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1) Division M makes a part that it sells to customers outside of the company. Data
concerning this part appear below:
Division O of the same company would like to use the part manufactured by Division
M in one of its products. Division O currently purchases a similar part made by an
outside company for $70 per unit and would substitute the part made by Division M.
Division O requires 5,000 units of the part each period. Division M can sell every unit it
produces on the outside market. What should be the lowest acceptable transfer price
from the perspective of Division O?
A.$75
B.$66
C.$16
D.$50
E.$25
2) Depletion is:
A.The process of allocating the cost of natural resources to the period when it is
consumed.
B.Calculated using the double-declining balance method.
C.Also called amortization.
D.An increase in the value of a natural resource when incurred.
E.The process of allocating the cost of intangibles to periods when they are used.
3) A merchandiser:
A.Earns net income by buying and selling merchandise.
B.Receives fees only in exchange for services.
C.Earns profit from commissions only.
D.Earns profit from fares only.
E.Buys products from consumers.
4) Financial reporting refers to:
A.The application of analytical tools to general-purpose financial statements.
B.The communication of financial information useful for decision making.
C.General-purpose financial statements only.
D.Ratio analysis only.
E.Profitability.
5) Bluebird Mfg. has received a special one-time order for 15,000 bird feeders at $3 per
unit. Bluebird currently produces and sells 75,000 units at $7.00 each. This level
represents 80% of its capacity. Production costs for these units are $3.50 per unit, which
includes $2.25 variable cost and $1.25 fixed cost. If Bluebird accepts this additional
business, the effect on net income will be:
A.$45,000 increase.
B.$11,250 increase.
C.$33,750 increase.
D.$7,500 decrease.
6) Fletcher Company collected the following data regarding production of one of its
products. Compute the variable overhead efficiency variance.
A.$14,300 unfavorable.
B.$21,450 favorable.
C.$4,000 unfavorable.
D.$4,000 favorable.
E.$21,450 unfavorable.
7) Hewlett and Martin are partners. Hewlett's capital balance in the partnership is
$64,000, and Martin's capital balance $61,000. Hewlett and Martin have agreed to share
equally in income or loss. Hewlett and Martin agree to accept Black with a 25%
interest. Black will invest $35,000 in the partnership. The bonus that is granted to Black
equals:
A.$5,000.
B.$2,500.
C.$6,667.
D.$3,333.
E.$0, because Black must actually grant a bonus to Hewlett and Martin.
8) Bologna Lodging had the following accounts and balances as of December 31:
Using the information in the table, calculate the total assets reported on Bologna's
balance sheet for the period.
A.$24,900.
B.$25,400.
C.$22,500.
D.$25,900.
E.$23,400.
9) A company purchased a cooling system on January 2 for $225,000. The system had
an estimated useful life of 15 years. On January 3 of the thirteenth year, the company
completed a renovation of the system at a cost of $33,000 and now expects the system
to be more efficient and last 8 years beyond the original estimate. The company uses the
straight-line method of depreciation.
(a) Prepare the journal entry at January 3, to record the renovation of the cooling
system.
(b) Prepare the journal entry at December 31, to record the revised depreciation for the
thirteenth year.
10) The following information is available for the Savvy Company for the month of
June.
a. On June 30, after all transactions have been recorded, the balance in the company's
Cash account has a balance of $17,202.
b. The company's bank statement shows a balance on June 30 of $19,279.
c. Outstanding checks at June 30 total $2,984.
d. A credit memo included with the bank statement indicates that the bank collected
$770 on a noninterest-bearing note receivable for Savvy.
e. A debit memo included with the bank statement shows a $67 NSF check from a
customer, J. Maroon.
f. A deposit placed in the bank's night depository on June 30 totaling $1,675 did not
appear on the bank statement.
g. Comparing the checks on the bank statement with the entries in the accounting
records reveals that check #3445 for the payment of an account payable was correctly
written for $2,450, but was recorded in the accounting records as $2,540.
h. Included with the bank statement was a debit memorandum in the amount of $25 for
bank service charges. It has not been recorded on the company's books.
1> Prepare the June bank reconciliation for the Savvy Company.
2> Prepare the general journal entries to bring the company's book balance of cash into
conformity with the reconciled balance as of June 30.
11) The accountant for Huckleberry Company is preparing the company's statement of
cash flows for the fiscal year just ended. The following information is available:
What is the ending balance for retained earnings?
A.$264,000.
B.$13,000.
C.$243,000.
D.$197,000.
E.$105,000.
12) The most useful data for evaluation of a manager's cost performance is based on:
A.Controllable costs.
B.Contribution percentages.
C.Departmental contributions to overhead.
