Example midterm exam Financial Accounting 1 - 2020
Q1
Which of the following is correct?
a.
b.
c.
d.
Q2
An asset’s historical cost is always higher than its fair value
An asset’s historical cost is always lower than its fair value
An asset’s historical cost is always equal to its fair value
An asset’s historical cost can be equal to, higher than, or lower than its fair
value
Which account will normally have a credit balance?
a.
b.
c.
d.
Q3
Accounts Receivable
Supplies Expense
Unearned Revenues
Dividends
On November 30 Random Comp Inc. pays its monthly electricity bill,
which is $1,200. Which journal entry can be a correct way of accounting
for this transaction?
a.
b.
c.
d.
Q4
30-11
30-11
30-11
30-11
Dr. Utilities Expense
Cr. Cash
1,200
Dr. Utilities Expense
Cr. Prepaid Expenses
1,200
Dr. Prepaid Expenses
Cr. Utilities Expense
1,200
Dr. Supplies
Cr. Cash
1,200
1,200
1,200
1,200
1,200
MokumEet BV buys merchandise inventory with an invoice price of
€25,000 and credit terms 5/10, n/60. What is the net costs of the goods if
MokumEetBV pays within the discount period?
a.
b.
c.
d.
€23,750
€25,000
€12,500
€22,500
Before posting a payment of €2,000, the Accounts Payable account of
Breathlite had a normal balance of €19,000. The balance after posting
was:
Q5
a.
b.
c.
d.
€19,000 credit
€21,000 debit
€17,000 credit
€21,000 credit
Example midterm exam Financial Accounting 1 - 2020
Q6
For an adjusting entry, the account Unearned Service Revenue is
debited. Which account will be credited?
a.
b.
c.
d.
Cash
Service Revenue
Income Summary
Cost of Goods Sold
Use the following information to answer questions Q7 and Q8:
Quincy Boots Company uses a periodic inventory system. The following information was available from
the inventory records of Quincy Boots Company for July:
Balance at July 1:
Purchases:
July 6
July 26
Sales:
July 7
July 31
Units
30,000
Unit Cost
£ 2.25
Total Cost
£ 67,500
20,000
27,000
£ 2.55
£ 2.60
£ 51,000
£ 70,200
25,000
40,000
What should be the inventory reported on Quincy Boots Company’s July
31 statement of financial position using the average-cost inventory
method? (round the average cost per unit to two decimal places in your
calculations)
Q7
a.
b.
c.
d.
Q8
£ 29,610
£ 31,500
£ 27,000
£ 29,400
What should be the Cost of Goods Sold in July if Quincy Boots Company
used the LIFO inventory method?
a.
b.
c.
d.
Q9
£ 161,700
£ 159,250
£ 157,500
£ 124,450
When closing the books at the end of the accounting period, companies
using a periodic inventory system…
a.
b.
c.
d.
debit the Income Summary account for the value of the ending inventory
credit the Income Summary account for the value of the ending inventory
credit the Inventory account for the Cost of Goods Sold
credit the Income Summary account for the value of the beginning inventory
Example midterm exam Financial Accounting 1 - 2020
Q10
If a company has net sales of $200,000 and a gross profit rate of 35%,
Cost of Goods Sold is
a.
b.
c.
d.
Q11
$70,000
$130,000
$45,500
$571,429
The inventory reported on Lazy B Company’s statement of financial
position is understated by €12,000. The company’s net income for the
period will be
a.
b.
c.
d.
Q12
understated by €12,000
overstated by €12,000
overstated by more than €12,000
correct
If a company uses a perpetual inventory system
a. the Inventory account does NOT change until the end of the year
b. the Inventory account is debited when inventory is purchased and Cost of
Goods Sold is debited when inventory is sold
c. sale of inventory requires a credit entry to the Accounts payable account
d. the purchase of inventory requires a debit entry to the Purchases account.
Q13
Observe the following journal entry:
17-11
Dr. Accounts Payable
Cr. Inventory
800
800
This journal entry can be used to register which transaction?
a.
b.
c.
d.
Purchase of merchandise from a supplier
Sale of merchandise to a customer.
Return of merchandize by a customer.
Return of purchased merchandize to a supplier.
If Cost of Goods Purchased is €80,000, Cost of Goods Sold is €90,000 and
the Ending Inventory is €50,000, then
Q14
a.
b.
c.
d.
