1) Liabilities are increased with debits and decreased with credits.
2) If fixed costs are $450,000 and the unit contribution margin is $50, the sales
necessary to earn an operating income of $50,000 are 10,000 units.
3) If in evaluating a proposal by use of the net present value method there is a
deficiency of the present value of future cash inflows over the amount to be invested,
the proposal should be rejected.
4) The data required for determining the break-even point for a business are the total
estimated fixed costs for a period, stated as a percentage of net sales.
5) Unearned revenues that will be earned in a relatively short period of time are listed
on the balance sheet as current assets.
6) The product cost concept includes all manufacturing costs plus selling and
administrative expenses in the cost amount to which the markup is added to determine
product price.
7) The relationship of each asset item as a percent of total assets is an example of
vertical analysis.
8) When budget goals are set too tight, the budget becomes less effective as a tool for
planning and controlling operations.
9) Expenses use up assets or consume services in the process of generating revenues.
10) If the trial balance is in balance, it can be assumed that all journal entries were
posted correctly and no errors were made.
11) The point in operations at which revenues and expired costs are exactly equal is
called the break-even point.
12) The costs of materials and labor that do not enter directly into the finished product
are classified as factory overhead.
13) On August 1, Kim Company accepted a 90-day note receivable as payment for
services provided to Hsu Company. The terms of the note were $20,000 face value and
6% interest. On October 30, the journal entry to record the collection of the note should
include a
A.credit to Notes Receivable for $20,300
B.debit to Interest Receivable for $300
C.credit to Interest Revenue for $300
D.debit to Notes Receivable for $20,000
14) A corporation purchased 1,000 shares of its $5 par common stock at $10 and
subsequently sold 500 of the shares at $20. What is the amount of revenue realized from
the sale?
A.$0
B.$5,000
C.$2,500
D.$10,000
15) If fixed costs are $256,000, the unit selling price is $36, and the unit variable costs
are $20, what is the break-even sales (units)?
A.12,800 units
B. 4,571 units
C.16,000 units
D.7,111 units
16) Computer equipment was acquired at the beginning of the year at a cost of $63,000
that has an estimated residual value of $3,000 and an estimated useful life of 5 years.
Determine the (a) depreciable cost (b) double-declining-balance rate, and (c)
double-declining-balance depreciation for the first year.
17) On January 1, 2010, Cary Parsons established a catering service. Listed below are
accounts to use for transactions (a) through (f), each identified by a number. Following
this list are the transactions that occurred in Parsons first month of operation. You are to
indicate for each transaction the accounts that should be debited and credited by placing
the account number(s) in the appropriate box.
Transactions Account(s) Debited Account(s) Credited
a. Recorded jobs completed on account and sent invoices to customers.
b. Received an invoice for truck expenses to be paid in February.
c. Paid utilities expense
d. Received cash from customers on account.
e. Paid employee wages.
f. Withdrew cash for personal use.
18) Closing entries are dated in the journal as of
A.the date they are actually journalized, although they are generally prepared after the
end of the accounting period
B.the last day of the accounting period, although they are actually journalized after the
end of the accounting period
C.the first day of the accounting period, although they are actually journalized after the
end of the accounting period
D.the first day of the subsequent accounting period
19) Which method of evaluating capital investment proposals uses present value
concepts to compute the rate of return from the net cash flows expected from capital
investment proposals?
A.Internal rate of return
B.Cash payback
C.Net present value
D.Average rate of return
20) Nighthawk Inc. is considering disposing of a machine with a book value of $22,500
and an estimated remaining life of three years. The old machine can be sold for $6,250.
A new machine with a purchase price of $68,750 is being considered as a replacement.
It will have a useful life of three years and no residual value. It is estimated that the
annual variable manufacturing costs will be reduced from $43,750 to $20,000 if the
new machine is purchased. The net differential increase or decrease in cost for the entire
three years for the new equipment is:
A.$8,750 increase
B.$31,250 decrease
C.$8,750 decrease
D.$2,925 decrease
21) Barton and Fallows form a partnership by combining the assets of their separate
businesses. Barton contributes accounts receivable with a face amount of $50,000 and
equipment with a cost of $190,000 and accumulated depreciation of $100,000. The
partners agree that the equipment is to be priced at $85,000, that $3,500 of the accounts
receivable are completely worthless and are not to be accepted by the partnership, and
that $1,500 is a reasonable allowance for the uncollectibility of the remaining accounts
receivable. Fallows contributes cash of $28,500 and merchandise inventory of $55,500.
The partners agree that the merchandise inventory is to be priced at $60,000. Journalize
the entries to record in the partnership accounts (a) Bartons investment and (b) Fallows
investment.
