1) In the liquidation of a partnership, any gain or loss on the realization of noncash
assets should be allocated
a.first to creditors and the remainder to partners
b.to the partners on the basis of their capital balances
c.to the partners on the basis of their income ratios
d.only after all creditors have been paid
2) If a company has adopted continuous budgeting, the budget will show plans for
a.every day
b.a full year ahead
c.the current year and the next year
d.at least five years
3) Prior to the distribution of cash to the partners, the accounts of ABC Company are:
Cash $35,000, Acock, Capital (Dr.) $5,000, Buster, Capital (Cr.) $25,000, and Cutter,
Capital (Cr.) $15,000. They share income on a 5:3:2 basis.
Instructions
Prepare entries to record (a) the absorption of Acocks capital deficiency by the other
partners and (b) the distribution of cash to the partners with credit balances.
4) Magneto Company had net credit sales during the year of $1,350,000 and cost of
goods sold of $810,000. The balance in accounts receivable at the beginning of the year
was $180,000, and the end of the year it was $120,000. What was the accounts
receivable turnover?
a.5.6
b.7.5
c.9.0
d.11.3
5) A lawyer collected $710 of legal fees in advance. He erroneously debited Cash for
$170 and credited Accounts Receivable for $170. The correcting entry is
a.Cash170
Accounts Receivable540
Unearned Service Revenue710
b.Cash710
Service Revenue710
c.Cash540
Accounts Receivable170
Unearned Service Revenue710
d.Cash540
Accounts Receivable540
6) Which of the following is a constraint in accounting?
a.Comparability
b.Cost
c.Consistency
d.Relevance
7) In a period of inflation, the cost flow method that results in the lowest income taxes
is the
a.FIFO method
b.LIFO method
c.average-cost method
d.gross profit method
8) The principles of developing an accounting information system do not include
a.usefulness
b.flexibility
c.cost effectiveness
d.elimination of human involvement
9) On August 1, Masters Company buys 2,000 shares of ABD common stock for
$72,500 cash. On December 1, the stock investments are sold for $75,000 in cash.
Which of the following are the correct journal entries to record for the purchase and
sale of the common stock?
a.Aug. 1Cash 72,500
Stock Investments 72,500
Dec. 1Cash 75,000
Stock Investments 72,500
Gain on Sale of Stock Investments2,500
b.Aug. 1Stock Investments 72,500
Cash 72,500
Dec. 1Cash 75,000
Stock Investments 72,500
Gain on Sale of Stock Investments2,500
c.Aug. 1Stock Investments 72,500
Cash 72,500
Dec. 1Stock Investments 75,000
Cash 72,500
Gain on Sale of Stock Investments2,500
d.Aug. 1Cash 72,500
Stock Investments 72,500
Dec. 1Stock Investments 75,000
Cash 72,500
Gain on Sale of Stock Investments2,500
10) Sky Company is unable to reconcile the bank balance at January 31 . Skys
reconciliation is as follows.
Cash balance per bank$5,300
Add: NSF check1,570
Less: Bank service charge 35
Adjusted balance per bank$6,835
Cash balance per books$5,705
Less: Deposits in transit750
Add: Outstanding checks 1,950
Adjusted balance per books$6,905
Instructions
(a)Prepare a correct bank reconciliation.
(b)Journalize the entries required by the reconciliation.
11) Which of the following is not an underlying assumption of CVP analysis?
a.Changes in activity are the only factors that affect costs
b.Cost classifications are reasonably accurate
c.Beginning inventory is larger than ending inventory
d.Sales mix is constant
12) Assume the following sales data for a company:
2014$1,050,000
2013950,000
2012800,000
2011650,000
If 2011 is the base year, what is the percentage increase in sales from 2011 to 2013?
a.100%
b.61.5%
c.46.2%
d.68.4%
13) Which responsibility centers generate both revenues and costs?
a.Investment and profit centers
b.Profit and cost centers
c.Cost and investment centers
d.Only profit centers
14) If a company’s required minimum rate of return is 9%, and in using the net present
value method, a project’s net present value is zero, this indicates that the
a.project’s rate of return exceeds 9%
b.project’s rate of return is less than the minimum rate required
c.project earns a rate of return of 9%
d.project earns a rate of return of 0%
15) Wainwright Stores accepts both its own and national credit cards. During the year
the following selected summary transactions occurred.
