1) The times interest earned is computed by dividing net income by interest expense.
2) The percentage of sales basis for estimating uncollectible accounts always results in
more Bad Debt Expense being recognized than the percentage of receivables basis.
3) The master budget reflects management’s long-term plans encompassing five years
or more.
4) Prior period adjustments to income are reported in the current year’s income
statement.
5) Finished goods inventory does not appear on a cost of goods manufactured schedule.
6) Consolidated financial statements are prepared in place of the financial statements
for the parent and subsidiary companies.
7) Determining the unit cost of manufacturing a product is an output of financial
accounting.
8) A segregation of duties among employees eliminates the possibility of collusion.
9) Total period costs are deducted from total cost of work in process to calculate cost of
goods manufactured.
10) An advantage of using a subsidiary ledger is that one employee must post to both
the subsidiary ledger and the general ledger.
11) The financial statements of a partnership are similar to those of a proprietorship.
12) A general ledger should be arranged in the order in which accounts are presented in
the financial statements, beginning with the balance sheet accounts.
13) Under the allowance method, the cash realizable value of receivables is the same
both before and after an account has been written off.
14) The terms “direct fixed costs” and “indirect fixed costs” are synonymous with
“traceable costs” and “common costs,” respectively.
15) The current ratio is
a.calculated by dividing current liabilities by current assets
b.used to evaluate a company’s liquidity and short-term debt paying ability
c.used to evaluate a company’s solvency and long-term debt paying ability
d.calculated by subtracting current liabilities from current assets
16) Presented below are three independent situations:
(a)Ball Corporation purchased $380,000 of its bonds on June 30, 2014, at 102 and
immediately retired them. The carrying value of the bonds on the retirement date was
$371,500. The bonds pay semiannual interest and the interest payment due on June 30,
2014, has been made and recorded.
(b)Horton, Inc. purchased $400,000 of its bonds at 96 on June 30, 2014, and
immediately retired them. The carrying value of the bonds on the retirement date was
$395,000. The bonds pay semiannual interest and the interest payment due on June 30,
2014, has been made and recorded.
(c)Valley Company has $80,000, 10%, 12-year convertible bonds outstanding. These
bonds were sold at face value and pay semiannual interest on June 30 and December 31
of each year. The bonds are convertible into 40 shares of Valley $4 par value common
stock for each $1,000 par value bond. On December 31, 2014, after the bond interest
has been paid, $30,000 par value of bonds were converted. The market value of Valleys
common stock was $38 per share on December 31, 2014 .
Instructions
For each of the independent situations, prepare the journal entry to record the retirement
or conversion of the bonds.
17) If the month-end bank statement shows a balance of $54,000, outstanding checks
are $15,000, a deposit of $6,000 was in transit at month end, and a check for $900 was
erroneously charged by the bank against the account, the correct balance in the bank
account at month end is
a.$44,100
b.$45,000
c.$45,900
d.$62,100
18) Cate Locke operates a bed and breakfast hotel in a resort area in the Smoky
Mountains. Depreciation on the hotel is $50,000 per year. Cate employs a maintenance
person at an annual salary of $42,000 and a cleaning person at an annual salary of
$24,000. Real estate taxes are $10,000 per year. The rooms rent at an average price of
$60 per person per night including breakfast. Other costs are laundry and cleaning
service at a cost of $10.00 per person per night and the cost of food which is $5.00 per
person per night.
Instructions
(a)Determine the number of rentals and the sales revenue Cate needs to break even
using the contribution margin technique.
(b)If the current level of rentals is 3,500, by what percentage can rentals decrease
before Cate has to worry about having a net loss?
(c)Cate is considering upgrading the breakfast service to attract more business and
increase prices. This will cost an additional $3.00 for food costs per person per night.
Cate feels she can increase the room rate to $66 per person per night. Determine the
number of rentals and the sales revenue Cate needs to break even if the changes are
made.
19) Which of these best reflects a distinguishing factor between a job order cost system
and a process cost system?
a.The detail at which costs are calculated
b.The time period each covers
c.The number of work in process accounts
d.The manufacturing cost elements included
20) On January 1, 2014, $3,000,000, 5-year, 10% bonds, were issued for $2,916,000.
