ACCT 212 Week 4 Midterm (Version 2) Questions and Answers 2026

ACCT 212 Week 4 Midterm (Version 2) 2026

1. Question : (TCO 1) The Accounting Equation is used to develop the organization's financial reports. (1) Describe what assets value would be if Liabilities are $12,000 and Owners' Equity is $50,000 by showing the Accounting Equation (10 points), and (2) provide an example of two asset accounts that could contain the value. (10 points) Student Answer: Equity= Assets- Liabilities Liabilities = Assets - Equity 50,000- 12,000= 38,000 Two types of asset accounts that can contain value are notes receivable, and merchandise inventory. Instructor Explanation: Textbook pages 11-12. Assets = $12,000 + $50,000 = $62,000. Cash and inventory are examples. Points Received: Comments: 16 of 20 Question 2 Question : . (TCO 1) The financial statements present a company to the public in financial terms. (1) Which financial statement should be prepared first and why (10 points), and (2) explain what information this financial statement provides. (10 points) Student Answer: The income statement or statement of operation is the first to be prepared. This reports the revenues and expenses for the specified period. The income statement reports two main things. The first is revenues and gains and the second is expenses and losses. We also find the net income after subtracting the expenses from revenue. Net income is the most important item in financial statements. Instructor Explanation: Textbook pages 15-21. Income Statement. Compares revenue to expenses. Points Received: Comments: 20 of 20 Question 3 Question : . (TCO 1) The accounting profession follows a set of guidelines for measurement and disclosure of financial information called the Generally Accepted Accounting Principles (GAAP). (1) Explain what the Going-concern Assumption is (10 points) and (2) provide an example of its application. (10 points) Student Answer: The going concern is one of the fundamental assumptions in accounting on the basis of which financial statements are prepared. Possible indications of going concern problems are high financial risks arising from increased gearing level rendering the company vulnerable to delays in payment of interest. A merchandising company has a current ratio below 0.5. A creditor 1,000,000 demanded payment which the company could not make. The creditor requested the court to liquidate the business and recover his debts and the court grants the order. The company is no longer a going concern. Instructor Explanation: Textbook pages 6-9. Assume that the entity will continue to operate long enough to use existing assets. Depreciation is an example. Points Received: Comments: 20 of 20 Question 4 Question : . (TCO 2) Transaction analysis results in the development of a journal entry. A building is purchased for $535,000. (1) Name the accounts impacted and how to use the format account name/debit or credit/dollar amount (10 points), and (2) explain how the Accounting Equation is impacted. (10 points) Student Answer: Building Debit 535,000 Cash Credit 535,000 This transaction would only affect the asset side of the accounting equation. Buildings are an asset account would increase. Cash is also an asset account would decrease by the same amount. The changes would offset each other because they are both asset accounts. The net change to the accounting equation would be zero. Instructor Explanation: Textbook page 64. Building/Debit/$535,000 and Cash/Credit/$535,000. Assets are increased and decreased by the same amount so the Accounting Equation is in balance.