Practice Midterm Exam

Intermediate Accounting I

1. What is a purpose of having a conceptual framework?

a. To make sure that economic activity can be identified with a particular legal entity.
b. To segregate activities among competing companies.
c. To provide comparable information for different companies.
d. To enable the profession to more quickly solve emerging practical problems and
to provide a foundation from which to build more useful standards.

2. The underlying theme of the conceptual framework is

a. decision usefulness.
b. understandability.
c. faithful representation.
d. comparability.

3. If, during an accounting period, an expense item has been incurred and consumed but
not yet paid for or recorded, then the end-of-period adjusting entry would involve
a. a liability account and an asset account.
b. an asset or contra asset account and an expense account.
c. a liability account and an expense account.
d. a receivable account and a revenue account.

4. Pappy Corporation received cash of HK$12,000 on September 1, 2019 for one year’s
rent in advance and recorded the transaction with a credit to Unearned Rent Revenue.
The December 31, 2019 adjusting entry is
a. debit Rent Revenue and credit Unearned Rent Revenue, HK$4,000.
b. debit Rent Revenue and credit Unearned Rent Revenue, HK$8,000.
c. debit Unearned Rent Revenue and credit Rent Revenue, HK$4,000.
d. debit Cash and credit Unearned Rent Revenue, HK$8,000.

5. Which of the following is an ingredient of relevance?

a. Verifiability.
b. Timeliness.
c. Predictive value.
d. Neutrality.

6. Which of the following would not be a correct form for an adjusting entry?
a. A debit to a revenue and a credit to a liability
b. A debit to an expense and a credit to a liability
c. A debit to a liability and a credit to a revenue
d. A debit to an asset and a credit to a liability

7. Panda Corporation paid cash of Rp12,000 on June 1, 2019 for one year’s rent in
advance and recorded the transaction with a debit to Prepaid Rent. The December 31,
2019 adjusting entry is
a. debit Prepaid Rent and credit Rent Expense, Rp5,000.
b. debit Prepaid Rent and credit Rent Expense, Rp7,000.
c. debit Rent Expense and credit Prepaid Rent, Rp7,000.
d. debit Prepaid Rent and credit Cash, Rp5,000.
8. During the first year of Wilkinson Co.'s operations, all purchases were recorded as
assets. Supplies in the amount of €19,350 were purchased. Actual year-end supplies
amounted to €5,450. The adjusting entry for supplies will
a. increase net income by €13,900.
b. increase expenses by €13,900.
c. decrease supplies by €5,450.
d. debit Accounts Payable for €5,450.

9. Use the following information (in thousands):

Sales revenue ¥300,000
Gain on sale of equipment 90,000
Cost of goods sold 164,000
Interest expense 16,000
Selling & administrative expenses 30,000
Income tax rate 30%

Determine the amount of income from operations.

a. ¥76,000
b. ¥196,000
c. ¥60,000
d. ¥180,000

10. Benedict Corporation reports the following information:

Net income €500,000
Dividends on ordinary shares 140,000
Dividends on preference shares 60,000
Weighted average ordinary shares outstanding 125,000
Benedict should report earnings per share of
a. €2.40.
b. €2.88.
c. €3.52.
d. €4.00.

11. Use the following information (in thousands):

Sales revenue ¥300,000
Gain on sale of equipment 90,000
Cost of goods sold 164,000
Interest expense 16,000
Selling & administrative expenses 30,000
Income tax rate 30%

Determine the amount of income before taxes.

a. ¥76,000
b. ¥196,000
c. ¥60,000
d. ¥180,000

12. Arreaga Corp. has a tax rate of 40 percent and income before non-operating items of
€262,000. It also has the following items (gross amounts).
Unusual loss € 37,000
Discontinued operations loss 101,000
 Gain on disposal of equipment 8,000
Change in accounting principle
increasing prior year's income 53,000
What is the amount of income tax expense Arreaga would report on its income
statement?
a. €104,800
b. €93,200
c. €111,200
d. €74,000

13. Pullman Corporation had retained earnings of €2,100,000 at January 1, 2019. During
the year the company experienced a net loss of €900,000 and declared cash dividends
of €240,000. It was discovered in 2019 that €150,000 of repair expense was debited
to the Land account in 2018. The income tax rate is 20%. Determine the retained
earnings balance at December 31, 2019.
a. €810,000
b. €1,080,000
c. €1,050,000
d. €840,000

14. Sauder Corporation reports the following information:

Net income HK$750,000
Depreciation expense 210,000
Increase in accounts receivable 90,000
Sauder should report cash provided by operating activities of
a. HK$450,000.
b. HK$630,000.
c. HK$870,000.
d. HK$1,050,000.

15. Harding Corporation reports the following information:

Net income R$1,000,000
Depreciation expense 280,000
Increase in accounts receivable 120,000
Harding should report cash provided by operating activities of
a. R$600,000.
b. R$840,000.
c. R$1,160,000.
d. R$1,400,000.

16. Caroline, Inc. had the following transactions during 2019:

Exchanged land for a building £764,000

Purchased treasury shares 160,000
Paid cash dividend 380,000
Purchased equipment 212,000
Issued ordinary shares 588,000

What is Caroline, Inc.’s net cash provided (used) by financing activities?

a. £600,000 provided by financing activities.
 b. £48,000 provided by financing activities.
c. £48,000 used by financing activities.
d. £428,000 used by financing activities.

17. Which table would you use to determine how much must be deposited now in order to
provide for 5 annual withdrawals at the beginning of each year, starting one year hence?
a. Future value of an ordinary annuity of 1
b. Future value of an annuity due of 1
c. Present value of an annuity due of 1
d. None of these answer choices are correct.

