MidtermSolutionAutumn10_B_

MidtermSolutionAutumn10_B_ -...

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Unformatted text preview: F<———_—_—_——_ / Exam 1 MS&E 140/240 Fall 2010 100 Points ( Ques ons 1-28 at 3 points each and quetion 29 at 16 points) MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Assets amount to $20,000 at the beginning of the period and $25,000 at the end of the period. 1) g Liabilities amount to $12,000 at the beginning of the period and $10,000 at the end of the period. W What is the amount of the change and the direction of the change in owners' equity for the period? A Increase of $5,000 ' fl crease of $7,000 C) Increase of $2,000 D) Decrease of $2,000 E) Decrease of $7,000 2) Scone Industries acquired a gold mine for $8,000,000. It is estimated that 40,000 ounces of gold can 2) be extracted from the mine. In the first year of operations, 15,000 ounces of gold were extracted. Scone Industries would recognize A) amortization expense of $3,000,000. B) depreciation expense of $3,000,000. an increase in net incOme of $3,000,000. édepletion expense of $3,000,000. E) cost of goods sold of $3,000,000. 3) Sency Karate Company’s January 1, 2009, balance sheet showed total assets of $500,000, total 3) liabilities of $400,000, and total stockholders' equity of $100,000. There were no beginning retained earnings. During the month of January, Sency Karate Company earned revenues of $120,000 and incurred expenses of $30,000. No other transactions occurred. What amount did Sency Karate Company's stockholders' equity account increase by in January? A) $100,000 ‘ 90,000 C) $190,000 D) $70,000 E) $120,000 4) Those shares which have been sold to outside investors at one time or another are known as 4) A) treasury shares. @issued shares. C) outstanding shares. D) authorized shares. E) preferred shares. 5) Harrington, Inc, acquired equipment for $19,000. Harrington, Inc” paid $6,000 in rack, with the 5) balance due on a note. The effect of this transaction on Harrington, Inc., would be to @increase the equipment account by $19,000, decrease the cash account by $6,000 and increase the notes payable account by $13,000. B) increase the equipment account by $19,000, and increase the notes payable account by $6,000. C) increase the equipment account b y $19,000, decrease the cash account by $6,000, and decrease the notes receivable by $13,000. D) increase the equipment account by $6,000, decrease the the notes payable account by $13,000. E) increase the equipment account by $6,000, and decrease the cash account by $6,000. cash account by $6,000, and increase B-l 6) Bold Company buys Weak Compan and liabilities of $2 million. Weak' should Bold Company record? A) $2 million B $10 million $4 million D) $0 million E) $8 million y for $11 million. Weak Companywhas assets worth $9 million s stockholders‘ equity is recorded at $8 million. What goodwill 7) Alfano Industries sold inventory costing $300 for $500 on account. If Alfano Industries operates under the accrual basis, what effect will this transaction have on the owners' equity side of the balance sheet? A) Decrease owners' equity by $300 None, since sales and/or cost of goods sold are income statement accounts crease owners' equity by $200 D) None, since the customer to whom the inventory was sold has not yet paid E) Increase owners' equity by $800 8) The entry to record the cash payment of salaries that had previously been accrued has what effect on the basic accounting equation? A) Decrease assets, increase stockholders equity Decrease liabilities, decrease assets C) Decrease liabilities, decrease stockholders‘ equity D) Decrease assets, increase liabilities E) Decrease assets, decrease stockholders' equity 9) Which of the following circumstances would result in a decrease in income under the accrual basis but would not result in a decrease in income under the cash basis? A) Payment of 2 months' rent in advance @l’he expiration of prepaid rent C) The return of defective inventory purchased on account, D) The payment of the current period's utility bill E) Purchase of inventory on account where full credit was given 10) Deborah Westerfelt owns 3,000 shares of $2.00 par value capital stock of Abron Enterprises. Deborah Westerfelt sold 500 of these shares to Brian Tondra for $2,500. The effect of this transaction on the accounts of Abron Enterprises would be to There is no effect from this transaction on the accounts of Abron Enterprises. B) increase the capital stock account by $1,000, increase the paid account by $1,500, and increase the cash account by $2,500. C) decrease the capital stock account by $1,000 and increase the account by $1,000. D) increase the capital stock account b account by $1,000. E) increase the capital stock account by $1,000 and increase the cash account by $1,000. —in capital in excess of par paid-in capital in excess of par y $1,000 and decrease the paid—in capital in excess of par QC _..