NATIONAL CHENGCHI UNIVERSITY – IMBA PROGRAM

ACCOUNTING FALL 2021

MIDTERM EXAM
October 28, 2021
Instructions
1. This is a closed book exam. Materials other than a one-page note, writing utensils and
calculators (without saving functions) are not permitted for this exam.
2. This exam has two parts with a total of 14 pages. Please be sure to hand in all pages before
leaving the examination hall.
3. Part A consists of 40 multi-choice questions (MCQs) worth a total of 80 marks. Answer these
MCQs ONLY in the answer box provided below.
4. Part B consists of 2 computational and short-answer questions worth a total of 20 marks.
Answer these questions ONLY in the spaces after each question provided in this booklet.
5. Provide your name and student number in the space below.

Name: _________________________ Student Number: ___________________

Multiple-choice Answer Box

1. 2. 3. 4. 5.

6. 7. 8. 9. 10.

11. 12. 13. 14. 15.

16. 17. 18. 19. 20.

21. 22. 23. 24. 25.

26. 27. 28. 29. 30.

31. 32. 33. 34. 35.

36. 37. 38. 39. 40.

*Please write your answers for the multiple choice questions
here. Failure to do so will result in questions not being Score
marked.

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Part A: Multiple Choice (40%)

1. Which of the following would not be reported under "Other income and expense" on the
income statement?
a. Unrealized gain on non-trading securities
b. Dividend revenue
c. Interest revenue
d. Gain on sale of short-term debt investments

2. Treasury shares are

a. shares issued by the U.S. Treasury Department.
b. shares purchased by a corporation and held as an investment in its treasury.
c. corporate shares issued by the treasurer of a company.
d. a corporation's own shares which have been reacquired but not retired.

3. On August 1, 2019, a company borrowed cash and signed a one-year interest-bearing note on
which both the face value and interest are payable on August 1, 2020. How will the note
payable and the related interest be classified in the December 31, 2019, statement of financial
position?
Note Payable Interest Payable
a. Current liability Non-current liability
b. Non-current liability Current liability
c. Current liability Current liability
d. Non-current liability Not shown

4. Equipment was purchased for $120,000. Freight charges amounted to $5,600 and there was a
cost of $16,000 for building a foundation and installing the equipment. It is estimated that the
equipment will have a $24,000 residual value at the end of its 5-year useful life. Depreciation
expense each year using the straight-line method will be
a. $28,320.
b. $23,520.
c. $19,680.
d. $19,200.

5. Stan’s Market recorded the following events involving a recent purchase of merchandise:
Received goods for $50,000, terms 2/10, n/30.
Returned $1,000 of the shipment for credit.
Paid $250 freight on the shipment.
Paid the invoice within the discount period.
As a result of these events, the company’s inventory
a. increased by $48,020.
b. increased by $49,250.
c. increased by $48,265.
d. increased by $48,270.

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6. Which of the following statements concerning receivables is incorrect?
a. Companies report bad debt expense as a selling expense.
b. Both the gross amount of accounts receivable and the allowance for doubtful accounts
should be reported.
c. Interest revenue is shown under other income and expense.
d. Receivables are always classified as current assets.

7. If a company determines cost of goods sold each time a sale occurs, it

a. must have a computerized accounting system.
b. uses a combination of the perpetual and periodic inventory systems.
c. uses a periodic inventory system.
d. uses a perpetual inventory system.

8. The expense recognition principle matches

a. customers with businesses.
b. expenses with revenues.
c. assets with liabilities.
d. creditors with businesses.

9. Which one of the following represents the expanded basic accounting equation?
a. Assets = Liabilities + Share Capital–Ordinary account + Retained Earnings + Dividends
– Revenue – Expenses.
b. Assets + Dividends + Expenses = Liabilities + Share Capital–Ordinary + Retained
Earnings + Revenues.
c. Assets – Liabilities – Dividends = Share Capital–Ordinary + Retained Earnings +
Revenues – Expenses.
d. Assets = Revenues + Expenses – Liabilities.

10. The primary purpose of the statement of cash flows is to

a. provide information about the investing and financing activities during a period.
b. prove that revenues exceed expenses if there is a net income.
c. provide information about the cash receipts and cash payments during a period.
d. facilitate banking relationships.

