1) In applying the high-low method, what is the unit variable cost?
Month MilesTotal Cost
January80,000$144,000
February50,000120,000
March70,000141,000
April90,000$180,000
a.$2.00
b.$1.50
c.$2.40
d.Cannot be determined from the information given
2) The White Stripes Animal Encounters operates a drive through tourist attraction. The
company adjusts its accounts at the end of each month. The selected accounts appearing
below reflect balances after adjusting entries were prepared on April 30 . The adjusted
trial balance shows the following:
Prepaid Rent$16,000
Buildings30,000
Accumulated DepreciationBuildings6,600
Unearned Ticket Revenue600
Other data:
1>Three months’ rent had been prepaid on April 1 .
2>The buildings are being depreciated at $7,200 per year.
3>The unearned ticket revenue represents tickets sold for future visits. The tickets were
sold at $5.00 each on April 1 . During April, thirty of the tickets were used by
customers.
Instructions
(a)Calculate the following:
1>Monthly rent expense.
2>The age of the buildings in months.
3>The number of tickets sold on April 1 .
(b)Prepare the adjusting entries that were made by the White Stripes Animal Encounters
on April 30 .
3) All of the following statements about free cash flow are false except:
a.Significant free cash flow indicates less potential to finance new investments
b.Free cash flow is most commonly calculated by subtracting capital expenditures from
cash provided by operations and then adding cash dividends
c.Free cash flow is not reported on the statement of cash flows
d.Significant free cash flow indicates less potential to pay additional dividends
4) The journal entry to record the payroll for Fox-Gardiner Company for the week
ending January 8, would probably include a
a.credit to Salaries Expense
b.credit to Wages Expense
c.debit to Federal Income Taxes Payable
d.credit to FICA Taxes Payable
5) Under the allowance method, writing off an uncollectible account
a.affects only balance sheet accounts
b.affects both balance sheet and income statement accounts
c.affects only income statement accounts
d.is not acceptable practice
6) The individual amounts in the sales journal are posted to the accounts receivable
subsidiary ledger
a.daily
b.weekly
c.monthly
d.yearly
7) It is necessary to calculate equivalent units of production in a department because
a.a physical count of units is impossible
b.some units worked on in the department are not fully complete
c.the physical units in the department are always 100% complete
d.at times a department may use a job order cost system and then switch to a process
cost system
8) Financing activities involve
a.lending money to other entities and collecting on those loans
b.cash receipts from sales of goods and services
c.acquiring and disposing of productive long-lived assets
d.long-term liability and owners’ equity items
9) Beethoven Company provided consulting services and billed the client $3,100. As a
result of this event,
a.assets remained unchanged
b.assets increased by $3,100
c.owners equity increased by $3,100
d.assets and owner’s equity both increased by $3,100
10) An accounting record of the balances of all assets, liabilities, and owner’s equity
accounts is called a
a.compound entry
b.general journal
c.general ledger
d.chart of accounts
11) The following information is available for Xavier Corporation:
Retained Earnings, December 31, 2014$1,500,000
Net Income for the year ended December 31, 2015$ 200,000
The company accountant, in preparing financial statements for the year ending
December 31, 2015, has discovered the following information:
The company’s previous bookkeeper, who has been fired, had recorded depreciation
expense on equipment in 2013 and 2014 using the double-declining-balance method of
depreciation. The bookkeeper neglected to use the straight-line method of depreciation
which is the company’s policy. The cumulative effects of the error on prior years was
$25,000, ignoring income taxes. Depreciation was computed by the straight-line
method in 2015 .
Instructions
(a)Prepare the entry for the prior period adjustment.
(b)Prepare the retained earnings statement for 2015 .
12) Indicate whether each of the following costs of a pencil manufacturer would be
classified as direct materials (DM), direct labor (DL), or manufacturing overhead (MO).
a.____Depreciation of pencil painting machinery
b.____Lead inserted into pencils
c.____Factory utilities
d.____Wages of assembly line worker
e.____Salary of supervisor
f.____Factory machinery maintenance
g.____Wood
h.____Eraser compound
13) Ordinary repairs are expenditures to maintain the operating efficiency of a plant
asset and are referred to as
a.capital expenditures
b.expense expenditures
c.improvements
d.revenue expenditures
14) The following information is available for Yancey Company:
Beginning inventory600 units at $4
First purchase900 units at $6
Second purchase500 units at $7.20
Assume that Yancey uses a periodic inventory system and that there are 700 units left at
the end of the month.
