York University AP/ADMS 2500.03 Introduction to Financial Accounting Midterm Examination #1 - Topic A Time: 3 hours Fall 2016 Questions: 50...

Part 1 - Case: Sally’s Ice Cream ParlourQuestions 1 to 45 are based on this caseSally Barnes a third year Accounting student finished her exams early from YorkUniversity this year and went back home to Huntsville Ontario to look for a summer job. IfSally doesn’t find a job in town she would have to work in the families Ice Cream factory,and outlet store. Barnes Ice Cream uses milk from Jersey cows which is the best for makingice cream from local farmers to manufacture fresh custom Ice Cream for Restaurants andspecialty stores in Southern Ontario. Going back and living at home was so comforting and nice since Huntsville duringthe summer is a hot bed of all types of activities. She started walking down Main Streetwith her resume in hand looking and applying for a summer job. The town of Huntsvillehas over 20,000 plus residence and another 25,000 from the surrounding cottages. It is busyfor three seasons a year with something going on every Friday, Saturday and Sunday. A lothas changed with the “Huntsville Festival of the Arts” running daily for the entire monthsof July and August to Labour Day week end. “Concerts in the Park and on the Docks”every Wednesday at noon and night, starting in May until the end of August, and herfavorite growing up as child was Thursday Night movies in the Park all summer long.Sally walked into the corner Drug Store located on Main Street beside the SwingBridge and the Park were all of the Summer activities happen, where she had her first Parttime job when she was a high school student. Dr. Bob Wilder owns the drug store whichhas been in the family for over 80 years. In the early 1950’s Bob’s grandfather built a fullyfunctional Ice Cream Parlor in the front half of the store with a counter and six ice creamparlor type stools. Dr. Wilder was talking to Ted Lee the local handyman about redesigningthe store and wanted to make the Ice Cream Parlor smaller since it was seasonal, taking toomuch of his time managing the staff at the Ice Cream stand, handling different operationalissues and taking up too much of the floor space in the store year round.It was perfect timing when Sally walked into the Drug Store. Sally overheard theconversation between Dr. Wilder and Ted about the redesigning of the Ice Cream parlorand the problems he had making it work.Sally was thinking out loud and said this sounded like a Business Case from herADMS2500 course. She could purchase the Ice Cream, cups, spoons, cones, and othermaterial from the family business, rent the floor space at the drug store, hire her own staff,and have different hours then the Drug Store so the business can be open for business whenthe activities in town are on.She approached both Dr. Wilder and Ted to bring up her idea. After hearing thedetails, Ted suggested that this can be done by placing a movable wall between the DrugStore and the Ice Cream Parlor section of the store, placing wheels on the Ice Creamfreezers for scooping Ice Cream, by adding another door to the front of the store, and thenplacing the movable wall between the two doors and the wall where the Ice Cream Parloris. Ted said that this design would allow one to go into either store when the other is notopen, also by placing the wheels on the freezers then can be moved to the wall to sale IceProducts in the winter since Ice Cream Parlor would be open from the May 1st to October31st.Sally called her mother about this business venture who congratulated her on a greatidea. Mrs. Barnes suggested to Sally that the family Ice Cream business could supply IceCream products in the freezer under consignment for November to April since the freezerscan move against the wall. ADMS2500 – Topic A – Fall 2016 © 4The next day Sally met with Dr. Wilder to work out the details. The meeting wasvery productive and they agreed to the following: Dr. Wilder would pay for the design work, the movable wall, plumbing, doors,wheels on the freezer that is owned by Dr. Wilder, installation of signs to the store,and any other for the new Ice Cream Parlor. Sally will pay the first and last months of rent on May 1st and then on the first dayof each month for that month to Dr. Wilder. The rent included the front of the storewhere the Ice Cream Parlour is and a small supply room for storage and to placeanother freezer for extra Ice Cream. A fee of 4% of monthly gross sales will be paid to Dr. Wilder for the cleaning of theIce Cream Parlor area, electricity, water, internet, use of the Ice Cream freezersowned by the Drugstore, and garbage removal. This is to be paid on the first day ofthe month on last month’s sales. All other expenses for the Parlor will be paid by Sally.Sally did the following:April 22-29, 2016Ordered three signs from Huntsville Sign Company for the business, one to beplaced over the counter that has the price list, a sandwich board sign will be placed outsidewhen the store is open for business, the other to be placed on the outside of the building,these signs will be used all year round since Ice Cream will be sold in the Drug store onconsignment from November to April. Purchase price of all signs $1,200, however theowner of Huntsville Sign Company was her uncle and sold it to her for less. The signs willlast three years before needing replacement. To be paid in full upon delivery.Conducted interviews and hire students that will make $15.00 per hour, an assistantmanager will make $19.00 an hour to work when Sally is not working. Since the studentswill be working less than 20 hours per week withhold taxes and other source deductions donot apply. The Ice Cream Parlour will be open seven days a week from May 1st to October30th, payroll wage cost will be $475.00 per day from May 1st to September 6th. AfterSeptember 6th the Ice Cream Palour will require only one person to operate and two peopleon the weekends. All students hired will start working May 1st. The employer will bepaying 14% in benefits for each employee of their gross wage. These Benefits are payable45 days after date on pay cheque. The employees first pay cheque will be dated May 14thfor the first week of work (7 days) and every two weeks after that.Sally made arrangements with her parents for the purchase of supplies and icecream. Since she is family, her father would give her next morning delivery before theParlour opens, the deliveries will be paid in full 10 days after received. Her fathersuggested that for inventory keeping that all of the Ice Cream related inventory items canbe kept together as one amount (the value of all the Ice Cream, Cones, spoons, and syrupbe one lump sum). Barnes Ice Cream does this for the Factory store and makes inventoryrecord keeping easier.May 1, 2016Details of the rest of the case to be revealed during the exam on October 2nd ADMS2500 – Topic A – Fall 2016 © 5Prepare journal entries and “T” Accounts in ACCRUAL Basis for this case using thefollowing chart of accounts and then answer the questions.Chart of accounts to be revealed during the exam on October 2ndStudents are asked to round numbers to fit 2 decimal places in all questions. When theanswer obtained is not materially different from one of the stated alternatives, students areadvised to select that alternative and not “e) none of the above”.If you think that for some reason that an assumption is called for, then also state it clearlyon your exam paper (at the back of the pink scantron sheet).It is estimated that you will need 60 minutes to prepare the T accounts, Income statementand Balance SheetPart 1: Questions on the CaseThis Section Questions ONLY APPLIES TO ACCURAL ACCOUNTING for the case