Accounting II
Midterm Exam
Course Introduction
Accounting II builds upon the foundational principles covered in introductory accounting courses by exploring more advanced topics in financial and managerial accounting. This course delves into complex accounting procedures such as partnership and corporate accounting, long-term liabilities, investments, cash flow statements, and financial statement analysis. Students will also examine managerial topics including budgeting, cost allocation, performance evaluation, and decision-making processes. Through a combination of lectures, practical exercises, and case studies, Accounting II equips students with the skills necessary to interpret and apply accounting information in various business contexts, preparing them for further study or professional roles in the field.
Recommended Textbook
Horngren's Accounting 12th Edition by Tracie L. Miller Nobles
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Chapter 1: Accounting and the Business Environment
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Q1) Equity increases when revenues are earned.
A)True
B)False
Answer: True
Q2) Which of the following is the correct order of preparation of financial statements?
A) Income statement statement of owner's equity balance sheet statement of cash flows
B) Statement of owner's equity balance sheet income statement statement of cash flows
C) Balance sheet statement of owner's equity income statement statement of cash flows
D) Balance sheet income statement statement of owner's equity statement of cash flows
Answer: A
Q3) An entity refers to one business which includes its owners.
A)True
B)False
Answer: False
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Chapter 2: Recording Business Transactions
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Q1) A business borrows cash by signing a note payable.Which of the following accounts is credited?
A) Notes Payable
B) Accounts Payable
C) Notes Receivable
D) Cash Answer: A
Q2) A business purchases $1,000 of office supplies on account.Which of the following accounts is debited?
A) Cash
B) Accounts Payable
C) Office Supplies
D) Prepaid Asset
Answer: C
Q3) Which one of the following account groups will decrease with a debit?
A) assets and expenses
B) revenues and expenses
C) liabilities and revenues
D) assets and liabilities
Answer: C
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Chapter 3: The Adjusting Process
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Q1) On January 1,Unearned Revenue of Commercial Plumbing Services Company had a beginning balance of $1,300.During January,the company earned $1,000 of the deferred revenue.The company also collected $3,000 from a new customer for services to be performed the following month.At the end of January,the Unearned Revenue account should have a balance of $3,000.
A)True
B)False
Answer: False
Q2) Aquatic Supplies Company purchased $2,000 of supplies on account.Under the accrual basis of accounting,no entry is made until the amount is paid.
A)True
B)False
Answer: False
Q3) A worksheet is an external document that forms a part of the financial statements. A)True
B)False
Answer: False
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Chapter 4: Completing the Accounting Cycle
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Questions
Q1) Brownstone Company has a current ratio of 4.00.This indicates that the company has $4 in ________.
A) current liabilities for every $1 of current assets
B) total assets for every $1 of current liabilities
C) current assets for every $1 of current liabilities
D) total assets for every $1 of current assets
Q2) Assets with no physical form are ________.
A) current assets
B) intangible assets
C) not listed on the balance sheet because they have no value
D) included in owner's equity
Q3) The financial statement that reports assets,liabilities,and owner's equity as of the last day of the period is called the ________.
A) income statement
B) statement of owner's equity
C) balance sheet
D) unadjusted trial balance
Q4) A net loss from the Balance Sheet decreases Owner,Capital.
A)True
B)False
6
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Chapter 5: Merchandising Operations
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Q1) Under the new revenue recognition standards,companies are required to identify the performance obligations associated with each contract.
A)True
B)False
Q2) When preparing financial statements under the periodic inventory system,a calculation of cost of goods sold must be made.
A)True
B)False
Q3) FOB destination refers to a situation where title to goods while in transit belongs to the ________.
A) buyer
B) seller
C) transport agency
D) insurance agency
Q4) Gross profit is calculated as ________.
A) sales revenue less sales discounts and allowances
B) sales revenue less operating expenses
C) net sales revenue less sales discounts
D) net sales revenue less cost of goods sold
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Chapter 6: Merchandise Inventory
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Q1) Ending inventory is calculated by multiplying the number of units on hand by the unit cost.
A)True
B)False
Q2) In computing the lower-of-cost-or-market,market value generally means the selling price.
