1) A loss on the exchange of plant assets occurs when the fair market value of the old
asset is less than its book value.
2) Setting standard costs is relatively simple because it is done entirely by accountants.
3) Adjusting entries are recorded in the general journal but are not posted to the
accounts in the general ledger.
4) A primary objective of the statement of cash flows is to show the income or loss on
investing and financing transactions.
5) Both variable and fixed costs are included in calculating the contribution margin.
6) For accounting purposes, business transactions should be kept separate from the
personal transactions of the owners of the business.
7) Accountants are mainly involved in developing nonfinancial information for
management’s consideration in choosing among alternatives.
8) Standards may be useful in setting selling prices for finished goods.
9) Activity-based costing (ABC) can be used only with process cost systems.
10) The term Capital surplus can be used instead of Additional Paid-in Capital.
11) Direct materials costs and indirect materials costs are manufacturing overhead.
12) Inventory turnover measures the number of times on the average the inventory was
sold during the period.
13) A company’s liquidity is concerned with the relationship between long-term
investments and long-term debt.
14) Current assets are listed in the order of liquidity.
15) Horizontal analysis is a technique for evaluating a financial statement item in the
current year with other items in the current year.
16) A worksheet is a mandatory form that must be prepared along with an income
statement and balance sheet.
17) The Stock Investments account is debited at acquisition under both the equity
method and cost method of accounting for investments in common stock.
18) A company purchased a delivery truck on January 1, 2013, for $90,000. It is
estimated that the delivery truck will have a $16,000 salvage value at the end of its
4-year useful life. If the company recorded depreciation expense of $22,500 for the year
2014 on the delivery truck, the depreciation method used by the company is:
a.the straight-line method
b.the double-declining-balance method
c.the units-of-activity method
d.not determinable
19) When the effective-interest method of bond premium amortization is used, the
a.amount of premium amortized will get larger with successive amortization
b.carrying value of the bonds will increase with successive amortization
c.interest paid to bondholders will increase after each interest payment date
d.interest rate used to calculate interest expense will be the contractual rate
20) The acquisition of land by issuing common stock is
a.a noncash transaction which is not reported in the body of a statement of cash flows
b.a cash transaction and would be reported in the body of a statement of cash flows
c.a noncash transaction and would be reported in the body of a statement of cash flows
d.only reported if the statement of cash flows is prepared using the direct method
21) Alfalfa Company developed the following information about its inventories in
applying the lower-of-cost-or-market (LCM) basis in valuing inventories:
Product Cost Market
A$112,000$120,000
B80,00076,000
C155,000162,000
If Alfalfa applies the LCM basis, the value of the inventory reported on the balance
sheet would be
a.$343,000
b.$347,000
c.$358,000
d.$362,000
22) A cash discount is usually granted to all of the following except
a.retail customers
b.retailers
c.wholesalers
d.All of these are granted discounts
23) Standard costs
a.may show past cost experience
b.help establish expected future costs
c.are the budgeted cost per unit in the present
d.all of these answer choices are correct
24) Jon Winek started the year with a capital balance of $135,000. During the year, his
share of partnership net income was $120,000 and he withdrew $22,500 from the
partnership for personal use. He made an additional capital contribution of $37,500
during the year. The amount of Jon Wineks capital balance that will be reported on the
year-end balance sheet will be
a.$120,000
b.$292,500
c.$225,000
d.$270,000
25) The factor that is not relevant in computing depreciation is
a.replacement value
b.cost
c.salvage value
d.useful life
26) Corporations generally issue stock dividends in order to
a.increase the market price per share
b.exceed stockholders’ dividend expectations
c.increase the marketability of the stock
d.decrease the amount of capital in the corporation
27) 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 $160,000 in the partnership, what is Landrys capital
balance after Neumarks admittance?
a.$140,000
b.$128,000
c.$126,000
d.$120,000
28) The total standard cost to produce one unit of product is shown
a.at the bottom of the income statement
b.at the bottom of the balance sheet
c.on the standard cost card
d.in the Work in Process Inventory account
29) The discontinued operations section of the income statement refers to
a.discontinuance of a product line
b.the income or loss on products that have been completed and sold
c.obsolete equipment and discontinued inventory items
d.the disposal of a significant component of a business
30) Under which of the following cases may a percentage change be computed?
a.The trend of the balances is decreasing but all balances are positive
b.There is no balance in the base year
c.There is a positive balance in the base year and a negative balance in the subsequent
year
d.There is a negative balance in the base year and a positive balance in the subsequent
year
31) Selected transactions of Alton Company are listed below.
