1) An extraordinary loss of $300,000 that results in income tax savings of $90,000
should be reported as an extraordinary loss (net of tax) of $210,000 on the income
statement.
2) The price of a bond is equal to the sum of the interest payments and the face amount
of the bonds.
3) In most business organizations, the chief accountant is called the controller.
4) In contribution margin analysis, the effect of a difference in the number of units sold,
assuming no change in unit sales price or cost, is termed the quantity factor.
5) Trading securities are reported on the balance sheet at cost.
6) The desired selling price for a product will be the same under both variable and total
cost.
7) The budgeted direct materials purchases is based on the sum of (1) the materials
needed for production and (2) the desired ending materials inventory, less (3) the
estimated beginning materials inventory.
8) A process cost accounting system is best used by manufacturers of like units of
product that are not distinguishable from each other during a continuous production
process.
9) In a merchandise business, sales minus operating expenses equals net income.
10) Standard costs should always be revised when they differ from actual costs.
11) In a just-in-time (JIT) environment, process problems are less visible than they are
in a traditional environment.
12) If payment is due by the end of the month in which the sale is made, the invoice
terms are expressed as n/30.
13) Non-financial accounting information is used more often for long-term operating
decisions than is financial information.
14) When common stock is issued in exchange for land, the land should be recorded in
the accounts at the par amount of the stock issued.
15) For proper matching of revenues and expenses, the estimated cost of fringe benefits
must be recognized as an expense of the period during which the employee earns the
benefits.
16) Conversion costs consist of product costs and period costs.
17) The ratio of the sum of cash, receivables, and marketable securities to current
liabilities is referred to as the current ratio.
18) Premium on bonds payable may be amortized by the straight-line method if the
results obtained by its use do not materially differ from the results obtained by use of
the interest method.
19) In a perpetual inventory system, the Merchandise Inventory account is only used to
reflect the beginning inventory.
20) The primary difference between a static budget and a flexible budget is that a static
budget
A.is suitable in volatile demand situation while flexible budget is suitable in a stable
demand situation
B.is concerned only with future acquisitions of fixed assets, whereas a flexible budget is
concerned with expenses that vary with sales
C.includes only fixed costs, whereas a flexible budget includes only variable costs
D.is a plan for a single level of production, whereas a flexible budget can be converted
to any level of production
21) Under the equity method, the receipt of cash dividends on an investment in
common stock of Vallerio Corporation is accounted for as a debit to Cash and a credit to
A.Investment in Vallerio
B.Retained Earnings
C.Dividend Revenue
D.Dividend Receivables
22) How is treasury stock shown on the balance sheet?
A.as an asset
B.as a decrease in stockholders’ equity
C.as an increase in stockholders’ equity
D.treasury stock is not shown on the balance sheet
23) When a transposition error is made on the trial balance, the difference between the
debit and credit totals on the trial balance will be
A.zero
B.twice the amount of the transposition
C.one-half the amount of the transposition
D.divisible by 9
24) The primary goal of managerial accounting is to provide information to:
A.investors
B.creditors
C.management
D.external auditors
25) A restriction/appropriation of retained earnings
A.decreases total assets
B.increases total retained earnings
C.decreases total retained earnings
D.has no effect on total retained earnings
26) Under variable costing, which of the following costs would be included in finished
goods inventory?
A.neither variable nor fixed factory overhead cost
B.both variable and fixed factory overhead cost
C.only variable factory overhead cost
D.only fixed factory overhead cost
27) If sales are $525,000, variable costs are 53% of sales, and operating income is
$50,000, what is the contribution margin ratio?
A.47%
B.26.5%
C.9.5%
D.53%
28) Favorable volume variances may be harmful when:
A.machine repairs cause work stoppages
B.supervisors fail to maintain an even flow of work
C.production in excess of normal capacity cannot be sold
D.all of the above
29) Match each of the following terms with the phrase that most closely describes it.
Each answer may be used only once.
1>Serves as the basis for recording materials used. A. Cost of Services
2>Subsidiary ledger for Work in Process. B. Job cost sheets
3>Serves as the basis for recording direct labor on a job cost sheet. C. Time tickets
4>Service providers use this account similarly to the cost of merchandise sold account
used by merchandisers. D. Receiving report
5>Prepared when materials that have been ordered are received and inspected. E.
Material requisition
30) Which one of the steps below is not aided by the preparation of the work sheet?
A.preparing the adjusted trial balance
B.posting to the general ledger
C.preparing the financial statements
D.preparing the closing entries
31) A business is considering a cash outlay of $250,000 for the purchase of land, which
it could lease for $35,000 per year. If alternative investments are available which yield
an 18% return, the opportunity cost of the purchase of the land is:
A.$35,000
B.$45,000
C.$10,000
D.$6,300
32) Treasury stock that had been purchased for $5,600 last month was reissued this
month for $8,500. The journal entry to record the reissuance would include a credit to
A.Treasury Stock for $8,500
B.Paid-In Capital from Treasury Stock for $8,500
C.Paid-In Capital in Excess of Par/Common for $2,900
D.Paid-In Capital from Treasury Stock for $2,900
33) In a cost center, the manager has responsibility and authority for making decisions
that affect:
A.revenues
B.assets
C.both costs and revenues
D.costs
34) Most businesses in the United States are
A.proprietorships
B.partnerships
C.corporations
D.limited liability companies
35) Which of the following measures a companys ability to pay its current liabilities?
