Name:

_________________________

PENN ID:

_________________________
ACCOUNTING 101 - 620, MIDTERM 1
Spring Semester, 2011

Instructions:
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Detach this page from the booklet as this will be the only page you will hand in.
Make sure you have a booklet containing 30 questions and one additional page with numeric tables.
Please print your name and student number at the top of this page.
This exam has 150 total points. You have 75 minutes to complete the exam so please budget your time
accordingly. Keep in mind all questions are worth the same! If you choose to use additional time on top of the 75
minutes (up to 10 minutes), we will multiply your final grade with a 0.65 coefficient. After the 85th minute, we will
assume you have withdrawn from the test.
Fill in the table on this page to answer the questions. WRITE DOWN THE LETTER OF YOUR CHOICE.
In the interest of fairness to all students, NO questions will be answered during the exam.
The exam is closed book and the use of a laptop computer is prohibited. You are permitted to use ONE doublesided 8 x 11 inch reference sheet. You are also permitted to use a calculator with no third party communication
capacities. (For example, you cannot use your smartphone as a calculator.)
Turn off your cellphone! The cellphone ringing during the exam constitutes proof of non-compliance with this rule
and is reason enough for us to cancel your exam.

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ACCT101&ACCT620Spring2011

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QuestionBooklet

1. In the equation, assets + expenses + dividends = liabilities + revenues + contributed capital +

beginning retained earnings, the expenses and revenues are
A. Contra asset and contra liability accounts, respectively, that assist analysis of the financial
progress of the firm.
B. Adjustments to assets and liabilities, respectively, which explains why expenses are on the left
side of the equation and revenues are on the right.
C. Adjustments to equity that are postponed until the end of a specific accounting period to
determine their net effect on equity for that period.
D. Incorrectly included in the formula because assets = liabilities + equity.
E. None of the above.
2. According to the FASB conceptual framework, the objectives of financial reporting for businesses are
based on
A. The need for conservatism.
B. Reporting on managements stewardship.
C. Generally accepted accounting principles.
D. The needs of the users of the information.
E. None of the above.
3. According to the FASB conceptual framework, which of the following relates to both relevance and
reliability?
A. Comparability
B. Feedback value
C. Verifiability
D. Timeliness
E. None of the above
4. Uncertainty and risks inherent in business situations should be adequately considered in financial
reporting. This statement is an example of the concept of
A. Conservatism.
B. Completeness.
C. Neutrality.
D. Representational faithfulness.
E. None of the above.
5. Willis Company declared a cash dividend on its common stock on December 15, 2001, payable on
January 12, 2002. How would this dividend affect equity on the following dates?
December 15, 2001 December 31, 2001 January 12, 2002
A.
Decrease
No effect
Decrease
B.
Decrease
No effect
No effect
C.
No effect
Decrease
No effect
D.
No effect
No effect
Decrease
E. None of the above.

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QuestionBooklet

6. Which of the following is true regarding a firms declaration of cash dividends on common stock?
A. It is recorded as an expense rather than an asset, because it has no future value to the firm.
B. It is recorded as a liability, if not yet paid.
C. It is not recorded as an expense. This would not make sense, as a payment by a firm to its
owners should not be recorded as a negative impact on performance (i.e. a reduction of net
income).
D. Both B and C are true.
E. None of the above
7. On October 30, 2010, ACJ Co. issued 1,000 shares of $1 par common stock for $10,000. At
December 31, 2010 (the end of the fiscal year), the market value of the shares is $15,000. What
should the balance sheet reflect at December 31, 2010?
A.
B.
C.
D.
E.

Common Stock
$1,000
$0
$15,000
$1,000
$10,000

APIC
$14,000
$15,000
$0
$9,000
$0

8. At January 1, Kent Co. had 100,000 shares of common stock issued and outstanding. The APIC
associated with these shares was $1,500,000. On February 15, Kent repurchased at the market price
20,000 shares that had originally been issued for $21 per share. What is the balance of treasury stock
at March 31?
A. $300,000
B. $420,000
C. $320,000
D. $0
E. It cannot be determined from the given information.
9. Select the best order for the following items appearing in income statements:
1) Gross margin
2) Income tax expense
3) Net income
4) Revenues
5) Operating expenses
A.
B.
C.
D.
E.

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1-4-2-5-3
4-5-1-2-3
4-5-2-1-3
4-1-5-2-3
None of the above.

