MID-TERM EXAM

ACADEMY OF
April 2022
POLICY AND DEVELOPMENT
International School of Economics and Finance Financial Accounting
Duration: 120 minutes

TEST CODE: 37

Instructions
Please read the instruction carefully before you start.
✓ There are 10 MCQs and 3 short-answer questions in this paper.
✓ Each question carries different marks and full marks can be obtained for complete
answers to all the questions.
✓ There are 10 marks available on this paper.
✓ A hand-held calculator may be used when answering questions on this paper but it
must not be pre-programmed or able to display graphics text of algebraic equations.
✓ Other materials are not allowed in the examination.
✓ Cheating is forbidden and will result in the mark of ZERO.

Note: This is closed-book exam. 1

 SESSION 1: MULTIPLE CHOICE QUESTIONS
(0.2 point for each question – 10 questions – Total mark: 2.0 points)
1. Which of the following adjustments to convert net income to net cash provided by
operating activities is incorrect?
Add to Net Income Deduct from Net Income
a. Salary payable decrease increase
b. Accounts Receivable decrease increase
c. Inventory decrease increase
d. Accounts Payable increase decrease
2. The statement of cash flows reports each of the following except
a. cash receipts from operating activities.
b. cash payments from investing activities.
c. the net change in cash.
d. cash sales.
3. Indicate where the issuance of common stock issued for cash would appear, if at all, on the
indirect statement of cash flows.
a. Operating activities section
b. Investing activities section
c. Financing activities section
d. Does not represent a cash flow

4. A company receives $396, of which $36 is for sales tax. The journal entry to record the
sale would include a
a. debit to Sales Tax Expense for $36.
b. debit to Sales Revenue for $396.
c. debit to Cash for $360.
d. credit to Sales Taxes Payable for $36.
5. On January 1, 2015, Donahue Company, a calendar-year company, issued $600,000 of
notes payable, of which $150,000 is due on January 1 for each of the next four years. The
proper balance sheet presentation on December 31, 2015, is
a. Current Liabilities, $600,000.
b. Current Liabilities, $150,000; Long-term Debt, $450,000.
c. Long-term Debt, $600,000.
d. Current Liabilities, $450,000; Long-term Debt, $150,000.

Note: This is closed-book exam. 2

 6. A $1,000 face value bond with a quoted price of 106 is selling for
a. $1,000.
b. $1060.
c. $106.
d. $1106.
7. The discount on bonds payable or premium on bonds payable is shown on the balance sheet
as an adjustment to bonds payable to arrive at the carrying value of the bonds. Indicate the
appropriate addition or subtraction to bonds payable (BP):
Premium on BP Discount on BP
a. Add Add
b. Deduct Add
c. Deduct Deduct
d. Add Deduct
8. Tomlinson Packaging Corporation began business in 2014 by issuing 30,000 shares of $5
par common stock for $8 per share and 5,000 shares of 6%, $10 par preferred stock for par.
At year end, the common stock had a market value of $10. On its December 31, 2014
balance sheet, Tomlinson Packaging would report
a. Common Stock of $300,000.
b. Common Stock of $150,000.
c. Common Stock of $240,000.
d. Paid-in Capital of $200,000.
9. What is the total stockholders’ equity based on the following account balances?

Common Stock $1,800,000 Retained Earnings 570,000

Paid-In Capital in Excess of Par 120,000 Treasury Stock 60,000
a. $1,680,000.
b. $2,190,000.
c. $2,430,000.
d. $2,550,000.
10. The number of shares of issued stock equals
a. authorized shares minus treasury shares.
b. unissued shares minus authorized shares.
c. outstanding shares plus treasury shares.
d. outstanding shares plus authorized shares.

Note: This is closed-book exam. 3

 SESSION 2: THREE QUESTIONS – TOTAL MARKS: 8.0 POINTS

Question 1 (3.0 points):

The following information is available for Kento Corp. for the year ended December 31, 2021:
Acquisition of a new equipment for cash 6,200
Proceeds from the sale of an investment which has book value of $18,500 14,200
Issuance of common stock for cash 32,000
Depreciation expense 14,100
Payment of cash dividends 15,000
Net income 29,300
In addition, the following information is available from the comparative balance sheet for Kento
at the end of 2021 and 2020:
. 2021 2020
Cash $94,200 $22,500
Accounts receivable (net) 7,500 9,300
Inventory 8,400 6,200
Accounts payable 9,100 11,400
Unearned revenue 7,900 6,200

Instructions
a. Prepare Kento's statement of cash flows for the year ended December 31, 2021, using the
indirect method. (2.5 points)
b. The owner of Kento could not understand why the net income for the year was $29,300 but
the cash at bank increased by nearly $72,000. With reference to the cash flow statement,
explain why this was happening. (0.5 point)

Question 2 (3.0 points):

On Nov. 1st, 2021, Pixie Corp. issued $5,200,000, 9.5%, 7-year bonds. The market discount rate
at that time was 9.0%. The bonds were dated Nov. 1st, 2021, and pay interest semi-annually on
May 1st and Nov. 1st. Financial statements are prepared annually on Dec. 31st.
Requirements
a. Prepare the journal entry to record the issuance of the bonds on Nov. 1st, 2021. (1.5 point)
b. Prepare the journal entry to accrued bond interest on Dec. 31st, 2021. (0.5 point)
st
c. Prepare the journal entry to record the interest payment on May 1 , 2022 (1.0 point)

Notes: Rounding the results to the nearest dollar.

Note: This is closed-book exam. 4

Question 3 (2.0 points):

The stockholders’ equity accounts of Marley Corp. on Jan. 1, 2021 were as follows:

Preferred Stock (14%, $36 par, 10,000 shares authorized) $ 295,200

Common Stock ($14 stated value, 350,000 shares authorized) 4,410,000

Paid-in Capital in Excess of Par Value – Preferred Stock 12,300

Paid-in Capital in Excess of Par Value – Common Stock 504,000

Retained Earnings 226,000

Treasury Stock (12,500 common shares) 177,500

During 2021, the corporation had the following transactions and events pertaining to its
stockholder’s equity.

Jan. 7 Issued 1,800 shares of preferred stock for $68,400

Apr. 14 Purchased 14,200 shares of common treasury stock at $15.1 per share.

Oct. 20 Declared a 14% cash dividend on preferred stock, payable November 20.

Nov. 20 Paid the dividend declared on October 20

Dec. 05 Declared a $1.21 per share cash dividend to common stockholders of

record on December 21, payable December 31, 2021

31 Determined that net income for the year was $810,000. Paid the dividend
declared on December 5.

Requirements
Journalize the transactions. (2.0 points)

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Note: This is closed-book exam. 5