1) Under a periodic inventory system, the acquisition of inventory is charged to the
Purchases account.
2) The drawing account is a subdivision of the owner’s capital account and appears as
an expense on the income statement.
3) Current maturities of long-term debt refers to the amount of interest on a note
payable that must be paid in the current year.
4) The direct materials budget must be completed before the production budget because
the quantity of materials available for production must be known.
5) Income will always be greater under the cash basis of accounting than under the
accrual basis of accounting.
6) A statement of cash flows should help investors and creditors assess the entitys
ability to generate future income.
7) The expense recognition principle requires that the cost of goods sold be matched
against the ending merchandise inventory in order to determine income.
8) An important step in management’s decision-making process is to determine and
evaluate possible courses of action.
9) Bonds that mature at a single specified future date are called term bonds.
10) The break-even point is equal to the fixed costs plus net income.
11) The contribution margin ratio of 40% means that 60 cents of each sales dollar is
available to cover fixed costs and to produce a profit.
12) A merchandising company has different types of adjusting entries than a service
company.
13) The normal balance of all accounts is a debit.
14) Additions and improvements to a plant asset that increase the asset’s operating
efficiency, productive capacity, or expected useful life are generally expensed in the
period incurred.
15) Decision-making involves choosing among alternative courses of action.
16) Under generally accepted accounting principles, management has the choice of
physically counting inventory on hand at the end of the year or using the gross profit
method to estimate the ending inventory.
17) The weighted-average method of computing equivalent units is the most widely
used method in practice.
18) Which one of the following would not be considered a liquidity ratio?
a.Current ratio
b.Inventory turnover
c.Acid-test ratio
d.Return on assets
19) A contingency need not be recorded nor disclosed when
a.it is probable the contingency will happen and the amount can be reasonably
estimated
b.it is probable the contingency will happen but the amount cannot be reasonably
estimated
c.it is reasonably possible the contingency will happen and the amount can be
reasonably estimated
d.the possibility of the contingency happening is remote
20) All of the following are intangible assets except
a.copyrights
b.goodwill
c.patents
d.research and development costs
21) If the cost method is used to account for a long-term investment in common stock,
dividends received should be
a.credited to the Stock Investments account
b.credited to the Dividend Revenue account
c.debited to the Stock Investments account
d.recorded only when 20% or more of the stock is owned
22) IFRS requires that companies present
a.a complete set of financial statement, including comparative information, annually
b.only a statement of financial position, including comparative information, annually
c.only an income statement, including comparative information, annually
d.only a statement of changes in cash flows, including comparative information,
annually
23) Flite Corporation has issued common stock only. The company has been successful
and has a gross profit rate of 20%. The information shown below was taken from the
company’s financial statements.
Beginning inventory$ 482,000
Purchases4,036,000
Ending inventory?
Average accounts receivable800,000
Average common stockholders’ equity3,500,000
Sales (all on credit)5,000,000
Net income385,000
Instructions
Compute the following:
(a)Accounts receivable turnover and the average collection period.
(b)Inventory turnover and the days in inventory.
(c)Return on common stockholders’ equity.
24) If a company acquires a 40% common stock interest in another company,
a.the equity method is usually applicable
b.all influence is classified as controlling
c.the cost method is usually applicable
d.the ability to exert significant influence over the activities of the investee does not
exist
25) Which of the following statements is true regarding the form of a legally binding
partnership contract?
a.The partnership contract must be in writing
b.The partnership contract may be based on a handshake
c.The partnership contract may be implied
d.The partnership contract cannot be oral
26) If actual overhead is greater than applied manufacturing overhead, then
manufacturing overhead is:
a.underapplied
b.overapplied
c.a loss on the income statement under “Other Expenses and Losses”
d.considered a miscellaneous expense
27) In vertical analysis, the base amount for each income statement item is
a.gross profit
b.net income
c.net sales
d.sales
28) Internal controls are not designed to safeguard assets from
a.natural disasters
b.employee theft
c.robbery
d.unauthorized use
29) In using variance reports, management looks for
a.total assets invested
b.significant variances
c.competitors costs in comparison to the company’s costs
d.more efficient ways of valuing inventories
30) On January 1, 2014, Brenner Company purchased at face value, a $1,000, 6% bond
that pays interest on January 1 and July 1 . Brenner Company has a calendar year end.
The entry for the receipt of interest on July 1, 2014, is
a.Cash30
Interest Revenue30
b.Cash60
Interest Revenue60
c.Interest Receivable30
Interest Revenue30
d.Interest Receivable60
Interest Revenue60
31) These are selected account balances on December 31, 2014 .
Land (location of the corporations office building)$100,000
Land (held for future use)150,000
Corporate Office Building700,000
Inventory200,000
Equipment450,000
Office Furniture150,000
Accumulated Depreciation425,000
What is the total amount of property, plant, and equipment that will appear on the
balance sheet?
a.$975,000
b.$1,125,000
c.$1,175,000
d.$1,400,000
32) When preferred stock is cumulative, preferred dividends not declared in a period are
a.considered a liability
b.called dividends in arrears
c.distributions of earnings
d.never paid
33) Sebadoah is a barber who does his own accounting for his shop. When he buys
supplies he routinely debits Supplies Expense. Sebadoah purchased $1,500 of supplies
in January and his inventory at the end of January shows $300 of supplies remaining.