22) An employee receives an hourly rate of $40, with time and a half for all hours
worked in excess of 40 during a week. Payroll data for the current week are as follows:
hours worked, 46; federal income tax withheld, $350; cumulative earnings for year
prior to current week, $99,700; social security tax rate, 6.0% on maximum of $100,000;
and Medicare tax rate, 1.5% on all earnings. What is the gross pay for the employee?
A.$775.00
B.$1,840.00
C.$1,960.00
D.$1,562.60
23) Planning for capital expenditures is necessary for all of the following reasons
except:
A.machinery and other fixed assets wear out
B.expansion may be necessary to meet increased demand
C.amounts spent for office equipment may be immaterial
D.fixed assets may fall below minimum standards of efficiency
24) The debits to Work in Process–Assembly Department for April, together with data
concerning production, are as follows:
All direct materials are placed in process at the beginning of the process and the
average cost method is used to cost inventories.
The conversion cost per equivalent unit (to the nearest cent) for April is:
A.$2.70
B.$2.53
C.$3.31
D.$5.60
25) Tara Companys budget includes the following credit sales for the current year:
September, $25,000; October, $36,000; November, $30,000; December, $32,000.
Experience has shown that payment for the credit sales is received as follows: 15% in
the month of sale, 60% in the first month after sale, 20% in the second month after sale,
and 5% is uncollectible. How much cash can Tara Company expect to collect in
November as a result of current and past credit sales?
A.$19,700
B.$28,400
C.$30,000
D.$31,100
26) The percentage analysis of increases and decreases in individual items in
comparative financial statements is called
A.vertical analysis
B.solvency analysis
C.profitability analysis
D.horizontal analysis
27) Which of the following is not a business transaction?
A.make a sales offer
B.sell goods for cash
C.receive cash for services to be rendered later
D.pay for supplies
28) If the cost of an item of inventory is $60 and the current replacement cost is $75,
the amount included in inventory according to the lower of cost or market is
A.$15
B.$60
C.$75
D.$135
29) Accumulated Depreciation
A.is used to show the amount of cost expiration of intangibles
B.is the same as Depreciation Expense
C.is a contra asset account
D.is used to show the amount of cost expiration of natural resources
30) Which of the following is not a reason standard costs are separated in two
components?
A.the price and quantity variances need to be identified separately to correct the actual
major differences
B.identifying variances determines which manager must find a solution to major
discrepancies
C.if a negative variance is over-shadowed by a favorable variance, managers may
overlook potential corrections
D.variances brings attention to discrepancies in the budget and requires managers to
revise budgets closer to actual
31) During June, the receipts and issuances of Material No. A2FO are as follows:
32) The remaining cash of a partnership (after creditors have been paid) upon
liquidation is divided among partners according to their
A.capital balances
B.contribution of assets
C.drawing balances
D.income sharing ratio
33) Sabas Company has 20,000 shares of $100 par, 2% cumulative preferred stock and
100,000 shares of $50 par common stock. The following amounts were distributed as
dividends:
Determine the dividends per share for preferred and common stock for the first year.
A.$0.50 and $0.10
B.$0.00 and $0.10
C.$0.50 and $0.00
D.$2.00 and $0.00
34) The payment for the monthly rent will require the following entry
A.Debit Cash and Debit Rent Expense
B.Credit Cash and Credit Rent Expense
C.Debit Rent Expense and Credit Cash
D.Credit Rent Expense and Debit Cash
35) Identify which section the statement of cash flows (using the indirect method)
would present information regarding the following activities: (Use O for operating, I for
investing, or F for financing):
a. Issued common stock
b. Redeemed bonds
c. Issued preferred stock
d. Purchased patents
e. Net income
f. Paid cash dividends
g. Purchased treasury stock
h. Sold long-term investment.
i. Sold equipment.
j. Purchased buildings
k. Issued bonds
36) Which of the following would most likely be a period cost?
A.Depreciation on factory lunchroom furniture
B.Salary of telephone receptionist in the sales office
C.Salary of a security guard for the factory parking lot
D.Computer chips used by a computer manufacturer
37) On January 2nd, Newsprint Manufacturing purchases 5 rolls of paper on account at
$125.00 per roll for use within the production process. On January 5th 4 rolls of this
paper are issued to Job 010507A in the Printing Department. The Printing Department
records $675.00 in direct labor and $1,150.00 of factory overhead to Job 010507A. On
January 8th Printing transfers Job 010507A to the Folding Department. The folding
department applies $450.00 in direct labor and $655.00 in factory overhead to Job
010507A. Job 010507A is transferred to Finished Goods Inventory on January 9th.
(a) Journalize the purchasing of the paper to Raw Materials Inventory.
(b) Journalize the transfer of raw materials to work in process, the application of direct
labor, and the application of manufacturing overhead to Job 010507A while in the
Printing Department.
(c) Journalize the transfer of Job 010507A to the Folding Department at actual cost.
