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1) If an investor owns less than 20% of the common stock of another corporation as a
long-term investment,
a.the equity method of accounting for the investment should be employed
b.no dividends can be expected
c.it is presumed that the investor has relatively little influence on the investee
d.it is presumed that the investor has significant influence on the investee
2) Current liabilities
a.are obligations that the company is to pay within the forthcoming year
b.are listed in the balance sheet in order of their expected maturity
c.are listed in the balance sheet, starting with accounts payable
d.should not include long-term debt that is expected to be paid within the next year
3) The company whose stock is owned by the parent company is called the
a.controlled company
b.subsidiary company
c.investee company
d.sibling company
4) In a service-type business, revenue is recognized:
a.when the service is performed
b.at the end of the year
c.at the end of the month
d.when cash is received
5) Which of the following is not a basic principle of designing and developing an
effective accounting information system?
a.Approval by the SEC
b.Usefulness
c.Flexibility
d.Cost effectiveness
6) An exception to disbursements being made by check is acceptable when cash is paid
a.to an owner
b.to employees as wages
c.from petty cash
d.to employees as loans
7) Cost-volume-profit analysis includes all of the following assumptions except
a.the behavior of costs is curvilinear throughout the relevant range
b.costs can be classified accurately as either variable or fixed
c.changes in activity are the only factors that affect costs
d.all units produced are sold
8) Bright Eyes Downtown Diner received a bill of $600 from the Jronand Wine
Advertising Agency. The owner, A. A. Bondy, is postponing payment of the bill until a
later date. The effect on specific items in the basic accounting equation is
a.a decrease in Cash and an increase in Accounts Payable
b.a decrease in Cash and an increase in Owners Capital
c.an increase in Accounts Payable and a decrease in Owners Capital
d.a decrease in Accounts Payable and an increase in Owners Capital
9) The primary benefits of budgeting include all of the following except it
a.requires only top management to plan ahead and formalize their future goals
b.provides definite objectives for evaluating performance
c.creates an early warning system for potential problems
d.motivates personnel throughout the organization
10) Crown Companys contribution margin is $8 per unit for Product A and $5 for
Product B. Product A requires 2 machine hours and Product B requires 4 machine
hours. How much is the contribution margin per unit of limited resource for each
product?
A B
a.$8.00$5.00
b.$4.00$1.25
c.$1.25$2.00
d.$2.50$2.00
11) H. Hunter Company's records indicate the following information for the year:
Merchandise inventory, 1/1$ 550,000
Purchases2,250,000
Net sales3,200,000
On December 31, a physical inventory determined that ending inventory of $500,000
was in the warehouse. H. Hunter's gross profit on sales has remained constant at 30%.
H. Hunter suspects some of the inventory may have been taken by some new
employees. At December 31, what is the estimated cost of missing inventory?
a.$60,000
b.$100,000
c.$150,000
d.$1,340,000
12) A change in the estimated useful life of equipment requires
a.a retroactive change in the amount of periodic depreciation recognized in previous
years
b.that no change be made in the periodic depreciation so that depreciation amounts are
comparable over the life of the asset
c.that the amount of periodic depreciation be changed in the current year and in future
years
d.that income for the current year be increased
13) The partners' income and loss sharing ratio is 2:3:5, respectively.
CHENARD, JENNINGS, AND BLAIR PARTNERSHIP
Balance Sheet
December 31, 2014
AssetsLiabilities and Owners' Equity
Cash$ 45,000Liabilities$150,000
Noncash assets285,000CHENARD, Capital60,000
JENNINGS, Capital90,000
BLAIR, Capital 30,000
Total$330,000Total$330,000
If the CHENARD, JENNINGS, and BLAIR Partnership is liquidated and the noncash
assets are worthless, the creditors will look to what partner's personal assets for
settlement of the creditors' claims?
a.The personal assets of Partner JENNINGS
b.The personal assets of Partners CHENARD and BLAIR
c.The personal assets of Partners CHENARD, JENNINGS, and BLAIR
d.The personal assets of the partners are not available for partnership debts
14) Lewis Company manufactures a single product. Annual production costs incurred in
the manufacturing process are shown below for the production of 2,000 units. The
Utilities and Maintenance are mixed costs. The fixed portions of these costs are $300
and $200, respectively.
Costs Incurred
Production in Units 2,0004,000
Production Costs
a.Direct Materials$ 4,000?
b.Direct Labor18,000?
c.Utilities1,000?
d.Rent3,000?
e.Indirect Labor4,200?
f.Supervisory Salaries1,500?
g.Maintenance900?
h.Depreciation2,500?
