Fundamentals of Accounting
Midterm Exam
Course Introduction
Fundamentals of Accounting introduces students to the basic principles and concepts underlying the preparation and interpretation of financial statements. The course covers essential topics such as the accounting cycle, double-entry bookkeeping, recording and summarizing transactions, and the development of key financial reports like the balance sheet, income statement, and cash flow statement. Emphasis is placed on understanding how accounting information supports decision-making processes within organizations, as well as the ethical considerations and regulatory environment that govern financial reporting. This foundation prepares students for advanced study in accounting and related business disciplines.
Recommended Textbook
College Accounting A Practical Approach 12th Canadian Edition by Jeffrey Slater
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Chapter 1: Accounting Concepts and Procedures
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Q1) The balance sheet contains:
A)liabilities, expenses and capital.
B)assets, liabilities and revenues.
C)expenses, assets and cash.
D)assets, liabilities and owner's equity.
Answer: D
Q2) A revenue should be recorded when:
A)it is earned.
B)payment is received.
C)the invoice is sent to the customer.
D)None of the above are correct.
Answer: A
Q3) The statement of owner's equity shows assets, liabilities and capital..
A)True
B)False
Answer: False
Q4) Statement of owner's equity shows the change in capital.
A)True
B)False
Answer: True
Page 3
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Chapter 2: Debits and Credits: Analyzing and Recording
Business Transactions
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Q1) Which of the following entries records the investment of cash by John, owner of a sole proprietorship?
A)Debit John, Capital; credit Cash
B)Debit Cash; credit John, Withdrawals
C)Debit John, Withdrawals; credit Cash
D)Debit Cash; credit John, Capital
Answer: D
Q2) The left side of any account is the:
A)debit side.
B)credit side.
C)ending balance.
D)footings.
Answer: A
Q3) What would be the effect on accounts if the business purchased office supplies for cash?
A)An asset would be debited and an expense credited.
B)Capital would be debited and revenue credited.
C)An asset would be debited and revenue credited.
D)An asset would be debited and an asset credited.
Answer: D
Page 4
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Chapter 3: Beginning the Accounting Cycle
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Q1) The general journal entry to record a payment to a creditor would most commonly include:
A)a debit to Accounts Payable and a credit to Cash.
B)a debit to Capital and a credit to Cash.
C)a debit to Supplies and a credit to Cash.
D)a debit to Cash and a credit to Accounts Payable.
Answer: A
Q2) The order of the flow of accounting data is to (1)record in a journal, (2)post in a ledger, (3)prepare a trial balance.
A)True
B)False
Answer: True
Q3) The first step of the accounting cycle is:
A)recording journal entries.
B)posting to the ledger.
C)preparing a trial balance.
D)analyzing business transactions.
Answer: D
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Chapter 4: The Accounting Cycle Continued
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Q1) Equipment with a cost of $150,000 has an accumulated depreciation of $100,000. What is the historical cost of the equipment?
A)$150,000
B)$50,000
C)$200,000
D)$100,000
Q2) Adjustments are necessary to update account balances for internal transactions.
A)True
B)False
Q3) When Income Statement credits exceed the debits on the worksheet:
A)a net loss has occurred.
B)a net income has occurred.
C)an error has been made.
D)Not enough information has been provided.
Q4) Original cost of equipment is not adjusted on the worksheet. A)True
B)False
Q5) Revenue is recorded when earned, and expenses are recorded only when paid.
A)True
B)False
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Chapter 5: The Accounting Cycle Completed
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Q1) When the balance of the Income Summary account is a debit, the entry to close this account is:
A)debit Capital; credit Income Summary.
B)debit Income Summary; credit Revenue.
C)debit Revenue; credit Income Summary.
D)debit Income Summary; credit Capital.
Q2) When the expenses are closed:
A)Owner's Capital will be debited.
B)Income Summary will be debited.
C)Income Summary will be credited.
D)None of these are correct.
Q3) Revenues and expenses are closed to the Income Summary account.
A)True
B)False
Q4) Income Summary does not have a normal balance.
