1) Under the indirect method, retained earnings is adjusted for items that affected
reported net income but did not affect cash.
2) The withdrawal of a partner legally dissolves the partnership.
3) Preferred stock has contractual preference over common stock in certain areas.
4) Asset prepayments become expenses when they expire.
5) Under the direct method, the formula for computing cash collections from customers
is sales revenues plus the increase in accounts receivable or minus the decrease in
accounts receivable.
6) A manufacturing overhead budget is not needed if the company develops a
predeter-mined overhead rate to apply overhead.
7) A change in the estimated useful life of a plant asset may cause a change in the
amount of depreciation recognized in the current and future periods, but not to prior
periods.
8) The lower-of-cost-or-market basis is an example of the accounting concept of
conservatism.
9) Bookkeeping and accounting are one and the same because the bookkeeping function
includes the accounting process.
10) In accounting for stock investments of less than 20%, the equity method is used.
11) Management may choose any inventory costing method it desires as long as the cost
flow assumption chosen is consistent with the physical movement of goods in the
company.
12) Registered bonds are bonds that are delivered to owners by U.S. registered mail
service.
13) At the end of the year, underapplied overhead is usually credited to Cost of Goods
Sold.
14) The retail inventory method requires a company to value its inventory on the
balance sheet at retail prices.
15) The payment of interest on bonds payable is classified as a cash outflow from
operating activities.
16) Generally, convertible bonds do not pay interest.
17) A job order cost system identifies costs with a particular job rather than with a set
time period.
18) Natural resources include standing timber and underground deposits of oil, gas, and
minerals.
19) If a revenue account is credited, the revenue account is increased.
20) Husker Du Supplies Inc. purchased a 12-month insurance policy on March 1, 2014
for $1,800. At March 31, 2014, the adjusting journal entry to record expiration of this
asset will include a
a.debit to Prepaid Insurance and a credit to Cash for $1,800
b.debit to Prepaid Insurance and a credit to Insurance Expense for $200
c.debit to Insurance Expense and a credit to Prepaid Insurance for $150
d.debit to Insurance Expense and a credit to Cash for $150
21) The overhead controllable variance is the difference between the
a.budgeted overhead based on standard hours allowed and the overhead applied to
production
b.budgeted overhead based on standard hours allowed and budgeted overhead based on
actual hours worked
c.actual overhead and the overhead applied to production
d.actual overhead and budgeted overhead based on standard hours allowed
22) Cost of goods sold is obtained from
a.analysis of all the control accounts in the cost system
b.the finished goods inventory records
c.the work in process inventory records
d.the Raw Materials Inventory control account
23) In 2014, Chandler Company had net credit sales of $1,125,000. On January 1, 2014,
Allowance for Doubtful Accounts had a credit balance of $27,000. During 2014,
$42,000 of uncollectible accounts receivable were written off. Past experience indicates
that the allowance should be 10% of the balance in receivables (percentage of
receivables basis). If the accounts receivable balance at December 31 was $380,000,
what is the required adjustment to the Allowance for Doubtful Accounts at December
31, 2014?
a.$23,000
b.$38,000
c.$53,000
d.$97,500
24) Electrelane Company showed the following balances at the end of its first year:
Cash$ 4,000
Prepaid insurance7,000
Accounts receivable5,000
Accounts payable4,000
Notes payable6,000
Owners Capital2,000
Owners Drawings1,000
Revenues32,000
Expenses25,000
What did Electrelene Company show as total credits on its trial balance?
a.$9,000
b.$44,000
c.$45,000
d.$49,000
25) Bush Company reported net income of $60,000 for the year. During the year,
accounts receivable decreased by $8,000, accounts payable increased by $4,000 and
depreciation expense of $5,000 was recorded. Net cash provided by operating activities
for the year is
a.$48,000
b.$77,000
c.$59,000
d.$55,000
26) Which accounting assumption assumes that an enterprise will continue in operation
long enough to carry out its existing objectives and commitments?
a.Monetary unit assumption
b.Economic entity assumption
c.Periodicity assumption
d.Going concern assumption
27) The cash records of Mercury Company show the following:
1>The June 30 bank reconciliation indicated that deposits in transit totaled $790.
