Midterm 1 Practice PDF

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Midterm 1 Practice Student: ___________________________________________________________________________ 1. Which statement below best describes the accounting equation? A. The change in retained earnings equals net income less dividends. B. Equality of revenue and expense transactions over time. C. Resources of the company equal creditors' and owners' claims to those resources. D. Financing activities equal investing and operating activities.

2. Transactions related to the primary business activities of the company, such as selling goods and services to customers, are referred to as: A. Investing activities. B. Management activities. C. Operating activities. D. Financing activities.

3. If a company has stockholders' equity of $60,000 at the end of the year, which of the following statements must be true? A. The company's assets exceed liabilities by $60,000. B. The company has issued $60,000 of common stock. C. Net income for the year equals $60,000. D. Total revenues earned during the year equal $60,000.

4. Sooner Company has had a net income of $8,000, $5,000, $12,000, and $10,000 over the first four years of the company's existence. If the average annual amount of dividends paid over the last four years is $3,000, what is the ending retained earnings balance? A. $47,000. B. $35,000. C. $23,000. D. $7,000.

5. Nina Corp. had the following net income (loss) the first three years of operation: $7,100, ($1,600), and $3,600. If the Retained Earnings balance at the end of year three is $1,100, what was the total amount of dividends paid over these three years? A. $500. B. $0. C. $9,100. D. $8,000.

6. DW has an ending Retained Earnings balance of $51,100. If during the year DW paid dividends of $4,300 and had net income of $22,500, then what was the beginning Retained Earnings balance? A. $24,300. B. $300. C. $32,900. D. $69,300.

7. For the past five years, Mookie Consulting Services reported the following annual net income and dividend amounts:

If Mookie had Retained Earnings of $88,000 at the end of year 5, what was the company's Retained Earnings at the beginning of Year 1? A. $13,000. B. $25,000. C. $7,000. D. $1,000.

8. How many of the following transactions are operating activities? Borrowed $50,000 from the bank Purchased $12,000 in supplies Provide services to customers for $27,000 Paid the utility bill of $750 Purchased a delivery truck for $12,000 Received $25,000 from issuing common stock A. One. B. Two. C. Three. D. Four.

9. Which of the following is the correct order for preparing the financial statements? A. Balance sheet, statement of stockholders' equity, and income statement. B. Balance sheet, income statement, and statement of stockholders' equity. C. Statement of stockholders' equity, income statement, and balance sheet. D. Income statement, statement of stockholders' equity, and balance sheet.

10. Given the information below about Thomas Corporation, what was the amount of dividends the company paid in the current period?

A. $13,000. B. $110,000. C. $28,000. D. $18,000.

11. Which financial statement reports a company's retained earnings? A. Income statement. B. Balance sheet. C. Statement of cash flows. D. All of the above.

12. Receiving cash from an account receivable: A. Increases a revenue and decreases an asset. B. Decreases a liability and increases an asset. C. Increases an asset and increases a revenue. D. Increases one asset and decreases another asset.

13. If a company provides services on account, which of the following is true? A. Expenses increase. B. Liabilities increase. C. Stockholders' equity increases. D. Assets decrease.

14. Following are transactions of Gotebo Tanners, Inc., a new company, during the month of January 2012: 1. Issued 10,000 shares of common stock for $15,000 cash. 2. Purchased land for $12,000, signing a note payable for the full amount. 3. Purchased office equipment for $1,200 cash. 4. Received cash of $14,000 for services provided to customers during the month. 5. Purchased $300 of office supplies on account. 6. Paid employees $10,000 for their first month's salaries. What was the total amount of Gotebo's liabilities following these six transactions? A. $12,300. B. $27,300. C. $22,600. D. $15,500.

15. Following are transactions of Gotebo Tanners, Inc., a new company, during the month of January 2012: 1. Issued 10,000 shares of common stock for $15,000 cash. 2. Purchased land for $12,000, signing a note payable for the full amount. 3. Purchased office equipment for $1,200 cash. 4. Received cash of $14,000 for services provided to customers during the month. 5. Purchased $300 of office supplies on account. 6. Paid employees $10,000 for their first month's salaries. How many of these transactions increased Gotebo's liabilities? A. Four. B. Three. C. Two. D. One.

16. Which of the following is possible for a particular business transaction? A. Increase assets; Decrease liabilities B. Decrease assets; Increase assets C. Decrease assets; Increase stockholders' equity D. Decrease liabilities; Increase expenses

17. When the balance of the Unearned Revenue account decreases during an accounting period: A. Accrual-basis revenues exceed cash collections from customers. B. Accrual-basis expenses exceed cash collections from customers. C. Accrual-basis revenues are less than cash collections from customers. D. Accrual-basis net income is less than cash-basis net income.

