Jaya International High School

Grade 11 Financial Accounting Fundamentals

FINAL EXAM
BAF3M
Duration: 3 Hours

Date: …………………………………………..

Name: …………………………………………..

INSTRUCTIONS
Answer ALL questions fully and ensure the following;
 Provide clear, well-organized responses using appropriate Accounting & Business language.
 Answer all questions in paragraph in communication
 Use complete sentences and relevant examples where necessary.
 Analyze and justify your responses with appropriate reasoning.
 Include calculations or accounting analysis if required.
 Support your answers with logical explanations and evidence.

*Calculators are permitted

A /42 C /10 K /13 T /20

Marks
Obtained
Knowledge [13]

Choose the correct answer;

1. Which of the following statements best describes the treatment of the Cost of Goods Sold (COGS) account
under the Periodic and Perpetual inventory systems?
A. Under the periodic system, COGS is recorded every time a sale is made, while under the perpetual
system, COGS is calculated only at the end of the period.
B. Under both systems, COGS is updated automatically using point-of-sale technology
C. Under the periodic system, COGS is determined through a year-end adjusting entry based on inventory
count, while under the perpetual system, COGS is updated continuously with each sale.
D. Under both systems, COGS is never recorded in the ledger but only disclosed in financial statements.

2. Which of the following best explains why prepaid expenses are typically listed on the balance sheet as
current assets, often immediately after supplies and inventory, and what this classification signifies in terms
of financial reporting?
A. Prepaid expenses are deferred liabilities that represent future income to be received and are listed after
supplies due to their similarity to unearned revenue.
B. Prepaid expenses are considered current assets because they represent payments made for goods or
services to be consumed within one operating cycle, and are listed after more liquid assets such as
supplies and inventory.
C. Prepaid expenses are intangible long-term assets that must be capitalized and amortized over a five-year
period, similar to goodwill and trademarks.
D. Prepaid expenses are contra-assets that offset accounts payable and are placed after supplies and
inventory to balance current liabilities

3. Which of the following best describes a permanent account?

A. An account that records revenues and expenses for the current period only and is closed at period-end
B. An account that accumulates balances across accounting periods and appears on the balance sheet
C. An account used to record temporary gains and losses that affect net income
D. An account that must be closed to Income Summary at the end of every period

4. Which of the following correctly classifies businesses based on their primary operations?
A. Service businesses provide intangible products or services; merchandising businesses buy and sell
finished goods; manufacturing businesses convert raw materials into finished products.
B. Merchandising businesses provide consulting services; manufacturing businesses sell pre-owned goods;
service businesses produce goods for resale.
C. Manufacturing businesses only sell products online; service businesses only sell physical products;
merchandising businesses only manufacture goods.
D. Service businesses manufacture products; merchandising businesses provide legal advice;
manufacturing businesses sell raw materials only.
5. Which of the following best describes the key steps and requirements for a Canadian private company to
become a publicly traded corporation?
A. The company must file an Initial Public Offering (IPO) prospectus with the Canadian Revenue Agency,
undergo a CRA audit, and be listed directly on the TSX without regulatory review.
B. The company must merge with a public shell company, bypassing securities regulations, and
immediately begin selling shares to private investors without disclosure requirements.
C. The company must prepare and file a prospectus with the securities commission (e.g., Ontario Securities
Commission), meet the listing requirements of a recognized exchange (e.g., TSX or TSX-V), obtain
regulatory approval, and complete an IPO to offer shares to the public.
D. The company must close its books for the year, issue dividends to all existing shareholders, then seek
shareholder approval and apply for listing with the Canada Pension Plan Investment Board (CPPIB).
6. Which of the following best reflects the application of the cost principle in financial accounting under
GAAP, and its implications for asset valuation and reliability of financial information?
A. Assets must be reported at their fair market value on each reporting date to ensure that financial
statements reflect current economic conditions.
B. Assets are initially recorded at their historical cost, representing the actual amount paid at acquisition,
and this value is used for future reporting unless specific GAAP standards (e.g., impairment or
revaluation exceptions) apply.
C. The cost principle requires companies to revalue assets annually based on market volatility to better
reflect the time value of money and investor expectations.
D. Revenues are recorded when earned under the cost principle to match them with associated costs,
ensuring accurate profit reporting.

