Daffodil International University

Department of Computer Science and Engineering

Faculty of Science & Information Technology
Midterm Exam Examination, Spring 2021 @ DIU Blended Learning Center
Course Code: ACT211 (Day), Course Title: Financial and Managerial Accounting
Level: 2 Term: 1 Section: ALL
Instructor: SMR Modality: Open Book Exam
Date: Sunday 14 March, 2021 Time: 1:30pm-04:00pm
Four hours (2:30) to support online open/case study based assessment Marks: 25
Directions:
 Students need to go through the CASE STUDY shown in this exam paper.
 Analyze and answer specific section based on your own thinking and work.
 Do not share as this will be treated as plagiarism by Blended Learning Center.

Life will give you many options, but today you have to “Answer all the questions”

1) Lali Company is a pesticide manufacturer. Its sales declined greatly this year due to the
passage of legislation outlawing the sale of several of Ali’s chemical pesticides. In the
coming year, Lali will have environmentally safe and competitive chemicals to replace
these discontinued products. Sales in the next year are expected to greatly exceed any
prior years. The decline in sales and profits appears to be a one-year aberration. But even
so, the company president fears a large dip in the current year’s profits. She believes that
such a dip could cause a significant drop in the market price of Lali’s stock and make the
company a takeover target to avoid this possibility, the company president calls in Nila
Rahman, controller, to discuss this period’s year-end adjusting entries. He urges her to
accrue every possible revenue and to defer as many expenses as possible. She says to
Nila, “We need the revenues this year, and next year can easily absorb expenses deferred
from this year. We can’t let our stock price be hammered down!” Cathi didn’t get around
to recording the adjusting entries until January 17, but she dated the entries December 31
as if they were recorded then. Nila also made every effort to comply with the president’s
request.
Instructions [5]
a) (i) Who are the stakeholders in this situation?
(ii) What are the ethical considerations of (1) the president’s request and (2) Nila’s
dating the adjusting entries December 31?

(b) Maria Rahman, a beginning accounting student, believes debit balances are favorable
and credit balances are unfavorable. Is Maria correct? Discuss.

(c) “The terms debit and credit mean increase and decrease, respectively.” Do you agree?
Explain.
 (d) When entering a transaction in the journal, should the debit or credit be written first?
Which should be indented, the debit or credit?

(e) Why do accrual-basis financial statements provide more useful information than cash-
basis statements?

2) Maria Enterprises had a capital balance of $160,000 at the beginning of the period. At the [2]
end of the accounting period, the capital balance was $190,000.

(a) Assuming no additional investment or withdrawals during the period, what is the net
income for the period?

(b) Assuming an additional investment of another company of $10,000 but no

withdrawals during the period, what is the net income for the period?

3) Rima started her own consulting firm, “X” Consulting, on May 1, 2020. The following [7]
transactions occurred during the month of May.

May 1 Rima invested $20,000 cash in the business.

2 Purchased Equipment $1000 on credit for the month.
3 Purchased $500 of supplies on account.
5 Paid $225 to advertise in the Mountie News.
9 Received $6,000 cash for services provided.
12 Drawings $1,000 cash for personal use.
15 Performed $7,400 of services on account.
17 Paid $2,500 for employee salaries.
20 Paid for the supplies purchased on account on May 3.
23 Received a cash payment of $5,000 for services provided on account on May
15.
26 Borrowed $5,000 from the bank on a note payable.
29 Purchased office equipment for $5,200 in cash.
30 Paid $500 for utilities.

Instructions

(a) Show the effects of the previous transactions on the accounting equation using the
following (Tabular Form)

(b) Prepare an Income Statement for the month of May.

4) Destiny Cloud is a licensed Monitor. During the first month of operations of her business, [7]
the following events and transactions occurred.
May 1 Cloud invested $20,000 cash in her business.
2 Hired a staff at a salary of $2,000 per month.
3 Purchased $2,500 of supplies on account from Monika Cloud Company.
7 Paid salaries of $900 cash for the month.
11 Completed a tax assignment and billed the client $3,200 for services provided.
12 Received $3,500 advance on a management consulting engagement.
15 Purchased additional office equipment for $3,500, paying $1,500 in cash and
the balance on account.
17 Received cash of $1,200 for services completed for W.Deslor Co.
19 Withdrew $1,500 cash for personal use.
25 Earned revenue of $8,000, of which $5,500 is received in cash and the balance is
due in August.
30 Paid secretary-receptionist $2,000 salary for the month.
Instructions
(a) Journalize the transactions.
(b) Post to the ledger accounts. (Cash, S/R)

5) 3. Zara River Resort opened for business on March 1, 2020 with eight air conditioned [4]
units. Its trial balance before adjustment on May 31,2020 is as follows:

Sadia River Resort

Trail Balance
Trial Balance at May 31, 2020

Number Particulars Debit Credit

1 Cash 65,600

2 Supplies 4,300

3 Prepaid Insurance 4,000

4 Land 25,000

5 Cottages 1,05,000

6 Furniture 26,000

7 Account Payable 6,500

8 Unearned Rent Revenue 6,000

 9 Mortgage Payable 80,500

10 P.S. Capital 100,000

11 P.S. Drawing 5,000

12 Rent Revenue 60,000

13 Repair Expense 3,600

14 Salaries Expense 5,000

15 Utility Expense 9,500

2,53,000 2,53,000

Other information: (1) Insurance policy is for 4 years (2) Account on August 31 Shows
Tk.800 of supplies has now on hand (3) Furniture has 3 years life with no salvage value
which cost is Tk 26,000 (4)Tk. 6,500 of the balance in the unearned rent revenue account
remain unearned at the end of the month. (5) Utility expense is accrued Tk. 2000 per
month (6) Rentals of Tk. 3200 were due from tenants at May 31 (7) The mortgage interest
rate is 5% per year. (The mortgage was taken out on May 1)

Instructions:
Prepare the adjusting journal entries