18. Frosty Inc. has the following balances on December 31 prior to closing entries:

Based upon the balances above, what net adjustment would be made to Retained Earnings due to closing entries? A. Increase of $11,000. B. Increase of $13,000. C. Increase of $12,000. D. Increase of $14,000.

19. Eve's Apples opened for business on January 1, 2012, and paid for two insurance policies effective that date. The liability policy was $36,000 for eighteen-months, and the crop damage policy was $12,000 for a two-year term. What was the balance in Eve's Prepaid Insurance account as of December 31, 2012? A. $9,000. B. $18,000. C. $30,000. D. $48,000.

20. The ending Retained Earnings balance of Juan's Mexican Restaurant chain increased by $3.2 million from the beginning of the year. The company declared a dividend of $1.3 million during the year. What was the net income earned during the year? A. $1.9 million B. $3.2 million C. $4.5 million D. $1.3 million

21. McGregor Company allows customers to pay with credit cards. The credit card company charges McGregor 3% of the sale. When a customer uses a credit card to pay McGregor $200 for services provided, McGregor would: A. Debit Cash for $200. B. Credit Service Revenue for $194. C. Debit Service Fee Expense for $6. D. Credit Service Revenue for $206.

22. The following information was taken from the bank reconciliation for Mooner Sooner Inc. at the end of 2012: Bank balance: $8,000 Checks outstanding: $5,800 Note collected by the bank: $1,500 Service fee: $20 Deposits outstanding: $4,000 NSF check (bad check) returned for $300 What is the correct cash balance that should be reported in Mooner Sooner's balance sheet at the end of 2012? A. $10,200. B. $7,400. C. $6,200. D. $6,160.

23. The following data were obtained from the bank statement and from the process of reconciling it: Bank service charges = $20 Deposit outstanding = $150 Interest earned on the bank account = $10 Checks outstanding = $400 Which items should be deducted from and added to the bank balance in completing the reconciliation? A. Deduct checks outstanding; add service charges and deposit outstanding. B. Deduct interest earned; add deposit outstanding. C. Deduct checks outstanding; add deposit outstanding. D. Deduct deposit outstanding; add checks outstanding.

24. When preparing a bank reconciliation, a deposit outstanding would be: A. Added to the company's cash balance. B. Added to the bank's cash balance. C. Subtracted from the company's cash balance. D. Subtracted from the bank's cash balance.

25. Indicate whether the firm should add or subtract each item below from its balance of cash or the bank's balance of cash in preparing a bank reconciliation.

Midterm 1 Practice Key

1. Which statement below best describes the accounting equation? A. The change in retained earnings equals net income less dividends. B. Equality of revenue and expense transactions over time. C. Resources of the company equal creditors' and owners' claims to those resources. D. Financing activities equal investing and operating activities. Assets = Liabilities + Stockholders' Equity.

AACSB: Reflective Thinking AICPA: Reporting Blooms: Comprehension Difficulty: Hard Learning Objective: 01-02 Identify the three fundamental business activities that financial accounting measures. Spiceland - Chapter 01 #9

2. Transactions related to the primary business activities of the company, such as selling goods and services to customers, are referred to as: A. Investing activities. B. Management activities. C. Operating activities. D. Financing activities.

AACSB: Reflective Thinking AICPA: Reporting Blooms: Knowledge Difficulty: Easy Learning Objective: 01-02 Identify the three fundamental business activities that financial accounting measures. Spiceland - Chapter 01 #15

3. If a company has stockholders' equity of $60,000 at the end of the year, which of the following statements must be true? A. The company's assets exceed liabilities by $60,000. B. The company has issued $60,000 of common stock. C. Net income for the year equals $60,000. D. Total revenues earned during the year equal $60,000. Assets - Liabilities = Stockholders' Equity.

AACSB: Analytic AICPA: Reporting Blooms: Application Difficulty: Hard Learning Objective: 01-02 Identify the three fundamental business activities that financial accounting measures. Spiceland - Chapter 01 #10

4. Sooner Company has had a net income of $8,000, $5,000, $12,000, and $10,000 over the first four years of the company's existence. If the average annual amount of dividends paid over the last four years is $3,000, what is the ending retained earnings balance? A. $47,000. B. $35,000. C. $23,000. D. $7,000. Beginning Retained Earnings ($0) + Net Income ($8,000 + $5,000 + $12,000 + $10,000) - Dividends ($3,000 * 4) = Ending Retained Earnings.