Jan. 15Made Wainwright credit card sales totaling $24,000. (There were no balances
prior to January 15)
20Made Visa credit card sales (service charge fee 2%) totaling $7,000.
Feb. 10Collected $14,000 on Wainwright credit card sales.
15Added finance charges of 1% to Wainwright credit card balance.
Instructions
(a)Journalize the transactions for Wainwright Stores.
(b)Indicate the statement presentation of the financing charges and the credit card
service charge expense for Wainwright Stores.
16) The following information was taken from the annual manufacturing overhead cost
budget of Moen Company.
Variable manufacturing overhead costs$69,300
Fixed manufacturing overhead costs$41,580
Normal production level in labor hours23,100
Normal production level in units5,775
Standard labor hours per unit4
During the year, 5,500 units were produced, 18,340 hours were worked, and the actual
manufacturing overhead was $113,400. Actual fixed manufacturing overhead costs
equaled budgeted fixed manufacturing overhead costs. Overhead is applied on the basis
of direct labor hours. Moens total overhead variance is
a.$7,800 U
b.$5,900 U
c.$1,980 U
d.$16,500 U
17) Which of the following payroll taxes are usually filed and remitted annually?
a.Federal unemployment taxes
b.FICA taxes
c.State unemployment taxes
d.Federal and state unemployment taxes
18) An overly optimistic sales budget may result in
a.increases in selling prices late in the year
b.insufficient inventories
c.increased sales during the year
d.excessive inventories
19) The income statement using IFRS is called the statement of
a.profit and loss
b.financial position
c.earnings
d.comprehensive income
20) Which one of the following represents the expanded basic accounting equation?
a.Assets = Liabilities + Owner’s Capital + Owner’s Drawings Revenue Expenses
b.Assets + Owner’s Drawings + Expenses = Liabilities + Owner’s Capital + Revenues
c.Assets Liabilities Owner’s Drawings = Owner’s Capital + Revenues Expenses
d.Assets = Revenues + Expenses Liabilities
21) The following information is for Sunny Day Real Estate:
Sunny Day Real Estate
Balance Sheet
December 31, 2014
Cash$ 25,000Accounts Payable$ 60,000
Prepaid Insurance30,000Salaries and Wages Payable15,000
Accounts Receivable50,000Mortgage Payable 85,000
Inventory70,000Total Liabilities160,000
Land Held for Investment85,000
Land120,000
Building$100,000
Less AccumulatedOwners Capital 370,000
Depreciation(20,000)80,000
Trademark 70,000Total Liabilities and
Total Assets$530,000Owners Equity$530,000
The total dollar amount of assets to be classified as property, plant, and equipment is
a.$200,000
b.$220,000
c.$285,000
d.$305,000
22) Which of the following is not a control account?
a.Raw Materials Inventory
b.Factory Labor
c.Manufacturing Overhead
d.All of these are control accounts
23) A bonus to a new partner will
a.increase the capital balances of existing partners based on their income ratios before
the admission of the new partner
b.increase the capital balances of existing partners based on their income ratios after the
admission of the new partner
c.decrease the capital balances of existing partners based on their income ratios before
the admission of the new partner
d.decrease the capital balances of existing partners based on their capital balances
before the admission of the new partner
24) Sargent Corporation bought equipment on January 1, 2014 . The equipment cost
$360,000 and had an expected salvage value of $60,000. The life of the equipment was
estimated to be 6 years. Assuming straight-line deprecation, the book value of the
equipment at the beginning of the third year would be
a.$360,000
b.$150,000
c.$260,000
d.$100,000
25) Which one of the following would not cause a bank to debit a depositor’s account?
a.Bank service charge
b.Collection of a note receivable
c.Wiring of funds to other locations
d.Checks marked NSF
26) Related selling activities do not include
a.ordering the merchandise
b.making a sale
c.shipping the goods
d.billing the customer
27) Noble Company applies overhead on the basis of machine hours. Given the
following data, compute overhead applied and the under- or overapplication of
overhead for the period:
Estimated annual overhead cost$2,500,000
Actual annual overhead cost$2,360,000
Estimated machine hours500,000
Actual machine hours480,000
a.$2,400,000 applied and $40,000 overapplied
b.$2,500,000 applied and $40,000 overapplied
c.$2,400,000 applied and $40,000 underapplied
d.$2,500,000 applied and neither under- nor overapplied
28) Presented below are two independent situations.