1>Common stock is sold for cash above par value.
2>Bonds payable are issued for cash at a discount.
3>Interest receivable on a short-term note receivable is collected.
4>Land is sold for cash at book value.
5>Accounts payable are paid in cash.
6>Equipment is purchased by signing a 3-year, 10% note payable.
7>Cash dividends on common stock are declared and paid.
8>100 shares of XYZ common stock are purchased for cash.
9>Merchandise is sold to customers for cash.
10>Bonds payable are converted into common stock.
Instructions
Classify each transaction as either (a) an operating activity, (b) an investing activity, (c)
a financing activity, or (d) a noncash investing and financing activity.
32) A subsidiary ledger frees the general ledger from details of
a.individual balances
b.external transactions
c.internal transactions
d.the control account
33) Regular dividends are declared out of
a.Paid-in Capital in Excess of Par
b.Treasury Stock
c.Common Stock
d.Retained Earnings
34) The book value of a depreciable asset is defined as the asset’s
a.cost
b.current market value
c.cost less accumulated depreciation
d.replacement cost
35) Which of the following statements about retained earnings restrictions is incorrect?
a.Many states require a corporation to restrict retained earnings for the cost of treasury
stock purchased
b.Long-term debt contracts may impose a restriction on retained earnings as a condition
for the loan
c.The board of directors of a corporation may voluntarily create retained earnings
restrictions for specific purposes
d.Retained earnings restrictions are generally disclosed through a journal entry on the
books of a company
36) When a company holds stock of several different corporations, the group of
securities is identified as a(n)
a.affiliated investment
b.consolidated portfolio
c.investment portfolio
d.controlling interest
37) Which of the following are also called trade receivables?
a.Accounts receivable
b.Other receivables
c.Advances to employees
d.Income taxes refundable
38) Which of the following is not a special journal?
a.Sales journal
b.Purchases journal
c.General journal
d.Cash receipts journal
39) Which of the following is not true of the terms debit and credit?
a.They can be abbreviated as Dr. and Cr
b.They can be interpreted to mean increase and decrease
c.They can be used to describe the balance of an account
d.They can be interpreted to mean left and right
40) Sales revenue less cost of goods sold is called
a.gross profit
b.net profit
c.net income
d.marginal income
41) On September 1, Eli’s Painting Service borrows $150,000 from National Bank on a
4-month, $150,000, 6% note. The entry by Eli’s Painting Service to record payment of
the note and accrued interest on January 1 is
a.Notes Payable153,000
Cash153,000
b.Notes Payable150,000
Interest Payable3,000
Cash153,000
c.Notes Payable150,000
Interest Payable9,000
Cash159,000
d.Notes Payable150,000
Interest Expense3,000
Cash153,000
42) When an investor owns between 20% and 50% of the common stock of a
corporation, it is generally presumed that the investor
a.has insignificant influence on the investee and that the cost method should be used to
account for the investment
b.should apply the cost method in accounting for the investment
c.will prepare consolidated financial statements
d.has significant influence on the investee and that the equity method should be used to
account for the investment
43) The principle of an efficient accounting system that states that an accounting system
should accommodate a variety of users is
a.cost effectiveness
b.flexibility
c.useful output
d.implementation
44) Tebough Company reported the following balances at January 31, 2014:
Sales Revenue$16,700
Sales Returns and Allowances350
Sales Discounts280
Cost of Goods Sold9,200
How much is net sales for January?
a.$16,070
b.$6,870
c.$16,350
d.$16,700
45) Pilgrim Company applies overhead on the basis of machine hours. Given the
following data, compute overhead applied and the under- or overapplication of
overhead for the period:
Estimated annual overhead cost$1,200,000
Actual annual overhead cost$1,150,000
Estimated machine hours300,000
Actual machine hours280,000
a.$1,120,000 applied and $30,000 underapplied
b.$1,200,000 applied and $30,000 overapplied
c.$1,120,000 applied and $30,000 overapplied
d.$1,150,000 applied and neither under- nor overapplied
46) If you are able to earn a 6% rate of return, what amount would you need to invest to
have $20,000 one year from now?