During July the general ledger account Cash shows deposits of $9,800, but the bank
statement indicates that only $8,240 in deposits were received during the month.
2>The June 30 bank reconciliation also reported outstanding checks of $1,200. During
the month of July, Mercury Company books show that $11,570 of checks were issued,
yet the bank statement showed that $11,100 of checks cleared the bank in July.
There were no bank debit or credit memoranda and no errors were made by either the
bank or Mercury Company.
Answer the following questions:
(a)What were the deposits in transit at July 31?
(b)What were the outstanding checks at July 31?
28) Of the items below, the one that appears first on the statement of cash flows is
a.noncash investing and financing activities
b.net increase (decrease) in cash
c.cash at the end of the period
d.cash at the beginning of the period
29) Presented below is information for Annie Company for the month of March 2015 .
Cost of goods sold$245,000Rent expense$ 36,000
Freight-out7,000Sales discounts8,000
Insurance expense5,000Sales returns and allowances11,000
Salaries and wages expense63,000Sales revenue410,000
Instructions
(a)Prepare a multiple -step income statement.
(b)Compute the gross profit rate.
30) Which requires a two-tiered approach to test whether the value of loans and
receivables are impaired?
GAAPIFRS
a.yesno
b.yesyes
c.nono
d.noyes
31) Correcting entries are journalized in
a.a special journal
b.the general journal
c.the general ledger
d.a correcting journal
32) The balance of Allowance for Doubtful Accounts prior to making the adjusting
entry to record estimated uncollectible accounts
a.is relevant when using the percentage of receivables basis
b.is relevant when using the percentage of sales basis
c.is relevant to both bases of adjusting for uncollectible accounts
d.will never show a debit balance at this stage in the accounting cycle
33) Selected data for Irma’s Store appear below.
2015 2014
Net sales$800,000$520,000
Cost of goods sold600,000345,000
Inventory at end of year65,00085,000
Accounts receivable at end of year140,000110,000
Instructions
Compute the following for 2015:
(a)Gross profit rate.
(b)Inventory turnover.
(c)Receivables turnover.
34) A fixed cost is a cost which
a.varies in total with changes in the level of activity
b.remains constant per unit with changes in the level of activity
c.varies inversely in total with changes in the level of activity
d.remains constant in total with changes in the level of activity
35) What is ordinarily the first step in the formation of a corporation?
a.Development of by-laws for the corporation
b.Issuance of the corporate charter
c.Application for incorporation to the appropriate Secretary of State
d.Registration with the SEC
36) A static budget report is appropriate for
a.fixed manufacturing costs
b.fixed selling and administrative expenses
c.variable selling and administrative expenses
d.both fixed manufacturing costs and fixed selling and administrative expenses
37) Short-term investments are securities that are readily marketable and intended to be
converted into cash within the next
a.year
b.two years
c.year or operating cycle, whichever is shorter
d.year or operating cycle, whichever is longer
38) Which of the following factors does not affect the initial market price of a stock?
a.The company’s anticipated future earnings
b.The par value of the stock
c.The current state of the economy
d.The expected dividend rate per share
39) Horizontal analysis is appropriately performed
a.only on the income statement
b.only on the balance sheet
c.only on the statement of retained earnings
d.on all three of these statements
40) Inventories are defined by IFRS as
a.held-for-sale in the ordinary course of business
b.in the process of production for sale in the ordinary course of business
c.in the form of materials or supplies to be consumed in the production process or in the
providing of services
d.All of these answer choices are correct
41) The balance in the Prepaid Rent account before adjustment at the end of the year is
$21,000, which represents three months rent paid on December 1. The adjusting entry
required on December 31 is to
a.debit Rent Expense, $7,000; credit Prepaid Rent, $7,000
b.debit Rent Expense, $14,000; credit Prepaid Rent $14,000
c.debit Prepaid Rent, $7,000; credit Rent Expense, $7,000
d.debit Prepaid Rent, $14,000; credit Rent Expense, $14,000
42) Total units to be accounted for less units in beginning work in process equals
a.total units accounted for
b.units transferred out
c.units started into production
d.equivalent units
43) An inexperienced accountant for Chetola Corporation made the following entries.