AACSB: Analytic AICPA: Measurement Blooms: Analysis Difficulty: Hard Learning Objective: 01-03 Discuss how financial accounting information is communicated through financial statements. Spiceland - Chapter 01 #38

5. Nina Corp. had the following net income (loss) the first three years of operation: $7,100, ($1,600), and $3,600. If the Retained Earnings balance at the end of year three is $1,100, what was the total amount of dividends paid over these three years? A. $500. B. $0. C. $9,100. D. $8,000. Beginning Retained Earnings ($0) + Net Income ($7,100 - $1,600 + $3,600) - Dividends = Ending Retained Earnings ($1,100).

AACSB: Analytic AICPA: Reporting Blooms: Analysis Difficulty: Hard Learning Objective: 01-03 Discuss how financial accounting information is communicated through financial statements. Spiceland - Chapter 01 #49

6. DW has an ending Retained Earnings balance of $51,100. If during the year DW paid dividends of $4,300 and had net income of $22,500, then what was the beginning Retained Earnings balance? A. $24,300. B. $300. C. $32,900. D. $69,300. Beginning Retained Earnings + Net Income ($22,500) - Dividends ($4,300) = Ending Retained Earnings ($51,100).

AACSB: Analytic AICPA: Measurement Blooms: Analysis Difficulty: Hard Learning Objective: 01-03 Discuss how financial accounting information is communicated through financial statements. Spiceland - Chapter 01 #52

7. For the past five years, Mookie Consulting Services reported the following annual net income and dividend amounts:

If Mookie had Retained Earnings of $88,000 at the end of year 5, what was the company's Retained Earnings at the beginning of Year 1? A. $13,000. B. $25,000. C. $7,000. D. $1,000. Beginning retained earnings = ending retained earnings ($88,000) - total net income ($87,000) + total dividends ($12,000).

AACSB: Analytic AICPA: Measurement Blooms: Analysis Difficulty: Hard Learning Objective: 01-03 Discuss how financial accounting information is communicated through financial statements. Spiceland - Chapter 01 #65

8. How many of the following transactions are operating activities? Borrowed $50,000 from the bank Purchased $12,000 in supplies Provide services to customers for $27,000 Paid the utility bill of $750 Purchased a delivery truck for $12,000 Received $25,000 from issuing common stock A. One. B. Two. C. Three. D. Four. (1) Purchased supplies, (2) Provided services to customers, and (3) Paid utility bill.

AACSB: Reflective Thinking AICPA: Reporting Blooms: Application Difficulty: Medium Learning Objective: 01-02 Identify the three fundamental business activities that financial accounting measures. Spiceland - Chapter 01 #34

9. Which of the following is the correct order for preparing the financial statements? A. Balance sheet, statement of stockholders' equity, and income statement. B. Balance sheet, income statement, and statement of stockholders' equity. C. Statement of stockholders' equity, income statement, and balance sheet. D. Income statement, statement of stockholders' equity, and balance sheet.

AACSB: Reflective Thinking AICPA: Reporting Blooms: Comprehension Difficulty: Medium Learning Objective: 01-03 Discuss how financial accounting information is communicated through financial statements. Spiceland - Chapter 01 #42

10. Given the information below about Thomas Corporation, what was the amount of dividends the company paid in the current period?

A. $13,000. B. $110,000. C. $28,000. D. $18,000. Beginning Retained Earnings ($54,000) + Net Income ($84,000) - Dividends = Ending Retained Earnings ($110,000).

AACSB: Analytic AICPA: Measurement Blooms: Analysis Difficulty: Medium Learning Objective: 01-03 Discuss how financial accounting information is communicated through financial statements. Spiceland - Chapter 01 #56

11. Which financial statement reports a company's retained earnings? A. Income statement. B. Balance sheet. C. Statement of cash flows. D. All of the above.

AACSB: Reflective Thinking AICPA: Reporting Blooms: Knowledge Difficulty: Medium Learning Objective: 01-03 Discuss how financial accounting information is communicated through financial statements. Spiceland - Chapter 01 #70

12. Receiving cash from an account receivable: A. Increases a revenue and decreases an asset. B. Decreases a liability and increases an asset. C. Increases an asset and increases a revenue. D. Increases one asset and decreases another asset.

AACSB: Reflective Thinking AICPA: Reporting Blooms: Application Difficulty: Medium Learning Objective: 02-02 Analyze the impact of external transactions on the accounting equation. Spiceland - Chapter 02 #15

13. If a company provides services on account, which of the following is true? A. Expenses increase. B. Liabilities increase. C. Stockholders' equity increases. D. Assets decrease.

