ACCT504 Devry Midterm (Updated on August 1,2014)

1. (TCOs A, B, and C) Shareholders want answers to all of the following questions except: (Points : 3)

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Question 2.2. (TCO C) Collecting cash from customers would be an example of which type of activity? (Points : 3)

Question 3.3. (TCO C) Buying a new plant would be an example of which type of activity? (Points : 3)

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Question 4.4. (TCO A) Which of the following should not be classified as a current liability? (Points : 3)

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Question 5.5. (TCO B) For 2012, LBJ Corporation reported net income of $25,000; net sales $250,000; and weighted average shares outstanding of 5,000. There were no preferred stock dividends. What was the 2012 earnings per share? (Points : 3)

Question 6.6. (TCO D) Which of the following accounts has a normal balance of a credit? (Points : 3)

Question 7.7. (TCO E) Which of the following statements is correct? (Points : 3)

Question 8.8. (TCOs A and B) A perpetual inventory system would most likely be used by a(n) (Points : 3)

Question 9.9. (TCOs A and B) LBJ Company recorded the following events involving a recent merchandise purchase.

- Received goods for $40,000, terms 2/10, n/30
- Returned $1,200 of the shipment for credit due to damaged goods
- Paid $1,000 for freight in
- Paid the invoice within the discount period

As a result of these events, the company's merchandise inventory (Points : 3)

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Question 10.10. (TCO A) In a period of increasing prices, which of the following inventory methods generally results in the highest gross profit? (Points : 3)

11. (TCO D) Describe the process of preparing a trial balance. What is the purpose of preparing a trial balance? If a trial balance does not balance, identify what might be the reasons why it does not balance. If the trial balance does balance, does that ensure that the ledger accounts are correct? Explain. (Points: 30)

12. (TCOs B and E) The Caltor Company gathered the following condensed data for the Year Ended December 31, 2010.

Cost of goods sold	$ 710,000
Net sales	1,279,000
Administrative expenses	239,000
Interest expense	68,000
Dividends paid	38,000
Selling expenses	45,000

Instructions:
1: Prepare a multiple-step income statement for the year ended December 31, 2010.
2: Compute the profit margin ratio and gross profit rate. Caltor Company’s assets at the beginning of the year were $770,000 and were $830,000 at the end of the year. To qualify for full credit, you must state the formula you are using, show your computations, and explain your findings. (Points: 30)

13. (TCO D and E) please prepare the following journal entries. Indicate which account should be debited and which account should be credited, along with the dollar amount of the debit and credit.

A: Investors invest $50,000 in exchange for 1,000 shares of common stock.
B: Company purchased equipment for $10,000 on credit.
C: Company received $5,000 for services performed.
D: Company made payment on account for $2,000.
E: Company received $7,000 for services not yet performed. (Points: 30)

14. (TCO D) Your friend Wendy plans to open a hair salon. Wendy states that she does not have time to develop and implement a system of internal controls.
A: Explain to Wendy the objectives of a system of internal control.
B: Explain to Wendy at least four key controls she must establish to protect herself against fraud. You should state specific internal control principles and relate your answer to her hair salon business. (Points: 30)

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