Instructions
Calculate the expected costs to be incurred when production is 4,000 units. Use your
knowledge of cost behavior to determine which of the other costs are fixed or variable.
15) Lanbong Manufacturing has recently tried to improve its analysis for its
manufacturing process. Units started into production equaled 6,000 and ending work in
process equaled 400 units. Long had no beginning work in process inventory.
Conversion costs are applied equally throughout production, and materials are applied
at the beginning of the process. How much is the materials cost per unit if ending work
in process was 25% complete and total materials costs equaled $25,260?
a.$4.00
b.$4.21
c.$4.14
d.$3.95
16) A measure of the percentage of each dollar of sales that results in net income is
a.profit margin
b.return on assets
c.return on common stockholders' equity
d.earnings per share
17) Ando, Dadd, and Porter formed a partnership on January 1, 2014 . Ando invested
$60,000, Dadd $60,000 and Porter $140,000. Ando will manage the store and work 40
hours per week in the store. Dadd will work 20 hours per week in the store, and Porter
will not work. Each partner withdrew 40 percent of his income distribution during 2014
. If there was no income distribution to a partner, there were no withdrawals of cash.
Instructions
Compute the partners' capital balances at the end of 2014 under the following
independent conditions: (Hint: Use T accounts to determine each partner's capital
balances.)
(1)Net income is $120,000 and the income ratio is Ando 40%, Dadd 35%, and Porter
25%.
(2)Net income is $125,000 and the partnership agreement only specifies a salary of
$50,000 to Ando and $30,000 to Dadd.
(3)Net income is $76,000 and the partnership agreement provides for (a) a salary of
$40,000 to Ando and $40,000 to Dadd, (b) interest on beginning capital balances at the
rate of 10%, and (c) any remaining income or loss is to be shared by Ando 40%, Dadd
35%, and Porter 25%.
18) Which of the following reflects the balances of prepayment accounts prior to
adjustment?
a.Balance sheet accounts are understated and income statement accounts are
understated
b.Balance sheet accounts are overstated and income statement accounts are overstated
c.Balance sheet accounts are overstated and income statement accounts are understated
d.Balance sheet accounts are understated and income statement accounts are overstated
19) The following information pertains to Rural Company. Assume that all balance
sheet amounts represent both average and ending balance figures. Assume that all sales
were on credit.
Assets
Cash and short-term investments$ 40,500
Accounts receivable (net)30,000
Inventory27,000
Property, plant and equipment 215,000
Total Assets$312,500
Liabilities and Stockholders Equity
Current liabilities$ 60,000
Long-term liabilities75,000
Stockholders equitycommon 177,500
Total Liabilities and Stockholders Equity$312,500
Income Statement
Sales$ 90,000
Cost of goods sold 40,000
Gross profit50,000
Operating expenses 25,000
Net income$ 25,000
Number of shares of common stock5,000
Market price of common stock$22
Dividends per share1.00
What is the return on assets for Rural?
a.16%
b.9.7%
c.8%
d.16%
20) Analysis of financial statements is enhanced with the use of comparative data.
21) The amortization period for a patent cannot exceed
a.50 years
b.40 years
c.20 years
d.10 years
22) Which of the following would not be needed to determine net cash provided by
operating activities?
a.Depreciation expense
b.Change in accounts receivable
c.Payment of cash dividends
d.Change in prepaid expenses
23) Which one of the following is shown on a multiple-step but not on a single-step
income statement?
a.Net sales
b.Net income
c.Gross profit
d.Cost of goods sold
24) The liquidation of a partnership may result from each of the following except the
a.bankruptcy of the partnership
b.death of a partner
c.retirement of a partner
d.sale of the business by the partners
25) In the Palm Company, indirect labor is budgeted for $108,000 and factory
supervision is budgeted for $36,000 at normal capacity of 160,000 direct labor hours. If
180,000 direct labor hours are worked, flexible budget total for these costs is:
a.$144,000
b.$162,000
c.$157,500
d.$148,500
26) The following information was taken from the annual manufacturing overhead cost
budget of Moen Company.
