Download Mid-Term ACCT 5312 FALL 2008

Mid-Term ACCT 5312
FALL 2008
Student: ___________________________________________________________________________
Multiple Choice (70%)
1. Owners' equity refers to which to the following?
A. A listing of the organization's assets and liabilities.
B. The ownership right of the owner(s) of the entity.
C. Probable future sacrifices of economic benefits.
D. All of the above.
E. None of the above.
2. Accumulated depreciation on a balance sheet:
A. Is part of owners' equity.
B. Represents the portion of the cost of an asset that is assumed to have been "used up" in the process of
operating the business.
C. Represents cash that will be used to replace worn out equipment.
D. Recognizes the economic loss in value of an asset because of its age or use.
3. Revenues are:
A. cash receipts.
B. increases in net assets from selling a product.
C. increases in net assets from occasional sales of equipment.
D. increases in net assets from selling common stock.
4. Retained Earnings represents:
A. the amount invested in the entity by the owners.
B. cash that is available for dividends.
C. cumulative net income that has not been distributed to owners as dividends.
D. par value of common stock outstanding.
5. At the end of the year, retained earnings totaled $1,700. During the year, net income was $250, and dividends
of $120 were declared and paid. Retained earnings at the beginning of the year totaled:
A. $2,070
B. $1,330
C. $1,230
D. $1,570
6. A firm's net income is $260,000 on sales of $31.5 million. Average assets for the period were $7 million. For
the year:
A. Margin was 5%, turnover was 1.2, and ROI was 6%.
B. Margin was 6%, turnover was 1.5, and ROI was 6%.
C. Margin was 4%, turnover was 1.2, and ROI was 4.8%.
D. Margin was 1%, turnover was 4.5, and ROI was 4.5%.
7. A firm's net income for the year was $200,000. Average assets totaled $1.5 million, and average liabilities
totaled $0.3 million. Return on equity was:
A. 13.3%
B. 16.7%
C. 10%
D. 20%
8. For a firm that presently has a current ratio of 2.0, the effect on this ratio of paying a current liability is:
A. Raises the current ratio.
B. Lowers the current ratio.
C. Doesn't affect the current ratio.
D. Depends on the amount paid.
9. If a firm borrowed money on a six-month bank loan, the firm's working capital immediately after obtaining
the loan, relative to its working capital just prior to the loan, would be:
A. Higher.
B. Lower.
C. The same.
D. Would depend on the amount borrowed.
10. Sage, Inc. has 20 employees who each earn $100 per day and are paid every Friday. The end of the
accounting period is on a Wednesday. How much wages should the firm accrue at the end of the period?
A. $2,000.
B. $1,000.
C. $0
D. $6,000.
11. Wisdom Co. has a note payable to its bank. An adjustment is likely to be required on Wisdom's books at the
end of every month that the loan is outstanding to record the:
A. Amount of interest paid during the month.
B. Amount of total interest to be paid when the note is paid off.
C. Amount of principal payable at the maturity date of the note.
D. Accrued interest expense for the month.
12. The accountant at Abco, Inc. made an adjusting entry at the end of February to accrue interest on a note
receivable from a customer. The effect of this entry is to:
A. Decrease ROI for February.
B. Increase ROI for February.
C. Decrease working capital at February 28.
D. Decrease the acid-test ratio at February 28.
13. When a firm purchases supplies for use in its business, and the cost of the supplies purchased is recorded as
an asset, the following adjustment to recognize the cost of supplies used will probably be required:
A. Dr Supplies
Cr Accounts payable
B. Dr Supplies
Cr Supplies expense
C. Dr Supplies expense
Cr Supplies
D. No adjustment will probably be required.
14. When a firm purchases supplies for its business:
A. The supplies account should always be debited.
B. The supplies expense account should always be debited.
C. Either the supplies account or the supplies expense account should be credited
D. An adjustment will probably be required as supplies are used.
15. Which of the following is the correct balance sheet presentation for current assets?
A. Cash, inventories, account receivables, prepaid expenses.
B. Cash equivalents, cash, other current assets, accounts receivable.
C. Accounts receivable, inventories, prepaid expenses, other current assets.
D. Marketable securities, cash, notes receivable, prepaid expenses.
16. The accounting concept or principle applied when the cost of short-term marketable securities is adjusted to
market value is:
A. objectivity.
B. matching revenue and expense.
C. original cost.
D. consistency.
17. The accounting concept or principle applied when an allowance is provided for estimated uncollectible
accounts receivable is:
A. consistency.
B. matching revenue and expense.
C. original cost.
D. objectivity.
18. When an uncollectible account receivable is written off against the allowance for bad debts:
A. total current assets decrease and expenses increase.
B. total current assets are not affected.
C. total current assets decrease and expenses decrease.
D. current assets decrease and expenses are not affected.
19. Trading and Available-for-Sale securities are reported on the balance sheet at:
A. Net realizable value.
B. Historical cost.
C. Weighted average cost.
D. Market value.
20. When a firm uses the LIFO inventory cost flow assumption:
A. cost of goods sold will be greater than if FIFO were used.
B. net income will be greater than if FIFO were used.
C. cost of goods sold will be the same as if FIFO were used.
D. better matching of revenue and expense is achieved than under FIFO.
21. When costs are rising over time:
A. LIFO results in higher profits that FIFO.
B. Cost of goods sold using the weighted average method will be greater than LIFO cost of goods sold.
C. ending inventory balances will be greater under LIFO.
D. FIFO results in higher profits than LIFO.
22. The balance sheet presentation of accounts receivable net of the allowance for doubtful accounts has the
effect of stating accounts receivable at:
A. original cost.
B. net realizable value.
C. market value.
D. lower of cost or market.
23. A firm has used LIFO for several years during which costs have trended higher. The effect on 2007 net
income using LIFO, relative to FIFO, will be:
A. net income for 2007 will be greater under LIFO than FIFO.
B. net income for 2007 will be less under LIFO than FIFO.
C. net income for 2007 will be the same under LIFO as under FIFO.
D. can't tell from the information given.
24. Which of the following is (are) true regarding cost-flow assumptions?
A. Manufacturing firms are required to use FIFO.
B. Service firms are required to use LIFO.
C. If a firm uses FIFO for tax purposes, than FIFO must be used for financial reporting purposes.
D. If a firm uses LIFO for tax purposes, than LIFO must be used for financial reporting purposes.
E. All of the above.
25. When an accelerated depreciation method is used to calculate depreciation expense:
A. the net book value of the asset halfway through its useful life will be less than if straight-line depreciation is
used.
B. the net book value of the asset at the end of its useful life will be less than if straight-line depreciation is
used.
C. depreciation expense will be less in the early years of the asset's life than if straight-line depreciation is used.
D. the accumulated depreciation account balance will increase by a larger amount in the last half of an asset's
life than if straight-line depreciation is used.
26. When a machine having a net book value of $5,000 is sold for $4,000:
A. current assets increase, equipment (net) increases, and net income increases.
B. current assets increase, equipment (net) decreases, and net income increases.
C. current assets increase, equipment (net) decreases, and net income decreases.
D. current assets increase, equipment (net) increases, and net income decreases.
27. Which of the following could be a correct journal entry to record the disposition of equipment?
At the beginning of the fiscal year, the balance sheet showed assets of $1,364 and owners' equity of $836.
During the year, assets increased $74 and liabilities decreased $38.
28. Owners' equity at the end of the year totaled:
A. $836
B. $872
C. $948
D. $1,438
29. Liabilities at the end of the year totaled:
A. $490
B. $528
C. $836
D. $910
At the beginning of the year, paid-in capital was $82 and retained earnings was $47. During the year, the
owners invested $24 and dividends of $6 were declared and paid. Retained earnings at the end of the year were
$52.
30. Total owners' equity at the end of the year was:
A. $82
B. $94
C. $106
D. $158
31. Net income for the year was:
A. $10
B. $11
C. $15
D. $20
Martin & Associates borrowed $5,000 on April 1, 2006 at 8% interest with both principal and interest due on
March 31, 2007.
32. How much should be in the firm's interest payable account at December 31, 2006?
A. $300
B. $400
C. $0
D. $333
Moped, Inc. purchased machinery at a cost of $22,000 on January 1, 2007. The expected useful life is 5 years
and the asset is expected to have salvage value of $2,000. Moped depreciates its assets via the double-declining
balance method.
33. What is the accumulated depreciation for this asset on December 31, 2008?
A. $ 4,400
B. $ 5,280
C. $ 8,800
D. $14,080
34. What is the firm's gain or loss if the machinery is sold for $11,000 on December 31, 2008?
A. Gain of $4,000
B. Gain of $3,080
C. Loss of $600
D. Loss of $4,000
35. Psyche Company wants to acquire Trim Company. Trim's ROI has been above average for its industry; net
income has averaged $70,000 a year more than the industry average. These "excess" earnings are expected to
continue at this amount for 5 years. Assuming a discount rate of 8%, how much goodwill will arise from
Psyches' purchase of Trim?
A. $ 40,836
B. $ 88,157
C. $279,489
D. $350,000
Problem 1 (15%) Presented below is a statement of cash flows for Peach, Inc., for the year ended December 31,
2007. Also shown is a partially completed comparative balance sheet as of December 31, 2007 and 2006.
Required:
(a.) Complete the December 31, 2007 and 2006 balance sheets.
(b.) Prepare a Statement of Changes in Retained Earnings for the year ended December 31, 2007.
Problem 2 (15%) The following are data available for Blue Grass for the month of June:
(a.) Calculate cost of goods sold and ending inventory under the following cost flow assumptions:
(1.) Weighted average
(2.) FIFO
(3.) LIFO
(b.) Assume net income using the weighted average cost-flow assumption was $6,400. Calculate net income
under FIFO and LIFO.