Principles of Accounting 1 Summer 2019Study Guide for Midterm 1Test Format:- Multiple choice questions (50 @ 5.20 points each). Total possible points are 260. - Maximum grade is 250! The extra points are to compensate for any weakness in the main test instrument and misunderstanding in the question wording. - Students need to bring their own scantrons (form 882-E) and #2 pencils. Do not mark your scantron until you have selected your FINAL answer. Eraser marks confuse the scantron grading machine. All adverse consequences of eraser marks and mismarks are the student’s responsibility; therefore, bring an extra scantron. Do not write notes before or during the exam on your scantron. All work should be written on the exam.- You are permitted to use a simple four-function calculator (cell phones, scientific, financial, programmable, and graphing calculators are NOT simple four-function calculators). Instructors/exam proctors will check each student’s calculator whiledistributing the exams.- This is a closed book, closed note, and closed neighbor exam. You are NOT permitted to have scratch paper. You are NOT to look around during the exam. You are to keep your scantron sheet covered to the extent possible. Questions regarding the exam cannot be asked during the exam period.- During the exam period, cell phones and all devices that can connect to the internet should be turned off or on silent and any ear piece should be removed. If an instructor or exam proctor sees a cell phone during the exam period, the student will receive a zero on the exam. Put your cell phones away!- You must turn in your exam and scantron with your name and the version letter ofthe exam on both. You will be asked to show a picture id when you turn in your exam and scantron. - You will have 120 minutes to complete the exam. This includes time to fill in your scantron. Do not start writing on the exam before you are instructed to begin.- The exam covers Chapters 1 – 4. Skills needed: Chapter 1:- Identify the advantages of the sole proprietorship, partnership, and corporate formof business organizations.- Identify internal and external users of financial information.- Define and identify assets, liabilities, and stockholders’ equity accounts and the accounting equation.- Identify activities as operating, investing, or financing.- Calculate components of the income statement, retained earnings statement, and balance sheet and identify the interrelationships.- Identify the purpose of the auditor’s report.Chapter 2:- Identify, define, and/or calculate the different sections of a classified balance sheet.- Define and identify a current asset(s).- Calculate earnings per share.- Calculate the current ratio and understand its purpose.- Identify a solvency concern.- Define Generally Accepted Accounting Principles (GAAP), the quality “verifiability”, and the concept of “full disclosure”.Chapter 3:- Analyze the effect of business transactions on the accounting equation.- Prepare or analyze journal entries.- Apply debit/credit rules and normal account balances.- Analyze account activity and calculate ending account balances.- Identify the purpose of a trial balance.Chapter 4:- Apply the revenue recognition principle.- Calculate net income using the accrual basis of accounting.- Identify why adjusting entries are needed and analyze the impact of not making adjusting entries.- Prepare adjusting journal entries.- Define depreciation.- Identify the characteristics of the adjusted trial balance.- Identify the purpose of closing entries.- Calculate the retained earnings balance after closing