M30A: PRINCIPLES OF ACCOUNTING

PRACTICE EXAM
MIDTERM NO.1 WITH SOLUTIONS

CHAPTER 1
1.

Henson Company began the year with retained earnings of $330,000. During the year, the
company recorded revenues of $500,000, expenses of $380,000, and paid dividends of $40,000.
What was Hensons retained earnings at the end of the year?
a. $490,000
b. $410,000
c. $790,000
d. $450,000

Solution: $330,000 + ($500,000 $380,000) $40,000 $410,000

2.

Lankston Company began the year by issuing $90,000 of common stock for cash. The company
recorded revenues of $825,000, expenses of $720,000, and paid dividends of $45,000. What was
Lankstons net income for the year?
a. $60,000
b. $150,000
c. $105,000
d. $195,000

Solution: $825,000 $720,000 $105,000

3.

Jimmys Repair Shop started the year with total assets of $200,000 and total liabilities of
$160,000. During the year the business recorded $420,000 in revenues, $220,000 in expenses,
and dividends of $40,000. Stockholders equity at the end of the year was
a. $240,000.
b. $200,000.
c. $160,000.
d. $180,000.

Solution: ($200,000 $160,000) ($420,000 $220,000) $40,000 $200,000

4.

Benedict Company compiled the following financial information as of December 31, 2014:
Service revenue

$560,000

Common stock

120,000

Equipment

160,000

Operating expenses
Cash

500,000
140,000

Dividends

40,000

Supplies

20,000

Accounts payable

80,000

Accounts receivable

60,000

Retained earnings, 1/1/14

300,000

Benedicts assets on December 31, 2014 are

a. $940,000.
b. $680,000.
c. $320,000.
d. $380,000.
Solution: $160,000 $140,000 $20,000 $60,000 $380,000

5.

Benedict Company compiled the following financial information as of December 31, 2014:
Service revenue

$560,000

Common stock

120,000

Equipment

160,000

Operating expenses

500,000

Cash

140,000

Dividends

40,000

Supplies

20,000

Accounts payable

80,000

Accounts receivable

60,000

Retained earnings, 1/1/14

300,000

Benedicts retained earnings on December 31, 2014 are

a. $300,000.
b. $360,000.
c. $320,000.
d. $ 20,000.
Solution: $300,000 ($560,000 $500,000) $40,000 $320,000

6.

Benedict Company compiled the following financial information as of December 31, 2014:
Service revenue

$560,000

Common stock

120,000

Equipment

160,000

Operating expenses

500,000

Cash

140,000

Dividends

40,000

Supplies

20,000

Accounts payable

80,000

Accounts receivable

60,000

Retained earnings, 1/1/14

300,000

Benedicts stockholders equity on December 31, 2014 is

a. $420,000.
b. $440,000.
c. $320,000.
d. $480,000.
Solution: $120,000 [$300,000 ($560,000 $500,000) $40,000] $440,000

CHAPTER 2

7.

Use the following data to determine the total dollar amount of assets to be classified as current
assets.
Eddy Auto Supplies
Balance Sheet
December 31, 2014

Cash

$ 84,000

Accounts receivable

80,000

Inventory

140,000

Prepaid insurance

60,000

Stock investments

170,000

Land

190,000

Buildings

$226,000

Less: Accumulated
depreciation

Accounts payable
Salaries and wages payable
Mortgage payable

186,000

Trademarks

140,000

Total assets

$1,050,000

20,000
180,000

Total liabilities

$310,000

Common stock

$240,000

Retained earnings
(40,000)

$ 110,000

Total stockholders equity

500,000
$740,000

Total liabilities and

stockholders equity

a. $534,000
b. $224,000
c. $364,000
d. $304,000
Solution: $84,000 + $80,000 + $140,000 + $60,000 $364,000

$1,050,000

8.

The following lettered items represent a classification scheme for a balance sheet, and the
numbered items represent data found on balance sheets. In the blank next to each account, write
the letter indicating to which category it belongs.

A.

Current assets

B.

Investments

C.

Property, plant, and equipment

D.

Intangible assets

E.

Current liabilities

F.

Long-term liabilities

G.

Stockholders equity

H.

Not on the balance sheet

Solution
_____

1.

Accumulated depreciation-equip.

_____

6.

Inventory

_____

2.

Common stock

_____

7.

Patents

_____

3.

Interest expense

_____

8.

Prepaid insurance

_____

4.

Salaries and wages payable

_____

9.

Mortgage payable

_____

5.

Retained earnings

_____ 10.

1. C

2. G

3. H

4. E

5. G

6. A

7. D

8. A

Land (held for investment)

9. F

10. B

CHAPTER 3
9.

