1) A company had a gross profit of $300,000 based on sales of $400,000. Its cost of
goods sold equals $700,000.
2) A sunk cost has already been incurred and cannot be avoided or changed, so it is
irrelevant to decision making.
3) An advantage of LIFO is that it assigns the most recent costs to cost of goods sold,
and does a better job of matching current costs with revenues on the income statement.
4) The budget process is a continuous activity of planning, revising, and evaluating
business activities.
5) The business entity principle means that a business will continue operating for an
indefinite period of time.
6) Partners’ withdrawals are credited to their separate withdrawals accounts.
7) If a company has the capacity to produce either 10,000 units of Product X or 10,000
units of Product Y; assuming fixed costs remain constant, production restrictions are the
same for both products, and the markets for both products are unlimited; the company
should commit 100% of its capacity to the product that has the higher contribution
margin.
8) Experience shows that when times interest earned falls below 1.5 to 2.0 and remains
at that level or lower for several time periods, the default rate on liabilities increases
sharply.
9) A company borrowed $1,000 by signing a six month promissory note at 5% interest.
The total amount of interest is $25.
10) Budget preparation is best determined in a top-down managerial approach.
11) Employers can use a wage bracket withholding table to compute federal income
taxes withheld from each employee’s gross pay.
12) Sam, Bart, and Lex are dissolving their partnership. Their partnership agreement
allocates each partner 1/3 of all income and losses. The current period’s ending capital
account balances are Sam, $45,000; Bart, $37,000; and Lex, $(5,000). After all assets
are sold and liabilities are paid, there is $77,000 in cash to be distributed. Lex is unable
to pay the deficiency. The journal entry to record the distribution should be:
A.Debit Sam, Capital $25,667; debit Bart, Capital $25,667; debit Lex, Capital $25,666;
credit Cash $77,000
B.Debit Sam, Capital $42,500; debit Bart, Capital $34,500; credit Cash $77,000
C.Debit Sam, Capital $45,000; debit Bart, Capital $37,000; credit Lex, Capital $5,000;
credit Cash $77,000
D.Debit Cash $77,000, debit Lex, Capital $5,000, credit Sam, Capital $45,000, credit
Bart, Capital $37,000
E.Debit Cash $77,000; credit Sam, Capital $25,667; credit Bart, Capital $25,667; credit
Lex, Capital $25,666
13) Products that have been completed and are ready to be sold by the manufacturer are
called:
A.Finished goods inventory
B.Goods in process inventory
C.Raw materials inventory
D.Cost of goods sold
E.Factory supplies
14) Product costs:
A.Are expenditures necessary and integral to finished products
B.Are expenditures identified more with a time period rather than with finished
products
C.Include selling and administrative expenses
D.Are costs that vary with the volume of activity
E.Are costs that do not vary with the volume of activity
15) After preparing and posting the closing entries to close revenues (and gains) and
expenses (and losses), the income summary account has a debit balance of $33,000. The
entry to close the income summary account will include:
A.a debit of $33,000 to owner withdrawals
B.a credit of $33,000 to owner withdrawals
C.a debit of $33,000 to income summary
D.a debit of $33,000 to owner capital
E.a credit of $33,000 to owner capital
16) Many companies use an accelerated depreciation method because:
A.It is required by the tax code
B.It is required by financial reporting rules
C.It yields larger depreciation expense in the early years of an asset’s life
D.It yields a higher income in the early years of the asset’s useful life
E.The results are identical to straight-line depreciation
17) If overhead applied is less than actual overhead incurred, it is:
A.Fully applied
B.Underapplied
C.Overapplied
D.Expected
E.Normal
18) Cash flows from interest received on loans are reported in the statement of cash
flows as part of:
A.Operating activities
B.Financing activities
C.Investing activities
D.Noncash activities
E.None of these. This is not reported in the statement of cash flows
19) If the exchange rate for Canadian and U.S. dollars is 0.82777 to 1, this implies that
3 Canadian dollars will buy ____ worth of U.S. dollars.
A.$0.2759
B.$0.82777
C.$1.82777
D.$2.48
E.None of these
20) A seller of goods or services, usually a manufacturer or wholesaler, is known as a:
A.Vendor
B.Payee
C.Vendee
D.Creditor
E.Debtor
21) Big River Rafting pays $310,000 plus $15,000 in closing costs to buy out a
competitor. The real estate consists of land appraised at $105,000, a building appraised
at $210,000, and equipment appraised at $35,000. Compute the cost that should be
allocated to the building.
