GB518 UNIT3 MIDTERM EXAM (PERFECT ANSWER) - 92293

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1. What would be the appropriate entry for the following transaction? Bill Co. performed $5,200 in consulting services on account (Points : 2) Credit to Cash, Debit to Accounts Receivable Debit to Revenue, Debit to Cash Debit to Accounts Receivable, Credit to Cash Debit to Revenue, Credit to Cash Debit to Accounts Receivable, Credit to Revenue 2. Technological advancement (Points : 2) Has replaced accounting Has not changed the work that accountants do Has freed accounting professionals to concentrate more on the analysis and interpretation of information In accounting has replaced the need for decision makers In accounting is only available to large corporations 3.Which of the following elements are found on the Balance Sheet? (Points : 2) Service Revenue Net Income Operating Activities Utilities Expense Retained Earnings 4.Increases in retained earnings from a company's earnings activities are: (Points : 2) Assets Revenues Liabilities Stockholder's Equity Expenses 5. An asset created by prepayment of an expense is: (Points : 2) Recorded as a debit to an unearned revenue account Recorded as a debit to a prepaid expense account Recorded as a credit to an unearned revenue account Recorded as a credit to a prepaid expense account Not recorded in the accounting records until the earnings process is complete 6.Unearned revenues are: (Points : 2) Revenues that have been earned and received in cash Revenues that have been earned but not yet collected in cash Liabilities created when a customer pays in advance for products or services before the revenue is earned Recorded as an asset in the accounting records 7.The debt ratio is used: (Points : 2) To measure the amount of equity relative to the expenses To reflect the risk associated with a company's debts Only by banks when a business applies for a loan To determine how much debt a firm should pay off 8.The principle that (1) requires revenue to be recognized at the time it is earned, (2) allows the inflow of assets associated with revenue to be in a form other than cash and (3) measures the amount of revenue as the cash plus the cash equivalent value of any non-cash assets received from customers in exchange for goods or services is called the: (Points : 2) Going-concern principle Cost principle Revenue recognition principle Objectivity principle Business entity principle 9.An example of an operating activity is: (Points : 2) Paying wages Purchasing office equipment Borrowing money from a bank Selling stock Paying off a loan 10.Which of the following statements best describes the relationship of U.S. GAAP and IFRS? (Points : 2) They are identical They are entirely different conceptual frameworks They are similar but not identical Neither has anything to do with accounting They both relate only to publicly traded companies 11.The financial statement that shows: beginning and ending retained earnings balances and the effects of net income (loss) and a dividend for the period is the: (Points : 2) Statement of financial position Statement of cash flows Balance sheet Income statement Statement of retained earnings 12.A credit is used to record: (Points : 2) An increase in an expense account An increase in an asset account An increase in an unearned revenue account A decrease in a revenue account A decrease to retained earnings 13.The primary objective of financial accounting is: (Points : 2) To serve the decision-making needs of internal users To provide financial statements to help external users analyze and interpret an organization's activities To monitor and control company activities To provide information on both the costs and benefits of managing products and services To know what, when and how much to produce 14.To include the personal assets and transactions of a business's owner in the records and reports of the business would be in conflict with the: (Points : 2) Objectivity principle Realization principle Business entity principle Going-concern principle Revenue recognition principle 15.Net Income: (Points : 2) Decreases equity Represents the amount of assets owners put into a business Equals assets minus liabilities Is the excess of revenues over expenses Represents the owners' claims against assets 16. A post-closing trial balance includes: (Points : 2) All ledger accounts with balances, none of which can be temporary accounts All ledger accounts with balances, none of which can be permanent accounts All ledger accounts with balances, which include some temporary and some permanent accounts Only revenue and expense accounts Only asset accounts 17. On April 30, 2011, a three-year insurance policy was purchased for $18,000 with coverage to begin immediately. What is the amount of insurance expense that would appear on the company's income statement for the year ended December 31, 2011? (Points : 2) $500 $4,000 $6,000 $14,000 $18,000 18.A company earned $2,000 in