University of Texas, Dallas ACCOUNTING 6344Midterm 2A Midterm 2A .

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Name: Signature: A Rules (1) This is not an open book/notes exam. Please put away all your belongings except (i) Calculator, (ii) Pencil and (iii) exam sheets. (2) Turn off your cell phones. You... cannot use cellphones/laptops to perform the calculations (3) You cannot leave the classroom within the first 30 minutes. (4) When you are done, raise your hand and ask permission to approach to podium. Please do not talk or stand up without permission. (5) Put your answers both on this paper and scantron. You need to turn in both scantron and exam sheets back to me at the end of the exam. Please write your name on the exam sheet and scantron now. Please note that only the scantron will be graded. (6) Please note the exam type (A or B) on scantron. (7) You have 120 minutes to complete the exam. (8) There are 60 questions in the exam. 20 of them are True/False and 40 of them are M/C questons. In True/False questions, (A) in your scantron refers to True, (B) refers to False. Good Luck! FORMULA SHEET Assets=Liabilities + Equity Accounts payable Turnover= COGS / average Accounts payable Inventory Turnover= COGS / average Inventory Accounts receivable Turnover= Sales / average Accounts receivable 1 True/False 1. Next year, Dow Chemical Corporation plans to build a laboratory dedicated to a special project. The company will not use the laboratory after the project is finished. Under GAAP, this laboratory should be expensed. Answer: True Rationale: R&D costs must be expensed under GAAP unless they have alternative future uses. If these assets do, indeed, have alternative future uses, they will be capitalized and depreciated. 2. Revenues from discontinued operations of a company are reported separately from revenues from continuing operations in the income statement. Answer: True Rationale: Discontinued operations refer to any identifiable business unit that the company intends to sell. The income (loss) of the discounted operation (net of tax), and the after-tax gain (loss) on sale of the unit, are reported in a separate section of the income statement below income from continuing operations. 3. Accounts payable are a short-term source of non-interest-bearing financing. Answer: True Rationale: Accounts payable that arise from the purchase of goods and services usually do not carry any interest charges and can represent a good source of short-term inexpensive financing. 4. Accrued liabilities are obligations for which there is no external transaction. Answer: True Rationale: Companies must estimate accrued liabilities such as rent payable because there has been no bill received or no transaction. 5. If accrued liabilities are overestimated in the current period, the reported income in a following period will be lower than it should be. Answer: False Rationale: If the accrued liabilities in this period are overestimated, then the current income is lower than it should be. This error will be corrected in a following period, and will artificially inflate income. 6. Contingent liabilities that are ‘probable’ and can be reasonably estimated are recorded on the balance sheet as a liability and as an expense in the income statement. Answer: True 2 Rationale: Only ‘probable’ contingent liabilities are estimated and recorded on the balance sheet or the income statement. Anything less than ‘probable’ liabilities (such as ‘reasonably possible’) are referenced in footnotes. [Show More]

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