Journalize the following business transactions in general journal form. Identify each transaction
by number. You may omit explanations of the transaction.

1.

Owner invested $60,000 in exchange for common stock of the corporation.

2.

Hired an employee to be paid $400 per week, starting tomorrow.

3.

Paid two years rent in advance, $7,200.

4.

Paid the workers weekly wage.

5.

Recorded service revenue earned and received for the week, $1,500.

Solution
1.

Cash ...................................................................................................

60,000

Common Stock...........................................................................

2.

No entry

3.

Prepaid Rent .......................................................................................

60,000

7,200

Cash...........................................................................................

4.

Salaries and Wages Expense................................................................

7,200

400

Cash...........................................................................................

5.

Cash ...................................................................................................
Service Revenue.........................................................................

400

1,500
1,500

10. Journalize the following business transactions in general journal form. Identify each transaction
by number. You may omit explanations of the transactions.

1.

Received $50,000 from stockholders.

2.

Purchased equipment for $75,000, paying $15,000 in cash and giving a note payable for the
remainder.

3.

Paid $3,000 rent for the month.

4.

Recorded $12,500 of services provided on account.

5.

Paid wages of $9,500.

6.

Received $7,000 in cash for services provided.

7.

Collected $2,000 from customers on account.

Solution
1. Cash ...................................................................................................

50,000

Common Stock...........................................................................

2.

3.

Equipment............................................................................................

50,000

75,000

Cash...........................................................................................

15,000

Notes Payable.............................................................................

60,000

Rent Expense.......................................................................................

3,000

Cash...........................................................................................

4.

Accounts Receivable............................................................................

3,000

12,500

Service Revenue.........................................................................

5.

Salaries and Wages Expense................................................................

Cash...........................................................................................

12,500

9,500
9,500

6.

Cash ...................................................................................................

7,000

Service Revenue.........................................................................

7.

Cash ...................................................................................................
Accounts Receivable..................................................................

7,000

2,000
2,000

11. Transactions for the Hartman Company for the month of November are presented below.
Journalize each transaction and identify each transaction by number. You may omit journal
explanations.
1. Stockholders invested an additional $40,000 cash in the business.
2. Purchased land costing $18,000 for cash.
3. Purchased equipment costing $45,000 for $4,500 cash and the remainder on credit.
4. Purchased supplies on account for $800.
5. Paid $3,000 for a one-year insurance policy.
6. Received $2,000 cash for services performed.
7. Received $5,000 for services previously performed on account.
8. Paid wages to employees for $2,500.
9. Paid dividends to stockholders of $400.

Solution
1. Cash ...................................................................................................40,000
Common Stock ..........................................................................

2.

40,000

Land ...................................................................................................18,000
Cash ..........................................................................................

3.

4.

Equipment ...........................................................................................

18,000

45,000

Cash ..........................................................................................

4,500

Accounts Payable ......................................................................

40,500

Supplies ..............................................................................................
Accounts Payable ......................................................................

800
800

5.

Prepaid Insurance ................................................................................

3,000

Cash ..........................................................................................

6.

3,000

Cash ...................................................................................................2,000
Service Revenue ........................................................................

7.

2,000

Cash ...................................................................................................5,000
Accounts Receivable .................................................................

8.

Salaries and Wages Expense ...............................................................

5,000

2,500

Cash ..........................................................................................

9.

Dividends ............................................................................................
Cash ..........................................................................................

2,500

400
400

12. This information relates to Hanshew Real Estate Agency.

Oct.

1 Stockholders invested $35,000 in exchange for common stock of the corporation.

2 Hires an administrative assistant at an annual salary of $36,000.
3 Buys equipment for $3,500 on account.
6 Sells a house and lot for M Springer; commissions due from Springer, $10,000 (not paid by
Springer at this time).
10 Receives cash of $140 as commission for acting as rental agent renting an apartment.
27 Pays $700 on account for the equipment purchased on October 3.
30 Pays the administrative assistant $3,000 in salary for October.

Instructions
(a) Journalize the transactions. Do not provide explanations.

Solution
General Journal
Date

Account Titles

Debit

Oct. 1

Cash................................................................................

35,000

Common Stock...........................................................
2

No entry.

Equipment......................................................................

35,000

3,500

Accounts Payable.......................................................
6

Accounts Receivable......................................................

3,500
10,000

Service Revenue.........................................................
10

Cash................................................................................

10,000
140

Service Revenue.........................................................
27

Accounts Payable...........................................................
Cash............................................................................

Credit

140
700
700

30

Salaries and Wages Expense...........................................

Cash............................................................................

3,000
3,000