Instructions
Compute the cost of ending inventory under the
(a)FIFO method.
(b)LIFO method.
15) What criteria are used to determine how to record a factoring transaction?
GAAPIFRS
a.risks and rewards, and loss of controlrisks and rewards, and loss of control
b.risks and rewards, and loss of controlloss of control
c.loss of controlloss of control
d.loss of controlrisks and rewards, and loss of control
16) The entry to record depletion expense
a.decreases assets and liabilities
b.decreases net income and increases liabilities
c.decreases assets and increases liabilities
d.decreases owner’s equity and assets
17) The Accumulated Depreciation account is a(n)
a.operating expense
b.contra asset
c.asset
d.liability
18) Lawson Co. is considering purchasing a new machine which will cost $350,000, but
which will decrease costs each year by $100,000. The useful life of the machine is 10
years. The machine would be depreciated straight-line with no residual value over its
useful life at the rate of $35,000/year. The cash payback period is
a.7.0 years
b.3.5 years
c.3.2 years
d.10.0 years
19) Required sales in dollars to meet a target net income is computed by dividing
a.fixed costs plus target net income by contribution margin per unit
b.variable costs plus target net income by contribution margin per unit
c.fixed costs plus target net income by contribution margin ratio
d.total costs plus target net income by contribution margin ratio
20) The following items are taken from the financial statements of the Postal Service
for the year ending December 31, 2014:
Accounts payable$ 18,000
Accounts receivable11,000
Accumulated depreciation equipment28,000
Advertising expense21,000
Cash15,000
Owners capital (1/1/14)102,000
Owners drawings14,000
Depreciation expense12,000
Insurance expense3,000
Note payable, due 6/30/1570,000
Prepaid insurance (12-month policy)6,000
Rent expense17,000
Salaries and wages expense32,000
Service revenue133,000
Supplies4,000
Supplies expense6,000
Equipment210,000
What are total long-term liabilities at December 31, 2014?
a.$0
b.$70,000
c.$88,000
d.$90,000
21) Cotton Company issued $500,000 of 7%, 10-year bonds on one of its interest dates
for $431,850 to yield an effective annual rate of 9%. The effective-interest method of
amortization is to be used.
How much bond interest expense (to the nearest dollar) should be reported on the
income statement for the end of the first year?
a.$30,229
b.$38,867
c.$45,000
d.$35,000
22) The income statement for the month of June, 2014 of Camera Obscura Enterprises
contains the following information:
Revenues$7,000
Expenses:
Salaries and Wages Expense$3,000
Rent Expense1,500
Advertising Expense800
Supplies Expense300
Insurance Expense 100
Total expenses 5,700
Net income$1,300
The entry to close Income Summary to Owners, Capital includes
a.a debit to Revenues for $7,000
b.credits to Expenses totalling $5,700
c.a credit to Income Summary for $1,300
d.a credit to Owner’s Capital for $1,300
23) If the cost method is used to account for a long-term investment in common stock,
a.it is presumed that the investor has significant influence on the investee
b.the earning of net income by the investee is considered a proper basis for recognition
of income by the investor
c.net income of the investee is not considered earned by the investor until dividends are
declared by the investee
d.the Investment account may be, at times, greater than the acquisition cost
24) Factory labor costs
a.accumulate in advance of utilization
b.accumulate in a control account
c.include sick pay earned by factory workers
d.accumulate in the Factory Labor Expense account
25) Internal reports are generally
a.aggregated
b.detailed
c.regulated
d.unreliable
26) Cost of goods manufactured during a period is obtained by taking the total
manufacturing costs incurred during the period and adding and subtracting the
following inventories:
AddingSubtracting
a.Beginning work in process inventoryEnding finished goods inventory
b.Beginning work in process inventoryEnding work in process inventory
c.Beginning raw materials inventoryEnding work in process inventory
d.Beginning finished goods inventoryEnding finished goods inventory
27) Kappy Products uses both special journals and a general journal as described in this
chapter. Kappy also posts customers’ accounts in the accounts receivable subsidiary
ledger. The postings for the most recent month are included in the subsidiary T accounts
below.
