ACCT 504 Midterm Exam NEW (4 Sets, 2017)

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1. Question : (TCOs A and E) Your friend, Ellen, has hired you to evaluate the following internal control procedures.

Explain to your friend whether each of the numbered items below is an internal control strength or weakness. You must also state which internal control procedure relates to each of the internal controls.

For the weaknesses, you also need to state a recommendation for improvement.

(1) The cashier counts the total receipts and reconciles the receipts with the cash register total.

(2) Electronic documents are password-protected.

(3) The accountant is completely independent of the sales department.

(4) Invoices are not numbered.

(5) Large purchase orders must be approved by a manageTCOs A and E) Your friend, Ellen, has hired you to evaluate the following internal control procedures.

Explain to your friend whether each of the numbered items below is an internal control strength or weakness. You must also state which internal control procedure relates to each of the internal controls.

For the weaknesses, you also need to state a recommendation for improvement.

(1) The cashier counts the total receipts and reconciles the receipts with the cash register total.

(2) Electronic documents are password-protected.

(3) The accountant is completely independent of the sales department.

(4) Invoices are not numbered.

(5) Large purchase orders must be approved by a manager. (Points : 30)

Set 2

1: Invoices are pre-numbered.

2: The controller approves of the purchases and makes the payment since he or she is familiar with the purchases.

3: The office manager is in charge of the petty cash fund.

4: Blank checks are stored in the safe.

5: At the end of the day, the total receipts are counted by the cashier on duty and reconciled to the cash register total. (Points : 30)

Set 3

Invoices are pre-numbered.

The controller approves of the purchases and makes the payment since he

or she is familiar with the purchases.

The office manager is in charge of the petty cash fund.

Blank checks are stored in the safe.

At the end of the day, the total receipts are counted by the cashier on duty

and reconciled to the cash register total

Set 4

Question 14. Question : (TCO D)  Your friend Dean has hired you to evaluate the following internal control procedures.

a: Explain to your friend whether each of the numbered items below is an internal control strength or weakness. You must also state which principle relates to each of the internal controls.

b: For the weaknesses, you also need to state a recommendation for improvement.

1: Bonding of the cashiers is not required because all of the cashiers have significant experience.

2: The treasurer is the only one allowed to sign checks.

3: All employees may operate cash registers.

4: Blank checks are stored in the safe.

5: Supervisors count cash receipts daily.

12. (TCOs E and F) Please prepare the following journal entries. Indicate which account should be debited and which account should be credited, along with the dollar amount of the debit and credit.

(1) Investors invest $500,000 in exchange for 50,000 shares of common stock.

(2) Company purchased equipment for $25,000 on account.

(3) Company paid Rent for $4,000.

(4) Company received $15,000 for services not yet performed.

(5) Employees work Monday through Friday and are paid on Friday. Salary expense is $10,000 per day and this year, December 31 falls on a Wednesday. (Points : 30)

Set 2

Question

Please prepare the following journal entries. Indicate which account should be debited and which account should be credited, along with the dollar amount of the debit and credit.

(1) Investors invest $300,000 in exchange for 30,000 shares of common stock.

(2) Company made payment on account for $500.

(3) Employees work Monday through Friday and are paid on Friday. Salary expense is $20,000 per day, and December 31 falls on a Tuesday.

(4) Company purchased Supplies for $2,000.

(5) The company needs to record Supplies used for $500.

Set 3

13. Question : (TCOs D and E) Please prepare the following journal entries. Indicate

which account should be debited and which account should be credited,

along with the dollar amount of the debit and credit.

Investors invest $50,000 in exchange for 1,000 shares of common stock.

Company purchased equipment for $10,000 on credit.

Company received $5,000 for services performed.

Company made payment on account for $2,000.

Set 4

Question 13. Question : (TCO D and TCO E) Please prepare the following journal entries. Indicate which account should be debited and which account should be credited, along with the dollar amount of the debit and credit. 

a: Investors invest $100,000 in exchange for 10,000 shares of common stock.

b: Company paid a utility bill for $600.

c: Company received cash of $15,000 for services performed.

d: Company made payment on account for $1,000.

e: Company received $12,000 for services not yet performed.

