1) Suarez Company paid $700 cash in advance for insurance coverage which will begin
in the following month. As a result of this event,
a.owners equity decreased by $700
b.total assets decreased by $700
c.total assets remained the same
d.liabilities decreased by $700
2) Present value is based on
a.the dollar amount to be received
b.the length of time until the amount is received
c.the interest rate
d.all of these
3) Which of the following statements about overhead variances is false?
a.Standard hours allowed are used in calculating the controllable variance
b.Standard hours allowed are used in calculating the volume variance
c.The controllable variance pertains solely to fixed costs
d.The total overhead variance pertains to both variable and fixed costs
4) Siesta Company estimates the following cash flows and depreciation on a project that
will cost $200,000 and will last 10 years with no salvage value:
Revenues
Sales revenue$80,000
Operating expenses
Salary expense$32,000
Depreciation expense20,000
Miscellaneous expenses 8,000 60,000
Net Income$20,000
Instructions
(a)Calculate the expected annual rate of return on this project showing calculations to
support your answer.
(b)Calculate the cash payback on this project showing calculations to support your
answer.
5) Windcrest purchased machinery for $105,000 that was expected to have a useful life
of seven years with no salvage value, and was depreciated using the straight-line
method. At the end of its fifth year of use, after recording depreciation expense, it was
retired from service and given to a junk dealer. The entry to record the retirement
includes a
a.credit to Accumulated DepreciationMachinery for $75,000
b.credit to Depreciation Expense for $15,000
c.debit to Machinery for $105,000
d.debit to Loss on Disposal of Plant Assets for $30,000
6) If an adjustment is needed for unearned revenues, the
a.liability and related revenue are overstated before adjustment
b.liability and related revenue are understated before adjustment
c.liability is overstated and the related revenue is understated before adjustment
d.liability is understated and the related revenue is overstated before adjustment
7) Paid-in capital from treasury stock would appear on a balance sheet under the
category
a.capital stock
b.treasury stock
c.additional paid-in capital
d.contra to owners’ equity
8) In 2014, Boyle Company had credit sales of $1,080,000 and granted sales discounts
of $24,000. On January 1, 2014, Allowance for Doubtful Accounts had a credit balance
of $26,400. During 2014, $45,000 of uncollectible accounts receivable were written off.
Past experience indicates that 3% of net credit sales become uncollectible. What should
be the adjusted balance of Allowance for Doubtful Accounts at December 31, 2014?
a.$13,080
b.$13,800
c.$31,680
d.$39,720
9) A partner invests into a partnership a building with an original cost of $55,000 and
accumulated depreciation of $27,500. This building has a $30,000 fair market value. As
a result of the investment, the partners capital account will be credited for:
a.$57,500
b.$55,000
c.$27,500
d.$30,000
10) Watunga County Bank agrees to lend Hoffman Granite Company $600,000 on
January 1 . Hoffman Granite Company signs a $600,000, 8%, 9-month note. What is
the adjusting entry required if Hoffman Granite Company prepares financial statements
on June 30?
a.Interest Expense24,000
Interest Payable24,000
b.Interest Expense24,000
Cash24,000
c.Interest Payable24,000
Cash24,000
d.Interest Payable24,000
Interest Expense24,000
11) Post-retirement benefits include all of the following except
a.health care
b.life insurance
c.pensions
d.vacation benefits
12) The treasurer’s department is responsible for
a.approving the payroll
b.maintaining payroll records
c.preparing payroll tax returns
d.signing payroll checks
13) The City Division of Westwide Industries had an ROI of 25% when sales were $2
million and controllable margin was $600,000. What were the average operating assets?
a.$150,000
b.$500,000
c.$1,400,000
d.$2,400,000
14) On July 9, Sheb Company sells goods on credit to Wooley Company for $5,000,
terms 1/10, n/60. Sheb receives payment on July 18. The entry by Sheb on July 18 is:
a.Cash5,000
Accounts Receivable5,000
b.Cash5,000
Sales Discounts50
Accounts Receivable4,950
c.Cash4,950
Sales Discounts50
Accounts Receivable5,000
d.Cash5,050
Sales Discounts50
Accounts Receivable5,000
15) Comparative balance sheets are usually prepared for
a.one year
b.two years
c.three years
d.four years
16) Kramer Co. had retained earnings of $30,000 on the balance sheet but disclosed in
the footnotes that $6,000 of retained earnings was restricted for building expansion and
$2,000 was restricted for bond repayments. Cash of $4,000 had been set aside for the
plant expansion. How much of retained earnings is available for dividends?
a.$22,000
b.$24,000
c.$30,000
d.$18,000
17) The income statement for Jones Company showed cost of goods sold of $80,000
and operating expenses of $65,000. The comparative balance sheets for the year show
that inventory decreased $5,000, prepaid expenses increased $7,000, accounts payable
increased $3,000, and accrued expenses payable decreased $5,000.
