Sample Midterm Exam I FALL 2009
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. If an increase in an expense is one side of a journal entry, the other side is an:
a. increases revenues.
b. increases assets.
c. decreases liabilities.
d. decreases stockholders’equity.
3. The right side of an account is always
a. the debit side.
b. the credit side.
c. the balance of that account.
d. carried forward to the next accounting period.
4. Posting is the process of
a. preparing a chart of accounts.
b. adding a column of figures.
c. transferring journal entries to ledger accounts.
d. recording entries in a journal.
5. 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. 6. Which one of the following accounts is not closed at the end of an accounting period?
a. Retained Earnings account
b. Dividends account
c. Service Revenue account
d. Insurance Expense account
7. Gross profit is calculated by subtracting
a. total expenses from total revenues.
b. cost of goods sold from net sales.
c. cost of goods sold from total revenues.
d. operating expenses from net sales.
8. A statement that financial statement information “is the responsibility of the company”
issuing the statements is found in the
A) footnotes to the financial statements.
B) loan contract.
C) management letter.
D) board of directors' report.
____ 9. A periodic inventory system
a. allows for the determination of cost of goods sold after each sale.
b. traditionally has been used with low unit-value items.
c. requires that detailed inventory records be kept.
d. requires the use of a cost of goods sold account.
____ 10. Expenses that relate to such activities as personnel management, accounting, and
store security generally should appear in a multiple-step income statement in the
a. Cost of Goods Sold section.
b. Administrative Expenses section.
c. Nonoperating section.
d. Selling Expenses section.
____ 11. Freight terms of FOB shipping point mean that the
a. buyer must bear the freight costs.
b. seller must debit freight out.
c. goods are placed free on board at the buyer's place of business.
d. seller must bear the freight costs.
____ 12. Which of the following accounts is not included in the computation of net sales?
a. Sales Discounts
c. Sales Returns and Allowances
d. Freight Out ____ 13. Given the following information, compute the amount of cash finally remitted by the
Oct. 22—Sale on credit, terms of 2/10, n/30—$3,000
Oct. 27—Allowance granted due to some items being damaged—$300
Oct. 31—Payment in full received from customer—$?
____ 14. The ending inventory of Larkin Company, which uses a periodic inventory system, was
understated $7,000 on December 31, 2007, and overstated $3,000 on December 31,
2008. Because of these errors, 2008 net income was
a. overstated $3,000.
b. overstated $10,000.
c. understated $4,000.
d. understated $10,000.
15/16 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.
Financial Statement Categories
a. Current assets
b. Long-term investments
c. Property, plant, and equipment
d. Intangible assets
e. Current liabilities
f. Long-term liabilities
g. Stockholders' equity
h. Not disclosed on the balance sheet
1) Accumulated depreciation
2) Accounts receivable
3) Patent purchased on market
4) Investment in bonds
5) Retained earnings
6) Short-term investments
7) Prepaid insurance
17. The Winston Company buys and sells merchandise. They started the year with inventory of
$1,200 and accounts payable of $1,400. All accounts payable were for merchandise
purchases. Accounts payable at year end are