3am2f06v1 - Econ. 3A Midterm 2 Fall 2006 Name: _ Tutor...

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Version 1 Page 1 Econ. 3A Midterm 2 Fall 2006 Name: __________________________ Tutor Name: ______________ Answers to the multiple-choice and true/false questions must be placed on a green scantron. For the true/false questions, answer “a” for true and “b” for false. Answers to all other questions are to be placed on the exam in the space provided. 1. Sales minus operating expenses equals gross profit. 2. Under a perpetual inventory system, the cost of goods sold is determined each time a sale occurs. 3. Morgan Company has just purchased equipment that requires annual payments of $20,000 to be paid at the end of each of the next 4 years. The appropriate discount rate is 15%. What is the present value of the payments? A) $80,000.00 B) $31,470.30 C) $72,095.60 D) $57,099.60 4. The Sales Returns and Allowances account and the Sales Discount account are both classified as expense accounts. 5. Closing entries result in the transfer of net income or net loss into the Retained Earnings account. 6. A series of equal periodic receipts or payments are called annuities. 7. The normal balance of Sales Returns and Allowances is a credit. 8. An adjusting entry always involves a balance sheet account and an income statement account. 9. The time period assumption states that the economic life of a business entity can be divided into artificial time periods. 10. The operating cycle of a merchandising company ordinarily is shorter than that of a service company. 11. The operating cycle involves the purchase and sale of merchandise inventory as well as the subsequent collection of cash from credit sales. 12. The matching principle requires that efforts be related to accomplishments. 13. If net sales are $750,000 and cost of goods sold is $600,000, the gross profit rate is 20%. 14. Asset prepayments become expenses when they expire. 15. An adjusting entry to a prepaid expense is required to recognize expired expenses. 16. Adjusting entries are recorded in the general journal but are not posted to the accounts in the general ledger. 17. If the single amount of $800 is to be received in 2 years and discounted at 11%, its present value is A) $649.30. B) $661.16. C) $727.28. D) $720.72. 18. Suppose you have a winning lottery ticket and you are given the option of accepting $1,000,000 three years from now or taking the present value of the $1,000,000 now. The sponsor of the prize uses a 5% discount rate. If you elect to receive the present value of the prize now, the amount you will receive is A) $839,620 B) $890,000 C) $1,000,000 D) $863,840 19. Sales revenues are only earned during the period cash is collected from the buyer. 20. An expense account is closed with a credit to the expense account and a debit to the Retained Earnings account.
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This note was uploaded on 06/09/2009 for the course ECON 3A taught by Professor Loster during the Winter '07 term at UCSB.

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3am2f06v1 - Econ. 3A Midterm 2 Fall 2006 Name: _ Tutor...

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