Principles of Accounting 1 (Acct 2101) Fall 2013Study Guide for Midterm 2Test Format:- Multiple choice questions (50 @ 5.70 points each). Total possible points are 285. - Maximum grade is 275! The extra points are to compensate for any weakness in themain test instrument and misunderstanding in the question wording. - Students need to bring their own scantron. 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. Bring extra scantrons. - You are permitted to use a simple four-function calculator (cell phones are NOT simple four-function calculators). Instructors/exam proctors will check each student’s calculator while distributing 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. Youare to keep your scantron sheet covered to the extent possible. Questions regarding the exam cannot be asked during the exam period.- You must turn in your exam and scantron with your name, your instructor’s name, and the version letter of the 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. - The exam covers Chapters 5 – 8. Skills needed: Chapter 5:- Identify different pricing strategies.o Skimming- when they start off with a large price to appeal to those that want to be the first to buy it.o Penetration pricing- the company sets an initial low price in order to get a share in the marketo Life cycle pricing- when they set the price based on cost to establish a return over its lifetime- Calculate markups and selling margin.o Mark up- selling price=cost+(cost x markup percent)o Selling margin- selling price-cost - Identify characteristics of the different economic environments.o Pure competition-large number of sellers produce virtually identical products and serviceso Monopoly- exclusive control over a producto Oligopoly- few firms control product and priceso Monopolistic competition- similar but not identical products where market has large impact but no control over- Identify reasons to maintain and not maintain inventory.o Maintain- keep up with customer demand, smooth production sched, take advantage of quantity discounts, hedge against price increaseso Not maintain- insurance and other expenses to hold extra inventory, easy to cover up mistakes- Determine the characteristics of the EOQ and JIT models.o Economic order quantity- mathematical model that minimizes the total of short term ordering. They order the same amount year roundo Just in Time- depending on the demand received from consumers theymake enough to fill that quota- Calculate daily demand and reorder points using the EOQ model.o Daily demand= annual demand/days of operationo Reorder point= daily demand + safety stock- Calculate a bonus based on income before bonus and taxes and a bonus based upon income before taxes (but after bonus). Also calculate net income.o Bonus = (income before bonus-bonus) x bonus rate- Define compensation terms. Piece rate - Pay based on units completed  Commission - Pay based on sales  Hourly - Pay based on hours worked  Salary- Pay based on period of time  Bonuses - Additional pay based on some future event  Insurance - Protection for employees  Paid leave - Protection for the company  Gross pay versus net pay - Gross = amount earned - Net = amount receivedChapter 6:- Match a specific budget to the appropriate process (revenue, expenditure, conversion).o Revenue- sales budget, cash receipts sched, accounts recievable sched, marketing and distribution budgeto Conversion- production budgeto Expenditure- direct materials purchases budget, Direct labor and overhead, administrative budget, cash disbursement sched, accounts payable sched- Define and apply terms associated with budgeting o Mandated  Top down  Based on standards o Participatory  Bottom up  Based on “local” information o Incremental  Last year is the base  Adjust for anticipated increases/decreases o Zero-based  Zero is the base  Justify all activities and requests - Match a specific item to the appropriate budget.- Prepare a sales budget, cash receipts schedule, and/or accounts receivable schedule.- Prepare a production budget.- Prepare a direct materials purchases budget, cash disbursements schedule, and/or accounts payable schedule.Chapter 7: - Identify an accounting event. o Must have three characteristics:  1. Must be specific to the entity for which the accounting records are kept.  2. Must be measurable in monetary terms.  3. Must impact the entity’s assets, liabilities, and/or owner’ equity. - Define debit and credit. o Debit (DR) – increase an asset (left). o Credit (CR) – increase a liability (right). o Debit means left and credit means right. - Identify normal account balances.o Normal balance of an account is the increase side of the account or theside of the accounting equation the account is on. o An asset account has a normal debit balance because it increases with a debit. o A liability account and an owner’s equity account have normal credit balances because they increase with credits and they are on the right side of the accounting equation. - Identify and explain the impact of accounting events on the accounting equation. o See charts on pages 184 and 187. - Understand the steps in the accounting cycle. o 1. Identify, analyze, and record events in the general journal. o 2. Post general journal entries to the general ledger. o 3. Prepare a trial balance. o 4. Enter adjusting entries in the general journal and post them to the general ledger. o 5. Prepare an adjusted trial balance. o 6. Prepare financial statements using the information in the adjusted trial balance or general ledger. o 7. Enter closing entries in the general journal and post them to the general ledger. o 8. Prepare a post-closing trial balance. - Prepare or explain the impact of adjusting entries. o Adjusting entries are required to adjust the accounts for internal events prior to preparing financial statements. - Prepare or analyze journal entries. - Identify/define permanent and temporary accounts and prepare closing entries. -