Accounting Midterm

Financial Accounting (15.515)

Mid-Term Examination – October 8, 2013

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Name: _______________________________________

Section / Ocean:     ________________________________________

About the exam:

1. The exam consists of 17 pages.
2. All references to BSE entries/transactions mean Balance Sheet Equation entries/transactions. Be specific about account names.  Be sure to label each account as Asset (A), Liability (L), or Equity (E).  Equity (E) includes income statement items (e.g., revenue and expense accounts).
3. This exam must be completed in 1 hour and 30 minutes.
4. No questions will be answered during the exam. If a question is unclear, make an appropriate assumption that does not contradict any information given in the question.
5. The maximum score obtainable on this exam is 100 points – point allocations are stated for each question.
6. Please write your answers in the space provided, and show any supporting computations you make.
7. Please write as legibly as possible – we can’t grade what we can’t read. Partial credit can only be given for legible answers.
8. A calculator and a single sheet of paper (8½ x 11 – both sides) may be used for this exam. If necessary, you may also use a dictionary.
9. The exam contains an extra sheet of paper and a grading sheet. You may use the extra sheet of paper for calculations. Please do not write on the grade sheet.

Grade Sheet

Question 1. Recording BSE transactions (30 points)

For each event in (a) – (e):

1. Record the transaction using the balance sheet equation.  Be specific about account names.  Be sure to label each account as Asset (A), Liability (L), or Equity (E).  Equity (E) includes income statement items (e.g., revenue and expense accounts).

1. Indicate the effect of each transaction (i.e., increase, decrease, or no effect) on the ratio indicated in the question.  Please use the following ratio definitions shown below.

1. Treat each transaction independently. For this question only, when determining the effect of the transaction on the Leverage Ratio, assume that prior to the transaction the ratio is 0.50.   When determining the effect of the transaction on Return on Equity (ROE), assume that prior to the transaction the ratio is 0.20.

Definition:                                        Assume that the ratio value

prior to the transaction is:

Leverage Ratio:          Total Liabilities                                0.50

                        Total Assets

ROE:                         Net Income                                0.20

                               Average Shareholders Equity

1. Ignore taxes for this question.

The first event is given as an example.