1) If the ending work in process inventory is greater than the beginning work in process
inventory, then the cost of goods manufactured will be less than total manufacturing
costs for the period.
2) The adjusted trial balance is the only item needed to prepare the Statement of Cash
Flows.
3) A decision whether to continue to make a product or buy it externally, depends on the
external price and the amount of variable and fixed costs that can be eliminated
assuming no alternative uses of resources.
4) It is better not to replace old equipment if it is not fully depreciated.
5) FICA taxes are a deduction from employee earnings and are also imposed upon
employers as an expense.
6) An error that overstates the ending inventory will also cause net income for the
period to be overstated.
7) The total manufacturing cost per unit is used in costing the units completed and
transferred during the period.
8) The employer incurs a payroll tax expense equal to the amount withheld from the
employees’ wages for federal income taxes.
9) Actual manufacturing overhead costs are assigned to each job by tracing each
overhead cost to a specific job.
10) A trial balance does not prove that all transactions have been recorded or that the
ledger is correct.
11) In calculating depreciation, both plant asset cost and useful life are based on
estimates.
12) A control account and subsidiary ledger can be established for inventory.
13) The overhead volume variance relates only to fixed overhead costs.
14) Depletion expense is reported in the income statement as an operating expense.
15) A major advantage of the annual rate of return technique is that it considers the time
value of money.
16) The break-even point is where total sales equal total variable costs.
17) Bond Corporation issues 5,000, 10-year, 8%, $1,000 bonds dated January 1, 2014,
at 103 . The journal entry to record the issuance will show a
a.debit to Cash of $5,000,000
b.credit to Premium on Bonds Payable for $150,000
c.credit to Bonds Payable for $5,030,000
d.credit to Cash for $5,150,000
18) Litchfield Company reported the following results from the sale of 5,000 hammers
in May: sales $200,000, variable costs $110,000, fixed costs $60,000, and net income
$30,000. Assume that Litchfield increases the selling price of hammers by 10% on June
1 . How many hammers will have to be sold in June to maintain the same level of net
income?
a.4,500
b.6,364
c.4,091
d.5,000
19) Thorpe Manufacturing Inc.’s accounting records reflect the following inventories:
Dec. 31, 2013Dec. 31, 2014
Raw materials inventory$180,000$145,000
Work in process inventory260,000235,000
Finished goods inventory225,000207,000
During 2014, Thorpe purchased $1,400,000 of raw materials, incurred direct labor costs
of $230,000, and incurred manufacturing overhead totaling $290,000.
How much is total manufacturing costs incurred during 2014 for Thorpe?
a.$1,910,000
b.$1,885,000
c.$1,980,000
d.$1,955,000
20) The declaration of a stock dividend will
a.increase paid-in capital
b.change the total of stockholders’ equity
c.increase total liabilities
d.increase total assets
21) Which of the following are financial measures of performance?
1>Controllable margin
2>Product quality
3>Labor productivity
a.1
b.2
c.3
d.1 and 3
22) On May 25, Yellow House Company received a $650 check from Grizzly Bean for
services to be performed in the future. The bookkeeper for Yellow House Company
incorrectly debited Cash for $650 and credited Accounts Receivable for $650. The
amounts have been posted to the ledger. To correct this entry, the bookkeeper should:
a.debit Cash $650 and credit Unearned Service Revenue $650
b.debit Accounts Receivable $650 and credit Service Revenue $650
c.debit Accounts Receivable $650 and credit Cash $650
d.debit Accounts Receivable $650 and credit Unearned Service Revenue $650
23) What effects will the omission of a prepaid expense adjusting entry have on a
company?
Total AssetsTotal ExpensesTotal Owners’ Equity
a.OverstatedNo EffectNo Effect
b.No EffectUnderstatedOverstated
c.OverstatedUnderstatedOverstated
d.OverstatedNo EffectOverstated
24) Adjusting entries are required
a.because some costs expire with the passage of time and have not yet been journalized
b.when the company’s profits are below the budget
c.when expenses are recorded in the period in which they are incurred
d.when revenues are recorded in the period in which services are performed
25) Bush Company reports the following costs and expenses in May.
