ACCT 504 Midterm Exam 2

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ACCT 504 Midterm Exam 2

1. (TCOs A, B, and C) Which type of corporate information is not available to investors? (Points : 3)

Dividend history
Forecast of cash needs for the upcoming year
Cash provided by investing activities
Beginning cash balance


2. (TCO C) Debt securities sold to investors that must be repaid at a particular date some years in the future are called(Points : 3)

accounts payable.
notes receivable.
taxes payable.
bonds payable.


3. (TCO C) Which activities involve putting the resources of the business into action to generate a profit? (Points : 3)



4. (TCO A) The cost of assets consumed or services used is also known as (Points : 3)

a revenue.
an expense.
a liability.
an asset.


5. (TCO C) Edwards Company recorded the following cash transactions for the year.Paid $45,000 for salaries
Paid $20,000 to purchase office equipment
Paid $5,000 for utilities
Paid $2,000 in dividends
Collected $75,000 from customersWhat was Edwards’ net cash provided by operating activities? (Points : 3)



6. (TCO A) A current asset is (Points : 3)

the last asset purchased by a business.
an asset which is currently being used to produce a product or service.
usually found as a separate classification in the income statement.
expected to be converted to cash or used in the business within a relatively short period of time.


7. (TCO A) An intangible asset (Points : 3)

may have the capacity to earn revenue for its owner.
is worthless because it has no physical substance.
is converted into a tangible asset during the operating cycle.
cannot be reported on the balance sheet because it lacks physical substance.


8. (TCO A) The following are selected account balances on December 31, 2010.-Land (location of the corporation’s office building): $50,000
-Land (held for future use): 75,000
-Corporate Office Building: 300,000
-Inventory: 100,000
-Equipment: 225,000
-Office Furniture: 50,000
-Accumulated Depreciation: 150,000What is the total NET amount of property, plant, and equipment that will appear on the balance sheet? (Points : 3)


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9. (TCO B) For 2010, Mossland Corporation reported net income of $28,000; net sales $400,000; and average share outstanding 6,000. There were no preferred stock dividends. What was the 2010 earnings per share? (Points : 3)



10. (TCO B) Morten Corporation had beginning retained earnings of $764,000 and ending retained earnings of $833,000. During the year they issued common stock totaling $47,000. There were no dividends issued. What was their net income for the year? (Points : 3)



11. (TCO D) On March 1, 2010, Dillon Company hires a new employee who will start the work on March 6. The employee will be paid on the last day of each month. Should a journal entry be made on March 6? Why, or why not?(Points : 3)

Yes, the company is now obligated to pay the employee, thus that event must be recorded on March 6.
No, hiring an employee is an important event; however, it is not an economic event that should be recorded on March 6.
Yes, failure to record the event on March 6 would cause the financial statements to be misleading.
No, the journal entry should be made on March 1, which is the date of hiring.


12. (TCO D) The left side of an account is (Points : 3)

a description of the account.
the debit side.
the balance of the account.


13. (TCO D) The classification and normal balance of the dividend account is (Points : 3)

a revenue, with a credit balance.
an expense, with a debit balance.
a liability, with a credit balance.
under stockholders’ equity, with a debit balance.


14. (TCO D) A debit is not the normal balance for which account listed below? (Points : 3)

Accounts receivable
Service revenue


15. (TCO D) Which pair of accounts follows the rules of debit and credit in relation to increases and decreases in the same manner? (Points : 3)

Dividends payable and rent expense
Repair expense and notes payable
Prepaid insurance and advertising expense
Service revenues and equipment


16. (TCO E) An accounting time period that is 1 year in length is called (Points : 3)

a fiscal year.
an interim period.
the time period assumption.
a reporting period.


17. (TCO E) In a service-type business, revenue is considered earned (Points : 3)

at the end of the month.
at the end of the year.
when the service is performed.
when cash is received.


18. (TCO E) Expenses sometimes make their contribution to revenue in a different period than when the expense is paid. When wages are incurred in one period and paid in the next period, this often leads to which account appearing on the balance sheet at the end of the first period? (Points : 3)

Due from employees
Due to employer
Wages payable
Wages expense


19. (TCO E) The following is selected information from J Corporation for the fiscal year ending October 31, 2010.-Cash received from customers: $75,000
-Revenue earned: 87,500
-Cash paid for expenses: 42,500
-Expenses incurred: 50,000Based on the accrual basis of accounting, what is J Corporation’s net income for the year ending October 31, 2007?(Points : 3)



20. (TCO E) Adjusting entries are made to ensure that (Points : 3)

expenses are recognized in the period in which they are incurred.
revenues are recorded in the period in which they are earned.
balance sheet and income statement accounts have correct balances at the end of an accounting period.
All of the above


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

automobile dealership.
hardware store.
convenience store.


22. (TCO B) Hunter Company purchased merchandise inventory with an invoice price of $3,000 and credit terms of 2/10, n/30. What is the net cost of the goods if Hunter Company pays within the discount period? (Points : 3)



23. (TCOs A and B) Jake’s Market recorded the following events involving a recent purchase of merchandise.-Received goods for $20,000, terms 2/10, n/30.
-Returned $400 of the shipment for credit.
-Paid $100 freight on the shipment.
-Paid the invoice within the discount period.As a result of these events, the company’s merchandise inventory (Points : 3)

increased by $19,208.
increased by $19,700.
increased by $19,306.
increased by $19,308.


24. (TCO A) If goods in transit are shipped FOB destination (Points : 3)

the seller has legal title to the goods until they are delivered.
the buyer has legal title to the goods until they are delivered.
the transportation company has legal title to the goods while the goods are in transit.
no one has legal title to the goods until they are delivered.


25. (TCO A) When a perpetual inventory system is used, which of the following is a purpose of taking a physical inventory? (Points : 3)

To check the accuracy of the perpetual inventory records
To determine cost of goods sold for the accounting period
To compute inventory ratios
All are a purpose of taking a physical inventory when a perpetual inventory system is used.


26. (TCO A) Of the following companies, which one would not likely employ the specific identification method for inventory costing? (Points : 3)

Music store specializing in piano sales
Custom jewelry store
Antique shop
Hardware store


27. (TCO A) Which of the following statements is true regarding inventory cost flow assumptions? (Points : 3)

A company may use more than one cost-flow assumption concurrently for different product lines.
A company must comply with the method specified by industry standards.
A company must use the same method for domestic and foreign operations.
A company may never change its inventory costing method once it has chosen a method.


28. (TCO A) In a period of rising prices, which of the following inventory methods generally results in the lowest net income figure? (Points : 3)

Average cost method
LIFO method
FIFO method
Need more information to answer


29. (TCO B) The figure for which of the following items is determined at a different time under the perpetual inventory method than under the periodic method? (Points : 3)

Cost of goods sold
Accounts receivable


30. (TCO B) The primary source of revenue for a retailer is (Points : 3)

investment income.
service revenue.
the sale of merchandise.
the sale of plant assets the company owns.


  1. (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.



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