Financial and Managerial Accounting
Midterm Exam
Course Introduction
This course offers a comprehensive introduction to both financial and managerial accounting, equipping students with fundamental concepts and practical tools to understand, analyze, and interpret financial information. Students will learn how to prepare, use, and evaluate financial statements and reports, examine accounting's role in decision-making, and explore the ethical considerations and regulatory environment of accounting. Emphasis is placed on the use of accounting information by internal and external stakeholders for purposes such as planning, controlling, and evaluating business operations, as well as for effective resource allocation and strategic planning.
Recommended Textbook
Horngrens Financial and Managerial Accounting 4th Edition by Miller Nobles
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Chapter 1: Accounting and the Business Environment
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Sample Questions
Q1) Which of the following users would rely on management accounting information for decision-making purposes?
A)potential investors
B)creditors
C)customers
D)company managers
Answer: D
Q2) Accord Corporation purchased land for $100,000 by a cash payment of $20,000 and promised to pay the remaining amount at a later period.What is the net effect of this transaction on the business's accounting equation?
A)assets increase by $100,000 and liabilities decrease by $20,000
B)assets increase by $100,000 and liabilities decrease by $80,000
C)assets and equity increase by $80,000
D)assets and liabilities increase by $80,000
Answer: D
Q3) Equity increases when revenues are earned.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Recording Business Transactions
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Sample Questions
Q1) Amounts earned from delivering goods or services to customers are called
A)notes receivable
B)unearned revenues
C)equity
D)revenues
Answer: D
Q2) When a business records an expense incurred,the Expense account is credited.
A)True
B)False
Answer: False
Q3) Which of the following accounts increases with a credit?
A)Cash
B)Common Stock
C)Accounts Receivable
D)Prepaid Expenses
Answer: B
Q4) A business paid salaries of $6,000 in cash.Record the transaction in the journal.
Answer: 11ea84d1_1114_f988_83dc_d382de7262d7_TB3006_00
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) Prepaid insurance is an asset account and hence it appears on the balance sheet.
A)True
B)False Answer: True
Q2) On January 1,2014,Prepaid Insurance of Maywood Inc.had a beginning balance of $1,200.On February 1,2014,the company paid an annual insurance premium in the amount of $4,800 for the period beginning April 1.On February 28,2014,the balance in Prepaid Insurance is $2,000.The prepaid expense was initially recorded as an asset.
A)True
B)False Answer: False
Q3) On January 1,Ogden Inc.had $2,000 of supplies on hand.During January,Ogden purchased $4,000 worth of new supplies.At the end of the month,a count revealed $1,000 worth of supplies remaining on the shelves.The adjustment entry needed will include a debit to Supplies Expense of $5,000.The supplies were initially recorded as an asset.
A)True
B)False Answer: True
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) The ending balances in the Common Stock and Dividend accounts are shown on the income statement columns of the worksheet.
A)True B)False
Q2) Generally Accepted Accounting Principles (GAAP)require every organization to prepare reversing entries.
A)True B)False
Q3) The Office Supplies Expense account is a temporary account.
A)True B)False
Q4) The Service Revenue account is a permanent account. A)True B)False
Q5) Only temporary accounts appear on the post-closing trial balance. A)True B)False
Q6) Provide the closing entry for expenses.
Q7) Provide the closing entry for Service Revenue.
Q8) Provide the closing entry for Dividends.
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Chapter 5: Merchandising Operations
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Sample Questions
Q1) FOB destination refers to a situation where title to goods while in transit vests with the ________.
A)buyer
B)seller
C)transport agency
D)insurance agency
Q2) The revenue,expenses,Sales Returns and Allowances,and Sales Discounts will be closed via the ________.
A)Income Summary account
B)Retained Earnings account
C)Dividend account
D)Fixed asset account
Q3) Under the perpetual inventory system,two journal entries are used to record the sales of merchandise.One entry records the Sales Revenue and another entry records the Cost of Goods Sold.
A)True
B)False
Q4) Provide journal entries to close the Income Summary account and the Dividends account.
Q5) Give the journal entry to close the Sales Revenue account.
Page 7
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Chapter 6: Merchandise Inventory
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Sample Questions
Q1) Pluto Inc.sold 500 units of inventory at $25 per unit on account.The company uses the perpetual inventory system.The cost of the units sold was $10 per unit.Provide the journal entries to record the sale on account.
Q2) Under which of the following inventory costing methods is the ending inventory valued on the cost of the most recent purchases?
A)specific identification
B)weighted-average
C)last-in,first-out
D)first-in,first-out
Q3) Which of the following inventory costing methods results in the highest value of ending inventory during a period of rising inventory costs?
A)specific identification
B)weighted-average
C)last-in,first-out
D)first-in,first-out
Q4) Pluto Inc.sold 500 units of inventory at $25 per unit for cash.The company uses the perpetual inventory system.The cost of the units sold was $10 per unit.Provide the journal entries to record the sale.
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Page 8
Chapter 7: Internal Control and Cash
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Sample Questions
Q1) A company check for payment must be signed by ________.
A)any employee of the company
B)a bank employee
C)an employee specifically authorized by the company
D)the external auditor
Q2) At Cadmia Services,the junior accountant collects checks and cash from customers and records the transactions in the journal.The controller approves the journal entries and bank reconciliations.The treasurer signs checks and approves contracts. Which internal control procedure is exemplified in the above situation?
A)assignment of responsibilities
B)competent,reliable,and ethical personnel
C)separation of duties
D)documents
Q3) Which of the following would be included in the journal to record an NSF check?
A)a debit to Accounts Payable and a credit to Cash
B)a debit to Accounts Receivable and a credit to Cash
C)a debit to Cash and a credit to Accounts Receivable
D)a debit to Bank Expense and a credit to Cash
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Chapter 8: Receivables
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Sample Questions
Q1) Dividends receivable,interest receivable,and taxes receivable are commonly categorized as other receivables.
A)True
B)False
Q2) Give the journal entry to record an uncollectible account receivable using the direct write-off method.
Q3) On October 1,2015,Zircon Jewelry Company accepted a 4-month,10% note for $2,400 in settlement of an overdue account receivable.Interest revenue was accrued through December 31,2015.Zircon receives the maturity value of the note on the due date.Give journal entry to record the collection of funds.
Q4) Sales through credit cards or debit cards transfer the risk of collection of receivables from the seller to the card issuer.
A)True B)False
Q5) On November 1,2015,Ealys Jewelers accepted a 3-month,15% note for $6,000 in settlement of an overdue account receivable.Give the journal entry to record the accrued interest at the year end.
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Page 10
Chapter 9: Plant Assets, natural Resources, and Intangibles
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Sample Questions
Q1) Which of the following is an expense resulting from the decline in the utility of a natural resource?
A)depletion
B)amortization
C)depreciation
D)obsolescence
Q2) The cost principle requires a business to record the assets acquired or services received at their actual cost.
A)True
B)False
Q3) On October 1,2015,Nurix Inc.purchased a patent for $200,000 cash.Although the patent gives legal protection for 20 years,the patent is expected to be used for only 10 years.Journalize the amortization expense for 2015.Assume straight-line amortization.
Q4) On January 1,2015,WAX-D purchased equipment for $60,000 cash,expecting it to remain in service for six years.The corporation depreciates the equipment on a straight-line basis,with $2,000 residual value.On April 30,2017,the corporation sold the equipment for $48,000 cash.Record both depreciation expense for 2017 and sale of the equipment on April 30,2017.(Do not round your intermediate calculations.)
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Page 11
Chapter 10: Investments
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Sample Questions
Q1) The Long-term Investments account is debited for the receipt of a dividend on an equity-method investment because the dividend increases the investee's equity.
A)True
B)False
Q2) When a firm collects the face value of a long-term investment in bonds at maturity,________.
A)both assets and equity of the firm remains unchanged
B)both assets and liabilities of the firm increase
C)both assets and equity of the firm increase
D)liabilities decrease and equity increases
Q3) Which of the following is classified as a current asset in the balance sheet?
A)marketable securities
B)real estate investments
C)fixed assets
D)equipment
Q4) Realized gains or losses occur when a company adjusts an investment to fair value but have not yet disposed of the investment.
A)True
B)False
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Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) Estimated Warranty Payable would be included in the liability section of the balance sheet.
A)True
B)False
Q2) Synergy Appliances sells dishwashers with a 4-year warranty.In 2013,sales revenue for dishwashers is $85,000.The company estimates warranty expense at 4.5% of revenues.What is the total estimated warranty payable of Synergy Appliances in 2013?
