Devry Acct 504 Midterm

Devry Acct 504 Midterm
| (TCO A, B, C) Which of the following statements concerning users of

accounting information is incorrect? |
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| Student Answer: | | 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. |
| Instructor Explanation: | Chapter 1 page 7 |
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| Points Received: | 3 of 3 |
| Comments: | |
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ACCT 504 Wk_4 Midterm 30 Multiple Chioce and 2 Explainatory 2. |
Question : | (TCO C) Issuing shares of stock in exchange for cash is an
example of a(n): |
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| Student Answer: | | delivering activity. |
| | | investing activity. |
| | | financing activity. |
| | | operating activity. |
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| Comments: | |
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3. | Question : | (TCO C) Which activities involve putting the resources of
the business into action to generate a profit? |
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| Student Answer: | | Delivering |
| | | Financing |
| | | Investing |
| | | Operating |
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| Comments: | |
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4. | Question : | (TCO A) The cost of assets consumed or services used
is also known as: |
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| Student Answer: | | a revenue. |
| | | an expense. |
| | | a liability. |
| | | an asset. |
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| Comments: | |
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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? |
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| Student Answer: | | $25,000 |
| | | $5,000 |
| | | $30,000 |
| | | $23,000 |
| Instructor Explanation: | $75,000 - 45,000 - 5,000 = $25,000
Chapter 1 page 10 |
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| Comments: | |
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6. | Question : | (TCO A) On a classified balance sheet, prepaid
insurance is classified as: |
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| Student Answer: | | an intangible asset. |
| | | property, plant, and equipment. |
| | | a current asset. |
| | | a long-term investment. |
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| Comments: | |
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7. | Question : | (TCO A) An intangible asset: |
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| Student Answer: | | 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. |
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| Comments: | |
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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? |
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| Student Answer: | | $1,900,000 |
| | | $2,600,000 |
| | | $2,200,000 |
| | | $3,200,000 |
| Instructor Explanation: | Gross cost of plant assets utilized -
accumulated depreciation Chapter 2 page 51 |
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| Comments: | |
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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? |
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| Student Answer: | | $4.66 |
| | | $0.20 |
| | | $66.67 |
| | | $5.00 |
| Instructor Explanation: | $30,000/6,000 = $5.00
Chapter 2 page 56 |
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| Comments: | |
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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? |
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| | | $ 66,000 |
| | | $348,000 |
| | | $273,000 |
| Instructor Explanation: | $2,499,000 - $2,292,000 = $207,000
Chapter 2 page 57 |
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| Comments: | |
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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? |
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| Student Answer: | | 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. |
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| Comments: | |
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12. | Question : | (TCO D) Which one of the following is not a part of an
account? |
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| Student Answer: | | Credit side |
| | | Trial balance |
| | | Debit side |
| | | Title |
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| Comments: | |
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13. | Question : | (TCO D) Which of the following describes the
classification and normal balance of the retained earnings account? |
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| Student Answer: | | Asset, debit |
| | | Stockholders' equity, credit |
| | | Revenues, credit |
| | | Expense, debit |
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| Comments: | |
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14. | Question : | (TCO D) A debit is the normal balance for which
account listed below? |
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| Student Answer: | | Furniture |
| | | Accounts payable |
| | | Rent revenue |
| | | Capital stock issued |
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| Comments: | |
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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? |
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| Student Answer: | | Prepaid insurance and dividends |
| | | Dividends and medical fees earned |
| | | Interest payable and common stock |
| | | Advertising expense and land |
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| Comments: | |
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Page: | 123 |
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* Times are displayed in (GMT-07:00) Mountain Time (US & Canada) |
| (TCO E) An accounting time period that is one year in length is called: |
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| Student Answer: | | a fiscal year. |
| | | an interim period. |
| | | the time period assumption. |
| | | a reporting period. |
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| Comments: | |
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2. | Question : | (TCO E) In a merchandising business, revenue may be
considered earned when: |
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| Student Answer: | | 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 |
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| Comments: | |
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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? |
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| Student Answer: | | 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 |
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| Comments: | |
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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? |
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| | | $114,000 |
| | | $82,000 |
| | | $150,000 |
| Instructor Explanation: | $350,000 - 200,000 = $150,000
Chapter 4 pages 166-167 |
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| Comments: | |
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5. | Question : | (TCO E) Adjusting entries are made to ensure that: |
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| Student Answer: | | 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 |