SkiMulley
Bal.340340Bal.150150
310290
HolmesVizquel
Bal.-0-175Bal.120120
220230
360
Instructions
Determine the correct amount of the end-of-month posting from the sales journal to the
Accounts Receivable control account.
28) A bond trustee does not
a.issue the bonds
b.keep a record of each bondholder
c.hold conditional title to pledged property
d.maintain custody of unsold bonds
29) The maturity value of a $5,000, 9%, 60-day note receivable dated February 10th is
a.$5,000
b.$5,038
c.$5,075
d.$5,450
30) Why is identification of a relevant range important?
a.It is required under GAAP
b.Cost behavior outside of the relevant range is not linear, which distorts CVP analysis
c.It directly impacts the number of units of product a customer buys
d.It is a cost that is incurred by a company that must be accounted for
31) Tangible frauds include
a.asset misappropriation
b.false pretenses
c.counterfeiting
d.all of the above
32) Under the direct write-off method of accounting for uncollectible accounts, Bad
Debt Expense is debited
a.when a credit sale is past due
b.at the end of each accounting period
c.whenever a pre-determined amount of credit sales have been made
d.when an account is determined to be uncollectible
33) If an investment center has a $90,000 controllable margin and $1,200,000 of sales,
what average operating assets are needed to have a return on investment of 10%?
a.$900,000
b.$210,000
c.$120,000
d.$1,200,000
34) Zippo Corporation stockholders’ equity consisted of the following on January 1,
2012:
Stockholders’ Equity
Paid-in capital
Capital stock
6% Preferred stock, $100 par value, cumulative,
50,000 shares authorized, 30,000 shares issued
and outstanding$ 3,000,000
Common stock, no par, $20 stated value, 1,000,000
shares authorized, 500,000 shares issued and
outstanding 10,000,000
Total capital stock13,000,000
Additional paid-in capital
In excess of par valuepreferred$300,000
In excess of stated valuecommon 600,000 900,000
Total paid-in capital13,900,000
Retained earnings (Note A) 4,100,000
Total stockholders’ equity$18,000,000
Note A: Preferred dividends are in arrears for 2011 .
Instructions: Prepare the appropriate journal entries, if any, for the following
transactions in 2012 . You may omit journal entry explanations but you should show
computations.
Jan. 25Issued 60,000 shares of common stock for $40 per share.
Feb. 18The Board of Directors declared a cash dividend on preferred and common
stock totaling $700,000, payable on March 15, to stockholders of record on February 28
. (Record dividends payable on preferred and common stock in separate accounts.)
Feb. 28Date of record for cash dividends on preferred and common stock.
Mar. 15Paid the cash dividend to preferred and common stockholders.
May 20Declared a 10% stock dividend on the common stock, payable on June 15, to
stockholders of record on May 31 . The market value of Zippo Corporation’s common
stock was $40 per share.
June 15Distributed stock dividend to common stockholders.
July 10Purchased 40,000 shares of Zippo Corporation’s common stock for $43 per share
to be held in the company’s treasury.
Aug. 13Sold 13,000 shares of treasury stock for $46 per share.
Sept. 30The Board of Directors declared and issued immediately a 2:1 stock split on all
the common shares including shares held in the treasury. The stated value on the
common stock was reduced to $10 per share.
Nov. 12Sold 19,000 shares of treasury stock for $24 per share.
35) Gate Company planned to use 1 yard of plastic per unit budgeted at $81 a yard.
