1) A capital deficiency exists when all partners have a credit balance in their capital
accounts.
2) If the predetermined overhead allocation rate is 225% of direct labor cost, and the
Mixing Department’s direct labor cost for the reporting period is $10,000, the following
entry would be made to record the allocation of overhead to the products processed in
this department:
3) The cash flow on total assets ratio is computed by dividing cash flows from
operations by average total assets.
4) A retailer is an intermediary that buys products from manufacturers and sells them to
wholesalers.
5) Direct costs require allocation across departments.
6) Owner financing refers to resources contributed by creditors or lenders.
7) Cost-volume-profit analysis cannot be used when a firm produces and sells more
than one product.
8) Return on assets is often stated in ratio form as the amount of average total assets
divided by income.
9) A work sheet is a tool to help organize information needed in adjusting the accounts
and preparing the financial statements.
10) If Department G uses $53,000 of direct labor and Department H uses $21,000 of
direct labor, the following journal entry would be recorded using a process cost
accounting system:
11) Understanding generally accepted accounting principles is not necessary to use and
interpret financial statements.
12) A company has net income of $130,500. Its net sales were $1,740,000 and its
average total assets were $2,750,000. Its total asset turnover equals 4.7%.
13) Natural resources are assets that include standing timber, mineral deposits, and oil
and gas fields.
14) The matching principle requires use of the direct write-off method of accounting for
bad debts.
15) Long-term investments can include funds earmarked for special purposes such as
bond sinking funds.
16) Break-even analysis is a special case of cost-volume-profit analysis.
17) Collateral from unsecured loans may be sold to offset the loan obligation if the loan
is in default.
18) Photometer Company paid off $30,000 of its accounts payable in cash. What would
be the effects of this transaction on the accounting equation?
A.Assets, $30,000 increase; liabilities, no effect; equity, $30,000 increase
B.Assets, $30,000 decrease; liabilities, $30,000 decrease; equity, no effect
C.Assets, $30,000 decrease; liabilities, $30,000 increase; equity, no effect
D.Assets, no effect; liabilities, $30,000 decrease; equity, $30,000 increase
E.Assets, $30,000 decrease; liabilities, no effect; equity $30,000 decrease
19) If a company applies overhead to production with a predetermined rate, a credit
balance in the Factory Overhead account at the end of the period means that:
A.The bookkeeper has made an error because the debits don’t equal the credits
B.The balance will be carried forward to the next period as an overhead cost
C.Actual overhead incurred was less than the overhead amount charged to production
D.The overhead was underapplied for the period
E.Actual overhead was greater than the overhead amount charged to production
20) A debit memorandum is:
A.Required whenever a journal entry is recorded.
B.The source document for the purchase of merchandise inventory.
C.Required when a purchase discount is granted.
D.The document a buyer issues to inform the seller of a debit made to the seller’s
account in the buyer’s records.
E.Not necessary in a perpetual inventory system.
21) After posting all actual factory overhead and applying factory overhead to
production departments in a process costing system,
A.There will never be underapplied overhead
B.There will never be overapplied overhead
C.There will always be underapplied overhead
D.There will always be overapplied overhead
E.There may be over or underapplied overhead
22) A company sold a machine that originally cost $100,000 for $60,000 cash. The
accumulated depreciation on the machine was $40,000. The company should recognize
a:
A.$0 gain or loss
B.$20,000 gain
C.$20,000 loss
D.$40,000 loss
E.$60,000 gain
23) Which of the following statements about a company’s operating cycle is not true?
A.Noncurrent items are those expected to come due within one year or the company’s
operating cycle
B.The operating cycle is the time span from when cash is used to acquire goods and
services until cash is received from the sale of goods and services
C.The length of a company’s operating depends on its activities
D.For a merchandiser selling products, the operating cycle is the time span between
paying suppliers for merchandise and receiving cash from customers
E.Most operating cycles are less than one year
24) Bok Company’s output for the current period was assigned a $200,000 standard
direct materials cost. The direct materials variances included a $5,000 favorable price
variance and a $3,000 unfavorable quantity variance. What is the actual total direct
materials cost for the current period?
