MID-TERM EXAMINATION

April 2022
Subject: Principles of Accounting II
Time : 90 minutes
CLOSE BOOK
Name: ID:

Part I: Identify whether each of the following would be reported as TRUE or FALSE
If the statement is False, provide the explanation (0.3 points each, total 3 points)

No. Activities True False Explanation (If false)

Director and CEO have the
1 equivalent power within a
corporation
It is necessary to deduct "preferred
2 dividends" to calculate "earnings
per share"
The profit of the company is
3
always equal to its cash

The “direct method” is more

4
widely used by companies

“Cash” is the only method to pay

5
dividend
“Conversion costs” are the costs of
6 converting the work-in-process
into a finished product.
The fixed cost per unit is
7
disproportionate to the activities.
The stocks that company A
8 purchase from company B is called
“treasury stock”
Below is the graph illustrating the
fixed cost per unit

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 At the break-even point, the
10
revenue is equal to the total cost

Q2. Liz starts a business to sell birthday cakes in May 2021. The information for the
cake bakery within the first 6 months is depicted as follows. (3 points)
Time Cakes produced Total cost ($)
May 70 3,750
June 90 4,650
August 125 5,550
September 125 5,600
October 120 5,100

a. Calculate the variable cost per unit of the company (1 point)

b. Calculate the total fixed cost of the company (1 point)
c. Prepare the formula to estimate the total cost of the company under the form Y = a + bx (1
point)

Q3. Crown Home Company produces sofas for distribution to several major retail
stores. The following costs are incurred in the production and sale of sofas. Classify the
preceding costs as either fixed, variable, or mixed (0,5 points each, total 3 points)
a. Fabric for sofa coverings
b. Wood for framing the sofas
c. Legal fees paid to attorneys in defense of the company in a patent infringement suit, $25,000
plus $160 per hour
d. Salary of production supervisor
e. Cartons used to ship sofas
f. Rent on experimental equipment, $50 for every sofa produced
g. Straight-line depreciation on factory equipment
h. Rental costs of warehouse, $30,000 per month
i. Property taxes on property, plant, and equipment
j. Insurance premiums on property, plant, and equipment, $25,000 per year plus $25 per $25,000
of insured value over $16,000,000
k. Consulting fee of $120,000 paid to efficiency specialists
l. Electricity costs of $0.13 per kilowatt-hour
m. Salesperson’s salary, $80,000 plus 4% of the selling price of each sofa sold
2
n. Janitorial supplies, $2,500 per month
o. Wages of sewing machine operators

Q4: Below is the cash flow statement of a company. Assume that other financial
information of the company is fair. If you are an investor, will you invest in this company?
Give your explanation (1 point)

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