Sample Midterm Exam I FALL 2019
Professor Sarath
Circle the one best answer.
1. A private organization which establishes broad accounting principles as well as specific accounting
rules is the
a. Securities and Exchange Commission.
b. Internal Revenue Service.
c. Financial Accounting Standards Board.
d. Corporate Board of Directors.
2. A statement that financial statement information has been checked and that no errors were detected
is found in the
A) footnotes to the financial statements.
B) The auditor’s report
C) management letter.
D) board of directors' report.
3. If an increase in an expense is one side of a journal entry, the other:
a. decreases revenues.
b. decreases assets.
c. decreases liabilities.
d. decreases stockholders’ equity.
4. Which one of the following is true ?
a. Equipment, patents, accounts payable are all assets
b. Accounts receivable, building, accumulated depreciation are all assets
c. Accounts payable, notes payable, contributed capital are all assets
d. Bonds payable, Prepaid Rent, and accounts payable are all liabilities
e. a-d are all false
5. For each financial statement item listed in 1 through 7 below, identify in which
balance sheet category (listed in a through h) it should be reported. You may
use each letter more than once or not at all.
A. Assets D. Stockholders’ Equity
B. Expense E. Revenue
C. Liabilities
Financial Statement Categories
1) Contra-Asset Accumulated depreciation
2) Asset Cash
3) Asset Patent purchased on market
4) Liability Issuance of bonds
5) Equity Contributed Capital
6) Asset Short-term investments
7)Liability Unearned Revenue
6. Which one of the following accounts is closed at the end of an accounting period?
a. Retained Earnings account
b. Prepaid Insurance Account
c. Unearned Revenue account
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d. Insurance Expense account
7. The Winston Company buys and sells merchandise. They started the year accounts payable of $1,400
and inventory of $1,200. All accounts payable was for merchandise purchases. Accounts payable at
year end are $1,800 and ending inventory is $900. The cash paid for purchases was $8,500. The
COGS for the year is:
a. $9,200 b. $8,600 c. $8,500 d. $8,400 e. $7,800
Buy merchandize Pay for merchandize Sell Merchandize
Dr Inventory dr AP dr Accounts Receivable
Cr Accounts Payable cr Cash cr Sales Rev
Dr COGS (exp)
Cr Inventory
8. Bambi Inc started with retained earnings balance of $10,000. During the year, they made a loss of
$5,000 and paid dividends of $3,000. Bambi’s ending retained earnings balance was
a. $12,000 b. $18,000 c. $8,000 d. $6,000 e. $2,000
9. During the year, Bambi Inc made a loss of $5,000. Which of the following must be true?
a. If Bambi's Retained earnings decrease, then Bambi must have paid dividends
b. If Bambi's Retained earnings increase, then Bambi must have paid dividends
c. If Bambi's total Stockholder's Equity increases, then shareholders must have contributed
additional capital
d. If Bambi's total Stockholder's Equity decreases, then shareholders must have contributed
additional capital
e. None of the statements above is necessarily true
10. Beginning and ending balances for the year are as shown:
Begin End
Assets $200,000 $285,000
Liabilities 100,000 X+ 120 = 285
Equity 100,000 + 30 -10 120,000
The net income for the year was $30,000, dividends of $10,000 were declared and $5,000 of
dividends were paid. The stockholders contributed $65,000 during the year. The total liabilities at the
end of the year were:
a. $100,000 b. $165,000 c. $190,000 d. $195,000
e. None of the answers a -d
11. The Smith Daughters, Inc. started and ended the year with unearned revenue account balances of
$500,000 and $485,000. Smith Daughters collects all payments in advance of service. The company
earned $2,000,000 of revenue from customers. How much cash did the company collect as advances
from customers during the year?
a. $2,000,000 b. $2,015,000 c. $1,985,000 d.$2,515,000
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12. Logan Company debited Prepaid Insurance for $840 on July 1, 2008 for a one-year fire insurance
policy. If the company prepares monthly financial statements, failure to make an adjusting entry on
July 31 for the amount of insurance that has expired would cause
a. assets to be overstated by $840 and expenses to be understated by $840.
b. expenses to be overstated by $70 and assets to be understated by $70.
c. assets to be overstated by $70 and expenses to be understated by $70.
d. expenses to be overstated by $840 and assets to be understated by $840.
13. Macy’s Inc. recorded sales of $8,000 in December and gave discounts of $300 to the customer.
During December, $500 of purchased merchandize was returned. The delivery costs for
December was $100 all paid by Macy’s. The net sales for December are:
a. $7,500
b. $7,400
c. $7,200
d. $7,100
e. None of the amounts above
15. A customer bought goods for $500 from DKNZ stores. The goods cost $300. The next day, the
customer returned the goods. The return of goods would lead to a journal entry parts of which
would be:
a. A credit to inventory of $500 and a debit to sales of $300
b. A debit to inventory of $300 and a debit to sales of $500
c. A credit to inventory of $300 and a debit to sales of $500
d. A debit to inventory of $500 and a credit to sales of $300.
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16. Trial Balance for Namibia Company quarter ending December 31
From Trial Adjusted Trial
Account Title Balance Adjustments Balance
Debit Credit Debit Credit Debit Credit
Cash $12,740 900+5000 18,640
Accounts Receivable 2,800 2,800
Prepaid Rent 2,100 900 1,200
Inventory 1,900 800 2700
Automobile equipment 18,000 18,000
Accumulated depreciation—
Automobile equipment $1,300 300 1,600
Accounts Payable 2,700 800 3500
Notes Payable 10,000 10,000
Interest Payable 300 300
Salaries Payable 6000 6000
Unearned Revenue 4,460 700 5000 8,760
Common Stock 7,200 7,200
1140 +
Retained Earnings ? =1140 5980
Dividends 3,200 3,200
Sales Revenue 18,000 900+700 19,600
Sales Returns and allowances 500 500
COGS 1,000 1,000
Salaries Expense 2,060 6000 8,060
Rent Expense 500 900 1,400
Depreciation Expense— Automobile
Equipment 300 300
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Interest Expense 300 300
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The Following Adjusting Entries need to be recorded
1. Earned $900 of service revenues in cash
2. The Prepaid rent represents 7 months of rent. The rent was prepaid on October 1
3. Cash of $5,000 was collected during the quarter for services to be delivered later
4. Unearned Revenue of $700 was earned during the quarter but not recorded
5. The last wage payment was on December 28. Wages amount to $10,000 for every 5-day week
2000/day 3 days
6. On December 31, it was discovered that an invoice for inventory purchase dated December 10
for the amount of $800 was not recorded and has to be adjusted
6. Depreciation Expense for the quarter was $300.
7. The interest on a one year Note of $10,000 carrying interest of 12% was not recorded -1200 for
year 300 for 1 quarter
Begin Retained EARNINGS 1,140 to make trial balance Balance
A. Calculate the Net income for the quarter Cr 8060 (last 8 lines of the adjusted trial balance)
B. Calculate the ending retained earnings balance for the year
BB +NI – Div = 1140 + 8040 -3200 = 5980
Notes:
Step 1 – Fill in the number to make the trial balance add up
Step 2 – Perform Adjustments
Step 3 – Close revenue expense and dividends to retained earnings.
The numbers that are struck out in this solution are the numbers that are closed.
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