1) Accounting time periods that are one year in length are referred to as interim periods.
2) Free cash flow equals cash provided by operations less capital expenditures and cash
dividends.
3) A corporation can be organized for the purpose of making a profit or it may be
not-for-profit.
4) The flow of input data for budgeting should be from the highest levels of
responsibility to the lowest.
5) A retained earnings statement shows the same information as a corporation income
statement.
6) The reference column in a sales journal is used to indicate the general ledger account
number when the entry is posted.
7) Most companies are required to report earnings per share on the face of the income
statement.
8) Vertical analysis is useful in making comparisons of companies of different sizes.
9) A CVP income statement classifies expenses by function rather than by cost
behavior.
10) The first-in, first-out (FIFO) inventory method results in an ending inventory valued
at the most recent cost.
11) In order to prevent a transaction from being recorded more than once, a company
should maintain only one book of original entry.
12) Closing revenue and expense accounts to the Income Summary account is an
optional bookkeeping procedure.
13) The master budget of Handy Company shows that the planned activity level for
next year is expected to be 100,000 machine hours. At this level of activity, the
following manufacturing overhead costs are expected:
Indirect labor$480,000
Machine supplies120,000
Indirect materials140,000
Depreciation on factory building 80,000
Total manufacturing overhead$820,000
A flexible budget for a level of activity of 120,000 machine hours would show total
manufacturing overhead costs of
a.$940,000
b.$820,000
c.$984,000
d.$968,000
14) Depreciation is a process of
a.asset devaluation
b.cost accumulation
c.cost allocation
d.asset valuation
15) If supplies that have been purchased are used in the course of business, then
a.a liability will increase
b.an asset will increase
c.owner’s equity will decrease
d.owner’s equity will increase
16) Which one of the following items would never appear on a cash budget?
a.Office salaries expense
b.Interest expense
c.Depreciation expense
d.Travel expense
17) On the statement of cash flows worksheet,
a.significant noncash investing and financing activities are not entered in the
reconciling columns
b.a decrease in cash will be offset by a debit in the reconciling items columns at the
bottom of the worksheet
c.an increase in cash will be offset by a debit in the reconciling items column at the
bottom of the worksheet
d.income statement accounts are listed after balance sheet accounts in the top half of the
worksheet under the indirect method
18) On December 31, Nola Company has cash $30,000, noncash assets $150,000, and
liabilities $80,000. Capital balances were Harper $55,000 and Kahle $45,000. The firm
is liquidated, and the noncash assets are sold for $115,000. Harper and Kahle share
income in a 60:40 ratio.
Instructions
Prepare entries to record (a) the sale of noncash assets and (b) the allocation of the gain
(loss) on liquidation to the partners.
19) Accrued expenses are
a.paid and recorded in an asset account before they are used or consumed
b.paid and recorded in an asset account after they are used or consumed
c.incurred but not yet paid or recorded
d.incurred and already paid or recorded
20) A survey of major U.S. companies revealed that 77% of those companies used
either LIFO or FIFO cost flow methods, while 19% used average cost, and only 4%
used other methods.
Required:
Provide brief, yet concise responses to the following questions.
a.Why are LIFO and FIFO so popular?
b.Since computers and inventory management software are readily available, why arent
more companies using specific identification?
21) Certain agricultural and mineral products can be reported at net realizable value
under
GAAPIFRS
a.YesNo
b.YesYes
c.NoNo
d.NoYes
22) Which of the following would not be an acceptable way to express contribution
margin?
a.Sales minus variable costs
b.Sales minus unit costs
c.Unit selling price minus unit variable costs
d.Contribution margin per unit divided by unit selling price
23) Firms operating at 100% capacity
a.are common
b.are the exception rather than the rule
c.have no fixed costs
d.have no variable costs
24) Price Company sells 100,000 units for $13 a unit. Fixed costs are $350,000 and net
income is $250,000. What should be reported as variable expenses in the CVP income
statement?
a.$600,000
b.$700,000
c.$950,000
d.$1,050,000
25) If you are able to earn a 4% rate of return, what amount would you need to invest to
have $15,000 one year from now?
a.$14,400
b.$14,423
c.$13,485
d.$14,833
26) The following information pertains to Ortiz Company. Assume that all balance
sheet amounts represent both average and ending balance figures. Assume that all sales
were on credit.