D.Uncontrollable expenses.
E.Direct costs.
13) A machine costs $180,000 and will have an eight-year life, a $20,000 salvage value,
and straight-line depreciation is used. Management estimates the machine will yield an
after-tax net income of $12,500 each year. Compute the accounting rate of return for the
investment.
A.12.5%.
B.26.8%.
C.11.8%.
D.10.8%.
E.22.5%.
14) Vincent Company purchased merchandise from Liu Company with an invoice price
of $300,000 and credit terms of 2/10, n/30. Liu Company's cost for the merchandise
was $200,000. Vincent Company paid within the discount period. Assume that both
buyer and seller use a perpetual inventory system.
1> Prepare entries that Vincent should record for (a) the purchase and (b) the cash
payment.
2> Prepare entries that Liu should record for (a) the sale and (b) the cash collection.
3> Assume that the buyer borrowed enough cash to pay the balance on the last day of
the discount period at an annual interest rate of 9% and paid it back on the last day of
the credit period. Compute how much the buyer saved by following this strategy.
(Assume a 365-day year and round dollar amounts to the nearest cent.)
15) Refer to the following selected financial information from Shakley's Incorporated.
Compute the company's return on total assets for Year 2.
A.9.6%.
B.15.2%.
C.2.6%.
D.22.2%.
E.14.5%.
16) Investments in debt and equity securities that the company actively manages and
trades for profit are referred to as short-term investments in:
A.Available-for-sale securities.
B.Held-to-maturity securities.
C.Trading securities.
D.Realizable securities.
E.Liquid securities.
17) The unadjusted trial balance and the adjustment data for Porter Business Institute
are given below along with adjusting entry information. What is the impact on net
income if these adjustments are not recorded? Show the calculation for net income
without the adjustments and net income with the adjustments. Which one gives the most
accurate net income? Which accounting principles are being violated if the adjustments
are not made?
Additional information items:
a. The Prepaid Insurance account consists of a payment for a 1 year policy. An analysis
of the insurance invoice indicates that one half of the policy has expired by the end of
the December 31 year-end.
b. A cash payment for space sublet for 8 months was received on July 1 and was
credited to Unearned Rent.
c. Accrued interest expense on the note payable of $1,000 has been incurred but not
paid.
18) On February 15, Jewel Company buys 7,000 shares of Marcelo Corp. common
stock at $28.53 per share plus a brokerage fee of $400. The stock is classified as
available-for-sale securities. On March 15, Marcelo Corp. declares a dividend of $1.15
per share payable to stockholders of record on April 15. Jewel Company received the
dividend on April 15 and ultimately sells half of the Marcelo Corp. stock on November
17 of the current year for $29.30 per share less a brokerage fee of $250. The fair value
of the remaining shares is $29.50 per share. The amount that Jewel Company should
report on its year-end December 31 income statement related to the investment in
Marcelo Corp. is:
A.$10,295.
B.$8,050.
C.$2,245.
D.$3,195.
E.$5,440.
19) If a check correctly written and paid by the bank for $749 is incorrectly recorded in
the company's books for $794, how should this error be treated on the bank
reconciliation?
A.Subtract $45 from the bank's balance.
B.Add $45 to the bank's balance.
C.Subtract $45 from the book balance.
D.Add $45 to the book balance.
E.Subtract $45 from the bank's balance and add $45 to the book's balance.
20) Explain how to record the issuance and sale of a bond between interest payment
dates.
21) Sparks Company entered into the following transactions involving short-term notes
payable. On June 18, Sparks purchased $25,000 merchandise from EquipCo., terms
2/10, n/30. Sparks uses the perpetual inventory system. On July 19, Sparks replaced the
June 18 account payable with a 60-day, $12,000 note bearing 4% annual interest in
addition to paying $13,000 in cash. Sparks paid the amount due on the note at maturity.
1> Determine the maturity date for the note.
2> Prepare journal entries for all the preceding transactions and events.
22) __________________________ are investments in securities that are not readily
convertible to cash, or are not intended to be converted to cash in the short-term.
23) Stanley Company is preparing a cash budget for February. The company has
$30,000 cash at the beginning of February and anticipates $75,000 in cash receipts and
$96,250 in cash disbursements during February. Stanley Company has an agreement
with its bank to maintain a cash balance of $10,000. What amount, if any, must the
company borrow during February to maintain a $10,000 cash balance?
24) The Ewing Company budgeted sales for January, February, and March of $96,000,
$88,000, and $72,000, respectively. Seventy percent of sales are on credit. The
company collects 60% of its credit sales in the month following sale, and 40% in the
second month following sale. What are Ewing's expected cash receipts for March
related to all current and past sales?