AACSB: Reflective Thinking AICPA: Reporting Blooms: Application Difficulty: Medium Learning Objective: 02-02 Analyze the impact of external transactions on the accounting equation. Spiceland - Chapter 02 #24

14. Following are transactions of Gotebo Tanners, Inc., a new company, during the month of January 2012: 1. Issued 10,000 shares of common stock for $15,000 cash. 2. Purchased land for $12,000, signing a note payable for the full amount. 3. Purchased office equipment for $1,200 cash. 4. Received cash of $14,000 for services provided to customers during the month. 5. Purchased $300 of office supplies on account. 6. Paid employees $10,000 for their first month's salaries. What was the total amount of Gotebo's liabilities following these six transactions? A. $12,300. B. $27,300. C. $22,600. D. $15,500. Liabilities = ($12,000 + $300) = $12,300.

AACSB: Analytic AICPA: Reporting Blooms: Analysis Difficulty: Medium Learning Objective: 02-02 Analyze the impact of external transactions on the accounting equation. Spiceland - Chapter 02 #34

15. Following are transactions of Gotebo Tanners, Inc., a new company, during the month of January 2012: 1. Issued 10,000 shares of common stock for $15,000 cash. 2. Purchased land for $12,000, signing a note payable for the full amount. 3. Purchased office equipment for $1,200 cash. 4. Received cash of $14,000 for services provided to customers during the month. 5. Purchased $300 of office supplies on account. 6. Paid employees $10,000 for their first month's salaries. How many of these transactions increased Gotebo's liabilities? A. Four. B. Three. C. Two. D. One. Transactions #2 and #5.

AACSB: Reflective Thinking AICPA: Reporting Blooms: Application Difficulty: Medium Learning Objective: 02-02 Analyze the impact of external transactions on the accounting equation. Spiceland - Chapter 02 #36

16. Which of the following is possible for a particular business transaction? A. Increase assets; Decrease liabilities B. Decrease assets; Increase assets C. Decrease assets; Increase stockholders' equity D. Decrease liabilities; Increase expenses

AACSB: Reflective Thinking AICPA: Measurement Blooms: Application Difficulty: Medium Learning Objective: 02-02 Analyze the impact of external transactions on the accounting equation. Spiceland - Chapter 02 #43

17. When the balance of the Unearned Revenue account decreases during an accounting period: A. Accrual-basis revenues exceed cash collections from customers. B. Accrual-basis expenses exceed cash collections from customers. C. Accrual-basis revenues are less than cash collections from customers. D. Accrual-basis net income is less than cash-basis net income. A decrease in revenue collected in advance (Unearned Revenue) means that services were provided without a related cash collection, making revenues earned greater than cash collected.

AACSB: Reflective Thinking AICPA: Measurement Blooms: Application Difficulty: Hard Learning Objective: 03-02 Distinguish between accrual-basis and cash-basis accounting. Spiceland - Chapter 03 #9

18. Frosty Inc. has the following balances on December 31 prior to closing entries:

Based upon the balances above, what net adjustment would be made to Retained Earnings due to closing entries? A. Increase of $11,000. B. Increase of $13,000. C. Increase of $12,000. D. Increase of $14,000. Revenues ($35,000) - Expenses ($23,000) - Dividends ($1,000).

AACSB: Analytic AICPA: Measurement Blooms: Analysis Difficulty: Hard Learning Objective: 03-07 Post closing entries and prepare a post-closing trial balance. Spiceland - Chapter 03 #82

19. Eve's Apples opened for business on January 1, 2012, and paid for two insurance policies effective that date. The liability policy was $36,000 for eighteen-months, and the crop damage policy was $12,000 for a two-year term. What was the balance in Eve's Prepaid Insurance account as of December 31, 2012? A. $9,000. B. $18,000. C. $30,000. D. $48,000. Prepaid liability insurance: $36,000  6/18 = $12,000. Prepaid crop insurance: $12,000  12/24 = $6,000

AACSB: Analytic AICPA: Measurement Blooms: Analysis Difficulty: Hard Learning Objective: 03-03 Demonstrate the purposes and recording of adjusting entries. Spiceland - Chapter 03 #50

20. The ending Retained Earnings balance of Juan's Mexican Restaurant chain increased by $3.2 million from the beginning of the year. The company declared a dividend of $1.3 million during the year. What was the net income earned during the year? A. $1.9 million B. $3.2 million C. $4.5 ...