ACCT 320A
NAME: ____________________
MID-TERM EXAM
GROUP # __
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1. How does the objectivity principle support ethical behavior? (2 Points)
The objectivity principle supports ethical behavior since it requires that financial information be
documented by independent, unbiased evidence. Consequently, the impact of personal beliefs and
opinions on the recording and reporting of business transactions and events is reduced.
12. Identify or define the following terms: (2 Points)
2
7Economic entity: All economic events can be identified with a particular economic entity.
.
Going concern: It is anticipated that a business entity will continue to operate indefinitely.
3. Indicate whether a debit or credit entry would be made to record the following changes in each
account. (4 Points)
b. To increase Common Stock.
___CREDIT____
e. To decrease Supplies.
___CREDIT____
g. To decrease Accounts Receivable. ___CREDIT_____
4. Describe what is meant by unearned revenues and give two examples. (3 Points)
Unearned revenues represents liabilities created when a company receives cash in advance
from a customer for goods or services that will be provided in a future period.
Examples:
Magazine subscriptions received in advance,
Rent received in advance
5. The balance sheets of Callaway Foods prepared according list current assets followed by noncurrent
assets and current liabilities before long-term liabilities. If Callaway Foods prepared its financial
statements according to IFRS, what approach might it take in preparing its balance sheet? (2 Points)
Balance sheets prepared using IFRS report non-current assets and liabilities first.
Also, IFRS prefers the title to be “Statement of Financial Position.”
6. Briefly explain what is meant by a subsequent event. Give two examples of subsequent events.
(3 Points)
A subsequent event is a significant event that takes place after an entity's fiscal year-end but before the
financial statements have been issued or are available to be issued.
Examples:
-Issuance of debt or equity securities,
-Mergers,
-Discontinued operations, and
-The resolution of uncertainties that existed at the balance sheet date.
7. Net income is not always a good predictor of future income. Explain this statement. (2 Points)
Net income is of low quality when items such as discontinued operations or extraordinary items are
present. Income from continuing operations becomes a good predictor of future income when these
items are present.