Set 5

Question 12. Question : (TCOs B and D) Please prepare the following journal entries. Indicate which account should be debited and which account should be credited, along with the dollar amount of the debit and credit.

(1) Investors invest $300,000 in exchange for 30,000 shares of common stock.

(2) Company made payment on account for $500.

(3) Employees work Monday through Friday and are paid on Friday. Salary expense is $20,000 per day, and December 31 falls on a Tuesday.

(4) Company purchased Supplies for $2,000.

(5) The company needs to record Supplies used for $500.

Question 3

.The following items are taken from the financial statements of BGS Company for 2012:

Cash $500,000

Accounts Receivable 200,000

Supplies 70,000

Accounts Payable 147,300

Unearned Service Revenue 18,000

Equipment, net of accumulated depreciation 212,000

Common Stock 500,000

Retained Earnings 12/31/2011 78,300

Long-term debt 142,400

Service revenue 240,000

Cost of Goods Sold 72,000

Rent expense 36,000

Supplies expense 12,000

Set 2

14. (TCO D) The following items are taken from the financial statements of SRW Company for 2012:

Cash $375,000

Accounts Receivable 125,000

Prepaid Insurance 100,000

Accounts Payable 88,000

Unearned Service Revenue 15,000

Equipment, net of accumulated depreciation 177,000

Question 4

13. (TCOs B and D) The following items are taken from the financial statements of Lacey Company for 2012:

Advertising Expense $14,000

Accounts Receivable 12,000

Cost of Goods Sold 65,000

Accumulated Depreciation—Equipment 20,000

Accounts Payable 21,000

Cash 44,000

Depreciation Expense 17,000

Common Stock 100,000

Instructions

(a) Calculate the net income. (18 points)

(b) Calculate the balance of Retained Earnings that would appear on a balance sheet at December 31, 2012. (7 points)

(c) Calculate the gross profit percentage. (5 points) (Points : 30

Lacey Company 

Income Statement

Question 13. Question : (TCOs B and D) The following items are taken from the financial statements of Ashe Company for 2012:

Equipment $100,000

Accounts Receivable 12,000

Accounts Payable 9,000

Cost of Goods Sold 72,000

Utilities Expense 11,000

Depreciation Expense 17,000

Insurance Expense 9,000

Question 14. Question : (TCO D) The following items are taken from the financial statements of BGS Company for 2012:

Cash  $500,000

Accounts Receivable  200,000

Supplies  70,000

Accounts Payable  147,300

Unearned Service Revenue  18,000

Equipment, net of accumulated depreciation  212,000

Instructions

(a) Please create a classified balance sheet in good form for the year ended 2012. (25 points)

(b) Please calculate the current ratio. (5 points)

Question 12. Question : (TCOs B and E) The adjusted trial balance of Gertz Company included the following selected a

Debit Credit

Sales   $575,000

Sales returns and allowances $ 50,000

Sales discounts 9,500

Cost of goods sold 347,000

Instructions:

1: Use the above information to prepare a multiple-step income statement for the year ended December 31, 2010.

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.

Question 11. Question : (TCO D) A classmate is considering dropping his or her accounting class because he or she cannot understand the rules of debits and credits.

Explain the rules of debits and credits in a way that will help him or her 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).

11. Question : (TCO D) Describe the process of preparing a trial balance. What is the

purpose of preparing a trial balance? If a trial balance does not balance,

identify what might be the reasons why it does not balance. If the trial

balance does balance, does that ensure that the ledger accounts are

correct? Explain.

 1. Question : (TCO D) An account is an important accounting record where financial information is stored until needed. Briefly explain (1) the nature of an account, (2) the different types of accounts, and (3) the manner in which an account is increased and decreased, and the normal balance of each type of accounts.