A)True
B)False
Q5) The first entry to close accounts is to debit Revenue and credit Income Summary. A)True
B)False
7
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Chapter 6: Banking Procedure and Control of Cash
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Q1) Determine the cash short (-)or over (+)given the following: The balance per the petty cash account $100
The count of coin and currency amounts to $20
There are receipts: for telephone costs of $25, for supplies of $6, for transportation $6, for funeral flowers $38
$ ________
Q2) The drawee of the check is the person receiving the money.
A)True
B)False
Q3) Phishing occurs when a bank customer receives an email requesting personal information.
A)True
B)False
Q4) If the owner of Que Legal Services forgot to deduct a withdrawal from the balance per books, what entry would be necessary?
A)Debit Cash; credit Withdrawals
B)Debit Withdrawals; credit Cash
C)Debit Revenue; credit Cash
D)Debit cash; credit Revenue
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Chapter 7: Calculating Pay and Payroll Taxes: The
Beginning of the Payroll Process
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Q1) An employee has gross earnings of $1000 and withholdings of $60 FICA (OASDI and Medicare), and $50 for income taxes (FIT and SIT). The employer pays $60 FICA (OASDI and Medicare), $10 for SUTA, and $5.60 FUTA. What is the employer's total cost of the employee?
A)$915.60
B)$1,085.60
C)$975.60
D)$1,035.60
Q2) Generally, employers can take a credit against the FUTA tax for contributions paid into the state unemployment funds.
A)True
B)False
Q3) A FUTA tax credit:
A)is given to employers who pay their state unemployment taxes on time.
B)is usually in the amount of 5.4%
C)is applied against the 6.2% standard rate.
D)All of the above are correct.
Q4) The employer's payroll taxes are deducted from the employee's paycheck.
A)True
B)False
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Chapter 8: Paying, Recording, and Reporting Payroll and Payroll Taxes: the Conclusion of the Payroll Process
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Q1) Form 941 taxes include OASDI, Medicare, and federal unemployment tax.
A)True
B)False
Q2) Which of the following does not apply to both a W-2 and W-3?
A)Reports the total amount of wages, tips and compensation paid to the employee.
B)Reports the total OASDI and Medicare taxes withheld.
C)Sent to the Social Security Administration.
D)Employees use both forms to prepare their personal tax returns.
Q3) Which form is used to report FICA taxes for the employer and employee, and also federal income taxes for the employee?
A)Form 941
B)Form 944
C)Form W-4
D)Form W-2
Q4) Why would a company use a separate payroll cash account?
A)Provides for better internal control
B)Ease of account reconciliation
C)Determine whether or not the employee has cashed their check
D)All of the above are correct.
Q5) Compute the employees' FICA-Medicare. ________
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Chapter 9: Sales and Cash Receipts
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Q1) Determine the amount of net sales given: gross sales = $200,000 sales discounts = $25,000 sales returns and allowances = $40,000
$ ________
Q2) Gross sales equals:
A)net sales minus sales discount.
B)sales discount less net income.
C)the total of cash sales and credit sales.
D)net income plus gross profit.
Q3) Medeco sold goods for $100 to a charge customer. The customer returned for credit $25 worth of goods. Terms of the sale were 1/10, n/30. If the customer pays the amount owed within the discount period, what is the amount the customer should pay?
A)$74.25
B)$75.00
C)$100.00
D)$90.00
Q4) Explain how the record keeping differs between a cash sale and a credit sale.
Q5) Compare and discuss a discount period versus a credit period.
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Chapter 10: Purchases and Cash Payments
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Q1) On September 6, Mark purchased merchandise for his electric store. The invoice was for $35,000 plus freight of $750, terms 2/15, n/30. The freight was included on the invoice.
On September 10, Mark returned merchandise for $5,000 credit. On September 19, Mark paid the amount owed. Fill in the blanks below.
a)The credit to Accounts Payable on September 6 is ________.
b)The debit to Freight-In on September 6 is ________.
c)The debit to Accounts Payable on September 10 is ________.
d)The credit to Purchases Discount on September 19 is ________.
e)The credit to Cash on September 19 is ________.
Q2) The Schedule of Accounts Payable is listed alphabetically.
