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1) The specific identification method of inventory costing
a.always maximizes a company's net income
b.always minimizes a company's net income
c.has no effect on a company's net income
d.may enable management to manipulate net income
2) The following totals for the month of June were taken from the payroll register of
Ford Company.
Salaries and wages$80,000
FICA taxes withheld6,132
Income taxes withheld17,600
Medical insurance deductions3,200
Federal unemployment taxes640
State unemployment taxes4,000
The entry to record the accrual of federal unemployment taxes would include a
a.credit to Federal Unemployment Taxes Payable for $640
b.credit to Federal Unemployment Taxes Expense for $640
c.credit to Payroll Tax Expense for $640
d.debit to Federal Unemployment Taxes Payable for $640
3) Which of the following is the correct matching concerning the appropriate
accounting for long-term stock investments?
% of Investor OwnershipAccounting Guidelines
a.Less than 20%Cost method
b.Between 20%50%Cost method
c.More than 50%Cost or equity method
d.Between 20%50%Consolidated financial statements
4) Two individuals at a retail store work the same cash register. You evaluate this
situation as
a.a violation of establishment of responsibility
b.a violation of segregation of duties
c.supporting the establishment of responsibility
d.supporting internal independent verification
5) Relevant accounting information
a.is information that has been audited
b.must be reported within the operating cycle or one year, whichever is longer
c.has been objectively determined
d.is information that is capable of making a difference in a business decision
6) The following information was available for Pete Company at December 31, 2014:
beginning inventory $90,000; ending inventory $70,000; cost of goods sold $984,000;
and sales $1,350,000. Petes inventory turnover in 2014 was
a.10.9 times
b.12.3 times
c.14.1 times
d.16.9 times
7) Rendezvous, Inc. has 10,000 shares of 5%, $100 par value, noncumulative preferred
stock and 20,000 shares of $1 par value common stock outstanding at December 31,
2014 . There were no dividends declared in 2013 . The board of directors declares and
pays a $110,000 dividend in 2014 . What is the amount of dividends received by the
common stockholders in 2014?
a.$0
b.$50,000
c.$110,000
d.$60,000
8) The production budget shows expected unit sales of 65,000. Beginning finished
goods units are 11,200. Required production units are 67,200. What are the desired
ending finished goods units?
a.9,000
b.11,200
c.12,800
d.13,400
9) A company maintains the asset account, Cash in Bank, on its books, while the bank
maintains a reciprocal account which is
a.a contra-asset account
b.a liability account
c.also an asset account
d.an owner's equity account
10) When determining the proceeds received when issuing a bond, the factor applied to
the amount of the bond principal is determined from the table for the
a.present value of 1
b.present value of annuity of 1
c.future value of 1
d.None of these answers are correct
11) Unearned Rent Revenue is
a.a contra account to Rent Revenue
b.a revenue account
c.reported as a current liability
d.debited when rent is received in advance
12) The following items are taken from the financial statements of the Postal Service
for the year ending December 31, 2014:
Accounts payable$ 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
Equipment210,000
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
The sub-classifications for assets on the companys classified balance sheet would
include all of the following except
a.Current Asset
b.Property, Plant, and Equipment
c.Intangible Assets
d.Long-term Assets
13) For each of the following items, indicate by using the appropriate code letter, how
the item should be reported in the statement of cash flows, using the direct method.
A.Added in determining cash receipts from customers
B.Deducted in determining cash receipts from customers
C.Added in determining cash payments to suppliers
D.Deducted in determining cash payments to suppliers
E.Cash outflowinvesting activity
F.Cash inflowinvesting activity
G.Cash outflowfinancing activity
H.Cash inflowfinancing activity
I.Significant noncash investing and financing activity
J.Is not shown
____1>Decrease in accounts payable during a period.
____2>Declaration and payment of a cash dividend.
____3>Decrease in accounts receivable during a period.
____4>Depreciation expense.
____5>Conversion of bonds payable into common stock.
____6>Decrease in merchandise inventory during a period.
____7>Sale of equipment for cash at book value.
____8>Issuance of preferred stock for cash.
____9>Purchase of land for cash.
____10>Loss on sale of a plant asset.
14) Which of the following statements about budget acceptance in an organization is
true?
a.The most widely accepted budget by the organization is the one prepared by top
management
b.The most widely accepted budget by the organization is the one prepared by the
department heads
c.Budgets are hardly ever accepted by anyone except top management
d.Budgets have a greater chance of acceptance if all levels of management have
provided input into the budgeting process
15) Moroni Industries has the following inventory information.
