1. Which of the following accounts is recorded as part of stockholders’ equity on the Balance Sheet ?
a. Long term debt
b. Retained earnings
c. Revenue
d. Expenses
2. For 2014, CAP Corporation reported net income of $96,000; net sales $1,440,000; and weighted
average shares outstanding of 9,600. There were no preferred dividends. What was the 2014
earnings per share?
a. 100.00
b. 150.00
c. 10.00
d. 15.oo
3. Issuing debt is an example of a(n)
a. operating activity.
b. investing activity.
c. financing activity.
d. noncash investing and financing activity.
4. The ending Retained Earnings balance is found on which of the following statements?
Income Statement
Balance Sheet
Statement of Retained Earnings
Both Balance Sheet and Statement of Retained Earnings above
5. Which of the following describes the normal balance and classification of the Accumulated
Depreciation account? (Points : 3)
Debit, asset
Credit, liability
Credit, asset
Debit, expense
6. Which of the following items is handled as a deferral? (Points : 3)
Accrued Expenses
Accrued Revenues

Prepaid Expenses
Depreciation
7. LBJ Company recorded the following events involving a recent purchase of merchandise.

– Received goods for $95,000, terms 2/10, n/30.
– Returned $4,500 of the shipment for credit due to damaged goods.
– Paid $1,000 for freight in.
– Paid the invoice within the discount period.

As a result of these events, the company’s merchandise inventory (Points : 3)
increased by 89,580.
increased by $89,690.
increased by $89,600.
increased by $91,500.

8. In periods of rising prices, which of the following inventory methods results in the highest gross pro
figure? (Points : 3)
FIFO
LIFO
Average cost method
Cannot be determined based on the information given
9.On a classified balance sheet, prepaid expenses are classified as (Points : 3)
current liabilities.
long­term liabilities.
current assets.
Prepaid expenses do not belong on the Balance Sheet.

10. Which of the following is an objective of internal control? (Points : 3)
Risk assessment
Information technology
Adequate records
Comply with legal requirements
11. Your friend, Lisa, has hired you to evaluate the following internal control procedures.
Explain to your friend whether each of the numbered items below is an internal control strength or

weakness. You must also state which internal control procedure relates to each of the internal control
For the weaknesses, you also need to state a recommendation for improvement.
(1) Paychecks are left on the desk for pick-up.
(2) Supervisors count cash receipts daily.
(3) Invoices are pre-numbered.
(4) Bonding of the cashiers is required.
(5) The accountant purchases and pays for supplies.
12.Please prepare the following journal entries. Indicate which account should be debited and which
account should be credited, along with the dollar amount of the debit and credit.
(1) Investors invest $300,000 in exchange for 30,000 shares of common stock.
(2) Company made payment on account for $500.

(3) Employees work Monday through Friday and are paid on Friday. Salary expense is $20,000 per day
and December 31 falls on a Tuesday.
(4) Company purchased Supplies for $2,000.
(5) The company needs to record Supplies used for $500
13. Worth 10 points.
What is the Accounting Equation??
14. The following items are taken from the financial statements of PQR Company for 2012:

Cash

$250,000

Accounts Receivable

150,000

Prepaid Rent

120,000

Accounts Payable

168,000

Unearned Service Revenue

25,000

Equipment, net of accumulated depreciation

333,000

Common Stock

250,000

Retained Earnings 12/31/2011

41,000

Long-term debt

300,000

Service revenue

165,000

Cost of Goods Sold

50,000

Rent expense

24,000

Supplies expense

10,000

Insurance expense

12,000

Instructions:
(a) Please create a classified Balance Sheet in good form for the year ended 2012. (25 points)
(b) Please calculate the current ratio.
15. The following items are taken from the financial statements of Ashe Company for 2012:

Equipment

$100,000

Accounts Receivable

12,000

Accounts Payable

9,000

Cost of Goods Sold

72,000

Utilities Expense

11,000

Depreciation Expense

17,000

Insurance Expense

9,000

Common Stock

200,000

Dividends

12,000

Rent Expense

3,000

Note Payable (due 2014)

40,000

Advertising Expense

14,000

Prepaid Insurance

17,000

Retained Earnings (beginning)

44,000

Accumulated Depreciation

50,000

Salaries Expense

60,000

Salaries Payable

3,500

Net sales

205,000

Supplies

4,000

Supplies Expense

5,000

Instructions

(a) Calculate the net income. (18 points)

(b) Calculate the balance of Retained Earnings that would appear on a balance sheet at December 31
2012. (7 points)
(c) Calculate the gross profit percentage.
Thanks.