18. Which table would you use to determine how much you would need to have deposited
three years ago at 10% compounded annually in order to have $1,000 today?
a. Future value of 1 or present value of 1
b. Future value of an annuity due of 1
c. Future value of an ordinary annuity of 1
d. Present value of an ordinary annuity of 1

19. Caroline, Inc. had the following transactions during 2019:

Exchanged land for a building €764,000

Purchased treasury shares 160,000
Paid cash dividend 380,000
Purchased equipment 212,000
Issued ordinary shares 588,000

What is Caroline, Inc.’s net cash provided (used) by investing activities?

a. €212,000 used by investing activities.
b. €552,000 provided by investing activities.
c. €372,000 used by investing activities.
d. €392,000 provided by investing activities.

20. Olmsted Company has the following items: share capital–ordinary, €920,000; treasury
shares, €85,000; and retained earnings, €363,000. What amount should Olmsted
Company report as total equity?
a. €1,098,000.
b. €1,198,000.
c. €1,298,000.
d. €1,398,000.

21. Seadrill Engineering licensed software to oil-drilling firms for 5 years. In addition to
providing the software, the company also provides consulting services and support to
ensure smooth operation of the software. The total transaction price is €420,000.
Based on standalone values, the company estimates the consulting services and
support have a value of €120,000 and the software license has a value of €300,000.
Assuming the performance obligations are not interdependent, the journal entry to
record the transaction includes
a. a credit to Sales Revenue for €300,000 and a credit to Unearned Service Revenue
of $120,000.
b. a credit to Service Revenue of €120,000.
c. a credit to Unearned Service Revenue of €120,000.
d. a credit to Sales Revenue of €420,000.
22. Entertainment Tonight, Inc. manufactures and sells stereo systems that include an
assurance-type warranty for the first 90 days. Entertainment Tonight also offers an
optional extended coverage plan under which it will repair or replace any defective part
for 2 years beyond the expiration of the assurance-type warranty. The total transaction
price for the sale of the stereo system and the extended warranty is €3,000. The
standalone price of each is €2,300 and €900, respectively. The estimated cost of the
assurance-warranty is €350. The accounting for warranty will include a
a. debit to Warranty Expense, €900.
b. debit to Warranty Liability, €350
c. credit to Warranty Liability, €900
d. credit to Unearned Warranty Revenue, €900

23. Seasons Construction is constructing an office building under contract for Cannon
Company and uses the percentage-of-completion method. The contract calls for
progress billings and payments of €1,550,000 each quarter. The total contract price is
€18,600,000 and Seasons estimates total costs of $17,750,000. Seasons estimates
that the building will take 3 years to complete, and commences construction on
January 2, 2018.

Seasons Construction completes the remaining 25% of the building construction on

December 31, 2020, as scheduled. At that time the total costs of construction are
€18,750,000. What is the total amount of Revenue from Long-Term Contracts and
Construction Expenses that Seasons will recognize for the year ended December 31,
2020?
Revenue Expenses
a. €18,600,000 €18,750,000
b. €4,650,000 € 4,687,500
c. €4,650,000 € 5,250,000
d. €4,687,500 € 4,687,500

24. Cash equivalent is a short-term, highly liquid investment that is readily convertible into
known amounts of cash and
a. is acceptable as a means to pay current liabilities.
b. has a current market value that is greater than its original cost.
c. bears an interest rate that is at least equal to the prime rate of interest at the date
of liquidation.
d. is so near its maturity that it presents insignificant risk of changes in interest rates.

25. AG Inc. made a €10,000 sale on account with the following terms: 1/15, n/30. If the
company uses the gross method to record sales made on credit, what is/are the debit(s)
in the journal entry to record the sale?
a. Debit Accounts Receivable for €9,900
b. Debit Accounts Receivable for €9,900 and Sales Discounts for €100
c. Debit Accounts Receivable for €10,000
d. Debit Accounts Receivable for €10,000 and Sales Discounts for €100

26. Wellington Corp. has outstanding accounts receivable totaling €3 million as of

December 31 and sales on credit during the year of €15 million. There is also a debit
balance of €12,000 in the allowance for doubtful accounts. If the company estimates
that 8% of its outstanding receivables will be uncollectible, what will be the balance in
 the allowance for doubtful accounts after the year-end adjustment to record bad debt
expense?
a. € 1,200,000
b. € 228,000
c. € 240,000
d. € 252,000

27. McGlone Corporation had a 1/1/19 balance in the Allowance for Doubtful Accounts of
€15,000. During 2019, it wrote off €10,800 of accounts and collected €3,150 on
accounts previously written off. The balance in Accounts Receivable was €300,000 at
1/1 and €360,000 at 12/31. At 12/31/19, McGlone estimates that 5% of accounts
receivable will prove to be uncollectible. What should McGlone report as its Allowance
for Doubtful Accounts at 12/31/19?
a. €7,200
b. €7,350
c. €10,350
d. €18,000

28. On December 31, 2019, Flint Corporation sold for €75,000 an old machine having an
original cost of €135,000 and a book value of €60,000. The terms of the sale were as
follows:
€15,000 down payment
€30,000 payable on December 31 each of the next two years
The agreement of sale made no mention of interest; however, 9% would be a fair rate
for this type of transaction. What should be the amount of the notes receivable net of
the unamortized discount on December 31, 2019 rounded to the nearest dollar? (The
present value of an ordinary annuity of 1 at 9% for 2 years is 1.75911.)
a. €52,773
b. €67,773
c. €60,000
d. €105,546