1) Cost-volume-profit analysis can be used to predict the effects of reduced selling
prices, increased fixed costs, and reduced variable costs on break-even points.
2) When the current value of a partnership is greater than the recorded amounts of
equity, the current partners usually require any new partner to pay a bonus for the
privilege of joining.
3) To determine unit cost under a process cost accounting system, equivalent units
produced must be calculated if the company has goods in process inventories.
4) A cost center does not directly generate revenues.
5) Limited liability partnerships are designed to protect innocent partners from
malpractice or negligence claims resulting from the acts of another partner.
6) Hybrid systems contain aspects of both process and job order operations.
7) External auditors examine financial statements to verify that they are prepared
according to generally accepted accounting principles.
8) When the contract rate is above the market rate, a bond sells at a discount.
9) Departmental income statements are prepared for operating as well as service
departments.
10) On a spreadsheet used to prepare the operating activities section of the statement of
cash flows, depreciation expense does not require an entry in the Analysis of Changes
columns because it is a noncash item.
11) Since the revenue recognition principle requires that revenues be recorded when
earned, there are no unearned revenues in accrual accounting.
12) Horton Foods bakes and sells 1,000 dozen bagels each week to food service
operations. Among the costs are bakers’ salaries, $24,000; production management
salaries, $16,000; production equipment operating costs, $32,000; and flour and
ingredient costs, $15,000. Using this information, compute: (a) prime costs and (b)
conversion costs
13) Parris Corporation purchased 40% of Samitz Corporation for $100,000 on January
1. On November 17 of the same year, Samitz Corporation declared total cash dividends
of $12,000. At year-end, Samitz Corporation reported net income of $60,000. The
balance in the Parris Corporation’s Long-Term Investment-Samitz account at December
31 should be:
A.$80,800
B.$100,000
C.$95,200
D.$119,200
E.$124,000
14) All of the following statements regarding profit margin are true except:
A.Profit margin reflects the percent of profit in each dollar of revenue
B.Profit margin is also called return on sales
C.Profit margin can be used to compare a firm’s performance to its competitors
D.Profit margin is calculated by dividing net income by net sales
E.Profit margin is not a useful measure of a company’s operating results
15) Bonds that have an option exercisable by the issuer to retire them at a stated dollar
amount prior to maturity are known as:
A.Convertible bonds
B.Sinking fund bonds
C.Callable bonds
D.Serial bonds
E.Junk bonds
16) Book value per share is often used as a starting point for:
A.Stock valuation models
B.Merger negotiations
C.Price setting for public utilities
D.Loan contracts
E.All of these
17) The Sun Company completed the following sales and cash receipts transactions
during the first week of December. The Sun Company uses the perpetual inventory
system.
a. Use the sales journal and the cash receipts journal to record these transactions.
b. Prepare a schedule of accounts receivable. There was no accounts receivable balance
at December 1.
18) Capital budgeting decisions are generally based on:
A.Tentative predictions of future outcomes
B.Perfect predictions of future outcomes
C.Results from past outcomes only
D.Results from current outcomes only
E.Speculation of interest rates and economic performance only
19) Prepare general journal entries to record the following production activities for
Sherman Manufacturing.
a. Purchased $82,000 of raw materials on credit.
b. Used $63,500 of direct materials in production.
c. Used $12,800 of indirect materials.