Variable manufacturing overhead costs$69,300
Fixed manufacturing overhead costs$41,580
Normal production level in labor hours23,100
Normal production level in units5,775
Standard labor hours per unit4
During the year, 5,500 units were produced, 18,340 hours were worked, and the actual
manufacturing overhead was $113,400. Actual fixed manufacturing overhead costs
equaled budgeted fixed manufacturing overhead costs. Overhead is applied on the basis
of direct labor hours. Moens controllable overhead variance is
a.$1,980 U
b.$5,820 U
c.$7,800 U
d.$16,500 U
27) Which of the following is considered a difference between a job order cost and a
process cost system?
a.The manufacturing cost elements
b.Documents used to track costs
c.The accumulation of the costs of materials, labor, and overhead
d.The flow of costs
28) At March 31, Johnson Company has the following bank information: cash balance
per bank $3,150; outstanding checks $185; deposits in transit $360; credit memo for
interest $25; bank service charge $30. What is Johnsons adjusted cash balance on
March 31?
a.$3,350
b.$3,335
c.$2,990
d.$3,325
29) Which is true of budgets?
a.They are voted on and approved by stockholders
b.They are used in the planning, but not in the control, process
c.There is a standard form and structure for budgets
d.They are used in performance evaluation
30) Mast General Store has total receipts for the month of $45,990 including sales
taxes. If the sales tax rate is 5%, what are Mast's sales for the month?
a.$43,691
b.$43,800
c.$48,290
d.It cannot be determined
31) Reserves include each of the following except
a.other comprehensive income items
b.revaluation surplus
c.share premium
d.unrealized gains on available-for-sale securities
32) You are the accountant for a small manufacturing firm. Your company is privately
held, so there is no current requirement to issue financial statements using GAAP. You
were hired four years ago, and at that time you instituted a cash budgeting system.
Presently, you present a schedule of predicted cash sources and cash needs at the end of
each week for the following week.
Jim Bangon, the company's president, has asked whether a statement of cash flows
would also be useful.
Required:
Prepare a short memorandum to the president indicating whether you believe such an
addition to the financial statements to be useful. Include in your memo the benefits that
might be expected from a statement of cash flows and whether those are different from
the benefits of a cash sources and cash needs listing.
33) Boyd Inc. manufactures and sells a nutrition drink for children. It wants to develop
a standard cost per gallon. The following are required for production of a 100 gallon
batch:
1,960 ounces of lime Kool-Drink at $.14 per ounce
40 pounds of granulated sugar at $.60 per pound
63 kiwi fruit at $.50 each
100 protein tablets at $.90 each
4,000 ounces of water at $.004 per ounce
Bloyd estimates that 2% of the lime Kool-Drink is wasted, 20% of the sugar is lost, and
10% of the kiwis cannot be used.
Instructions
Compute the standard cost of the ingredients for one gallon of the nutrition drink.
34) The process of transferring the information in the journal to the general ledger is
called posting. Explain the posting process, including the importance of the journal
page number and the account numbers.
35) Foley Word Processing Service uses the straight-line method of depreciation. The
company's fiscal year end is December 31 . The following transactions and events
occurred during the first three years.
2013July1Purchased a computer from the Computer Center for $1,900 cash plus sales
tax of $150, and shipping costs of $50.
Nov.3Incurred ordinary repairs on computer of $140.
Dec.31Recorded 2013 depreciation on the basis of a four year life and estimated
salvage value of $500.
2014Dec.31Recorded 2013 depreciation.
2015Jan.1Paid $300 for an upgrade of the computer. This expenditure is expected to
increase the operating efficiency and capacity of the computer.
Instructions
Prepare the necessary entries. (Show computations.)
36) Customer purchases using credit cards are a significant source of revenue for many
retailers. From the standpoint of a retailer, briefly discuss some advantages and
disadvantages of a retail store having its own credit card as opposed to accepting one of
the national credit cards (e.g., Visa, MasterCard).
37) On July 1, 2014, Damlen Jurado Company pays $12,000 to its insurance company
for a 2-year insurance policy.
Instructions
Prepare the necessary journal entries for Damlen Jurado on July 1 and December 31 .
38) L. Phair and Associates is a financial planning service. The account balances at
December 31, 2014 are shown by the following alphabetical list:
Accounts Payable$ 5,000
Accounts Receivable19,000
Buildings140,000
Cash11,700
Equipment31,300
Land42,000
Owners Capital152,900
Notes Payable95,000
Notes Receivable8,100
Supplies800
Instructions
Prepare a trial balance with the accounts arranged in financial statement order.
39) Prepare the necessary closing entries based on the following selected accounts.
Accumulated Depreciation $10,000
Depreciation Expense4,000
Owners Capital20,000
Owners Drawings12,000
Salaries and Wages Expense18,000
Service Revenue31,000
40) If disposal of a plant asset occurs at any time during the year,
___________________ for the fraction of the year to the date of disposal must be
recorded.
41) At August 31, Coffman Company has this bank information: cash balance per bank
$6,450; outstanding checks $2,762; deposits in transit $1,700; and a bank service
charge $20. Determine the adjusted cash balance per bank at August 31, 2012 .