ACCT101&ACCT620Spring2011

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QuestionBooklet

10. Compared with the accrual basis of accounting, the cash basis of accounting generates a smaller net
income when during the accounting period an increase is observed in:
Accounts
Deferred
Receivable
Revenue
A.
Yes
Yes
B.
Yes
No
C.
No
No
D.
No
Yes
E. None of the above is true.
Consider the following information about Quaker, Inc.s fiscal 2010 in completing questions 11 12.
Assume that there is no relevant information missing. For example, since there is no information on taxes,
answer the questions assuming that taxes are not a consideration.
 Sales revenue was $175,000.
 Cost of goods sold (COGS) was $65,000.
 Operating expenses were $88,000.
 Accounts receivable decreased by $50,000.
 Inventory increased by $20,000.
 Accounts payable increased by $40,000.
11. What was Quakers 2010 accrual basis net income?
A. $110,000
B. $92,000
C. $72,000
D. $22,000
E. None of the above.
12. Given what you learned in class, the best estimate for Quakers inventory purchases in 2010 is:
A. $175,000
B. $155,000
C. $85,000
D. $45,000
E. None of the above

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QuestionBooklet

13. Adjusting entries typically do not include a debit or credit to cash. Which of the following is likely NOT
a reason for this?
A. It is relatively easy for firms to identify, measure, and record cash inflows and outflows, so
adjustments to the cash balance at the end of the period are generally not required.
B. Adjusting entries are often needed due to timing differences between the transfer of cash and the
change in the economic value of assets and liabilities. The purpose of most adjusting entries is to
make sure economic assets and liabilities are properly recorded rather than making sure cash
transactions are properly recorded.
C. Because cash transactions dont always represent accounting revenues and expenses, cash
inflows and outflows normally dont require any journal entries.
D. Neither B nor C are valid reasons that adjusting entries typically dont include a debit or credit to
cash.
E. None of the options A to D applies to answer this question.
14. Closing entries
A. Result in a net increase (decrease) to equity equal to net income(loss).
B. Must be made after the correcting entries but before the adjusting entries.
C. Close out all of the accounts in the general ledger.
D. Must be followed by correcting entries.
E. None of the above.
15. If you were to use the following adjusted trial balance to create a balance sheet, what would be the
value of shareholders equity?
Accounts payable
Accounts receivable
Cash
Contributed capital
Cost of goods sold
Depreciation expense
Inventory
Long-term debt

A.
B.
C.
D.
E.

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5,000
4,900
5,600
7,100
None of the above

900
1,500
1,100
3,000
1,300
400
1,800
2,200

Notes payable
Property & equipment
Rent expense
Retained earnings
Salaries expense
Sales revenue
Wages payable

600
6,100
300
2,000
700
3,300
1,200

ACCT101&ACCT620Spring2011

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QuestionBooklet

16. Bon-Ton Department Store orders 1,000 mens shirts from Arrow Shirt Company for $15 each. The
terms require payment in full within 30 days of delivery. Arrow produces the shirts and delivers the
order. Bon-Ton then pays Arrow in full. At what point should Arrow recognize revenue for the sale of
the shirts?
A. Upon receipt of the order from Bon-Ton.
B. When production of the shirts is completed.
C. When the shirts are delivered to Bon-Ton.
D. When payment is received from Bon-Ton.
E. None of the above.
17. In 2007, the United Parcel Service (UPS) reached an agreement with the International Brotherhood of
Teamsters to withdraw from the Central States pension plan. As part of the agreement, UPS made a
final payment of $6.1 billion into the pension fund. This final payment was necessary because the
plans status had been (1)_________________, which means (2)________________ were less than
(3)________________. Under pension accounting rules (FAS 158), a pension plan with this status
would normally require recognition of a(n) (4)________________ in the financial statements.
A.

(1)
overfunded

(2)
current payments to retirees

B.

underfunded

the present value of plan assets

C.

overfunded

D.
underfunded
E. None of the above

the present value of plan

obligations
current contributions to the plan

(3)
current contributions to the plan
the present value of plan
obligations

(4)
gain
liability

the present value of plan assets

asset

current payments to retirees

loss

18. In the 2007 UPS 10-K, the company reported net income of $382 million in the income statement.
However, they also disclosed pro-forma adjusted net income of $4.4 billion in the annual report (not
in the financial statements). To adjust net income up from $382 million to $4.4 billion, UPS added back
the $6.1 billion final payment to the Central States pension plan (and made other adjustments). Which
of the following is likely NOT a reason that UPS reported adjusted net income?
A. The adjusted net income is higher than GAAP net income, so they may have had an incentive to
disclose a higher number to improve investors perception of their performance.
B. The $6.1 billion payment is a one-time item that may not be indicative of their core operating
results.
C. Investors may use current net income as an indication of future performance, including future net
income. Because a $6.1 billion pension contribution is unlikely to be repeated in the near future,
unadjusted net income might lead investors to underestimate the value of the company.
D. UPS does not believe that net income of $382 million conforms with GAAP rules, so they
disclosed an adjusted net income figure to make their financial statements comply with GAAP.
E. All of the above are likely reasons.