A.earnings per share
B.inventory turnover
C.current ratio
D.number of times interest charges earned
36) If fixed costs are $46,800, the unit selling price is $42, and the unit variable costs
are $24, what is the break-even sales (units)?
A.2,400
B.1,950
C.1,114
D.2,600
37) Data for Divisions A, B, C, D, and E are as follows:
(a) Determine the missing items, identifying each by number.
(b) Which division is most profitable in terms of income from operations?
(c) Which division is most profitable in terms of rate of return on investment?
Round percentage values to one decimal point.
38) Several transactions are listed below, with the accounting equation stated to the
right side of each. Use the following identification codes to indicate the effects of each
transaction on the accounting equation. Write your answers in the space provided under
the accounting equation. You need an identification code for each element of the
accounting equation. An example is given before the first transaction.
Stockholders
Assets = Liabilities + Equity
Example John Smith invests in a new business by purchasing $3,500 of capital stock. I
NE I
A) Cash sales are made.
B) Equipment is purchased on credit.
C) Payment is made for the equipment purchased on credit in (B).
D) The company sold excess supplies to another company on credit.
E) Cash is collected from customers for accounts receivable balances.
39) XYZ Co. incurred the following costs related to the office building used in
operating its sports supply company:
a. Replaced a broken window.
b. Replaced the roof that had been on the building 23 years.
c. Serviced all the air conditioners before summer started.
d. Replaced the air conditioners with refrigerated air conditioners in the customer
service areas.
e. Added a warehouse to the back of the building.
f. Repainted the interior walls.
g. Installed window shutters on all windows.
Classify each of the costs as a capital expenditure or a revenue expenditure. For those
costs identified as capital expenditures, classify each as an additional or replacement
component.
40) Zither Co. manufactures a product called Zens in a three-process series. All
materials are introduced at the beginning of the first process. Zither uses the first-in,
first-out method of inventory costing. Unit and cost data for the first process
(Department A) for the month of October 2012 follow:
Prepare Zither’s Department A cost of production report for October.
41) Responsibility accounting reports for profit centers will include
A.costs
B.revenues
C.expenses and fixed assets
D.revenues, expenses, net income or loss from operations
42) The payment for the monthly rent will require which of the following entries?
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
43) Simpson Designers began operations on April 1, 2011. The financial statements for
Simpson Designers are shown below for the month ended April 30, 2011 (the first
month of operations). Determine the missing amounts for letters (a) through (o).
Simpson DesignersIncome StatementFor the Month Ended April 30, 2011
Fees earned $27,000
Operating expenses:
Wages expense $5,250
Rent expense (a)
Supplies expense 4,600
Utilities expense 400
Miscellaneous expense 1,250
Total operating expenses (b)
Net income $(c)
Place your answers in the space provided below. Hint: Use the interrelationships among
the financial statements to solve this problem.
(a) ___________
(b) ___________
(c) ___________
(d) ___________
(e) ___________
(f) ___________
(g) ___________
(h) ___________
(i) ___________
(j) ___________
(k) ___________
(l) ___________
(m) ___________
(n) ___________
(o) ___________
(p) ___________
44) Tough Hardware purchases raw materials and processes those purchases through a
receiving/inspection process prior to stocking for production. Tough places 3 purchase
orders for materials for production and receives the goods that day. The first PO is for
2,500 1/2 96 milling blanks at $2.75 each. The second is for 4,000 pieces of 48 96 1
sheet steel at $15.55 each. The third PO is for five 55 gallon drums of Milling
Lubrication Oil at $475.00 per barrel.
The receiving/inspection process is completed and the goods are transferred from
Receiving Inventory to Raw Materials. The Receiving/Inspection Department assigns
manufacturing overhead of $55.00 per purchase order as well as $2.75 per piece on
metal goods and $35.00 per container on fluids. All labor is allocated through overhead.
(a) Write the journal entry to purchase and receive these items to Receiving Inventory
on account.
(b) Assign overhead to the metal goods.
(c) Assign overhead to the fluid goods.
(d) Transfer all goods to Raw Materials Inventory.
45) Match each of the following terms with the appropriate definition below.
1>Early payment discount offered to customers by the seller. A. Purchases
2>Account where returned merchandise or price adjustments are recorded by the seller.
B. Merchandise Inventory
3>Expense account for recording shipping costs paid by the seller. C. Sales Discounts
4>Discounts off the list price offered by wholesalers. D. Delivery Expense
5>Account used to record merchandise purchased under a periodic inventory system. E.