net income for October. Its net sales for October were $10,000. Its profit margin is: (Points : 2) 2% 20% 200% 500% $8,000 19. A classified balance sheet: (Points : 2) Measures a company's ability to pay its bills on time Organizes assets and liabilities into important subgroups Presents revenues, expenses and net income Reports operating, investing and financing activities 20.A company shows a $600 balance in Prepaid Insurance in the Unadjusted Trial Balance columns of the work sheet. The Adjustments columns show expired insurance of $200. This adjusting entry results in: (Points : 2) $200 less in net income $200 more in net income $200 difference between the debit and credit columns of the Unadjusted Trial Balance $200 of prepaid insurance An error in the financial statements 21. If accrued salaries were recorded on December 31 with a credit to Salaries Payable, the entry to record payment of these wages on the following January 5 would include: (Points : 2) A debit to Cash and a credit to Salaries Payable A debit to Cash and a credit to Prepaid Salaries A debit to Salaries Payable and a credit to Cash A debit to Salaries Payable and a credit to Salaries Expense No entry would be necessary on January 5 22.The difference between the cost of an asset and the accumulated depreciation for that asset is: (Points : 2) Depreciation Expense Unearned Depreciation Prepaid Depreciation Depreciation Value Book Value 23. A 10-column spreadsheet used to draft a company's unadjusted trial balance, adjusting entries, adjusted trial balance and financial statements and which is an optional tool in the accounting process is a(n): (Points : 2) Adjusted trial balance Work sheet Post-closing trial balance Unadjusted trial balance General ledger 24. A company's Office Supplies account shows a beginning balance of $600 and an ending balance of $400. If office supplies expense for the year is $3,100, what amount of office supplies was purchased during the period? (Points : 2) $2,700 $2,900 $3,300 $3,500 $3,700 25. Based on the following information, determine the current assets, assuming all accounts have a normal balance? Cash $ 6,754 Dividends $ 2,000 Accounts receivable $ 13,733 Consulting fees earned $ 13,718 Office supplies $ 2,625 Rent expense $ 3,673 Land $ 37,153 Salaries expense $ 6,642 Office equipment $ 14,535 Telephone expense $ 560 Accounts payable $ 6,463 Miscellaneous expense $ 280 Common stock $ 54,490 Retained Earnings ? (Points : 2) $74,800 $37,647 $60,265 $23,112 26. The length of time covered by a set of periodic financial statements is referred to as the: (Points : 2) Fiscal cycle Natural business year Accounting period Business cycle Operating cycle 27. On January 1 a company purchased a five-year insurance policy for $1,800 with coverage starting immediately. If the purchase was recorded in the Prepaid Insurance account and the company records adjustments only at year-end, the adjusting entry at the end of the first year is: (Points : 2) Debit Prepaid Insurance, $1,800; credit Cash, $1,800 Debit Prepaid Insurance, $1,440; credit Insurance Expense, $1,440 Debit Prepaid Insurance, $360; credit Insurance Expense, $360 Debit Insurance Expense, $360; credit Prepaid Insurance, $360 Debit Insurance Expense, $360; credit Prepaid Insurance, $1,440 28. A company purchased a new truck at a cost of $42,000 on July 1, 2011. The truck is estimated to have a useful life of 6 years and a salvage value of $3,000. How much depreciation expense will be recorded for the truck for the year ended December 31, 2011? (Points : 2) $3,250 $3,500 $4,000 $6,500 $7,000 29.On June 30, 2011, Apricot Co. paid $5,000 cash for management services to be performed over a two-year period. Apricot follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment. The adjusting entry on December 31, 2011 for Apricot would include: (Points : 2) A debit to an expense for $1,250 A debit to a prepaid expense for $1,250 A credit to an expense for $3,750 A debit to a prepaid expense for $3,750 30. A company pays each of its two office employees each Friday at the rate of $100 per day each for a five-day week that begins on Monday. If the monthly accounting period ends on Tuesday and the employees worked on both Monday and Tuesday, the month-end adjusting entry to record the salaries earned but unpaid is: (Points : 2) Debit Unpaid Salaries $600 and credit Salaries Payable $600 Debit Salaries Expense $400 and credit Salaries Payable $400 Debit Salaries Expense $600 and credit Salaries Payable $600 Debit Salaries Payable $400 and credit Salaries Expense $400 31. In comparing the canceled checks on the bank statement with the entries in the accounting records, it is found that check number 4239 for November's rent was correctly written and drawn for $7,390, but was erroneously entered in the accounting records as $3,790. When preparing the November bank statement, the company should: (Points : 2) Deduct $3,600 from the book balance of cash Add $3,600 to the bank