SECTION I: MULTIPLE-CHOICE (30 possible points);Please complete the following statements or questions by placing the appropriate letter in the blank adjacent to the;item number. The value of each correct answer is 2 points.;1.What is the name of the branch of accounting concerned with providing managers and administrators with;information to facilitate the planning and control of business operations?;A. Management accounting;B. Auditing;C. Financial Accounting;D. Bookkeeping;2.Which of the following invests funds into a business and is considered an owner?;A. A stockholder;B. A creditor;C. A bank;D. A lender;3.Which one of the following is not an external user of financial statements?;A. Suppliers;B. Creditors;C. Financial analysts;D. The controller;4.Which financial statement would you refer to in order to determine whether a company owed funds to;creditors?;A. Balance sheet;B. Statement of retained earnings;C. Income statement;D. Both the balance sheet and the income statement;5.If an investor can use accounting information for two different companies to evaluate the types and;amounts of expenses, the information is said to have the quality of;A. Consistency;B. Comparability;C. Neutrality;D. Understandability;6.Walsh Company applies the consistency convention. What does this mean?;A. Walsh uses the same names for all its expenses as its competitors.;B. Walsh has selected particular accounting principles that can never be changed.;C. Walsh applies the same accounting principles each accounting period.;D. Walsh applies the same accounting principles as its competitors.;7.Which one of the following items is reported as a current asset on a classified balance sheet?;A. Inventory;B. Accounts Payable;C. Common Stock;D. Land;BSC401 MIDTERM EXAM;Page 2;SECTION I: MULTIPLE-CHOICE (Cont.);8.Which one of the following is a correct expression of the accounting equation?;A. Assets + Liabilities = Owners? Equity;B. Assets = Liabilities ? Owners? Equity;C. Assets + Owners? Equity = Liabilities;D. Assets = Liabilities + Owners? Equity;9.Which of the following would not be considered to be an intangible asset?;A. Franchises;B. Copyrights;C. Investments;D. Goodwill;10.A computer is purchased on credit by signing a 5-year note. 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;11.The term credit refers to which of the following?;A. An entry to decrease an account.;B. An event is unfavorable;C. An entry to increase an account;D. The right hand side of an account;12.Which of the following is an attribute used to measure many assets that are recognized on a balance sheet;because it is more objective and verifiable?;A. Market value;B. Historical cost;C. Liquidation value;D. Current replacement cost;13.Effective cash management and control includes all of the following except;A. The use of a petty cash fund;B. Bank reconciliations;C. Short-term investments of excess cash;D. Purchase of stocks and bonds;14.Among the assets listed below, which one is considered the most liquid?;A. Short-term investments;B. Accounts receivable;C. Merchandise inventory;D. Prepaid expenses;15.What is the distinguishing characteristic between accounts receivable and notes receivable?;A. Accounts receivable are usually current assets while notes receivable are usually long-term assets;B. Accounts receivable require payment of interest if not paid within the usual credit terms;C. Notes receivable result from credit sale transactions for merchandising companies, while accounts;receivable result from credit sale transactions for service companies.;D. Notes receivable result from a written promise to pay within a specified amount of time;BSC401 MIDTERM EXAM;Page 3;SECTION II: MATCHING (10 possible points);Please match the numbered terms with their definitions by placing the letter that identifies the best definition in the;blank space next to the term. The value of each correct answer is 1 point.;1. Credit;2. Debit;3. Generally Accepted Accounting Principles (GAAP);4. General Ledger;5. Internal Control System;6. Journal;7. Matching Principle;8. Materiality;9.Recognition;10.Trial Balance;A. The various methods, rules, practices, and other procedures that have evolved over time in response to the need;to regulate the preparation of financial statements.;B. The magnitude of an omission or misstatement in accounting information that will affect the judgment of someone;relying on the information.;C. A book, file, hard drive, or other device containing all of a company?s accounts.;D. An entry on the left side of an account.;E. An entry on the right side of an account.;F. A chronological record of transactions, also known as the book of original entry.;G. A list of each account and its balance at a specific point in time, used to prove the equality of debits and credits.;H. The process of recording an item in the financial statements as an asset, liability, revenue, or the like.;I. The association of revenue of a period with all of the costs necessary to generate the revenue.;J. Policies and procedures necessary to ensure the safeguarding of an entity?s assets, the reliability of its accounting;records, and the accomplishment of overall company objectives.;BSC401 MIDTERM EXAM;Page 4;SECTION III. SHORT-ANSWER (20 possible points);Please give a brief answer to each of the following questions. Each question is worth a possible 5 points.;1. Explain the difference between internal and external users of a corporation?s financial information.;Give two examples of internal users and two of external users;2. Briefly explain the purpose of a Trial Balance.;3. Explain briefly the Revenue Recognition Principle. When should a publisher of magazines recognize;revenue?;4. An effective system of internal control is critical to protecting a company?s investment in three of its;major assets: cash, accounts receivable, and inventory. For each of the three assets, describe briefly;how a company might protect that asset.;BSC401 MIDTERM EXAM;Page 5;SECTION IV: PROBLEMS (40 possible points);Please show all of your work for each problem.;PROBLEM 1 (15 possible points);The accountant for Farly Corporation prepared the following list from the company?s accounting records;for the year ended December 31, 2012;Sales Revenue$165,000Cash$30,000;Accounts receivable$14,000Selling expenses$44,000;Equipment$42,000Common stock$17,000;Accounts payable$12,000Interest income$3,000;Salaries and wages expense$40,000Cost of goods sold$51,000;Inventories $22,000Prepaid expenses$2,000;Income taxes payable$5,000Income taxes expense$18,000;Notes payable$20,000Retained earnings??;REQUIREMENTS;A. Prepare an Income Statement for Farly Corporation for Year Ended December 31, 2012.;B. Prepare a Balance Sheet for Farly Corporation as of December 31, 2012.;C. What was the amount of Retained earnings for Farly Corporation at the end of 2012?;BSC401 MIDTERM EXAM;Page 6;SECTION IV: PROBLEMS (Cont.);PROBLEM 2 (15 possible points);Hana, Inc. reported $52,000 of net income for 2011. Hana?s balance sheet at December 31, 2012, includes the;following amounts;Wages payable$1,000;Inventory$26,000;Prepaid rent$3,000;Land$40,000;Cash$15,000;Accounts receivable$22,000;Accounts payable$25,000;Capital stock$40,000;Retained earnings$29,000;Income taxes payable$11,000;REQUIREMENTS;A. Determine the current ratio and working capital of Hana.;B. Beyond the information provided in your answer to part A, what does the composition of the current assets;tell you about Hana?s liquidity?;C. What other information do you need to fully assess Hana?s liquidity? Why is liquidity important?;BSC401 MIDTERM EXAM;Page 7;SECTION IV: PROBLEMS (Cont.);PROBLEM 3: (10 possible points);Several transactions are listed below. Use the identification codes below (I, D, NE) to indicate the effects of each;transaction on the accounting equation, Assets = Liabilities + Owners' Equity. Write your answers in;the space provided under the accounting equation. An example is given before the first transaction.;I - IncreaseD ? DecreaseNE ? No Effect;Owners;TransactionsAssets =Liabilities +Equity;Example: Capital stock is issued to investors in;the company.INE I;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. A utility bill is received and recorded;the payment will be made later.
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