7. Which statement correctly describes the accounting treatment of Purchase Discounts and Purchase Returns
under the periodic and perpetual inventory systems?
A. In the periodic system, Purchase Discounts and Purchase Returns are recorded in separate accounts,
while in the perpetual system, both directly adjust Merchandise Inventory.
B. Both systems record Purchase Discounts and Purchase Returns in separate contra-purchase accounts to
facilitate period-end adjustments.
C. In the perpetual system, Purchase Discounts are ignored, but Purchase Returns are recorded in separate
accounts; in the periodic system, both are recorded directly in Merchandise Inventory.
D. In the periodic system, Purchase Discounts reduce Merchandise Inventory immediately, while in the
perpetual system, Purchase Returns are treated as expenses.

8. Which of the following best captures the implications of the going concern assumption in accordance with
GAAP and its effect on financial reporting and asset valuation?
A. The going concern assumption limits the preparation of financial statements to the current fiscal year,
beyond which future projections are considered speculative and should be excluded
B. The going concern assumption requires all assets and liabilities to be measured at their current market or
liquidation value, even in the absence of any evidence of financial instability or planned dissolution.
C. Under the going concern assumption, financial statements must include a mandatory liquidation plan,
and assets should be adjusted for fair value annually, regardless of the company's financial health.
D. The going concern assumption presumes that an entity will continue its operations for the foreseeable
future and meet its obligations in the normal course of business, thereby justifying the use of historical
cost for asset valuation and deferring recognition of liquidation-related adjustments unless substantial
doubt exists.

9. Your company received a telephone bill for $800 covering the period from December 20 to January 10. The
company’s fiscal year ends on December 31. What is the correct adjusting entry on December 31?
A. Debit Telephone Expense $800; Credit Cash $800
B. Debit Telephone Expense $419; Credit Accounts Payable $419
C. Debit Telephone Expense $322; Credit Accounts Payable $322
D. Debit Prepaid Telephone Expense $800; Credit Accounts Payable $800

10. Which of the following scenarios best demonstrates compliance with the Economic Entity Assumption of
GAAP?
A. A sole proprietor uses the same bank account for both personal expenses and business transactions.
B. A corporation maintains separate financial records and bank accounts from its shareholders’ personal
finances.
C. A business owner records personal purchases as business expenses to simplify bookkeeping.
D. Two separate businesses share a single bank account to reduce banking fees.
11. Jordan, a senior accountant at a mid-sized firm, discovers that the company’s management has been
deliberately delaying the recognition of certain expenses to inflate the current year’s profits. Management
insists Jordan remain silent, arguing that revealing this would hurt the company’s stock price and cause
panic among investors. Jordan faces pressure because reporting the issue could jeopardize his job. Which of
the following is the most ethical course of action for Jordan, based on professional accounting ethical
standards?
A. Comply with management’s request to remain silent, prioritizing job security and company stability.
B. Report the issue immediately to external regulatory authorities without informing management, to
protect the public interest.
C. Discuss the concern with management again and request correction, and if refused, escalate the issue
internally or to a relevant professional body.
D. Alter the accounting records subtly to minimize the appearance of the delayed expenses, avoiding direct
confrontation

12. Which of the following statements accurately distinguishes the treatment of Freight-in and Freight-out under
the Periodic and Perpetual inventory systems?
A. Freight in is recorded as part of Merchandise Inventory in both methods, while Freight-out is excluded
from accounting records in both.
B. Freight in is treated as a direct expense in the perpetual method, and Freight-out is capitalized into
inventory under the periodic method.
C. Freight in is added to Purchases under the periodic method but directly increases Merchandise Inventory
under the perpetual method; Freight-out is a selling expense recorded in both systems.
D. Freight-in and Freight-out are both included in the calculation of Cost of Goods Sold under the periodic
method only.

