Question I: Multiple Choice (24 points)

1. b

2. c

3. d

4. d

5. b

6. d

7. c

8. b

9. b

10. b

11. b

12. d

Question 2 (10 points)

Item Number Assets Liabilities Net Profit

a. OS

Rs. 9,0001

NE OS

Rs. 9,0001

b. NE OS

Rs. 6,0002

US

Rs. 6,0002

c. NE US

Rs. 2,5003

OS

Rs. 2,5003

d. NE US

Rs. 4,5004

OS

Rs. 4,5004

e. OS

Rs. 10,0005

NE OS

Rs. 10,0005

1Expense not recorded = $12,000 - $3,0002Revenue not recorded = $6,000 from July 1, 1999 to December 31, 19993Gasoline expense not recorded = $2,5004Interest expense for 9 months not accrued = $50,000 × 0.12 × 9/12 =

$4,500

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5Depreciation expense not recorded = $30,000/3 = $10,000

Question 3 (6 points)

To report Kelly Plumbing Supply's revenues on an accrual basis, we need to subtract the accounts receivable collected in December but earned inNovember, and add the sales on account made during December, to thecash received from customers during December 2001.

To report Kelly Plumbing's expenses on an accrual basis, we have tosubtract the cash paid to suppliers in December for inventory purchased and used in November, and add inventory that was purchased in November and used in December, to the cash paid to suppliers for inventory during December 2001.

Cash received from customers during December 2001 387,000Cash received in December for November accounts receivable (139,000)December sales made on account 141,000Accrual basis revenues Rs. 389,000

Cash paid to suppliers for inventory during December 2001 131,000Payments for inventory purchased and used in November (19,000)Inventory purchased in November but used in December 39,000Accrual basis expenses 151,000

Accrual basis revenues 389,000Less: Accrual basis expenses (151,000)Gross profit for the month of December Rs. 238,000

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Question 4 (27 points)

a. On January 1, 2011, Ruchi Tofu Corporation started doing business and

its owners contributed Rs.200,000 of capital in cash.

Cash Dr 200,000Share Capital Cr 200,000

b. On January 1 2011, the company paid Rs.24,000 to cover the rent for

the office space for the 24 month period from January 1, 2011 to

December 31, 2012.

Prepaid Rent Dr 24,000Cash Cr 24,000

Rent Expense Dr 12,000Prepaid Rent Cr 12,000

c. On March 1, 2011, MSK Inc entered into a consulting contract under

which Ruchi Tofu Corporation promised to provide consulting to MSK

Inc., for the 10 month period from March 1, 2011, to December 31,

2011. In return MSK promised to pay a monthly consulting fee of

Rs.15,000, which was to be paid in January 2012. Ruchi Tofu fulfilled

its contractual obligation during 2011.

Unbilled Revenue /Debtors Dr 150,000Revenue from Services Cr 150,000

d. On July 1, 2011, Ruchi Tofu purchased office equipment for Rs.100,000

cash. The equipment has an estimated useful life of 5 years and no

salvage value. The equipment was immediately placed in use. Ruchi

Tofu uses the straight-line method of depreciation. It records

depreciation expense in proportion to the number of months’ usage.

Equipment Dr 100,000Cash Cr 100,000

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Depreciation Expense Dr 10,000Accumulated Depreciation Cr 10,000

e. Through November 30, 2011, the company had paid Rs.66,000 to its

employees for 11 months of salaries. Accrued salaries on December

31, 2011, were Rs.6,000.

Salaries Expense Dr 66,000Cash Cr 66,000

Salaries Expense Dr 6,000Salaries Payable Cr 6,000

f. On December 31, 2011, Norbert Corporation advanced Rs.20,000 to

Ruchi Tofu Corporation for consulting services to be provided during

2012.

Cash Dr 20,000Unearned RevenueOr Advances from Customer Cr 20,000

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