A.$208,000
B.$198,000
C.$202,000
D.$192,000
E.$205,000
25) If a firm uses activity-based costing to allocate costs, it must:
A.Combine costs in appropriate pools
B.Select appropriate cost drivers
C.Calculate an appropriate rate for each pool
D.Allocate costs based on predetermined rates for cost pools
E.Perform all of these steps
26) All of the following statements related to reporting cash flows from operating
activities under U.S. GAAP and IFRS are True except:
A.The definition of cash and cash equivalents is similar for U.S. GAAP and IFRS
B.U.S. GAAP requires cash flows from interest revenue and dividend revenue be
classified as operating activities
C.IFRS permits classification of interest revenue and dividend revenue under operating
or investing activities
D.U. S. GAAP requires cash outflows for interest expense to be classified as financing
activities
E.IFRS permits classification of interest expense under operating or financing activities
27) Some companies choose to avoid assigning incidental costs of acquiring
merchandise to inventory by recording them as expenses when incurred. The argument
that supports this is called:
A.The matching principle.
B.The materiality constraint.
C.The cost principle.
D.The conservation constraint principle.
28) Stride Along has total assets of $425 million. Its total liabilities are $110 million. Its
equity is $315 million. Calculate the debt ratio.
A.38.6%
B.13.4%
C.34.9%
D.25.9%
E.14.9%
29) An employee is dissatisfied with the resolution of an ethical conflict at his place of
employment. According to the Institute of Management Accountants, the employee’s
next step should be to
A.contact the IMA
B.contact the next level of management who is not involved in the ethical conflict
C.make the president of the company aware of the ethical conflict
D.report the incident to the State Board of Accountancy
E.resign from the company
30) Stanton Co. produces and sells two lines of t-shirts, Deluxe and Mega. Stanton
provides the following data. Compute the sales price and the sales volume variances for
each product.
31) Pitt Corporation’s most recent balance sheet reports total assets of $35,000,000 and
total liabilities of $17,500,000. Management is considering issuing $5,000,000 of par
value bonds (at par) with a maturity date of ten years and a contract rate of 7%. What
effect, if any, would issuing the bonds have on the company’s debt-to-equity ratio?
A.Issuing the bonds would cause the firm’s debt-to-equity ratio to improve from 1.0 to
1.3
B.Issuing the bonds would cause the firm’s debt-to-equity ratio to worsen from 1.0 to
1.3
C.Issuing the bonds would cause the firm’s debt-to-equity ratio to remain unchanged
D.Issuing the bonds would cause the firm’s debt-to-equity ratio to improve from .5 to .8
E.Issuing the bonds would cause the firm’s debt-to-equity ratio to worsen from .5 to .8
32) Reversing entries:
A.are necessary when journal entries have been incorrectly recorded
B.are a required step in the accounting cycle
C.will often result in abnormal account balances in some accounts
D.are required only if the company uses accounting software to record journal entries
E.must be made before preparing the post-closing trial balance
33) The following transactions occurred during July:
1> Received $900 cash for services provided to a customer during July.
2> Received $2,200 cash investment from Barbara Hanson, the owner of the business.
3> Received $750 from a customer in partial payment of his account receivable which
arose from sales in June.
4> Provided services to a customer on credit, $375.
5> Borrowed $6,000 from the bank by signing a promissory note.
6> Received $1,250 cash from a customer for services to be rendered next year.
What was the amount of revenue for July?