13. Which of the following statements best describes the function of a contra account in financial accounting?
A. A contra account is used to record additional expenses related to a particular asset.
B. A contra account offsets a related account by having an opposite normal balance to reduce the net value
reported.
C. A contra account is a temporary account that is closed at the end of each accounting period.
D. A contra account is used exclusively to track revenue adjustments and sales discounts

Application Total:42
Question # 1:

Prepare the three (3) columns income statement of the Blue Oaks Merchandising & Co for the Month
Ending December 31, 2023. [10]

Inventory January 01, $15000 Insurance $ 1200

Purchases $55,000 Utilities $ 1800
Sales discount $ 200 Salaries $5000
Freight In $ 700 Purchases Returns & Allowances $ 4000
Interest income $ 700 Interest expense $900
Income tax expense $5700 Car expense $ 800
Sales Revenue $240,000 Automobile expense $1700
Advertising expense $ 3000 Sales returns $1000
Amortization expense equipment $1000 Freight-Out $ 1400
Rent $ 2500 Inventory December 31 , $5000
Loss on sale of equipment $1600 miscellaneous expense $750
Question # 2:

Record the following adjusting entries in the General Journal. [27]

1. Prepaid Insurance Scenario: Your company purchased a 12-month insurance policy costing $2,400 on
January 1, 2014, and recorded the entire amount as Prepaid Insurance.

a) Prepare the journal entry to record the purchase of the prepaid insurance on January 1, 2014. [1]

b) Calculate the amount of insurance expense that has been used up by March 31, 2014. Show your full
calculation [1]

c) Prepare the adjusting journal entry on March 31, 2014, to record the insurance expense for the first
three months. [1]

d) Show the accounting treatment of these in the financial statements. [2]

2. Supplies Scenario: During the fiscal year, your organization tracks office supplies as assets when
purchased. At year-end, an adjusting entry is needed to reflect the supplies used.

Transaction Details:
 Beginning balance of Supplies: $3,200
 Supplies purchased during the year: $1,000 and $1,500
 A physical count at year-end shows $1,900 of supplies remaining.
a) Calculate the value of supplies used during the year using the formula: [1]
b) Prepare the adjusting journal entry on December 31 to record the supplies consumed [1]
c) Explain the financial statement impact of the adjusting entry: [2]
 Which account is reported on the Income Statement, and how?
 Which account is reported on the Balance Sheet, and how?
d) Identify the GAAP principle applied and explain why this adjustment is necessary. [1]

3. Unearned [Link]: Your Company received an advance payment for consulting services to be
provided over several months. At year-end, an adjustment is required to recognize the portion of the revenue
earned.
Transaction Details:
 On December 1, your company received $12,000 cash for 4 months of consulting services starting
immediately.
 The entire amount was initially recorded as Unearned Revenue.
  The company prepares monthly financial statements with an accounting year-end of December 31.
a) Define unearned revenue with example [1]
b) Prepare the initial journal entry made on December 1 to record the receipt of cash. [1]
c) Calculate the amount of revenue earned by December 31 and prepare the adjusting journal entry. [1]
d) Explain how this transaction affects the financial statements as of December 31: [2]
 What appears on the Income Statement?
 What appears on the Balance Sheet?

4. Your company purchased office equipment on January 1, 2024, for $18,000. The asset has an estimated
useful life of 6 years and an expected residual value of $1,000. The business uses the straight-line
method of amortization and prepares adjusting entries annually at year-end (December 31).

a) Using the straight-line method, calculate the annual amortization expense. Show all work, including
the formula. [1]
b) Prepare the journal entry on December 31, 2024, to record the annual amortization. [1]
c) Identify and explain the accounting treatment of the following related accounts over time: [2]
 Office Equipment
 Accumulated Amortization Office Equipment
 Amortization Expense
d) Which GAAP principle(s) apply to the accounting treatment of this asset and its amortization? Justify
your answer with a brief explanation. [1]

5. Scenario: On July 15, 2024, Nebula Forge Tech Inc. obtained a $500,000 bank loan at an annual interest
rate of 9%. Interest is payable monthly on the 15th of each month, with the first payment due August 15,
2024. Nebula Tech's accounting period ends on July 31, 2024.