Question 1.1. (TCO A) Assets include (Points : 3)

       prepaid insurance and prepaid rent.

       dividends paid to shareholders.

       loans obtained by the company.

       stockholders’ investment in the business.

Question 2.2. (TCO B) For 2014, CAP Corporation reported net income of $96,000; net sales $1,440,000; and weighted average shares outstanding of 9,600. There were no preferred dividends. What was the 2014 earnings per share? (Points : 3)

       $100.00

       $150.00

       $10.00

       $15.00

Question 3.3. (TCO C) Issuing debt is an example of a(n) (Points : 3)

       operating activity.

       investing activity.

       financing activity.

       noncash investing and financing activity.

Question 4.4. (TCO D) Dividends declared are reported on which of the following statements? (Points : 3)

       Income Statement

       Statement of Retained Earnings

       Balance Sheet

       Statement of Financial Position

Question 5.5. (TCO E) Which of the following describes the normal balance and classification of the Unearned Revenue account? (Points : 3)

       Credit, liability

       Debit, liability

       Debit, stockholders’ equity

       Credit, stockholders’ equity

Question 6.6. (TCO F) The accrual accounting term used to indicate recording an expense before paying cash for the item is (Points : 3)

       deferral.

       accrual.

       depreciation.

       prepayment.

Question 7.7. (TCO A) LBJ Company recorded the following events involving a recent purchase of merchandise.

- Received goods for $95,000, terms 2/10, n/30.

- Returned $4,500 of the shipment for credit due to damaged goods.

- Paid $1,000 for freight in.

- Paid the invoice within the discount period.

As a result of these events, the company’s merchandise inventory (Points : 3)

       increased by 89,580.

       increased by $89,690.

       increased by $89,600.

       increased by $91,500.

= (95000-4500)*0.98+ 1000

Question 8.8. (TCO B) In periods of rising prices, which of the following inventory methods results in the highest gross profit figure? (Points : 3)

       FIFO

       LIFO

       Average cost method

      Cannot be determined based on the information given

Question 9.9. (TCO A) On a classified balance sheet, prepaid expenses are classified as (Points : 3)

       current liabilities.

       long-term liabilities.

       current assets.

       Prepaid expenses do not belong on the Balance Sheet.

Question 10.10. (TCO E) Which of the following is an internal control procedure? (Points : 3)

       Control environment

       Comparisons and compliance monitoring

       Promote operational efficiency

       Encourage employees to follow company policies

Question 1. Question : (TCO A) Which of the following accounts is recorded as part of stockholders’ equity on the Balance Sheet?

Question 2. Question : (TCO B) For 2014, CAP Corporation reported net income of $96,000; net sales $1,440,000; and weighted average shares outstanding of 9,600. There were no preferred dividends. What was the 2014 earnings per share?

Question 3. Question : (TCO C) Purchasing inventory is an example of a(n)

Question 4. Question : (TCO D) Dividends declared are reported on which of the following statements?

Question 5. Question : (TCO E) Which of the following describes the normal balance and classification of the Unearned Revenue account?

Question 6. Question : (TCO F) The accrual accounting term used to indicate recording an expense before paying cash for the item is

Question 7. Question : (TCO A) XYZ Company recorded the following events involving a recent merchandise purchase.

Question 8. Question : (TCO B) In periods of rising prices, which of the following inventory methods results in the highest gross profit figure?

Question 9. Question : (TCO A) Which of the following is not a current liability?

Question 10. Question : (TCO E) Which of the following is an internal control procedure?

1. Question : (TCOs A, B, and C) Which type of corporate information is available to

investors?

2. Question : (TCO C) Collecting cash from customers would be an example of which

type of activity?

3. Question : (TCO A) Resources owned by a business are referred to as

4. Question : (TCO A) In a classified balance sheet, assets are usually classified as

5. Question : (TCO B) For 2012, LBJ Corporation reported net income of $25,000; net

sales $250,000; and weighted average shares outstanding of 5,000. There

were no preferred stock dividends. What was the 2012 earnings per share?

