Devry ACCT504 week 4 midterm set 3

1. (TCO A, B, C) Which of the following statements
concerning users of accounting information is incorrect? (Points : 3)
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. (TCO C) Issuing shares of stock in exchange for cash is
an example of a(n) (Points : 3)
delivering
activity.
investing
activity.
financing
activity.
operating
activity.

3. (TCO C) The statement of cash flows would disclose the
payment of a dividend (Points : 3)
nowhere on the
statement.
in the
operating activities section.
in the
investing activities section.
in the
financing activities section.

4. (TCO A) The cost of assets consumed or services used is
also known as (Points : 3)
a revenue.
an expense.
a liability.
an asset.

5. (TCO C) Finley Company recorded the following cash
transactions for the year:
Paid $90,000 for salaries.
Paid $40,000 to purchase office equipment.
Paid $10,000 for utilities.
Paid $4,000 in dividends.
Collected $150,000 from customers.
What was Finley’s net cash provided by operating activities?
(Points : 3)
$50,000
$10,000
$60,000
$46,000

6. (TCO A) A current asset is (Points : 3)
the last asset
purchased by a business.
an asset which
is currently being used to produce a product or service.
usually found
as a separate classification in the income statement.
expected to be
converted to cash or used in the business within a relatively short period of
time.

7. (TCO A) Which of the following is not considered an
asset? (Points : 3)
Equipment
Dividends
Accounts
receivable
Inventory

8. (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? (Points : 3)
$1,900,000
$2,600,000
$2,200,000
$3,200,000

9. (TCO B) For 2007 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 2007 earnings per share? (Points :
3)
$4.66
$0.20
$66.67
$5.00

10. (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? (Points : 3)
$207,000
$ 66,000
$348,000
$273,000

11. (TCO D) Is the purchase of equipment treated as an
expense at the time of purchase? Why or why not? (Points : 3)
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. (TCO D) Which one of the following is not a part of an
account? (Points : 3)
Credit side
Trial balance
Debit side
Title

13. (TCO D) The classification and normal balance of the
dividend account is (Points : 3)
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. (TCO D) A debit is not the normal balance for which
account listed below? (Points : 3)
Dividends
Cash
Accounts
Receivable
Service Revenue

15. (TCO D) Which of the following accounts follows the
rules of debit and credit in relation to increases and decreases in the
opposite manner? (Points : 3)
Prepaid
insurance and dividends
Dividends and
medical fees earned
Interest
payable and common stock
Advertising
expense and land

Page 2
1. (TCO E) One of the accounting concepts upon which
adjustments for prepayments and accruals are based is (Points : 3)
matching.
cost.
monetary unit.
economic
entity.

2. (TCO E) In a merchandising business, revenue may be
considered earned when (Points : 3)
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. (TCO E) Why do generally accepted accounting principles
require the application of the revenue recognition principle? (Points : 3)
Failure to
apply the revenue recognition principle could lead to an overstatement of
revenue.
It is easy to
apply the revenue recognition principle because revenue issues are always easy
to identify and resolve.
Recording
revenue when cash is received is an objective application of the revenue
recognition principle.
Accounting software
has made the revenue recognition easy to apply.

4. The following is selected information from M Corporation
for the fiscal year ending October 31, 2007:
Cash received from customers $300,000
Revenue earned 350,000
Cash paid for expenses 170,000
Expenses incurred, 200,000
(TCO E) Based on the accrual basis of accounting, what is M
Corporation’s net income for the year ending October 31, 2007?
(Points : 3)
$140,000
$114,000
$82,000
$150,000

5. (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 (Points : 3)
contra asset.
prepayment.
asset.
accrual.

6. (TCO B) A merchandiser that sells directly to consumers
is a (Points : 3)
retailer.
wholesaler.
broker.
service
enterprise.

7. (TCO A,B) Detailed records of movements in merchandise
(each purchase and sale) are not maintained in the inventory account in a
(Points : 3)
perpetual
inventory system.
periodic
inventory system.
double entry
accounting system.
business that
sells expensive merchandise.

8. (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?
(Points : 3)
$11,040
$10,800
$11,760
$12,000

9. 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.
(TCO A) As a result of these events, the company’s
merchandise inventory
(Points : 3)
increased by
$48,020.
increased by
$49,250.
increased by
$48,265.
increased by
$48,270.

10. (TCO A) The factor which determines whether or not goods
should be included in a physical count of inventory is (Points : 3)
physical
possession.
legal title.
management’s
judgment.
whether or not the purchase price has been
paid.

11. TCO A — Which statement is false? (Points : 3)
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.

12. (TCO A) Which of the following items will increase
inventoriable costs for the buyer of goods? (Points : 3)
Purchase
returns and allowances granted by the seller
Purchase
discounts taken by the purchaser
Freight charges
paid by the seller
Freight charges
paid by the purchaser

13. TCO A — Which of the following statements is true
regarding inventory cost flow assumptions? (Points : 3)
A company may
use more than one cost-flow assumptions 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.

14. TCO A — In a period of declining prices, which of the
following inventory methods generally results in the lowest balance sheet
figure for inventory? (Points : 3)
Average cost
method
LIFO method
FIFO method
Need more
information to answer

15. (TCO B) Which of the following is a true statement about
inventory systems? (Points : 3)
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.

2. (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, 2007.
(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. (Points : 35)