1) To check for accuracy after posting: first a trial balance is completed, then, the
subsidiary ledgers are tested by preparing a schedule of the controlling account.
2) One of the usual differences between financial and managerial accounting is the time
dimension of the information reported.
3) The compatibility principle requires that an accounting system report useful,
understandable, timely, and pertinent information for effective decision making.
4) When a partnership is liquidated, its business is ended.
5) The use of an allowance for bad debts is required under the materiality constraint.
6) Hybrid costing systems can only be applied to auto manufacturing.
7) A company had net sales and cost of goods of $545,000 and $345,000, respectively.
Its gross margin equals $890,000.
8) The balanced scorecard aids in continuous improvement by augmenting financial
measures with information on drivers or indicators of future financial performance.
9) The margin of safety can be expressed in units of product, in dollars, or as a percent
of sales.
10) A company’s income before interest expense and taxes is $250,000 and its interest
expense is $100,000. Its times interest earned ratio is .4.
11) Assets invested by a partner into a partnership remain the property of the individual
partner.
12) The contract between the bond issuer and the bondholders, which identifies the
rights and obligations of the parties, is called a(n):
A.Debenture
B.Bond indenture
C.Mortgage
D.Installment note
E.Mortgage contract
13) A post-closing trial balance reports:
A.All ledger accounts with balances, none of which can be temporary accounts
B.All ledger accounts with balances, none of which can be permanent accounts
C.All ledger accounts with balances, which include some temporary and some
permanent accounts
D.Only revenue and expense accounts
E.Only asset accounts
14) A manufacturing firm’s cost of goods manufactured is equivalent to a
merchandising firm’s:
A.Cost of goods sold
B.Cost of goods purchased
C.Cost of goods available
D.Beginning merchandise inventory
E.Ending merchandise inventory
15) Baines Brothers manufactures and sells two products, A and Z in the ratio of 4:2.
Product A sells for $75; Z sells for $95. Variable costs for product A are $35; for Z $40.
Fixed costs are $418,500. Compute the contribution margin per composite unit.
A.$270
B.$240
C.$300
D.$330
E.$285
16) Wayward Enterprises manufactures and sells three distinct styles of bicycles: the
Youth model sells for $300 and has a unit contribution margin of $105; the Adult model
sells for $850 and has a unit contribution margin of $450; and the Recreational model
sells for $1,000 and has a unit contribution margin of $500. The company’s sales mix
includes: 5 Youth models; 9 Adult models; and 6 Recreational models. If the firm’s
annual fixed costs total $6,500,000, calculate the firm’s break-even point in sales
dollars.
A.$13,250,000
B.$13,000,000
C.$12,750,000
D.$12,900,050
E.$12,750,625
17) A company’s prime costs total $4,500,000 and its conversion costs total $5,500,000.
If direct materials are $2,000,000, calculate the overhead costs:
A.$2,500,000
B.$3,500,000
C.$2,000,000
D.$1,000,000
E.$3,000,000
18) Resources that are expected to yield future benefits are:
A.Assets
B.Revenues
C.Liabilities
D.Owner’s Equity
E.Expenses
19) Recording employee payroll deductions may involve:
A.Liabilities to individual employees
B.Liabilities to federal and state governments
C.Liabilities to insurance companies
D.Liabilities to labor unions
E.All of these
20) Materials that are used in support of the production process but are not clearly
identified with units or batches of product are called:
A.Secondary materials
B.General materials
C.Direct materials
D.Indirect materials
E.Materials inventory
21) The basic financial statements include all of the following except:
A.Balance Sheet
B.Income Statement
C.Statement of Owner’s Equity
D.Statement of Cash Flows
E.Trial Balance
22) A quantity of merchandise or materials over the minimum needed that reduces the
risk of running short is called:
A.Just-in-time inventory
B.Budgeted stock
C.Continuous inventory
D.Capital stock
E.Safety stock
23) A list of all the accounts in the accounts receivable ledger with their balances and
the total is a(n):
A.Schedule of accounts
B.Controlling account
C.Schedule of accounts receivable
D.Subsidiary ledger
E.Special journal
24) Northern Company is preparing a cash budget for June. The company has $12,000
cash at the beginning of June and anticipates $30,000 in cash receipts and $34,500 in
cash disbursements during June. Northern Company has an agreement with its bank to
maintain a cash balance of at least $10,000. As of May 31, the company owes $15,000
to the bank. To maintain the $10,000 required balance, during June the company must:
A.Borrow $4,500
B.Borrow $2,500
C.Borrow $10,000
D.Repay $7,500
E.Repay $2,500
25) Preparation of the statement of cash flows involves:
A.Computing the net increase or decrease in cash
B.Computing and reporting net cash provided or used by operations
C.Computing and reporting net cash provided or used by investing activities
D.Computing and reporting net cash provided or used by financing activities
E.All of these
26) A remittance advice is:
A.An explanation for a payment by check
B.A bank statement
C.A voucher
D.An EFT
E.A cancelled check
27) Outback Products reports the following information:
Required:
(a) Calculate Outback Products’ degree of operating leverage (DOL).
