ACCT Financial Accounting
GB 1306 Spring 2026
Solution to Midterm Exam
Question 1: Multiple-Choice Problems (20%)
1) Which of the following correctly describes the effects of initially recording deferred revenue when cash is
received from a customer?
A) Revenue is increased.
B) Retained earnings increases.
C) Net income is not affected.
D) Liabilities are not affected.
2) Which of the following equations is the balance sheet equation?
A) Assets = Liabilities + Stockholders' Equity
B) Assets + Liabilities = Stockholders' Equity
C) Assets + Stockholder's Equity = Liabilities
D) Assets = Liabilities + Common Stock
3) McNeil Company owed its employees for services performed and recorded a liability for the wages owed
the employees. Which of the following correctly describes the impact on the financial statements when the
employee wages are subsequently paid?
A) Retained earnings decreases.
B) Total assets remain the same.
C) Income from operations does not change.
D) Operating expenses are increased.
4) Revenue may be recognized:
A) when goods are delivered.
B) after goods are delivered.
C) before goods are delivered.
D) either before goods are delivered, after goods are delivered, or when goods are delivered.
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, 5) Which of the following best describes the expense recognition principle?
A) It does not allow expenses to be recorded if they are incurred prior to being paid.
B) It requires expenses to be recorded consistent with the cash basis of accounting.
C) It requires expenses to be recorded when they are paid for.
D) It requires expenses to be recorded when incurred to generate revenues.
6) When using the allowance method for accounting for bad debts, accounts receivable is reported on the
balance sheet at the expected net realizable value. When a particular receivable from a customer ultimately
is determined to be uncollectible and is written off, the recording of this event will:
A) Decrease the net realizable value of the accounts receivable.
B) Increase the net realizable value of the accounts receivable.
C) Have an effect that is not determinable from the information given.
D) Have no effect on the net realizable value of the accounts receivable.
7) Which of the following direct effects on the accounting equation is not possible as a result of a single
business transaction which impacts only two accounts?
A) A decrease in stockholders' equity and an increase in an asset
B) An increase in a liability and an increase in an asset
C) An increase in an asset and a decrease in another asset
D) An increase in an asset and an increase in stockholders' equity
8) Duck Corporation's retained earnings increased $40,000 during the current year. What was Duck's current
year net income or loss given that Duck declared $50,000 of dividends during this year?
A) Net income was $90,000.
B) Net income was $10,000.
C) Net loss was $10,000.
D) Net loss was $90,000.
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GB 1306 Spring 2026
Solution to Midterm Exam
Question 1: Multiple-Choice Problems (20%)
1) Which of the following correctly describes the effects of initially recording deferred revenue when cash is
received from a customer?
A) Revenue is increased.
B) Retained earnings increases.
C) Net income is not affected.
D) Liabilities are not affected.
2) Which of the following equations is the balance sheet equation?
A) Assets = Liabilities + Stockholders' Equity
B) Assets + Liabilities = Stockholders' Equity
C) Assets + Stockholder's Equity = Liabilities
D) Assets = Liabilities + Common Stock
3) McNeil Company owed its employees for services performed and recorded a liability for the wages owed
the employees. Which of the following correctly describes the impact on the financial statements when the
employee wages are subsequently paid?
A) Retained earnings decreases.
B) Total assets remain the same.
C) Income from operations does not change.
D) Operating expenses are increased.
4) Revenue may be recognized:
A) when goods are delivered.
B) after goods are delivered.
C) before goods are delivered.
D) either before goods are delivered, after goods are delivered, or when goods are delivered.
1
, 5) Which of the following best describes the expense recognition principle?
A) It does not allow expenses to be recorded if they are incurred prior to being paid.
B) It requires expenses to be recorded consistent with the cash basis of accounting.
C) It requires expenses to be recorded when they are paid for.
D) It requires expenses to be recorded when incurred to generate revenues.
6) When using the allowance method for accounting for bad debts, accounts receivable is reported on the
balance sheet at the expected net realizable value. When a particular receivable from a customer ultimately
is determined to be uncollectible and is written off, the recording of this event will:
A) Decrease the net realizable value of the accounts receivable.
B) Increase the net realizable value of the accounts receivable.
C) Have an effect that is not determinable from the information given.
D) Have no effect on the net realizable value of the accounts receivable.
7) Which of the following direct effects on the accounting equation is not possible as a result of a single
business transaction which impacts only two accounts?
A) A decrease in stockholders' equity and an increase in an asset
B) An increase in a liability and an increase in an asset
C) An increase in an asset and a decrease in another asset
D) An increase in an asset and an increase in stockholders' equity
8) Duck Corporation's retained earnings increased $40,000 during the current year. What was Duck's current
year net income or loss given that Duck declared $50,000 of dividends during this year?
A) Net income was $90,000.
B) Net income was $10,000.
C) Net loss was $10,000.
D) Net loss was $90,000.
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