1) Recording of a stock dividend results in a liability being recorded.
2) Budget preparation is best determined in a top-down managerial approach.
3) A ratio expresses a mathematical relation between two quantities and can be
expressed as a percent, rate, or proportion.
4) A company using the percentage of sales method for estimating bad debts has sales
of $350,000 and estimates that 1.0% of its sales are uncollectible. The estimated amount
of bad debts expense is $3,500.
5) When preparing the operating activities section of the statement of cash flows using
the indirect method, depreciation is subtracted from net income.
6) Payments on installment notes normally include accrued interest plus a portion of the
principal amount borrowed.
7) Dawson Electronic Services had revenues of $80,000 and expenses of $50,000 for
the year. Its assets at the beginning of the year were $400,000. At the end of the year
assets were worth $450,000. Calculate its return on assets.
A.7.1%
B.7.5%
C.6.7%
D.20.0%
E.18.8%
8) The central guidance of the budget process is the responsibility of the:
A.Chief Accounting Officer.
B.Chief Executive Officer (CEO).
C.Chief Financial Officer (CFO).
D.Budget Committee.
E.Board of Directors.
9) Ordinary repairs meet all of the following criteria except:
A.Are expenditures to keep an asset in normal operating condition.
B.Are necessary if an asset is to perform to expectations over its useful life.
C.Extend the useful life of an asset beyond its original estimate.
D.Include cleaning, lubricating, and normal adjusting.
E.Are treated as expenses.
10) An analysis that explains differences between the checking account balance
according to the depositor’s records and the balance reported on the bank statement is
a(n):
A.Internal audit.
B.Bank reconciliation.
C.Bank audit.
D.Trial reconciliation.
E.Analysis of debits and credits.
11) A disadvantage of using the payback period to compare investment alternatives is
that:
A.It ignores cash flows beyond the payback period.
B.It includes the time value of money.
C.It cannot be used when cash flows are not uniform.
D.It cannot be used if a company records depreciation.
E.It cannot be used to compare investments with different initial investments.
12) A hybrid costing system would be most appropriate when:
A.A manufacturer is able to standardize processes while at the same time attempting to
meet individual customer needs.
B.Large quantities of identical products are being produced.
C.The volume of production is low and costs are high.
D.There is no standardization of units of production.
E.All the products produced are unique.
13) Mary Sunny began business as Sunny Law Firm on November 1.Record the
following November transactions by making entries directly to the T-accounts provided.
Then, prepare a trial balance, as of November 30.
a) Mary invested $15,000 cash and a law library valued at $6,000.
b) Purchased $7,500 of office equipment from John Bronx on credit.
c) Completed legal work for a client and received $1,500 cash in full payment.
d) Paid John Bronx. $3,500 cash in partial settlement of the amount owed.
e) Completed $4,000 of legal work for a client on credit.
f) Mary withdrew $2,000 cash for personal use.
g) Received $2,500 cash as partial payment for the legal work completed for the client
in (e).
h) Paid $2,500 cash for the legal secretary€s salary.
14) A type of production that yields customized products or services for each customer
is called:
A.Customer orientation production.
B.Job order production.
C.Just-in-time production.
D.Job lot production.
E.Process production.
15) Held-to-maturity securities are:
A.Always classified as Short-Term Investments.
B.Always classified as Long-Term Investments.
C.Debt securities that a company intends and is able to hold to maturity.
D.Equity securities that a company intends and is able to hold to maturity.
E.Equity securities where significant influence involved.
16) Parallel Enterprises has collected the following data on one of its products. During
the period the company produced 25,000 units. The direct materials price variance is:
A.$27,500 unfavorable.
B.$50,000 unfavorable.
C.$50,000 favorable.
D.$22,500 unfavorable.
E.$22,500 favorable.