A)True
B)False
Q3) Returned merchandise for credit on account. The perpetual inventory system is in use. This will be recorded with:
A)a debit to a liability and a credit to an expense.
B)a debit to an asset and a credit to an expense.
C)a debit to a liability and a credit to an asset.
D)a debit to an asset and a credit to a liability.
Q4) Explain the difference between F.O.B. shipping point and F.O.B. destination.
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Chapter 11: Preparing a Worksheet for a Merchandise Company
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Q1) The financial statement on which Unearned Rent would appear is:
A)the income statement.
B)the balance sheet.
C)the owner's equity statement.
D)Unearned Rent is not reported until earned.
Q2) Which of the following items generally has a credit balance in the income statement columns of the worksheet?
A)Purchase Returns and Allowances
B)Purchases
C)Accumulated Depreciation
D)Sales Discounts
Q3) The trial balance columns on the worksheet are populated using the:
A)general journal.
B)general ledger.
C)subsidiary ledger.
D)None of the above.
Q4) Under the accrual system, expenses are recorded when incurred.
A)True
B)False
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Q5) Discuss the reasons a company would consider using a periodic inventory system.
Chapter 12: Completion of the Accounting Cycle for a Merchandise Company
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Q1) The amount shown in the adjustments credit column for Merchandise Inventory on the worksheet is:
A)beginning inventory.
B)ending inventory.
C)total purchases.
D)Cost of Goods Sold.
Q2) Which of the following is not an operating expense?
A)Payroll Tax Expense
B)Freight-in
C)Supplies Expense
D)Salaries Expense
Q3) Reversing entries occur at the beginning of the accounting period and:
A)help to reduce potential errors.
B)simplify the bookkeeping associated with accruals from the prior period.
C)reverse the adjusting entries.
D)All of the above are correct.
Q4) Reversing entries are recorded on the first day of the new accounting period.
A)True
B)False
14
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Chapter 13: Accounting for Bad Debts
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Q1) The Allowance for Doubtful Accounts is shown on the balance sheet as a contra-asset.
A)True
B)False
Q2) Using the balance sheet approach, the balance in Allowance for Doubtful Accounts is taken into consideration when finding the adjustment.
A)True
B)False
Q3) The Allowance for Doubtful Accounts is adjusted:
A)at the end of each accounting period.
B)each time a customer's debt is satisfied.
C)within one year of granting credit to a customer.
D)each time a customer is granted credit.
Q4) A company is not able to reasonably estimate its bad debts expense. The method it may use is:
A)net realizable value method.
B)direct write-off method.
C)aging method.
D)income statement method.
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Chapter 14: Notes Receivable and Notes Payable
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Q1) The proceeds can never be less than the face value.
A)True
B)False
Q2) A note that is not paid on the maturity date is considered dishonored.
A)True
B)False
Q3) When an interest-bearing note comes due and is uncollectible, the journal entry includes:
A)debiting Notes Receivable; crediting Accounts Receivable.
B)debiting Notes Receivable; crediting Accounts Receivable and Interest Revenue.
C)debiting Accounts Receivable and crediting Interest Revenue.
D)debiting Accounts Receivable and crediting Notes Receivable and Interest Revenue.
Q4) The effective interest rate on a discounted note payable is greater than the rate on the note.
A)True B)False
Q5) The maturity date of a 60-day note dated April 5 is June 3.
A)True
B)False
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Chapter 15: Accounting for Merchandise Inventory
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Q1) Returned merchandise inventory for credit - Periodic Debit ________ & ________ Credit ________ & ________
Q2) The journal entry to record a purchase of inventory on credit under the perpetual system includes:
A)a debit to Merchandise Inventory.
B)a debit to Purchases.
C)a credit to Accounts Payable.
D)both A and C.
Q3) This inventory method produces the lowest income tax during a period of inflation.
A)LIFO
B)FIFO
C)Weighted-average
D)All would have the same tax effect.
Q4) The inventory method that assumes the oldest goods are sold first is:
A)LIFO.
B)FIFO.
C)weighted-average.
D)specific invoice.
Q5) Title passes immediately to the buyer under FOB ________.
