Devry Acct 504 Midterm


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| | | is converted into a tangible asset during the operating cycle. |

| | | cannot be reported on the balance sheet because it lacks physicalsubstance. |


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8. | Question : | (TCO A) These are selected account balances onDecember 31, 2007.

-Land (location of the corporation's office building) $200,000

-Land (held for future use) 300,000

-Corporate Office Building 1,200,000

-Inventory 400,000

-Equipment 900,000

-Office Furniture 200,000

-Accumulated Depreciation 600,000

What is the total NET amount of property, plant, and equipment that willappear on the balance sheet? |

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| Student Answer: | | $1,900,000 |

| | | $2,600,000 |

| | | $2,200,000 |


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| | | $3,200,000 |

| Instructor Explanation: | Gross cost of plant assets utilized -accumulated depreciation Chapter 2 page 51 |

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9. | Question : | (TCO B) For 2010, Landford Corporation reported netincome of $30,000; net sales $400,000; and average share outstanding6,000. There were no preferred stock dividends. What was the 2010earnings per share? |

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| Student Answer: | | $4.66 |

| | | $0.20 |

| | | $66.67 |

| | | $5.00 |

| Instructor Explanation: | $30,000/6,000 = $5.00

Chapter 2 page 56 ||

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10. | Question : | (TCO B) Liondale Corporation had beginning retainedearnings of $2,292,000 and ending retained earnings of $2,499,000.During the year, they issued common stock totaling $141,000. Therewere no dividends issued. What was their net income for the year? |

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| Student Answer: | | $207,000 |

| | | $ 66,000 |

| | | $348,000 |

| | | $273,000 |

| Instructor Explanation: | $2,499,000 - $2,292,000 = $207,000

Chapter 2 page 57 |

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11. | Question : | (TCO D) On March 1, 2010, Dillon Company hires anew employee who will start the work on March 6. The employee will bepaid on the last day of each month. Should a journal entry be made on

March 6? Why or why not? |

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| Student Answer: | | Yes, the company is now obligated to pay theemployee, thus that event must be recorded on March 6. |

| | | No, hiring an employee is an important event; however, it is not aneconomic event that should be recorded on March 6. |

| | | Yes, failure to record the event on March 6 would cause the financialstatements to be misleading. |


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15. | Question : | (TCO D) Which of the following accounts follows therules of debit and credit in relation to increases and decreases in theopposite manner? |

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| Student Answer: | | Prepaid insurance and dividends |

| | | Dividends and medical fees earned |

| | | Interest payable and common stock || | | Advertising expense and land |


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Page: | 123 |

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* Times are displayed in (GMT-07:00) Mountain Time (US & Canada) |

| (TCO E) An accounting time period that is one year in length is called: |

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| Student Answer: | | a fiscal year. |

| | | an interim period. |

| | | the time period assumption. |


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records depreciation expense of $9,000 for the calendar year endingDecember 31, 2010. Which accounting principle has been violated? |

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| Student Answer: | | Revenue recognition principle |

| | | No principle has been violated because M has correctly matched theexpense for using the equipment to the period during which it generatedrevenue. |

| | | Matching principle because the cash was paid in 2007 and should beexpensed in 2007. |

| | | Cost principle |


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4. | Question : | (TCO E) The following is selected information from MCorporation for the fiscal year ending October 31, 2010:

Cash received from customers $300,000

Revenue earned 350,000

Cash paid for expenses 170,000

Expenses incurred 200,000

Based on the accrual basis of accounting, what is M Corporation's netincome for the year ending October 31, 2010? |

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6. | Question : | (TCO A, B) Which of the following expressions isincorrect? |

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| Student Answer: | | Gross profit - operating expenses = net income |

| | | Sales - cost of goods sold - operating expenses = net income |

| | | Net income + operating expenses = gross profit |

| | | Operating expenses - cost of goods sold = gross profit |


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7. | Question : | (TCO B) Hunter Company purchased merchandiseinventory with an invoice price of $3,000 and credit terms of 2/10, n/30.What is the net cost of the goods if Hunter Company pays within the

discount period? ||


| | | $2,760 |

| | | $2,700 |

| | | $3,000 |

| Instructor Explanation: | $3,000 x 98% = $2,940


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Chapter 5 page 234 |

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8. | Question : | (TCO A, B) Jake's Market recorded the following events

involving a recent purchase of merchandise:

Received goods for $20,000, terms 2/10, n/30.

Returned $400 of the shipment for credit.

Paid $100 freight on the shipment.

Paid the invoice within the discount period.

