1) Retailers and wholesalers are both considered merchandisers.
2) Unless the partnership agreement specifically indicates an income ratio, partnership
net income or loss is not allocated to the partners.
3) Using special journals can save time in posting because column totals are often
posted rather than individual entries.
4) Once cost is established for a plant asset, it becomes the basis of accounting for the
asset unless the asset appreciates in value, in which case, market value becomes the
basis for accountability.
5) Unearned revenues should be classified as Other Revenues and Gains on the Income
Statement.
6) An accounting information system involves data collection, data processing, and
information dissemination.
7) The recording process becomes more efficient and informative if all transactions are
recorded in one account.
8) The trend in most companies is to have more variable costs and fewer fixed costs.
9) The asset turnover is calculated as total sales divided by ending total assets.
10) More costs become controllable as one moves down to each lower level of
managerial responsibility.
11) The function of the Partners’ Capital Statement is to explain the changes in partners’
capital account balances during a period.
12) The personal assets, liabilities, and personal transactions of partners are excluded
from the accounting records of the partnership.
13) The depreciable cost of a plant asset is its original cost minus obsolescence.
14) There could be instances where the production department is responsible for a
direct materials price variance.
15) FICA taxes and federal income taxes are levied on employees’ earnings without
limit.
16) Dividends are declared out of retained earnings.
17) In applying the LIFO assumption in a perpetual inventory system, the cost of the
units most recently purchased prior to sale is allocated first to the units sold.
18) Raw Materials Inventory, Factory Labor, and Manufacturing Overhead are all
control accounts in the general ledger when a job order cost accounting system is used.
19) Which of the following is not a management function?
a.Constraining
b.Planning
c.Controlling
d.Directing
20) Which of the following capital budgeting techniques explicitly takes the time value
of money into consideration?
a.Annual rate of return
b.Internal rate of return
c.Net present value
d.Both (b) and (c) above
21) At December 31, 2014, the trading securities for Saddle, Inc. are as follows:
SecurityCost Fair Value 12/31/14
A$90,000$94,000
B150,000141,000
C 32,00030,000
Saddle should report the following amount related to the securities in its 2014 income
statement:
a. $4,000 gain
b. $7,000 realized loss
c. $7,000 unrealized loss
d. $11,000 unrealized loss
22) Under IFRS, the cash flow statement can be prepared using
a.the direct method only
b.the indirect method only
c.either the direct or indirect method
d.the T-account method only
23) The following information was taken from the financial statements of Lawson
Company:
2015 2014
Gross profit on sales$900,000$840,000
Income before income taxes280,000230,000
Net income240,000216,000
Net income as a percentage of net sales8%9%
Instructions
(a)Compute the net sales for each year.
(b)Compute the cost of goods sold in dollars and as a percentage of net sales for each
year.
(c)Compute operating expenses in dollars and as a percentage of net sales for each year.
(Income taxes are not operating expenses).
24) A petty cash fund is generally established in order to
a.pay for all merchandise purchased on account
b.pay employees wages
c.make loans internally to employees
d.pay relatively small expenditures
25) The costing approach that charges all manufacturing costs to the product is referred
to as
a.variable costing
b.contribution margin costing
c.direct costing
d.absorption costing
26) Letourneau invests $20,000 in cash (admission by investment) in the Seiler-Shaw
partnership to acquire a 1/4 interest. In this case
a.the accounting will be the same as a purchase of an interest
b.the total net assets of the new partnership are unchanged from the previous
partnership
c.the total capital of the new partnership is greater than the total capital of the old
partnership
d.Letourneaus income ratio will automatically be 1/4
27) For accounting purposes, the method used to account for long-term investments in
common stock is determined by
a.the amount paid for the stock by the investor
b.the extent of an investor’s influence on the operating and financial affairs of the
investee
c.whether the stock has paid dividends in past years
d.whether the acquisition of the stock by the investor was “friendly” or “hostile”
28) When the totals of the sales journal are posted at the end of the month, there will be
credits to
a.Sales Revenue and Inventory and debits to Accounts Receivable and Cost of Goods
Sold
b.Accounts Receivable and Cost of Goods Sold and debits to Sales Revenue and
Inventory
c.Sales Revenue and debits to each individual customer account
d.the Sales Revenue account only, and no debits
29) International standards are referred to as
a.IFRS
b.GAAP
c.IASB
d.FASB
30) Kemp Company incurs the following costs in producing 50,000 units of product:
Direct materials$200,000
Direct labor100,000
Variable manufacturing overhead200,000
Fixed manufacturing overhead600,000
An outside supplier has offered to supply the 50,000 units at $14.00 each. All of Kemp’s
related variable costs, but only $400,000 of the fixed costs would be eliminated if the
offer is accepted. Acceptance will result in a:
a.loss of $400,000
b.loss of $200,000
c.savings of $200,000
d.savings of $400,000
31) Which one of the following represents a period cost?
a.The VP of Sales’ salary and benefits
b.Overhead allocated to the manufacturing operations
c.Labor costs associated with quality control
d.Fringe benefits associated with factory workers
32) Which of the following items would not be identified if a contingent liability were
disclosed in a financial statement footnote?
a.The nature of the item
b.The expected outcome of the future event
c.A numerical probability of the expected loss
d.The amount of the contingency, if known
33) Which of the following statements is not considered a disadvantage of the corporate
form of organization?
a.Additional taxes
b.Government regulations
c.Limited liability of stockholders
d.Separation of ownership and management
34) Which of the following rules is incorrect?
a.Credits decrease the drawing account
b.Debits increase the capital account
c.Credits increase revenue accounts
d.Debits decrease liability accounts
35) Which of the statements below is not true?
a.An adjusted trial balance should show ledger account balances
b.An adjusted trial balance can be used to prepare financial statements
c.An adjusted trial balance proves the mathematical equality of debits and credits in the
ledger
d.An adjusted trial balance is prepared before all transactions have been journalized
36) Which of the following is not an internal user?
a.Creditor
b.Department manager
c.Controller
d.Treasurer
37) The cost of a new asset acquired in an exchange that has commercial substance is
the cash paid plus the
a.book value of the old asset
b.fair value of the old asset
c.book value of the asset acquired
d.fair value of the new asset
38) GAAP’s, accounting and internal control procedures related to cash and the
definition of cash equivalents, as compared to IFRS are:
Accounting and internal control proceduresDefinition of cash equivalents
a.essentially similaressentially similar
b.essentially differentessentially similar
c.essentially similaressentially different
d.essentially differentessentially different
39) Under the equity method, the Stock Investments account is increased when the
a.investee company reports net income
b.investee company pays a dividend
c.investee company reports a loss
d.stock investment is sold at a gain
40) Presented here is a partial amortization schedule for Graceland Company who sold
$200,000, six year 10% bonds on January 1, 2014 for $212,000 and uses annual
straight-line amortization.
Which of the following amounts should be shown in cell (iii)?
a.$10,000
b.$12,000
c.$2,000
d.$1,200
41) Return on investment is calculated by dividing
a.contribution margin by sales
b.controllable margin by sales
c.contribution margin by average operating assets
d.controllable margin by average operating assets
42) Which of the following statements is incorrect?
a.A continuous twelve-month budget results from dropping the month just ended and
adding a future month
b.The production budget is derived from the direct materials and direct labor budgets
c.The cash budget shows anticipated cash flows
d.In the budget process for not-for-profit organizations, the emphasis is on cash flow
rather than on revenue and expenses
43) The procedures of the closing process are applicable to all companies when they are
using
a.GAAP but not IFRS
b.IFRS but not GAAP
c.both IFRS and GAAP
d.neither IFRS nor GAAP
44) Brandy Corporation’s trading portfolio at the end of the year is as follows:
Security Cost Fair Value
Common Stock C$10,000$12,000
Common Stock D 8,000 5,000
$18,000$17,000
Brandy subsequently sells Stock D for $10,000. What entry is made to record the sale?
a.Cash10,000
Stock Investments10,000
b.Cash10,000
Fair Value Adjustment Trading2,000
Stock Investments8,000
c.Cash10,000
Stock Investments8,000
Gain on Sale of Stock Investments2,000
d.Cash10,000
Stock Investments5,000
Gain on Sale of Stock Investments5,000
45) Responsibility centers are generally classified as either:
a.segments, subunits, or subdivisions
b.cost centers, profit centers, or investment centers
c.cost centers, profit centers, or divisions
d.divisions, departments, or branches
46) Hungh Company had the following transactions pertaining to short-term
investments in equity securities.
Jan.1Purchased 1,500 shares of Antuni Company stock for $9,500 cash.
June1Received cash dividends of $.40 per share on Antuni Company stock.
Sept.15Sold 375 shares of Antuni Company stock for $2,300 less brokerage fees of
$100.
Dec.1Received cash dividends of $.80 per share on Antuni Company stock.
Instructions
(a)Journalize the transactions.
(b)Indicate the income statement effects of the transactions.
47) Brooks Company received proceeds of $188,500 on 10-year, 8% bonds issued on
January 1, 2013 . The bonds had a face value of $200,000, pay interest semi-annually
on June 30 and December 31, and have a call price of 101 . Brooks uses the
straight-line method of amortization.
Brooks Company decided to redeem the bonds on January 1, 2015 . What amount of
gain or loss would Brooks report on its 2015 income statement?
a.$9,200 gain
b.$11,200 gain
c.$11,200 loss
d.$9,200 loss
48) If a company is concerned with the potential negative effects of establishing
standards, it should
a.set loose standards that are easy to fulfill
b.offer wage incentives to those meeting standards
c.not employ any standards
d.set tight standards in order to motivate people
49) Dawn, Garret and Josh have partnership capital account balances of $225,000,
$450,000 and $105,000, respectively. The income sharing ratio is Dawn, 50%; Garret,
40%; and Josh, 10%. Dawn desires to withdraw from the partnership and it is agreed
that partnership assets of $195,000 will be used to pay Dawn for her partnership
interest. The balances of Garrets and Joshs Capital accounts after Dawns withdrawal
would be
a.Garret, $450,000; Josh, $105,000
b.Garret, $474,000; Josh, $111,000
c.Garret, $426,000; Josh, $99,000
d.Garret, $435,000; Josh, $90,000
50) The income statement for the month of June, 2014 of Camera Obscura Enterprises
contains the following information:
Revenues$7,000
Expenses:
Salaries and Wages Expense$3,000
Rent Expense1,500
Advertising Expense800
Supplies Expense300
Insurance Expense 100
Total expenses 5,700
Net income$1,300
The entry to close the revenue account includes a
a.debit to Income Summary for $1,300
b.credit to Income Summary for $1,300
c.debit to Income Summary for $7,000
d.credit to Income Summary for $7,000
51) Grayson’s Lumber Mill sold two machines in 2015 . The following information
pertains to the two machines:
PurchaseUsefulSalvageDepreciationSales
Machine Cost Date Life Value MethodDate Sold Price
#1$66,0007/1/115 yrs.$6,000Straight-line7/1/15$15,000
#2$50,0007/1/145 yrs.$5,000Double-declining-12/31/15$30,000
balance
Instructions
(a)Compute the depreciation on each machine to the date of disposal.
(b)Prepare the journal entries in 2015 to record 2015 depreciation and the sale of each
machine.
52) The Zhuzer Company at December 31 has cash $50,000, noncash assets $250,000,
liabilities $138,000, and the following capital balances: Zhu $112,000 and Zerkel
$50,000. The firm is liquidated, and $265,000 in cash is received for the noncash assets.
Zhu and Zerkel income ratios are 60% and 40%, respectively.
Instructions
Prepare the entries to record:
(a)The sale of noncash assets.
(b)The allocation of the gain or loss on liquidation to the partners.
(c)Payment of creditors.
(d)Distribution of cash to the partners.
53) A responsibility report should
a.be prepared in accordance with generally accepted accounting principles
b.show only those costs that a manager can control
c.only show variable costs
d.only be prepared at the highest level of managerial responsibility
54) The matrix approach to variance analysis
a.will yield slightly different variances than the formula approach
b.is more accurate than the formula approach
c.does not separate the price and quantity variance calculations
d.provides a convenient structure for determining each variance
55) If sixty $1,000 convertible bonds with a carrying value of $70,000 are converted
into 9,000 shares of $5 par value common stock, the journal entry to record the
conversion is
a.Bonds Payable 70,000
Common Stock 70,000
b.Bonds Payable 60,000
Premium on Bonds Payable 10,000
Common Stock 70,000
c.Bonds Payable 60,000
Premium on Bonds Payable 10,000
Common Stock 45,000
Paid-in Capital in Excess of Par 25,000
d.Bonds Payable 70,000
Discount on Bonds Payable 10,000
Common Stock 45,000
Paid-in Capital in Excess of Par 15,000
56) Unearned revenue is classified as
a.an asset account
b.a revenue account
c.a contra-revenue account
d.a liability account
57) Which of the following is a true statement about inventory systems?