A.$93,000
B.$186,000
C.$32,500
D.$195,000
E.$97,500
22) An employee earns $5,500 per month working for an employer. The FICA tax rate
for Social Security is 6.2% and the FICA tax rate for Medicare is 1.45%. The current
FUTA tax rate is 0.8%, and the SUTA tax rate is 4.4%. Both unemployment taxes are
applied to the first $7,000 of an employee’s pay. The employee has $182 in federal
income taxes withheld. The employee has voluntary deductions for health insurance of
$150 and contributes $75 to a retirement plan each month. What is the amount the
employer should record as payroll taxes expense for the employee for the month of
January?
A.$420.75
B.$464.75
C.$662.75
D.$888.75
E.$706.75
23) At December 31 of the current year, a company reported the following:
Total sales for the current year: $780,000 includes $160,000 in cash sales
Accounts receivable balance at Dec. 31, end of current year: $190,000
Allowance for Doubtful Accounts balance at January 1, beginning of current year:
$8,300
Bad debts written off during the current year: $6,800.
Prepare the necessary adjusting entries to record bad debts expense assuming this
company’s bad debts are estimated to equal:
(a) 1.5% of credit sales.
(b) 5% of accounts receivable.
24) Match the following terms a through j with the appropriate definition 1 through 10.
1>Internal control system A. Currency, coins, and amounts on deposit in bank checking
and many savings accounts.
2>Liquid asset B. Short-term, highly liquid investments that are readily convertible to a
known cash amount and are sufficiently close to their maturity date so that the market
value is not sensitive to interest rate changes.
3>Purchase requisition C. A document signed by the depositor instructing the bank to
pay a specified amount to a designated recipient.
4>Invoice D. An expense resulting from failure to take advantage of cash discounts on
purchases.
5>Check E. An asset such as cash that can be readily used to settle near-term
obligations.
6>Cash F. All the policies and procedures managers use to protect assets, ensure
reliable accounting, promote efficient operations, and urge adherence to company
policies.
7>Vendee G. The buyer or purchaser of goods or services.
8>Vendor H. The seller of goods or services.
9>Cash equivalent I. An internal document listing the goods needed by a department
and requesting that it be purchased.
10>Discounts lost J. An itemized statement of goods prepared by the vendor that lists
the customer’s name, the items sold, the sales price of each item, and the terms of sale.
25) The following company information is available for January. The direct materials
price variance is:
A.$5,000 favorable
B.$300 favorable
C.$5,200 unfavorable
D.$5,000 unfavorable
E.$5,200 favorable
26) Bard Manufacturing uses a job order cost accounting system. During one month
Bard purchased $198,000 of raw materials on credit; issued materials to production of
$195,000 of which $30,000 were indirect. Bard incurred a factory payroll of $150,000,
paid in cash, of which $40,000 is classified as indirect labor. Bard uses a predetermined
overhead application rate of 150% of direct labor cost. If Bard incurred total overhead
costs of $167,800 during the month, compute the amount of under- or overapplied
overhead:
A.$2,800 overapplied
B.$17,800 underapplied
C.$2,800 underapplied
D.$17,800 overapplied
E.$57,200 overapplied
27) Another title for goods in process inventory is:
A.Indirect materials inventory
B.Work in process inventory
C.Conversion costs
D.Direct materials inventory
E.Raw materials inventory
28) Match the following definitions and terms by placing the letter that identifies the
best definition in the blank space next to the term.
1>A written promise to pay a definite sum of money on a specified future date A. Debit
2>A list of all accounts used by a company and the identification number assigned to
each account B. Note payable
3>A file containing all accounts of a company and their balances C. Ledger
4>A list of accounts and their balances at a point in time; the total debit balances should
equal the total credit balances D. Journal
5>The ratio of total liabilities to total assets; used to reflect the risk associated with the
company’s debts E. Debt ratio
6>A decrease in an asset and expense account, and an increase in a liability, owner’s
capital, and revenue account; recorded on the right side of a T-account. F. Chart of
accounts
7>A complete record of each transaction in one place that shows debits and credits for
each transaction G. Trial balance
8>The difference between total debits and total credits for an account including the
beginning balance H. Credit
9>An account with debit and credit columns for recording entries and a third column
for showing the balance of the account after each entry I. Account balance
10>An increase in an asset and expense account, and a decrease in a liability, owner’s
capital, and revenue account; recorded on the left side of a T-account J. Balance column
account
29) A company had net income of $2,660,000, net sales of $25,000,000, and average
total assets of $8,000,000. Its return on total assets equals:
A.3.01%
B.10.64%
C.32.00%
D.33.25%
E.300.75%
30) Following are seven items a through g that would cause Xavier Company’s book
balance of cash to differ from its bank statement balance of cash.