(b) Outback Products forecasts a 6% increase in sales. What is the expected effect in
percent on pretax income?
28) Accounting is an information and measurement system that does all of the
following except:
A.Identifies business activities
B.Records business activities
C.Communicates business activities
D.Does not use technology to improve accuracy in reporting
E.Helps people make better decisions
29) Principles of internal control include all of the following except:
A.Apply technological controls
B.Maintain minimal assets
C.Perform regular and independent reviews
D.Separate recordkeeping from custody of assets
E.Divide responsibilities for related transactions
30) An employee earned $62,500 during the year working for an employer. The FICA
tax rate for Social Security is 6.2% and the FICA tax rate for Medicare is 1.45%. The
current FUTA tax rate is 0.8%, and the SUTA tax rate is 5.4%. Both unemployment
taxes are applied to the first $7,000 of an employee’s pay. What is the amount of total
unemployment taxes the employee must pay?
A.$101.50
B.$56.00
C.$378.00
D.$434.00
E.$0.00
31) The unadjusted trial balance of E. Pace, Consultant is entered on the partial work
sheet below. Complete the work sheet using the following information:
(a) Salaries earned by employees that are unpaid and unrecorded, $500.
(b) An inventory of supplies showed $800 of unused supplies still on hand.
(c) Depreciation on equipment, $1,300.
32) Use the following selected information from Farris, LLC to determine the Year 2
and Year 1 common size percents for operating expenses using Year 1 net sales as the
base.
A.36.4% for Year 2 and 41.1% for Year 1
B.55.0% for Year 2 and 56.0% for Year 1
C.119.4% for Year 2 and 100.0% for Year 1
D.103.8% for Year 2 and 100.0% for Year 1
E.20.0% for Year 2 and 23.0% for Year 1
33) When the sales journal’s column for accounts receivable and sales is totaled at the
end of the month, its total is:
A.Debited to Sales and credited to Accounts Receivable
B.Debited to Accounts Receivable and credited to Cash
C.Debited to Cash and credited to Accounts Receivable
D.Debited to Accounts Receivable and credited to Sales
E.Debited to Cash and credited to Sales
34) The five fundamental principles of accounting information systems are:
A.Control, accountability, relevance, compatibility, and flexibility
B.Historical cost, relevance, compatibility, flexibility, and cost-benefit
C.Control, relevance, compatibility, flexibility, and safety
D.Control, relevance, compatibility, timeliness, and cost-benefit
E.Control, relevance, compatibility, flexibility, and cost-benefit
35) Ordinary repairs:
A.Are expenditures to keep an asset in normal operating condition
B.Are necessary if an asset is to perform to expectations over its useful life
C.Are treated as expenses
D.Include cleaning, lubricating, and normal adjusting
E.All of these
36) Distributions of assets by a business to its owners are called:
A.Withdrawals
B.Expenses
C.Assets
D.Retained earnings
E.Net Income
37) The job order cost sheets used by Garza Company revealed the following:
Job No. 125 was completed during May and Jobs No. 124 and 125 were shipped to
customers in May. What was the company’s cost of goods sold for May and the goods
in process inventory on May 31?
A.$3,200; $900
B.$2,900; $1,200
C.$1,200; $2,900
D.$1,700; $1,200
E.$4,100; $0
38) Assume that a company using a purchases journal made an error in totaling the
journal’s accounts payable column. The error should be discovered:
A.When the purchases journal is posted to the general ledger
B.When the sum of the vendor accounts does not equal the balance in the Purchases
journal
C.When the total of the schedule of accounts payable is compared with the balance of
the Accounts Payable account
D.When the creditors receive their payments
E.When the financial statements are prepared
39) On October 1 of the current year, Morton Company paid $9,600 cash for a one-year
insurance policy that took effect on that day. On the date of the payment, Morton
recorded the following entry:
Prepare the required adjusting entry at December 31 of the current year.
40) __________ are obligations due within one year or the company’s operating cycle,
whichever is longer.
41) Calculate the percent increase or decrease for each of the following financial
statement items:
42) A company is setting aside $21,354 today, and wishes to have $30,000 at the end of
three years for a down payment on a piece of property. What interest rate must the
company earn?
43) How do the consistency concept and the full disclosure principle affect inventory
valuation?
44) _____________ is the amount of income earned per share of a company’s
outstanding common stock.
45) Define an internal control system and describe its purpose.