Instructions
Compute (a) cash payments to suppliers and (b) cash payments for operating expenses
using the direct method.
18) Using the following information:
12/31/13
Accounts receivable$525,000
Allowance (35,000)
Cash realizable value$490,000
During 2014, sales on account were $145,000 and collections on account were
$100,000. Also during 2014, the company wrote off $4,000 in uncollectible accounts.
An analysis of outstanding receivable accounts at year end indicated that uncollectible
accounts should be estimated at $40,000.
Bad debt expense for 2014 is
a.$4,000
b.$5,000
c.$9,000
d.$40,000
19) It costs Galiente Company $46 per unit ($27 variable and $19 fixed) to produce its
product, which normally sells for $58 per unit. A Brazilian wholesaler offers to
purchase 5,000 units at $36 each. Galatoire would incur special shipping costs of $5 per
unit if the order were accepted. Galiente has sufficient unused capacity to produce the
5,000 units. If the special order is accepted, what will be the effect on net income?
a.$50,000 decrease
b.$20,000 increase
c.$15,000 increase
d.$35,000 increase
20) Niley-Cook Corporation issued 200,000 shares of $20 par value, cumulative, 6%
preferred stock on January 1, 2013, for $4,500,000. In December 2015, Niley-Cook
declared its first dividend of $800,000.
Instructions
(a)Prepare Niley-Cooks journal entry to record the issuance of the preferred stock.
(b)If the preferred stock is not cumulative, how much of the $800,000 would be paid to
common stockholders?
(c)If the preferred stock is cumulative, how much of the $800,000 would be paid to
common stockholders?
21) Fitzgerald Company is about to issue $2,000,000 of 5-year bonds, with a stated rate
of interest of 10%, payable semiannually. The market rate for such securities is 12%.
How much can Fitzgerald expect to receive for the sale of these bonds? (Round to the
nearest dollar.)
a.$1,852,798
b.$2,000,000
c.$2,164,720
d.None of these answers are correct
22) A company is considering purchasing factory equipment that costs $320,000 and is
estimated to have no salvage value at the end of its 8-year useful life. If the equipment
is purchased, annual revenues are expected to be $90,000 and annual operating
expenses exclusive of depreciation expense are expected to be $40,000. The
straight-line method of depreciation would be used.
The cash payback period on the equipment is
a.3.6 years
b.8.0 years
c.3.2 years
d.6.4 years
23) Which of the following statements is incorrect concerning just-in-time (JIT)
processing?
a.U.S. firms are switching to JIT processing in response to foreign competition
b.JIT manufacturing is dedicated to producing the right products at the right time as
they are needed
c.JIT strives to eliminate inventories by using a “push” approach in manufacturing
d.JIT accounting creates a Raw and In-Process Inventory account
24) If the partnership agreement specifies salaries to partners, interest on partners’
capital, and the remainder on a fixed ratio, and partnership net income is not sufficient
to cover both salaries and interest,
a.only salaries are allocated to the partners
b.only interest is allocated to the partners
c.the entire net income is shared on a fixed ratio
d.both salaries and interest are allocated to the partners
25) The cost of a purchased building includes all of the following except
a.closing costs
b.real estate broker’s commission
c.remodeling costs
d.All of these are included
26) The units-of-activity method is generally not suitable for
a.airplanes
b.buildings
c.delivery equipment
d.factory machinery
27) Upon first-time adoption of IFRS, a company must present at least how many years
of comparative information under IFRS?
a.5
b.3
c.2
d.1
28) A standard cost system may be used in
Job Order CostingProcess Costing
a.NoNo
b.YesNo
c.NoYes
d.YesYes
29) The following lettered items represent a classification scheme for a balance sheet,
and the numbered items represent accounts found on balance sheets. In the blank next
to each account, write the letter indicating to which category it belongs.