What adjusting entry should Sebadoah make on January 31?
a.Supplies Expense300
Supplies300
b.Supplies Expense1,500
Cash1,500
c.Supplies300
Supplies Expense300
d.Supplies Expense1,200
Supplies1,200
34) A general rule to use in assessing the average collection period is that
a.it should not exceed 30 days
b.it can be any length as long as the customer continues to buy merchandise
c.it should not greatly exceed the discount period
d.it should not greatly exceed the credit term period
35) Grave Company has a contribution margin of $500,000 and a contribution margin
ratio of 40%. How much are total variable costs?
a.$200,000
b.$750,000
c.$300,000
d.$1,250,000
36) Assume that all balance sheet amounts for Hiro Company represent average balance
figures.
Stockholders equitycommon $300,000
Total stockholders equity400,000
Sales revenue200,000
Net income54,000
Number of shares of common stock20,000
Common stock dividends20,000
Preferred stock dividends8,000
What is the return on common stockholders equity ratio for Hiro?
a.18.0%
b.15.3%
c.11.3%
d.8.7%
37) TAD Company gathered the following data about the three products that it
produces:
PresentEstimated AdditionalEstimated Sales
ProductSales Value Processing Costsif Processed Further
Alpha$12,000$8,000$21,000
Beta14,0006,00018,000
Delta11,0003,00016,000
Which of the products should not be processed further?
a.Product Alpha
b.Product Beta
c.Product Delta
d.Products Alpha and Delta
38) The following information is taken from the production budget for the first quarter:
Beginning inventory in units1,800
Sales budgeted for the quarter678,000
Capacity in units of production facility708,000
How many finished goods units should be produced during the quarter if the company
desires 4,800 units available to start the next quarter?
a.675,000
b.681,000
c.711,000
d.682,800
39) A bondholder that sends in a coupon to receive interest payments must have a(n)
a.unsecured bond
b.bearer bond
c.mortgage bond
d.serial bond
40) The following information is available for Everett Company at December 31, 2014:
beginning inventory $80,000; ending inventory $120,000; cost of goods sold
$1,050,000; and sales $1,800,000. Everetts inventory turnover in 2014 is
a.8.7 times
b.10.5 times
c.13.2 times
d.18 times
41) The sum of the direct materials costs, direct labor costs, and manufacturing
overhead incurred is the
a.cost of goods manufactured
b.total manufacturing overhead
c.total manufacturing costs
d.total cost of work in process
42) Kline Corporation sells its product for $40. The variable costs are $18 per unit.
Fixed costs are $16,000. The company is considering the purchase of an automated
machine that will result in a $2 reduction in unit variable costs and an increase of
$5,000 in fixed costs. Which of the following is true about the break-even point in
units?
a.It will remain unchanged
b.It will decrease
c.It will increase
d.It cannot be determined from the information provide
43) If there are no units in process at the beginning of the period, then
a.the company must be using a job order cost system
b.only one computation of equivalent units of production will be necessary
c.the units started into production will equal the number of units transferred out
d.the units to be accounted for will equal the units transferred out and the units in
process at the end of the period
44) Two costs at Sargent, Inc. appear below for specific months of operation.
MonthAmountUnits Produced
Delivery costsJanuary$ 40,00040,000
February55,00060,000
UtilitiesJanuary$ 84,00040,000
February126,00060,000
Which type of costs are these?
a.Delivery costs and utilities are both variable
b.Delivery costs and utilities are both mixed
c.Delivery costs are variable and utilities are mixed
d.Delivery costs are mixed and utilities are variable
45) On October 1, 2014, Holt Company places a new asset into service. The cost of the
asset is $120,000 with an estimated 5-year life and $30,000 salvage value at the end of
its useful life. What is the depreciation expense for 2014 if Holt Company uses the
straight-line method of depreciation?
a.$4,500
b.$24,000
c.$6,000
d.$12,000
46) An aging of a company’s accounts receivable indicates that $3,000 are estimated to
be uncollectible. If Allowance for Doubtful Accounts has a $800 debit balance, the
adjustment to record bad debts for the period will require a
a.debit to Bad Debt Expense for $2,200
b.debit to Bad Debt Expense for $3,000
c.debit to Bad Debt Expense for $3,800
d.credit to Allowance for Doubtful Accounts for $800
47) Accounts often need to be adjusted because
a.there are never enough accounts to record all the transactions
b.many transactions affect more than one time period
c.there are always errors made in recording transactions
d.management can’t decide what they want to report
48) A static budget is not appropriate in evaluating a manager’s effectiveness if a
company has
a.substantial fixed costs
b.substantial variable costs
c.planned activity levels that match actual activity levels
d.no variable costs
49) Horizontal analysis evaluates a series of financial statement data over a period of
time
a.that has been arranged from the highest number to the lowest number
b.that has been arranged from the lowest number to the highest number
c.to determine which items are in error
d.to determine the amount and/or percentage increase or decrease that has taken place
50) Alpine Inc. uses job order costing for its brand new line of sewing machines. The
cost incurred for production during 2014 totaled $20,000 of materials, $8,000 of direct
labor costs, and $8,000 of manufacturing overhead applied. The company ships all
goods as soon as they are completed which results in no finished goods inventory on
hand at the end of any year. Beginning work in process totaled $9,000, and the ending
balance is $15,000. During the year, the company completed 20 machines. How much
is the cost per machine?