Assets
Cash and short-term investments$ 45,000
Accounts receivable (net)30,000
Inventory40,000
Property, plant and equipment 310,000
Total Assets$425,000
Liabilities and Stockholders Equity
Current liabilities$ 55,000
Long-term liabilities110,000
Stockholders equitycommon 260,000
Total Liabilities and Stockholders Equity$425,000
Income Statement
Sales$ 120,000
Cost of goods sold 65,000
Gross profit55,000
Operating expenses 29,500
Net income$ 25,500
Number of shares of common stock6,000
Market price of common stock$20
Dividends per share.50
What is the return on assets for Ortiz?
a.6.0%
b.5.0%
c.10.0%
d.12.0%
27) Which one of the following is primarily interested in the liquidity of a company?
a.Federal government
b.Stockholders
c.Long-term creditors
d.Short-term creditors
28) The two optional steps in the accounting cycle are preparing
a.a post-closing trial balance and reversing entries
b.a worksheet and post-closing trial balances
c.reversing entries and a worksheet
d.an adjusted trial balance and a post-closing trial balance
29) Viejo Inc. earns $60,000 and pays cash dividends of $150,000 during 2014 . Cruz
Corporation owns 73,500 of the 210,000 outstanding shares of Viejo.
What amount should Cruz show in the investment account at December 31, 2014 if the
beginning of the year balance in the account was $40,000?
a.$197,500
b.$210,000
c.$157,500
d.$250,000
30) Brian and Sandy are forming a partnership. Brian will invest a truck with a book
value of $10,000 and a fair value of $14,000. Sandy will invest a building with a book
value of $30,000 and a fair value of $42,000 with a mortgage of $15,000. At what
amount should the building be recorded?
a.$30,000
b.$27,000
c.$42,000
d.$45,000
31) A favorable variance
a.is an indication that the company is not operating in an optimal manner
b.implies a positive result if quality control standards are met
c.implies a positive result if standards are flexible
d.means that standards are too loosely specified
32) In the month of May, Wiki Enterprises wrote checks in the amount of $11,450. In
June, checks in the amount of $14,321 were written. In May, $9,248 of these checks
were presented to the bank for payment, and $12,890 were presented in June. If no
checks were outstanding at the end of April, what is the amount of outstanding checks
at the end of May?
a.$1,431
b.$3,642
c.$3,633
d.$2,202
33) Fixed costs normally will not include
a.property taxes
b.direct labor
c.supervisory salaries
d.depreciation on buildings and equipment
34) When a customer returns merchandise purchased on credit, the
a.customer should credit Accounts Payable
b.seller should credit Sales Returns and Allowances
c.customer should credit Accounts Receivable
d.seller should credit Accounts Receivable
35) The custodian of a company asset should
a.have access to the accounting records for that asset
b.be someone outside the company
c.not have access to the accounting records for that asset
d.be an accountant
36) Cash-basis accounting is allowed under
a.GAAP but not IFRS
b.IFRS but not GAAP
c.both IFRS and GAAP
d.neither IFRS nor GAAP
37) Another name for the static budget is
a.master budget
b.overhead budget
c.permanent budget
d.flexible budget
38) Retained earnings are occasionally restricted
a.to set aside cash for dividends
b.to keep the legal capital associated with paid-in capital intact
c.due to contractual loan restrictions
d.if preferred dividends are in arrears
39) Financial information is presented below:
Operating Expenses$ 60,000
Sales Revenue 225,000
Cost of Goods Sold 135,000
The gross profit rate would be
a..133
b..400
c..600
d..733
40) On January 1, Skills Company purchased as a short-term investment a $1,000, 6%
bond for $1,000. The bond pays interest on January 1 and July 1 . The bond is sold on
October 1 for $1,200 plus accrued interest. Interest has not been accrued since the last
interest payment date. What is the entry to record the cash proceeds at the time the bond
is sold?
a.Cash1,200
Debt Investments 1,200
b.Cash1,215
Debt Investments1,000
Gain on Sale of Debt Investments200
Interest Revenue15
c.Cash1,215
Debt Investments1,200
Interest Revenue15
d.Cash1,200
Debt Investments1,000
Gain on Sale of Debt Investments200
41) Dulles Manufacturing Company developed the following data:
Beginning work in process inventory $470,000
Direct materials used350,000
Actual overhead550,000
Overhead applied500,000
Cost of goods manufactured700,000
Ending work in process720,000
Dulles Manufacturing Company’s total manufacturing costs for the period is
a.$950,000
b.$900,000
c.$750,000
d.cannot be determined from the data provided
42) Which of the following statements is false?
a.Revenues increase owner’s equity
b.Revenues have normal credit balances
c.Revenues are a positive factor in the computation of net income
d.Revenues are increased by debits
43) Which of the following would be subtracted from net income using the indirect
method?
a.Depreciation expense
b.An increase in accounts receivable
c.An increase in accounts payable
d.A decrease in prepaid expenses
44) The board of directors must assign a per share value to a stock dividend declared
that is
a.greater than the par or stated value
b.less than the par or stated value
c.equal to the par or stated value
d.at least equal to the par or stated value
45) Rich Harvest Company sells a product that includes a one-year warranty on parts
and labor. During the year, 10,000 units are sold. Rich Harvest expects that 3% of the
units will be defective and that the average warranty cost will be $50 per unit. Actual
warranty costs incurred during the year were $14,000.