6. Question : (TCO D) Which of the following accounts has a normal balance of a credit?

7. Question : (TCO E) The accrual accounting term used to indicate recording an

expense before paying cash for the item is _____

8. Question : (TCOs A and B) A periodic inventory system would most likely be used by

a(n) _____9. Question : (TCOs A and B) LBJ Company recorded the following events involving a

recent purchase of merchandise.

Comments:

10. Question : (TCO A) In a period of declining prices, which of the following inventory

methods generally results in the lowest gross profit figure?

Question : (TCOs A, B, and C) Shareholders want answers to all of the following questions except:

Question 2. Question : (TCO C) Paying cash dividends is an example of a(n)

Question 3. Question : (TCO C) Buying a new plant would be an example of which type of activity?

Question 4. Question : (TCO A) Which of the following should not be classified as a current liability?

Question 5. Question : (TCO B) For 2012, LBJ Corporation reported net income of $75,000; net sales $750,000; and weighted average shares outstanding of 7,500. There were no preferred stock dividends. What was the 2012 earnings per share?

Question 6. Question : (TCO D) Which of the following describes the normal balance and classification of the Unearned Revenue account?

Question 7. Question : (TCO E) Which of the following statements is correct?

Question 8. Question : (TCOs A and B) A periodic inventory system would most likely be used by a(n)

Question 9. Question : (TCOs A and B) LBJ Company recorded the following events involving a recent merchandise purchase.

- Received goods for $40,000, terms 2/10, n/30- Returned $1,200 of the shipment for credit due to damaged goods- Paid $1,000 for freight in- Paid the invoice within the discount period

Question 10. Question : (TCO A) In a period of declining prices, which of the following inventory methods generally results in the lowest gross profit figure?

Question 1. Question : (TCOs A, B, and C) Which of the following statements concerning users of accounting information is incorrect?

Question 2. Question : (TCO C) Paying cash dividends is an example of a(n)

Question 3. Question : (TCO C) Buying a new plant would be an example of which type of activity?

Question 4. Question : (TCO A) On a classified balance sheet, prepaid expenses are classified as

Question 5. Question : (TCO B) For 2012, LBJ Corporation reported net income of $75,000; net sales $750,000; and weighted average shares outstanding of 7,500. There were no preferred stock dividends. What was the 2012 earnings per share?

Question 6. Question : (TCO D) Which of the following accounts has a normal balance of a credit?

Question 7. Question : (TCO E) The accrual accounting term used to indicate recording an expense before paying cash for the item is

Question 8. Question : (TCOs A and B) A periodic inventory system would most likely be used by a(n)

Question 9. Question : (TCOs A and B) LBJ Company recorded the following events involving a recent merchandise purchase.

Question 10. Question : (TCO A) In a period of increasing prices, which of the following inventory methods generally results in the highest gross profit?

 

Question 11. Question : (TCO D) A classmate is considering dropping his or her accounting class because he or she cannot understand the rules of debits and credits.

Explain the rules of debits and credits in a way that will help him or her 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).

 

 

 

Question 12. Question : (TCOs B and 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 a multiple-step 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.

 

 

Question 13. Question : (TCO D and E) Please prepare the following journal entries. Indicate which account should be debited and which account should be credited, along with the dollar amount of the debit and credit. 

 

a: Investors invest $50,000 in exchange for 1,000 shares of common stock.

b: Company purchased equipment for $10,000 on credit.

c: Company received $5,000 for services performed.

d: Company made payment on account for $2,000.

e: Company received $7,000 for services not yet performed.

 

 

 

Question 14. Question : (TCO D) Your friend Wendy plans to open a hair salon. Wendy states that she does not have time to develop and implement a system of internal controls.

 a: Explain to Wendy the objectives of a system of internal control.

 b: Explain to Wendy at least four key controls she must establish to protect herself against fraud. You should state specific internal control principles and relate your answer to her hair salon business.

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