Newman Labs is considering buying equipment which would enable the company to
obtain a five-year research contract. The specialized equipment costs $650,000 and will
have no salvage value when the five-year contract period is over. The estimated annual
operating results of the project are as follows:
All revenue from the contract and all expenses (except depreciation) will be received or
paid in cash in the same period as recognized for accounting purposes.
Refer to the information above. The return on average investment for this investment is
approximately:
A. 10%.
B. 20%.
C. 31%.
D. 50%.
Which of the following is not a capital expenditure?
A. Advertising expenditures to introduce a new product line.
B. Sales tax paid in conjunction with the purchase of new machinery.
C. Installation of elevators to replace escalators.
D. An amount paid to acquire a patent with a remaining life of only three years.
In the phrase “generally accepted accounting principles,” the words accounting
principles refers to:
A. The standards, assumptions, and concepts that serve as “ground rules” for financial
reporting.
B. Ethical standards that prohibit fraudulent or misleading financial reporting.
C. The steps in the accounting cycle.
D. The accounting practices authorized by the Financial Accounting Standards Board
(FASB).
Under-applied overhead at the end of a month:
A. Results when actual overhead costs are less than amounts applied to work in process.
B. Indicates a poorly designed cost accounting system.
C. Is represented by a debit balance remaining in the Manufacturing Overhead account.
D. Is represented by a credit balance remaining in the Work in Process Inventory
account.
Refer to the information above. If Cash at December 31, 2014, is $26,000, total owners’
equity is:
A. $160,000.
B. $366,000.
C. $606,000.
D. $400,000.
Cash ($26,000) + A/R ($40,000) + Land ($240,000) + Building ($180,000) +
Equipment ($120,000) = $606,000
A/P ($16,000) + N/P ($190,000) + Capital Stock (?) + R.E. ($160,000) = $606,000
The production schedule in units:
A. Cannot be prepared until the budgeted income statement is completed.
B. Is dependent upon the sales forecast for the period.
C. Is based upon the manufacturing cost budget, that is, upon the level of funds
available for manufacturing costs.
D. Is the starting point in the preparation of the master budget.
Financial instruments are recorded at:
A. Future values.
B. Present values plus interest.
C. Present values less interest.
D. Present values.
Alton Company produces metal belts. During the current month, the company incurred
the following product costs:
Raw materials $100,000
Direct labor $75,000
Electricity used in the Factory $25,000
Factory foreperson salary $3,750
Maintenance of factory machinery $2,000
Alton Company’s total product costs:
A. $175,000.
B. $30,750.
C. $205,750.
D. $28,750.
Chic Jewelers views each branch location as an investment center. The local branch
reported the following results for the current year:
Refer to the above information, the contribution margin of the local branch is:
A. $5,500,000.
B. $2,400,000.
C. $2,246,000.
D. $3,254,000.
Posting is the process of:
A. Transferring debit and credit entries from the journal into the appropriate ledger
accounts.
B. Determining that the dollar amount of debit entries recorded in the ledger is equal to
the dollar amount of credit entries.
C. Entering information into a computerized data base.
D. Preparing journal entries to describe each business transaction.
The following two items are disclosed in the stockholders’ equity section of Riverside
Corporation’s December 31, 2015, balance sheet:
If the company had reacquired 700 shares of treasury stock in February of 2015, then
for what amount was the other treasury stock sold for during 2015?
A. $2 per share above its par value.
B. $2 per share.
C. $2 per share above its cost.
D. $22 per share above its cost.
Which of the following items would be included in comprehensive income but not
reported as a component of net income?
A. A lower-of-cost-or-market write-down of inventory.
B. A material loss due to natural disaster.
C. An unrealized gain on the portfolio of available-for-sale marketable securities.
D. A gain on the sale of a segment of the business.
If 8,000 units were in beginning inventory, 26,000 units were started, and 6,000 units
were in the ending inventory, how many units were transferred out?
