Accounting 221 Mid Term Exam

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Accounting 221
Exam 1 -- Fall 2003
Multiple Choice (10 points). Select the correct answer for each of the following multiple choice questions. 1. Assets may best be defined as:
a. Economic resources invested by the owners of a business.
b. Tangible economic resources of value.
c. Economic resources invested by the creditors of a business. d. Probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events. e. Probable future economic benefits obtained or controlled by a particular entity as the result of future transactions or events. 2. Which of the following equations is NOT true?

a. Assets - Liabilities - Owners' Equity = Zero
b. Assets = Liabilities + Owners' Equity
c. Assets - Liabilities = Owners' Equity
d. Assets - Owners' Equity = Liabilities
e. Assets + Liabilities = Owners' Equity
3. Which of the following accounts is a liability?
a. Unearned rent revenue.
b. Accounts receivable.
c. Sales.
d. Treasury stock.
e. Retained earnings.
4. The two components of stockholders' equity on a balance sheet for a corporation are: a. Liabilities and Capital Stock.
b. Assets and Retained Earnings.
c. Assets and Liabilities.
d. Capital Stock and Retained Earnings.
e. Liabilities and Retained Earnings.
5. Which of the following statements is FALSE?
a. Asset accounts are increased with debits.
b. Liability accounts are increased with credits.
c. Asset accounts are decreased with credits.
d. Owners' equity accounts are increased with credits.
e. Liability accounts are increased with debits.
Matching terms (8 points). Presented below are a number of events and practices that have developed over time. Select the letter that identifies the term best describing the item. (A particular term will only be used once.) Terms:

a. Conservatism | g. Materiality|
b. Cost-benefit| h. Matching|
c. Economic entity assumption| i. Monetary unit assumption| d. Full disclosure| j. Relevance|
e. Going concern assumption| k. Reliability|
f. Historical cost| l. Revenue recognition |

Events and Practices:
_____ 6. A building purchased for $40,000 is recorded at that amount even though its tax appraisal is $35,000. _____ 7. At Pizza King, knowing which employee assembles each pizza might provide useful information to management. However, keeping track of this information is considered time consuming so it is not done. _____ 8. The cost of manufacturing a product is reported as the expense "Cost of Goods Sold" in the period that the product is sold, not in the period when the cash was paid. _____ 9. Even though the company has not collected the cash from customers, it shows revenue on its financial statements because it has delivered the goods to those customers. _____ 10. Prediction of next month's cash needs calls for information such as last period's sales and the rate of sales growth. _____ 11. Accountants have a guideline to use whenever multiple allowable procedures exist. This guideline says, "When in doubt choose the procedure that will be least likely to overstate assets and income." _____ 12. Financial accountants prepare the statements assuming that the company will continue to operate in the future. _____ 13. Following this principle has lead to voluminous footnotes in annual reports.  

14. (15 points). For each of the transactions below, indicate whether the event would change total assets, total liabilities, or total owners' equity and in what direction. Use these abbreviations: I - Increase

D - Decrease
U - Unchanged
TOTAL ASSETS - TOTAL LIABILITIES - TOTAL OWNERS' EQUITY
Example: Issued stock for cash ------- I- U -I
a. Borrowed money from the bank.
b. Purchased supplies on account.
c. Purchased equipment with cash.
d. Paid cash for items purchased last month.
e. Received cash for items sold last month.
15. (5 points). For each of the accounts listed below, indicate whether the account is an asset (A), liability...
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