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ACCT101&ACCT620Spring2011

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QuestionBooklet

19. On July 1, 2009, Bovine Company signed a two-year $50,000 note payable with 8 percent interest. At
due date, July 1, 2011, the principal and interest will be paid in full. Interest expense should be
reported on the income statement for the year ended December 31, 2009, in the amount of
A. $2,000.
B. $2,250.
C. $4,000.
D. $0.
E. None of the above.
20. Which one of the following accounts would be listed on a post-closing trial balance?
A. Interest expense
B. Sales revenue
C. Loss on sale of equipment
D. Wages expense
E. None of the above
21. On January 1, 2007, the ledger of Caldwell Corporation correctly showed supplies inventory of $1,000.
During 2007, supplies purchases amounted to $5,000. A physical count of inventory on hand at
December 31, 2007, showed $1,200. The 2007 income statement should report supplies expense
amounting to
A. $6,000.
B. $5,200.
C. $4,800.
D. $1,000.
E. None of the above.
22. The statement of cash flows is important because
A. Of the three required financial statements, it is the only one which reports changes which took
place during an accounting period.
B. It indicates the asset and liability position of a company by reflecting the amounts and types of its
assets and liabilities at the beginning and end of the period.
C. It summarizes the information already reported in the income statement and balance sheet.
D. It explains the sources and uses of cash during the period.
E. None of the above.
23. At the end of 2008, French Company reported an ending balance for retained earnings of $250,000.
During 2009, the company reported net income of $60,000. The 2009 statement of stockholders' equity
reported an ending balance of $290,000 for retained earnings. What was the amount of dividends
declared during 2009?
A. $100,000
B. $20,000
C. $40,000
D. $0
E. None of the above

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ACCT101&ACCT620Spring2011

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QuestionBooklet

24. Failure to make an adjusting entry to recognize accrued wages payable would cause an
A. Understatement of expenses, liabilities and stockholders' equity.
B. Overstatement of expenses and liabilities.
C. Understatement of expenses and liabilities and an overstatement of stockholders' equity.
D. Understatement of assets and stockholders' equity.
E. None of the above.
25. Which of the following liability accounts is usually NOT satisfied by payment of cash?
A. Accounts payable
B. Unearned revenues
C. Taxes payable
D. Salaries payable
E. None of the above
26. In 2008, Patty's Pizza reported a net profit margin of 14.4%, in 2007 it was 13.2% and in 2006, it was
13.2%. Which of the following MUST be true about Patty's Pizza?
A. Its gross profit margin has remained constant over the three-year period.
B. Its sales increased from 2007 to 2008.
C. Its expenses did not change from 2006 to 2007.
D. All of the answers MUST be true.
E. None of the above MUST be true.
27. On November 1, 2009, Bug Busters collected $6,000 in advance for three months of service to be
provided beginning on that date. It was credited in full to rent revenue. Assuming the accounting year
ends December 31, give the correcting entry required to state revenue on December 31, 2009.
A. Dr Revenue
2,000
Cr Cash
2,000
B. Dr Unearned Revenue
4,000
Cr Revenue
4,000
C. Dr Revenue
2,000
Cr Unearned Revenue
2,000
D. Dr Revenue
4,000
Cr Unearned Revenue
2,000
E. None of the above
28. Apples Inc subscription accounting regarding the iPhone, from 2007 to 2009, involved the creation of:
A. Accrued revenues and accrued expenses accounts.
B. Accrued revenues and deferred expenses accounts.
C. Deferred revenues and accrued expenses accounts.
D. Deferred revenues and deferred expenses accounts.
E. None of the above is correct.

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29. Still referring to Apples accounting policies regarding the iPhone, choose the statement that is true in
completing the following sentence:
Retroactively reversing the subscription accounting practice DID NOT imply:
A. A significant decrease in liabilities on the balance sheet in each one of the 3 years in question.
B. A significant decrease in assets on the balance sheet in each one of the 3 years in question.
C. A significant increase in equity on the balance sheet in each one of the 3 years in question.
D. A significant increase in revenues in each one of the 3 years in question.
E. None of the above applies correctly to complete the sentence.
30. Nike acquired Umbro in the spring of 2008. In the fall of 2009, Nikes impairment of Umbro referred to:
A. The public image debacle caused by athletes associated with Nike, which lead to a drop in value
in all brands related to Nike. Since Nike is unable to charge this impairment to internally created
brands, it decided to impair the recently acquired Umbro.
B. Umbros brand value was very damaged by Englands non-qualification in the fall of 2007 to the
soccer EURO cup tournament taking place during the summer of 2008, a few months after the
acquisition.
C. An unrealized loss, which only affected the accumulated other comprehensive income and had no
impact on the income statement.
D. All of the above statements correctly complete the sentence.
E. None of the above applies correctly to complete the sentence.

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