Interest is paid semiannually on January 1 and July 1 . If the issuing corporation uses
the straight-line method to amortize discount on bonds payable, the monthly
amortization amount is
a.$14,000
b.$16,800
c.$700
d.$1,400
21) (a)On January 6, Whitson Co. sells merchandise on account to Garcia Inc. for
$7,000, terms 2/10, n/30. On January 16, Garcia Inc. pays the amount due. Prepare the
entries on Whitson’s books to record the sale and related collection.
(b)On January 10, Jill Hoyle uses her Berkman Co. credit card to purchase merchandise
from Berkman Co. for $9,000. On February 10, Hoyle is billed for the amount due of
$9,000. On February 12, Hoyle pays $4,000 on the balance due. On March 10, Hoyle is
billed for the amount due, including interest at 2% per month on the unpaid balance as
of February 12 . Prepare the entries on Berkman Co.’s books related to the transactions
that occurred on January 10, February 12, and March 10 .
22) When three or more accounts are required in one journal entry, the entry is referred
to as a
a.compound entry
b.triple entry
c.multiple entry
d.simple entry
23) A company’s planned activity level for next year is expected to be 200,000 machine
hours. At this level of activity, the company budgeted the following manufacturing
overhead costs:
VariableFixed
Indirect materials$280,000Depreciation$120,000
Indirect labor400,000Taxes30,000
Factory supplies40,000Supervision100,000
A flexible budget prepared at the 160,000 machine hours level of activity would show
total manufacturing overhead costs of
a.$576,000
b.$720,000
c.$696,000
d.$826,000
24) Amy Gamma has been offered the opportunity of investing $240,228 now. The
investment will earn 4% per year and at the end of its life will return $400,000 to Amy.
How many years must Amy wait to receive the $400,000?
a.10
b.11
c.12
d.13
25) During 2014, Stein Corporation reported net sales of $5,000,000 and net income of
$2,100,000. Stein also reported beginning total assets of $1,000,000 and ending total
assets of $1,500,000. Steins asset turnover is
a.5.0 times
b.4.0 times
c.3.3 times
d.1.7 times
26) Owens Company applies manufacturing overhead to jobs on the basis of machine
hours used. Overhead costs are expected to total $1,500,000 for the year, and machine
usage is estimated at 250,000 hours.
In January, $164,000 of overhead costs are incurred and 26,000 machine hours are used.
For the remainder of the year, $1,332,000 of additional overhead costs are incurred and
224,000 additional machine hours are worked.
Instructions
(a)Compute the manufacturing overhead rate for the year.
(b)What is the amount of over- or underapplied overhead at January 31?
(c)What is the amount of over- or underapplied overhead at December 31?
27) The trial balance of Blowing Rock Inc. includes the following balances: Common
Stock, $56,000; Paid-in Capital in Excess of Par, $128,000; Treasury Stock, $12,000;
Preferred Stock, $60,000. Capital stock totals
a.$116,000
b.$192,000
c.$244,000
d.$256,000
28) The adjusted trial balance of the Victoria Lane Paving Company includes the
following balance sheet accounts that frequently require adjustment. For each account,
indicate (a) the type of adjusting entry (prepaid expenses, unearned revenues, accrued
revenues, or accrued expenses) and (b) the related account in the adjusting entry.
(a)(b)
Balance Sheet AccountType of Adjusting EntryRelated Account
1Supplies
2Accounts Receivable
3Prepaid Insurance
4Accumulated Depreciation
Equipment
5Interest Payable
6Salaries and Wages Payable
7Unearned Revenue
29) Alex, Bob, and Ciera are partners, sharing income 2:1:2. After selling all of the
assets for cash, dividing gains and losses on realization, and paying liabilities, the
balances in the capital accounts are as follows: Alex, $10,000 Cr; Bob, $10,000 Cr; and
Ciera, $30,000 Cr. How much cash should be distributed to Alex?
a.$6,000
b.$20,000
c.$10,000
d.$16,667
30) The Partners’ Capital Statement for TSB Company reported the following
information in total:
Capital, January 1$240,000
Additional investment80,000
Drawings160,000
Net income200,000
The partnership has three partners: Toub, Sauls, and Birch with ending capital balances
in a ratio 40:20:40. What are the respective ending balances of the three partners?