Cost of Goods Available for Sale is €60,000
the change in Inventory is + €10,000
the change in Inventory is - €40,000
the Beginning Inventory is €60,000
Example midterm exam Financial Accounting 1 - 2020
Q15
Jolly Jumper Menswear SA estimates the cost of its ending inventory
using the retail inventory method. Its cost-to-retail ratio is 60%, goods
available for sale at retail is €300,000, and net sales is €60,000. What is
the estimated cost of the ending inventory?
a.
b.
c.
d.
Q16
€216,000
€96,000
€120,000
€144,000
After all the closing entries have been posted, the balance of the Income
Summary account will be
a.
b.
c.
d.
a debit if a net income has occurred
a debit if a net loss has occurred
a credit if a net loss has occurred
zero
Nina’s Gifts signs a three-month note payable to help finance increases
in inventory for the Christmas shopping season. The note is signed on
November 1 in the amount of $50,000 with annual interest of 6%. What
is the adjusting entry to be made on December 31 for the interest
expense accrued to that date, if no entries have been made previously for
the interest?
Q17
a.
b.
c.
d.
Q18
Dr. Interest Expense
Cr. Interest Payable
500
Dr. Interest Expense
Cr. Interest Payable
7,500
Dr. Interest Payable
Cr. Interest Expense
500
Dr. Interest Expense
Cr. Notes Payable
500
500
7,500
500
The Depreciation Expense account is
a.
b.
c.
d.
closed using a debit entry
closed using a credit entry
not closed
a contra asset account
500
Example midterm exam Financial Accounting 1 - 2020
Equity at the beginning of the year is €235,000. Total assets decrease
€18,000 during the year and total liabilities increase €3,000 during the
year. What is equity at the end of the year?
Q19
a.
b.
c.
d.
Q20
€256,000
€220,000
€214,000
Impossible to say based on this information only.
Posting:
a.
b.
c.
d.
Q21
Is an optional step in the recording process
Transfers ledger transaction data to the journal
Normally occurs after preparing the trial balance
Affects the balances on a company’s accounts
Which account might be debited after a customer returns a defective
product?
a.
b.
c.
d.
Inventory
Purchase Returns and Allowances
Sales Discounts
Cost of Goods Sold
Use the following information to answer questions Q22 – Q25:
Wendelas Wellness and Spa BV operates four wellness centers in the Netherlands. In the wellness centers
they also sell exclusive massage oils and bath lotions as well as premium towels and bathrobes. The
company uses a perpetual inventory system. Its fiscal year is the calendar year. Below are three transactions
of Wendelas Wellness and Spa BV from the months of November and December 2018, and one adjusting
entry that need to be made at the end of the year. For each transaction and the adjustment, indicate which
of the four journal entries is correct.
Q22
Transaction #1
On November 9, Wendelas renews its fire insurance policy by paying €5,400
in cash to the insurance company. The insurance policy is for 12 months,
starting on December 1, 2018.
a.
b.
c.
d.
Dr. Prepaid Insurance
Cr. Retained Earnings
5,400
Dr. Cash
Cr. Prepaid Insurance
5,400
Dr. Insurance Expense
Cr. Cash
5,400
Dr. Prepaid Insurance
Cr. Cash
5,400
5,400
5,400
5,400
5,400
Example midterm exam Financial Accounting 1 - 2020
Q23
Transaction #2
On December 15, 200 bathrobes intended for sale to customers were
purchased on account from Mouton AG for a total of €9,000, FOB
Destination, credit terms 3/10, n/30.
a.
b.
c.
d.
Q24
Dr. Purchases
Cr. Accounts Payable
9,000
Dr. Inventory
Cr. Accounts payable
9,000
Dr. Accounts payable
Cr. Inventory
9,000
Dr. Inventory
Cr. Accounts Payable
8,730
9,000
9,000
9,000
8,730
Transaction #3
On December 28, €3,000 cash was received as a prepayment for a wellness
weekend of a field hockey team that will take place in January 2019.
a.
b.
c.
d.
Dr. Cash
Cr. Sales Revenue
3,000
Dr. Cash
Cr. Prepaid Expenses
3,000
Dr. Cash
Cr. Unearned Revenue
3,000
Dr. Unearned Revenue
Cr. Cash
3,000
3,000
3,000
3,000
3,000
Adjustment entry
An adjustment entry needs to be made to recognize the fire insurance expense for
the month of December 2018 (see Transaction #1).
Q25
a.
b.
c.
d.
Dr. Prepaid Insurance
Cr. Insurance Expense
450
Dr. Cash
Cr. Insurance Expense
5,400
Dr. Insurance Expense
Cr. Prepaid Insurance
5,400
Dr. Insurance Expense
Cr. Prepaid Insurance
450
450
5,400
5,400
450