a. A service charge imposed by the bank.
b. A check listed as outstanding on the previous period’s reconciliation and still
outstanding at the end of this month.
c. A customer’s check returned by the bank is marked “Not Sufficient Funds(NSF)”.
d. A deposit that was mailed to the bank on the last day of the current month and is
unrecorded on this month’s bank statement.
e. A check paid by the bank at its correct $190 amount was recorded in error in the
company’s Check Register at $109.
f. An unrecorded credit memorandum indicated that bank had collected a note
receivable for Xavier Company and deposited the proceeds in the company’s account.
g. A check was written in the current period that is not yet paid or returned by the bank.
Indicate where each item a through g would appear on Xavier Company’s bank
reconciliation by placing its identifying letter in the parentheses in the proper section of
the form below.
31) Bentley records adjusting entries at its December 31 year end. At December 31,
employees had earned $12,000 of unpaid and unrecorded salaries. The next payday is
January 3, at which time $30,000 will be paid. Prepare the journal on January 3 to
record payment assuming the correct adjusting and reversing entries were made on
December 31 and January 1.
A.Debit Salaries expense $12,000; debit Salaries payable $18,000; credit Cash $30,000
B.Debit Salaries expense $30,000; credit Cash $30,000
C.Debit Salaries payable $30,000; credit Cash $30,000
D.Debit Salaries expense $18,000, debit Salaries payable $12,000; credit Cash $30,000
E.Debit Salaries expense $18,000; credit Cash $18,000
32) A company has a decision to make between two investment alternatives. The
company requires a 10% return on investment. Predicted data is provided below:
The present value of an annuity for 6 years at 10% is 4.3553. This company uses
straight-line depreciation.
Required:
(a) Calculate the net present value for each investment.
(b) Which investment should this company select? Explain.
33) Using the following accounts and an overhead rate of 130% of direct labor cost,
compute the amount of applied overhead.
A.$78,000
B.$60,000
C.$138,000
D.$71,890
E.$90,500
34) The question of when revenue should be recognized on the income statement
(according to GAAP) is addressed by the:
A.Revenue recognition principle
B.Going-concern assumption
C.Objectivity principle
D.Business entity assumption
E.Cost principle
35) Casco Company is considering the purchase of equipment that would allow the
company to add a new product to its line. The equipment is expected to cost $280,000
with a 7-year life, no salvage value, and will be depreciated using straight-line
depreciation. The expected annual income related to this equipment follows. Compute
the (a) payback period and (b) accounting rate of return for this equipment.
36) Pettis needs to determine its year-end inventory. The warehouse contains 20,000
units, of which 3,000 were damaged by flood and cannot be sold. Another 2,000 units,
shipped FOB shipping point, are in transit. The company also consigns goods and has
4,000 units at a consignee’s location. How many units should Pettis include in its
year-end inventory?
A.29,000
B.21,000
C.23,000
D.19,000
E.26,000
37) Ivan Company has a goal of earning $70,000 after-tax income. Ivan would need to
pay $20,000 of income taxes at the target level of income. The contribution margin ratio
is 30%. What amount of dollar sales must be achieved to reach the goal if fixed costs
are $36,000?
A.$23,333
B.$36,000
C.$300,000
D.$353,333
E.$420,000
38) After posting is completed, there may be an error if:
A.The sum of the customer account balances does not equal the total in the sales journal
B.The sum of the accounts receivable ledger does not equal the balance in the Sales
account
C.The sum of the customer account balances does not equal the general ledger
Accounts Receivable controlling account balance
D.The balance in the sales journal does not equal the Accounts Receivable account
balance
E.The sum of the accounts receivable ledger does not equal the balance in the sales
journal
39) Nee High and Low Jack are partners in an accounting firm and share net income
and loss equally. High’s beginning partnership capital balance for the current year is
$285,000, and Jack’s beginning partnership capital balance for the current year is
$370,000. The partnership had net income of $250,000 for the year. High withdrew
$90,000 during the year and Jack withdrew $100,000. What is High’s return on equity?
A.41.3%
B.43.9%
C.32.7%
D.33.8%
E.36.5%
40) The statement of cash flows helps analysts evaluate the:
A.Source of cash used for debt repayments
B.Source of cash used for plant expansion
C.Differences between net income and net operating cash flow
D.Source of cash used to finance investing activities
E.All of these
41) When a partner is unable to pay a capital deficiency:
A.The partner must take out a loan to cover the deficient balance
B.The deficiency is absorbed by the remaining partners before distribution of cash
C.The partnership ends before distribution of cash
D.The deficient partner is relieved of the liability
E.The remaining partners must wait for the deficiency to be paid before cash is
distributed
42) Cabot Company collected the following data regarding production of one of its
products. Compute the variable overhead efficiency variance.
A.$14,300 favorable
B.$18,000 favorable
C.$18,000 unfavorable
D.$18,300 unfavorable
E.$14,300 unfavorable
43) Goods on consignment:
A.Are goods shipped by the owner to the consignee who sells the goods for the owner
B.Are reported in the consignee’s books as inventory
C.Are goods shipped to the consignor who sells the goods for the owner
D.Are not reported in the consignor’s inventory since they do not have possession of the
inventory
E.Are always paid for by the consignee when they take possession
44) Employers:
A.Pay FICA taxes equal to the amount of FICA taxes withheld from the employees
B.Withhold employees’ FICA taxes
C.Pay unemployment taxes to the federal government
D.Pay unemployment taxes to both the state and federal governments
E.All of these
45) All of the following are True regarding unearned revenues except:
A.They are payments received in advance of services performed
B.The adjusting entry for unearned revenues increases assets and increases revenues
C.The adjusting entry for unearned revenues increases revenues and decreases liabilities
D.They are liabilities
E.As they are earned, they become revenues
46) Labor costs in production can be:
A.Direct or indirect
B.Indirect or sunk
C.Direct or payroll
D.Indirect or payroll
E.Direct or sunk
47) At December 31, Warren Company reports the following results for its calendar
year from the adjusted trial balance.
a. Prepare the adjusting entry to record Bad Debts Expense assuming uncollectibles are
estimated to be 1.1% of credit sales.
b. Prepare the adjusting entry to record Bad Debts Expense assuming uncollectibles are
estimated to be .8% of total sales.
c. Prepare the adjusting entry to record Bad Debts Expense assuming uncollectibles are
estimated to be 7.0% of year-end accounts receivable.
48) Whittier Manufacturing uses a job order cost accounting system that charges
overhead to jobs on the basis of direct labor cost. Whittier used the following cost
predictions: overhead costs $1,285,750, and direct labor costs of $695,000. At year-end,
the company’s records show that actual overhead costs for the year are $1,278,800, and
actual direct labor costs are $692,000.
a. Determine the predetermined overhead rate for the year.
b. Compute the amount of overapplied or underapplied overhead.
c. Prepare the adjusting entry to allocate the over- or underapplied overhead assuming
the amount if immaterial.
49) When a partnership is liquidated:
A.Noncash assets are converted to cash
B.Any gain or loss on liquidation is allocated to the partners’ capital accounts using the
income and loss sharing ratio
C.Liabilities are paid or settled
D.Any remaining cash is distributed to the partners based on their capital balances
E.All of these
50) Embark produces mulch for landscaping use. The following information
summarizes production operations for June. The journal entry to record June production
activities for goods transfer from production to finished goods is:
A.Debit Finished Goods Inventory $432,000; credit Goods in Process Inventory
$432,000
B.Debit Goods in Process Inventory $444,000; credit Finished Goods Inventory
$444,000
C.Debit Goods in Process Inventory $432,000; credit Finished Goods Inventory
$432,000
D.Debit Finished Goods Inventory $444,000; credit Goods in Process Inventory
$444,000
E.Debit Goods in Process Inventory $432,000; credit Cash $432,000
51) When a company has no reportable nonoperating activities, its income from
operations is reported as ___________________.
52) Marshall Corp. uses a job order cost accounting system and worked only on Job
101 during the current period. Job 101 was sold for $460,000. The following
information pertains to costs incurred for Job 101.
53) Should both favorable and unfavorable variances be investigated, or only the
unfavorable ones? Explain.
54) A __________________ is an all-purpose journal that can record any transaction.
55) Sierra and Jenson formed a partnership. Sierra contributed $25,000 cash and
accounts receivable worth $11,000. Jenson’s investment included cash, $5,000;
inventory, $18,000; and supplies, $1,000. Prepare the journal entries to record each
partner’s investment in the new partnership.
56) Identify and discuss the factors involved in computing federal income taxes for
employees.