July1Beginning Inventory40 units at $120
5Purchases240 units at $112
14Sale160 units
21Purchases120 units at $115
30Sale140 units
Assuming that a periodic inventory system is used, what is the amount allocated to
ending inventory on a FIFO basis?
a.$11,500
b.$11,520
c.$33,960
d.$33,980
16) In the stockholders' equity section of the balance sheet,
a.Common Stock Dividends Distributable will be classified as part of additional paid-in
capital
b.Common Stock Dividends Distributable will appear in its own subsection of the
stock- holders' equity
c.Additional Paid-in Capital appears under the subsection Paid-in Capital
d.Dividends in arrears will appear as a restriction of Retained Earnings
17) With respect to the income statement,
a.contra-revenue accounts do not appear on the income statement
b.sales discounts increase the amount of sales
c.contra-revenue accounts increase the amount of operating expenses
d.sales discounts are included in the calculation of gross profit
18) Newell Company completed the following transactions in October:
Credit Sales Sales ReturnsDate of
Date Amount Terms Date AmountCollection
Oct.3$ 6002/10, n/30Oct.8
Oct.111,7003/10, n/30Oct. 14$ 400Oct.16
Oct.175,0001/10, n/30Oct. 201,000Oct.29
Oct.211,4002/10, n/60Oct. 23200Oct.27
Oct.232,3002/10, n/30Oct. 27400Oct.28
Instructions
(a)Indicate the cash received for each collection. Show your calculations.
(b)Prepare the journal entry for the
(1)Oct. 17 sale. The merchandise sold had a cost of $3,500.
(2)Oct. 23 sales return. The merchandise returned had a cost of $140.
(3)Oct. 28 collection.
Newell uses a perpetual inventory system.
19) If beginning inventory is understated by $13,000, the effect of this error in the
current period is
Cost of Goods SoldNet Income
a.UnderstatedUnderstated
b.OverstatedOverstated
c.UnderstatedOverstated
d.OverstatedUnderstated
20) When recording exchanges of assets that have commercial substance,
a.gains are treated as increases in the cost of the new asset
b.the gain or loss on the old asset is the difference between its cost and its fair market
value
c.both gains and losses are recognized immediately
d.losses are recorded as credits and gains are recorded as debits
21) The purpose of the sales budget report is to
a.control selling expenses
b.determine whether income objectives are being met
c.determine whether sales goals are being met
d.control sales commissions
22) Net income does not appear in the numerator of the
a.profit margin
b.return on assets
c.return on common stockholders' equity
d.payout ratio
23) The entry to record the payment of an interest-bearing note at maturity after all
interest expense has been recognized is
a.Notes Payable
Interest Payable
Cash
b.Notes Payable
Interest Expense
Cash
c.Notes Payable
Cash
d.Notes Payable
Cash
Interest Payable
24) On January 1 Jarret Corporation purchased a 35% equity in Dorman Corporation
for $220,000. At December 31 Dorman declared and paid a $60,000 cash dividend and
reported net income of $200,000.
Instructions
(a) Journalize the transactions.
(b) Determine the amount to be reported as an investment in Dorman stock at
December 31 .
25) For the basic accounting equation to stay in balance, each transaction recorded must
a.affect two or less accounts
b.affect two or more accounts
c.always affect exactly two accounts
d.affect the same number of asset and liability accounts
26) Beak Corporation sells 200 shares of common stock being held as an investment.
The shares were acquired six months ago at a cost of $25 a share. Beak sold the shares
for $40 a share. The entry to record the sale is
a.Cash5,000
Loss on Sale of Stock Investments 3,000
Stock Investments 8,000
b.Stock Investments 8,000
Cash 8,000
c.Cash8,000
Gain on Sale of Stock Investments 3,000
Stock Investments 5,000
d.Cash8,000
Stock Investments 8,000
27) A company is considering purchasing factory equipment that costs $320,000 and is
estimated to have no salvage value at the end of its 8-year useful life. If the equipment
is purchased, annual revenues are expected to be $90,000 and annual operating
expenses exclusive of depreciation expense are expected to be $40,000. The
straight-line method of depreciation would be used.
If the equipment is purchased, the annual rate of return expected on this equipment is
a.31.3%
b.6.25%
c.3.125%
d.15.6%
28) Sarah Jones's regular rate of pay is $30 per hour with one and one-half times her
regular rate for any hours which exceed 40 hours per week. She worked 48 hours last
week. Therefore, her gross wages were
a.$1,440
b.$1,200
c.$1,560
d.$2,160
29) Blitzen Corporation had net income of $200,000 and paid dividends to common
stockholders of $50,000 in 2014 . The weighted average number of shares outstanding
in 2014 was 40,000 shares. Blitzen Corporation's common stock is selling for $35 per
share on the New York Stock Exchange. Blitzen Corporation's price-earnings ratio is
a.5.6 times
b.7 times
c.5 times
d.9.3 times
30) Which of the following statements is incorrect?
a.A major consideration in developing an accounting system is cost effectiveness
b.When an accounting system is designed, no consideration needs to be given to the
needs and knowledge of the various users
c.The accounting system should be able to accommodate a variety of users and
changing information needs
d.To be useful, information must be understandable, relevant, reliable, timely, and
accurate
31) GAAP stands for
a.Generally Accepted Auditing Procedures
b.Generally Accepted Accounting Principles
c.Generally Accepted Auditing Principles
d.Generally Accepted Accounting Procedures
32) The balance sheet for Tyde Corporation at the end of the current year indicates the
following:
Bonds payable, 6% $4,000,000
5% Preferred stock, $100 par1,000,000
Common stock, $10 par2,000,000
Income before income taxes was $480,000 and income taxes expense for the current
year amounted to $144,000. Cash dividends paid on common stock were $300,000, and
the common stock was selling for $22.88 per share at the end of the year. There were no
ownership changes during the year.
