less: collection charge			3.00 ---------------	$567.00 -------------------
				$4,248.00
Deduct:
Error in recording cheque
	Should be	$3,030.00
	Recorded as	2,020.00 ----------------	$1,010.00
NSF cheque, A. Lightstone			168.00 -------------	$1,178.00 --------------
Adjusted cash balance				$3,070.00 =======
Hydro Expense			$1,010.00
A/R - A. Lightstone			168.00
Bank Charges			3.00
Cash				602.00
	Office Equipment			9.00
	Notes Receivable			$570.00
To recorded items disclosed by bank reconciliation.

2. Ryder Company, an auto parts supplier, was robbed of a portion of its inventory on the night of August 16, 1999. The company does not keep perpetual inventory records and must, therefore, estimate the theft loss. To aid in this determination, the accounting staff compiles the following information:

Inventory, August 1, 1999 $ 290,000

Inventory, August 17, 1999 132,000

Purchases, August 1 - 16 84,000

Purchase returns, August 1 - 16 4,000

Sales, August 1 - 16 225,000

According to the last income statement (July 31, 1999) the Gross Profit Margin was 42%.

a) Calculate the estimated inventory loss. (10 marks)

b) How would the calculation have been done if the company used a perpetual inventory system?
(2 marks)

			Ryder Company
Inventory August 1				290,000
Purchases, August 1 - 16			84,000
Less: Purchase Returns			4,000 -----------	80,000 -----------
CGAFS				370,000
Sales August 1 - 16			225,000
Cost portion:
	100%	-42%=	x      58%	130500 -----------
Cost of inventory, August 16				239,500
Cost of inventory, August 17				132,000 -----------
Theft of inventory				107,500 =======
Accounting records would show the inventory on hand before the theft. From this would be subtracted the inventory of August 17 (after the theft)

3. Grey Hawk Inc uses a perpetual inventory system. The following transactions show beginning inventory, purchases and sales of product HTS-013 for the month of November.

a) Calculate the cost assigned to the Inventory on May 31^st using the average cost method. (6 marks)

b) Calculate the gross profit for Grey Hawk. (2 marks)

c) "With a perpetual inventory system there is no need to take a physical inventory." Why is this statement incorrect? (2 marks)

d) How would the answer in part a) be different if Grey Hawk, Inc. used the FIFO method of inventory? (2 marks)

a)
Date	Units in	Units out	Total	Cost	Total	Average	COGS
1-May	20		20	40	800	40
10-May		8	12	40	480	40	320
15-May	20		32	44	1360	42.5
21-May		10	22	42.5	935	42.5	425
	40	18					745
b)
Sales			1080
COGS			745
Gross Profit			335
c) Even with a perpetual inventory system you must take a physical inventory for at least the following reasons:  1) it required under the CICA handbook 2) it is needed to confirm that our accounting records are accurate and agree with what we actually have in the warehouse.
d)
FIFO
15-May	20			44	880
1-May	2			40	80
					960

 

4. Glenway Speedway recorded the following transactions correctly as they occurred in the month of June.

a) On June 1, borrowed $200,000 cash from the Royal Bank by issuing a 15% note payable due with interest in three months.

b) On June 1, paid rent for six months beginning June 1 at $25,000 per month.

c) On June 2, sold season tickets for a total of $700,000 cash. The season includes 70 racing days: 25 in June; 25 in July and 20 in August.

d) On June 4, an agreement was reached with Eat-More, Inc., allowing that company to sell refreshments at the track in return for 10% of the gross receipts from refreshment sales.

e) On June 6, schedules for the 25 racing days in June were printed and paid for at a cost of $9,000.

f) On June 30, Eat-More, Inc., reported that the gross receipts from refreshment sales in June had been $145,000 and that the 10% owed to Glenway Speedway would be remitted on July 10.

a) Record the entry required for each of the above items. If no entry is needed state this.
(5 marks)

b) Design the June 30th adjusting entries for each of the above situations. If no entry is required, state this. (4 marks)

c) Adjusting entries fall into one of four categories. Give a brief description of each category. (3 marks)

PART C: Case Study (15 marks)

Read the case carefully.

Write your answer in the exam booklet.

The high school prom is supposed to be the highlight of the year and the "Millennial Ball" was going to be no exception.