a) Prepare the first journal entry for acquiring the loan. [1]
b) Calculate the monthly interest payment and determine the amount of interest expense that has accrued as
of July 31, [Link] proper calculation with formula [1]
c) Prepare the journal entry on July 31, 2024, to record the accrued interest expense. [1]
d) Prepare the journal entry on August 15, 2024, [1]
e) Explain why it is necessary to accrue interest at the end of July rather than waiting until August 15 when
the payment is made. [1]

6. Scenario: Your company made $100,000 of credit sales during the current fiscal year ending December
31, [Link], the company has experienced bad debts at a rate of 2% of credit sales.
a) Calculate the estimated bad debt expense for the year. [1]
 b) Prepare the adjusting journal entry dated December 31, 2024, to record the bad debt estimate. [1]
c) Explain the accounting treatment of bad debt in the financial statements: [1]

Question # 3;
Journal Entries Record the journal entries for each of the transactions below using BOTH merchandise
accounting methods: Periodic and Perpetual. [5]

1. Your company purchased merchandise costing $4,800 (+13% HST) on cash. [1]
2. Your firm paid an outstanding supplier invoice of $1,200 on account. The payment qualifies for terms 2/15,
n45 and was paid within the discount period. [1]

3. You returned defective merchandise from a previous purchase, valued at $950 (+13% HST), for a cash
refund. [1]

4. You sold merchandise for $3,500 (+13% HST) cash. The cost of goods sold for the merchandise sold was
$2,100. [1]

5. You paid Swift Logistics $650 plus 13% HST in cash to deliver a recent inventory purchase to your
business location. [1]

Thinking Total :20

Question # 4; Amortization

1. A company purchased machinery for $150,000 with an estimated useful life of 10 years and a salvage value
of $10,000. Using straight line method

a) What will be the accumulated depreciation recorded after 4 years show the calculation & formula [1]

b) Calculate the book value of the machinery after 4 years. [1]

c) Additionally, explain what the book value represents in the context of financial reporting and decision-
making. [1]

2. A company purchased a truck on January 1, 2023, at a cost of $70,000. The company applies the declining
balance method of annual amortization at a rate of 6% per year over the truck’s useful life of 14 years.

a) Calculate the annual amortization expense for each of the first five years. Show your calculations
clearly with formula. [1]
 b) Prepare an amortization schedule for the first five years that includes the following columns for each
year: [2]
 Beginning book value
 Amortization expense
 Ending book value
c) Explain why the amortization expense decreases over time when using the declining balance method.
[1]
Question # 5;
Using the following information, calculate the ending capital balance for Greenfield Enterprises as at
December 31st, 2024. Then, analyze whether the business experienced a net income or net loss during the year,
and explain the impact this had on owner’s equity.
 Beginning Capital (Jan 1, 2024): $950,000
 Revenues: $675,000
 Expenses: $720,000
 Drawings: $40,000
 Ending Capital (Dec 31, 2024)
a) Calculate net income or net loss. [1 mark]
b) Determine the ending capital balance. [1 mark]
c) Explain how each component (revenues, expenses, drawings) affects the owner's equity [1 mark]

Question # 6
Answer the following Questions related to the worksheet.

a) Is the worksheet based on a Periodic or Perpetual inventory system? Justify your answer with reasons
and examples. [2]
b) Explain how the Opening Inventory and Ending Inventory entries in the worksheet impact the
calculation of Cost of Goods Sold. Why is Ending Inventory shown as a credit in the Income
Statement section, but as a debit in the Balance Sheet section? [4]
c) Prepare the closing journal entries for all temporary accounts under a periodic merchandise
inventory system. [4]

Communication Total: 10
Question # 7;

A firm is switching from the periodic to the perpetual inventory system. List two benefits and two challenges
they might face during this transition [2marks]

Question # 8;
In your own words, explain the purpose of the Balance Sheet and describe how it helps business owners make
financial decisions. [3marks]

Question # 9;

Compare and contrast Periodic and Perpetual inventory systems. Explain which method you would
recommend for a small retail store and why. [2marks]

Question #10;

Why is it essential for businesses to follow Generally Accepted Accounting Principles (GAAP) when preparing
financial statements? Discuss the key purposes GAAP serves in promoting transparency, consistency, and
reliability in accounting information. Provide examples to support your explanation. [3marks]