a.$1,500
b.$1,880
c.$1,320
d.$1,760
51) The composite balance of individual accounts in the accounts payable subsidiary
ledger must
a.equal the composite balance of the individual accounts in the accounts receivable
subsidiary ledger
b.always be zero
c.equal the balance of the accounts payable account in the general ledger
d.agree with the total of the Accounts payable column in the cash receipt journal
52) Under a perpetual inventory system, acquisition of merchandise for resale is debited
to the
a.Inventory account
b.Purchases account
c.Supplies account
d.Cost of Goods Sold account
53) Keller Company is considering a capital investment of $500,000 in new equipment.
It is expected to have a useful life of 10 years with no salvage value. Depreciation is by
the straight-line method. During the life of the investment, annual net income and cash
inflows are expected to be $35,000 and $85,000, respectively. Keller requires either a
10% cost of capital “hurdle” rate, or a payback period of 7 years.
Present Value of a Series of Future Payments
(n)
Periods 5% 6% 8% 9% 10% 11% 12% 15%
107.721737.360096.710086.417666.144575.889235.650225.01877
Instructions: State whether the project should be accepted or rejected for each of the
four capital budgeting techniques. Show all computations.
1>Compute the annual rate of return.
2>Compute the cash payback period.
3>Compute the net present value.
4>Compute the internal rate of return (to the nearest percent).
54) Garver Industries has budgeted the following unit sales:
2013 Units
January10,000
February8,000
March9,000
April11,000
May15,000
The finished goods units on hand on December 31, 2012, was 2,000 units. Each unit
requires 3 pounds of raw materials that are estimated to cost an average of $4 per
pound. It is the company’s policy to maintain a finished goods inventory at the end of
each month equal to 20% of next month’s anticipated sales. They also have a policy of
maintaining a raw materials inventory at the end of each month equal to 30% of the
pounds needed for the following month’s production. There were 8,640 pounds of raw
materials on hand at December 31, 2012 .
Instructions
For the first quarter of 2013, prepare (1) a production budget and (2) a direct materials
budget.
55) Using the following selected items from the comparative balance sheet of Ames
Company, illustrate horizontal and vertical analysis.
December 31, 2015December 31, 2014
Accounts Receivable$ 960,000$ 600,000
Inventory975,000780,000
Total Assets4,000,0002,500,000
56) Selected account balances of McKnight Manufacturing Company appear below for
2014:
Beginning of YearEnd of Year
Finished Goods Inventory$32,000$ 25,000
Work In Process Inventory35,00030,000
Raw Materials Inventory26,00046,000
Sales360,000
Direct Labor40,000
Factory Supervisory Salaries18,000
Income Tax Expense25,000
Factory Insurance9,000
Raw Material Purchases75,000
Administrative Expenses17,000
Sales Returns and Allowances15,000
Factory Depreciation22,000
Indirect Labor11,000
Selling Expenses27,000
Instructions: Using the above information for McKnight Manufacturing Company,
answer the following questions. Support your answers with clearly identified
computations.
1>What were the total overhead costs incurred?
2>What was the amount of direct materials used in production?
3>What was the cost of goods manufactured?
4>What was the cost of goods sold?
5>What was the amount of net income?
57) The three main factors that contribute to fraudulent activity are depicted by the
_______________.
58) After liquidating noncash assets and paying creditors, account balances in the Main
Co. are Cash $29,000, Art, Capital (Cr.) $11,000, Bob, Capital (Cr,) $8,000 and Cam,
Capital (Cr.) $10,000. The partners share income equally.
Instructions
Journalize the final distribution of cash to the partners.
59) Under ___________________ accounting, the evaluation of a manager’s
performance is based on the costs and revenues directly under that manager’s control.
60) In September 2013, the management of Rye Company assembles the following data
in preparation of budgeted merchandise purchases for the months of October and
November.
1>Expected Sales
October$1,500,000
November2,100,000
December2,700,000
2>Cost of goods sold is expected to be 70% of sales.
3>Desired ending merchandise inventory is 20% of the next month’s cost of goods sold.
4>The beginning inventory at October 1 will be the desired amount.
Instructions
Compute the budgeted merchandise purchases for October and November. Use a
columnar format with separate columns for each month.