A)True
B)False
Q3) When using the weighted-average inventory costing method,the dollar amounts for ending inventory and cost of goods sold are the same for both the perpetual and periodic inventory costing methods.
A)True
B)False
Q4) Which of the following is affected as a result of an error in performing the physical count of inventory at the end of the accounting period?
A) sales revenue
B) operating expenses
C) net income
D) net cost of purchases
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Chapter 7: Accounting Information Systems
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Q1) In a manual accounting information system,cash purchases are generally recorded in the ________.
A) sales journal
B) cash receipts journal
C) cash payments journal
D) purchases journal
Q2) Rockville Company makes a $1,200 purchase of merchandise inventory on account.This transaction will be recorded in the ________.
A) cash payments journal
B) sales journal
C) cash receipts journal
D) purchases journal
Q3) Unlike the sales journal,entries in the cash receipts journal are posted monthly to the accounts receivable subsidiary ledger and daily to the general ledger.
A)True
B)False
Q4) The sales journal is used for all sales of merchandise inventory.
A)True
B)False
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Chapter 8: Internal Control and Cash
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Q1) A deposit receipt is ________.
A) retained by the customer as proof of a deposit transaction
B) the same as a signature card
C) used by the bank as an alternative to a remittance advice
D) given by the customer to the bank as a proof of deposit
Q2) In reconciling a bank statement,the bank balance is $2,100,and the checkbook balance is $2,001.Which of the following is the most probable reason for the bank balance being larger than the book balance?
A) There are outstanding checks.
B) The bank has deducted certain amounts for bank service charges.
C) A deposit in transit was made at the end of the month.
D) The company erroneously recorded a check for an amount less than the actual amount.
Q3) Before sending the check for payment of goods,the controller should examine the payment pack.List the documents that are included in the payment pack and describe the information provided by each document.
Q4) Controlling operations is a key responsibility of a business manager.
A)True
B)False
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Chapter 9: Receivables
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Q1) The Allowance for Bad Debts has a credit balance of $8000 before the adjusting entry for bad debts expense.After analyzing the accounts in the accounts receivable subsidiary ledger using the aging-of- receivables method,the company's management estimates that uncollectible accounts will be $15,000.What will be the amount of Bad Debts Expense reported on the income statement?
A) $23,000
B) $7000
C) $15,000
D) $8000
Q2) The expense associated with the cost of uncollectible accounts receivable is called bad debts expense.
A)True
B)False
Q3) Accounts Receivable are generally reported at the gross amount on the balance sheet.
A)True
B)False
Q4) Prepare the journal entry to record an uncollectible account receivable of $10,000,using the direct write-off method.Omit explanation.
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Chapter 10: Plant Assets,natural Resources,and Intangibles
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Q1) Estimated residual value can be zero if the company does not expect to receive anything when disposing of the asset.
A)True
B)False
Q2) For each of the following amounts paid by a purchaser,determine whether the amount is debited to Land,Land Improvements,or Building.
\[\begin{array} { | l | l | }
\hline \text { Pransaction } & \text { Account Debited } \\
\hline \text { Building permits } & \\
\hline \text { Cost of clearing land and removing unwanted buildings } & \\
\hline \text { Parking lot lighting } & \\
\hline \text { Delinquent property taxes on land } & \\
\hline \text { Cost to renovate a building to make it ready for use } & \\
\hline \text { Taxes assessed to transfer ownership (title) of land } & \\
\hline
\end{array}\]
Q3) When a plant asset is sold for less than its book value,a gain is recorded.
A)True
B)False
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Chapter 11: Current Liabilities and Payroll
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Q1) Cash received in advance of providing goods or performing services is recorded as ________.
A) Unearned Revenue
B) Accrued Revenue
C) Service Revenue
D) Uncollected Revenue
Q2) Andrew,an employee of Super Retailer,Inc.,has gross salary for March of $5,500.The entire amount is under the OASDI limit of $118,500 and thus subject to FICA.The total amount of employee FICA tax is $841.50.(Assume a FICA-OASDI Tax of 6.2% and FICA-Medicare Tax of 1.45%.)
