1) A periodic inventory system requires a detailed inventory record of inventory items.
2) The book value of a depreciable asset is always equal to its market value because
depreciation is a valuation technique.
3) A dividend based on paid-in capital is termed a liquidating dividend.
4) The purchase of store equipment for cash reduces the owner’s equity by an equal
amount.
5) A detailed stockholders’ equity section in the balance sheet will list the names of
individuals who are eligible to receive dividends on the date of record.
6) In a given year, total warranty expense is the sum of actual warranty costs incurred
on units sold plus the estimated cost of servicing those units in the future.
7) Profitability ratios measure the ability of the enterprise to survive over a long period
of time.
8) Finished goods are a classification of inventory for a manufacturer that are
completed and ready for sale.
9) Normal standards should be rigorous but attainable.
10) The multiple-step form of income statement is easier to read than the single-step
form.
11) Many companies prepare a stockholders equity statement instead of presenting a
detailed stockholders equity section in the balance sheet.
12) When standard costs are in use:
a.standards should not be changed once they are set
b.a variance is conceptually the difference between a standard amount and the amount
budgeted
c.an evaluation of the resulting variances is often the most difficult, but the most useful
aspect of the process
d.all variances, however insignificant, should be reported and investigated on a timely
basis
13) Cascade Company has total cash register receipts of $16,274. This total includes a
3% sales tax. The entry to record the receipts will include a:
a.debit to Sales Tax Expense for $474
b.debit to Sales Taxes Payable for $474
c.credit to Sales Taxes Payable for $474
d.credit to Sales for $16,274
14) Equipment is classified in the balance sheet as
a.a current asset
b.property, plant, and equipment
c.an intangible asset
d.a long-term investment
15) Lang, Inc. purchases 1,000 shares of its own previously issued $5 par common
stock for $15,000. The treasury stock is resold by Lang, Inc. for $20,000. What effect
does this transaction have on (a) net income, (b) total assets, (c) total paid-in capital,
and (d) total stockholders equity?
16) What is the proper preparation sequencing of the following budgets?
1>Budgeted Balance Sheet
2>Sales Budget
3>Selling and Administrative Budget
4>Budgeted Income Statement
a.1, 2, 3, 4
b.2, 3, 1, 4
c.2, 3, 4, 1
d.2, 4, 1, 3
17) A flexible budget:
a.is also called a static budget
b.can be considered a series of related static budgets
c.can be prepared for sales or production budgets, but not for an operating expense
budget
d.typically uses an activity index different from that used in developing the
predetermined overhead rate
18) An accounting time period that is one year in length, but does not begin on January
1, is referred to as
a.a fiscal year
b.an interim period
c.the time period assumption
d.a reporting period
19) The following items are taken from the financial statements of the Postal Service
for the year ending December 31, 2014:
Accounts payable$ 18,000
Accounts receivable11,000
Accumulated depreciation equipment28,000
Advertising expense21,000
Cash15,000
Owners capital (1/1/14)102,000
Owners drawings14,000
Depreciation expense12,000
Insurance expense3,000
Note payable, due 6/30/1570,000
Prepaid insurance (12-month policy)6,000
Rent expense17,000
Salaries and wages expense32,000
Service revenue133,000
Supplies4,000
Supplies expense6,000
Equipment210,000
What is the balance that would be reported for owners equity at December 31, 2014?
a.$158,000
b.$144,000
c.$130,000
d.$102,000
20) Which one of the following ratios would not likely be used by a short-term creditor
in evaluating whether to sell on credit to a company?
a.Current ratio
b.Acid-test ratio
c.Asset turnover
d.Accounts receivable
21) Time tickets should be approved by
a.the audit committee
b.co-workers
c.the employee’s supervisor
d.the payroll department
22) A debit will increase ___, but decrease __.