Factory utilities$ 13,300Direct labor$71,900
Depreciation on factorySales salaries44,800
equipment12,250Property taxes on factory
Depreciation on delivery trucks3,500building2,600
Indirect factory labor49,800Repairs to office equipment1,500
Indirect materials70,100Factory repairs2,300
Direct materials used154,300Advertising21,000
Factory manager’s salary9,000Office supplies used2,460
Instructions
From the information, determine the total amount of:
(a)Manufacturing overhead.
(b)Product costs.
(c)Period costs.
26) On October 4, 2014, JT Corporation had credit sales transactions of $4,000 from
merchandise having cost $2,400. The entries to record the day’s credit transactions
include a
a.debit of $4,000 to Inventory
b.credit of $4,000 to Sales Revenue
c.debit of $2,400 to Inventory
d.credit of $2,400 to Cost of Goods Sold
27) A proprietorship is a business
a.owned by one person
b.owned by two or more persons
c.organized as a separate legal entity under state corporation law
d.owned by a governmental agency
28) The paneling of the body of an open pickup truck would be classified as a(n)
a.revenue expenditure
b.addition
c.improvement
d.ordinary repair
29) In the Shaping Department of Roland Company the unit materials cost is $5.00 and
the unit conversions cost is $3.00. The department transferred out 18,000 units and had
2,500 units in ending work in process 40% complete. If all materials are added at the
beginning of the process, the total cost to be assigned to the ending work in process is
a.8,000
b.12,500
c.15,500
d.18,000
30) A Discount on Bonds Payable account:
a.is an adjunct account to Bonds Payable
b.will cause interest expense to be less than cash interest payable
c.is increased over the life of the bond until it equals the bond’s face value
d.is a contra account to Bonds Payable
31) The major activities of managerial accounting include all of the following except:
a.providing a basis for controlling costs by comparing actual results with planned
objectives
b.determining the behavior of costs as activity levels change
c.preparing internal reports for management
d.preparing financial statements designed primarily for stockholders and creditors
32) The difference between the actual labor rate multiplied by the actual labor hours
worked and the standard labor rate multiplied by the standard labor hours is the
a.total labor variance
b.labor price variance
c.labor quantity variance
d.labor efficiency variance
33) Slater Roofing Company originally issued 6,000 shares of $10 par value common
stock for $180,000 ($30 per share). Slater subsequently purchases 600 shares of
treasury stock for $27 per share and resells the 600 shares of treasury stock for $29 per
share. In the entry to record the sale of the treasury stock, there will be a
a.credit to Common Stock for $16,200
b.credit to Treasury Stock for $6,000
c.debit to Paid-In Capital in Excess of Par of $18,000
d.credit to Paid-In Capital from Treasury Stock for $1,200
34) The size of the petty cash fund is dependent on
a.the wishes of the custodian of the fund
b.anticipated disbursements for the year
c.anticipated disbursements for a three- to four-week period
d.the size of the regular cash account
35) Sebastian Belle, CPA, has billed her clients for services performed. She
subsequently receives payments from her clients. What entry will Sebastian make upon
receipt of the payments?
a.Debit Unearned Service Revenue and credit Service Revenue
b.Debit Cash and credit Accounts Receivable
c.Debit Accounts Receivable and credit Service Revenue
d.Debit Cash and credit Service Revenue
36) The United States and the international standard-setting environment are primarily
driven by meeting the needs of
a.investors and creditors
b.tax authorities
c.central government planners
d.academic researchers
37) An order at a special price that is accepted will increase income if the revenue
received exceeds the:
a.variable manufacturing, selling, and administrative costs associated with the order
b.variable manufacturing costs associated with the order
c.incremental costs associated with the order
d.fixed and variable costs associated with the order
38) The following information is available for Hopkins Company:
Beginning inventory$ 45,000
Ending inventory70,000
Freight-in10,000
Purchases290,000
Purchase returns and allowances8,000
Instructions
Compute each of the following:
(a)Net purchases
(b)Cost of goods purchased
(c)Cost of goods sold
39) Deane Company has income from continuing operations of $520,000 for the year
ended December 31, 2014 . It also has the following items (before considering income
taxes):
(1)An extraordinary fire loss of $140,000.
(2)A gain of $80,000 on the discontinuance of a major segment.
(3)A correction of an error in last year’s financial statement that resulted in a $60,000
overstatement of 2013 net income.
Assume all items are subject to income taxes at a 25% tax rate.
Instructions
(a)Prepare an income statement, beginning with income from continuing operations.
