1) Conversion cost is the combination of direct materials cost and factory overhead
cost.
2) An equity investment in less than 20% of another companys stock is accounted for
using the cost method.
3) A report analyzing the dollar savings of purchasing new equipment to speed up the
production process is a managerial accounting report.
4) Just-in-Time (JIT) manufacturing favors organizing work around processes rather
than around products.
5) If total assets increased by $190,000 during a specific period and liabilities decreased
by $10,000 during the same period, the period’s change in total stockholders equity was
a $200,000 increase.
6) Setups are a significant time-consuming activity in traditional production
environments.
7) The matching concept supports matching expenses with the related revenues.
8) Just-in-Time (JIT) manufacturing favors organizing work around products rather
than around processes.
9) The dividends account is closed to the income summary account.
10) Interest expense is reported in the operating expense section of the income
statement.
11) A stock split results in a transfer at market value from retained earnings to paid-in
capital.
12) Purchased goods in transit, shipped FOB destination, should be excluded from
ending inventory of the buyer.
13) The work sheet is a working paper that accountants can use to summarize adjusting
entries and the account balances for the financial statements.
14) For the past year, Hornbostel Company had fixed costs of $6,552,000, a unit
variable cost of $444, and a unit selling price of $600. For the coming year, no changes
are expected in revenues and costs, except that a new wage contract will increase
variable costs by $6 per unit. Determine the break-even sales (units) for (a) the past
year and (b) the coming year.
15) A retailer purchases merchandise with a catalog list price of $25,000. The retailer
receives a 30% trade discount and credit terms of 2/10, n/30. What amount should the
retailer debit to the Merchandise Inventory account?
A.$7,500
B.$17,500
C.$25,000
D.$17,250
16) On which financial statement will Income Summary be shown?
A.retained earnings statement
B.balance sheet
C.income statement
D.none of these
17) If the two totals of a trial balance are not equal, it could be due to
A.failure to record a transaction
B.recording the same erroneous amount for both the debit and the credit parts of a
transaction
C.an error in determining the account balances, such as a balance being incorrectly
computed
D.recording the same transaction more than once
18) Under the periodic inventory system, the journal entry to record the cost of
merchandise sold at the point of sale will include the following account
A.No entry is made.
B.Cost of merchandise sold
C.Inventory
D.Purchases
19) Materials purchased on account during the month amounted to $180,000. Materials
requisitioned and placed in production totaled $165,000. From the following, select the
entry to record the transaction on the day the materials were requisitioned by the
production department.
A.Materials165,000
Work in Process165,000
B.Work in Process180,000
Materials180,000
C.Work in Process165,000
Materials165,000
D.Work in Process165,000
Cash165,000
20) The business entity concept means that
A.the owner is part of the business entity
B.an entity is organized according to state or federal statutes
C.an entity is organized according to the rules set by the FASB
D.the entity is an individual economic unit for which data are recorded, analyzed, and
reported
21) Which of the following is important when evaluating long-term investments?
A.Investments must earn a reasonable rate of return
B.The useful life of the asset
C.Proposals should match long term goals.
D.All of the above.
22) A number of major structural repairs completed at the beginning of the current
fiscal year at a cost of $1,000,000 are expected to extend the life of a building 10 years
beyond the original estimate. The original cost of the building was $6,552,000, and it
has been depreciated by the straight-line method for 25 years. Estimated residual value
is negligible and has been ignored. The related accumulated depreciation account after
the depreciation adjustment at the end of the preceding fiscal year is $4,550,000.
(a) What has the amount of annual depreciation been in past years?
(b) What was the original life estimate of the building?
(c) To what account should the $1,000,000 be debited?
(d) What is the book value of the building after the extraordinary repairs have been
made?
(e) What is the expected remaining life of the building after the extraordinary repairs
have been made?
(f) What is the amount of straight-line depreciation for the current year, assuming that
the repairs were completed at the very beginning of the current year? Round to the
nearest dollar.
23) Who pays the freight costs when the terms are FOB shipping point?
A.the ultimate customer
B.the buyer
C.the seller
D.either the seller or the buyer
24) The three identical units of Product Basic H are purchased during July, as shown
below.
Assume one unit sells on July 28 for $45.
Determine the gross profit, cost of merchandise sold, and ending inventory on July 31
using (a) first in first out, (b) last in last out, (c) average cost flow methods.
25) Which of the following costs are NOT included in finished goods inventory?
A.Direct labor
B.Factory overhead
C.Company president’s salary
D.Direct materials
26) If $1,000,000 of 8% bonds are issued at 103 1/2, the amount of cash received from
the sale is
A.$1,080,000
B.$965,000
C.$1,000,000
D.$1,035,000
27) Due to Medicare reimbursement cuts, Loving Home Care is considering shutting
down its Certified Nursing Assistant (CNA) Division. Fixed costs will have to be
transferred to the Nursing Division if the CNA division is discontinued. Based on the
following income statement make a recommendation to the president regarding this
decision.
28) The budget that summarizes future plans for the acquisition of fixed assets is the:
A.direct materials purchases budget
B.production budget
C.sales budget
D.capital expenditures budget
29) Which of the following entries records the receipt of a utility bill from the water
company?
A.debit Utilities Expense; credit Accounts Payable
B.debit Utilities Payable; credit Accounts Receivable
C.debit Accounts Payable; credit Cash
D.debit Accounts Payable; credit Utilities Payable
30) Which of the following reasons would cause a company to reject an offer to accept
business at a special price?
A.The additional sale will not conflict with regular sales
B.The additional sales will increase differential income
C.The additional sales will not increase fixed expenses
D.The additional sales will increase fixed expenses
31) A company reports the following:
Determine the (a) rate earned on stockholders equity, and (b) rate earned on common
stockholders equity. Round your answer to one decimal place.
32) When a stock dividend is declared, which of the following accounts is credited?
A.Common Sock
B.Dividend Payable
C.Stock Dividends Distributable
D.Retained Earnings
33) The income statement is prepared from:
A.either the post-closing trial balance or the unadjusted trial balance columns of the
work sheet
B.either the unadjusted trial balance or the balance sheet columns of the work sheet
C.either the adjusted trial balance or the income statement columns of the work sheet
D.both the adjusted trial balance and the balance sheet columns of the work sheet
34) When a company exchanges machinery and receives a trade-in allowance less than
the book value, this transaction would be recorded with the following entry:
A.debit Machinery and Accumulated Depreciation; credit Machinery and Cash
B.debit Cash and Machinery; credit Accumulated Depreciation
C.debit Cash and Machinery; credit Accumulated Depreciation and Machinery
D.debit Machinery, Accumulated Depreciation, and Loss on Disposal; credit Machinery
and Cash
35) A company sells goods for $150,000 that cost $60,000 to manufacture. Which
statement(s) are true?
A.The company will recognize sales on the balance sheet of $150,000
B.The company will recognize $90,000 gross profit on the balance sheet
C.The company will decrease finished goods by $60,000
D.All of these are true
36) A corporation issues 2,500 shares of common stock for $ 45,000. The stock has a
stated value of $10 per share. The journal entry to record the stock issuance would
include a credit to Common Stock for
A.$25,000
B.$45,000
C.$20,000
D.$ 5,000
37) Which of the following accounts are debited to record increase in balances?
A.assets and liabilities
B.dividends and liabilities
C.expenses and liabilities
D.assets and expenses
38) Isaac Co. sells merchandise on credit to Sonar Co in the amount of $9,600. The
invoice is dated on April 15 with terms of 1/15, net 45. If Sonar Co. chooses not to take
the discount, by when should the payment be made?
A.April 30
B.May 30
C.May 15
D.April 25
39) All of the following are examples of activity bases except:
A.salaries of supervisors
B.quality inspections of products
C.number of machine setups
D.raw materials storage
40) Motorcycle Manufacturers, Inc. projected sales of 78,000 machines for 2012. The
estimated January 1, 2012, inventory is 6,500 units, and the desired December 31, 2012,
inventory is 7,000 units. What is the budgeted production (in units) for 2012?
A.77,500
B.71,000
C.78,500
D.71,500
41) Hamlin Corporation had $220,000 in invested assets, sales of $242,000, income
from operations amounting to $70,400, and a desired minimum rate of return of 3%.
The rate of return on investment for Hamlin is:
A.7%
B.32%
C.3%
D.29%
42) Which statement(s) concerning cash is (are) true?
A.cash will always have more debits than credits
B.cash will never have a credit balance
C.cash is increased by debiting
D.all of the above
43) Complete the chart using the LIFO and FIFO costing methods, assuming a period of
increasing costs:
44) The assets and liabilities of S&P Day Spa at December 31, 2014 and expenses for
the year are listed below. The retained earnings balance was $68,000 at January 1, 2014.
Prepare a Balance Sheet at December 31, 2014.
45) The following information was taken from the financial statement of Fox Resources
for December 31 of the current fiscal year:
The net income was $600,000 and the declared dividends on the common stock were
$125,000 for the current year. The market price of the common stock is $20 per share.
Required:
Calculate for the common stock:
(1) earnings per share
(2) the price-earnings ratio
(3) the dividends per share and the dividend yield.
Round to one decimal place except earnings per share, which should be rounded to two
decimal places.
46) While taking a physical inventory, a company counts their inventory as less than the
actual amount on hand. How will this error affect the income statement?
47) Journalize the following transactions using the allowance method of accounting for
uncollectible receivables.
April 1 Sold merchandise on account to Jim Dobbs, $7,200. The cost of the
merchandise is $5,400.
June 10 Received payment for one-third of the receivable from Jim Dobbs and wrote
off the remainder.
Oct. 11 Reinstated the account of Jim Dobbs and received cash in full payment.
48) Discuss internal and external users of accounting information. What areas of
accounting provide them with information? Give an example of the type of report each
type of user might use.
49) Determine the average rate of return for a project that is estimated to yield total
income of $400,000 over four years, cost $720,000, and has a $70,000 residual value.
Round answers in percentage to one decimal place.
50) For each of the following, explain whether the issue would require you to prepare a
journal entry for your company, assuming any original entry is correct. If an entry is
required, please include it as part of your answer.
(1) The bank recorded your deposit as $91 rather than the actual amount of $191.
(2) Two outstanding checks amounted to $450.
(3) Company check number 538 for postage was recorded incorrectly by the company
bookkeeper as $50 instead of $59.
(4) The bank paid a check for $500 after the company had issued a stop payment and
voided the check.
(5) An EFT deposit was made by one of the companys customers, Atlas Design, for
merchandise received. The sale had previously been recorded when shipped and was
equal to the payment amount of $125.