PRINCIPLES OF ACCOUNTING I ACCT 220
MIDTERM EXAMINATION REVIEW (Chapters 1 thru 6)
1. The basic accounting equation may be expressed as
- a. Assets = Equities.
- b. Assets – Liabilities = Owner's Equity.
- c. Assets = Liabilities + Owner's Equity.
- d. all of these.
2. Owner's equity is increased by
- a. drawings.
- b. revenues.
- c. expenses.
- d. liabilities.
3. Collection of a $500 Accounts Receivable
- a. increases an asset $500; decreases an asset $500.
- b. increases an asset $500; decreases a liability $500.
- c. decreases a liability $500; increases owner's equity $500.
- d. ecreases an asset $500; decreases a liability $500.
4. If services are rendered for credit, then
- a. assets will decrease.
- b. liabilities will increase.
- c. owner's equity will increase.
- d. liabilities will decrease.
5. The steps in preparing a trial balance include all of the following except
- a. listing the account titles and their balances.
- b. totaling the debit and credit columns.
- c. proving the equality of the two columns.
- d. transferring journal amounts to ledger accounts.
6. A trial balance would only help in detecting which one of the following errors?
- a. A transaction that is not journalized
- b. A journal entry that is posted twice
- c. Offsetting errors are made in recording the transaction
- d. A transposition error when transferring the debit side of journal entry to the ledger
7. Which of the following statements is false?
- a. Revenues increase owner's equity.
- b. Revenues have normal credit balances.
- c. Revenues are a positive factor in the computation of net income.
- d. Revenues are increased by debits.
8. Jack Wiser withdraws $300 cash from his business for personal use. The entry for this transaction will include a debit of $300 to
- a. Jack Wiser, Drawing.
- b. Jack Wiser, Capital.
- c. Owner's Salary Expense.
- d. Salaries Expense.
9. On October 3, Nick Carter, a carpenter, received a cash payment for services previously billed to a client. Nick paid his telephone bill, and he also bought equipment on credit. For the three transactions, at least one of the entries will include a
- a. credit to Nick Carter, Capital.
- b. credit to Notes Payable.
- c. debit to Accounts Receivable.
- d. credit to Accounts Payable.
10. Unearned revenues are
- a. received and recorded as liabilities before they are earned.
- b. earned and recorded as liabilities before they are received.
- c. earned but not yet received or recorded.
- d. earned and already received and recorded.
11. At December 31, 2008, before any year-end adjustments, Karr Company's Insurance Expense account had a balance of $1,450 and its Prepaid Insurance account had a balance of $3,800. It was determined that $3,000 of the Prepaid Insurance had expired. The adjusted balance for Insurance Expense for the year would be
- a. $3,000.
- b. $1,450.
- c. $4,450.
- d. $2,250.
12. A new accountant working for Metcalf Company records $800 Depreciation Expense on store equipment as follows: Dr. Depreciation Expense 800 Cr. Cash 800 The effect of this entry is to
- a. adjust the accounts to their proper amounts on December 31.
- b. understate total assets on the balance sheet as of December 31.
- c. overstate the book value of the depreciable assets at December 31.
- d. understate the book value of the depreciable assets as of December 31.
13. On July 1, Dexter Shoe Store paid $8,000 to Ace Realty for 4 months rent beginning July 1. Prepaid Rent was debited for the full amount. If financial statements are prepared on July 31, the adjusting entry to be made by Dexter Shoe Store is
- a.Debit Rent Expense, $8,000; Credit Prepaid Rent, $2,000.
- b. Debit Prepaid Rent, $2,000; Credit Rent Expense, $2,000.
- c. Debit Rent Expense, $2,000; Credit Prepaid Rent, $2,000.
- d. Debit Rent Expense, $8,000; Credit Prepaid Rent, $8,000.
14. Failure to prepare an adjusting entry at the end of the period to record an accrued expense would cause
- a. net income to be understated.
- b. an overstatement of assets and an overstatement of liabilities.
- c. an understatement of expenses and an understatement of liabilities.
- d. an overstatement of expenses and an overstatement of liabilities.
15. Carter Guitar Company borrowed $12,000 from the bank signing a 9%, 3-month note on September 1. Principal and interest are payable to the bank on December 1. If the company prepares monthly financial statements, the adjusting entry that the company should make for interest on September 30, would be
- a. Debit Interest Expense, $1,080; Credit Interest Payable, $1,080.
