1) A debit entry is always an increase in the account.
2) Predetermined overhead rates are calculated at the end of the accounting period once
the actual amount of factory overhead is known.
3) Bonds and long-term notes are similar in that they are typically transacted with
multiple lenders.
4) A debit balance in retained earnings is referred to as an accumulated deficit.
5) Reversing entries overcome the disadvantage of more complex entries to pay accrued
liabilities from the previous accounting period.
6) A budget is a formal statement of future plans, usually expressed in monetary terms.
7) Long-term investments include:
A.Investments in bonds and stocks that are not readily convertible to cash or not
intended to be converted to cash in the short term.
B.Investments in marketable stocks that are intended to be converted into cash in the
short-term.
C.Investments in marketable bonds that are intended to be converted into cash in the
short-term.
D.Only investments readily convertible to cash.
E.Investments intended to be converted to cash within one year.
8) A company entered into the following transactions. Match each transaction with the
appropriate journal in which it should be recorded.
a. Sales journal
b. Purchases journal
c. Cash receipts journal
d. Cash disbursements journal
e. General journal
____ 1> Borrowed $7,000 cash from the local bank.
____ 2> A customer returned a $250 item purchased on account.
____ 3> Purchased merchandise on account, $2,100.
____ 4> Purchased equipment on account for $4,000.
____ 5> Paid $15,000 cash in wages to employees.
____ 6> Paid a telephone bill for $3,400 cash.
____ 7> Purchased $1,150 of office supplies on account.
____ 8> Recorded depreciation on office equipment of $2,000.
____ 9> Returned defective inventory purchased on account, $2,550.
____ 10> Recorded cash sales of $12,700.
9) Brotherton Company is a manufacturer of Blu-ray discs. Place each of the following
costs in the appropriate column.
10) A new manufacturing machine is expected to cost $278,000, have an eight-year life,
and a $30,000 salvage value. The machine will yield an annual incremental after-tax
income of $35,000 after deducting the straight-line depreciation. Compute the payback
period for the purchase.
A.8.7 years.
B.3.8 years.
C.4.2 years.
D.7.3 years.
E.5.4 years.
11) Trago Company manufactures a single product and has a JIT policy that ending
inventory must equal 5% of the next month’s sales. It estimates that May’s ending
inventory will consist of 14,000 units. June and July sales are estimated to be 280,000
and 290,000 units, respectively. Trago assigns variable overhead at a rate of $1.80 per
unit of production. Fixed overhead equals $400,000 per month. Compute the number of
units to be produced and use this amount to compute the total budgeted overhead that
would appear on the factory overhead budget for month of June.
A.$920,200.
B.$904,900.
C.$930,100.
D.$922,000.
E.$878,800.
12) A company that applies process costing is most frequently characterized by:
A.Low standardization and high production volume.
B.Custom orders and mass production.
C.Repetitive production and unique products.
D.Repetitive production and low production volume.
E.Similar products and high production volume.
13) Omega Contractors manufactures each house to customer specifications. It most
likely would use:
A.Process costing.
B.A periodic inventory system.
C.Unique costing.
D.Job order costing.
E.Activity-based costing.
14) The Moonlight Company completed the following sales and cash receipts
transactions during the first week of November. The Moonlight Company uses the
perpetual inventory system.
a. Use the sales journal and the cash receipts journal to record these transactions.
b. Prepare a schedule of accounts receivable as of November 10. There was no accounts
receivable balance at November 1.
15) Paradise Travel’s adjusted trial balance as of the end of its annual accounting period
is shown below:
(a) Prepare the necessary closing entries.
(b) Prepare a post-closing trial balance.
16) Dover Company manufactures two products, Product J-9 and Product M-6. Product
M-6 is of fairly recent origin, having been developed as an attempt to enter a market
closely related to that of Product J-9. Product M-6 is the more complex of the two
products, requiring 2.0 hours of direct labor time per unit to manufacture compared to
1.0 hour of direct labor time for Product J-9. Product M-6 is produced on an automated
production line.
Overhead currently is applied to the products on the basis of direct labor-hours. The
company estimated it would incur $510,000 in manufacturing overhead costs and
produce 10,000 units of Product M-6 and 40,000 units of Product J-9 during the current
year.
Unit costs for materials and labor are:
Required:
a. Compute the predetermined overhead rate under the current method, and determine
the unit product cost of each product for the current year.
b. The company is considering the use of activity-based costing as an alternative to its
traditional costing method for manufacturing overhead. Data relating to the company’s
activity cost pools for the current year are given below:
Using the data above, determine the unit product cost of each product for the current
year.
c. What items of overhead cost make Product M-6 so costly to produce according to the
activity-based costing system? What influence might the activity-based costing data
have on management’s opinions regarding the profitability of Product M-6?
17) If a company receives $12,000 from the owner to establish a proprietorship, the
effect on the accounting equation would be:
A.Assets decrease $12,000 and equity decreases $12,000.
B.Assets increase $12,000 and liabilities decrease $12,000.
C.Assets increase $12,000 and liabilities increase $12,000.
D.Liabilities increase $12,000 and equity decreases $12,000.
E.Assets increase $12,000 and equity increases $12,000.
18) The right of common shareholders to purchase their proportional share of any
common stock later issued by the corporation is called a:
A.Preemptive right.
B.Proxy right.
C.Right to call.
D.Financial leverage.
E.Voting right.
19) Mirkle Corporation uses the following activity rates from its activity-based costing
to assign overhead costs to products:
Data for one of the company’s products follow:
The company produced 4,000 units of product during the period. Direct materials cost
$7.30 per unit and direct labor cost $5.45 per unit. What is the cost per unit of Product
P59G using the activity-based costing system?
A.$167.53
B.$12.75
C.$2.50
D.$15.25
E.$9.80
20) A company issued 5-year, 7% bonds with a par value of $100,000. The market rate
when the bonds were issued was 6.5%. The company received $102,105 cash for the
bonds. Using the effective interest method, the amount of recorded interest expense for
the first semiannual interest period is:
A.$3,500.00.
B.$7,000.00.
C.$3,318.41.
D.$6,573.90.
E.$1,750.00.
21) Which of the following is the best explanation for why it is necessary to calculate
equivalent units of production in a process costing environment?
A.In most manufacturing environments, it is not possible to conduct a physical count of
units.
B.Companies often use a combination of a process costing and job order costing
systems.
C.In most process costing systems, direct materials are added at the beginning of the
process while conversion costs are added evenly throughout the manufacturing process.
D.All of the work to make a unit 100% complete and ready to move to the next stage of
production or to finished goods inventory may not have been completed in a single time
period.
E.In most cases, there is no difference between physical units and equivalent units of
production.
22) Using the information below, compute the Days’ sales in raw materials inventory:
A.6.76.
B.6.02.
C.54.0.
D.60.6.
E.6.37.
23) For the year ended December 31, a company had revenues of $187,000 and
expenses of $109,000. The owner withdrew $37,000 during the year. Which of the
following entries could not be a closing entry?
A.Debit Income Summary $78,000; credit Owner’s, Capital $78,000.
B.Debit Owner’s Capital $37,000; credit Owner Withdrawals $37,000.
C.Debit revenues $187,000; credit Income Summary $187,000.
D.Debit Income Summary $109,000, credit expenses $109,000.
E.Debit Income Summary $187,000; credit revenues $187,000.
24) Wichita Industries’ sales are 10% cash and 90% on credit. Credit sales are collected
as follows: 30% in the month of sale, 50% in the next month, and 20% in the following
month. On December 31, the accounts receivable balance includes $12,000 from
November sales and $42,000 from December sales. Assume that total sales for January
are budgeted to be $50,000. What are the expected cash receipts for January from the
current and past sales?
A.$18,500.
B.$51,500.
C.$51,900.
D.$55,500.
E.$60,500.
25) If the cost of the beginning work in process inventory is $60,000, direct materials
cost is $350,000, direct labor cost is $216,000, and overhead cost is $319,000, and the
ending work in process inventory is $55,000, calculate the cost of goods manufactured:
A.$1,000,000.
B.$571,000.
C.$885,000.
D.$890,000.
E.$945,000.
26) Explain the value of separating cash flows into operating activities, investing
activities, and financing activities to financial statement users in analyzing cash flows
and the company’s financial performance and condition.
27) Quibble Company established a $300 petty cash fund by issuing a check to the
custodian on February 1. On February 15, the petty cash fund was replenished and
increased to $800 in total. The contents of the petty cash fund at the time of the
February 15 replenishment were:
Prepare Quibble’s general journal entry to record both the reimbursement and the
increase of the petty fund on February 15
28) Guidance for the budget process is usually supplied by a _____________________
of department heads and other executives responsible for seeing that budgeted amounts
are realistic and coordinated.
29) Given the table below, indicate the impact of the following errors made during the
adjusting entry process. Use a “+” followed by the amount for overstatements, a “-”
followed by the amount for understatements, and a “0” for no effect. The first one is
done as an example.
Ex. Failed to recognize that $600 of unearned revenues, previously recorded as
liabilities, had been earned by year-end.
1> Failed to accrue interest expense of $200.
2> Forgot to record $7,700 of depreciation on machinery.
3> Failed to accrue $1,300 of revenue earned but not collected.
30) Merchandise that customers return to the seller after a sale is referred to as
___________________.