ACC1002X Mid-term Test 1 October 2011 Answers

NATIONAL UNIVERSITY OF SINGAPORE NUS BUSINESS SCHOOL DEPARTMENT OF ACCOUNTING ACC1002X FINANCIAL ACCOUNTING MID-TERM TEST Saturday 1 October 2011 Time Allowed: 1 hour ________________________________________________________________________ INSTRUCTIONS TO CANDIDATES 1.

This test paper consists of THIRTY (30) multiple-choice questions.

2.

Answer ALL questions by shading the letter representing the best answer on the computer scoring sheet using pencils. If you just mark on this question paper, your answers will not be marked.

3.

This is a close-book test. You are not allowed to bring in any materials other than pens, pencils, erasers and calculators.

4.

Make sure you write your name and your matriculation number below on both this question paper and the computer scoring sheet which must be submitted at the end of the test. If you provide us with a wrong matriculation number, you will receive zero for this test.

Name: Matriculation Number:

For Examiners’ Use Only:

Total

Marks / 30

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MCQ (1 mark per question, total 30 marks)

1. Which of the following statements is true about a sole proprietorship? A. The owner and the business are separate legal entities but not separate accounting entities. B. The owner and the business are separate accounting entities but not separate legal entities. C. the owner and the business are separate legal entities and separate accounting entities. D. most large businesses in this country are organized as sole proprietorships.

2. Which of the following items is an expense? A. Accounts Payable B. Cost of Goods Sold C. Accounts Receivable D. Sales Revenue

3. The ending retained earnings balance of Juan's Mexican Restaurant chain increased by $3.2 million from the beginning of the year. The company had 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. There is not enough information given to determine net income.

4. The term used for economic resources owned by an entity as a result of past transactions is A. assets. B. liabilities. C. revenues. D. retained earnings. …/

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5. What events cause changes in a corporation's retained earnings? A. Net income or net loss and declaration of dividends. B. Declaration of dividends and issuance of stock to new stockholders. C. Net income, issuance of stock, and borrowing from a bank. D. Declaration of dividends and purchase of new machinery.

6. A company would report a net loss when A. retained earnings decreased due to paying dividends to stockholders. B. its assets decreased during an accounting period. C. its liabilities increased during an accounting period. D. its expenses exceeded its revenues for an accounting period.

7. The financial statement that reports the financial position of a business is the A. income statement. B. balance sheet. C. statement of cash flows. D. footnotes to the financial statements.

8. Atlantic Corporation reported the following amounts at the end of the first year of operations: contributed capital $100,000; sales revenue $400,000; total assets $300,000; $20,000 dividends; and total liabilities $160,000. Retained earnings and total expenses would be A. retained earnings $40,000 and expenses $340,000. B. retained earnings $60,000 and expenses $320,000. C. retained earnings $140,000 and expenses $240,000. D. retained earnings $160,000 and expenses $220,000.

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9. Which of the following statements concerning the debit-credit feature of the accounting equation is correct? A. Debits are entered on the right and credits are entered on the left. B. A debit entry will decrease a liability account and increase an asset account. C. Stock sold to investors increases stockholders' equity and is recorded as a debit. D. A liability account should be credited upon payment of an account payable.

10. Sale of stock to investors for $300,000 cash would A. increase cash by a debit and increase contributed capital by a credit. B. increase cash by a credit and increase contributed capital by a debit. C. increase retained earnings by a debit and increase cash by a credit. D. increase cash by a debit and increase retained earnings by a credit.

11. Which of the following transactions will cause both the left and right side of the accounting equation to decrease? A. We collect cash from a customer who owed us money. B. We pay a supplier for inventory we previously bought on account. C. We borrow money from the bank. D. We purchase equipment for cash.

12. The collection of an account receivable from a customer would A. increase liabilities. B. decrease liabilities. C. not affect liabilities. D. decrease stockholders' equity.

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13. Which of the following transactions would cause retained earnings to increase? A. Collection of a customer's account. B. Loan from a bank. C. Sale of service to a customer. D. Wage costs owed to employees.

14. Stockholders' equity is A. probable debts or obligations of an entity as a result of past transactions which will be paid with assets or services. B. assets minus liabilities. C. probable future economic benefits owned by an entity as a result of past transactions. D. the financing provided by the creditors of a business.

15. The assumption that the assets and liabilities of the business are accounted for on the books of the company but not included in the records of the owner is the A. unit-of-measure assumption. B. continuity assumption. C. historical cost principle. D. separate entity assumption.