- b. Debit Interest Expense, $90; Credit Interest Payable, $90.
- c. Debit Note Payable, $1,080; Credit Cash, $1,080.
- d. Debit Cash, $270; Credit Interest Payable, $270.
16. Closing entries are
- a. an optional step in the accounting cycle.
- b. posted to the ledger accounts from the worksheet.
- c. made to close permanent or real accounts.
- d. journalized in the general journal.
17. A post-closing trial balance is prepared
- a. after closing entries have been journalized and posted.
- b. before closing entries have been journalized and posted.
- c. after closing entries have been journalized but before the entries are posted.
- d. before closing entries have been journalized but after the entries are posted.
18. Tyler Company paid $530 on account to a creditor.
The transaction was erroneously recorded as a debit to Cash of $350 and a credit to Accounts Receivable, $350. The correcting entry is
- a. Accounts Payable530 Cash530
- b. Accounts Receivable350 Cash350
- c. Accounts Receivable350 Accounts Payable350
- d. Accounts Receivable350 Accounts Payable530 Cash880
19. A current asset is
- a. the last asset purchased by a business.
- b. an asset which is currently being used to produce a product or service.
- c. usually found as a separate classification in the income statement.
- d. an asset that a company expects to convert to cash or use up within one year.
20. Intangible assets are
- a. listed under current assets on the balance sheet.
- b. not listed on the balance sheet because they do not have physical substance.
- c. noncurrent resources.
- d. listed as a long-term investment on the balance sheet.
21. Which of the following expressions is incorrect?
- a. Gross profit – operating expenses = net income
- b. Sales – cost of goods sold – operating expenses = net income
- c. Net income + operating expenses = gross profit
- d. Operating expenses – cost of goods sold = gross profit
22. Sales revenue
- a. may be recorded before cash is collected.
- b. will always equal cash collections in a month.
- c. only results from credit sales.
- d. is only recorded after cash is collected.
23. Hale Company sells merchandise on account for $1,500 to Kear Company with credit terms of 2/10, n/30. Kear Company returns $300 of merchandise that was damaged, along with a check to settle the account within the discount period. What is the amount of the check?
- a. $1,470
- b. $1,476
- c. $1,200
- d. $1,176
24. If a company has net sales of $500,000 and cost of goods sold of $350,000, the gross profit percentage is
- a. 70%.
- b. 30%.
- c. 15%.
- d. 100%.
25. Cost of goods sold is computed from the following equation:
- a. beginning inventory – cost of goods purchased + ending inventory.
- b. sales – cost of goods purchased + beginning inventory – ending inventory.
- c. sales + gross profit – ending inventory + beginning inventory.
- d. beginning inventory + cost of goods purchased – ending inventory
26. Two companies report the same cost of goods available for sale but each employs a different inventory costing method. If the price of goods has increased during the period, then the company using
- a. LIFO will have the highest ending inventory.
- b. FIFO will have the highest cost of good sold.
- c. FIFO will have the highest ending inventory.
- d. LIFO will have the lowest cost of goods sold.
27. The managers of Teng Company receive performance bonuses based on the net income of the firm. Which inventory costing method are they likely to favor in periods of declining prices?
- a. LIFO
- b. Average Cost
- c. FIFO
- d. Physical inventory method
28. The accountant at Kline Company is figuring out the difference in income taxes the company will pay depending on the choice of either FIFO or LIFO as an inventory costing method. The tax rate is 30% and the FIFO method will result in income before taxes of $5,460. The LIFO method will result in income before taxes of $4,935. What is the difference in tax that would be paid between the two methods?
- a. $525.
- b. $225.
- c. $158.
- d. Cannot be determined from the information provided.
29. A company uses the periodic inventory method and the beginning inventory is overstated by $4,000 because the ending inventory in the previous period was overstated by $4,000. The amounts reflected in the current end of the period balance sheet are AssetsOwner’s Equity
- b. CorrectCorrect
- c. UnderstatedUnderstatedd.
- d. OverstatedCorrect
30. Quigley Company's records indicate the following information for the year: Merchandise inventory, 1/1$ 550,000 Purchases2,250,000 Net Sales3,000,000 On December 31, a physical inventory determined that ending inventory of $600,000 was in the warehouse. Quigley's gross profit on sales has remained constant at 30%. Quigley suspects some of the inventory may have been taken by some new employees. At December 31, what is the estimated cost of missing inventory?
- a. $100,000
- b. $200,000
- c. $300,000
- d. $700,000