S06_136a_mt1

S06_136a_mt1 - April 26, 2006 Anderson ECON 136A 8AM CLASS...

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April 26, 2006 Anderson ECON 136A 8AM CLASS Midterm #1 Name _________________________ TURN THIS EXAM IN WITH YOUR NAME ON IT! Complete multiple choice (#1-25) on your scantron and the rest in your blue-books. 1. If you pay 12 months of an insurance policy on April 1 for $240,000 and record the following journal entry: Insurance expense $240,000 Cash $240,000 The journal entry required at the end of the year would: a. Debit prepaid insurance for $20,000 and credit insurance expense for the same amount. b. Credit insurance expense for 60,000 and debit prepaid insurance for the same amount. c. Have no impact on insurance expense, but increase prepaid insurance by $60,000. d. Have no impact on prepaid insurance, but increase insurance expense by $60,000 2. The statement below which best states the intent of the "matching principle" is: a. Record expenses when they have been earned. b. Record revenues when they have been earned. c. Let the expense follow the revenue. d. Opposites attract. 3. Another term for the balance sheet is: a. Statement of sources and uses of cash b. Statement of activity for the period c. Statement of financial position d. I have no idea 4. Forbes Company paid $7,200 on June 1, 2004 for a two-year insurance policy and recorded the entire amount as Insurance Expense. The December 31, 2004 adjusting entry is a. debit Insurance Expense and credit Prepaid Insurance, $2,100. b. debit Insurance Expense and credit Prepaid Insurance, $5,100. c. debit Prepaid Insurance and credit Insurance Expense, $2,100 d. debit Prepaid Insurance and credit Insurance Expense, $5,100. 5. If the inventory account at the end of the year is understated, the effect will be to a. overstate the gross profit on sales. b. understate the net purchases. c. overstate the cost of goods sold. d. overstate the goods available for sale.
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Midterm #1--Page 2 6. Management discovers that a large account receivable is no longer probable of collection and needs to increase the allowance for doubtful accounts as a result. There was no indication that collection of this balance would be a problem as of the end of the prior year. a. The above facts represent a change in accounting estimate and should be presented on a current and forward basis, net of tax, on the income statement. b. The above facts represent a change in accounting estimate and should be presented as an adjustment to retained earnings, on a net of tax basis. c. The above facts represent a change in accounting estimate and should be presented on a current and forward basis. d. None of the above. 7. The following is an example of a limitation of an income statement prepared under generally accepted accounting principles: a. It relies in part upon estimates made by management and which consequently impacts the "quality" of earnings; b. If the statement of cash flows is ignored, then the income statement may reflect what is referred to as "paper income"; c. An income statement is transaction-based, and consequently,
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S06_136a_mt1 - April 26, 2006 Anderson ECON 136A 8AM CLASS...

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