a.$18,800
b.$19,880
c.$19,376
d.$18,868
47) The times interest earned is computed by dividing
a.net income by interest expense
b.income before income taxes by interest expense
c.income before interest expense by interest expense
d.income before income taxes and interest expense by interest expense
48) After a business transaction has been analyzed and entered in the book of original
entry, the next step in the recording process is to transfer the information to
a.the company’s bank
b.owner’s equity
c.ledger accounts
d.financial statements
49) As a result of a thorough physical inventory, Horace Company determined that it
had inventory worth $320,000 at December 31, 2014 . This count did not take into
consideration the following facts: Herschel Consignment currently has goods worth
$47,000 on its sales floor that belong to Horace but are being sold on consignment by
Herschel. The selling price of these goods is $75,000. Horace purchased $22,000 of
goods that were shipped on December 27 . FOB destination, that will be received by
Horace on January 3. Determine the correct amount of inventory that Horace should
report.
a.$320,000
b.$340,000
c.$367,000
d.$387,000
50) The following information is available for Wrina Corporation for the year ended
December 31, 2012:
Beginning retained earnings$ 340,000
Cost of goods sold620,000
Declared cash dividends50,000
Operating expenses170,000
Other expenses and losses40,000
Other revenues and gains60,000
Sales1,000,000
Tax rate30%
Instructions:
1>Prepare a corporate income statement in good form.
2>Prepare a retained earnings statement for the year.
51) Glenda Good and Danny Rock are department managers in the house wares and
shoe departments, respectively, for Litwins, a large department store. Danny has
observed Glenda taking inventory from her own department home, apparently without
paying for it. He hesitates confronting Glenda because he is due to be promoted, and
needs Glanda’s recommendation. He also does not want to notify the company
management directly, because he doesn’t want an ethics investigation on his record,
believing that it will give him a goody-goody image. This week, Glenda tried on several
pairs of expensive running shoes in his department before finding a pair that suited her.
She did not, however, buy them. That very pair was missing this morning.
Litwins recently replaced its old periodic inventory system with a perpetual inventory
system using scanners and bar codes. In addition, the annual inventory is to be replaced
by a monthly inventory conducted by an independent firm. On hearing the news of the
changes, Danny relaxes. “The system will catch Glenda now,” he says to himself.
Required:
1>Is Danny’s attitude justified? Why or why not?
2>What, if any, action should Danny take now?
52) The MFP Partnership is to be liquidated when the ledger shows the following:
Cash$ 50,000
Noncash Assets200,000
Liabilities50,000
Mossimo, Capital75,000
Fandango, Capital100,000
Plank, Capital25,000
Mossimo, Fandango, and Planks income ratios are 6:3:1, respectively.
Instructions
Prepare separate entries to record the liquidation of the partnership assuming that the
noncash assets are sold for $140,000 in cash.
53) United Co. is considering investing in new equipment that will cost $1,400,000
with a 10-year useful life. The new equipment is expected to produce annual net income
of $60,000 over its useful life. Depreciation expense, using the straight-line rate, is
$140,000 per year.
Instructions
Compute the cash payback period.
54) When a year-end adjustment is made to reduce the trading securities portfolio to
market, what effect, if any, will the adjustment have on the balance sheet and the
income statement?
55) Northern States Dairy Inc. has 4 product lines: sour cream, ice cream, yogurt, and
butter. The allocated fixed costs are based on units sold and are unavoidable. Demand
of individual products is not affected by changes in other product lines. 40% of the
fixed costs are direct, and the other 60% are allocated. Results of June follow:
Sour CreamIce CreamYogurtButterTotal
Units sold2,0005004002003,100
Revenue$10,000$20,000 $10,000 $20,000 $60,000
Variable departmental costs 6,00013,0004,2004,80028,000
Fixed costs 6,000 2,000 3,000 7,000 18,000
Net income (loss)$ (2,000)$ 5,000 $ 2,800$ 8,200$14,000
Instructions
Prepare an incremental analysis of the effect of dropping the sour cream product line.
56) L. Hampton invests the following assets in a new partnership: $30,000 in cash, and
equipment that cost $70,000 but has a book value of $34,000 and fair value of $40,000.
Hampton, Capital will be credited for $64,000.