1) Use of the LIFO inventory valuation method enables a company to report paper or
phantom profits.
2) If bonds are issued at a discount, the issuing corporation will pay a principal amount
less than the face amount of the bonds on the maturity date.
3) To be faithfully representative, accounting information should predict future events,
confirm prior expectations, and be reported on a timely basis.
4) A CVP income statement shows contribution margin instead of gross profit.
5) When a company gives employees rights to receive compensation for absences and
the payment for such absences is probable and the amount can be reasonably estimated,
the company should accrue a liability.
6) Manufacturing costs that cannot be classified as direct materials or direct labor are
classified as manufacturing overhead.
7) The origins of accounting are attributed to Luca Pacioli, a famous mathematician.
8) The safeguarding of assets is an objective of a company’s system of internal control.
9) The valuation of available-for-sale securities is similar to the procedures followed for
trading securities, except that changes in fair value are not recognized in current
income.
10) The days in inventory is computed by multiplying inventory turnover by 365 .
11) Managerial accounting applies to each of the following types of businesses except
a.service firms
b.merchandising firms
c.manufacturing firms
d.Managerial accounting applies to all types of firms
12) The entry to record the proceeds upon issuing an interest-bearing note is
a.Interest Expense
Cash
Notes Payable
b.Cash
Notes Payable
c.Notes Payable
Cash
d.Cash
Notes Payable
Interest Payable
13) Replenishing the petty cash fund requires
a.a debit to Cash
b.a credit to Petty Cash
c.a debit to various expense accounts
d.no accounting entry
14) River Forest, Inc., has 5,000 shares of 6%, $100 par value, noncumulative preferred
stock and 50,000 shares of $1 par value common stock outstanding at December 31,
2014 . If the board of directors declares a $100,000 dividend, the
a.preferred stockholders will receive 1/10th of what the common stockholders will
receive
b.preferred stockholders will receive the entire $100,000
c.$30,000 will be held as restricted retained earnings and paid out at some future date
d.preferred stockholders will receive $30,000 and the common stockholders will
receive $70,000
15) Selected account balances for Lightning Company at January 1, 2014, are presented
below.
Accounts Payable $20,000
Accounts Receivable 22,000
Cash 12,000
Inventory 13,500
Lightning’s sales journal for January shows a total of $140,000 in the selling price
column, and its one-column purchases journal for January shows a total of $93,000.
The column totals in Lightning’s cash receipts journal are: Cash Dr. $101,000; Sales
Discounts Dr. $1,100; Accounts Receivable Cr. $80,000; Sales Revenue Cr. $6,000; and
Other Accounts Cr. $11,100.
The column totals in Lightning’s cash payments journal for January are: Cash Cr.
$85,000; Inventory Cr. $1,000; Accounts Payable Dr. $76,000; and Other Accounts Dr.
$10,000. Hernandez’s total cost of goods sold for January is $83,000.
Accounts Payable, Accounts Receivable, Cash, Inventory, and Sales Revenue are not
involved in the “Other Accounts” column in either the cash receipts or cash payments
journal, and are not involved in any general journal entries.
Instructions
Compute the January 31 balance for Lightning in the following accounts.
(a)Accounts Payable.
(b)Accounts Receivable.
(c)Cash.
(d)Inventory.
(e)Sales Revenue.
16) A candy factory’s employees work overtime to finish an order that is sold on
February 28 . The office sends a statement to the customer in early March and payment
is received by mid-March. The overtime wages should be expensed in
a.February
b.March
c.the period when the workers receive their checks
d.either in February or March depending on when the pay period ends
17) Yohnalasse Corporation has the following stockholders’ equity accounts on January
1, 2014:
Common Stock, $10 par value $1,500,000
Paid-in Capital in Excess of Par200,000
Retained Earnings 500,000
Total Stockholders’ Equity$2,200,000
The company uses the cost method to account for treasury stock transactions. During
2014, the following treasury stock transactions occurred:
April1Purchased 10,000 shares at $18 per share.
August1Sold 4,000 shares at $22 per share.
October1Sold 4,000 shares at $15 per share.
Instructions
(a)Journalize the treasury stock transactions for 2014 .
(b)Prepare the Stockholders’ Equity section of the balance sheet for Yohnalasse
Corporation at December 31, 2014. Assume net income was $110,000 for 2014 .
18) The difference between the cost of a depreciable asset and its related accumulated
depreciation is referred to as the
a.market value of the asset
b.blue book value of the asset
c.book value of the asset
d.depreciated difference of the asset
19) Blank checks
a.should be safeguarded
b.should be pre-signed
c.do not need to be safeguarded since they must be signed to be valid
d.should not be prenumbered
20) Fowlen, Inc. has a product with a selling price per unit of $200, the unit variable
cost is $90, and the total monthly fixed costs are $300,000. How much is Fesslers
contribution margin ratio?
a.55%
b.45%
c.150%
d.222%
21) Which of the following statements about a partnership is correct?
a.The personal assets of a partner are included in the partnership accounting records
b.A partnership is not required to file an information tax return
c.Each partner’s share of income is taxable to the partnership
d.A partnership represents an accounting entity for financial reporting purposes
22) Match the statements below with the appropriate terms by entering the appropriate
letter code in the spaces provided.
TERMS:
A.Prepaid Expenses
B.Unearned Revenues
C.Accrued Revenues
D.Accrued Expenses
STATEMENTS:
1>A revenue not yet recognized; collected in advance.
2>Office supplies on hand that will be used in the next period.
3>Interest revenue collected; not yet recognized.
4>Rent not yet collected; already recognized.
5>An expense incurred; not yet paid or recorded.
6>A revenue recognized; not yet collected or recorded.
7>An expense not yet incurred; paid in advance.
8>Interest expense incurred; not yet paid.
23) The entries in a sales journal will show
a.all sales of merchandise
b.the cash sales of the company
c.the credit sales of merchandise
d.all sales of the company
24) A prior period adjustment:
a.appears on the income statement as an other revenue/gain
b.is made when preferred dividends in arrears are finally paid
c.is a correction of an error, made directly to retained earnings
d.is made to reverse an adjusting entry
25) Elkins and Landry are partners who share income and losses in the ratio of 3:2,
respectively. On August 31, their capital balances were: Elkins, $140,000 and Landry,
$120,000. On that date, they agree to admit Neumark as a partner with a one-third
capital interest. If Neumark invests $100,000 in the partnership, what is Elkinss capital
balance after Neumarks admittance?
a.$120,000
b.$126,667
c.$128,000
d.$140,000
26) FICA taxes do not provide workers with:
a.life insurance
b.supplemental retirement
c.employment disability
d.medical benefits
27) If standard costs are incorporated into the accounting system,
a.it may simplify the costing of inventories and reduce clerical costs
b.it can eliminate the need for the budgeting process
c.the accounting system will produce information which is less relevant than the
historical cost accounting system
d.approval of the shareholders is required
28) Which one of the following would not be classified as a short-term investment?
a.Marketable stock securities
b.Equity method investments
c.Marketable debt securities
d.Short-term paper
29) Mofros Computer Repair Shop started the year with total assets of $300,000 and
total liabilities of $200,000. During the year, the business recorded $500,000 in
computer repair revenues, $300,000 in expenses, and Mofro withdrew $50,000. Mofro’s
Owners Capital balance at the end of the year was
a.$200,000
b.$100,000
c.$250,000
d.$300,000
30) A company purchased land for $120,000 cash. Real estate brokers’ commission was
$13,000 and $20,000 was spent for demolishing an old building on the land before
construction of a new building could start. Under the cost principle, the cost of land
would be recorded at:
a.$140,000
b.$153,000
c.$120,000
d.$133,000
31) An unfavorable labor quantity variance may be caused by
a.paying workers higher wages than expected
b.assigning more experienced workers to production
c.worker fatigue or carelessness
d.higher pay rates mandated by union contracts
32) Which of the following statements regarding the date of a cash dividend declaration
is not accurate?
a.The dividend can be rescinded once it has been declared
b.The corporation is committed to a legal, binding obligation
c.The board of directors formally authorizes the cash dividend
d.A liability account must be increased
33) Which of the following is not a mixed cost?
a.Car rental fee
b.Electricity
c.Depreciation
d.Telephone Expense
34) When a petty cash fund is in use,
a.an entry must be made to the appropriate expense, asset, etc. account when a
disbursement is made
b.entries are generally made to Petty Cash only when it is initially set up or the
stipulated amount of the fund is changed
c.the size of the fund should be such that it can be used to cash employees’ bi-monthly
payroll checks
d.an entry is made to Petty Cash when the fund is replenished to its original amount
35) The individual assets invested by a partner in a partnership
a.revert back to that partner if the partnership liquidates
b.determine that partner’s share of net income or loss for the year
c.are jointly owned by all partners
d.determine the scope of authority of that partner
36) Clooney Department Store estimates inventory by using the retail inventory
method. The following information was developed:
At Cost At Retail
Beginning inventory$360,000$ 750,000
Goods purchased900,0001,350,000
Net sales1,400,000
The estimated cost of the ending inventory is
a.$280,000
b.$336,000
c.$420,000
d.$466,667
37) In a worksheet for a merchandising company, Inventory would appear in the
a.trial balance and adjusted trial balance columns only
b.trial balance and balance sheet columns only
c.trial balance, adjusted trial balance, and balance sheet columns
d.trial balance, adjusted trial balance, and income statement columns
38) During 2014, Buhl Manufacturing expected Job No. 51 to cost $700,000 of
overhead, $1,000,000 of materials, and $500,000 in labor. Buhl applied overhead based
on direct labor cost. Actual production required an overhead cost of $580,000,
$1,200,000 in materials used, and $450,000 in labor. All of the goods were completed.
What amount was transferred to Finished Goods?
a.$2,280,000
b.$2,230,000
c.$2,200,000
d.$2,350,000
39) What budgeted amounts appear on the flexible budget?
a.Original budgeted amounts at the static budget activity level
b.Actual costs for the budgeted activity level
c.Budgeted amounts for the actual activity level achieved
d.Actual costs for the estimated activity level
40) The term “FOB” denotes
a.free on board
b.freight on board
c.free only (to) buyer
d.freight charge on buyer
41) Labor efficiency is measured by the
a.materials quantity variance
b.total labor variance
c.labor quantity variance
d.labor rate variance
42) Eggers Inc. has retained earnings of $1,600,000 and total stockholders’ equity of
$4,000,000. It has 400,000 shares of $5 par value common stock outstanding, which is
currently selling for $30 per share. If Eggers declares a 10% stock dividend on its
common stock:
a.net income will decrease by $200,000
b.retained earnings will decrease by $200,000 and total stockholders’ equity will
increase by $200,000
c.retained earnings will decrease by $1,200,000 and total stockholders’ equity will
increase by $1,200,000
d.retained earnings will decrease by $1,200,000 and total paid-in capital will increase
by $1,200,000
43) For the accounts listed below, indicate if the normal balance of the account is a
debit or credit.
Normal Balance
Accounts Debit or Credit
1>Service Revenue
2>Rent Expense
3>Accounts Receivable
4>Accounts Payable
5>Owner’s Capital
6>Supplies
7>Insurance Expense
8>Owner’s Drawings
9>Buildings
10>Notes Payable
44) The ______________ value of old equipment is irrelevant in a decision to replace
that equipment and is often referred to as a _____________ cost.
45) Malcarne Manufacturing’s master budget reflects budgeted sales information for the
month of June, 2014, as follows:
Budgeted QuantityBudgeted Unit Sales Price
Product A40,000$6.95
Product B48,000$9
During June, the company actually sold 39,000 units of Product A at an average unit
price of $7.10 and 49,600 units of Product B at an average unit price of $8.90.
Instructions
Prepare a Sales Budget Report for the month of June for Malcarne Manufacturing
which shows whether the company achieved its planned objectives.
46) Indicate whether each of the following expenditures should be classified as land
(L), land improvements (LI), buildings (B), equipment (E), or none of these (X).
_____1>Parking lots
_____2>Electricity used by a machine
_____3>Excavation costs
_____4>Interest on building construction loan
_____5>Cost of trial runs for machinery
_____6>Drainage costs
_____7>Cost to install a machine
_____8>Fences
_____9>Unpaid (past) property taxes assumed
_____10>Cost of tearing down a building when land and a building on it are purchased
47) Bayonette Inc. is considering Plan 1 which is estimated to have sales of $60,000
and costs of $22,500. The company currently has sales of $57,000 and costs of $21,500.
Instructions
Compare plans using incremental analysis.
48) The adjusted trial balance of Nick Company contained the following information:
Debit Credit
Sales Revenue$570,000
Sales Returns and Allowances$ 15,000
Sales Discounts7,000
Cost of Goods Sold323,000
Freight-Out2,000
Advertising Expense15,000
Interest Expense18,000
Salaries and Wages Expense85,000
Utilities Expense28,000
Depreciation Expense7,000
Interest Revenue27,000
Instructions
1>Use the above information to prepare a multiple-step income statement for the year
ended December 31, 2014 .
2>Prepare a single-step income statement for the year ended December 31, 2014 .
49) Short-term investments are securities that are _____________ and
______________ to be converted into cash within the next year.
50) Borowitz Company maintains two separate accounts payable computer systems.
One is known to all the users, and is used to process payments to vendors. Employees
enter the vendor code, or the name and address of new vendors, the amount, the
account, and so on. The other system is a secret one. It is used to cross-check the
vendors against an approved vendor list. If a vendor is not listed as approved, the
payment process is halted. Internal audit employees seek to verify the existence of a
bona fide claim by the vendor. All inquiries are made at the top management level, and
very discreetly. No one but top management, the internal audit staff, and the Board of
Directors of the company is even aware of the second system.
Required:
Is it ethical for a company to have a secret system like the one described? Explain.