a.Periodic inventory systems require more detailed inventory records
b.Perpetual inventory systems require more detailed inventory records
c.A periodic system requires cost of goods sold be determined after each sale
d.A perpetual system determines cost of goods sold only at the end of the accounting
period
58) After a business transaction has been analyzed and entered in a journal, the next
step in the recording process is to transfer the information to
a.ledger accounts
b.owners equity
c.the companys bank
d.financial statements
59) Garton Company had net income of $195,000 in 2014 . Depreciation expense for
the year is $50,000. During the year, Accounts Receivable increased $8,000 and Prepaid
Expenses decreased $1,000. The company also sold equipment at a loss of $3,000.
Instructions
Calculate net cash flows from operating activities using the indirect method.
60) Prytania Corporation is authorized to issue 1,000,000 shares of $5 par value
common stock. During 2014, its first year of operation, the company has the following
stock transactions.
Jan. 1Paid the state $5,000 for incorporation fees.
Jan.15Issued 500,000 shares of stock at $6 per share.
Jan.30Attorneys for the company accepted 500 shares of common stock as payment for
legal services rendered in helping the company incorporate. The legal services are
estimated to have a value of $7,000.
July2Issued 100,000 shares of stock for land. The land had an asking price of $900,000.
The stock is currently selling on a national exchange at $8 per share.
Sept.5Purchased 15,000 shares of common stock for the treasury at $9 per share.
Dec.6Sold 11,000 shares of the treasury stock at $11 per share.
Instructions
Journalize the transactions for Prytania Corporation.
61) Each of the manufacturing cost components is a ______________ cost.
62) Burron Electronics manufactures circuit boards for computer-controlled appliances
for the home. The sales have been very volatile, sometimes stressing the plant’s
capacity, and sometimes depressingly slow. During a recent slow period, Alex Crown, a
production supervisor, complained to Kate Maley, accounting manager, about the
flexible budget.
“I try as hard as I can to meet the budget,” he says, “and then I find out that just meeting
the budget’s not good enough. Last month, when we sold 7,500 units, I was $10,000
under my budget, and then you all blow me out of the water with your report that I
actually was $5,000 over, because sales were slow. I thought this responsibility
accounting business was supposed to mean we are held accountable just for things we
can control. How do we control sales? At the beginning of the year, you gave us all
targets. Mine says that for an average month of 10,000 unit sales, I should spend about
$82,000. I spend less, and get an unfavorable budget report. What gives?”
Required:
Write a short memo to respond to Mr. Crown.
63) A fellow classmate is confused about how debits and credits relate to the basic
accounting equation. State the basic accounting equation, convert it into the expanded
accounting equation, and then explain how it ties into the rules for debits and credits.
64) Superior Painting Company has the following production data for January:
Beginning work in process, 0 units
Units transferred out, 35,000
Units in ending work in process, 8,000, which are 40% complete for conversion costs
Materials are added only at the beginning of the process.
Instructions
Compute equivalent units of production for both materials and conversion costs.
65) Thao and Leslie are partners who share profits 60% and 40%. Their capital balances
were both $120,000 before Kiley was admitted to the partnership. Kiley contributed
$160,000 in cash to the partnership for a 30% interest.
Instructions
Compute the capital balances of Thao and Leslie after Kiley is admitted to the
partnership.
66) Fair Value Adjustment is a valuation _______________ account which is
_______________ to (from) the cost of the investments.
67) The following adjusting entries for Donkey Company were prepared after
completing a bank reconciliation. For each of the following adjustments, prepare a
probable explanation for the adjusting entry.
1>Supplies180
Cash180
2>Accounts ReceivableB. Borke460
Cash460
3>Cash2,240
Notes Receivable2,000
Interest Revenue240
4>Sales72
Cash72
5>Miscellaneous Expense18
Cash18