(d) Journalize the application of direct labor, and the application of manufacturing
overhead to Job 010507A while in the Folding Department.
(e) Journalize the transfer of Job 010507A to Finished Goods Inventory at actual cost.
38) Allowance for Doubtful Accounts has a credit balance of $800 at the end of the year
(before adjustment), and an analysis of accounts in the customer ledger indicates the
estimated amount of uncollectible accounts should be $16,000. Based on the estimate
above, which of the following adjusting entries should be made?
A.debit Bad Debt Expense, $800; credit Allowance for Doubtful Accounts, $800
B.debit Bad Debt Expense, $15,200; credit Allowance for Doubtful Accounts, $15,200
C.debit Allowance for Doubtful Accounts, $800; credit Bad Debt Expense, $800
D.debit Bad Debt Expense, $16,800; credit Allowance for Doubtful Accounts, $16,800
39) Merritt Company acquired a building valued at $210,000 for property tax purposes
in exchange for 12,000 shares of its $5 par common stock. The stock is widely traded
and selling for $18 per share. At what amount should the building be recorded by
Merritt Company?
A.$60,000
B.$216,000
C.$210,000
D.$156,000
40) Carter Co. sells two products, Arks and Bins. Last year Carter sold 14,000 units of
Arks and 56,000 units of Bins. Related data are:
What was Carter Co.’s weighted average variable cost?
A.$140
B.$ 70
C.$ 64
D.$ 60
41) One reason that a common-size statement is a useful tool in financial analysis is that
it enables the user to
A.judge the relative potential of two companies of similar size in different industries
B.determine which companies in a single industry are of the same value
C.determine which companies in a single industry are of the same size
D.make a better comparison of two companies of different sizes in the same industry
42) Based on the following data for the current year, what is the inventory turnover?
A.2.7
B.9.7
C.2.5
D.3.0
43) Which of the following provisions of the Internal Revenue Code can be used to
reduce the amount of the income tax expense arising from capital investment projects?
A.Deductions for individuals
B.Depreciation deduction
C.Minimum tax provision
D.Charitable contributions
44) Using the letter preceding each account, arrange the following selected accounts in
the order they would normally appear in a chart of accounts of a company that uses a
multiple-step income statement.
(a) Accounts Payable
(b) Accounts Receivable
(c) Merchandise Inventory
(d) Miscellaneous Selling Expense
(e) Sales Discounts
(f) Interest Expense
(g) Income Summary
(h) Misc. Admin. Expense
(i) Freight Out
(j) Sales Returns and Allowances
45) Which one of the following below should be added to net income in calculating net
cash flow from operating activities using the indirect method?
A.a gain on the sale of land
B.a decrease in accounts payable
C.an increase in accrued liabilities
D.dividends paid on common stock
46) All leases are classified as either
A.capital leases or long-term leases
B.capital leases or operating leases
C.operating leases or current leases
D.long-term leases or current leases
47) The management of Dakota Corporation is considering the purchase of a new
machine costing $420,000. The company’s desired rate of return is 10%. The present
value factors for $1 at compound interest of 10% for 1 through 5 years are 0.909, 0.826,
0.751, 0.683, and 0.621, respectively. In addition to the foregoing information, use the
following data in determining the acceptability in this situation:
The present value index for this investment is:
A.1.08
B.1.45
C.1.14
D..70
48) Using the following information, prepare a bank reconciliation for Cole Co. for
May 31, 2011:
(a) The bank statement balance is $2,936.
(b) The cash account balance is $3,194.
(c) Outstanding checks amounted to $465.
(d) Deposits in transit are $655.
(e) The bank service charge is $50.
(f) A check for $97 for supplies was recorded as $79 in the ledger.
49) The dates of importance in connection with a cash dividend of $50,000 on a
corporations common stock are January 15, February 15, and March 15. Journalize the
entries required on each date.
50) Journalize the following transactions for the Evans Company. Assume the company
uses a perpetual inventory system.
51) Florida Keys Construction installs swimming pools. They calculate that warranty
obligations are 3% of gross sales. For the year just ending Florida Keys gross sales
were $1,450,000. Due to previous quarter recognitions, the Warranty Liability account
has a credit balance of $28,700. Determine the years total warranty liability and
journalize any necessary value to establish the years liability at December 31st.
Due to sales, $1,450,000, warranty liability is $43,500 ($1,450,000 3%). Since $28,700
has already been recognized, $14,800 (or $43,500 – $28,700) must still be recognized.
52) The Creative Division of the Barry Company reported the following results for
December 2012:
Invested Assets $1,200,000
Profit Margin 25%
Return on Investment 30%
Required: Based on this information, what were the sales?
53) The accountant for Flagger Company prepared the following list of account
balances from the companys records for the year ended December 31, 2011:
Prepare an Income Statement for Flagger Company in good form.
