1) A graphic depiction of the break-even point is known as a cost-volume-profit (CVP)
chart.
2) Callable bonds reduce the bondholder’s risk by requiring the issuer to create a
sinking fund of assets set aside at specified amounts and dates to repay the bonds at
maturity.
3) A contra account is an account linked with another account; it is added to that
account to show the proper amount for the item recorded in the associated account.
4) Long-term investments can include land held for future expansion.
5) The retail inventory method estimates the cost of ending inventory by applying the
gross profit ratio to net sales.
6) Companies follow both the matching principle and the materiality constraint when
applying the direct write-off method.
7) The double-declining balance method is applied by (1) computing the asset’s
straight-line depreciation rate, (2) doubling it, (3) subtracting salvage value from cost,
and (4) multiplying the rate times the net value.
8) The conservatism constraint requires that when more than one estimate of the
amounts to be received or paid in the future exists and these estimates are about equally
likely, then the less optimistic amount is used.
9) An income statement reports the revenues earned less expenses incurred by a
business over a period of time.
10) In process cost accounting, the classification of materials as direct or indirect
depends on whether they are clearly linked with a specific process.
11) A premium on common stock:
A.Is the amount paid in excess of par by purchasers of newly issued stock
B.Is the difference between par value and issue price when the amount paid is below
par
C.Represents profit from issuing stock
D.Represents capital gain on sale of stock
E.Is prohibited in most states
12) All of the following are True regarding prepaid expenses except:
A.They are paid for in advance of receiving their benefits
B.They are assets
C.When they are used, their costs become expenses
D.The adjusting entry for prepaid expenses increases expenses and increases liabilities
E.The adjusting entry for prepaid expenses increases expenses and decreases assets
13) A check involves three parties:
A.The writer, the cashier, and the bank
B.The maker, the payee, and the bank
C.The maker, the manager, and the payee
D.The bookkeeper, the payee, and the bank
E.The signer, the cashier, and the company
14) A company’s old machine that cost $40,000 and had accumulated depreciation of
$30,000 was traded in on a new machine having an estimated 20-year life with an
invoice price of $50,000. The company also paid $43,000 cash, along with its old
machine to acquire the new machine. If this transaction has commercial substance, the
new machine should be recorded at:
A.$40,000
B.$47,000
C.$50,000
D.$53,000
E.$10,000
15) Factory overhead costs normally include all of the following except:
A.Indirect labor costs
B.Indirect material costs
C.Selling costs
D.Machinery oil
E.Factory rent
16) The closing process is necessary in order to:
A.calculate net income or net loss for an accounting period
B.ensure that all permanent accounts are closed to zero at the end of each accounting
period
C.ensure that the company complies with state laws
D.ensure that net income or net loss and owner withdrawals for the period are closed
into the owner’s capital account
E.ensure that management is aware of how well the company is operating
17) Canoe Company uses a job order cost accounting system and allocates its overhead
on the basis of direct labor costs. Canoe Company’s production costs for the year were:
direct labor, $30,000; direct materials, $50,000; and factory overhead applied $6,000.
The overhead application rate was:
A.5.0%
B.12.0%
C.20.0%
D.500.0%
E.16.7%
18) Berkley Co.’s sales are 10% for cash and 90% on credit. Credit sales are collected
as follows: 30% in the month of sale, 50% in the next month, and 20% in the following
month. On December 31, the accounts receivable balance includes $12,000 from
November sales and $42,000 from December sales. Assume that total sales for January
and February are budgeted to be $50,000 and $100,000, respectively. What are the
expected cash receipts for February from current and past sales?
A.$80,500
B.$71,500
C.$34,500
D.$61,500
E.$59,500
19) A company that uses the net method of recording invoices made a purchase of $400
with terms of 2/10, n/30. The entry to record the purchase would include:
A.A debit to Merchandise Inventory for $392
B.A credit to Discounts Lost for $8
C.A credit to Cash for $392
D.A debit to Discounts Lost for $8
E.A debit to Cash for $392
20) Which of the following statements is true?
A.Owner’s capital must be closed each accounting period
B.A post-closing trial balance should include only permanent accounts
C.Information on the work sheet can be used in place of preparing financial statements
D.By using a work sheet to prepare adjusting entries you need not post these entries to
the ledger accounts
E.Closing entries are only necessary if errors have been made
21) An organizational unit of a factory that has the responsibility for partially
manufacturing or producing a product is called a:
A.Production department
B.Service department
C.Primary department
D.Responsibility department
E.Control department
22) Chase and Hatch are partners and share equally in income or loss. Chase’s current
capital balance is $135,000 and Hatch’s is $120,000. Chase and Hatch agree to accept
Flax with a 30% interest in the partnership. Flax invests $115,000 in the partnership.