1>Guo Cosmetics acquired 10% of the 200,000 shares of common stock of Chy
Fashion at a total cost of $12 per share on March 18, 2014 . On June 30, Chy declared
and paid a $50,000 dividend. On December 31, Chy reported net income of $110,000
for the year. At December 31, the market price of Chy Fashion was $15 per share. The
stock is classified as available-for-sale.
2>Liptin, Inc., obtained significant influence over Blurr Corporation by buying 25% of
Blurr 50,000 outstanding shares of common stock at a total cost of $7 per share on
January 1, 2014 . On June 15, Blurr declared and paid a cash dividend of $40,000. On
December 31, Blurr reported a net income of $90,000 for the year.
Instructions
Prepare all the necessary journal entries for 2014 for (a) Guo Cosmetics and (b) Liptin,
Inc.
29) When computing earnings per share,
a.an adjustment related to preferred stock dividends is made in the numerator and
denominator of the earnings per share formula
b.an adjustment for the preferred dividends is made in the denominator of the earnings
per share formula
c.the dividends for cumulative preferred stock are deducted from net income only if the
preferred dividends have been declared
d.the dividends for cumulative preferred stock are deducted from net income whether or
not preferred dividends have been declared
30) By January 31 following the end of a calendar year, an employer is required to
provide each employee with a(n)
a.state unemployment tax form
b.federal unemployment tax form 940
c.wage and tax statement form W-2
d.employee’s withholding allowance certificate form W-4
31) For two years, Ryan Elkins has been the manager of the production department of a
company manufacturing toys made of plastic-coated cardboard. One of the toys is a
paper doll, whose “clothes” are made of acetate, and stay on the doll with static
electricity. The company’s sales were mainly to large educational institutions until last
year, when the dolls were sold for the first time to a large discount retailer. The dolls
were sold out immediately, and enough orders were received to keep the department at
full capacity for the immediate future.
The fixed costs for the department are $50,000, with $1.50 per unit variable costs. A
paper doll and one set of clothes sell for $3. The maximum volume is 80,000 units.
With the increased volume, Mr. Elkins is considering two options to improve
profitability. One would reduce variable costs to $1.25, and the other would reduce
fixed costs to $25,000.
Required:
Given the fact that sales are increasing, make a short (one paragraph) recommendation
to Mr. Elkins about which option he should choose. Support your recommendation with
a calculation showing him how profitability will change with each option.
32) On July 6, Crevasse Corporation issued 2,000 shares of its $1.50 par common
stock. The market price of the stock on that date was $18 per share. Journalize the
issuance of the stock.
33) In February, gross earnings in Napoli Company totaled $75,000. All earnings are
subject to 7.65% FICA taxes, 5.4% state unemployment taxes, and 0.8% federal
unemployment taxes. Prepare the entry to record February payroll tax expense.
34) Reinsdorf Company uses both special journals and a general journal. The company
accountant made the following errors during July.
1>Incorrectly added the credit entries in a customer’s account in the accounts receivable
subsidiary ledger. The total was listed as $2,690; it should have been $2,890.
2>A remittance of $500 from Harold Baines was correctly recorded in the cash receipts
journal, but the amount was posted incorrectly to the account of customer Henry
Balinco in the subsidiary ledger.
3>A purchase of merchandise on account from Manny Company for $2,000 was
incorrectly entered in the purchases journal at $20,000.
4>In the sales journal, the entries were incorrectly added for the month. The monthly
total was listed as $24,920; it should have been $24,290.
Instructions
Indicate how each of the above errors might be discovered.
35) The return on ________________ shows how many dollars of net income were
earned for each dollar invested by owners.
36) Earnings per share is reported only for ________________.
37) On February 1, Westwood Corporation issued 5,000 shares of its $20 par value
preferred stock for $26 per share.
Instructions
Journalize the transaction.
38) Return on investment is calculated by dividing _________________________ by
________________________.
39) The following items were taken from the financial statements of Buttercup
Company. (All dollars are in thousands.)
Mortgage payable$ 2,443Accumulated depreciation3,655
Prepaid expenses880Accounts payable1,444
Property, plant, and equipment11,500Notes payable after 20151,200
Long-term investments1,100Owners capital13,480
Short-term investments3,690Accounts receivable1,696
Notes payable in 20151,000Inventories1,756
Cash2,600
Instructions
Prepare a classified balance sheet in good form as of December 31, 2014 .