a.Toub, $160,000; Sauls, $80,000; Birch, $160,000
b.Toub, $144,000: Sauls, $72,000; Birch, $144,000
c.Toub, $272,000; Sauls, $136,000; Birch, $272,000
d.Toub, $180,000; Sauls, $96,00000; Birch, $180,000
31) On January 1, Ecuyer Corporation had 1,600,000 shares of $10 par value common
stock outstanding. On March 31, the company declared a 15% stock dividend. Market
value of the stock was $15/share. As a result of this event,
a.Ecuyers Paid-in Capital in Excess of Par account increased $1,200,000
b.Ecuyers total stockholders equity was unaffected
c.Ecuyers Stock Dividends account increased $3,600,000
d.All of these answer choices are correct
32) Which of the following statements about dividends is not accurate?
a.Many companies declare and pay cash quarterly dividends
b.Low dividends may mean high stock returns
c.The board of directors is obligated to declare dividends
d.A legal dividend may not be a feasible one
33) Sutton, Inc. reported the following information for 2014:
OctoberNovemberDecember
Budgeted sales$580,000$620,000$720,000
All sales are on credit.
Customer amounts on account are collected 50% in the month of sale and 50% in the
following month.
How much is the November 30, 2014 budgeted Accounts Receivable?
a.$600,000
b.$360,000
c.$310,000
d.$290,000
34) Santayana Company purchased a machine on January 1, 2012, for $60,000 with an
estimated salvage value of $15,000 and an estimated useful life of 8 years. On January
1, 2014, Santayana decides the machine will last 12 years from the date of purchase.
The salvage value is still estimated at $15,000. Using the straight-line method, the new
annual depreciation will be
a.$3,375
b.$3,750
c.$4,500
d.$5,000
35) The left side of an account is
a.blank
b.a description of the account
c.the debit side
d.the balance of the account
36) For better management acceptance, the flow of input data for budgeting should
begin with the
a.accounting department
b.top management
c.lower levels of management
d.budget committee
37) In a manufacturing business, inventory that is ready for sale is called
a.raw materials inventory
b.work in process inventory
c.finished goods inventory
d.store supplies inventory
38) On the date of issue, Radisch Corporation sells $5 million of 5-year bonds at 98 .
The entry to record the sale will include the following debits and credits:
Bonds PayableDiscount on Bonds Payable
a.$4,900,000 Cr.$0 Dr.
b.$5,000,000 Cr.$100,000 Dr.
c.$4,900,000 Cr.$1,200,000 Dr.
d.$5,000,000 Cr.$10,000 Dr.
39) A post-closing trial balance contains
a.balance sheet or permanent accounts
b.balance sheet and income statement accounts
c.permanent and temporary accounts
d.real and nominal accounts
40) Sardine Kitchen Company produces three sizes of crock pots: small, medium, and
large. A condensed segmented income statement for a recent period follows:
Large Medium Small Total
Sales$200,000$200,000$105,000$505,000
Variable expenses 125,000 110,000 65,000 300,000
Contribution margin 75,00090,00040,000205,000
Fixed expenses 55,000 55,000 47,000 157,000
Net income (loss) $ 20,000$ 35,000 $(7,000)$ 48,000
Assume none of the fixed expenses for the small size crock pot are avoidable. What will
be total net income if the line is dropped?
a.$47,000
b.$13,000
c.$8,000
d.$55,000
41) Cotton Company issued $500,000 of 7%, 10-year bonds on one of its interest dates
for $431,850 to yield an effective annual rate of 9%. The effective-interest method of
amortization is to be used. Interest is paid annually.
What amount of discount (to the nearest dollar) should be amortized for the first interest
period?
a.$4,770
b.$6,133
c.$7,732
d.$3,867
42) A process with no beginning work in process, completed and transferred out 95,000
units during a period and had 50,000 units in the ending work in process inventory that
were 30% complete. The equivalent units of production for the period were:
a.95,000 equivalent units
b.145,000 equivalent units
c.110,000 equivalent units
d.47,500 equivalent units
43) The normal balance of any account is the
a.left side
b.right side
c.side which increases that account
d.side which decreases that account
44) Materials costs of $1,000,000 and conversion costs of $1,020,000 were charged to a
processing department in the month of September. Materials are added at the beginning
of the process, while conversion costs are incurred uniformly throughout the process.