11. Farr Company purchased a new van for floral deliveries on January 1, 2020. The van cost
€56,000 with an estimated life of 5 years and €14,000 residual value at the end of its useful
life. The double-declining-balance method of depreciation will be used. What is the book
value of the van after the first year of purchase?
a. €39,200
b. €22,400
c. €16,800
d. €33,600

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12. Which one of the following affects cash during a period?
a. Recording depreciation expense
b. Recognizing an unrealized gain on trading debt securities
c. Write-off of an uncollectible account receivable
d. Payment of an accounts payable

13. The per share amount normally assigned by the board of directors to a small share dividend is
a. the market value of the shares on the date of declaration.
b. the average price paid by shareholders on outstanding shares.
c. the par value of the shares.
d. the stated value of the shares.

14. At October 1, Smithson Enterprises reported equity of $280,000. During October, no capital
shares were issued and the company earned net income of $32,000. If equity at October 31
totals $256,000, what amount of dividends were paid during the month?
a. $0
b. $8,000
c. $24,000
d. $56,000

15. For accounting purposes, the method used to account for long-term investments in ordinary
shares is determined by
a. the amount paid for the shares by the investor.
b. the extent of an investor's influence on the operating and financial affairs of the investee.
c. whether the shares has paid dividends in past years.
d. whether the acquisition of the shares by the investor was "friendly" or "hostile."

16. Dividends in arrears on cumulative preference shares

a. are shown in equity in the statement of financial position.
b. must be paid before ordinary shareholders can receive a dividend.
c. should be recorded as a current liability until they are paid.
d. enable the preference shareholders to share equally in corporate earnings with the
ordinary shareholders.

17. Wilton Company reported net income of $80,000 for the year. During the year, accounts
receivable decreased by $7,000, accounts payable increased by $3,000 and depreciation
expense of $5,000 was recorded. Net cash provided by operating activities for the year is
a. $70,000.
b. $95,000.
c. $79,000.
d. $75,000.

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Use the following information for questions 18-20
The following information pertains to Soho Company. Assume that all statement of financial
position amounts represent both average and ending balance figures. Assume that all sales were
on credit.
Assets
Property, plant and equipment $ 210,000
Inventory 20,000
Accounts receivable (net) 30,000
Cash and short-term investments 45,000
Total Assets $305,000

Equity and Liabilities

Shareholders’ equity—ordinary $ 160,000
Non-current liabilities 95,000
Current liabilities 50,000
Total Equity and Liabilities $305,000

Income Statement
Sales revenue $ 120,000
Cost of goods sold 66,000
Gross margin 54,000
Operating expenses 30,000
Net income $ 24,000

Number of ordinary shares 6,000

Market price of ordinary shares $20
Dividends per share .50

18. What is the current ratio for Soho?

a. 1.90
b. 1.50
c. 1.30
d. 0.53

19. What is the profit margin for Soho?

a. 45.0%
b. 44.4%
c. 20.0%
d. 17.7%

20. What is the price-earnings ratio for Soho?

a. 5.0 times
b. 2.5 times
c. 10 times
d. 2.0 times

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21. In preparing its bank reconciliation for the month of April 2020, Franklin, Inc. has available
the following information.
Balance per bank statement, 4/30/20 $60,410
NSF check returned with 4/30/20 bank statement 625
Deposits in transit, 4/30/20 7,500
Outstanding checks, 4/30/20 7,800
Bank service charges for April 30
What should be the adjusted cash balance at April 30, 2020?
a. $60,755.
b. $60,110.
c. $59,435.
d. $59,405.

22. Accounts often need to be adjusted because

a. there are never enough accounts to record all the transactions.
b. many transactions affect more than one time period.
c. there are always errors made in recording transactions.
d. management can't decide what they want to report.

23. A factory machine was purchased for $175,000 on January 1, 2020. It was estimated that it
would have a $35,000 residual value at the end of its 5-year useful life. It was also estimated
that the machine would be run 40,000 hours in the 5 years. The company ran the machine for
4,000 actual hours in 2020. If the company uses the units-of-activity method of depreciation,
the amount of depreciation expense for 2020 would be
a. $17,500.
b. $28,000.
c. $35,000.
d. $14,000.

24. The Sales Returns and Allowances account is classified as a(n)

a. asset account.
b. contraasset account.
c. expense account.
d. contrarevenue account.

25. A company purchased factory equipment for ¥2,800,000. It is estimated that the equipment
will have a ¥280,000 residual value at the end of its estimated 5-year useful life. If the
company uses the double-declining-balance method of depreciation, the amount of annual
depreciation recorded for the second year after purchase would be
a. ¥1,120,000.
b. ¥672,000.
c. ¥1,008,000.
d. ¥483,840.

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26. Which one of the following items is not considered a part of the cost of a truck purchased for
business use?
a. Sales tax
b. Accident insurance
c. Freight charges
d. Cost of lettering on side of truck

27. The sale of bonds above face value

a. is a rare occurrence.
b. will cause the total cost of borrowing to be less than the bond interest paid.
c. will cause the total cost of borrowing to be more than the bond interest paid.
d. will have no net effect on Interest Expense by the time the bonds mature.

