ACCT 504 Midterm Exam

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ACCT 504 Midterm Exam

1.          Question :(TCO A, B, C) External users want answers to all of the following questions except:
Student Answer: Is the company earning satisfactory income?
 Will the company be able to pay its debts as they come due?
 Did the company use a budget to plan its expenses?
 How does the company compare in profitability with competitors?


 2.Question :(TCO C) Borrowing money is an example of a(n):
Student Answer: delivering activity.
 financing activity.
 investing activity.
 operating activity.


 3.Question :(TCO C) Buying and selling products are examples of:
Student Answer: operating activities.
 investing activities.
 financing activities.
 delivering activities.


 4.Question :(TCO A) Resources owned by a business are referred to as:
Student Answer: stockholders’ equity.

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 5.Question :(TCO C) Jamie Company recorded the following cash transactions for the year:Paid $70,000 for salaries.
Paid $20,000 to purchase office equipment.
Paid $6,000 for utilities.
Paid $7,000 in dividends.
Collected $130,000 from customers.What was Jamie’s net cash provided by operating activities?
Student Answer: $47,000


 6.Question :(TCO A) In a classified balance sheet, assets are usually classified as:
Student Answer: current assets; long-term assets; property, plant, and equipment; and tangible assets.
 current assets; long-term investments; property, plant, and equipment; and common stocks.
 current assets; long-term investments; and tangible assets.
 current assets; long-term investments; property, plant, and equipment; and intangible assets.


 7.Question :(TCO A) An intangible asset:
Student Answer: 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.Question :(TCO A) These 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?
Student Answer: $650,000


 9.Question :(TCO B) For 2010, Ford Corporation reported net income of $15,000; net sales $200,000; and average share outstanding 6,000. There were no preferred stock dividends. What was the 2010 earnings per share?
Student Answer: $2.33


 10.Question :(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?
Student Answer: $69,000


 11.Question :(TCO D) Is the purchase of equipment treated as an expense at the time of purchase? Why or why not?
Student Answer: No, GAAP requires that 10% of the cost be expensed each year. This minimizes attempts to mislead financial statement users.
 Yes, the matching principle requires that the cost be expensed in the period of purchase.
 No, the cost needs to be allocated to the years of expected use.
 Yes, the actual life of the asset is not known, thus there is no acceptable way to allocate the cost.


 12.Question :(TCO D) The left side of an account is:
Student Answer: blank.
 a description of the account.
 the debit side.
 the balance of the account.


 13.Question :(TCO D) A credit is not the normal balance for which account listed below?
Student Answer: Common Stock account
 Revenue account
 Liability account
 Dividends account


 14.Question :(TCO D) A debit is not the normal balance for which account listed below?
Student Answer: Dividends
 Accounts Receivable
 Service Revenue


 15.Question :(TCO D) Which pair of accounts follows the rules of debit and credit in relation to increases and decreases in the same manner?
Student Answer: Dividends payable and rent expense
 Repair expense and notes payable
 Prepaid insurance and advertising expense
 Service revenues and equipment
 1.Question :(TCO E) The time period assumption states that:
Student Answer: a transaction can only affect one period of time.
 estimates should not be made if a transaction affects more than one time period.
 adjustments to the enterprise’s accounts can only be made in the time period when the business terminates its operations.
 the economic life of a business can be divided into artificial time periods.


 2.Question :(TCO E) The matching principle matches:
Student Answer: customers with businesses.
 expenses with revenues.
 assets with liabilities.
 creditors with businesses.


 3.Question :(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?
Student Answer: Due from Employees
 Due to Employer
 Wages Payable
 Wages Expense


 4.Question :(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?
Student Answer: $28,500


 5.Question :(TCO E) The general term employed to indicate an expense that has not been paid or revenue that has not been received and has not yet been recognized in the accounts is:
Student Answer: contra asset.


 6.Question :(TCO A, B) Which of the following expressions is incorrect?
Student Answer: Gross profit – operating expenses = net income
 Sales – cost of goods sold – operating expenses = net income
 Net income + operating expenses = gross profit
 Operating expenses – cost of goods sold = gross profit


 7.Question :(TCO B) Hunter Company purchased merchandise inventory with an invoice price of $6,000 and credit terms of 2/10, n/30. What is the net cost of the goods if Hunter Company pays within the discount period?
Student Answer: $6,000


 8.Question :(TCO A, 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:
Student Answer: increased by $19,208.
 increased by $19,700.
 increased by $19,306.
 increased by $19,308.


 9.Question :(TCO A) The Freight-in account:
Student Answer: increases the cost of merchandise purchased.
 is contra to the Purchases account.
 is a permanent account.
 has a normal credit balance.


 10.Question :(TCO A) Barnes Company is taking a physical inventory on March 31, the last day of its fiscal year. Which of the following must be included in this inventory count?
Student Answer: Goods in transit to Barnes, FOB destination
 Goods that Barnes is holding on consignment for Parker Company
 Goods in transit that Barnes has sold to Smith Company, FOB shipping point
 Goods that Barnes is holding in inventory on March 31 for which the related Accounts Payable is 15 days past due


 11.Question :(TCO A) Of the following companies, which one would not likely employ the specific identification method for inventory costing?
Student Answer: Music store specializing in piano sales
 Custom Jewelry store
 Antique shop
 Hardware store


 12.Question :(TCO A) Which of the following statements is correct with respect to inventories?
Student Answer: The FIFO method assumes that the costs of the earliest goods acquired are the last to be sold.
 It is generally good business management to sell the most recently acquired goods first.
 Under FIFO, the ending inventory is based on the latest units purchased.
 FIFO seldom coincides with the actual physical flow of inventory.


 13.Question :(TCO A) In a period of declining prices, which of the following inventory methods generally results in the lowest balance sheet figure for inventory?
Student Answer: Average cost method
 LIFO method
 FIFO method
 Need more information to answer


 14.Question :(TCO B) Which of the following is a true statement about inventory systems?
Student Answer: Periodic inventory systems require more detailed inventory records.
 Perpetual inventory systems require more detailed inventory records.
 A periodic system requires cost of goods sold be determined after each sale.
 A perpetual system determines cost of goods sold only at the end of the accounting period.


 15.Question :(TCO B) Two categories of expenses in merchandising companies are:
Student Answer: cost of goods sold and financing expenses.
 operating expenses and financing expenses.
 cost of goods sold and operating expenses.
 sales and cost of goods sold.


 1.Question :(TCO D) A classmate is considering dropping his accounting class because he cannot understand the rules of debits and credits.
Explain the rules of debits and credits in a way that will help him understand them. Cite examples for each of the major sections of the balance sheet (assets, liabilities and stockholders’ equity) and the income statement (revenues and expenses).
 2.Question :(TCOs B & 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                                  45,000Instructions:

  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.

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