There were no units in beginning work in process, 20,000 units were started into
production in September, and there were 5,000 units in ending work in process that
were 40% complete at the end of September.
What was the total amount of manufacturing costs assigned to those units that were
completed and transferred out of the process in September?
a.$1,515,000
b.$2,200,000
c.$1,650,000
d.$1,445,000
45) The account, Supplies, will appear in the following debit columns of the worksheet.
a.Trial balance
b.Adjusted trial balance
c.Balance sheet
d.All of these answer choices are correct
46) If stock is issued for less than par value, the account
a.Paid-In Capital in Excess of Par is credited
b.Paid-In Capital in Excess of Par is debited if a debit balance exists in the account
c.Paid-In Capital in Excess of Par is debited if a credit balance exists in the account
d.Retained Earnings is credited
47) The inventory accounts that show the cost of completed goods on hand and the
costs applicable to production that is only partially completed are, respectively
a.Work in Process Inventory and Raw Materials Inventory
b.Finished Goods Inventory and Raw Materials Inventory
c.Finished Goods Inventory and Work in Process Inventory
d.Raw Materials Inventory and Work in Process Inventory
48) The financial budgets include the
a.cash budget and the selling and administrative expense budget
b.cash budget and the budgeted balance sheet
c.budgeted balance sheet and the budgeted income statement
d.cash budget and the production budget
49) Two widely used methods of estimating inventories are the ______________
method and the _____________ method.
50) Transactions for Tom Petty Company for the month of October are presented below.
Journalize each transaction and identify each transaction by number. You may omit
journal explanations.
1>Invested $40,000 cash in the business.
2>Purchased land costing $28,000 for cash.
3>Purchased equipment costing $15,000 for $3,000 cash and the remainder on credit.
4>Purchased supplies on account for $800.
5>Paid $1,000 for a one-year insurance policy.
6>Received $3,000 cash for services performed.
7>Received $4,000 for services previously performed on account.
8>Paid wages to employees for $2,500.
9>Petty withdrew $2,000 cash from the business.
51) Jayson Industries provided the following information about its standard costing
system for 2014:
Standard DataActual Data
Labor2 hrs. @ $21 per hr.Produced9,000 units
Budgeted fixed overhead$100,000Labor worked17,000 hrs. costing $340,000
Budgeted variable overhead$30 per unitActual overhead$376,000
Budgeted production10,000 units
Jayson applies fixed overhead at $10 per unit produced.
Instructions
Determine the amounts of the overhead variances.
52) The following stockholders equity accounts, arranged alphabetically, are in the
ledger of Kalmia Corporation at December 31, 2014 .
Common Stock ($5 stated value)$2,200,000
Paid-in Capital in Excess of ParPreferred Stock280,000
Paid-in Capital in Excess of Stated ValueCommon Stock800,000
Preferred Stock (8%, $100 par, noncumulative)500,000
Retained Earnings1,334,000
Treasury StockCommon (10,000 shares)120,000
Instructions
Prepare the stockholders equity section of the balance sheet at December 31, 2014 .
53) Selected transactions for Mountain Goats Tree Service are listed below.
1> Made cash investment to start business.
2> Paid for monthly advertising.
3> Purchased supplies on account.
4> Billed customers for services performed.
5> Withdrew cash for owners personal use.
6> Received cash from customers billed in (4).
7> Incurred utilities expense on account.
8> Purchased additional supplies for cash.
9> Received cash from customers when service was performed.
Instructions
List the numbers of the above transactions and describe the effect of each transaction on
assets,
liabilities, and owners equity. For example, the first answer is: (1) Increase in assets and
increase in owners equity.
54) Sprague Company reports the following operating results for the month of August:
Sales $400,000 (units 5,000); variable costs $280,000; and fixed costs $95,000.
Management is considering the following independent courses of action to increase net
income.
1>Increase selling price by 10% with no change in total variable costs.
2>Reduce variable costs to 65% of sales.
3>Reduce fixed costs by $15,000.
Instructions
Compute the net income to be earned under each alternative. Which course of action
will produce the highest net income?