July1Cash240,000
Common Stock240,000
(Issued 15,000 shares of no-par common stock, stated value $10 per share)
Sept.1Common Stock32,000
Retained Earnings4,000
Cash36,000
(Purchased 2,000 shares issued on July 1 for the treasury at $18 per share)
Dec.1Cash20,000
Common Stock16,000
Gain on Sale of Stock4,000
(Sold 1,000 shares of the treasury stock at $20 per share)
Instructions
(a)On the basis of the explanation for each entry, prepare the entry that should have
been made for the transactions. (Omit explanations.)
(b)Prepare the correcting entries that should be made to correct the accounts of Chetola
Corporation. (Do not reverse the original entry.)
44) The Southern Division of Pulley Industries reported the following results for 2014:
Sales revenue$4,000,000
Variable costs3,200,000
Controllable fixed costs300,000
Average operating assets2,000,000
Management is considering the following independent alternative courses of action in
2015 in order to maximize the return on investment for the division.
1>Reduce controllable fixed costs by 20% with no change in sales or variable costs.
2>Reduce average operating assets by 20% with no change in controllable margin.
3>Increase sales revenue $350,000 with no change in the contribution margin
percentage.
Instructions
(a)Compute the return on investment for 2014 .
(b)Compute the expected return on investment for each of the alternative courses of
action.
45) Pappys Staff has the following inventory information.
July1Beginning Inventory20 units at $90
5Purchases120 units at $92
14Sale80 units
21Purchases60 units at $95
30Sale56 units
Assuming that a perpetual inventory system is used, what is the ending inventory on a
FIFO basis?
a.$5,848
b.$5,860
c.$6,068
d.$6,346
46) ISSAC Company has a contribution margin per unit of $21 and a contribution
margin ratio of 60%. How much is the selling price of each unit?
a.$35.00
b.$52.50
c.$12.60
d.Cannot be determined without more information
47) On November 30, capital balances are Ross $300,000, Ellis $250,000 and Gise
$250,000. The income ratios are 20%, 20% and 60%, respectively. Ross decides to
retire from the partnership. In order for Ellis and Gise to have equal capital interests
after the retirement of Ross, how much partnership cash would have to be paid to Ross
for her partnership interest?
a.$0
b.$266,667
c.$300,000
d.Any amount paid to Ross will cause Ellis and Gise to still have equal capital balances
48) On October 1, 2014, Dakota Company issued an $800,000, 10%, nine-month
interest-bearing note. If the Dakota Company is preparing financial statements at
December 31, 2014, the adjusting entry for accrued interest will include a:
a.credit to Notes Payable of $20,000
b.debit to Interest Expense of $20,000
c.credit to Interest Payable of $40,000
d.debit to Interest Expense of $30,000
49) Devendra Banhart withdraws $600 cash from her business for personal use. The
entry for this transaction will include a debit of $600 to
a.Owners Drawings
b.Owners Capital
c.Owner’s Salaries Expense
d.Salaries and Wages Expense
50) Which one of the following is not a tool in financial statement analysis?
a.Horizontal analysis
b.Circular analysis
c.Vertical analysis
d.Ratio analysis
51) Match the internal control principle below with the appropriate cash receipts
procedure described.
