Accounting Midterm
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| SECTION I: MULTIPLE-CHOICE (30 possible points) | |||||||||
| Please complete the following statements or questions by placing the appropriate letter in the blank adjacent to the | |||||||||
| item number. The value of each correct answer is 2 points. | |||||||||
| A 1. | What is the name of the branch of accounting concerned with providing managers and administrators with | ||||||||
| information to facilitate the planning and control of business operations? | |||||||||
| A. Management accounting | |||||||||
| B. Auditing | |||||||||
| C. Financial Accounting | |||||||||
| D. Bookkeeping | |||||||||
| ____ 2. | Which of the following invests funds into a business and is considered an owner? | ||||||||
| A. A stockholder | |||||||||
| B. A creditor | |||||||||
| C. A bank | |||||||||
| D. A lender | |||||||||
| ____ 3. | Which one of the following is not an external user of financial statements? | ||||||||
| A. Suppliers | |||||||||
| B. Creditors | |||||||||
| C. Financial analysts | |||||||||
| D. The controller | |||||||||
| ____ 4. | Which financial statement would you refer to in order to determine whether a company owed funds to | ||||||||
| creditors? | |||||||||
| A. Balance sheet | |||||||||
| B. Statement of retained earnings | |||||||||
| C. Income statement | |||||||||
| D. Both the balance sheet and the income statement | |||||||||
| ____ 5. | If an investor can use accounting information for two different companies to evaluate the types and | ||||||||
| amounts of expenses, the information is said to have the quality of | |||||||||
| A. Consistency | |||||||||
| B. Comparability | |||||||||
| C. Neutrality | |||||||||
| D. Understandability | |||||||||
| ____ 6. | Walsh Company applies the consistency convention. What does this mean? | ||||||||
| A. Walsh uses the same names for all its expenses as its competitors. | |||||||||
| B. Walsh has selected particular accounting principles that can never be changed. | |||||||||
| C. Walsh applies the same accounting principles each accounting period. | |||||||||
| D. Walsh applies the same accounting principles as its competitors. | |||||||||
| ____ 7. | Which one of the following items is reported as a current asset on a classified balance sheet? | ||||||||
| A. Inventory | |||||||||
| B. Accounts Payable | |||||||||
| C. Common Stock | |||||||||
| D. Land | |||||||||
| BSC401 MIDTERM EXAM | |||||||||
| Page 2 | |||||||||
| SECTION I: MULTIPLE-CHOICE (Cont.) | |||||||||
| ____ 8. | Which one of the following is a correct expression of the accounting equation? | ||||||||
| A. Assets + Liabilities = Owners’ Equity | |||||||||
| B. Assets = Liabilities – Owners’ Equity | |||||||||
| C. Assets + Owners’ Equity = Liabilities | |||||||||
| D. Assets = Liabilities + Owners’ Equity | |||||||||
| ____ 9. | Which of the following would not be considered to be an intangible asset? | ||||||||
| A. Franchises | |||||||||
| B. Copyrights | |||||||||
| C. Investments | |||||||||
| D. Goodwill | |||||||||
| ____10. | A computer is purchased on credit by signing a 5-year note. Identify the effects on the accounting | ||||||||
| equation. | |||||||||
| A. Assets increase and liabilities increase | |||||||||
| B. Assets increase and owners’ equity increases | |||||||||
| C. Liabilities increase and owners’ equity decreases | |||||||||
| D. Liabilities decrease and assets decrease | |||||||||
| ____11. | The term credit refers to which of the following? | ||||||||
| A. An entry to decrease an account. | |||||||||
| B. An event is unfavorable | |||||||||
| C. An entry to increase an account | |||||||||
| D. The right hand side of an account | |||||||||
| ____12. | Which of the following is an attribute used to measure many assets that are recognized on a balance sheet | ||||||||
| because it is more objective and verifiable? | |||||||||