Trade Discount
6>Account where returned merchandise or price adjustments are recorded by the buyer
under the periodic inventory system. F. Purchase Returns and Allowances
7>Account used to record merchandise purchased under a perpetual inventory system.
G. Freight In
8>Account used to record shipping cost of merchandise by the buyer under a periodic
inventory system. H. Sales Returns and Allowances
46) Research Company sells merchandise with a one year warranty. In 2012, sales
consisted of 2,500 units. It is estimated that warranty repairs will average $10 per unit
sold, and 30% of the repairs will be made in 2012 and 70% in 2013. In the 2012 income
statement, Research should show warranty expense of
A.$25,000
B.$7,500
C.$17,500
D.$0
47) Which of the following would not lend itself to applying direct labor variances?
A.Help desk
B.Research and development scientist
C.Customer service personnel
D.Telemarketer
48) One of the main disadvantages of the corporate form is the
A.professional management
B.double taxation of dividends
C.charter
D.corporation must issue stock
49) If the revenues are correctly reported and the Gross Profit of a company is
understated, what is the effect on Owners Equity?
A.Understated
B.Overstated
C.Correctly Stated
D.None of the above
50) Sinking Fund Income is reported in the income statement as
A.income from operations
B.extraordinary
C.gain on sinking fund transactions
D.other income
51) A credit may signify a
A.decrease in assets
B.decrease in liabilities
C.decrease in retained earnings
D.decrease in revenue
52) Which of the following would not be included with the Cash and Equivalents on the
Balance Sheet?
A.Commercial Paper
B.Short-Term Receivables
C.Certificates of Deposit
D.Money Market Mutual Funds
53) Flyer Company sells a product in a competitive marketplace. Market analysis
indicates that their product would probably sell at $48 per unit. Flyer management
desires a 12.5% profit margin on sales. Their current full cost per unit for the product is
$44 per unit.
What is the target cost of the companys product?
A.$44
B.$42
C.$43
D.$40
54) Multiple-step income statements show
A.gross profit but not income from operations
B.neither gross profit nor income from operations
C.both gross profit and income from operations
D.income from operations but not gross profit
55) Bob and Sons’ static budget for 10,000 units of production includes $50,000 for
direct materials, $44,000 for direct labor, variable utilities of $5,000, and supervisor
salaries of $25,000. A flexible budget for 12,000 units of production would show:
A.the same cost structure in total
B.direct materials of $60,000, direct labor of $52,800, utilities of $6,000, and supervisor
salaries of $30,000
C.total variable costs of $148,000
D.direct materials of $60,000, direct labor of $52,800, utilities of $6,000, and
supervisor salaries of $25,000
56) Lockrite Security Company manufacturers home alarms. Currently it is
manufacturing one of its components at a total cost of $45 which includes fixed costs of
$15 per unit. An outside provider of this component has offered to sell them the
component for $40. Provide a differential analysis of the outside purchase proposal.
57) Journalize the following transactions using the direct write-off method of
accounting for uncollectible receivables:
Feb 20 Received $1,000 from Andrew Warren and wrote off the remainder owed of
$4,000 as uncollectible.
May 10 Reinstated the account of Andrew Warren and received $4,000 cash in full
payment.
58) The Finishing Department of Pinnacle Manufacturing Co. prepared the following
factory overhead cost budget for October of the current year, during which it expected
to operate at a 100% capacity of 10,000 machine hours:
During October, the plant was operated for 9,000 machine hours and the factory
overhead costs incurred were as follows: indirect factory wages, $16,400; power and
light, $10,000; indirect materials, $3,000; supervisory salaries, $12,000; depreciation of
plant and equipment, $8,800; insurance and property taxes, $3,200.
Prepare a factory overhead cost variance report for October. (The budgeted amounts for
actual amount produced should be based on 9,000 machine hours.)
59) On June 30, 2011, Arlington Company issued $1,500,000 of 10-year, 8% bonds,
dated June 30, for $1,540,000. Present entries to record the following transactions:
60) Carmen Flores weekly gross earnings for the week ending Dec. 7th were $2,500,
and her federal income tax withholding was $525. Prior to this week Flores had earned
$98,000 for the year. Assuming the social security rate is 6% on the first $100,000 of
annual earnings and Medicare is 1.5% of all earnings, what is Flores net pay?
61) An 6-year project is estimated to cost $350,000 and have no residual value. If the
straight-line depreciation method is used and the average rate of return is 12%,
determine the estimated annual net income.
Estimated Average Annual Income = $X = 12%
Average Investment ($350,000 + $0)/2
$X = .12($175,000)
62) Using the following table, what is the present value of $25,000 to be received 5
years, if the market rate is 7% compounded annually?
63) Robin Company purchased and used 520 pounds of direct materials to produce a
product with a 510 pound standard direct materials requirement. The standard materials
price is $2.10 per pound. The actual materials price was $2.00 per pound. Prepare the
journal entries to record (1) the purchase of the materials and (2) the material entering
production. Robin records standards and variances in the general ledger.
64) A company reports the following:
Determine the number of times interest charges are earned. Round your answer to one
decimal place.