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Chapter 16: Accounting for Property, Plant, Equipment, and Intangible Assets
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Q1) Budgeting for items such as equipment and furniture would be considered:
A)capital expenses.
B)capital expenditures.
C)general expenses.
D)general expenditures.
Q2) The exclusive right to produce and sell a manuscript is called a: A)copyright.
B)franchise.
C)patent.
D)goodwill.
Q3) What would be the depreciation expense in year 1, using units-of-production, for a molding machine that cost $18,000, had a useful life of 3 years, no residual value, and an estimated total machine hours of 36,000? Production in year 1 was 10,000 hours.
A)$2,667
B)$4,000
C)$6,000
D)$5,000
Q4) Define and compare capital expenditures and revenue expenditures.
Q5) Payments for ordinary maintenance of an asset are called ________.
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Chapter 17: Partnership
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Q1) A statement of partner's equity is the same as a statement of owner's equity except for:
A)there is a capital account for all partners.
B)net income is assigned to one partner.
C)no additional investment by partners are shown on the statement.
D)There is no difference in the statements.
Q2) James wants to invest cash so that he will have a one-third interest in Thomas and Stanley's company. The capital balances are $2,000 Thomas, $6,000 Stanley. The admission of James would be to:
A)debit Cash $2,666.67; credit James, Capital $2,666.67.
B)debit Cash $5,333.33; credit James, Capital $5,333.33.
C)debit Cash $3,000; credit James, Capital $3,000.
D)debit Cash $4,000; credit James, Capital $4,000.
Q3) "Limited life" in a partnership agreement means:
A)a partnership is limited in the amount of debt it is liable for in the course of the business.
B)a partnership is limited to the amount of revenue it can earn.
C)a partnership may be dissolved if the location of the business has changed.
D)a partnership may be dissolved as the result of any change in the ownership.
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Chapter 18: Corporations: Organizations and Stock
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Q1) The entry to record selling 300 shares of no-par common stock with a stated value of $60 for $70 would be to:
A)debit Cash $21,000; credit Common Stock $21,000.
B)debit Cash $18,000; credit Common Stock $18,000.
C)debit Cash $21,000; credit Common Stock $18,000; debit Paid-in Capital in Excess of Par Value-Common $3,000.
D)debit Cash $21,000; credit Common Stock $18,000; credit Paid-in Capital in Excess of Stated Value-Common $3,000.
Q2) The financial loss that each stockholder in a corporation can incur is limited to the amount invested by the stockholder.
A)True
B)False
Q3) No entry was recorded for the exchange of stock for land. This error would cause:
A)the period end stockholders' equity to be understated.
B)the period end stockholders' equity to be overstated.
C)the period's net income to be understated.
D)Both A and C are correct.
Q4) Describe a stock subscription plan.
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Chapter 19: Corporations: Stock Values, Dividends, Treasury
Stocks, and Retained Earnings
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Q1) Cody's Western Wear has 2,000 shares of $10 par value common stock outstanding. During the current year, the company distributed a 10% stock dividend. The market value of the stock at that time was $16 per share. Cody's total stockholders' equity should increase or decrease by:
A)$0.
B)$1,200.
C)$2,000.
D)($3,200).
Q2) When a stock dividend is distributed, the account to be credited would be: A)common stock.
B)paid-in capital in excess of par.
C)stock dividends distributable.
D)stock dividends.
Q3) Sold treasury stock at a price below cost when there was not enough paid-in capital from treasury stock to absorb the difference between cost and selling price.
Debit ________ & ________ & ________ Credit ________ & ________ &
Q4) Sold treasury stock at a price equal to cost.
Debit ________ & ________ & ________ Credit ________ & ________ &
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Chapter 20: Corporations and Bonds Payable
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Q1) The amount to be paid on the maturity date of a bond is called the:
A)face value of the bond.
B)current market value of the bond.
C)quoted value of the bond.
D)indenture amount of the bond.
Q2) Bonds discount and bonds premium are liabilities to the corporation.
A)True
B)False
Q3) A $1,000 bond quoted at 96.5 would sell for:
A)$1,000.
B)$965.
C)$96.50.
D)None of the above.