A.$900
B.$1,275
C.$2,525
D.$3,275
E.$11,100
34) Accounting standards:
A.Allow companies to omit the statement of cash flows from a complete set of financial
statements if cash is an insignificant asset
B.Require that companies omit the statement of cash flows from a complete set of
financial statements if the company has no investing activities
C.Require that companies include a statement of cash flows in a complete set of
financial statements
D.Allow companies to include the statement of cash flows in a complete set of financial
statements if the cash balance makes up more than 50% of the current assets
E.Allow companies to omit the statement of cash flows from a complete set of financial
statements if the company has no financing activities
35) The costs that should be incurred under normal conditions to produce a specific
product or component or to perform a specific service are:
A.Variable costs
B.Fixed costs
C.Standard costs
D.Product costs
E.Period costs
36) A company has $90,000 in outstanding accounts receivable and it uses the
allowance method to account for uncollectible accounts. Experience suggests that 6%
of outstanding receivables are uncollectible. The current debit balance (before
adjustments) in the allowance for doubtful accounts is $800. The journal entry to record
the adjustment to the allowance account includes a debit to Bad Debts Expense for:
A.$4,600
B.$5,400
C.$6,200
D.$6,800
E.None of these
37) A machine with a cost of $130,000 and accumulated depreciation of $85,000 is sold
for $50,000 cash. The amount that should be reported as a source of cash under cash
flows from investing activities is:
A.$50,000
B.$5,000
C.$45,000
D.Zero. This is an operating activity
E.Zero. This is a financing activity
38) Jane and Castle are partners and share equally in income or loss. Jane’s current
capital balance is $140,000 and Castle’s is $130,000. Jane and Castle agree to accept
Sean with a 30% interest in the partnership. Sean invests $108,000 in the partnership.
The balances in Jane’s and Castle’s capital accounts after admission of the new partner
equal:
A.Jane $140,000; Castle $130,000
B.Jane $142,700; Castle $132,700
C.Jane $145,000; Castle $135,000
D.Jane $137,300; Castle $127,300
E.Jane $135,000; Castle $124,000
39)
Monitor Company uses the LIFO method for valuing its ending inventory. The
following financial statement information is available for its first year of operation:
Monitor’s ending inventory using the LIFO method was $8,200. Monitor’s accountant
determined that had the company used FIFO, the ending inventory would have been
$8,500.
a. Determine what the income before taxes would have been, had Monitor used the
FIFO method of inventory valuation instead of LIFO.
b. What would be the difference in income taxes between LIFO and FIFO, assuming a
30% tax rate?
c. If Monitor wanted to lower the amount of income taxes to be paid, which method
would it choose?
40) A balance column ledger account is:
A.An account entered on the balance sheet
B.An account with debit and credit columns for posting entries and another column for
showing the balance of the account after each entry is posted
C.Another name for the withdrawals account
D.An account used to record the transfers of assets from a business to its owner
E.A simple form of account that is widely used in accounting to illustrate the debits and
credits required in recording a transaction
41) A credit is used to record:
A.An increase in an expense account
B.A decrease in an asset account
C.A decrease in an unearned revenue account
D.A decrease in a revenue account
E.A decrease in a capital account
42) A company has established 5 pounds of Material M at $2 per pound as the standard
for the material in its Product A. The company has just produced 1,000 units of this
product, using 5,200 pounds of Material M that cost $9,880. The direct materials
quantity variance is:
A.$400 unfavorable
B.$120 favorable
C.$400 favorable
D.$520 favorable
E.$520 unfavorable
43) Marcus processes four different products that can either be sold as is or processed
further.
Listed below are sales and additional cost data:
Which product(s) should not be processed further?
A.Acta
B.Corda
C.Fando
D.Limo
E.None of the products should be processed further
44) Explain the difference between short-term and long-term investments. Cite
examples of each.
45) Bourne Crafts manufactures specialty key chains for tourist attractions. On January
1, the firm had 200 souvenir attraction disks used in the production of the chains that
cost $3 each; and 600 completed key chains that cost $6 each. During the year Bourne
Crafts purchased 1,500 souvenir disks costing $3 each and produced 1,100 key chains.
Compute the total cost of raw materials inventory at December 31.
46) Record the following events and transactions for Axle Company for the current
year.
1> On January 2, Axle purchased a patent for $35,000 with a useful life of 10 years.
Prepare the journal entry to amortize the patent at the end of the first year.
2> On January 3, Axle purchased a leasehold for $8,400,000. The leasehold expires in
15 years. Prepare the journal entry to amortize the leasehold at the end of the first year.
3> On January 4, Axle purchased a music distributor’s collection of lyrics and songs for
$1,425,000. The copyrights are expected to last another 30 years. Prepare the journal
entry to amortize the copyright at the end of the first year.
47) List the steps in recording transactions.
48) The unit contribution margin divided by the selling price per unit is the
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