A. 40,000 units.
B. 26,000 units.
C. 28,000 units.
D. 24,000 units.
Beech Soda, Inc. uses a perpetual inventory system. The company’s beginning
inventory of a particular product and its purchases during the month of January were as
follows:
On January 14, Beech Soda, Inc. sold 25 units of this product. The other 28 units
remained in inventory at January 31.
Refer to the information above. Assuming that Beech Soda uses the average cost flow
assumption, the cost of goods sold to be recorded at January 14 is (round your
intermediate calculation to one decimal place and cost per unit to the nearest cent):
A. $317.50.
B. $308.25.
C. $272.50.
D. $673.00.
Joe Costello handles cash receipts from customers and also has responsibility for
issuing credit memoranda, writing off uncollectible accounts, and maintaining the
accounts receivable records. When customers pay their accounts, Costello occasionally
issues a credit memorandum and steals the cash received from the customer. This fraud
should come to light if an employee other than Costello:
A. Reconciles the bank statement to the accounting records.
B. Reconciles the accounts receivable subsidiary ledger to the accounts receivable
controlling account.
C. Investigates weekly all accounts written off as uncollectible.
D. Reconciles credit memoranda for sales returns to returned merchandise accepted by
the receiving department.
The “just-in-time” concept of inventory management is best illustrated by:
A. A clothing manufacturer that sells all of its finished goods before they go out of
style.
B. A defense contractor that completes its projects within the deadlines set by its
customer (the federal government).
C. A pharmaceutical firm that consistently brings new products to market ahead of its
competitors.
D. A homebuilder who has its suppliers deliver lumber and other building materials to
the building site the night before these materials will be used by the company’s
construction crews.
Which of the following does not affect the cost associated with producing and selling
goods and services in global markets?
A. Tariffs.
B. Duties.
C. Special trade zones.
D. Sales or Use tax rates in the United States.
An international joint venture is:
A. A company owned by two or more companies from different countries.
B. A contractual agreement between a company and a foreign party.
C. A company that owns 100 percent of a foreign company.
D. A company that owns more than 75 percent of a foreign company.
Companies that compute equivalent units of production do so to:
A. Comply with income tax regulations.
B. Compute total manufacturing costs for the period.
C. Determine a manufacturing overhead application rate.
D. Determine departmental per-unit costs.
The purpose of making closing entries is to:
A. Prepare revenue and expense accounts for the recording of the next period’s revenue
and expenses.
B. Enable the accountant to transfer the balances from all permanent accounts to the
Income Summary account.
C. Establish new balances in the balance sheet accounts.
D. Reduce the number of expense accounts.
Unearned revenue appears:
A. As income on the income statement.
B. As an asset on the balance sheet.
C. As a liability on the balance sheet.
D. As a part of the retained earnings.
Double-entry accounting
The accounting system of most businesses, whether manual or computer-based, is some
form of a double-entry system of accounting.
(A.) What is meant by the term “double-entry accounting”?
(B.) Explain how the double-entry system is applied in accounting for the following
transaction: Majestic Company purchases a piece of equipment costing $6,000, paying
$3,000 cash with the balance of the purchase price to be paid within 60 days.
The closing entry for an expense account would consist of a:
A. Debit to Income Summary and a credit to the expense account.
B. Debit to the expense account and a credit to Income Summary.
C. Credit to Retained Earnings and a debit to the expense account.
D. Credit to Revenue and a debit to the expense account.
In a perpetual inventory system, two entries usually are made to record each sales
transaction. The purposes of these entries are best described as follows:
A. One entry recognizes the sales revenue, and the other recognizes the cost of goods
sold.
B. One entry records the purchase of the merchandise, and the other records the sale.
C. One entry records the cost of goods sold, and the other reduces the balance in the
Inventory account.