| Instructor Explanation: | Chapter 4 pages 167-168 |
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| Comments: | |
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6. | Question : | (TCO A, B) Which of the following expressions is
incorrect? |
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| Student Answer: | | 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 |
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| Comments: | |
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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? |
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| | | $2,760 |
| | | $2,700 |
| | | $3,000 |
| Instructor Explanation: | $3,000 x 98% = $2,940
Chapter 5 page 234 |
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| Comments: | |
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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: |
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| Student Answer: | | increased by $19,208. |
| | | increased by $19,700. |
| | | increased by $19,306. |
| | | increased by $19,308. |
| Instructor Explanation: | ($20,000 - $400) x 98% = $19,208 + $100 for
freight = $19,308 Chapter 5 page 235 |
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| Comments: | |
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9. | Question : | (TCO A) The factor which determines whether or not
goods should be included in a physical count of inventory is: |
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| Student Answer: | | physical possession. |
| | | legal title. |
| | | management's judgment. |
| | | whether or not the purchase price has been paid. |
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| Comments: | |
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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? |
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| Student Answer: | | 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 |
| Instructor Explanation: | Chapter 6 pages 284-285 |
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| Comments: | |
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11. | Question : | (TCO A) A problem with the specific identification
method is that: |
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| Student Answer: | | 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 |
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| Points Received: | (not graded) |
| Comments: | |
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12. | Question : | (TCO A) Which of the following statements is true
regarding inventory cost flow assumptions? |
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| Student Answer: | | 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. |
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| Comments: | |
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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: |
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| Student Answer: | | FIFO method. |
| | | LIFO method. |
| | | average cost method. |
| | | tax method. |
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| Comments: | |
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14. | Question : | (TCO B) Which of the following is a true statement
about inventory systems? |
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| Student Answer: | | Periodic inventory systems require more detailed
inventory records. |
| | | Perpetual inventory systems require more detailed inventory records.
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| | | 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. |
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| Comments: | |
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15. | Question : | (TCO B) A merchandiser that sells directly to
consumers is: |
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| Student Answer: | | a retailer. |
| | | a wholesaler. |
| | | a broker. |
| | | a service enterprise. |
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| Comments: | |
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Page: | 123 |
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* Times are displayed in (GMT-07:00) Mountain Time (US & Canada) |
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). |
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| Student Answer: | | The rules of debits and credits are: Assets Debits
increase Credits increase Liabilities and Stockholders' Equity Credits
increase Debits decrease The major sections of the balance sheet are:
Assets Total assets Liabiliities and Stockholders' Equity Total liabilities
and stockholders' equty An example would be: Ladys' Store Balance
Sheet January 31, 2012 Assets Cash 15200 Accunts receivable 200
Office, equipment 4950 Advertising supplies 1000 Prepaid insurance
550 Total assets 21910 Liabilites and Stockholders' Equity Liabilites
Notes Payable 5000 Accounts Payable 2500 Salaries payable 1200
Unearned Revenue 800 Interest payable 50 Total liabilties 9550
Stockholders' equity Common stock 10000 Retained earnings 2360
Total stockholders equity 12360 Total liabilities and stockholders' equity
21910 Ladys' Store Income Statement For the Month Ended January 31,
2012 Revenues Service Revenue 10600 Expenses Salaries expense
5200 Supplies expense 1500 Rent expense 900 Insurance expense 50
Interest Expense 50 Depreciation expense 40 Total expenses 7740 Net
income 2860 |
| Instructor Explanation: | Accounting is based on the double-entry
system. This system records the dual effect of each transaction in the
appropriate accounts, thus keeping the accounting equation in balance.
Each transaction is analyzed and recorded using this dual effect system.
If you do not have this basic understanding, the remaining chapters will
become increasingly more difficult. You will not have the ability to make
journal entries for the many new topics in these upcoming chapters.
Pages 111 through 116 |
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| Comments: | -3 you did not discuss the normal balance for revenue or
expenses |
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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. |
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| Student Answer: | | Caltor Company Income Statement For the month
Ended December 31, 2010 Revenues Sales 1279000 Cost of Goods
Sold 710000 Gross Profit 1989000 Operating Expenses Administrative
expense 239000 Selling expense 45000 Interest expense 5000 |
| Instructor Explanation: | 1. CALTOR COMPANY
Income Statement
For the Year Ended December 31, 2010 Revenues | | |
| | |
Net sales | | $1,279,000 |
Cost of Goods Sold | | 710,000 |
Gross Profit | | $569,000 |
| | |
Expenses: | | |
Selling expenses | 45,000 | |
Administrative expenses | 239,000 | |
Interest expense | 68,000 | |
Total expenses | | $352,000 |
Net income | $217,000 | |
2. Profit margin ratio: $217,000 $1,279,000 = 16.9%
Gross profit rate: $569,000 / $1,279,000 = 44.49%
Page 235 and pages 241 through 244 |
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| Comments: | -7 you need to subtract cost of goods sold and you did not
finish the Net Income calculation -10 you did not calculate either ratio |
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Page: | 123 |
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| (TCO A, B, C) Which of the following statements concerning users of

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