A)$3,825.00
B)$956.25
C)$1,400.00
D)$3,000.00
Q3) Which of the following is included in the entry to record estimated warranty payable?
A)a credit to Estimated Warranty Payable
B)a credit to Merchandise Inventory
C)a credit to Warranty Expense
D)a debit to Estimated Warranty Payable
Q4) Which portion is classified as the long-term portion of Notes Payable at December 31,2014?
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Chapter 12: Long-Term Liabilities
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Sample Questions
Q1) Dolby Inc.issued a $5,000 face value,10%,5-year bond at 98.What will be the journal entries at the maturity of the bond? The bonds have semiannual interest and the company uses the straight-line method of discount amortization.
Q2) On January 1,2013,Anderson Tools Company purchases machinery with a fair value of $300,000 by paying $50,000 in cash and signing a 10-year mortgage note at 13% for the balance.On January 1,2013,what will be the journal entry?
Q3) How will this information be shown on the balance sheet dated December 31,2015?
A)$15,000 shown as current liability only
B)$5,000 shown as current liability and $15,000 shown as long-term liability
C)$5,000 shown as current liability and $10,000 shown as long-term liability
D)the entire $15,000 shown as long-term liability
Q4) On April 1,2015,Nurix Manufacturers purchases equipment for $100,000,paying $30,000 in cash and signing a 10-year mortgage for $70,000 taken out at 8%.Prepare the journal entry to record the acquisition of the equipment.
Q5) The Employee Bonus Payable would normally be shown on the balance sheet under long-term liabilities.
A)True
B)False
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Chapter 13: Stockholders Equity
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Sample Questions
Q1) Peterson Inc.issued 4,000 shares of preferred stock for $240,000.The stock has a par value of $60 per share.Provide the journal entry for this transaction.
Q2) On November 1,2015,Oster Inc.declared a dividend of $3.00 per share.Oster Inc.has 10,000 shares of common stock outstanding and 20,000 preferred stock.The date of record is November 15,and the payment date is November 30,2014.Which of the following statements is true of the date of record?
A)No journal entry is made on the date of record.
B)The liability must be recorded on the date of record.
C)Cash is disbursed to shareholders on the date of record.
D)The company transfers cash to a brokerage firm on the date of record.
Q3) Which of the following is a true of the difference between a stock split and a stock dividend?
A)A stock split will increase total stockholders' equity,but a stock dividend will not.
B)Neither a stock split nor a stock dividend will increase total stockholders' equity.
C)A stock dividend will increase total stockholders' equity,but a stock split will not.
D)A stock split will decrease retained earnings,but a stock dividend will not.
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Chapter 14: The Statement of Cash Flows
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Sample Questions
Q1) If an investor wants to know the amount of cash available with the company for new opportunities,such as expanding into a new sales region,they would most likely look at
A)free cash flow
B)net cash flow from investing activities
C)acid ratio
D)earnings per share
Q2) While preparing a statement of cash flows using the indirect method,the Depreciation Expense ________.
A)is added back as an adjustment to Net Income in the operating activities section
B)is shown as a negative cash flow in the investing activities section
C)is added back to Purchases of Plant Assets under investing activities
D)is shown as a negative cash flow under operating activities
Q3) The net cash flow from operating activities is calculated in the same way,whether the company uses the direct or the indirect method of preparing the statement of cash flow.The only difference in the two methods is the way the financing activities section is prepared.
A)True
B)False
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Page 16
Chapter 15: Financial Statement Analysis
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Sample Questions
Q1) Which of the following accurately describes working capital?
A)Current assets minus merchandise inventory
B)Current assets minus current liabilities
C)Total debt minus stockholders' equity
D)Cost of goods sold divided by average merchandise inventory
Q2) The income from continuing operations helps investors make predictions about the company's past performance.
A)True
B)False
Q3) Which of the following best describes trend analysis?
A)calculating key ratios to evaluate performance
B)expressing each figure as a percentage of a budgeted figure
C)comparing a company's financial statements with that of other companies
D)expressing each year's figures as a percentage of the base year figures
Q4) In a vertical analysis of the balance sheet,each line item is shown as a percentage of shareholders' equity.
A)True
B)False
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Chapter 16: Introduction to Managerial Accounting
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Sample Questions
Q1) Which of the following is one of the key standards of ethical practice published by the Institute of Management Accountants (IMA)?
