Devry ACCT504 week 4 midterm set 2

ACCT 504 Wk_4 Midterm 30 Multiple Chioce and 2 Explanatory

(TCO A,
B, C) Which of the following statements concerning users of accounting
information is incorrect?

Management is considered an internal user.

Present and prospective creditors are
considered external users.

Regulatory authorities such as the SEC are
considered internal users.
Taxing authorities are considered external
users.

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) The cost of assets
consumed or services used is also known as:

a revenue.

an expense.

a liability.

an asset.

5. Question
: (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 customers.

What was Edwards’ net cash provided by operating activities?

$25,000

$5,000

$30,000

$23,000

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) An intangible asset:

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, 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, Landford
Corporation reported net income of $30,000; net sales $400,000; and average
share outstanding 6,000. There were no preferred stock dividends. What was the
2010 earnings per share?

$4.66

$0.20

$66.67

$5.00

10. Question : (TCO B) Liondale Corporation had
beginning retained earnings of $2,292,000 and ending retained earnings of
$2,499,000. During the year, they issued common stock totaling $141,000. There
were no dividends issued. What was their net income for the year?

$207,000

$ 66,000

$348,000

$273,000

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?

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. Question : (TCO D) Which one of the following is
not a part of an account?

Credit side

Trial balance

Debit side

Title

13. Question : (TCO D) Which of the following
describes the classification and normal balance of the retained earnings
account?

Asset, debit

Stockholders’ equity, credit

Revenues, credit

Expense, debit

14. Question : (TCO D) A debit is the normal balance
for which account listed below?

Furniture

Accounts payable

Rent revenue

Capital stock issued

15. Question : (TCO D) Which of the following
accounts follows the rules of debit and credit in relation to increases and
decreases in the opposite manner?

Prepaid insurance and dividends

Dividends and medical fees earned

Interest payable and common stock

Advertising expense and land

(TCO E)
An accounting time period that is one year in length is called:

a fiscal year.

an interim period.

the time period assumption.

a reporting period.

2. Question
: (TCO E) In a merchandising
business, revenue may be considered earned when:

cash is received from the customers

a product is delivered to a customer.

an order is received from a customer

a customer shows interest in a product

3. Question
: (TCO E) On April 1, 2010, M
Corporation paid $48,000 cash for equipment that will be used in business
operations. The equipment will be used for four years and will have no residual
value. M records depreciation expense of $9,000 for the calendar year ending
December 31, 2010. Which accounting principle has been violated?

Revenue recognition principle

No principle has been violated because M has
correctly matched the expense for using the equipment to the period during
which it generated revenue.
Matching principle because the cash was paid
in 2007 and should be expensed in 2007.
Cost principle

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) Adjusting entries are
made to ensure that:

expense 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

6. Question
: (TCO A, B) Which of the
following expressions is incorrect?

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 $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?

$2,940

$2,760

$2,700

$3,000

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:

increased by $19,208.

increased by $19,700.

increased by $19,306.

increased by $19,308.

9. Question
: (TCO A) The factor which
determines whether or not goods should be included in a physical count of
inventory is:

physical possession.

legal title.

management’s judgment.

whether or not the purchase price has been
paid.

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?

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) A problem with the specific
identification method is that:

inventories can be reported at actual costs.

management can manipulate income.

matching is not achieved.

the lower of cost or market basis cannot be
applied

12. Question : (TCO A) Which of the following
statements is true regarding inventory cost flow assumptions?

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.

13. Question : (TCO A) In periods of rising prices,
the inventory method which results in the inventory value on the balance sheet
that is closest to current cost is the:

FIFO method.

LIFO method.

average cost method.

tax method.

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) A merchandiser that sells
directly to consumers is:

a retailer.

a wholesaler.

a broker.

a service enterprise.

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 45,000

Instructions:
1. Prepare
an 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.