a.accounts payable; owner’s capital
b.accounts receivable; accounts payable
c.revenues; accounts payable
d.owner’s capital; prepaid insurance
23) Changes from cost are reported as part of net income for
a.available-for-sale securities
b.held-to-maturity securities
c.debt securities
d.trading securities
24) In incremental analysis,
a.only costs are analyzed
b.only revenues are analyzed
c.both costs and revenues may be analyzed
d.both costs and revenues that stay the same between alternate courses of action will be
analyzed
25) If 10% of the common stock of an investee company is purchased as a long-term
investment, the appropriate method of accounting for the investment is
a.the cost method
b.the equity method
c.the preparation of consolidated financial statements
d.determined by agreement with whomever owns the remaining 90% of the stock
26) In terms of liquidity, inventory is
a.more liquid than cash
b.more liquid than accounts receivable
c.more liquid than prepaid expenses
d.less liquid than store equipment
27) In the liquidation process, if a capital account shows a deficiency
a.the partner with a deficiency has an obligation to the partnership for the amount of the
deficiency
b.it may be written off to a “Loss” account
c.it is disregarded until after the partnership books are closed
d.it can be written off to a “Gain” account
28) Accrued revenues are
a.cash received and a liability recorded before services are performed
b.revenue for services performed and recorded as liabilities before they are received
c.revenue for services performed but not yet received in cash or recorded
d.revenue for services performed and already received in cash and recorded
29) A process cost accounting system is most appropriate when
a.a variety of different products are produced, each one requiring different types of
materials, labor, and overhead
b.the focus of attention is on a particular job or order
c.similar products are mass-produced
d.individual products are custom made to the specification of customers
30) The direct materials budget details
1>the quantity of direct materials to be purchased.
2>the cost of direct materials to be purchased.
a.1
b.2
c.both 1 and 2
d.neither 1 nor 2
31) Karen Kline works for Permier Press, a fairly large book publishing firm. Her best
friend and rival, Mona, works for Copper Books, a smaller publisher. Both companies
issue $100,000 in bonds on July 1 . Permier’s bonds were issued at a discount, while
Copper’s were issued at a premium. Mona sent Karen a fax the next day. She told Karen
that it was obvious who the better publisher wasthe market had shown its preference!
She reminded Karen again of her recent increase in salary as further proof of the
superiority of Copper Books.
Required:
Draft a short note for Karen to send to Mona. Explain how such a result could occur.
32) When admitting a new partner by investment, a bonus to old partners is allocated on
a.the basis of capital balances
b.the basis of the original investment of the old partners
c.the basis of income ratios before the admission of the new partner
d.a seniority basis
33) Standard costs may be used by
a.universities
b.governmental agencies
c.charitable organizations
d.all of these answer choices are correct
34) Prepare the necessary correcting entry for each of the following.
a.A payment of $5,000 for salaries was recorded as a debit to Supplies Expense and a
credit to Cash.
b.A purchase of supplies on account for $1,000 was recorded as a debit to Equipment
and a credit to Accounts Payable.
35) On January 1, Sly Corporation had 120,000 shares of $10 par value common stock
outstanding. On March 17, the company declared a 15% stock dividend to stockholders
of record on March 20 . Market value of the stock was $13 on March 17 . The entry to
record the transaction of March 17 would include a
a.credit to Stock Dividends for $54,000
b.credit to Cash for $234,000
c.credit to Common Stock Dividends Distributable for $180,000
d.debit to Common Stock Dividends Distributable for $180,000
36) An analysis of the transactions made by White Stripes & Co., a law firm, for the
month of July is shown below. Each increase and decrease in owners equity is
explained.
Accounts Accounts Owners Equity
Cash +Receivable + Supplies +Equipment = Payable +Owners Capital
1> +$15,000 +$15,000 Investment
2>- 2,000 +$5,000 +$3,000
3> – 750 +$750
4> + 2,500 +$6,600 + 9,100 Service Revenue
5> – 1,500 – 1,500
6> – 2,500 – 2,500 Drawings
7> – 750 – 750 Rent Expense
8> + 550 – 550
9> – 4,500 – 4,500 Salaries Expense
10> + 500 – 500 Utilities Expense
Instructions
(a) Determine how much owners equity increased for the month.
(b) Compute the amount of net income for the month.