28. On December 31, 2019, Patel Co. purchased equity securities as trading securities. Pertinent
data are as follows:
Fair Value
Security Cost At 12/31/20
A Rs1,864,000 Rs2,064,000
B 936,000 1,016,000
C 1,376,000 956,000

The journal entry to record the fair value adjustment at December 31, 2020 will include
a. a debit to Fair Value Adjustment-Trading for Rs280,000.
b. a debit to Unrealized Loss – Equity for Rs140,000.
c. a debit to Unrealized Loss – Income for Rs140,000.
d. a credit to Unrealized Gain – Income for Rs280,000.

29. If the market interest rate is greater than the contractual interest rate, bonds will sell
a. at a premium.
b. at face value.
c. at a discount.
d. only after the stated interest rate is increased.

30. If a company sells its accounts receivables to a factor,

a. the seller pays a commission to the factor.
b. the factor pays a commission to the seller.
c. there is a gain on the sale of the receivables.
d. the seller defers recognition of sales revenue until the account is collected.

31. Fontaine Fox Company buys a $12,000 van on credit. This transaction will affect the
a. income statement only.
b. statement of financial position only.
c. income statement and retained earnings statement only.
d. income statement, retained earnings statement, and statement of financial position.

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32. If a gain of $25,000 is incurred in selling (for cash) office equipment having a book value of
$200,000, the total amount reported in the cash flows from investing activities section of the
statement of cash flows is
a. $175,000.
b. $225,000.
c. $200,000.
d. $25,000.

33. Joy Elle’s Vegetable Market had the following transactions during 2020:
 Issued $100,000 of par value ordinary shares for cash.
 Repaid a 6 year note payable in the amount of $44,000.
 Sold a non-current investment (cost $84,000) for cash of $12,000.
 Acquired land by issuing ordinary shares of par value $200,000.
 Declared and paid a cash dividend of $4,000.
 Acquired an investment in IBM shares for cash of $24,000.
What is the net cash provided by investing activities?
a. $24,000
b. $64,000
c. ($12,000)
d. $12,000

34. Touch Tronix, Inc. sells component parts to Advanced Communications, Inc. a cell phone
manufacturer. On December 10, 2020, Touch Tronix, Inc. sold €1,700,000 of goods to
Advanced Communications, Inc. on account for €2,200,000. Terms of the sale were 2/10, net
30. On December 18, 2020, Advanced Communications, Inc. paid the account in full.
Advanced Communications, Inc. uses a perpetual inventory system. Which of the following
is true regarding the impact on the statement of financial position for Advanced
Communications, Inc. when the payment is made on December 18, 2020?
a. Cash decreased by €1,666,000.
b. Inventory decreased by €34,000.
c. Accounts payable decreases by €1,700,000.
d. Inventory decreased by €44,000.

35. Reconciling the bank statement monthly is an example of

a. segregation of duties.
b. independent internal verification.
c. establishment of responsibility.
d. documentation procedures.

36. Under the allowance method, writing off an uncollectible account

a. affects only statement of financial position accounts.
b. affects both statement of financial position and income statement accounts.
c. affects only income statement accounts.
d. is not acceptable practice.

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37. Omega Company pays its employees twice a month, on the 7th and the 21st. On June 21,
Omega Company paid employee salaries of $4,000. This transaction would
a. increase equity by $4,000.
b. decrease the balance in Salaries and Wages Expense by $4,000.
c. decrease net income for the month by $4,000.
d. be recorded by a $4,000 debit to Salaries and Wages Payable and a $4,000 credit to
Salaries and Wages Expense.

38. Closing entries are made

a. in order to terminate the business as an operating entity.
b. so that all assets, liabilities, and equity accounts will have zero balances when the next
accounting period starts.
c. in order to transfer net income (or loss) and dividends to Retained Earnings.
d. so that financial statements can be prepared.

39. Interest expense on an interest-bearing note is

a. always equal to zero.
b. accrued over the life of the note.
c. only recorded at the time the note is issued.
d. only recorded at maturity when the note is paid.

40. Using the following information:

12/31/19
Accounts receivable €2,100,000
Allowance for doubtful accounts (180,000)
Cash realizable value €1,920,000

During 2020, sales on account were €580,000 and collections on account were €344,000.
Also during 2020, the company wrote off €32,000 in uncollectible accounts. An analysis of
outstanding receivable accounts at year end indicated that uncollectible accounts should be
estimated at €236,000.
The change in the cash realizable value from the balance at 12/31/19 to 12/31/20 was a
a. €268,000 increase.
b. €236,000 increase.
c. €148,000 increase.
d. €204,000 increase.

