Midterm–Exam

Question 1: Briefly describe the balance sheet, the income statement, and the statement of cash flows. (25 Points)

Question 2: Accounting equation. (25 Points)

(A.) During the current year, the assets of Duffy Stationery increased by $650,000 and the liabilities decreased by $340,000. What was the change in owners’ equity during the year?

(B.) The owners’ equity of Graham Interiors appears on the balance sheet as $720,000 and is equal to one-fourth of total assets. Compute the amount of total liabilities.

(C.) At the end of the year, the owners’ equity in Scott Mfg. amounted to $845,000. During 2024, the assets of the business increased by $515,000 and the liabilities increased by $205,000. The owners’ equity at the beginning of 2024 was how much?

Compute the following:

(A.) $___________

(B.) $___________

(C.) $___________

Question 3: Listed below are nine technical accounting terms introduced in this chapter: (25 Points)

Each of the following statements may (or may not) describe one of these technical terms. In the space provided below each statement, indicate the accounting term described, or answer “None” if the statement does not correctly describe any of the terms. Do not use a term more than once.

(A.) Having the financial ability to pay debts as they become due.

(B.) An assumption that a business will operate in the foreseeable future.

(C.) Economic resources owned by businesses that are expected to benefit future operations.

(D.) The debts or obligations of a business organization.

(E.) Assets = Liabilities + Owners’ Equity

(F.) The principle which states that assets are valued in the balance sheet at their historical cost.

(G.) A residual amount equal to assets minus liabilities.

Midterm–Exam

Question 4: Effects of a series of transactions on balance sheet items

(25 Points)

Fieldstone, Inc. had the following transactions during the month of March, the first month of operations for the business:

* The corporation issued 12,000 shares of capital stock to Sandy Fieldstone in exchange for $120,000 cash.

* Purchased $73,000 of equipment; made an $18,000 down payment and signed a note payable for the balance.

* Made payment of $9,000 on the amount owed for equipment.

(A.) Compute the balance in the Cash account at the end of March.

(B.) What are the total assets of Fieldstone, Inc. at the end of March?

(C.) Compute the balance in the Notes Payable account at the end of March.

Compute the following:

(A.) $____________

(B.) $____________

(C.) $____________

Question 5: Effects of a series of transactions on balance sheet items.(50 Points)

Clark Plumbing had the following transactions during the month of June, the first month of operations for the business:

* The corporation issued 12,000 shares of capital stock to Bill Clark in exchange for his investment of $72,000 cash.
* Purchased $36,000 of equipment; made an $8,000 down payment and signed a note payable for the balance.
* Made payment of $4,000 on the amount owed for equipment.

(A.) Compute the balance in the Cash account at the end of June.

(B.) What are the total assets of Clark Plumbing at the end of June?

(C.) Compute the balance in the Notes Payable account at the end of June.

(D.) What is the total amount of owners’ equity at the end of June?

Murphy’s Auto Co. purchased a large piece of equipment on January 1, 2004.

The equipment is being depreciated, using the straight-line method, at the rate of $16,000 per year.

On January 5, 2015 the book value of the machine was $190,000.

(a) What was the original cost of the machine?

(b) What will the book value be on December 31, 2016?

Indicate which of the following accounts will be closed to Income Summary at year-end.

(a) Cash

(b) Office Supplies Expense

(c) Unexpired Insurance

(d) Unearned Revenue

(e) Dividends

(f) Depreciation Expense

(g) Income Taxes Payable

(h) Accumulated Depreciation

Armstrong Creation uses a periodic inventory system. During the current year, the company purchased merchandise at a cost of $245,000. You are to compute the cost of goods sold under each of the following alternative assumptions: