NATIONAL UNIVERSITY OF SINGAPORE

NUS BUSINESS SCHOOL

DEPARTMENT OF ACCOUNTING
ACC1002X FINANCIAL ACCOUNTING
MID-TERM TEST
Saturday 1 October 2011
Time Allowed: 1 hour
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INSTRUCTIONS TO CANDIDATES
1.

This test paper consists of THIRTY (30) multiple-choice questions.

2.

Answer ALL questions by shading the letter representing the best answer on the
computer scoring sheet using pencils. If you just mark on this question paper, your
answers will not be marked.

3.

This is a close-book test. You are not allowed to bring in any materials other than pens,
pencils, erasers and calculators.

4.

Make sure you write your name and your matriculation number below on both this
question paper and the computer scoring sheet which must be submitted at the end of the
test. If you provide us with a wrong matriculation number, you will receive zero for this
test.

Name:
Matriculation Number:

For Examiners Use Only:

Total

Marks
/ 30

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MCQ (1 mark per question, total 30 marks)

1. Which of the following statements is true about a sole proprietorship?

A. The owner and the business are separate legal entities but not
separate accounting entities.
B. The owner and the business are separate accounting entities but not
separate legal entities.
C. the owner and the business are separate legal entities and separate
accounting entities.
D. most large businesses in this country are organized as sole
proprietorships.

2. Which of the following items is an expense?

A. Accounts Payable
B. Cost of Goods Sold
C. Accounts Receivable
D. Sales Revenue

3. The ending retained earnings balance of Juan's Mexican Restaurant

chain increased by $3.2 million from the beginning of the year. The
company had declared a dividend of $1.3 million during the year. What
was the net income earned during the year?
A. $1.9 million
B. $3.2 million
C. $4.5 million
D. There is not enough information given to determine net income.

4. The term used for economic resources owned by an entity as a result of

past transactions is
A. assets.
B. liabilities.
C. revenues.
D. retained earnings.
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5. What events cause changes in a corporation's retained earnings?

A. Net income or net loss and declaration of dividends.
B. Declaration of dividends and issuance of stock to new stockholders.
C. Net income, issuance of stock, and borrowing from a bank.
D. Declaration of dividends and purchase of new machinery.

6. A company would report a net loss when

A. retained earnings decreased due to paying dividends to stockholders.
B. its assets decreased during an accounting period.
C. its liabilities increased during an accounting period.
D. its expenses exceeded its revenues for an accounting period.

7. The financial statement that reports the financial position of a business

is the
A. income statement.
B. balance sheet.
C. statement of cash flows.
D. footnotes to the financial statements.

8. Atlantic Corporation reported the following amounts at the end of the first
year of operations: contributed capital $100,000; sales revenue
$400,000; total assets $300,000; $20,000 dividends; and total liabilities
$160,000. Retained earnings and total expenses would be
A. retained earnings $40,000 and expenses $340,000.
B. retained earnings $60,000 and expenses $320,000.
C. retained earnings $140,000 and expenses $240,000.
D. retained earnings $160,000 and expenses $220,000.

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9. Which of the following statements concerning the debit-credit feature of

the accounting equation is correct?
A. Debits are entered on the right and credits are entered on the left.
B. A debit entry will decrease a liability account and increase an asset
account.
C. Stock sold to investors increases stockholders' equity and is recorded
as a debit.
D. A liability account should be credited upon payment of an account
payable.

10. Sale of stock to investors for $300,000 cash would

A. increase cash by a debit and increase contributed capital by a credit.
B. increase cash by a credit and increase contributed capital by a debit.
C. increase retained earnings by a debit and increase cash by a credit.
D. increase cash by a debit and increase retained earnings by a credit.

11. Which of the following transactions will cause both the left and right
side of the accounting equation to decrease?
A. We collect cash from a customer who owed us money.
B. We pay a supplier for inventory we previously bought on account.
C. We borrow money from the bank.
D. We purchase equipment for cash.

12. The collection of an account receivable from a customer would

A. increase liabilities.
B. decrease liabilities.
C. not affect liabilities.
D. decrease stockholders' equity.

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13. Which of the following transactions would cause retained earnings to

increase?
A. Collection of a customer's account.
B. Loan from a bank.
C. Sale of service to a customer.
D. Wage costs owed to employees.

14. Stockholders' equity is

A. probable debts or obligations of an entity as a result of past
transactions which will be paid with assets or services.
B. assets minus liabilities.
C. probable future economic benefits owned by an entity as a result of
past transactions.
D. the financing provided by the creditors of a business.

15. The assumption that the assets and liabilities of the business are
accounted for on the books of the company but not included in the
records of the owner is the
A. unit-of-measure assumption.
B. continuity assumption.
C. historical cost principle.
D. separate entity assumption.

16. The following is the correct order for preparing the financial statements.
A. Balance sheet, statement of retained earnings, income statement,
and statement of cash flows.
B. Statement of cash flows, balance sheet, statement of retained
earnings, and income statement.
C. Balance sheet, income statement, statement of retained earnings,
and statement of cash flows.
D. Income statement, statement of retained earnings, balance sheet,
and statement of cash flows.

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17. Boone's Cleaning Service performed cleaning services during

December, 2009, but had not collected any cash (or other assets) from
its customers by the end of the accounting period, December 31, 2009.
What effect did performing these services have on the accounting
equation?
A. Increased assets and increased liabilities.
B. Increased assets and increased stockholders' equity.
C. Increased assets and decreased stockholders' equity.
D. Decreased liabilities and decreased stockholders' equity.

18. Which group of accounts contains only those that normally have a debit
balance?
A. Prepaid expenses, wages payable, and contributed capital
B. Cash, utilities expense, and accounts receivable
C. Retained earnings, cost of sales, and wages expense
D. Utilities expense, prepaid expenses, and wages payable

19. Which of the following liability accounts is likely to be satisfied with

other than payment of cash?
A. Wages payable
B. Unearned subscriptions revenue
C. Accounts payable
D. Taxes payable

20. Which of the following is an example of revenue or expense recognized

in the current period's income statement?
A. Cash received from a client before the lawyer represents them in
court.
B. Inventory purchased by a retail store.
C. Wage costs owed to employees who worked during the period.
D. Cash collected from an accounts receivable.

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21. Revenue is always recognized when

A. expenses are paid.
B. cash is collected.
C. it is earned.
D. the end of the period arrives.

22. A landlord received $5,000 cash for December 2011's rent but the
tenant's rent for December is $8,000. Which of the following is true for
year ended 2011?
A. $8,000 would be reported on the statement of cash flows.
B. $8,000 would appear on the balance sheet as rent receivable.
C. $8,000 would appear on the income statement as rent revenue
earned.
D. $5,000 would appear on the balance sheet as prepaid rent.

23. Which of the following expenses is usually listed last on the income
statement?
A. Cost of sales
B. Salaries and benefits expense
C. Advertising expense
D. Income tax expense

24. Which of the following accounts is NOT closed at the end of the year?
A. Interest receivable
B. Cost of goods sold
C. Depreciation expense
D. Sales revenue

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25. The essential difference between an unadjusted trial balance and an

adjusted trial balance is that an
A. unadjusted trial balance is prepared at the start of the accounting
year, while an adjusted trial balance is prepared at the end of the
year.
B. unadjusted trial balance is prepared by companies that make
adjusting entries, while an adjusted trial balance is prepared by
companies that do not make adjusting entries.
C. unadjusted trial balance is prepared before the adjusting entries are
reflected, while an adjusted trial balance is prepared after the
adjusting entries are reflected.
D. unadjusted trial balance is prepared after the post-closing trial
balance.

26. At the end of its accounting period, December 31, 2009, August
Corporation owed $1,000 for property taxes for the current year, which
had not been recorded or paid. Therefore, the 2009, adjusting entry
should be
A. $1,000 credited to an expense account and debited to a liability
account.
B. $1,000 debited to an expense account and credited to an asset
account.
C. $1,000 credited to a liability account and debited to an expense
account.
D. $1,000 debited to a liability account and credited to an asset
account.

27. When preparing a bank reconciliation, which of the following would be

deducted from the company's cash balance?
A. Interest paid by bank.
B. Deposits in transit.
C. Outstanding checks.
D. Bank service charges.

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28. Effective control of cash requires that

A. approval and authorization procedures be removed, to generate cost
savings.
B. cash be deposited monthly in a bank.
C. there be segregation of duties.
D. a reconciliation of the bank balance with the cash balance be
prepared twice a year.

29. In 2009, Deckers reported an accounts receivables turnover ratio of 6.8

and their competitor, Timberland's, reported a ratio of 8.4. Which of the
following is false?
A. Deckers needs to increase their ratio in order to improve collection
time.
B. Deckers needs to focus on improving their credit and collection
process.
C. Deckers has done a better job of collecting their accounts
receivables than Timberland's.
D. Deckers requires more time to collect accounts receivables than
Timberland's

30. At year end, Chief Company has a balance of $10,000 in accounts

receivable of which $1,000 is more than 30 days overdue. Chief has a
credit balance of $100 in the allowance for doubtful accounts before
any year-end adjustments. Chief estimates its bad debts losses at 1%
of current accounts and 10% of accounts over thirty days. What
adjustment should Chief make to the allowance for doubtful accounts?
A. $120 (credit).
B. $100 (credit).
C. $90 (credit).
D. No adjustment as the current balance is correct.

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