| 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. |
| ____ 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. |
| ____ 1. | Credit |
| ____ 2. | Debit |
| ____ 3. | Generally Accepted Accounting Principles (GAAP) |
| ____ 4. | General Ledger |
| ____ 5. | Internal Control System |
| ____ 6. | Journal |
| ____ 7. | Matching Principle |
| ____ 8. | Materiality |
| ____ 9. | Recognition |
| ____10. | 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? |
| 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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