Shirley X was in charge of the Grad Committee this year. She was new to the school but had offered to take control of the entire event. Indeed, she was a ‘take charge’, ‘one person committee’, looking after almost every detail.

Mr. Y, the teacher liaison, was glad to have her look after things. He was concerned with all the negotiations over the new contract, the extra teaching periods he had to cover and all those other headaches that go with the job of teaching.

Shirley had been working for months preparing things. Every time she meet with Mr. Y and the graduating students she amazed them with the plans. The decorated hall, the 5 course meal, flowers, balloons, fountains, pillars, limos, a band; everything seemed to be included. The price seemed fantastic; Shirley had put together this great package for $250 a couple or $150 for a single. The only item not included was the dress or the tuxedo. To top it all off there was no need to do any fund raising: no car washes, bake sales, tuck shops or slave auctions!

Mr. Y asked for contact names and numbers but Shirley never seemed to pass them on to him. She said that she had arranged to have all the bills to be sent her. She would drop them off at the Office for him. "Oh well, every thing seems to be under control." he thought, "One less thing for me to worry about."

Shirley did a great job of organizing students to sell tickets. Her team of twenty students, the rest of the Grad Committee, sold the tickets. Most of them thought that they were getting off easy with Shirley looking after everything else. The tickets were printed and numbered from 1 to 1,000. In the end 560 tickets were sold; at least 100 more than last year. This promised to be the most successful prom in the history of the school. Couples bought most tickets but people going on their own bought a dozen or so. All ticket sellers brought the proceeds back to Shirley. Many tickets were bought with cash, the rest were paid with cheques made out to "Cash." It was her job to take them to Mr. Y who would then take it down to the Office. Shirley offered to do this for him, "Since she had to go past there anyway."

The morning of the prom was warm and sunny. "Friday! In twenty four hours the prom will be over for another year," thought Mr. Y. as he came into the school. Mr. Y checked his voice mail and found that he had two messages.

The first was from the ticket printer. "I can’t get a hold of Shirley so I thought I’d call the school. I was given your name. I am still waiting to be paid for the tickets and posters I made for you. Those things don’t come cheap. If you want to stay out of court, you’d better send me a cheque today!"

The second was also bad news. "Hi this is Shirley. I was up late getting things ready for tonight so I won’t be in school today. I’ll see you there."

Mr. Y thought he’d get out to the hall early so that he could tell Shirley about the call from the printer. He hadn’t seen the bill so he assumed that Shirley had given it directly to the Office in her normal efficient way. He stopped by the Office to see why they hadn’t paid the bill. He certainly didn’t want Shirley to look bad because the Office had messed things up.

"A bill for tickets?" said the Office manager, "No we haven’t received the bill. Say, when are you going to bring the ticket money? It’s not very safe for you to keep all that cash. We’ll need it to pay all the bills that will come in."

"Ticket money…Shirley brought that in weeks ago." Mr. Y suddenly could feel sweat on his forehead.

Mr. Y skipped his first period class to call Shirley but there was no answer. She must be at the hall looking after things. He confirmed the name of the hall from the ticket and then looked at the yellow pages to find the phone number. After three rings the phone was picked up and a voice said, "Hello, Veni, Vidi, Vici Hall."

"Hi, I’m calling from the school, is Shirley there?"

"Shirley? No, sorry no Shirley here."

"No, she doesn’t work there. I thought she’d be setting up for tonight; it’s the school prom…," Mr Y was getting nervous.

"Prom? I’m sorry you must have the wrong hall. Are you sure it is tonight?"

Mr. Y said goodbye and put the phone down. He tried to remember some of the different companies that Shirley had mentioned to him. No one he called knew what he was talking about. No reservations had been made for the school in most cases. With a few places no deposits were made so reservations were cancelled. What was he going to say to the grads?

Required:

a) Define the term ‘internal control.’ (4 marks)

b) From the point of view of the Grad Committee, name three specific control procedures that could be used to prevent the events described above from happening in the future. Explain each procedure.
(6 marks)

c) Based on ticket sales alone, approximately how much money was involved in this event? Show your calculations. (2 marks)

d) "A proper internal control system can catch all possible problems." Briefly defend or refute this statement. (3 marks)