The balances in Chase’s and Hatch’s capital accounts after admission of the new partner
equal:
A.Chase $135,000; Hatch $120,000
B.Chase $137,000; Hatch $122,000
C.Chase $133,000; Hatch $118,000
D.Chase $139,000; Hatch $120,000
E.Chase $135,000; Hatch $124,000
23) After-tax net income divided by the annual average investment in an investment, is
the:
A.Net present value rate
B.Payback rate
C.Accounting rate of return
D.Earnings from investment
E.Profit rate
24) Retained earnings:
A.Generally consists of a company’s cumulative net income less any net losses and
dividends declared since its inception
B.Can only be appropriated by setting aside a cash fund
C.Represent an amount of cash available to pay shareholders
D.Are never adjusted for anything other than net income or dividends
E.All of these
25) The following company information is available. The direct materials quantity
variance is:
A.$10,000 unfavorable
B.$13,200 unfavorable
C.$9,600 unfavorable
D.$10,000 favorable
E.$13,200 favorable
26) If a period-end inventory amount is reported in error, it can cause a misstatement in
all of the following except:
A.Cost of goods sold
B.Gross profit
C.Net sales
D.Current assets
E.Net income
27) The accounting principle that requires financial statements (including notes) to
report all relevant information about the operations and financial condition of a
company is called:
A.Relevance
B.Full disclosure
C.Evaluation
D.Materiality
E.Matching
28) On January 1, a company issues bonds dated January 1 with a par value of
$400,000. The bonds mature in 5 years. The contract rate is 7%, and interest is paid
semiannually on June 30 and December 31. The market rate is 8% and the bonds are
sold for $383,793. The journal entry to record the first interest payment using
straight-line amortization is:
A.Debit Interest Payable $14,000.00; credit Cash $14,000.00
B.Debit Interest Expense $14,000.00; credit Cash $14,000.00
C.Debit Interest Expense $15,620.70; credit Discount on Bonds Payable $1,620.70;
credit Cash $14,000.00
D.Debit Interest Expense $12,379.30; debit Discount on Bonds Payable $1,620.70;
credit Cash $14,000.00
E.Debit Interest Expense $15,620.70; credit Premium on Bonds Payable $1,620.70;
credit Cash $14,000.00
29) Plant assets include:
A.Land
B.Land improvements
C.Buildings
D.Machinery and equipment
E.All of these
30) Accounts payable:
A.Are amounts owed to suppliers for products and/or services purchased on credit
B.Are long-term liabilities
C.Are estimated liabilities
D.Do not include specific due dates
E.Must be paid within 30 days
31) Prepare journal entries to record the following production activities for Sherman
Manufacturing.
a. Incurred overhead costs of $79,000 (paid in cash).
b. Applied overhead at 110% of direct labor costs which are $93,900.
c. Transferred completed products with a cost of $258,200 to finished goods inventory.
d. Sold $602,000 of product on credit. Cost is $271,000.
32) The time expected to pass before the net cash flows from an investment would
return its initial cost is called the:
A.Amortization period
B.Payback period
C.Interest period
D.Budgeting period
E.Discounted cash flow period
33) A balance sheet that places the liabilities and equity to the right of the assets is a(n):
A.Account form balance sheet
B.Report form balance sheet
C.Interim balance sheet
D.Classified balance sheet
E.Unclassified balance sheet
34) Darby uses the allowance method to account for uncollectible accounts. Its year-end
unadjusted trial balance shows Accounts Receivable of $104,500, allowance for
doubtful accounts of $665 (credit) and sales of $925,000. If uncollectible accounts are
estimated to be .5% of sales, what is the amount of the bad debts expense adjusting
entry?