Instructions
Determine each of the following:
(a)Times that bond interest was earned.
(b)Earnings per share for common stock.
(c)Price-earnings ratio.
33) Assuming that the direct materials used is $1,100,000, compute the total
manufacturing costs using the following information.
Raw materials inventory, January 1$ 20,000
Raw materials inventory, December 3140,000
Work in process, January 122,000
Work in process, December 3128,000
Finished goods, January 142,000
Finished goods, December 3130,000
Raw materials purchases1,200,000
Direct labor560,000
Factory utilities160,000
Indirect labor90,000
Factory depreciation400,000
Operating expenses420,000
a.$2,316,000
b.$2,310,000
c.$2,736,000
d.$2,730,000
34) If a business has received cash in advance of services performed and credits a
liability account, the adjusting entry needed after the services are performed will be
a.debit Unearned Service Revenue and credit Cash
b.debit Unearned Service Revenue and credit Service Revenue
c.debit Unearned Service Revenue and credit Prepaid Expense
d.debit Unearned Service Revenue and credit Accounts Receivable
35) Match the internal control principle below with the appropriate cash disbursements
procedure described.
a.Establishment of responsibility
b.Segregation of duties
c.Documentation procedures
d.Physical controls
e.Independent internal verification
f.Human resource controls
_____ 1>Compare checks to invoices.
_____ 2>Different individuals approve and make payments.
_____ 3>Print check amounts by machine with indelible ink.
_____ 4>Only designated personnel are authorized to sign checks.
_____ 5>Each check must have approved invoice.
_____ 6>Requiring employees to take vacations.
36) The selection of an appropriate inventory cost flow assumption for an individual
company is made by
a.the external auditors
b.the SEC
c.the internal auditors
d.management
37) Kellog Industries is a manufacturing company that makes various industrial
components out of aluminum. Kellog is located in a large city in the northeastern
United States. Various labor disputes have occurred in the city, some with acrimonious
public debate concerning the honesty of management. During one of Kellog's routine
employee meetings, Colin Ross, a production worker, brought up the issue of the cost of
a worker as reported in the company's annual report.
The cost was given as $32,000 per year. Colin points out that the average wage rate of
$12 per hour is at most around $25,000 in gross wages. He asks whether the company is
adding in overtime, because if so, the figures are misleading because the employees are
not allowed to work overtime.
Required:
Prepare a note explaining to Mr. Ross how Kellog might calculate a cost per employee
that is greater than gross wages. Explain in general terms only. Do not use any
calculations.
38) Barr & Eglin Co. reports net income of $42,000. The partnership agreement
provides for annual salaries of $24,000 for Barr and $18,000 for Eglin and interest
allowances of $4,000 to Barr and $6,000 to Eglin. Any remaining income or loss is to
be shared 70% by Barr and 30% by Eglin.
Instructions
Compute the amount of net income distributed to each partner.
39) Net income from operations is generally not the same as cash provided from
operations because revenues and expenses are recognized in the income statement on
the ______________ basis.
40) Which statement is true concerning the Freight-out account?
It is a contra account to Sales Revenue
It is added to Cost of Goods Sold
c.Its normal balance is a debit
d.It is recorded by the buyer when freight terms are FOB shipping point
41) The accounting records of Gerais Manufacturing Company include the following
information:
Dec. 31 Jan. 1
Work in process inventory$ 25,000$ 50,000
Finished goods inventory105,000120,000
Direct materials used340,000
Direct labor160,000
Selling expenses125,000
Manufacturing overhead is applied at a rate of 140% of direct labor cost.
Instructions
Answer the following questions:
1>What is the total of the debits to Work in Process Inventory during the year?
2>What is the amount transferred to Finished Goods Inventory during the year?
3>What is the cost of goods sold?
42) The process of entering an amount on the left side of an account is called
____________ the account, and making an entry on the right side is called
_________________ the account.
43) Rudd Company has budgeted sales revenue as follows for the next 4 months:
February$300,000
March240,000
April210,000
May330,000
Past experience indicates that 80% of sales each month are on credit and that collection
of credit sales occurs as follows: 60% in the month of sale, 35% in the month following
the sale, and 3% in the second month following the sale. The other 2% is uncollectible.
Instructions
Prepare a schedule which shows expected cash receipts from sales for the month of
May.
44) A note which is not paid on the maturity date is said to be ______________.
45) The budget should have the support of _________________ and should be an
important basis for _________________________ by comparing actual results to
expected results.