statement balance Add $7,390 to the book balance of cash Deduct $3,600 from the bank statement balance Add $3,600 to the book balance of cash 32.A company had $43 missing from petty cash which was not accounted for by petty cash receipts. The correct procedure is to: (Points : 2) Debit Cash Over and Short for $43 Credit Cash Over and Short for $43 Debit Petty Cash for $43 Credit Petty Cash for $43 Credit Cash for $43 33. Multiple-step income statements: (Points : 2) Are required by the FASB Contain more detail than a simple listing of revenues and expenses Are required for the perpetual inventory system List cost of goods sold as an operating expense Can only be used in perpetual inventory systems 34. Physical inventory counts: (Points : 2) Are not necessary under the perpetual system Are necessary to measure and adjust for inventory shrinkage Must be taken at least once a month Require the use of hand-held portable computers 35. The quick assets are defined as: (Points : 2) Cash, short-term investments and inventory Cash, short-term investments and current receivables Cash, inventory and current receivables Cash, noncurrent receivables and prepaid expenses Accounts receivable, inventory and prepaid expenses 36. A company had sales of $375,000 and its gross profit was $157,500. Its cost of goods sold equal: (Points : 2) $(217,000) $375,000 $157,500 $217,500 37.Herald Company had sales of $135,000, sales discounts of $2,000 and sales returns of $3,200. Herald Company's net sales equals: (Points : 2) $5,200 $129,800 $133,000 $135,000 $140,200 38. The inventory valuation method that tends to smooth out erratic changes in costs is: (Points : 2) FIFO Weighted average LIFO Specific identification WIFO 39. The inventory turnover ratio: (Points : 2) Is used to analyze profitability Is used to measure solvency Measures how quickly a company turns over its merchandise inventory Validates the acid-test ratio Calculation depends on the company's inventory valuation method 40.Given the following information: Petty cash balance $ 450.00 Courier receipt $ 82.50 Postage receipt $ 48.00 Office Supplies receipt $ 56.22 Business Meal receipt $ 102.34 Cash on hand at the end of the month $ 76.21 What is the amount of cash over and short? (Points : 2) debit $84.73 credit $84.73 debit $160.94 credit $160.94 no cash over or short would be recorded 41. Cash equivalents: (Points : 2) Are short-term, highly liquid investments Include 6-month CDs Include checking accounts Are recorded in petty cash Include money orders 42. The full disclosure principle: (Points : 2) Requires that when a change in inventory valuation method is made, the notes to the financial statements report the type of change, why it was made and its effect on net income Requires that companies use the same accounting method for inventory valuation period after period Is not subject to the materiality principle Is only applied to retailers Is also called the consistency principle 43. Alpha Company had cash sales of $94,275, credit sales of $83,450, sales returns and allowances of $1,700 and sales discounts of $3,475. Alpha's net sales for this period equal: (Points : 2) $94,275 $172,550 $174,250 $176,025 $177,725 44. A company had sales of $695,000 and its cost of goods sold of $278,000. Its gross margin equals: (Points : 2) $(417,000) $695,000 $278,000 $417,000 45.The credit terms 2/10, n/30 are interpreted as: (Points : 2) 2% cash discount if the amount is paid within 10 days, with the balance due in 30 days 10% cash discount if the amount is paid within 2 days, with balance due in 30 days 30% discount if paid within 2 days 30% discount if paid within 10 days 2% discount if paid within 30 days 46. J.C. Penny had net sales of $28,496 million, its cost of goods sold was $19,092 million and its net income was $997 million. Its gross margin ratio equals: (Points : 2) 3.5% 5.2% 33% 67% 149.3% 47. An analysis that explains any differences between the checking account balance according to the depositor's records and the balance reported on the bank statement is a (n): (Points : 2) Internal audit Bank reconciliation Bank audit Trial reconciliation Analysis of debits and credits 48. Days' sales in inventory: (Points : 2) Is also called days' stock on hand Focuses on average inventory rather than ending inventory Is used to measure solvency Is calculated by dividing cost of goods sold by ending inventory Is a substitute for the acid-test 49. Goods on consignment: (Points : 2) ratio Are goods shipped by the owner to the consignee who sells the goods for the owner Are reported in the consignee's books as inventory Are goods shipped to the consignor who sells the goods for the owner Are not reported in the consignor's inventory since they do not have possession of the inventory 50. The main principles of internal control include which of the following: (Points : 2) Establish responsibilities Maintain minimal records Use only computerized systems Bond all employees
Solution Description

