ACCT504 Week 4 Midterm Exam v2 Complete Solution

Question: #9306

ACCT504 Week 4 Midterm Exam v.2 A++ Graded Page: 1 1. Question : (TCO A, B, C) External users want answers to all of the following questions except: 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) Issuing shares of stock in exchange for cash is an example of a(n): delivering activity. investing activity. financing activity. operating activity. 3. Question : (TCO C) Which activities involve putting the resources of the business into action to generate a profit? Delivering Financing Investing Operating 4. Question : (TCO A) Resources owned by a business are referred to as: stockholders' equity. liabilities. assets. revenues. 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? $47,000 $54,000 $27,000 $33,000 6. Question : (TCO A) On a classified balance sheet, prepaid insurance is classified as: an intangible asset. property, plant, and equipment. a current asset. a long-term investment. 7. Question : (TCO A) Which of the following should not be classified as a current asset? Supplies Short-term Marketable securities Prepaid insurance that will expire next year. A Note Receivable that will mature after 21 months. 8. Question : (TCO A) These are selected account balances on December 31, 2007. -Land (location of the corporation's office building) $200,000 -Land (held for future use) 300,000 -Corporate Office Building 1,200,000 -Inventory 400,000 -Equipment 900,000 -Office Furniture 200,000 -Accumulated Depreciation 600,000 What is the total NET amount of property, plant, and equipment that will appear on the balance sheet? $1,900,000 $2,600,000 $2,200,000 $3,200,000 9. Question : (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? $4.67 $0.25 $66.67 $14.86 10. Question : (TCO B) At December 31, 2010, Shorts Company had retained earnings of $2,184,000. During 2010 they issued stock for $98,000, and paid dividends of $34,000. Net income for 2010 was $402,000. The retained earnings balance at the beginning of 2010 was: $2,552,000 $1,816,000 $1,914,000 $2,454,000 11. Question : (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? 12. Question : (TCO D) Which one of the following is not a part of an account? Credit side Trial balance Debit side Title of 3 13. Question : (TCO D) The classification and normal balance of the dividend account is: 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. Question : (TCO D) A debit is not the normal balance for which account listed below? Dividends Cash Accounts Receivable Service Revenue 15. Question : (TCO D) Which of the following is not always true of the terms debit and credit? They can be abbreviated as Dr. and Cr. Debit means increase and Credit means decrease. They can be used to describe the balance of an account. They can be interpreted to mean left and right of an account. Page: 2 1. Question : (TCO E) The time period assumption states that: 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) In a service-type business, revenue is considered earned: at the end of the month. at the end of the year. when the service is performed. when cash is received. 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? Due from Employees Due to Employer Wages Payable Wages Expense 4. Question : (TCO E) The following is selected information from M Corporation for the fiscal year ending October 31, 2010: Cash received from customers $300,000 Revenue earned 350,000 Cash paid for expenses 170,000 Expenses incurred 200,000 Based on the accrual basis of accounting, what is M Corporation's net income for the year ending October 31, 2010? $140,000 $114,000 $82,000 $150,000 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: contra asset. prepayment. asset. accrual. 6. Question : (TCO A, B) Detailed records of movements in merchandise (each purchase and sale) are not maintained in the inventory account in a: Student Answer: perpetual inventory system. periodic inventory system. double entry accounting system. business that sells expensive merchandise. 7. Question : (TCO B) Hunter Company purchased merchandise inventory with an invoice price of $12,000 and credit terms of 2/10, n/30. What is the net cost of the goods if Hunter Company pays within the discount period? $11,040 $10,800 $11,760 $12,000 8. Question : (TCO A, B) Zach's Market recorded the following events involving a recent purchase of merchandise: Received goods for $50,000, terms 2/10, n/30. Returned $1,000 of the shipment for credit. Paid $250 freight on the shipment. Paid the invoice within the discount period. As a result of these events, the company's merchandise inventory: increased by $48,020. increased by $49,250. increased by $48,265. increased by $48,270. 9. Question : (TCO A) The Freight-in account: 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) Which statement is false? Taking a physical inventory involves actually counting, weighing, or measuring each kind of inventory on hand. No matter whether a periodic or perpetual inventory system is used, all companies need to determine inventory quantities at the end of each accounting period. An inventory count is generally more accurate when goods are not being sold or received during the counting. Companies that use a perpetual inventory system must take a physical inventory to determine inventory on hand on the balance sheet date and to determine cost of goods sold for the accounting period. 11. Question : (TCO A) Of the following companies, which one would not likely employ the specific identification method for inventory costing? 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? 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 rising prices, which of the following inventory methods generally results in the lowest net income figure? 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? 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: 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. Page: 3 1. Question : (TCO D) An account is an important accounting record where financial information is stored until needed. Briefly explain (1) the nature of an account, (2) the different types of accounts, and (3) the manner in which an account is increased and decreased, and the normal balance of each type of accounts. 2. Question : (TCOs B & E) The adjusted trial balance of Gertz Company included the following selected accounts: Debit Credit Sales $575,000 Sales Returns and Allowances $ 50,000 Sales Discounts 9,500 Cost of Goods Sold 347,000 Freight-out 2,000 Advertising Expense 15,000 Interest Expense 19,000 Store Salaries Expense 74,000 Utilities Expense 18,000 Depreciation Expense 3,500 Interest Revenue 25,000 Instructions: 1. Use the above information to prepare a multiple-step income statement for the year ended December 31, 2010. 2. Calculate the profit margin ratio and gross profit rate. To qualify for full credit, you must state the formula you are using, show your computations, and explain your findings.

Solution: #9343

ACCT504 Week 4 Midterm Exam v2 Graded

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