(b)Indicate the statement presentation of any item not included in (a) above.
40) Companies adopt different cost flow methods for each of the following reasons
except
a.balance sheet effects
b.cost effects
c.income statements effects
d.tax effects
41) Eve Corporation issues a $9,000,000, 5%, 20-year mortgage note payable on
December 31, 2014, to obtain needed financing for the construction of a building
addition. The terms provide for semiannual installment payments of $289,409 on June
30 and December 31 .
Instructions
(a)Prepare the journal entries to record the mortgage loan on December 31, 2014, and
the first installment payment.
(b)Will the amount of principal reduction in the second installment payment be more or
less than with the first installment payment?
42) On January 1, Hamm Company purchased as an investment a $1,000, 6% bond for
$1,020. The bond pays interest on January 1 and July 1 . What is the entry to record the
interest accrual on December 31?
a.Interest Receivable30
Interest Revenue 30
b.Debt Investments 30
Interest Revenue 30
c.Interest Receivable60
Interest Revenue 60
d.Debt Investments 60
Interest Revenue 60
43) The chart of accounts is a
a.list of accounts and their balances at a given time
b.device used to prove the mathematical accuracy of the ledger
c.listing of the accounts and the account numbers which identify their location in the
ledger
d.required step in the recording process
44) In the month of June, a department had 30,000 units in beginning work in process
that were 70% complete. During June, 80,000 units were transferred into production
from another department. At the end of June there were 10,000 units in ending work in
process that were 40% complete. Materials are added at the beginning of the process,
while conversion costs are incurred uniformly throughout the process. The equivalent
units of production for materials for June were
a.100,000 equivalent units
b.110,000 equivalent units
c.114,000 equivalent units
d.80,000 equivalent units
45) Mc Gee Corporation recently purchased a new machine for its factory operations at
a cost of $840,000. The investment is expected to generate $250,000 in annual cash
flows for a period of five years. The required rate of return is 12%. The new machine is
expected to have zero salvage value at the end of the five-year period.
Instructions
Calculate the internal rate of return. (Table 2 from Appendix C is needed.)
46) The difference between actual quantity of materials times the standard price and
standard quantity times the standard price is the materials ________________ variance.
47) Foley Company applied FIFO to its inventory and got the following results for its
ending inventory.
DVRs140 units at a cost per unit of $59
DVD players210 units at a cost per unit of $75
iPods175 units at a cost per unit of $80
The cost of purchasing units at year-end was DVRs $71, DVD players $68, and iPods
$78.
Instructions
Determine the amount of ending inventory at lower-of-cost-or-market.
48) Plack Company budgeted the following information for 2013:
MayJuneJuly
Budgeted purchases$104,000$110,000$102,000
Cost of goods sold is 40% of sales. Accounts payable is used only for inventory
acquisitions.
Plack purchases and pays for merchandise 60% in the month of acquisition and 40% in
the following month.
Selling and administrative expenses are budgeted at $30,000 for May and are expected
to increase 5% per month. They are paid during the month of acquisition. In addition,
budgeted depreciation is $10,000 per month.
Income taxes are $38,400 for July and are paid in the month incurred.
Instructions
Compute the amount of budgeted cash disbursements for July.
49) The following accounts appear in the ledger of Rowlands Inc. after the books are
closed at December 31, 2014 .
Common Stock, $1 par value, 500,000 shares authorized, 400,000 shares
issued$400,000
Common Stock Dividends Distributable60,000
Paid-in Capital in Excess of ParCommon Stock650,000
Preferred Stock, $100 par value, 6%, 10,000 shares authorized; 2,000 shares
issued 200,000
Retained Earnings 920,000
Treasury Stock (10,000 common shares) 85,000
Paid-in Capital in Excess of ParPreferred Stock 310,000
Instructions
Prepare the stockholders’ equity section at December 31, 2014, assuming that retained
earnings is restricted for plant expansion in the amount of $200,000.
50) A partnership is liquidated by selling the non-cash assets, paying the creditors in
full, and distributing the remaining assets to the partners. Explain why gains and losses
on the realization of non-cash assets are distributed to the partners based on their
income ratios, whereas cash is distributed to the partners based on their equity as shown
in their capital accounts. What effects does the payment or nonpayment of a capital
deficiency have on the distribution of cash to the partners?