A)objectivity
B)environmental sensitivity
C)technicality
D)confidentiality
Q2) The cost of direct materials cannot easily be traced to the manufactured product and therefore it is a component of manufacturing overhead.
A)True
B)False
Q3) Repair and maintenance costs of vehicles used to deliver products to customers are product costs.
A)True
B)False
Q4) For external reporting purposes,GAAP requires companies to treat period costs as assets.
A)True
B)False
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Page 18
Chapter 17: Job Order Costing
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Sample Questions
Q1) Manufacturing overhead costs are allocated to the Work-in-Process Inventory account by a debit to the Manufacturing Overhead account.
A)True
B)False
Q2) Bilkins Financial Advisors provides accounting and finance assistance to customers in the retail business.Bilkins has four professionals on staff,and an office with six clerical staff.Total compensation,including benefits,for the professional staff runs about $576,000 per year,and normal billable hours are 8,000 hours per year.Professional staff keeps detailed timesheets organized by the client number.The total office and administrative costs for the year is $754,000.What is the cost allocation rate that Bilkins will use for direct labor i.e.the cost of the professional staff?
A)$75 per hour
B)$36 per hour
C)$72 per hour
D)$76 per hour
Q3) Kalliste Inc.completed Job C50.C50 required $3,000 of direct materials cost,$2,000 of direct labor cost,and $600 of allocated overhead.Provide the journal entry needed to record completion and transfer of job.
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Chapter 18: Process Costing
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Sample Questions
Q1) Under the first-in-first-out (FIFO)method,the current-period equivalent units of production for transferred in units in beginning inventory is zero because ________.
A)these units are transferred back to the previous department for further processing in the current period
B)these units are expected to be sold by the receiving department without subjecting them to further processing
C)no additional costs for these units were transferred in this period
D)costs involved in inter-departmental transfers are accounted for only once when sales are made to customers
Q2) Delaware Inc.purchased raw materials worth $5,000 on account.The journal entry to record purchase of raw materials on account is ________.
A)debit Cash,$5,000; credit Raw Materials Inventory,$5,000
B)debit Accounts Payable,$5,000; credit Raw Materials Inventory,$5,000
C)debit Raw Materials Inventory,$5,000; credit Accounts Payable,$5,000
D)debit Raw Materials Inventory,$5,000; credit Cash,$5,000
Q3) Iowa Inc.purchased raw materials for $6,000 and $25,000 for cash and on account,respectively.Provide the journal entry to record purchase of raw materials.
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Page 20
Management Systems
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Sample Questions
Q1) Internal failure costs are costs incurred ________.
A)to detect poor-quality materials,goods,or services
B)when the company detects and corrects poor-quality goods or services before delivery to customers
C)after the company delivers poor-quality goods or services to customers and then has to make things right with the customer
D)to avoid poor-quality goods or services
Q2) Which of the following statements is true of the just-in-time costing system?
A)It increases the need for suppliers to deliver raw materials on time.
B)It records summary journal entries before the units are purchased.
C)It results in increased inventory storage costs.
D)It increases the risk of the inventory becoming obsolete or unsalable.
Q3) Which of the following is a nonmanufacturing cost?
A)direct labor
B)direct materials
C)administrative expenses
D)indirect labor
Q4) Activity-based costing uses a common allocation base for all activities.
A)True
B)False
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Chapter 20: Cost-Volume-Profit Analysis
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Sample Questions
Q1) Lightfoot Company sells its product for $55 and has variable costs of $30 per unit.The total fixed costs are $25,000.What will be the effect on the breakeven point in units if variable costs increase by $5 due to an increase in the cost of direct materials?
A)It will increase by 250 units.
B)It will decrease by 250 units.
C)It will decrease by 167 units.
D)It will increase by 167 units.
Q2) Both the traditional income statement approach and the contribution margin approach will yield the same answer for calculating breakeven points.
A)True B)False
Q3) The margin of safety focuses on how much operating income is left over from sales revenue after covering all variable and fixed costs. A)True
B)False
Q4) The sales mix provides the weights that make up total product sales. A)True B)False
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22
Chapter 21: Variable Costing
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Sample Questions
Q1) When setting sales prices in the long run,the sales price must cover the full cost-including fixed costs.