| A. Market value | |||||||||
| B. Historical cost | |||||||||
| C. Liquidation value | |||||||||
| D. Current replacement cost | |||||||||
| ____13. | Effective cash management and control includes all of the following except | ||||||||
| A. The use of a petty cash fund | |||||||||
| B. Bank reconciliations | |||||||||
| C. Short-term investments of excess cash | |||||||||
| D. Purchase of stocks and bonds | |||||||||
| ____14. | Among the assets listed below, which one is considered the most liquid? | ||||||||
| A. Short-term investments | |||||||||
| B. Accounts receivable | |||||||||
| C. Merchandise inventory | |||||||||
| D. Prepaid expenses | |||||||||
| ____15. | What is the distinguishing characteristic between accounts receivable and notes receivable? | ||||||||
| A. Accounts receivable are usually current assets while notes receivable are usually long-term assets | |||||||||
| B. Accounts receivable require payment of interest if not paid within the usual credit terms | |||||||||
| C. Notes receivable result from credit sale transactions for merchandising companies, while accounts | |||||||||
| receivable result from credit sale transactions for service companies. | |||||||||
| D. Notes receivable result from a written promise to pay within a specified amount of time | |||||||||
| BSC401 MIDTERM EXAM | |||||||||
| Page 3 | |||||||||
| SECTION II: MATCHING (10 possible points) | |||||||||
| Please match the numbered terms with their definitions by placing the letter that identifies the best definition in the | |||||||||
| blank space next to the term. The value of each correct answer is 1 point. | |||||||||
| Credit | |||||||||
| Debit | |||||||||
| Generally Accepted Accounting Principles (GAAP) | |||||||||
| General Ledger | |||||||||
| Internal Control System | |||||||||
| Journal | |||||||||
| Matching Principle | |||||||||
| Materiality | |||||||||
| Recognition | |||||||||
| Trial Balance | |||||||||
| A. The various methods, rules, practices, and other procedures that have evolved over time in response to the need | |||||||||
| to regulate the preparation of financial statements. | |||||||||
| B. The magnitude of an omission or misstatement in accounting information that will affect the judgment of someone | |||||||||
| relying on the information. | |||||||||
| C. A book, file, hard drive, or other device containing all of a company’s accounts. | |||||||||
| D. An entry on the left side of an account. | |||||||||
| E. An entry on the right side of an account. | |||||||||
| F. A chronological record of transactions, also known as the book of original entry. | |||||||||
| G. A list of each account and its balance at a specific point in time; used to prove the equality of debits and credits. | |||||||||
| H. The process of recording an item in the financial statements as an asset, liability, revenue, or the like. | |||||||||
| I. The association of revenue of a period with all of the costs necessary to generate the revenue. | |||||||||
| J. Policies and procedures necessary to ensure the safeguarding of an entity’s assets, the reliability of its accounting | |||||||||
| records, and the accomplishment of overall company objectives. | |||||||||
| BSC401 MIDTERM EXAM | |||||||||
| Page 4 | |||||||||
| SECTION III. SHORT-ANSWER (20 possible points) | |||||||||
| Please give a brief answer to each of the following questions. Each question is worth a possible 5 points. | |||||||||
| 1. Explain the difference between internal and external users of a corporation’s financial information. | |||||||||
| Give two examples of internal users and two of external users | |||||||||
| 2. Briefly explain the purpose of a Trial Balance. | |||||||||
| 3. Explain briefly the Revenue Recognition Principle. When should a publisher of magazines recognize | |||||||||
| revenue? | |||||||||
| 4. An effective system of internal control is critical to protecting a company’s investment in three of its | |||||||||