Q4) On July 1, Carly Corporation issued 10-year 9%, $600,000 bonds for $640,771, a price to yield 8% market rate. Interest dates are June 30 and December 31. Record the following journal entries:
a. Issuance of the bonds.
b. The semiannual interest payment and amortization of the premium on December 31 using the interest method.
Q5) What is the purpose of a bond sinking fund?
Page 22
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Chapter 21: Statement of Cash Flows
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Q1) Even though the cost of fuel oil is rising, management is considering using up the business's reserves and not ordering any more this period. How will this decision affect the period's cash flows from operations-indirect method?
A)It will increase this period's cash flows from operations.
B)It will decrease this period's cash flows from operations.
C)It will not affect this period's cash flows from operations.
D)This does not affect cash flows from operations.
Q2) A statement of cash flow's purpose is to:
A)show the revenue earned.
B)show the profits that were generated.
C)show the expenses that were incurred.
D)show how cash was generated and used during an accounting period.
Q3) When a corporation pays dividends it:
A)does not affect the cash flow statement.
B)is shown as an investing activity.
C)is shown as a financing activity.
D)is shown as an operating activity.
Q4) Financing activities include transactions with owners and creditors.
A)True
B)False
Page 23
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Chapter 22: Analyzing Financial Statements
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Q1) Tom's Toys has a cash balance of $80,000; temporary investments of $20,000; net receivables of $60,000; and inventory of $450,000. Tom's current liabilities total $200,000. His quick (acid test)ratio is:
A)3.05 to 1.
B)2.25 to 1.
C)0.80 to 1.
D)0.54 to 1.
Q2) If management wishes to know the ability to pay off the upcoming debts of a business, they could use the:
A)debt to total assets.
B)current ratio
C)inventory turnover ratio.
D)times interest earned.
Q3) Carla's Fashions has an average collection period of 30 days. You could infer that Carla's Fashions:
A)bills her customers monthly.
B)bills her customers quarterly.
C)has an accounts receivable turnover of approximately 12.
D)Both A and C can be inferred.
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Chapter 23: The Voucher System
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Q1) Written authorizations for cash payments are called vouchers.
A)True
B)False
Q2) A schedule of vouchers payable is prepared from the check register.
A)True
B)False
Q3) The entry to record payment of a voucher, for an invoice after the discount period, under the net method will include:
A)a debit to Purchase Discounts.
B)a credit to Purchase Discounts.
C)a debit to Discounts Lost.
D)None of these are correct.
Q4) Separation of duties in a voucher system leads to a more effective ________ for the management of cash payments.
Q5) If a partial payment is made after the voucher is prepared:
A)the old voucher is cancelled and a new voucher is prepared for each installment.
B)the old voucher is credited for the entire amount.
C)Vouchers Payable is debited; Purchases Returns and Allowances is credited.
D)None of these answers are correct.
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Chapter 24: Departmental Accounting
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Q1) Which of the following is not a direct departmental expense in a sales department?
A)Sales salaries
B)Delivery expense for related items
C)Advertising for the sales department
D)All are direct departmental expenses.
Q2) When a company tracks gross profit by department, the sales journal has separate columns for Sales for each department.
A)True
B)False
Q3) A human resource department would be a profit center.
A)True
B)False
Q4) The accountant must always consider operating expenses, such as rent and advertising, when determining gross profit for a department.
A)True
B)False
Q5) Explain the difference between a "cost center" and a "profit center."
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Chapter 25: Manufacturing Accounting
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Q1) The Raw Materials Inventory, Work-in-Process Inventory, and Finished Goods Inventory accounts appear on the manufacturing worksheet in the:
A)balance sheet columns.
B)income statement columns.
C)statement of cost of goods manufactured.
D)all of the above.
Q2) The major difference on the balance sheet of a manufacturing company is to include:
A)a retained earnings section.
B)three inventory accounts, rather than one.
C)prepaid expenses.
D)accrued payroll.
Q3) The estimated manufacturing overhead cost was $20,000 and estimated machine hours were 10,000. Actual manufacturing overhead cost was $22,000 and actual machine hours were 12,000. The overhead application rate per hour based on machine hours is:
A)$1.83.
B)$2.00.
C)$4.00.
D)$5.00.
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