- End of Part A -

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Part B - Short Answer Questions (60%)

Problem 1 (10%)
The adjusted trial balance of C.S. Financial Planners appears below. Using the information from
the adjusted trial balance, you are to
(a) Determine the net income for the month of October.
(b) Determine the total assets, total liabilities, and total equity at October 31, 2021 for C.S.
Financial Planners.

C.S. Financial Planners

Adjusted Trial Balance (in 000)
October 31, 2021
———————————————————————————————————————
Debit Credit
Cash ¥ 4,620
Accounts Receivable 2,600
Interest Receivable 400
Prepaid Rent 780
Supplies 2,800
Equipment 15,000
Financial Assets at FVTOCI—Debt 2,200
Fair Value Adjustment—FVTOCI 500
Allowance for Doubtful Accounts ¥ 400
Accumulated Depreciation—Equipment 4,500
Accounts Payable 3,300
Salaries and Wages Payable 600
Interest Payable 500
Unearned Service Revenue 6,000
Share Capital-Ordinary 10,000
Retained Earnings 4,400
Dividends 2,500
Treasury Shares 1,600
Service Revenue 8,800
Interest Revenue 800
Salaries and Wages Expense 1,100
Supplies Expense 600
Depreciation Expense 2,500
Rent Expense 1,900
Interest Expense 700
Unrealized Holding Gain or Loss—Other Comprehensive Income 500
¥39,800 ¥39,800

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Provide your answers and show your computations below.

(a) Net income = ________________________________

(b) Total assets = _______________________________

Total equity = _______________________________ (Must show the equity components)

Service Revenue 8,800

Interest Revenue 800
Salaries and Wages Expense (1,100)
Supplies Expense (600)
Depreciation Expense (2,500)
Rent Expense (1,900)
Interest Expense (700)
Net income 2,800

Cash 4,620
Accounts Receivable 2,600
Allowance for Doubtful Accounts (400) 2,200
Interest Receivable 400
Prepaid Rent 780
Supplies 2,800
Equipment 15,000
Accumulated Depreciation—Equipment (4,500) 10,500
Financial Assets at FVTOCI—Debt 2,200
Fair Value Adjustment—FVTOCI 500 2,700
Total assets 24,000

Accounts Payable 3,300

Salaries and Wages Payable 600
Interest Payable 500
Unearned Service Revenue 6,000
Total liabilities 10,400
Share Capital-Ordinary 10,000
Retained Earnings 4,700
Treasury Shares (1,600)
AOCI 500
Total equity 13,600

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Problem 2 (10%)
Tuco Company uses the periodic inventory system to account for inventories. Information
related to Tuco Company's inventory at October 31 is given below.
October 1 Beginning inventory 400 units @ ₤10.00 = ₤ 4,000
8 Purchase 800 units @ ₤10.40 = 8,320
16 Purchase 600 units @ ₤10.80 = 6,480
24 Purchase 200 units @ ₤11.60 = 2,320
Assuming 550 units remain on hand at October 31
(a) Show computations to value the ending inventory using the FIFO cost assumption
(b) Show computations to value the ending inventory using the weighted-average cost method
(c) Determine gross profit and inventory turnover when the FIFO cost assumption is used and
the selling price per unit is ₤15 (round your answer to two decimal places if needed).

Provide your answers and show your computations below.

(a) Ending inventory = ________________________________

(b) Ending inventory = ________________________________

(c) Gross profit = _____________________________________

Inventory Turnover = ____________________________________

a. 550 units in ending inventory.

Under FIFO, the units remaining in inventory are the ones purchased most recently.
10/24 200 units @ ₤11.60 = ₤2,320
10/16 350 units @ 10.80 = 3,780
550 units ₤6,100

b. 550 units in ending inventory.

Under average cost method, the weighted average cost per unit must be computed.
₤21,120 ÷ 2,000 units = ₤10.56
550 units × ₤10.56 = ₤5,808

c. Selling price 1,450 units * ₤15 = 21,750

Gross profit = 21,750 – 15,020 = 6,730

d. Inventory turnover = 15,020/ (4,000+6,100)/2 = 21,750/5,050 = 2.97

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 - End of Part B -
Worksheet Page 1 of 2

* You may use the worksheet pages to compute the answers but MUST write your answers in the
space specified. Please hand in your exam and any worksheets to your TA or CA.

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 Worksheet Page 2 of 2

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