16. The following is the correct order for preparing the financial statements. A. Balance sheet, statement of retained earnings, income statement, and statement of cash flows. B. Statement of cash flows, balance sheet, statement of retained earnings, and income statement. C. Balance sheet, income statement, statement of retained earnings, and statement of cash flows. D. Income statement, statement of retained earnings, balance sheet, and statement of cash flows.

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17. Boone's Cleaning Service performed cleaning services during December, 2009, but had not collected any cash (or other assets) from its customers by the end of the accounting period, December 31, 2009. What effect did performing these services have on the accounting equation? A. Increased assets and increased liabilities. B. Increased assets and increased stockholders' equity. C. Increased assets and decreased stockholders' equity. D. Decreased liabilities and decreased stockholders' equity.

18. Which group of accounts contains only those that normally have a debit balance? A. Prepaid expenses, wages payable, and contributed capital B. Cash, utilities expense, and accounts receivable C. Retained earnings, cost of sales, and wages expense D. Utilities expense, prepaid expenses, and wages payable

19. Which of the following liability accounts is likely to be satisfied with other than payment of cash? A. Wages payable B. Unearned subscriptions revenue C. Accounts payable D. Taxes payable

20. Which of the following is an example of revenue or expense recognized in the current period's income statement? A. Cash received from a client before the lawyer represents them in court. B. Inventory purchased by a retail store. C. Wage costs owed to employees who worked during the period. D. Cash collected from an accounts receivable.

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21. Revenue is always recognized when A. expenses are paid. B. cash is collected. C. it is earned. D. the end of the period arrives.

22. A landlord received $5,000 cash for December 2011's rent but the tenant's rent for December is $8,000. Which of the following is true for year ended 2011? A. $8,000 would be reported on the statement of cash flows. B. $8,000 would appear on the balance sheet as rent receivable. C. $8,000 would appear on the income statement as rent revenue earned. D. $5,000 would appear on the balance sheet as prepaid rent.

23. Which of the following expenses is usually listed last on the income statement? A. Cost of sales B. Salaries and benefits expense C. Advertising expense D. Income tax expense

24. Which of the following accounts is NOT closed at the end of the year? A. Interest receivable B. Cost of goods sold C. Depreciation expense D. Sales revenue

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25. The essential difference between an unadjusted trial balance and an adjusted trial balance is that an A. unadjusted trial balance is prepared at the start of the accounting year, while an adjusted trial balance is prepared at the end of the year. B. unadjusted trial balance is prepared by companies that make adjusting entries, while an adjusted trial balance is prepared by companies that do not make adjusting entries. C. unadjusted trial balance is prepared before the adjusting entries are reflected, while an adjusted trial balance is prepared after the adjusting entries are reflected. D. unadjusted trial balance is prepared after the post-closing trial balance.

26. At the end of its accounting period, December 31, 2009, August Corporation owed $1,000 for property taxes for the current year, which had not been recorded or paid. Therefore, the 2009, adjusting entry should be A. $1,000 credited to an expense account and debited to a liability account. B. $1,000 debited to an expense account and credited to an asset account. C. $1,000 credited to a liability account and debited to an expense account. D. $1,000 debited to a liability account and credited to an asset account.

27. When preparing a bank reconciliation, which of the following would be deducted from the company's cash balance? A. Interest paid by bank. B. Deposits in transit. C. Outstanding checks. D. Bank service charges.

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28. Effective control of cash requires that A. approval and authorization procedures be removed, to generate cost savings. B. cash be deposited monthly in a bank. C. there be segregation of duties. D. a reconciliation of the bank balance with the cash balance be prepared twice a year.

29. In 2009, Deckers reported an accounts receivables turnover ratio of 6.8 and their competitor, Timberland's, reported a ratio of 8.4. Which of the following is false? A. Deckers needs to increase their ratio in order to improve collection time. B. Deckers needs to focus on improving their credit and collection process. C. Deckers has done a better job of collecting their accounts receivables than Timberland's. D. Deckers requires more time to collect accounts receivables than Timberland's

30. At year end, Chief Company has a balance of $10,000 in accounts receivable of which $1,000 is more than 30 days overdue. Chief has a credit balance of $100 in the allowance for doubtful accounts before any year-end adjustments. Chief estimates its bad debts losses at 1% of current accounts and 10% of accounts over thirty days. What adjustment should Chief make to the allowance for doubtful accounts? A. $120 (credit). B. $100 (credit). C. $90 (credit). D. No adjustment as the current balance is correct.

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