However, the plastic actually cost $80 per yard. The company actually made 3,900
units, although it had planned to make only 3,300 units. Total yards used for production
were 3,960. How much is the total materials variance?
a.$48,600 U
b.$4,860 U
c.$3,960 F
d.$900 U
36) A supplier to a company would be most interested in the companys
a.asset turnover
b.profit margin
c.current ratio
d.earnings per share
37) The following data is available for Santos Service Corporation at December 31,
2014:
Common stock, par $10 (authorized 100,000 shares)$400,000
Treasury Stock (at cost $15 per share)$ 27,000
Based on the data, how many shares of common stock are outstanding?
a.50,000
b.40,000
c.49,880
d.38,200
38) Internal auditors
a.are hired by CPA firms to audit business firms
b.are employees of the IRS who evaluate the internal controls of companies filing tax
returns
c.evaluate the system of internal controls for the companies that employ them
d.cannot evaluate the system of internal controls of the company that employs them
because they are not independent
39) The three primary accounting problems associated with accounts receivable are (1)
______________, (2) _______________, and (3) ______________ of accounts
receivable.
40) The petty cash fund of $200 for Ginther Company appeared as follows on
December 31, 2014:
Cash$61.60
Petty cash vouchers
Freight in$27.40
Postage45.00
Balloons for a special occasion63.00
Instructions
1>Briefly describe when the petty cash fund should be replenished. Because there is
cash on hand, is there a need to replenish the fund at year end on December 31?
Explain.
2>Prepare in general journal form the entry to replenish the fund.
3>On December 31, the office manager gives instructions to increase the petty cash
fund by $50. Make the appropriate journal entry.
41) The controller of Alt Company is applying the lower-of-cost-or-market basis of
valuing its ending inventory. The following information is available:
Cost Market
Lawnmowers:
Self-propelled$14,800$17,000
Push type 19,000 18,000
Total 33,800 35,000
Snowblowers:
Manual29,80031,000
Self-start 19,000 21,000
Total 48,800 52,000
Total inventory$82,600$87,000
Instructions
Compute the value of the ending inventory by applying the lower-of-cost-or-market
basis.
42) Carraway and Boos have a partnership agreement which includes the following
provisions regarding sharing net income or net loss:
1>A salary allowance of $48,000 to Carraway and $36,000 to Boos.
2>An interest allowance of 10% on capital balances at the beginning of the year.
3>The remainder to be divided 60% to Carraway and 40% to Boos.
The capital balance on January 1, 2014, for Carraway and Boos was $90,000 and
$120,000, respectively. During 2014, the Carraway and Boos Partnership had sales of
$495,000, cost of goods sold of $290,000, and operating expenses of $85,000.
Instructions
Prepare an income statement for the Carraway and Boos Partnership for the year ended
December 31, 2014 . As a part of the income statement, include a Division of Net
Income to each of the partners.
43) The Mount County Credit Union has asked Bolas, Inc. for a budgeted balance sheet
for the year ended December 31, 2014 . The following information is available:
1>The cash budget shows an expected cash balance of $74,000 at December 31, 2014 .
2>The 2014 sales budget shows total annual sales of $900,000. All sales are made on
account and accounts receivable at December 31, 2014 are expected to be 10% of
annual sales.
3>The merchandise purchases budget shows budgeted cost of goods sold for 2014 of
$600,000 and ending merchandise inventory of $105,000. 20% of the ending inventory
is expected to have not yet been paid at December 31, 2014 .
4>The December 31, 2013 balance sheet includes the following balances: Equipment
$294,000, Accumulated Depreciation $120,000, Common Stock $270,000, and
Retained Earnings $48,000.
5>The budgeted income statement for 2014 includes the following: depreciation on
equipment $15,000, federal income taxes $23,000, and net income $66,000. The
income taxes will not be paid until 2015 .
6>In 2014, management does not expect to purchase additional equipment or to declare
any dividends. It does expect to pay all operating expenses, other than depreciation, in
cash.
Instructions
Prepare an unclassified budgeted balance sheet at December 31, 2014 .
44) Benson Company has the following production data for May:
Beginning work in process, 0 units
Units started, 62,000
Ending work in process, 5,000 units that are 100% complete for materials and 60%
complete for conversion costs
Unit materials cost, $7
Unit conversion cost, $10
Instructions
Determine the costs to be assigned to the units transferred out and the units in ending
work in process.
45) Production costs chargeable to the Sanding Department in July for Recycled Art are
$20,000 for materials, $26,000 for labor, and $10,000 for manufacturing overhead.
Equivalent units of production are 25,000 for materials and 30,000 for conversion costs.
Instructions
Compute the unit costs for materials and conversion costs.