GBA 521
Midterm – Review
Dr. Markelevich
Multiple Choice (3 points for each question)
Identify the letter of the choice that best completes the statement or answers the question.
Wynn Corp.
Wynn Corp. reported the following information for the year ending December 31, 2005:
Net income
Dividends
Retained earnings at December 31, 2005
____
____
____
____
____
____
$10,000
6,000
25,000
1. Refer to Wynn Corp. What was the economic effect of the payment of Wynn's dividends?
a. The dividends reduced net income for 2005.
b. The dividends should be equal to net income if the company's accounting equation is in
balance.
c. The dividends reduce total retained earnings for the year.
d. The dividends must be paid whenever Wynn Corp. reports net income.
2. Which concept is the reason the 'dollar' is used in the preparation of financial statements?
a. Monetary unit
b. Time period
c. Going concern
d. Legal entity
3. 'Claims to economic resources' are known as
a. Assets and liabilities
b. Liabilities and stockholders' equity
c. Owners equity and stockholders' equity
d. Retained earnings and revenues
4. Which of the following is not an objective of financial reporting?
a. To reflect prospective cash receipts to investors and creditors.
b. To reflect prospective cash flows to an enterprise.
c. To reflect resources and claims to resources.
d. To reflect current stock prices and information concerning stock markets.
5. What effect does providing services to customers for immediate payment have on the accounting equation?
a. Liabilities increase and owners equity increases
b. Assets increase and decrease
c. Assets increase and liabilities increase
d. Assets increase and owners equity increases
6. Payment is received from customers who were billed earlier for services provided for them. Identify the
effects on the accounting equation.
a. Assets increase and liabilities increase
b. Assets increase and owners equity increases
c. Liabilities increase and owners equity decreases
d. Liabilities decrease and assets decrease
e. Assets increase and decrease
GBA 521
Midterm – Review
Dr. Markelevich
____
7. Which one of the following is the last step in the accounting cycle?
a. Journalizing business transactions
b. Recording and posting adjustments
c. Closing the accounts
d. Preparing financial statements
____ 8. Which one of the following is not a cash equivalent?
a. 30-day certificate of deposit
b. 60-day Corporate commercial paper
c. 90-day U.S. Treasury bill
d. 180-day note issued by a local or state government
____ 9. When are consolidated financial statements prepared?
a. At the option of an investee company
b. At the option of an investor company
c. If one company owns more than 50% of another company
d. Only if one company owns 100% of another company
____ 10. Which one of the following best describes the allowance for doubtful account?
a. Contra Account
b. Liability Account
c. Income Statement Account
d. More than one of the above
Problems
Write Your answers in the space provided. If you need more space use the back of the page.
Farly Corporation
The accountant for Farly Corporation prepared the following list from the company's accounting records for
the year ended December 31, 2005:
Sales revenue
Accounts receivable
Equipment
Accounts payable
Salaries and wages expense
Inventories
Income taxes payable
Notes payable
$165,000
14,000
42,000
12,000
40,000
22,000
5,000
20,000
Cash
Selling expenses
Common stock
Interest income
Cost of sales
Prepaid expenses
Income taxes expense
Retained earnings
$ 30,000
44,000
17,000
3,000
51,000
2,000
18,000
56,000
11. Determine the following amounts for Farly Corporation: (6 points)
A.
B.
C.
Total assets at the end of 2005
$__________
Total liabilities at the end of 2005
$__________
What parties have a claim on Farly's assets? Explain this in terms of the accounting
equation.
GBA 521
Midterm – Review
Dr. Markelevich
12. Prepare an income statement for Farly Corp. in good form. (8 points)
13. Prepare a balance sheet for Farly Corp. in good form. (8 points)
GBA 521
Midterm – Review
Dr. Markelevich
14. Gala, Inc. incurred a net loss of $20,000 for 2005. The balance sheet at December 31, 2005, for Gala, Inc.,
includes the following items:
Cash
Accounts receivable
Inventory
Prepaid insurance
Land
Building
Accounts payable
Salaries payable
Capital stock
Retained earnings
$23,000
13,000
45,000
1,000
21,000
80,000
55,000
2,000
100,000
25,000
Determine Gala's current ratio and working capital. (8 points)
15. Several transactions are listed below with the accounting equation stated to the right side of each. Use the
following identification codes to indicate the effects of each transaction on the accounting equation. Write
your answers in the space provided under the accounting equation. An example is given before the first
transaction. (8 points)
I - Increase
D - Decrease
NE - No Effect
Transactions
Example: Capital stock is issued to investors in
the company
a. Cash sales are made
b. Equipment is purchased on credit
c. Payment is made for the equipment that
was purchased on credit
d. Sales are made on account
e. Cash is collected from customers for
accounts receivable balances
f.
Dividends are declared and paid to
stockholders
g. Land and a building are acquired in
exchange for shares of the company's
common stock
h. A utility bill is received and recorded;
payment will be made later
GBA 521
Assets
I
Midterm – Review
Liabilities
NE
Dr. Markelevich
Owners
Equity
I
16. Rocks Company purchased a delivery van at a cost of $30,000 cash on January 1, 2004. The van has an
estimated useful life of 6 years and a $6,000 estimated residual value. (10 points)
A. Show the effects on the accounting equation of the purchase of the van.
Assets
= Liab.
+ owners Equity
+ Revenues
B. How much depreciation expense should be reported for 2005?
C. What is the total amount of accumulated depreciation at December 31, 2005?
GBA 521
Midterm – Review
Dr. Markelevich
- Expenses
Mac Corp.
Mac Corp. prepares monthly bank reconciliations of its checking account balance. The bank statement for
October, 2005, indicated the following:
Balance, October 31, 2005
Service charge for October
Interest earned during October
NSF check from Green Corp. (deposited by Mac)
Note ($1,000) and interest ($40) collected for Mac from a customer of Mac's
$7,920
20
30
32
1,040
An analysis of canceled checks and deposits and the records of Mac revealed the following items:
Checking account balance per Mac books
Outstanding checks as of October 31
Deposit in transit at October 31
$7,170
952
1,310
Error in recording a check issued by Mac. (Correct amount of the
check is $450, but was recorded as a cash disbursement of $540. The
check was issued to pay for merchandise purchases.)
90
17. Refer to Mac Corp. Prepare a bank reconciliation at October 31, 2005 in proper form. (10 points)
GBA 521
Midterm – Review
Dr. Markelevich
Carpenter Associates
The following information is for Carpenter Associates at the end of 2005.
Sales
Sales returns & allowances
Accounts receivable, 12/31/05
Allowance for doubtful accounts, 12/31/05 (before adjustment for bad
debts)
Estimated uncollectible accounts per aging schedule at 12/31/05
$800,000
8,000
175,000
1,000
7,500
18. Refer to Carpenter Associates. Assume that the net realizable value is $170,000 after the adjustment for bad
debts in 2005. How much is the net realizable value of accounts receivable after a customer's account of
$2,500 is written off? Explain why. (6 points)
19. Refer to Carpenter Associates. If bad debts are estimated at 1% of net sales, how much will Carpenter report
as bad debts expense for 2005? (6 points)
GBA 521
Midterm – Review
Dr. Markelevich