<.. M”...— 8) ’ 11) If ending inventory is understated by $7,000 in 20x9, and assuming aflepnstant 30% tax rate, then 11) 8 what will be the effect on gross profit in 20x9? A) 20x9 gross profit will be understated by $4,900. ® 20x9 gross profit will be understated by $7,000. C) 20x9 gross profit will be understated by $2,100. D) 20x9 gross profit will be overstated by $4,900. E) 20x9 gross profit will be overstated by $7,000. 12) Treating a capital expenditure as repairs and maintenance expense 12) A) overstates assets and overstates revenue. B understates expenses and overstates owners’ equity. @verstates expenses and understates net income. D) understates expenses and understates assets. E) overstates assets and overstates owners‘ equity. 13) When inventory prices are rising, the FIFO method will generally yield a gross profit that is 13) A) FIFO does not generally cause a gross profit that is different from that of any other costing method. B equal to the gross profit of the LIFO method. 'gher than the LIFO method. D) less than the LIFO method. E) All of the above are correct. Table 10-2 Musso Company began operations on January 1, 20x9. The company has the following items included in the stockholders' equity section of its balance sheet. 8% Preferred Stock, $100 par, 100,000 shares authorized, 25,000 shares issued and outstanding $2,500,000 Common Stock, $3 par, 500,000 shares authorized; 150,000 shares issued and outstanding . 450,000 Additional paid—in capital 2,250,000 Total dividends declared and paid were during 20x9 $170,000 during 2X10 210,000 during 2X1 1 240,000 14) Referring to Table 10—2, if Musso Company's preferred stock were noncumulative, how much of 14) the 2X10 dividends would have been distributed to referred Stock Common Stock $200,000 $ 10,000 B) Preferred Stock Common Stock $100,962 $109,038 C) Preferred Stock Common Stock $110,526 $ 99,474 D) Preferred Stock Comm $210,000 $ 0 E) Preferred Stock Common Stock $ 2,000 $208,000 r Table 8—2 . Vanadia Company acquired a $40,000 machine on January 1, 20x9. The machinewis estimated to have a useful life of 5 years, and a residual value of $4,000. For unit depreciation purposes, the machine is expected to produce 500,000 units. 15) Referring to Table 8—2, if Vanadia Company uses double-declining—balance depreciation, what is 15) 2 the depreciation expense in 20x9? A) $14,400 B) $17,600 C) $25,000 16,000 E) $27,776 16) Referring to Table 8—2, if Vanadia Company uses straight—line depreciation, what is the balance in 16) Z S th ccumulated depreciation account on January 1, 2X11? $14,400 B) $24,000 C) $17,600 D) $21,600 E) $16,000 C M“— 17) The adjusting entry to recognize periodic depreciation has what effect on the basic accounting 17) equation? A) Decrease in assets, increase in liabilities B Decrease in assets, decrease in liabilities ecrease in assets, decrease in stockholders' equity ) Decrease in assets, increase in stockholders' equity E) None of these 18) Wallings Company had sales during May 20x9 of $29,000. During the month, the company had 18) A purchases of $17,000. At May 1, 20x9, the company had inventory of $4,500. Assuming the company has a gross profit percentage of 40%, what is the estimated ending inventory for Wallings Company at May 31, 20x9? 4,100 B) $ 4,900 C) $ 9,900 D) $ 7,500 E) s 7,300 19) Which one of the following adjustments will increase revenues? 19) C A) Interest is incurred on borrowed money, but not yet paid to the bank. B) Wages have accrued, but will not be paid until next month. @Fees were not billed for services already performed. D) Supplies were used, but not recorded. E) Depreciation is recorded. B-4 Table 7—3 ‘73 Alton Company had the following activity in its inventory account during April 20x9. Cost per Date Activity Units Unit Cost Total April 1 Beginning inventory 100 $3.00 $300 April 3 Purchase 40 3.10 124 April 7 Sale 50 April 12 Purchase 50 3.20 160 April 16 Sale 70 April 23 Sale 40 April 30 Purchase 60 3.30 198 Units in beginning inventory 100 units Units purchased 150 units Units sold 160 units 20) Referring to Table 743, what is the ending inventory balance at April 30, 20x9, for Alton Company 20) if the company uses periodic LIFO as its inventory valuation me u - u ? A) $240 B) $438 C) $288 270 E) $300 g 21) A preemptive right is 21) A) the right of stockholders to fire and replace the board of directors. e right of stockholders to acquire a proportional amount of any new issues of common stock. C) the right of the corporation to enter into legally binding contracts without the direct approval of the shareholders. D) the right of stockholders to supersede the actions of top management. E) the right of top management to act on behalf of the stockholders. 