1. What would be the appropriate entry for the following transaction?

Bill Co. performed $5,200 in consulting services on account (Points : 2)

Credit to Cash, Debit to Accounts Receivable

Debit to Revenue, Debit to Cash

Debit to Accounts Receivable, Credit to Cash

Debit to Revenue, Credit to Cash

Debit to Accounts Receivable, Credit to Revenue

2. Technological advancement (Points : 2)

Has replaced accounting

Has not changed the work that accountants do

Has freed accounting professionals to concentrate more on the analysis and interpretation of information

In accounting has replaced the need for decision makers

In accounting is only available to large corporations

 3.Which of the following elements are found on the Balance Sheet? (Points : 2)

Service Revenue

Net Income

Operating Activities

Utilities Expense

Retained Earnings

4.Increases in retained earnings from a company's earnings activities are: (Points : 2)

Assets

Revenues

Liabilities

Stockholder's Equity

Expenses

5. An asset created by prepayment of an expense is: (Points : 2)

Recorded as a debit to an unearned revenue account

Recorded as a debit to a prepaid expense account

Recorded as a credit to an unearned revenue account

Recorded as a credit to a prepaid expense account

Not recorded in the accounting records until the earnings process is complete

6.Unearned revenues are: (Points : 2)

Revenues that have been earned and received in cash

Revenues that have been earned but not yet collected in cash

Liabilities created when a customer pays in advance for products or services before the revenue is earned

Recorded as an asset in the accounting records

7.The debt ratio is used: (Points : 2)

To measure the amount of equity relative to the expenses

To reflect the risk associated with a company's debts

Only by banks when a business applies for a loan

To determine how much debt a firm should pay off

8.The principle that (1) requires revenue to be recognized at the time it is earned, (2) allows the inflow of assets associated with revenue to be in a form other than cash and (3) measures the amount of revenue as the cash plus the cash equivalent value of any non-cash assets received from customers in exchange for goods or services is called the: (Points : 2)

Going-concern principle

Cost principle

Revenue recognition principle

Objectivity principle

Business entity principle

 9.An example of an operating activity is: (Points : 2)

Paying wages

Purchasing office equipment

Borrowing money from a bank

Selling stock

Paying off a loan

10.Which of the following statements best describes the relationship of U.S. GAAP and IFRS? (Points : 2)

They are identical

They are entirely different conceptual frameworks

They are similar but not identical

Neither has anything to do with accounting

They both relate only to publicly traded companies

11.The financial statement that shows: beginning and ending retained earnings balances and the effects of net income (loss) and a dividend for the period is the: (Points : 2)

Statement of financial position

Statement of cash flows

Balance sheet

Income statement

Statement of retained earnings

12.A credit is used to record: (Points : 2)

An increase in an expense account

An increase in an asset account

An increase in an unearned revenue account

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