1) The dominant form of business organization in the United States in terms of dollar
sales volume, earnings, and employees is
a.the sole proprietorship
b.the partnership
c.the corporation
d.not known
2) Financial statements combining the operations of Target and Walmart would violate
the
a.economic entity assumption
b.cost principle
c.monetary unit assumption
d.both the cost principle and the monetary unit assumption
3) Of the various dividends types, the two most common types in practice are
a.cash and large stock
b.cash and property
c.cash and small stock
d.property and small stock
4) Quayle Mining Company purchased land containing an estimated 15 million tons of
ore at a cost of $4,200,000. The land without the ore is estimated to be worth $600,000.
The company expects to operate the mine for 12 years. Buildings costing $600,000 are
erected on the site and are expected to last for 25 years. Equipment costing $300,000
with an estimated life of 15 years is installed. The buildings and the equipment possess
no salvage value after the mine is closed. During the first year of operations, the mining
company mined and sold 2 million tons of ore.
Instructions
(a)Compute the depletion charge per ton.
(b)Compute the depletion expense for the first year.
(c)Compute the appropriate first year’s depreciation expense for the buildings.
(d)Compute the appropriate first year’s depreciation expense for the equipment.
(e)Prepare journal entries to record depletion and depreciation expenses for the year.
5) Kohler Company developed the following information for the product it sells:
Sales price$50 per unit
Variable cost of goods sold$28 per unit
Fixed cost of goods sold$550,000
Variable selling expense10% of sales price
Variable administrative expense$2.00 per unit
Fixed selling expense$500,000
Fixed administrative expense$300,000
For the year ended December 31, 2014, Kohler Company produced and sold 100,000
units of product.
Instructions
(a)Prepare a CVP income statement using the contribution margin format for Wayman
Company for 2014 .
(b)What was the company’s break-even point in units in 2014? Use the contribution
margin technique.
(c)What was the company’s margin of safety in dollars in 2014?
6) Salem Company hired Kirk Construction to construct an office building for
£6,400,000 on land costing £1,600,000, which Salem Company owned. The building
was complete and ready to be used on January 1, 2014 and it has a useful life of 40
years. The price of the building included land improvements costing £480,000 and
personal property costing £600,000. The useful lives of the land improvements and the
personal property are 10 years and 5 years, respectively. Salem Company uses
component depreciation, and the company uses straight-line depreciation for other
similar assets. What total amount of depreciation expense would Salem Company report
on its income statement for the year ended December 31, 2014?
a.£268,000
b.£160,000
c.£341,000
d.£301,000
7) Short-term investments are securities held by a company that are
a.readily marketable
b.intended to be converted into cash within the next year
c.readily marketable and intended to be converted into cash within the next year or
operating cycle, whichever is longer
d.readily marketable and intended to be held until maturity
8) The formula for horizontal analysis of changes since the base period is the current
year amount
a.divided by the base year amount
b.minus the base year amount divided by the base year amount
c.minus the base year amount divided by the current year amount
d.plus the base year amount divided by the base year amount
9) Cross-footing a cash receipts journal means
a.the equality of debits and credits in the journal have been proved
b.each line of the journal has a horizontal total
c.the columns of the journal have been cross-referenced
d.all necessary postings have been completed
10) Blanco, Inc. has a net income of $300,000 for 2014, and there are 200,000
weighted-average shares of common stock outstanding. Dividends declared and paid
during the year amounted to $40,000 on the preferred stock and $60,000 on the
common stock. The earnings per share for 2014 is
a.$2.50
b.$1.20
c.$1.30
d.$1.00
11) A company that acquires less than 20% ownership interest in another company
should account for the stock investment in that company using
a.the cost method
b.the equity method
c.the significant method
d.consolidated financial statements
12) Which one of the following transactions does not affect cash?
a.Write-off of an uncollectible accounts receivable
b.Acquisition and retirement of bonds payable
c.Acquisition of treasury stock
d.Payment of cash dividend
13) If total liabilities decreased by $50,000 and owners equity increased by $30,000
during a period of time, then total assets must change by what amount and direction
during that same period?
a.$80,000 decrease
b.$20,000 decrease
c.$20,000 increase
d.$80,000 increase
14) The amount of sales tax collected by a retail store when making sales is
a.a miscellaneous revenue for the store
b.a current liability
c.not recorded because it is a tax paid by the customer
d.recorded as an operating expense
15) Revenues would not result from
a.sale of merchandise
b.initial investment of cash by owner
c.performance of services
d.rental of property
16) A net loss will result during a time period when
a.liabilities exceed assets
b.drawings exceed investments
c.expenses exceed revenues
d.revenues exceed expenses
17) The market price of a bond is the
a.present value of its principal amount at maturity plus the present value of all future
interest payments
b.principal amount plus the present value of all future interest payments
c.principal amount plus all future interest payments
d.present value of its principal amount only
18) Cruises, Inc. has budgeted sales revenues as follows:
June July August
Credit sales$135,000$125,000$ 90,000
Cash sales 90,000 255,000 195,000
Total sales$225,000$380,000$285,000
Past experience indicates that 60% of the credit sales will be collected in the month of
sale and the remaining 40% will be collected in the following month. Purchases of
inventory are all on credit and 50% is paid in the month of purchase and 50% in the
month following purchase. Budgeted inventory purchases are:
June$300,000
July240,000
August105,000
Other cash disbursements budgeted: (a) selling and administrative expenses of $48,000
each month, (b) dividends of $103,000 will be paid in July, and (c) purchase of
equipment in August for $30,000 cash.
The company wishes to maintain a minimum cash balance of $50,000 at the end of each
month. The company borrows money from the bank at 6% interest if necessary to
maintain the minimum cash balance. Borrowed money is repaid in months when there
is an excess cash balance. The beginning cash balance on July 1 was $50,000. Assume
that borrowed money in this case is for one month.
Instructions
Prepare a cash budget for the months of July and August. Prepare separate schedules for
expected collections from customers and expected payments for purchases of inventory.
19) The receivable that is usually evidenced by a formal instrument of credit is a(n)
a.trade receivable
b.note receivable
c.accounts receivable
d.income tax receivable
20) During August, 2014, Baxters Supply Store generated revenues of $60,000. The
companys expenses were as follows: cost of goods sold of $36,000 and operating
expenses of $4,000. The company also had rent revenue of $1,000 and a gain on the
sale of a delivery truck of $2,000.
Baxters operating income for the month of August, 2014 is
a.$20,000
b.$21,000
c.$23,000
d.$24,000
21) Romanoff Industries had the following inventory transactions occur during 2014:
UnitsCost/unit
2/1/14Purchase54$45
3/14/14Purchase93$47
5/1/14Purchase66$49
The company sold 150 units at $70 each and has a tax rate of 30%. Assuming that a
periodic inventory system is used, what is the companys after-tax income using FIFO?
(rounded to whole dollars)
a.$2,322
b.$2,486
c.$3,318
d.$3,552
22) Match the ratios with the appropriate ratio computation by entering the appropriate
letter in the space provided.
A.Current ratioF.Times interest earned
B.Acid-test ratioG.Inventory turnover
C.Profit marginH.Average collection period
D.Asset turnoverI.Days in inventory
E.Price-earnings ratioJ.Payout ratio
Cost of goods sold
____1>
Average inventory
Net income
____2>
Net sales
Cash dividends
____3>
Net income
Net sales
____4>
Average assets
Current assets
____5>
Current liabilities
365 days
____6>
Accounts receivable turnover
Market price per share of stock
____7>
Earnings per share
365 days
____8>
Inventory turnover
Income before income taxes and interest expense
____9>
Interest expense
Cash + short-term investments + receivables (net)
____10>
Current liabilities
23) On the cost of goods manufactured schedule, the cost of goods manufactured agrees
with the
a.balance of Finished Goods Inventory at the end of the period
b.total debits to Work in Process Inventory during the period
c.amount transferred from Work in Process Inventory to Finished Goods during the
period
d.debits to Cost of Goods Sold during the period
24) A company spends $15 million dollars for an office building. Over what period
should the cost be written off?
a.When the $15 million is expended in cash
b.All in the first year
c.Over the useful life of the building
d.After $15 million in revenue is recognized
25) Hull Company acquires land for $86,000 cash. Additional costs are as follows:
Removal of shed$ 300
Filling and grading1,500
Salvage value of lumber of shed120
Broker commission1,130
Paving of parking lot10,000
Closing costs560
Hull will record the acquisition cost of the land as
a.$96,000
b.$87,690
c.$89,610
d.$89,370
26) Stine Co. sells Christmas angels. Patel determines that at the end of December, it
has the following aging schedule of Accounts Receivable:
Compute the net receivables based on the above information at the end of December.
(There was no beginning balance in the Allowance for Doubtful Accounts).
27) Employee earnings records for Oz Company reveal the following gross earnings for
four employees through the pay period of December 15 .
T. Tucker$95,500D. Paiva$ 108,500
B. Bitney$107,200N. Doane$112,000
For the pay period ending December 31, each employee’s gross earnings is $4,800. The
FICA tax rate is 7.65% on gross earnings of $110,100.
Instructions
Compute the FICA withholdings that should be made for each employee for the
December 31 pay period. (Show computations.)
28) Jozoi Company issues $700,000 of 10%, 10-year bonds on January 1, 2012, at 102 .
Interest is payable semiannually on July 1 and January 1 . The company uses the
straight-line method of amortization.
Instructions:
1>Journalize the entries on (1) January 1, 2012, (2) July 1, 2012, and (3) December 31,
2012 .
2>Show the balance sheet presentation of the bonds at December 31, 2012 .
29) The following information is available for Edmiston Company.
Beginning accounts receivable$ 70,000
Ending accounts receivable110,000
Net sales990,000
Instructions
Compute the accounts receivable turnover and the average collection period.
O: 9, Bloom: AN,
30) The beginning cash balance is $30,000. Sales are forecasted at $1,200,000 of which
80% will be on credit. 70% of credit sales are expected to be collected in the year of
sale. Cash expenditures for the year are forecasted at $750,000. Accounts Receivable
from previous accounting periods totaling $18,000 will be collected in the current year.
The company is required to make a $35,000 loan payment and an annual interest
payment on the last day of every year. The loan balance as of the beginning of the year
is $180,000, and the annual interest rate is 8%.
Instructions
Compute the excess of cash receipts over cash disbursements.
31) Sieker Goods Company has a unit selling price of $500, variable cost per unit $300,
and fixed costs of $170,000.
Instructions
Compute the break-even point in units and in sales dollars.
32) The income statement for Pepe Serna Company for the year ended December 31,
2014 is as follows:
PEPE SERNA COMPANY
Income Statement
For the Year Ended December 31, 2014
Revenues
Sales revenue$58,000
Interest revenue 3,000
Total revenues61,000
Expenses
Cost of goods sold$33,000
Salaries and wages expense13,000
Interest expense 1,000
Total expenses 47,000
Net income$ 14,000
Prepare the entries to close the revenue and expense accounts at December 31, 2014.
You may omit explanations for the transactions.
33) Shanrock Company uses the periodic inventory method and had the following
inventory information available:
UnitsUnit CostTotal Cost
1/1Beginning Inventory100$4$ 400
1/20Purchase400$62,400
7/25Purchase200$71,400
10/20Purchase 300$8 2,400
1,000$6,600
A physical count of inventory on December 31 revealed that there were 400 units on
hand.
Instructions
Answer the following independent questions and show computations supporting your
answers.
1>Assume that the company uses the FIFO method. The value of the ending inventory
at December 31 is $__________.
2>Assume that the company uses the Average-Cost method. The value of the ending
inventory on December 31 is $__________.
3>Assume that the company uses the LIFO method. The value of the ending inventory
on December 31 is $__________.
4>Determine the difference in the amount of income that the company would have
reported if it had used the FIFO method instead of the LIFO method. Would income
have been greater or less?
34) On January 1, 2012, Santo Company purchased a computer system for $30,500.
The system had an estimated useful life of 5 years and no salvage value. At January 1,
2014, the company revised the remaining useful life to two years. What amount of
depreciation will be recorded for 2014 and 2015?