D. One entry updates the general ledger, and the other updates the subsidiary ledgers.
On June 1, Norma Company signed a 12-month lease for warehouse space. The lease
requires monthly rent of $550, with 4 months paid in advance. Norma Company records
the payment by debiting Prepaid Rent $2,200 and crediting Cash $2,200. At the end of
June, what should be the balance of Norma’s Prepaid Rent account?
A. $0
B. $2,200
C. $1,650
D. $550
The management of Ortega Manufacturing has three different proposals under
consideration. The Accounting Department has prepared the following information:
*Management’s required rate of return is 15%.
Refer to the information above. On the basis of the above data, which of the following
is false?
A. Proposal A should be considered unacceptable.
B. Proposal C is the best alternative because it has the shortest payback period, which is
the most meaningful of the capital budgeting statistics.
C. Proposal A’s negative net present value indicates that this alternative will not
generate management’s required rate of return.
D. Although proposals B and C are each acceptable, proposal B is a better investment
considering the time value of money.
Langdon Company manufactures custom designed toy sailboats. The company uses a
job order costing system. Overhead is applied based on direct labor hours. Estimated
overhead for 2015 is $11,840 and the company estimates it will use 7,400 direct labor
hours. The following events occurred in March.
(a.) The company purchased materials for $800 on account.
(b.) The production supervisor requisitioned 15 sheets of fiberglass for constructing the
boats. The fiberglass was in stock and originally cost $3 a sheet.
(c.) Direct labor on the boats cost $500.
(d.) More materials were purchased for $350 on account.
(e.) Indirect labor costs were $210.
(f.) A utility bill for the boat factory was $230 and was paid in cash.
(g.) A repair bill for the salesman’s car was $75 and will be paid next month.
(h.) Additional materials were placed into production which cost $215.
(i.) Manufacturing overhead was applied (direct labor during March totaled 500 hours).
(j.) One sailboat was completed which cost $325.
(k.) The completed sailboat was sold for $750. Record the sale and the cost of sale.
Required:
(1.) Determine the overhead application rate.
(2.) Prepare journal entries for the above transactions.
(3.) What is the cost of the remaining Work in Process?
Which of the following is correct when a corporation uses cash to pay for an expense?
A. Total assets will decrease.
B. Retained earnings will increase.
C. Owners’ equity will increase.
D. Liabilities will increase.
Refer to the information above. Ignoring income taxes, what is the estimated annual net
operating income increase/decrease?
A. $9,375 decrease.
B. $12,875 increase.
C. $43,125 decrease.
D. $54,125 increase.
John’s Metalworks Incorporated recently issued 10,000 shares of stock in exchange for
$100,000. Metalworks’ journal entry to record this transaction included:
A. A debit to Capital Stock for $10,000.
B. A debit to Cash for $100,000.
C. A credit to Capital Stock for $10,000.
D. A credit to Cash for $100,000.
Process costing system-journal entries
Milton Manufacturing uses a process costing system. Products are processed
successively by Department X and Department Y and are then transferred to the
finished goods warehouse. Shown below is cost information for Department Y during
the month of May:
The cost of work in process in Department Y at May 31 has been determined to be
$113,500.
In the space provided, prepare a general journal entry to summarize for the month of
May each of the following categories of transactions (you may omit explanations):
(a.) The transfer of production from Department X to Department Y.
(b.) The recording of manufacturing costs incurred in Department Y during May. (Use a
single journal entry.)
(c.) The transfer of completed units from Department Y to the finished goods
warehouse.
Refer to the information above. What is Compros’ debt ratio?
A. 75%.
B. 25%.
C. 60%.
D. 33%.
A complete set of financial statements for Citywide Company, at December 31, 2014,
would include each of the following, except:
A. Balance sheet as of December 31, 2014.
B. Income statement for the year ended December 31, 2014.
C. Statement of projected cash flows for 2015.
D. Notes containing additional information that is useful in interpreting the financial
statements.