A)True
B)False
Q3) Restaurant Foods Company had cash sales of $598,000 during the month of August.Sales taxes of 6.5% were collected on the sales.Prepare the journal entry to record the sales revenue and sales tax for the month.Omit explanation.
Q4) Because amounts owed for products or services on account are typically due in 60 days,they are current liabilities.
A)True
B)False
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Chapter 12: Partnerships
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Q1) Farrell and Jimmy enter into a partnership agreement on May 1,2018.Farrell contributes $50,000 and Jimmy contributes $150,000 as their capital contributions.They decide to share profits and losses in the ratio of their respective capital account balances.The net loss for the year ended December 31,2018 is $40,000.The capital account of Farrell should be ________ with his share of the loss.
A) debited
B) credited
C) increased
D) halved
Q2) In a partnership balance sheet,each partner's assets,liabilities,and equity will be shown separately.
A)True
B)False
Q3) The death of a partner dissolves the partnership.
A)True
B)False
Q4) Before the start of the liquidation process,the books are adjusted and closed.
A)True
B)False
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Chapter 13: Corporations
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Q1) Which of the following statements regarding income from continuing operations is incorrect?
A) Income from continuing operations represents the part of the business that should continue from period to period.
B) Income from continuing operations helps investors make predictions about future earnings.
C) Income tax expense is subtracted to arrive at income from continuing operations.
D) A gain on sale of equipment is outside the business's core business and is not part of other income.
Q2) A company cannot report a gain or loss when buying or selling its own stock.
A)True
B)False
Q3) Which of the following is NOT included in income from continuing operations?
A) gain on sale of machinery
B) a segment of a business that has been discontinued
C) cost of goods sold
D) losses due to lawsuits
Q4) List the four basic rights of stockholders.
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Chapter 14: Long-Term Liabilities
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Q1) The United Way Payable account would normally be shown on the balance sheet under current liabilities.
A)True
B)False
Q2) On January 1,2019,Commercial Equipment Sales issued $28,000 in bonds for $15,700.These are six-year bonds with a stated interest rate of 10%,and pay semiannual interest on June 30 and December 31.Commercial Equipment Sales uses the straight-line method to amortize the Bond Discount.What amount is debited to Interest Expense on June 30,2019?
A) $1400
B) $2425
C) $1025
D) $25,067
Q3) Debentures are backed only by the goodwill of the bond issuer.
A)True
B)False
Q4) On January 1,2018,Belden,Inc.issued long-term notes payable for $50,000.The note will be paid over 10 years with payments of $5,000 plus 12% interest due each January 1,beginning January 1,2019.Prepare the amortization schedule for the first three payments.
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Chapter 15: Investments
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Q1) At the beginning of the year,Wilson Steel,Inc.purchased 10,000 shares of Barnes Metals,Inc.for $34,000 in exchange for cash and now holds 3.2% of the voting stock of Barnes Metals,Inc.The management of Wilson Steel intends to hold this stock for two years.Assuming no other transaction happened during the year,the ________ in the balance sheet will increase.
A) long-term assets
B) cash
C) total assets
D) current assets
Q2) Which of the following accounting methods is used to account for controlling interest investments?
A) cost method
B) acquisition method
C) consolidation method
D) discounted cash flow method
Q3) A company that is controlled by another corporation is called a subsidiary company.
A)True
B)False
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Chapter 16: The Statement of Cash Flows
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Q1) A company purchased machinery by issuing a long-term note payable.This is an example of a non-cash investing and financing activity for the statement of cash flows.
A)True
B)False
Q2) For each of the following items,relating to the adjustments made to reconcile net income to net cash provided by operating activities section,state whether the adjustment is an increase or decrease to net income.
\[\begin{array} { | l | l | }
\hline \text { Item } & \begin{array} { l }
\text { Adjustment to Net Income on } \\
\text { Statement of Cash Flows }
\end{array} \\
\hline \text { Depreciation Expense } & \\
\hline \text { Decreases in Current Liabilities } & \\
\hline \text { Gains on Disposal of Long-term Assets } & \\
\hline \text { Increases in Current Assets other than Cash } & \\
\hline \end{array}\]
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Chapter 17: Financial Statement Analysis
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Q1) A company reports total assets of $920,000 and stockholders' equity of $540,000.Calculate the debt ratio.(Round your answer to two decimal places.)