A.$4,625
B.$3,960
C.$5,290
D.$4,750
E.$4,825
35) A cost incurred in producing or purchasing two or more products at the same time is
a(n):
A.Product cost
B.Incremental cost
C.Differential cost
D.Joint cost
E.Fixed cost
36) A firm sells two products, A and B. For every unit of A the firm sells, two units of B
are sold. The firm’s total fixed costs are $1,612,000. Selling prices and cost information
for both products follow. The contribution margin per composite unit is:
A.$12
B.$20
C.$32
D.$44
E.$52
37) Parker Plumbing has received a special one-time order for 1,500 faucets (units) at
$5 per unit. Parker currently produces and sells 7,500 units at $6.00 each. This level
represents 75% of its capacity. Production costs for these units are $4.50 per unit, which
includes $3.00 variable cost and $1.50 fixed cost. To produce the special order, a new
machine needs to be purchased at a cost of $1,000 with a zero salvage value.
Management expects no other changes in costs as a result of the additional production.
If Parker wishes to earn $1,250 on the special order, the size of the order would need to
be:
A.4,500 units
B.2,250 units
C.1,125 units
D.625 units
E.300 units
38) On January 1, Year 1, Merrill Company borrowed $100,000 on a 10-year, 7%
installment note payable. The terms of the note require Merrill to pay 10 equal
payments of $14,238 each December 31 for 10 years. The required general journal
entry to record the first payment on the note on December 31, Year 1 is:
A.Debit Interest Expense $7,000; debit Notes Payable $7,238; credit Cash $14,238
B.Debit Notes Payable $7,000; debit Interest Expense $7,238; credit Cash $14,238
C.Debit Notes Payable $10,000; debit Interest Expense $7,000; credit Cash $17,000
D.Debit Notes Payable $14,238; credit Cash $14,238
E.Debit Notes Payable $10,000; debit Interest Expense $4,238; credit Cash $14,238
39) The Discount on Common Stock account reflects:
A.The difference between the par value of stock and its issue price when it is issued at a
price below par value
B.One share’s portion of the issued corporation’s net assets recorded in its accounts
C.The difference between the par value of the stock and the amount paid-in by
stockholders when the amount paid-in is more than par value
D.An amount of assets defined by state law that stockholders must invest and leave
invested in a corporation
E.The amount a corporation must pay in addition to dividends in arrears if and when it
exercises its right to retire a share of callable preferred stock
40) A CVP graph presents data on:
A.Profit and loss on a per unit basis
B.Profit, loss, and break-even on a total dollar basis
C.Profit, loss, and break-even on a per unit basis
D.Only profit and loss on a total basis
E.Profit and loss on a budget and actual basis
41) Allocations of joint product costs can be based on the relative sales values of the
products:
A.And never on the relative physical quantities of the products
B.Plus an adjustment for future excess margins
C.And not on any other basis
D.At the ‘split-off point”
E.Only if the products contain both direct and indirect costs
42) The following information is available on a depreciable asset owned by First Bank
& Trust:
The asset’s book value is $70,000 on October 1, Year 3. On that date, management
determines that the asset’s salvage value should be $5,000 rather than the original
estimate of $10,000. Based on this information, the amount of depreciation expense the
company should recognize during the last three months of Year 3 would be:
A.$2,187.50
B.$1,718.75
C.$2,031.25
D.$2,321.43
E.$1,964.29
43) Investments can be classified as:
A.Trading securities
B.Held-to-maturity debt securities
C.Available-for-sale debt securities
D.Available-for-sale equity securities
E.All of these
44) On a bank reconciliation, an unrecorded debit memorandum for printing checks is:
A.Noted as a memorandum only
B.Added to the book balance of cash
C.Deducted from the book balance of cash
D.Added to the bank balance of cash
E.Deducted from the bank balance of cash
45) A classified balance sheet differs from an unclassified balance sheet in that
A.an unclassified balance sheet is never used by large companies
B.a classified balance sheet normally includes only three subgroups
C.a classified balance sheet presents information in a manner that makes it easier to
calculate a company’s current ratio
D.a classified balance sheet will include more accounts than an unclassified balance
sheet for the same company on the same date
E.a classified balance sheet cannot be provided to outside parties
46) The life of a partnership is ____________________ in duration.
47) Describe the types of entries required in later periods that result from accruals.
48) What distinguishes liabilities from equity?
49) How are unfavorable variances recorded? How are favorable variances recorded?
50) Use the following calendar-year information to prepare David Company’s statement
of cash flows using the direct method.
51) ______________ are amounts owed to suppliers for products or services purchased
on credit.
52) Stock that has been issued and is held by stockholders is
_________________________ stock.
53) _____________________ refers to the insufficient capacity of a company’s plant
asset to meet the company’s productive demands.