MID-TERM EXAM

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

TEST CODE: 40

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 correct?

Add to Net Income Deduct from Net Income

a. Accounts Receivable decrease increase
b. Prepaid Expenses increase decrease
c. Inventory increase decrease
d. Taxes Payable decrease increase

2. The primary purpose of the statement of cash flows is to

a. provide information about the investing and financing activities during a period.
b. prove that revenues exceed expenses if there is a net income.
c. provide information about the cash receipts and cash payments during a period.
d. facilitate banking relationships.

3. Financing activities involve

a. lending money.
b. acquiring investments.
c. issuing debt.
d. acquiring long-lived assets.
4. In most companies, current liabilities are paid within

a. one year through the creation of other current liabilities.

b. the operating cycle through the creation of other current liabilities.
c. one year or the operating cycle out of current assets.
d. the operating cycle out of current assets.

5. Sales taxes collected by a retailer are recorded by

a. crediting Sales Taxes Revenue.

b. debiting Sales Tax Expense.
c. crediting Sales Taxes Payable.
d. debiting Sales Taxes Payable.

Note: This is closed-book exam. 2

 6. If the market interest rate is lower than the contractual interest rate, bonds will sell
a. at a premium.
b. at face value.
c. at a discount.
d. only after the stated interest rate is increased.
7. Discount on Bonds Payable

a. has a credit balance.

b. is a equity account.
c. is added from bonds payable on the balance sheet.
d. is deducted from bonds payable on the balance sheet.

8. The number of outstanding shares equals

a. unissued shares minus authorized shares.

b. authorized shares minus treasury shares.
c. shares of issued stock minus treasury shares.
d. outstanding shares plus authorized shares.

9. What is the total stockholders’ equity based on the following account balances?

Common Stock $1,500,000

Paid-In Capital in Excess of Par 170,000
Retained Earnings 450,000
Treasury Stock 50,000
a. $2,190,000.
b. $2,430,000.
c. $2,550,000.
d. $2,070,000.

10. Treasury stock is

a. stock issued by the U.S. Treasury Department.
b. a corporation’s own stock, which has been reacquired and held for future use.
c. stock purchased by a corporation and held as an investment in its treasury.
d. corporate stock issued by the treasurer of a company.

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 Nomis Corp. for the year ended December 31, 2021:
Acquisition of a new furniture for cash 7,100
Proceeds from the sale of an investment which has book value of $16,500 19,200
Issuance of common stock for cash 25,000
Depreciation expense 6,200
Payment of cash dividends 12,000
Net income 26,400
In addition, the following information is available from the comparative balance sheet for Nomis
at the end of 2021 and 2020:
. 2021 2020
Cash $75,200 $21,400
Accounts receivable (net) 10,100 8,800
Inventory 11,500 14,800
Accounts payable 7,900 12,500
Unearned revenue 6,300 4,900

Instructions
a. Prepare Nomis' statement of cash flows for the year ended December 31, 2021, using the
indirect method. (2.5 points)
b. The owner of Nomis could not understand why the net income for the year was $26,400 but
the cash at bank increased by nearly $54,000. With reference to the cash flow statement,
explain why this was happening. (0.5 point)

Question 2 (3.0 points):

On Dec. 1st, 2021, Lexy Corp. issued $3,800,000, 8.5%, 8-year bonds. The market discount rate at
that time was 8.0%. The bonds were dated Dec. 1st, 2021, and pay interest semi-annually on Jun.
1st and Dec. 1st. Financial statements are prepared annually on Dec. 31st.
Requirements
a. Prepare the journal entry to record the issuance of the bonds on Dec. 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 Jun. 1 , 2022 (1.0 points)

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 Dubliners Corp. on Jan. 1, 2021 were as follows:

Preferred Stock (12%, $85 par, 8,000 shares authorized) $ 633,250

Common Stock ($10 stated value, 420,000 shares authorized) 3,950,000

Paid-in Capital in Excess of Par Value – Preferred Stock 23,840

Paid-in Capital in Excess of Par Value – Common Stock 592,500

Retained Earnings 347,000

Treasury Stock (16,500 common shares) 158,400

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

Jan. 25 Issued 25,000 shares of common stock for $305,000

Mar. 14 Purchased 1,320 shares of preferred treasury stock at $87 per share.

Nov. 1 Declared a 12% cash dividend on preferred stock, payable November 21.

Nov. 28 Paid the dividend declared on November 1

Dec. 5 Declared a $0.92 per share cash dividend to common stockholders of

record on December 17, payable December 31, 2021

31 Determined that net income for the year was $867,000. 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