A) 36.99%
B) 41.30%
C) 58.70%
D) 70.37%
Q2) Horizontal analysis compares each item in the income statement to the net sales amount.
A)True
B)False
Q3) Which of the following best describes horizontal analysis?
A) comparing financial statement line items from year to year for the same company
B) expressing each financial statement amount as a percentage of a budgeted amount
C) comparing a company's financial statements with other companies
D) calculating key ratios to evaluate performance
Q4) No single ratio tells the whole picture of any company's performance.
A)True
B)False
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Chapter 18: Introduction to Managerial Accounting
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Q1) List the three kinds of inventory accounts that are used by manufacturing companies.Briefly discuss what each account includes.
Q2) Which of the following correctly describes Just-in-Time (JIT)Management?
A) It is a production approach that maintains surplus goods at each stage of manufacture.
B) It helps managers cut costs by speeding the transformation of raw materials into finished products.
C) It is a cost management approach that focuses on maintaining large finished goods inventory levels.
D) It is an inventory approach that stockpiles raw materials to protect against supply interruptions.
Q3) In a manufacturing company,advertising and marketing costs are examples of period costs.
A)True
B)False
Q4) In a manufacturing company,wages and benefits of assembly line workers are included in manufacturing overhead.
A)True
B)False
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Chapter 19: Job Order Costing
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Q1) Irene Manufacturing uses a predetermined overhead allocation rate based on direct labor cost.At the beginning of the year,the company estimated total manufacturing overhead costs at $1,020,000 and total direct labor costs at $820,000.In June,Job 711 was completed.The details of Job 711 are shown below. \[\begin{array} { | l | l | }
\hline \text { Direct materials cost } & \$ 21,500 \\
\hline \text { Direct labor cost } & \$ 10,000 \\
\hline \text { Direct labor hours } & 400 \text { hours } \\
\hline \text { Units of product produced } & 200 \text { units } \\
\hline
\end{array}\] How much was the cost per unit of finished product? (Round any percentages to two decimal places and your final answer to the nearest cent.)
A) $157.50
B) $197.70
C) $169.70
D) $219.70
Q2) Broxsie Fabrication,Inc.issued $60,000 of direct materials and $15,500 of indirect materials to production.Prepare the journal entry to record the transaction.Omit explanation.
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Chapter 20: Process Costing
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Q1) List five ways in which managers use a production cost report to make decisions for their companies.
Q2) Production cost reports prepared using the first-in,first-out (FIFO)method assume that the first units started in the production process are the first units completed and transferred out.
A)True
B)False
Q3) In process costing,production costs are accumulated by process.At the end of the period,the total production costs incurred must be split into two components.What are these two components?
Q4) Under process costing,costs assigned to goods sold are transferred to the Cost of Goods Sold account from the ________.A perpetual inventory system is used.
A) Finished Goods Inventory account
B) Work-in-Process Inventory account
C) Raw Materials Inventory account
D) Sales Revenue account
Q5) What are conversion costs? In determining equivalent units of production,why are conversion costs calculated separately from direct materials?
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Chapter 21: Cost-Volume-Profit Analysis
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Q1) When all of the units produced are sold,the operating income is the same under both the absorption and variable costing methods.Assume no beginning and ending inventories.Which of the following gives the correct reason for the above statement?
A) All costs incurred have been recorded as expenses.
B) A portion of the fixed manufacturing overhead is still in the Finished Goods Inventory account.
C) All selling and administrative expenses have been recorded as period costs.
D) Fixed manufacturing costs have not been considered when calculating the operating incomes.
Q2) Complete the statement,using the following terms: increase,decrease,or have no effect on.
Increases in variable costs per unit ________ contribution margin per unit and ________ the breakeven point.
Q3) When more units are sold than produced,operating income is higher under absorption costing than variable costing.
A)True
B)False
Q4) How is the unit contribution margin calculated?