| major assets: cash, accounts receivable, and inventory. For each of the three assets, describe briefly | |||||||||
| how a company might protect that asset. | |||||||||
| BSC401 MIDTERM EXAM | |||||||||
| Page 5 | |||||||||
| SECTION IV: PROBLEMS (40 possible points) | |||||||||
| Please show all of your work for each problem. | |||||||||
| PROBLEM 1 (15 possible points) | |||||||||
| The accountant for Farly Corporation prepared the following list from the company’s accounting records | |||||||||
| for the year ended December 31, 2012: | |||||||||
| Sales Revenue | $165,000 | Cash | $30,000 | ||||||
| Accounts receivable | $14,000 | Selling expenses | $44,000 | ||||||
| Equipment | $42,000 | Common stock | $17,000 | ||||||
| Accounts payable | $12,000 | Interest income | $3,000 | ||||||
| Salaries and wages expense | $40,000 | Cost of goods sold | $51,000 | ||||||
| Inventories | $22,000 | Prepaid expenses | $2,000 | ||||||
| Income taxes payable | $5,000 | Income taxes expense | $18,000 | ||||||
| Notes payable | $20,000 | Retained earnings | ?? | ||||||
| REQUIREMENTS: | |||||||||
| A. Prepare an Income Statement for Farly Corporation for Year Ended December 31, 2012. | |||||||||
| B. Prepare a Balance Sheet for Farly Corporation as of December 31, 2012. | |||||||||
| C. What was the amount of Retained earnings for Farly Corporation at the end of 2012? | |||||||||
| BSC401 MIDTERM EXAM | |||||||||
| Page 6 | |||||||||
| SECTION IV: PROBLEMS (Cont.) | |||||||||
| PROBLEM 2 (15 possible points) | |||||||||
| Hana, Inc. reported $52,000 of net income for 2011. Hana’s balance sheet at December 31, 2012, includes the | |||||||||
| following amounts: | |||||||||
| Wages payable | $1,000 | ||||||||
| Inventory | $26,000 | ||||||||
| Prepaid rent | $3,000 | ||||||||
| Land | $40,000 | ||||||||
| Cash | $15,000 | ||||||||
| Accounts receivable | $22,000 | ||||||||
| Accounts payable | $25,000 | ||||||||
| Capital stock | $40,000 | ||||||||
| Retained earnings | $29,000 | ||||||||
| Income taxes payable | $11,000 | ||||||||
| REQUIREMENTS: | |||||||||
| A. Determine the current ratio and working capital of Hana. | |||||||||
| B. Beyond the information provided in your answer to part A, what does the composition of the current assets | |||||||||
| tell you about Hana’s liquidity? | |||||||||
| Current Assets | $66,000 | ||||||||
| Current Liabilities | $37,000 | ||||||||
| Acid-Test Ratio | 1.08 | ||||||||
| C. What other information do you need to fully assess Hana’s liquidity? Why is liquidity important? | |||||||||
| BSC401 MIDTERM EXAM | |||||||||
| Page 7 | |||||||||
| SECTION IV: PROBLEMS (Cont.) | |||||||||
| PROBLEM 3: (10 possible points) | |||||||||
| Several transactions are listed below. Use the identification codes below (I, D, NE) to indicate the effects of each | |||||||||
| transaction on the accounting equation, Assets = Liabilities + Owners' Equity. Write your answers in | |||||||||
| the space provided under the accounting equation. An example is given before the first transaction. | |||||||||
| I - Increase | D – Decrease | NE – No Effect | |||||||
| Owners' | |||||||||
| Transactions | Assets = | Liabilities + | Equity | ||||||
| Example: Capital stock is issued to investors in | |||||||||
| the company. | I | NE | I | ||||||
| a. Cash sales are made | |||||||||
| b. Equipment is purchased on credit | |||||||||
| c. Payment is made for the equipment that | |||||||||
| was purchased on credit. | |||||||||
| d. Sales are made on account. | |||||||||
| e. Cash is collected from customers for | |||||||||
| accounts receivable balances. | |||||||||
| f. Dividends are declared and paid to | |||||||||
| stockholders. | |||||||||
| g. A utility bill is received and recorded; | |||||||||
| the payment will be made later. | |||||||||
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