22) Given the following data, what is cost of goods sold? . W 22) ' é & Sales revenue $10,000 3 CBC/Z; , Beginning inventory 3,000 Ending inventory 7,000 Purchases of inventory ‘ 5,000 1,000 B) a 9,000 C) $ 8,000 D) 0 7,000 E) $12,000 23) Which of the following circumstances would result in a decrease in income under both the accrual 23) l i and cash basis? ,) The payment of last period1s utilities e payment of this period's utilities C) The cash purchase of inventory D) The purchase of inventory on account E) The payment of next period's utilities B-5 24) Dilardo Manufach began operations on June 1, 2X09. The comparly authorized 10,000 shares of $1 par value common stock. Dilardo Manufacturing sold 10,000 shares of common stock for $5 per share on June 2, 2X09. On August 15, 2X09, Dilardo Manufacturing repurchased 1/2 of the outstanding common stock for $6 per share. On August 31, 2X09, Dilardo Manufacturing sold 1,000 of the treasury stock and declared a three—for—one stock split. After the split A) total stockholders' equity decreased. B assets and liabilities increased. total stockholders' equity remained the same. D) total stockholders‘ equity increased. E) assets and liabilities decreased. 25) Given the following complete list of balances, what will be the total credits in the trial balance, assuming no errors exist in the accounts? 1. Retained Earnings $ 28,000 2. Merchandise Inventory 9,000 3. Accumulated Depreciation 5,000 4. Sales 42,000 5. Selling Expenses 1 1,000 6. Accounts Receivable $ 7,000 7. Cost of Goods Sold 22,000 8. Accounts Payable ? 9. Cash 5,000 10. Equipment 33,000 Note: The accounts payable records were damaged by a flood, and the company is not certain what the correct balance should be. 87,000 B) $69,000 C) $58,000 D) $72,000 E) Due to the damage of the accounts payable records, it is impossible to determine the amount of the total credits on the trial balance. 26) Which of the following accounts are expected to have a credit balance? 1. Cash 2. Salary Expense 3. Retained Earnings 4. Accumulated Depreciation 5. Sales 6. Prepaid Rent 7. accounts Payable yéketained Earnings, Accumulated Depreciation, Sales, Accounts Payable B) Cash, Retained Earnings, Sales C) Cash, Retained Earnings, Accumulated Depreciation, Prepaid Rent, Accounts Payable D) Cash, Salary Expense, Prepaid Rent E) Salary Expense, Accounts Payable, Accumulated Depreciation B—6 g; 24) 25) ML 27) What type of account is the Treasury stock and Additionai paid—in gapitai? 27) A) Treasury stock Additicmal mid—in capital stockholders' equity contra stockholders’ equity B) Treasum stock Additional mid—in capital comen stock retained earnings C) Treaszgy stock Additional mid-in capital} common stock contra stockholders” equity D) Treagg stock Additional paid-in capital retained earnings retained earnings ( treasth stock Additional Eyck-in capital contra stockholders’ equity stockhoiders" equity 28) In a transaction where the merchandise invoice indicates F .O.B. shipping point, who pays the cost 28) of shipping? A) The common carrier B The freight forwarder e buyer . The seller E) None of the above Following is the balance sheet for Evans Manufacturing as of May 31, 20x9: Evans Manufacturing tr» Balance Sheet May 31, 20x9 Assets Liabilities Cash $ 7,100 Accounts Payable Accounts Receivable 4,000 Notes Payable Merchandise Inventory 13,500 Total Liab. and Stockholders'Equity Prepaid Rent 3,300 Paid—in Capital Store Equipment 15.600 Retained Earnings Total Stockholders equity Total Assets Total Liab. and Stockholders' Equity The following transactions occurred during June: 1. The company paid $2,100 of the accounts payable. 2. The company acquired $3,500 of merchandise inventory, paying 40% in cash and the remainder on open account. 3. The utility bill of $600 for the month of June was paid. &. The company received $2,200 from its credit customers. 5. Sales of merchandise inventory for the month of June totaled $12,900, of which $5,400 was paid in cash and the remaining amount was on open account. The cost of the merchandise sold was $8,100. 6. The company paid $1,600 of the note payable. Ignore interest expense. 7. Depreciation on the store equipment was $600 for the month. 3. Additional store equipment of $1,700 was acquired. Of this amount, $700 was paid in cash and the wmainder was added to the note payable balance. 'l. The balance in the prepaid rent account represented 3 months’ worth of rent (May, June, July) paid in :dvunce on May 01,20X9. Prepare an income statement for the month ended May 31, 20x9. 5') 6,200 3,300 14,500 $17,600 £3.01.) M m ...
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