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Chapter 22: Master Budgets
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Q1) Which of the following statements regarding capital expenditures is incorrect?
A) Capital expenditures are purchases of long-term assets.
B) The decision to purchase long-term assets is part of a strategic plan.
C) Capital expenditures include delivery trucks, computer systems, and manufacturing equipment.
D) Installment payments related to the purchase of short-term assets are included in the capital expenditures budget.
Q2) For a manufacturer,the budgeted income statement ________.
A) reports cash paid for purchases of direct materials
B) includes amounts from the sales, cost of goods sold, cash, and capital expenditures budgets
C) is accrual-based
D) does not include depreciation expense
Q3) Which of the following is an example of the planning function of the budgeting process?
A) A budget demands integrated input from different business units and functions.
B) Employees are motivated to achieve the goals set by the budget.
C) Budget figures are used to evaluate the performance of managers.
D) The budget outlines a specific course of action for the coming period.
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Chapter 23: Flexible Budgets and Standard Cost Systems
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Q1) When a manufacturing company uses a standard cost system,Work-in-Process Inventory is debited at standard input quantities and standard costs.
A)True
B)False
Q2) Which of the following will result in an unfavorable direct materials efficiency variance?
A) the actual cost per unit of direct materials exceeds the standard cost of direct materials
B) the actual cost per unit of direct materials is less than the standard cost per unit of direct materials
C) the actual quantity of direct materials used per unit exceeds the standard quantity of direct materials allowed per unit
D) the actual quantity of direct materials used per unit is less than the standard quantity of direct materials allowed per unit
Q3) Managers should look at any variance that is significant.
A)True B)False
Q4) List the direct labor variances and briefly describe each.
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Chapter 24: Cost Allocation and Responsibility Accounting
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Q1) Which of the following is an expanded form of calculating return on investment?
A) Profit margin ratio × Asset turnover ratio
B) Net profit ratio × Inventory turnover ratio
C) Gross profit ratio × EVA
D) Asset turnover ratio × Inventory turnover ratio
Q2) Divine,Inc.sells cosmetic products in the United States.Which one of the following is most likely to be a cost center for Divine?
A) a Divine retail store in Dallas
B) the Divine human resource department
C) a Divine kiosk at a mall for selling its products
D) the Divine product lines
Q3) If managers are measured on short-term financial performance only,they may not introduce new products.
A)True
B)False
Q4) Cost center responsibility reports generally focus on the static budget variance.
A)True
B)False
Q5) List the primary goals of performance evaluation systems.
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Chapter 25: Short-Term Business Decisions
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Q1) Victor Corporation has provided you with the following budgeted income statement for one of its products:
\(\begin{array}{|l|r|}
\hline \text { Sales revenue } & \$ 750,000 \\
\hline \text { Variable costs } & \underline{500,000} \\
\hline \text { Contribution margin } & \$ 250,000 \\
\hline\text { Fixed costs } & 280,000 \\
\hline \text { Operating income } & \\
\text { (loss) } & (\$ 30,000 \\
\hline
\end{array}\)
Victor Corporation believes that 65% of the fixed costs would be avoidable if the product line was dropped.Based on the impact on the company's operating income or loss,Victor should keep the product line.
A)True
B)False
Q2) Managers should only consider financial information when making a decision.
A)True
B)False
Q3) Define the terms Relevant Cost and Sunk Cost.
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Chapter 26: Capital Investment Decisions
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Q1) The acquisition or construction of a capital asset is known as a capital investment.
A)True B)False
Q2) If the net cash inflows are unequal,how is the payback period (in years)of an investment calculated?
Q3) Under what circumstances is the investment with the shortest payback the best choice? How should managers use the payback method?
Q4) Most capital budgeting methods focus on accrual-based income.
A)True
B)False
Q5) The discount rate used in a net present value analysis is the ________.
A) rate of inflation
B) rate of interest earned on a savings account
C) required rate of return or the hurdle rate
D) rate of interest charged for debt financing of an investment
Q6) An operational asset used for a long period of time is known as a capital asset.
A)True B)False
Q7) What are the strengths of the net present value capital budgeting method?
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