As a result of these events, the company's merchandise inventory: |

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| Student Answer: | | increased by $19,208. |

| | | increased by $19,700. |

| | | increased by $19,306. |

| | | increased by $19,308. |

| Instructor Explanation: | ($20,000 - $400) x 98% = $19,208 + $100 forfreight = $19,308 Chapter 5 page 235 |

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14. | Question : | (TCO B) Which of the following is a true statementabout inventory systems? |

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| Student Answer: | | Periodic inventory systems require more detailed

inventory records. || | | Perpetual inventory systems require more detailed inventory records.|

| | | A periodic system requires cost of goods sold be determined aftereach sale. |

| | | A perpetual system determines cost of goods sold only at the end ofthe accounting period. |


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15. | Question : | (TCO B) A merchandiser that sells directly toconsumers is: |

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| Student Answer: | | a retailer. |


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| | | a wholesaler. |

| | | a broker. |

| | | a service enterprise. |


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Page: | 123 |

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* Times are displayed in (GMT-07:00) Mountain Time (US & Canada) |

TCO D) A classmate is considering dropping his accounting classbecause he cannot understand the rules of debits and credits.

Explain the rules of debits and credits in a way that will help himunderstand them. Cite examples for each of the major sections of thebalance sheet (assets, liabilities and stockholders' equity) and theincome statement (revenues and expenses). |

|| Student Answer: | | The rules of debits and credits are: Assets Debitsincrease Credits increase Liabilities and Stockholders' Equity Creditsincrease Debits decrease The major sections of the balance sheet are:

Assets Total assets Liabiliities and Stockholders' Equity Total liabilitiesand stockholders' equty An example would be: Ladys' Store BalanceSheet January 31, 2012 Assets Cash 15200 Accunts receivable 200Office, equipment 4950 Advertising supplies 1000 Prepaid insurance

550 Total assets 21910 Liabilites and Stockholders' Equity LiabilitesNotes Payable 5000 Accounts Payable 2500 Salaries payable 1200


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Unearned Revenue 800 Interest payable 50 Total liabilties 9550Stockholders' equity Common stock 10000 Retained earnings 2360Total stockholders equity 12360 Total liabilities and stockholders' equity21910 Ladys' Store Income Statement For the Month Ended January 31,

2012 Revenues Service Revenue 10600 Expenses Salaries expense5200 Supplies expense 1500 Rent expense 900 Insurance expense 50Interest Expense 50 Depreciation expense 40 Total expenses 7740 Netincome 2860 |

| Instructor Explanation: | Accounting is based on the double-entrysystem. This system records the dual effect of each transaction in theappropriate accounts, thus keeping the accounting equation in balance.Each transaction is analyzed and recorded using this dual effect system.

If you do not have this basic understanding, the remaining chapters willbecome increasingly more difficult. You will not have the ability to make

journal entries for the many new topics in these upcoming chapters.

Pages 111 through 116 |

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| Comments: | -3 you did not discuss the normal balance for revenue orexpenses |

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2. | Question : | (TCOs B & E) The Caltor Company gathered thefollowing condensed data for the year ended December 31, 2010:

Cost of goods sold $ 710,000

Net sales 1,279,000

Administrative expenses 239,000

Interest expense 68,000

Dividends paid 38,000


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Selling expenses 45,000

Instructions: 1. Prepare an income statement for the year endedDecember 31, 2010. 2. Compute the profit margin ratio and gross profit

rate. Caltor Company s assets at the beginning of the year were$770,000 and were $830,000 at the end of the year. To qualify for fullcredit, you must state the formula you are using, show yourcomputations and explain your findings. |

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| Student Answer: | | Caltor Company Income Statement For the monthEnded December 31, 2010 Revenues Sales 1279000 Cost of GoodsSold 710000 Gross Profit 1989000 Operating Expenses Administrativeexpense 239000 Selling expense 45000 Interest expense 5000 |

| Instructor Explanation: | 1. CALTOR COMPANY

Income Statement

For the Year Ended December 31, 2010 Revenues | | |

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Net sales | | $1,279,000 |

Cost of Goods Sold | | 710,000 |

Gross Profit | | $569,000 |

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Expenses: | | |

Selling expenses | 45,000 | |

Administrative expenses | 239,000 | |

Interest expense | 68,000 | |

Total expenses | | $352,000 |

Net income | $217,000 | |

2. Profit margin ratio: $217,000 $1,279,000 = 16.9%


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Gross profit rate: $569,000 / $1,279,000 = 44.49%

Page 235 and pages 241 through 244 |

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| Comments: | -7 you need to subtract cost of goods sold and you did notfinish the Net Income calculation -10 you did not calculate either ratio |

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Page: | 123 |

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Devry Acct 504 Midterm

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