20) Obligations not expected to be paid within the longer of one year or the company’s
operating cycle are reported as:
A.Current assets
B.Current liabilities
C.Long-term liabilities
D.Operating cycle liabilities
E.Bills
21) Groh and Jackson are partners. Groh’s capital balance in the partnership is $64,000,
and Jackson’s capital balance $61,000. Groh and Jackson have agreed to share equally
in income or loss. Groh and Jackson agree to accept Block with a 25% interest. Block
will invest $35,000 in the partnership. The bonus that is granted to Block equals:
A.$5,000
B.$2,500
C.$6,667
D.$3,333
E.$0, because Block must actually grant a bonus to Groh and Jackson
22) The amount due on the maturity date of a $6,000, 60-day 8%, note receivable is:
A.$6,000
B.$6,480
C.$5,520
D.$6,080
E.$5,920
23) The reporting of net cash provided or used by operating activities that lists the
major items of operating cash receipts, such as receipts from customers, and subtracts
the major items of operating cash disbursements, such as cash paid for merchandise, is
referred to as the:
A.Direct method of reporting net cash provided or used by operating activities
B.Cash basis of accounting
C.Classified statement of cash flows
D.Indirect method of reporting net cash provided or used by operating activities
E.Net method of reporting cash flows from operating activities
24) Yoho Company reported the following financial numbers for one of its divisions for
the year; average total assets of $5,800,000; sales of $5,375,000; cost of goods sold of
$3,225,000; and operating expenses of $1,147,000. Assume a target income of 15% of
average invested assets. Compute residual income for the division:
A.$150,450
B.$196,750
C.$150,500
D.$133,000
E.$100,300
25) Castine reports net income of $305,000 for the year ended December 31, Year 2. It
also reports $93,700 depreciation expense and a $10,000 loss on the sale of equipment.
Its comparative balance sheet reveals a $40,200 increase in accounts receivable, a
$10,200 decrease in prepaid expenses, a $15,200 increase in accounts payable, a
$12,500 decrease in wages payable, a $75,000 increase in equipment, and a $100,000
decrease in notes payable. Calculate the increase in cash for Year 2.
A.$216,400
B.$281,400
C.$381,400
D.$206,400
E.$406,400
26) On November 19, Hayes Company receives a $15,000, 60-day, 10% note from a
customer as payment on his account. What adjusting entry should be made on the
December 31 year-end?
A.Debit Interest Receivable $175; credit Interest Revenue $175
B.Debit Interest Receivable $250; credit Interest Revenue $250
C.Debit Interest Receivable $75; credit Interest Revenue $75
D.Debit Interest Revenue $175; credit Interest Receivable $175
E.Debit Interest Revenue $250; credit Interest Receivable $250
27) The usual budget period is:
A.An annual period of 250 working days
B.A monthly period separated into daily budgets
C.A quarterly period separated into weekly budgets
D.An annual period separated into weekly budgets
E.An annual period separated into quarterly and monthly budgets
28) For product costs associated with a particular product to be expensed on the income
statement:
A.The product must be transferred to Finished Goods Inventory
B.The product must still be in Goods In Process Inventory
C.The product must be sold
D.The product may be in any of the manufacturer’s inventory accounts
E.The company must expect to sell the product during the next twelve months
29)
Match the following terms with the appropriate definition.
1>Depreciation expense A. Items paid for in advance of receiving their benefits.
2>Accrued revenues B. Allocates equal amounts of an asset’s cost (less any salvage
value) to depreciation expense during its useful life.
3>Cash basis accounting C. A principle that assumes that an organization’s activities
can be divided into specific time periods such as months, quarters, or years.
4>Profit margin D. The principle that requires expenses to be reported in the same
period as the revenues that were earned as a result of the expenses.
5>Matching principle E. The accounting system that recognizes revenues when earned
and expenses when incurred.
6>Accrual basis accounting F. The expense created by allocating the cost of plant and
equipment to the periods in which they are used.
7>Time period principle G. Revenues earned in a period that are both unrecorded and
not yet received in cash or other assets.
8>Prepaid expenses H. The accounting system where revenues are recognized when
cash is received and expenses are recorded when cash is paid.
9>Straight-line depreciation I. Net income divided by net sales.
30) Short-term notes payable:
A.Can replace an account payable
B.Can be issued in return for money borrowed from a bank
C.Are negotiable
D.Are an unconditional promise to pay
E.All of these
31) Use the following information to determine the margin of safety in dollars:
A.$88,500
B.$108,500
C.$173,600
D.$326,400
E.$500,000
32) Austin Company uses a job order cost accounting system. The company’s
executives estimated that direct labor would be $2,000,000 (200,000 hours at $10/hour)
and that factory overhead would be $1,500,000 for the current period. At the end of the
period, the records show that there had been 180,000 hours of direct labor and
$1,200,000 of actual overhead costs. Using direct labor hours as a base, what was the
predetermined overhead allocation rate?
A.$6.00 per direct labor hour
B.$7.50 per direct labor hour
C.$6.67 per direct labor hour
D.$8.33 per direct labor hour
E.$7.08 per direct labor hour
33) Seamark buys $300,000 of Eider’s 8% five-year bonds payable at par value. Interest
payments are made semiannually. All of the following regarding accounting for the
securities are True except:
A.The debt securities should be recorded at the cost $300,000
B.The securities will have a maturity value of $300,000
C.The semiannual interest payment amount is $12,000
D.The semiannual interest payment amount is $24,000
E.Interest Revenue should be credited when an interest payment is received
34) Which of the following accounts would be closed with a debit?
A.Sales Discounts.
B.Sales Returns and Allowances.
C.Cost of Goods Sold.
D.Operating Expenses.
E.Sales.
35) A company has 20 employees who each earn $500 per week for a 5-day week that
begins on Monday. December 31 of Year 1 is a Monday, and all 20 employees worked
that day.
a) Prepare the required adjusting journal entry to record accrued salaries on December
31, Year 1.
b) Prepare the journal entry to record the payment of salaries on January 4, Year 2.
36) Evaluation of company performance can include comparison and/or assessment of:
A.Past performance
B.Current performance
C.Current financial position
D.Future performance and risk
E.All of these
37) Three of the most common tools of financial analysis are:
A.Financial reporting, ratio analysis, vertical analysis
B.Ratio analysis, horizontal analysis, financial reporting
C.Horizontal analysis, vertical analysis, ratio analysis
D.Trend analysis, financial reporting, ratio analysis
E.Vertical analysis, political analysis, horizontal analysis
38) A company’s transactions with its creditors to borrow money and/or to repay the
principal amounts of both short- and long-term debt are reported as cash flows from:
A.Operating activities
B.Investing activities
C.Financing activities
D.Direct activities
E.Indirect activities
39) Comparative calendar-year financial data for a company are shown below.
Calculate the following ratios for the company for 2012:
(a) accounts receivable turnover
(b) day’s sales uncollected
(c) inventory turnover
(d) days’ sales in inventory
40) Held-to-maturity securities are:
A.Always classified as Long-Term Liabilities
B.Always classified as Long-Term Investments
C.Debt securities that a company intends and is able to hold to maturity
D.Equity securities that a company intends and is able to hold to maturity
E.Equity securities that have a maturity value greater than cost
41) The purchase of long-term assets by issuing a note payable for the entire amount is
reported on the statement of cash flows in the:
A.Operating activities
B.Financing activities
C.Investing activities
D.Schedule of noncash financing and investing activities
E.Reconciliation of cash balance
42) The __________________ inventory system continually updates accounting
records for merchandise transactions for the amounts of inventory available for sale and
inventory sold.
43) The first step in accounting for production activity in a period, ______________, is
a reconciliation of the physical units started in a period with the physical units
completed in that period.
44) Explain how transactions (both sales and purchases) in a foreign currency are
recorded and reported.
45) Accounting is an ______________________ that identifies, records and
communicates relevant, reliable and comparable information about an organization’s
economic activities.
46) On December 31, the year end, a company forgot to record $7,000 of depreciation
on office equipment. In the current year financial statements, what is the effect of this
error on assets, net income, and equity?
47) ______________ activities involve using resources to research, develop, purchase,
produce, distribute, and market products and services.
48) A company’s job order cost accounting system applies overhead based on direct
labor cost. The company’s estimated production costs for were: direct labor, $57,600;
direct materials, $76,800; and factory overhead, $9,600. Calculate the company’s
overhead allocation rate.
49) The stockholders’ equity section of a corporation’s balance sheet follows:
(1) Assuming that the preferred stock is not callable and no dividends are in arrears,
compute the book values per preferred share and per common share.
Book value per preferred share ____________________ Book value per common share
____________________ (2) Assuming that the preferred stock has a call price of $30
per share and one year of cumulative preferred dividends is in arrears, compute the
book values per preferred share and per common share
Book value per preferred share ____________________ Book value per common share
____________________
50) The __________________ principle requires that an accounting information system
report useful, understandable, timely, and pertinent information for effective decision
making.
51) All Star Sports receives $48,000,000 cash in advance ticket sales for 12 home
games. Record the advance ticket sales on April 30. Record the revenue earned for the
first home game played on August 14