37) Syfy Company on July 15 sells merchandise on account to Eureka Co. for $5,000,
terms 2/10, n/30. On July 20 Eureka Co. returns merchandise worth $2,000 to Syfy
Company. On July 24 payment is received from Eureka Co. for the balance due. What
is the amount of cash received?
a.$2,900
b.$2,940
c.$3,000
d.$5,000
38) Assuming that the cost of goods manufactured is $2,590,000 compute the cost of
goods Sold using the following information.
Raw materials inventory, January 1$ 35,000
Raw materials inventory, December 3150,000
Work in process, January 118,000
Work in process, December 3127,000
Finished goods, January 148,000
Finished goods, December 3160,000
Raw materials purchases1,100,000
Direct labor700,000
Factory utilities225,000
Indirect labor105,000
Factory depreciation500,000
Operating expenses630,000
a.$2,638,000
b.$2,578,000
c.$2,530,000
d.$2,602,000
39) An aging of a company’s accounts receivable indicates that $5,000 are estimated to
be uncollectible. If Allowance for Doubtful Accounts has a $900 credit balance, the
adjustment to record bad debts for the period will require a
a.debit to Bad Debt Expense for $5,000
b.debit to Allowance for Doubtful Accounts for $4,100
c.debit to Bad Debt Expense for $4,100
d.credit to Allowance for Doubtful Accounts for $5,000
40) Burns and Miller Manufacturing is trying to determine the equivalent units for
conversion costs with 10,000 units of ending work in process at 80% completion and
26,000 physical units. There are no beginning units in the department. Conversion costs
occur evenly throughout the entire production period. What are the equivalent units for
conversion costs for the current period?
a.24,000
b.34,000
c.8,000
d.36,000
41) The following monthly data are available for Stratzberg, Inc. which produces only
one product which it sells for $18 each. Its unit variable costs are $8, and its total fixed
expenses are $16,000. Actual sales for the month of May totaled 2,200 units.
Instructions
Compute the margin of safety in dollars for the company for May.
42) The operating activities section of the statement of cash flows may be prepared
using the ______________ method or the ______________ method.
43) Whitman Company has prepared the following monthly flexible manufacturing
overhead budget for its Mixing Department:
WALDMAN COMPANY
Monthly Flexible Manufacturing Overhead Budget
Mixing Department
Activity level
Direct labor hours6,0008,000
Variable costs
Indirect materials$ 3,000$ 4,000
Indirect labor30,00040,000
Factory supplies 12,000 16,000
Total variable 45,000 60,000
Fixed costs
Depreciation40,00040,000
Supervision20,00020,000
Property taxes 30,000 30,000
Total fixed 90,000 90,000
Total costs$135,000$150,000
Instructions
Prepare a flexible budget at the 10,000 direct labor hours of activity.
44) The following information is available for Young Corporation:
Capital expenditures$115,000
Cash dividends75,000
Cash provided by operations220,000
Net income130,000
Sales600,000
Instructions
Compute Young Corporation’s free cash flow.
45) An _______________ is a record of increases and decreases in specific assets,
liabilities, and owner’s equity items.
46) Identify the internal control procedures applicable to cash receipts for Ferguson
Company in each of the following cases.
1>All cashiers are bonded.
2>The treasurer compares the total cash receipts to the bank deposit daily.
3>The bookkeeper records cash receipts which are held by the treasurer.
4>Only the treasurer holds cash receipts.
5>Deposit slips are completed for each deposit.
47) If bonds are issued at face value (par), it indicates that the ________________
interest rate must be equal to the ________________ interest rate.
48) n/ H. Jones will pay $50 freight
costs to the freight company. The
merchandise sold cost $700.
4>Aug.8Accepted a sales return of defective
merchandise from H. Jonescredit
granted was $200. The returned
merchandise cost $100.
5>Aug.11Purchased merchandise from
Ace Hardware on account for
$3,000; terms 2/10, n/30.
6>Aug.12Paid freight of $300 on the shipment
from Kiser Co. per the shipping terms.
7>Aug.15Received payment in full from H.
Jones.
8>Aug.19Paid Kiser Co. in full.
9>Aug.20Paid Ace Hardware in full.
10>Aug.27Purchased office supplies for $300
cash.
49) Define the term “opportunity cost.” How may this cost be relevant in a make-or-buy
decision?