17) Andrews Corporation uses a process costing system for manufacturing. The
following information is available for the February in its Polishing Department:
The cost per equivalent unit of production for direct materials is:
A.$9.26
B.$4.21
C.$4.97
D.$5.05
E.$5.85
18) Strider Corporation issued 14%, 5-year bonds with a par value of $5,000,000 on
January 1, Year 1. Interest is to be paid semiannually on each June 30 and December
31. The bonds are issued at $5,368,035 cash when the market rate for this bond is 12%.
(a) Prepare the general journal entry to record the issuance of the bonds on January 1,
year 1
(b) Show how the bonds would be reported on Strider’s balance sheet at January 1, Year
1
(c) Assume that Strider uses the effective interest method of amortization of any
discount or premium on bonds. Prepare the general journal entry to record the first
semiannual interest payment on June 30, Year 1
(d) Assume instead that Strider uses the straight-line method of amortization of any
discount or premium on bonds. Prepare the general journal entry to record the first
semiannual interest payment on June 30, Year 1
19) Clayborn Company’ bank reconciliation as of May 31 is shown below.
The adjusting journal entries that Clayborn must record as a result of the bank
reconciliation include:
A.A debit to Cash of $625
B.A debit to Cash of $5,200
C.A credit to Cash of $4,600
D.A credit to Cash of $600
E.A debit to cash of $25
20) Which of the following procedures would weaken control over cash receipts that
arrive through the mail?
A.After the mail is opened, a list (in triplicate) of the money received is prepared with a
record of the sender’s name, the amount, and an explanation of why the money is sent.
B.The bank reconciliation is prepared by a person who does not handle cash or record
cash receipts.
C.For safety, only one person should open the mail, and that person should immediately
deposit the cash received in the bank.
D.The cashier deposits the money in the bank and the recordkeeper records the amounts
received in the accounting records.
E.The employees handling the cash receipts are bonded.
21) The length of time covered by a set of periodic financial statements, primarily a
year for most companies, is referred to as the:
A.Fiscal cycle.
B.Natural business year.
C.Accounting period.
D.Business cycle.
E.Operating cycle.
22) A company discarded a computer system originally purchased for $18,000. The
accumulated depreciation was $17,200. The company should recognize a(an):
A.$0 gain or loss.
B.$800 loss.
C.$800 gain.
D.$8,000 loss.
E.$7,200 loss.
23) A machine with a cost of $130,000, current year depreciation expense of $17,000
and accumulated depreciation of $85,000 is sold for $40,000 cash. The amount(s) that
should be reported in the operating section of the statement of cash flows is:
A.$17,000.
B.$4,000.
C.$57,000.
D.$21,000.
E.$22,000.
24) If the cost of the beginning work in process inventory is $60,000, costs of goods
manufactured is $890,000, direct materials cost is $330,000, direct labor cost is
$210,000, and overhead cost is $315,000, calculate the ending work in process
inventory:
A.$35,000.
B.$25,000.
C.$45,000.
D.$350,000.
E.$355,000.
25) The comparison of a company’s financial condition and performance to a base
amount is known as:
A.Financial reporting.
B.Horizontal ratios.
C.Investment analysis.
D.Risk analysis.
E.Vertical analysis.
26) What is depreciation of plant assets? What are the factors necessary in computing
depreciation?
27) Werner Company had $1,300 of store supplies at the beginning of the current year.
During this year, Werner purchased $6,250 worth of store supplies. On December 31,
$1,125 worth of store supplies remained. Calculate the amount of Werner Company’s
store supplies expense for the current year.
28) The measurement of key relationships between financial statement items is known
as ________________.
29) Babson reported assets of $13,362 million at January 1 and $13,369 million as of
December 31 of the current year. Babson’s net cash flows from operations were $2,204
million. Calculate the cash flow on total assets ratio for Babson.
30) Umber Company’s bank reconciliation for September is presented below. Prepare
the necessary adjusting journal entries based on the reconciliation report.
31) A company inadvertently produced 6,000 defective portable radios. The radios cost
$10 each to be manufactured. A salvage company will purchase the defective units as
they are for $8 each. The production manager reports that the defects can be corrected
for $4.50 per unit, enabling the company to sell them at the regular price of $15.00. The
repair operations would not affect other production operations. Prepare an analysis that
shows which action should be taken.
32) What are the five usual steps involved in the preparation of the statement of cash
flows?
33) Describe the purpose of horizontal financial statement analysis and how it is
applied.
34) Complete the work sheet below for Barber Housekeeping Services by extending the
account balances from the adjusted trial balance columns into the appropriate financial
statement columns and by entering the amount of net income for the reporting period:
