1) The market rate of interest is affected by a variety of factors, including investors’
assessment of current economic conditions.
2) A primary difference between the direct write-off and allowance method is whether
or not bad debts is based on a percentage of sales.
3) If the volume of sales is $7,000,000 and sales at the break-even point amount to
$4,800,000, the margin of safety is 45.8%.
4) Net income was $51,000 for the year. The accumulated depreciation balance
increased by $14,000 over the year. There were no sales of fixed assets or changes in
noncash current assets or liabilities. Under the indirect method, the cash flow from
operations is $37,000.
5) The post reference notation used in the journal is the page number.
6) If sales total $2,000,000, fixed costs total $800,000, and variable costs are 60% of
sales, the contribution margin ratio is 40%.
7) Under absorption costing, increases or decreases in income from operations due to
changes in inventory levels could be misinterpreted to be the result of operating
efficiencies or inefficiencies.
8) If the unit selling price is $40, the volume of sales is $3,000,000, sales at the
break-even point amount to $2,500,000, and the maximum possible sales are
$3,300,000, the margin of safety is 14,500 units.
9) Cost of oil used to lubricate factory machinery and equipment is an example of a
direct materials cost.
10) The first budget to be prepared is usually the sales budget.
11) An employee’s take home pay is equal to gross pay less all voluntary deductions.
12) Transfer prices may be used when decentralized units are organized as cost, profit,
or investment centers.
13) In determining cost of goods sold, two alternate costing concepts can be used:
absorption costing and variable costing.
14) Of the three widely used inventory costing methods (FIFO, LIFO, and average
cost), the LIFO method of costing inventory assumes costs are charged based on the
most recent purchases first.
15) Volume variance measures fixed factory overhead.
16) A centralized business organization is one in which all major planning and
operating decisions are made by top management.
17) Custom-made goods would be accounted for using a process costing system.
18) Normal balances appear on the side that increases the account balance.
19) Gilbert Corporation had 25,000 finished units and 8,000 units were 35% complete.
The equivalent units totaled 30,200.
20) Which equation better describes Target Costing?
A.Selling Price – Desired Profit = Target Costs
B.Selling Price + Profit = Target Costs
C.Target Variable Costs + Contribution Margin = Selling Price
D.Selling Price = Profit – Target Variable Costs
21) If title to merchandise purchases passes to the buyer when the goods are shipped
from the seller, the terms are
A.n/30
B.FOB shipping point
C.FOB destination
D.consigned
22) The term cash includes
A.coins, currency (paper money), checks
B.money orders, and money on deposit that is available for unrestricted withdrawal
C.short-term receivables
D.both a and b
23) Just-in-time manufacturing philosophy reduces all of the following except
A.inventory
B.setup time
C.lead time
D.overhead costs
24) Details of a purchase invoice and related credit memo are summarized as follows:
Assume that the credit memo was received prior to payment and that the invoice is paid
within the discount period. Determine the following:
(a) Amount of the cash discount allowed.
(b) Amount to be paid by the purchaser if the discount is taken.
(c) Cost of the merchandise to the purchaser if the discount is NOT taken.
25) A machine with a cost of $120,000 has an estimated residual value of $15,000 and
an estimated life of 5 years or 15,000 hours. It is to be depreciated by the
units-of-production method. What is the amount of depreciation for the second full
year, during which the machine was used 5,000 hours?
A.$ 5,000
B.$35,000
C.$21,000
D.$45,000
26) Which of the following is included in the cost of constructing a building?
A.insurance costs during construction
B.cost of paving parking lot
C.cost of repairing vandalism damage during construction
D.cost of removing the demolished building existing on the land when it was purchased
27) During September, Excom sold 100 radios for $50 each. Each radio cost Excom
$30 to purchase, and carried a two-year warranty. If 5% of the goods sold typically need
to be replaced over the warranty period and one is actually replaced during September,
for what amount in September would Excom debit Product Warranty Expense?
A.$50
B.$150
C.$30
D.$120
28) Widgeon Co. manufactures three products: Bales; Tales; and Wales. The selling
prices are: $55; $78; and $32, respectively. The variable costs for each product are: $20;
$50; and $15, respectively. Each product must go through the same processing in a
machine that is limited to 2,000 hours per month. Bales take 5 hours to process, Tales
take 7 hours, and Wales take 1 hour.
What is the contribution margin per machine hour for Tales?
A.$4
B.$7
C.$28
D.$35
29) The Corbit Corp. sold merchandise $10,000 for cash. The cost of the merchandise
sold was $7,590. The journal entry(s) to record this transaction would be
A.Cash 10,000
Merchandise Inventory 10,000
Cost of Merchandise Sold 7,590
Sales 7,590
B.Cash 10,000
Sales 10,000
Cost of Merchandise Sold 7,590
Merchandise Inventory 7,590
C.Cash 10,000
Sales 10,000
Cost of Merchandise Sold 10,000
Merchandise Inventory 10,000
D.Cash 7,590
Sales 7,590
Cost of Merchandise Sold 7,590
Merchandise Inventory 7,590
30) The amount of the total cash paid to the seller for merchandise purchased for
consumption would normally include
A.only the list price
B.only the sales tax
C.the list price plus the sales tax
D.the list price less the sales tax
31) Japan Company produces lamps that require 2.25 standard hours per unit at an
hourly rate of $15.00 per hour. If 7,700 units required 19,250 hours at an hourly rate of
$14.90 per hour, what is the direct labor (a) rate variance, (b) time variance, and (c) cost
variance?
32) The operating budgets of a company include:
A.the cash budget
B.the capital expenditures budget
C.the financing budget
D.the production budget
33) At the end of the fiscal year, the balance in Factory Overhead is small. This balance
would normally be:
A.transferred to Work in Process
B.transferred to Cost of Goods Sold
C.transferred to Finished Goods
D.allocated between Work in Process and Finished Goods
34) A company with working capital of $720,000 and a current ratio of 2.2 pays a
$125,000 short-term liability. The amount of working capital immediately after
payment is
A.$845,000
B.$595,000
C.$720,000
D.$125,000
35) Journalize the entries to correct the following errors:
36) If fixed costs are $500,000, the unit selling price is $55, and the unit variable costs
are $30, what is the break-even sales (units) if fixed costs are increased by $80,000?
A.10,545 units
B.19,333 units
C.23,200 units
D.25,000 units
37) If the expected sales volume for the current period is 9,000 units, the desired ending
inventory is 200 units, and the beginning inventory is 300 units, the number of units set
forth in the production budget, representing total production for the current period, is:
A.9,000
B.8,900
C.8,700
D.9,100
39) Carolwood Company manufactures widgets and uses process costing. The status of
their beginning and ending inventory is as follows:
Direct materials are added to the manufacturing process in stages. None are added when
production begins. Approximately 1/2 of the materials are added when the product is
25% complete. The other half is added when the product is 50% complete.
What percentage complete are Beginning Inventory and Ending Inventory with respect
to Direct materials(DM) and Conversion Costs(CC)?
A.Beg.Inventory DM-50% CC-30%
End.Inventory DM-100% CC-55%
B.Beg.Inventory DM-50% CC-30%
End.Inventory DM-55% CC-55%
C.Beg.Inventory DM-30% CC-30%
End.Inventory DM-55% CC-55%
40) Prarie Clinic purchased X-ray equipment for $7,500, paid $2,250 down, with the
remainder to be paid later. The correct entry would be
A.Equipment 2,250
Cash 2,250
B.Cash 2,250
Accounts Payable 5,250
Equipment 7,500
C.Equipment Expense 7,500
Accounts Payable 2,250
Cash 5,250
D.Equipment 7,500
Accounts Payable 5,250Cash 2,250
41) A company is contemplating investing in a new piece of manufacturing machinery.
The amount to be invested is $150,000. The present value of the future cash flows is
$143,000. Should the company invest in this project?
A.yes, because net present value is +$7,000
B.yes, because net present value is -$7,000
C.no, because net present value is +$7,000
D.no, because net present value is -$7,000
42) Ednas Chocolates had planned to sell chocolate-covered strawberries for $3.00
each. Due to various factors, the actual price was $2.75. Ednas was able to sell 1,000
more strawberries than the anticipated 4,000. What is (1) the quantity factor and (2) the
price factor for sales?
A.(1) $3,000, (2) $(1,250)
B.(1) $3,000, (2) $3,000
C.(1) $1,250, (2) $3,000
D.(1) $(4,000) (2) $(3,000)
43) Product costs
A.appear only on the balance sheet
B.appear only on the income statement
C.are expensed as costs are incurred for direct labor, direct material and factory
overhead
D.appear on both the income statement and balance sheet
44) If fixed costs are $500,000 and the unit contribution margin is $20, what is the
break-even point in units if fixed costs are reduced by $80,000?
A.25,000
B.29,000
C.4,000
D.21,000
45) Which of the following should not be considered cash by an accountant?
A.money orders
B.bank checking accounts
C.postage stamps
D.travelers’ checks
46) The Dayton Corporation began the current year with a retained earnings balance of
$32,000. During the year, the company corrected an error made in the prior year, which
was a failure to record depreciation expense of $3,000 on equipment. Also, during the
current year, the company earned net income of $12,000 and declared cash dividends of
$7,000. Compute the year end retained earnings balance.
A.$34,000
B.$37,000
C.$41,000
D.$44,000
47) On the first day of the fiscal year, Hawthorne Company obtained a $ 88,000,
seven-year, 5% installment note from Sea Side Bank. The note requires annual
payments of $15,208, with the first payment occurring on the last day of the fiscal year.
The first payment consists of interest of $4,400 and principal repayment of $10,808.
The journal entry Hawthorne would record to make the first annual payment due on the
note would include:
A.a debit to Cash of $15,208
B.a credit to Notes Payable for $10,808
C.a debit to Interest Expense for $4,400
D.a debit to Notes Payable for $15,208
48) Tennessee Corporation is analyzing a capital expenditure that will involve a cash
outlay of $109,332. Estimated cash flows are expected to be $36,000 annually for four
years. The present value factors for an annuity of $1 for 4 years at interest of 10%, 12%,
14%, and 15% are 3.170, 3.037, 2.914, and 2.855, respectively. The internal rate of
return for this investment is:
A.9%
B.10%
C.12%
D.3%
49) When a company uses the allowance method of accounting for uncollectible
receivables, the entry to reinstate a previously written off account would include:
A.A credit to Bad Debt Expense
B.A debit to Bad Debt Expense
C.A debit to Allowance for Doubtful Accounts
D.A credit to Allowance for Doubtful Accounts
50) Beginning work in process is equal to:
A.cost of goods manufactured plus ending work in process minus manufacturing costs
incurred during the current period
B.cost of goods manufactured minus ending work in process plus manufacturing costs
incurred during the current period
C.ending work in process plus manufacturing costs incurred during the current period
D.manufacturing costs incurred during the current period minus ending work in process
51) A company, using the periodic inventory system, has merchandise inventory costing
$175 on hand at the beginning of the period. During the period, merchandise costing
$635 is purchased. At year-end, merchandise inventory costing $160 is on hand. The
cost of merchandise sold for the year is
A.$970
B.$650
C.$300
D.$620
52) Closing entries
A.need not be journalized if adjusting entries are prepared
B.need not be posted if the financial statements are prepared from the work sheet
C.are not needed if adjusting entries are prepared
D.must be journalized and posted
53) On January 1, 2011, Citrus Retail Co. issued a $500,000, 5 year, 8% installment
note payable with payments of $100,000 principal plus interest due on January 1 of
each year for the next 5 years.
1> Prepare the adjusting journal entry at December 31, 2011 to accrue interest for the
year.
2> Show the account(s) and amount(s) and where it will appear on a multi-step income
statement prepared on December 31, 2011
3> Show the account(s) and amount(s) and where they will appear on a classified
balance sheet prepared on December 31, 2011
54) Journalize the following transactions for Dulcimer Inc. using both the periodic
inventory system and the perpetual inventory system, presented in a side-by-side format
shown at the end of this exercise.
Oct. 9 Merchandise sold on October 7 accepted back from Rondo Co. for full credit and
returned to merchandise inventory, $300; the cost of the merchandise was $180.
Nov. 5 Received payment in full of $900 from Pine Co. for sale of merchandise on Oct.
25.
55) Based upon the following data, determine the cost of merchandise sold for August.
56) Flanders Industries collects 35% of its sales on account in the month of the sale and
65% in the month following the sale. If sales on account are budgeted to be $175,000
for May and $225,000 for June, what are the budgeted cash receipts from sales on
account for June?
57) The chart of accounts classifies the accounts to make identification of the accounts
easier. Discuss how companies set up a chart of accounts for use in their business.
58) The Austin Land Company sold land for $85,000 in cash. The land was originally
purchased for $65,000. At the time of the sale, $40,000 was still owed to Regions Bank.
After the sale, The Austin Land Company paid off the loan. Explain the effect of the
sale and the payoff of the loan on the accounting equation.
59) Discuss the similarities and differences in reporting trading securities,
available-for-sale securities and held-to-maturity securities.