1. ACCT 211 MIDTERM EXAM
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1) The accounting principle that requires accounting information to be based on
actual cost and requires assets and services to be recorded initially at the cash or
cash-equivalent amount given in exchange, is the:
2) External auditors examine financial statements to verify that they are prepared
according to generally accepted accounting principles.
3) The primary objective of financial accounting is to provide general purpose
financial statements to help external users analyze and interpret an organization's
activities
4) The basic financial statements include all of the following except: Answer
5) Investing activities are the acquiring and disposing of resources that an
organization uses to acquire and sell its products or services.
6) A payment to an owner is called a(n):
7) The Securities and Exchange Commission (SEC) is a government agency that
has legal authority to establish GAAP.
8) An exchange of value between two entities is called:
9) The balance sheet provides a link between beginning and ending income
statements.
10) The journal is known as a book of original entry.
12) An account is a record of increases and decreases in a specific asset,
liability, equity, revenue, or expense item.
13) The right side of a T-account is a(n):
14) Crediting an expense account decreases it.
15) The trial balance is a list of all accounts and their balances at a point in time
taken from the ledger.
16) The credit purchase of a delivery truck for $4,700 was posted to Delivery
Trucks as a $4,700 debit and to Accounts Payable as a $4,700 debit. What effect
would this error have on the trial balance?

2. 17) Land and buildings are generally recorded in the same ledger account.
18) Recording expenses early overstates current-period income; recording
expenses late understates current period income.
19) The revenue recognition principle is the basis for making adjusting entries
that pertain to unearned and accrued revenues.
20) Accumulated depreciation is shown on the balance sheet as a subtraction
from the cost of its related asset.
21) Accrued expenses reflect transactions where cash is paid before a related
expense is recognized.
22) Two main accounting principles used in accrual accounting are matching and
full closure.
23) Adjusting entries are made after the preparation of financial statements.
24) The total amount of depreciation recorded against an asset or group of
assets during the entire time the asset or assets have been owned:
25) A balance sheet that places the assets above the liabilities and equity is
called a(n):
26) Accounts that appear in the balance sheet are often called temporary
(nominal) accounts.
27) The Income Summary account is used to close the permanent accounts at
the end of an accounting period.
28) An unclassified balance sheet provides more information to users than a
classified balance sheet.
29) When closing entries are made:
30) A post-closing trial balance is a list of permanent accounts and their balances
from the ledger after all closing entries are journalized and posted.
31) A company's post-closing trial balance has total debits of $40,350 and total
credits of $40,650. Accordingly, the company should review for errors in the
closing process.
32) The usual order for the asset section of a classified balance sheet is:
33) Revenue and expense accounts are permanent (real) accounts and should
not be closed at the end of the accounting period.

3. 34) Assets tied up in inventory are not productive assets.
35) A single-step income statement includes cost of goods sold as another
expense, and shows only one subtotal for total expenses.
36) Cost of goods sold is also called cost of sales.
37) A buyer records the costs of shipping goods in a Delivery Expense, or
transportation-out account when the buyer is responsible for these costs.
38) Each sales transaction for a seller that uses a perpetual inventory system
involves recognizing both revenue and cost of merchandise sold.
39) The following statements are true regarding the operating cycle of a
merchandising company except:
40) An account used in the periodic inventory system that is not used in the
perpetual inventory system is
41) FOB shipping point (or FOB factory) implies that ownership of goods
transfers to the buyer at the buyer's place of business.
42) A credit memorandum from a seller informs a buyer of the seller's credit to its
Accounts Payable account arising from a sales return or allowance.
43) To avoid the time-consuming process of taking an inventory each year, most
companies use the gross profit method to estimate ending inventory.
44) Companies are allowed to use FIFO for financial reporting and LIFO for tax
reporting, according to IRS requirements
45) A merchandiser's ability to pay its short-term obligations depends on many
factors including how quickly it sells its merchandise inventory.
The lower of cost or market rule for inventory valuation must be applied to each
individual unit separately, and not to major categories of inventory or to the entire
inventory.
46) IFRS reporting currently does not allow which method of inventory costing?
47) The LIFO method of inventory valuation can result in a company's ending
inventory being valued at less than the inventory's replacement cost because
LIFO inventory leaves the oldest costs in inventory.
48) In a period of rising purchase costs, FIFO usually gives a lower taxable
income and therefore, yields a tax advantage.
49) Merchandise inventory includes:

4. 50) Internal controls that should be applied when a business takes a physical
count of inventory should include all of the following except: