1) If an acquired franchise or license has an indefinite life, the cost of the asset is not
amortized.
2) An assumption of CVP analysis is that all costs can be classified as either variable or
fixed.
3) Posting is the process of proving the equality of debits and credits in the trial
balance.
4) Natural resources are long-lived productive assets that are extracted in operations
and are replaceable only by an act of nature.
5) A company’s calendar year and fiscal year are always the same.
6) Any item that appears on the income statement would be considered as either a cash
inflow or cash outflow from operating activities.
7) Accounting communicates financial information about a business enterprise to both
internal and external users.
8) If salary allowances and interest on capital are stipulated in the partnership profit and
loss sharing agreement, they are implemented only if income is sufficient to cover the
amounts required by these features.
9) Postings are generally made more frequently to the general ledger control accounts
than to the individual accounts in the subsidiary ledgers.
10) The number and types of accounts used by different business enterprises are the
same if generally accepted accounting principles are being followed by the enterprises.
11) The following data has been collected for use in analyzing the behavior of
maintenance costs of Sterling Corporation:
MonthMaintenance CostsMachine Hours
January$121,00020,000
February125,00023,000
March128,00024,000
April159,00034,000
May168,00036,000
June178,00038,000
July181,00040,000
Using the high-low method to separate the maintenance costs into their variable and
fixed cost components, these components are:
a.$3 per hour plus $61,000
b.$4 per hour plus $41,000
c.$5 per hour plus $30,000
d.$5 per hour plus $20,000
12) Accrual-basis accounting is allowed under
a.GAAP but not IFRS
b.IFRS but not GAAP
c.both IFRS and GAAP
d.neither IFRS nor GAAP
13) Shallot Company has the following data at December 31, 2014 for its securities.
Securities Cost Fair Value
Trading$90,000$93,000
Available-for-sale74,00068,000
Instructions
(a)Prepare the adjusting entries to report the securities at fair value.
(b)Indicate the statement presentation of the related unrealized gain (loss) accounts for
each class of securities.
14) A CVP graph does not include a
a.variable cost line
b.fixed cost line
c.sales line
d.total cost line
15) What is the proper adjusting entry at June 30, the end of the fiscal year, based on a
prepaid insurance account balance before adjustment, $18,500, and unexpired amounts
per analysis of policies of $6,000?
a.Debit Insurance Expense, $6,000; Credit Prepaid Insurance, $6,000
b.Debit Insurance Expense, $18,500; Credit Prepaid Insurance, $18,500
c.Debit Prepaid Insurance, $12,500; Credit Insurance Expense, $12,500
d.Debit Insurance Expense, $12,500; Credit Prepaid Insurance, $12,500
16) Rikki Company received proceeds of $188,000 on 10-year, 6% bonds issued on
January 1, 2014 . The bonds had a face value of $200,000, pay interest semi-annually
on June 30 and December 31, and have a call price of 101 . Rikki uses the straight-line
method of amortization.
What is the amount of interest Rikki must pay the bondholders in 2014?
a.$11,200
b.$12,000
c.$13,200
d.$10,800
17) During February 2014, its first month of operations, the owner of Ariel Pink
Enterprises invested cash of $50,000. Ariel had cash revenues of $10,000 and paid
expenses of $14,000. Assuming no other transactions impacted the cash account, what
is the balance in Cash at February 28?
a.$4,000 credit
b.$4,000 debit
c.$46,000 debit
d.$54,000 debit
18) Chester Company exchanged old equipment for new equipment. The old equipment
had a cost of $40,000, accumulated depreciation of $23,000, and a fair market value of
$15,000. The exchange had commercial substance. Chester paid an additional $8,000 in
cash. The new equipment should be recorded at:
a.$32,000
b.$25,000
c.$15,000
d.$23,000
19) The operating cycle of a company is the average time that is required to go from
cash to
a.sales in producing revenues
b.cash in producing revenues
c.inventory in producing revenues
d.accounts receivable in producing revenues
20) The accounting for each of the following is the same under IFRS and GAAP except
for
a.extraordinary items
b.discontinued operations
c.changes in accounting principles
d.changes in accounting estimates
21) Multi-Cities Inc. has three divisions: Buck, Leonard, and Hickory. The results of
August, 2014 are presented below.
Buck LeonardHickory Total
Units sold3,0005,0002,00010,000
Revenue$70,000$50,000$40,000$160,000
Less variable costs32,00026,00016,00074,000
Less direct fixed costs14,00019,00012,00045,000
Less allocated fixed costs 6,000 10,000 4,000 20,000
Net income$18,000$ (5,000)$ 8,000$ 21,000
All of the allocated costs will continue even if a division is discontinued. Multi-Cities
allocates indirect fixed costs based on the number of units to be sold. Since the Leonard
division has a net loss, Multi-Cities feels that it should be discontinued. Multi-Cities
feels if the division is closed, that sales at the Buck division will increase by 10%, and
that sales at the Hickory division will stay the same.
Instructions
(a)Prepare an analysis showing the effect of discontinuing the Leonard division.
(b)Should Multi-Cities close the Leonard division? Briefly indicate why or why not.
22) The best measure of the performance of the manager of a profit center is the
a.rate of return on investment
b.success in meeting budgeted goals for controllable costs
c.amount of controllable margin generated by the profit center
d.amount of contribution margin generated by the profit center
23) Berkley Co. has the following budgeted sales: January $160,000, February
$230,000, and March $200,000. 40% of the sales are for cash and 60% are on credit.
For the credit sales, 50% are collected in the month of sale, and 50% the next month.
The total expected cash receipts during March are:
a.$249,000
b.$209,000
c.$215,000
d.$200,000
24) For Cevu Company, the predetermined overhead rate is 75% of direct labor cost.
During the month, $750,000 of factory labor costs are incurred of which $200,000 is
indirect labor. Actual overhead incurred was $420,000. The amount of overhead debited
to Work in Process Inventory should be:
a.$560,000
b.$412,500
c.$420,000
d.$562,500
25) Downtown Unicycle Company has been manufacturing its own seats for its
unicycles. The company is currently operating at 100% capacity, and variable
manufacturing overhead is charged to production at the rate of 70% of direct labor cost.
The direct materials and direct labor cost per unit to make the bicycle seats are $8.00
and $9.00, respectively. Normal production is 50,000 unicycles per year.
A supplier offers to make the unicycle seats at a price of $20 each. If the unicycle
company accepts this offer, all variable manufacturing costs will be eliminated, but the
$30,000 of fixed manufacturing overhead currently being charged to the unicycle seats
will have to be absorbed by other products.
Instructions
(a)Prepare the incremental analysis for the decision to make or buy the bicycle seats.
(b)Should Downtown Unicycle Company buy the seats from the outside supplier?
Justify your answer.
26) Cost behavior analysis applies to
a.only retailers
b.only wholesalers
c.only manufacturers
d.all entities
27) Austin Company manufactures and sells two products. Relevant per unit data
concerning each product are given below:
Product
BasicSuperior
Selling price$33.60 $38.40
Variable costs$12.00$14.40
Machine hours4.88
Instructions
(a)Compute the contribution margin per unit of the limited resource for each product.
(b)If 1,200 additional machine hours are available, which product should be
manufactured?
(c)Prepare an analysis showing the total contribution margin if the additional hours are
(1)Divided equally among the products.
(2)Allocated entirely to the product identified in (b) above.
28) Cleese Company sells merchandise on account for $5,000 to Langston Company
with credit terms of 2/10, n/30. Langston Company returns $1,000 of merchandise that
was damaged, along with a check to settle the account within the discount period. What
is the amount of the check?
a.$3,920
b.$4,000
c.$4,900
d.$4,920
29) Under a periodic inventory system, acquisition of merchandise is debited to the
a.Inventory account
b.Cost of Goods Sold account
c.Purchases account
d.Accounts Payable account
30) A contingency that is remote
a.should be disclosed in the financial statements
b.must be accrued as a loss
c.does not need to be disclosed
d.is recorded as a contingent liability
31) A company purchased factory equipment on June 1, 2014, for $160,000. It is
estimated that the equipment will have a $10,000 salvage value at the end of its 10-year
useful life. Using the straight-line method of depreciation, the amount to be recorded as
depreciation expense at December 31, 2014, is
a.$15,000
b.$8,750
c.$7,500
d.$6,250
32) The flexible budget
a.is prepared before the master budget
b.is relevant both within and outside the relevant range
c.eliminates the need for a master budget
d.is a series of static budgets at different levels of activity
33) The following financial statement information is available for Penn Corporation:
2014 2013
Stockholders’ equity – common$350,000$270,000
Net sales784,000697,000
Cost of goods sold406,000377,000
Net income115,00080,000
Inc tax expense48,00029,000
Interest expense14,00014,000
Dividends paid to preferred
stockholders24,00020,000
Dividends paid to common
stockholders15,00010,000
The return on common stockholders equity for 2014 is
a.21.7%
b.32.9%
c.28.6%
d.26%
34) The allowance method of accounting for uncollectible accounts is required if
a.the company makes any credit sales
b.bad debts are significant in amount
c.the company is a retailer
d.the company charges interest on accounts receivable
35) MECHE Company reports income before income taxes of $2,500,000 and had an
extra-ordinary loss of $800,000. If the tax rate is 35%,
a.the income before the extraordinary item is $1,190,000
b.the extraordinary loss would be reported on the income statement at $800,000
c.the income before the extraordinary item is $1,625,000
d.the extraordinary loss will be reported at $280,000
36) Juno Corporation’s stockholders’ equity section at December 31, 2013 appears
below:
Stockholders’ equity
Paid-in capital
Common stock, $10 par, 60,000 outstanding$600,000
Paid-in capital in excess of par 150,000
Total paid-in capital$750,000
Retained earnings 150,000
Total stockholders’ equity$900,000
On June 30, 2014, the board of directors of Juno Corporation declared a 20% stock
dividend, payable on July 31, 2014, to stockholders of record on July 15, 2014 . The
fair value of Juno Corporation’s stock on June 30, 2014, was $15.
On December 1, 2014, the board of directors declared a 2 for 1 stock split effective
December 15, 2014 . Juno Corporation’s stock was selling for $20 on December 1,
2014, before the stock split was declared. Par value of the stock was adjusted. Net
income for 2014 was $190,000 and there were no cash dividends declared.
Instructions
(a)Prepare the journal entries on the appropriate dates to record the stock dividend and
the stock split.
(b)Fill in the amount that would appear in the stockholders’ equity section for Juno
Corporation at December 31, 2014, for the following items:
1>Common stock$____________
2>Number of shares outstanding_____________
3>Par value per share$____________
4>Paid-in capital in excess of par$____________
5>Retained earnings$____________
6>Total stockholders’ equity$____________
37) Given the following data, compute equivalent units of production for conversion
costs:
Beginning Work in Process4,000 units, 40% complete
Units Started into Production40,000 units
Ending Work in Process3,000 units, 20% complete.
a.39,000
b.41,600
c.42,200
d.43,000
38) The budget components for Chap Company for the quarter ended June 30 appear
below. Chap sells speakers for $12 each. Budgeted sales and production for the next
three months are:
SalesProduction
April 40,000 units52,000 units
May 100,000 units92,000 units
June 60,000 units58,000 units
Chap desires to have speakers on hand at the end of each month equal to 20 percent of
the following months budgeted sales in units. On March 31, Chap had 8,000 completed
units on hand. Seven pounds of plastic are required for each speaker. At the end of each
month, Chap desires to have 10 percent of the following months production material
needs on hand. At March 31, Chap had 34,600 pounds of plastic on hand. The materials
used in production cost $0.60 per pound. Each speaker produced requires 0.10 hours of
direct labor.
Instructions
Determine how much the materials purchases budget will be for the month ending April
30 .
39) The following facts are known:
The total pounds needed for production are 2 times the units to be produced.
The desired ending direct materials inventory is 20% of the total pounds needed for
production.
The beginning direct materials inventory is equal in number to 10% of the units to be
produced.
Cost per pound is $5.
Total cost of the direct materials purchases is $1,035,000.
Instructions
Prepare a direct materials budget for the period.
40) A law firm received $1,200 cash for legal services to be rendered in the future. The
full amount was credited to the liability account Unearned Service Revenue. If the legal
services have been rendered at the end of the accounting period and no adjusting entry
is made, this would cause
revenues to be understated
expenses to be overstated
c.net income to be overstated
d.liabilities to be understated
41) A cost reconciliation schedule is prepared to assign total costs to units
______________, and to the units in the _________________ work in process.
42) A ________________ buys and sells goods rather than performing services to earn
a profit.
43) The ______________ Act provides the basic rules for the formation and operation
of partnerships in more than 90% of the states.