a.Documentation procedures
b.Establishment of responsibility
c.Independent internal verification
d.Human resource controls
e.Physical controls
f.Segregation of duties
_____ 1>Only designated personnel are authorized to handle cash receipts.
_____ 2>Different individuals receive cash and record cash receipts.
_____ 3>Use remittance advice and cash register tapes.
_____ 4>Store cash in safes and bank vaults.
_____ 5>Treasurer compares total receipts to bank deposits daily.
_____ 6>Bonding of employees that handle cash.
52) Bookkeeping differs from accounting in that bookkeeping primarily involves which
part of the accounting process?
a.Identification
b.Communication
c.Recording
d.Analysis
53) Fat Possums Service Shop started the year with total assets of $330,000 and total
liabilities of $240,000. During the year, the business recorded $630,000 in revenues,
$420,000 in expenses, and owner drawings of $60,000.
Owners equity at the end of the year was
a.$90,000
b.$240,000
c.$300,000
d.$360,000
54) If a company is given credit terms of 2/10, n/30, it should
a.hold off paying the bill until the end of the credit period, while investing the money at
10% annual interest during this time
b.pay within the discount period and recognize a savings
c.pay within the credit period but don’t take the trouble to invest the cash while waiting
to pay the bill
d.recognize that the supplier is desperate for cash and withhold payment until the end of
the credit period while negotiating a lower sales price
55) Stockholders are most interested in evaluating
a.liquidity and solvency
b.profitability and solvency
c.liquidity and profitability
d.marketability and solvency
56) The production cost report is an internal document that shows production quantity
and ______________ for a production department.
57) The following information is available for Moiz Company:
Debit Credit
Owners Capital$ 50,000
Owners Drawings$ 30,000
Sales Revenue510,000
Sales Returns and Allowances20,000
Sales Discounts7,000
Cost of Goods Sold310,000
Freight-Out2,000
Advertising Expense15,000
Interest Expense19,000
Salaries and Wages Expense55,000
Utilities Expense18,000
Depreciation Expense7,000
Interest Revenue23,000
Instructions
Using the above information, prepare the closing entries for Moiz Company.
58) The following data exists for Carley Company.
20142013
Accounts Receivable$ 50,000$ 70,000
Net Sales500,000410,000
Calculate the accounts receivable turnover and the average collection period for
accounts receivable in days for 2014.
59) Employees of a company who evaluate the effectiveness of the company’s system
of internal controls on a year-round basis are called ______________.
60) A company that owns more than 50% of the common stock of another company is
known as the ______________ company and _____________ financial statements are
usually prepared.
61) An investment center manager is considering three possible investments. The
companys required return is 10%. The required asset investment, controllable margins,
and the ROIs of each investment are as follows:
ProjectAverage InvestmentControllable MarginROI
AA$320,000$64,00020.0%
BB 280,00032,00011.4%
CC 470,000132,00028.1%
The investment center is currently generating an ROI of 25% based on $2,400,000 in
operating assets and a controllable margin of $600,000.
Instructions
If the manager can select only one project, determine which one is the best choice to
increase the investment center’s ROI. Compute how much the investment centers ROI
will be if the manager selects your recommendation.
62) The amount of revenue remaining after deducting total variable costs is called the
_________________________.
63) The Owner’s Drawings account is closed to the ______________ account at the end
of the accounting period.
64) Total ________________ costs will be the same on the master budget and on a
flexible budget which reflects the actual level of activity.
65) Instructions: Present the solutions, with appropriate supporting calculations, for
each of the following independent problems.
1>Given the following information, compute the balance in the Owners Capital account
at January 1, 2014 for Handley Lawn Service.
Owners CapitalDecember 31, 2014$170,000
Owners investments during 201430,000
Owners withdrawals during 201480,000
Net income for 2014125,000
2>Given the following information, determine the three missing amounts.
Owner’s Equity Changes
Beginning of the YearEnd of the YearDuring the Year
Total Assets$62,000Total AssetsBInvestments$22,000
Total Liabilities23,000Total Liabilities$40,000Drawings10,000
Total Owner’s EquityATotal Owner’s Equity58,000RevenuesC
Expenses57,000
B.C.