A)True
B)False
Q2) When production is more than sales,the operating income will be higher under absorption costing than variable costing.Assume zero beginning 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 ending Finished Goods Inventory account
C)all selling and administrative expenses have been recorded as period costs
D)fixed manufacturing costs have not been considered while calculating the operating profits
Q3) Calculate the contribution margin and the contribution margin ratio.
A)$8,520; 17.0%
B)$7,550; 15.1%
C)$8,250; 16.5%
D)$7,150; 14.3%
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Chapter 22: Master Budgets
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Q1) A strategic budget will be as detailed as an operational budget.
A)True
B)False
Q2) The cash budget and the budgeted financial statements are collectively known as the ________.
A)operating budget
B)master budget
C)financial budget
D)production budget
Q3) A budget is a financial plan that managers use to coordinate a business's activities.
A)True
B)False
Q4) For a merchandising company,the budgeted sales equals the number of units budgeted for sale multiplied by the budgeted selling price per unit.
A)True
B)False
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Page 24
Chapter 23: Flexible Budgets and Standard Cost Systems
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Q1) Unfavorable variances are subtracted from each other to arrive at a favorable variance.
A)True
B)False
Q2) Emerald Marine Stores Company manufactures special metallic materials and decorative fittings for luxury yachts that require highly skilled labor.Emerald uses standard costs to prepare its flexible budget.For the first quarter of 2015,direct material and direct labor standards for one of their popular products were as follows: Direct materials: 3 pounds per unit; $4 per pound
Direct labor: 4 hours per unit; $15 per hour
During the first quarter,Emerald produced 5,000 units of this product.Actual direct materials and direct labor costs were $65,000 and $325,000,respectively.
For the purpose of preparing the flexible budget,what is the total standard direct labor cost at a production volume of 5,000 units?
A)$75,000
B)$150,000
C)$300,000
D)$325,000
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Chapter 24: Responsibility Accounting and Performance Evaluation
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Q1) Percentage of market share and rate of on-time deliveries are indicators of the ________ perspective.
A)quality management
B)internal business
C)customer
D)learning and growth
Q2) The payroll department of a manufacturing company is most likely to be a(n)________.
A)cost center
B)revenue center
C)investment center
D)profit center
Q3) The transfer price should be an amount between the market price and the variable cost.
A)True
B)False
Q4) A unique factor of responsibility accounting performance reports is the focus on responsibility and controllability.
A)True
B)False
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Chapter 25: Short-Term Business Decisions
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Q1) What is the contribution margin per machine hour for the Bedford lamp?
A)$4 per machine hour
B)$2 per machine hour
C)$6 per machine hour
D)$8 per machine hour
Q2) Fantabulous Products sells 2,000 kayaks per year at a price of $450 per unit.Fantabulous sells in a highly competitive market and uses target pricing.The company has calculated its target full product cost at $720,000 per year.Total variable costs are $330,000 per year and cannot be reduced.How much is the target fixed costs?
A)$570,000
B)$180,000
C)$330,000
D)$390,000
Q3) Which of the following is a historical cost that is always irrelevant?
A)relevant cost
B)differential cost
C)opportunity cost
D)sunk cost
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Chapter 26: Capital Investment Decisions
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Q1) When the internal rate of return is the same as the required rate of return,the net present value of an investment will be positive.
A)True
B)False
Q2) What is the profitability index for Project C?
A)1.45
B)1.38
C)1.26
D)1.23
Q3) Calculate the payback period for Proposal X.
A)5 years
B)4 years
C)8 years
D)10 years
Q4) Which of the following best describes sensitivity analysis?
A)setting the budgets of an investment
B)analyzing the effect of an investment on workers' morale
C)evaluating the different investment options available
D)testing the results of an investment analysis with varying assumptions
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Chapter 27: Accounting Information Systems
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Q1) Which of the following activities is handled in the Money Out section of QuickBooks?
A)entering sales receipts
B)entering bills
C)entering depreciation expense
D)entering LIFO to FIFO adjustments
Q2) An automobile company purchases spark plugs,for cash.When using a manual accounting information system,the company will record this transaction in the ________.
A)purchases journal
B)general journal
C)cash payments journal
D)sales journal
Q3) To safeguard a business's assets and reduce the likelihood of fraud and errors,its accounting information system ________.
A)should be manual
B)must be flexible to accommodate changes in a business over time
C)should work smoothly with the business's employees
D)must provide adequate controls of a business's assets and data
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