A.Current assetsE.Current liabilities
B.Long-term investmentsF.Long-term liabilities
C.Property, plant, and equipmentG.Owners equity
D.Intangible assetsH.Not on the balance sheet
_____1>Accumulated Depreciation_____6>Inventory
_____2>Owners Capital_____7>Patents
_____3>Interest Expense_____8>Prepaid Rent
_____4>Salaries and Wages Payable_____9>Mortgage Payable
_____5>Owners, Drawings_____10>Land Held for Investment
30) A separate paid-in capital account is used to record each of the following except the
issuance of
a.no-par stock
b.par value stock
c.stated value stock
d.treasury stock above cost
31) Ratios are used as tools in financial analysis
a.instead of horizontal and vertical analyses
b.because they may provide information that is not apparent from inspection of the
individual components of the ratio
c.because even single ratios by themselves are quite meaningful
d.because they are prescribed by GAAP
32) Which of the following would not appear as a debit in the Work in Process account
of a second department in a two stage production process?
a.Materials used
b.Overhead applied
c.Labor assigned
d.Cost of products transferred out
33) Shipping terms of FOB destination mean that the:
a.shipping charges are debited to Freight-Out
b.purchaser is responsible for the shipping charges
c.items should be in the purchaser’s inventory account at year-end if the items are in
transit
d.Both (a) and (b) above
34) Prepaid expenses are
a.paid and recorded in an asset account before they are used or consumed
b.paid and recorded in an asset account after they are used or consumed
c.incurred but not yet paid or recorded
d.incurred and already paid or recorded
35) The perspectives included in the balanced scorecard approach include all of the
following except the
a.internal process perspective
b.capacity utilization perspective
c.learning and growth perspective
d.customer perspective
36) Priscilla has the following inventory information.
July1Beginning Inventory20 units at $19$ 380
7Purchases70 units at $201,400
22Purchases10 units at $23 230
$2,010
A physical count of merchandise inventory on July 31 reveals that there are 35 units on
hand. Using the FIFO inventory method, the amount allocated to cost of goods sold for
July is
a.$1,280
b.$1,287
c.$1,306
d.$1,330
37) FIFO and LIFO are the two most common cost flow assumptions made in costing
inventories. The amounts assigned to the same inventory items on hand may be
different under each cost flow assumption. If a company has no beginning inventory,
explain the difference in ending inventory values under the FIFO and LIFO cost bases
when the price of inventory items purchased during the period have been (1) increasing,
(2) decreasing, and (3) remained constant.
38) A primary driver of overhead costs in continuous manufacturing operations is
_______________.
39) For which of the following types of adjusting entries are both assets and revenues
understated before the adjusting entry is made?
Accrued Expenses
Unearned Service Revenues
c.Accrued Revenues
d.Prepaid Expenses
40) An inexperienced accountant made the following entries. In each case, the
explanation to the entry is correct.
Dec.17Cash2,940
Sales Discounts60
Accounts Receivable3,000
(To record collection of 12/4 sales, terms 2/10, n/30)
20Cash18,360
Notes Receivable 18,000
Interest Revenue 360
(Collection of $18,000, 8%, 90 day note dated Sept. 21.
Interest had been accrued through Nov. 30.)
27Cash1,000
Bad Debt Expense1,000
(Collection of account previously written off as
uncollectible under allowance method)
31Bad Debt Expense600
Allowance for Doubtful Accounts600
(To recognize estimated bad debts based on 1% of
net sales of $600,000)
Instructions
Prepare the correcting entries.
41) On January 1, 2012 Grier Company purchased and installed a telephone system at a
cost of $20,000. The equipment was expected to last five years with a salvage value of
$3,000. On January 1, 2013 more telephone equipment was purchased to tie-in with the
current system for $10,000. The new equipment is expected to have a useful life of four
years. Through an error, the new equipment was debited to Telephone Expense. Grier
Company uses the straight-line method of depreciation.
Instructions
Prepare a schedule showing the effects of the error on Telephone Expense, Depreciation
Expense, and Net Income for each year and in total beginning in 2013 through the
useful life of the new equipment.
Telephone ExpenseDepreciation ExpenseNet Income
Overstated Overstated Overstated
Year(Understated)(Understated)(Understated)
2013
2014
2015
2016
42) Adrland Caselotti believes revenues from credit sales may be recognized before
they are collected in cash. Do you agree? Explain.