Instructions
Prepare the journal entries to record (a) the estimated warranty costs and (b) the actual
costs incurred.
46) A company just starting business made the following four inventory purchases in
June:
June1150 units$ 390
June10200 units585
June15200 units630
June28150 units 510
$2,115
A physical count of merchandise inventory on June 30 reveals that there are 250 units
on hand. Using the LIFO inventory method, the value of the ending inventory on June
30 is
a.$683
b.$825
c.$1,290
d.$1,432
47) A $100 petty cash fund has cash of $16 and receipts of $82. The journal entry to
replenish the account would include a
a.debit to Cash for $82
b.credit to Petty Cash for $84
c.debit to Cash Over and Short for $2
d.credit to Cash for $82
48) Financial accounting ethics violations are
a.not a problem in the U.S. or internationally
b.much more common in the U.S. than internationally
c.much more common internationally than in the U.S
d.a major problem both in the U.S. and internationally
49) Which of the following would not be considered an expense of a partnership in
determining income for the period?
a.Expired insurance
b.Income tax expense
c.Rent expense
d.Utilities expense
50) Leah Company’s equipment account increased $400,000 during the period; the
related accumulated depreciation increased $30,000. New equipment was purchased at
a cost of $700,000 and used equipment was sold at a loss of $20,000. Depreciation
expense was $100,000. Proceeds from the sale of the used equipment were:
a.$210,000
b.$250,000
c.$280,000
d.$320,000
51) Ernest Company uses an imprest petty cash system. The fund was established on
March 1 with a balance of $200. During March the following petty cash receipts were
found in the petty cash box.
Receipt
Date No. For Amount
3/51Stamp Inventory$74
72Freight-Out42
93Miscellaneous Expense22
114Travel Expense49
The fund was replenished on March 15 when the fund contained $9 in cash. On March
20, the amount in the fund was increased to $300.
Instructions
Journalize the entries in March that pertain to the operation of the petty cash fund.
52) A decision whether to sell a product now or to process it further, depends on
whether the incremental _____________ from processing further are greater than the
incremental processing ______________.
53) This information is available for Eaton’s Photo Corporation for 2014 and 2015 .
2014 2015
Beginning inventory$ 200,000$ 300,000
Ending inventory300,000380,000
Cost of goods sold1,150,0001,330,000
Sales revenue1,600,0001,900,000
Instructions
Calculate inventory turnover, days in inventory, and gross profit rate for Eaton’s Photo
Corporation for 2014 and 2015 . Comment on any trends.
54) A statement of cash flows summarizes the operating, ____________, and
___________ activities of an entity.
55) The formula for developing a production budget is ___________________ plus
______________________ minus _______________________.
56) Garth Company sold goods on account to Kyle Enterprises with terms of 2/10, n/30.
The goods had a cost of $600 and a selling price of $1,100. Both Garth and Kyle use a
perpetual inventory system. Record the sale on the books of Garth and the purchase on
the books of Kyle.
57) Instructions: Complete the requirements specified for each of the following
independent situations.
1>Fill in the missing labels by printing in the answer spaces provided.
__________________________
+ Purchases
Purchases discounts
Purchases returns and allowances
+ Freight-in
= ____________________________
B.Net purchases + __________________________ = Cost of goods purchased
C.Net purchases + ____________________ + _____________________ = Purchases
2>Harms Electronics uses the lower of cost or market (LCM) basis for its inventory.
The following information relates to its December 31, 2014, inventory. Determine the
amount of the ending inventory applying LCM to individual items.
December 31, 2014
ProductUnitsUnit CostMarket
A600$1720
B3502825
C4001517
D2503129
E3802019
58) In BigEasy Co., capital balances are Adrienne $60,000 and Dino $75,000. The
partners share income equally. Javier is admitted to the firm with a 40% interest by an
investment of cash of $85,000. Journalize the admission of Javier.