1) Westcoast Sporting Goods Company manufactures aluminum baseball bats that it
sells to university athletic departments. It has developed the following per unit standard
costs for 2014 for each baseball bat:
Manufacturing
Direct MaterialsDirect Labor Overhead
Standard Quantity2 Pounds (Aluminum)1/2 hour1/2 hour
Standard Price$4.00$10.00$7.00
Unit Standard Cost$8.00$5.00$3.50
In 2014, the company planned to produce 120,000 baseball bats at a level of 60,000
hours of direct labor.
Actual results for 2014 are presented below:
1>Direct materials purchases were 246,000 pounds of aluminum which cost
$1,020,900.
2>Direct materials used were 220,000 pounds of aluminum.
3>Direct labor costs were $575,260 for 58,700 direct labor hours actually worked.
4>Total manufacturing overhead was $352,000.
5>Actual production was 114,000 baseball bats.
Instructions
(a)Compute the following variances:
1>Direct materials price.
2>Direct materials quantity.
3>Direct labor price.
4>Direct labor quantity.
5>Total overhead variance.
(b)Prepare the journal entries to record the transactions and events in 2014 .
2) Both stock dividends and stock splits affect total:
a.paid-in capital
b.par value of common stock
c.retained earnings
d.shares outstanding
3) Which of the following would not be considered a merchandising company?
a.Retailer
b.Wholesaler
c.Service firm
d.Dot Com firm
4) Dividends Payable is classified as a
a.long-term liability
b.contra stockholders’ equity account to Retained Earnings
c.current liability
d.stockholders’ equity account
5) A company uses a sales journal, cash receipts journal, purchases journal, cash
payments journal, and a general journal. A cash sales return would be recorded in the
a.sales journal
b.cash receipts journal
c.cash payments journal
d.general journal
6) The order of presentation of nontypical items that may appear on the income
statement is
a.Extraordinary items, Discontinued operations, Other revenues and expenses
b.Discontinued operations, Extraordinary items, Other revenues and expenses
c.Other revenues and expenses, Discontinued operations, Extraordinary items
d.Other revenues and expenses, Extraordinary items, Discontinued operations
7) Equivalent units are calculated by
a.multiplying the percentage of work done by the equivalent units of output
b.dividing physical units by the percentage of work done
c.multiplying the percentage of work done by the physical units
d.dividing equivalent units by the percentage of work done
8) At the end of its first year, the trading securities portfolio consisted of the following
common stocks.
Cost Fair Value
Atrium Corporation $ 46,500$ 50,000
Barnes Inc. 60,000 58,000
Cantor Corporation 80,000 76,400
$186,500$184,400
In the following year, the Barnes common stock is sold for cash proceeds of $57,000.
The gain or loss to be recognized on the sale is a
a.gain of $1,200
b.loss of $3,000
c.Loss of $1,000
d.loss of $2,000
9) The chief accounting officer in a corporation is the
a.treasurer
b.president
c.controller
d.vice-president of finance
10) Below are descriptions of internal control problems. In the space to the left of each
item, enter the code letter of the one best internal control principle that is related to the
problem described.
Internal Control Principles
A.Establishment of responsibility
B.Segregation of duties
C.Physical controls
D.Documentation procedures
E.Independent internal verification
F.Human resource controls
1>The same person opens incoming mail and posts the accounts receivable subsidiary
ledger.
2>Three people handle cash sales from the same cash register drawer.
3>A clothing store is experiencing a high level of inventory shortages because people
try on clothing and walk out of the store without paying for the merchandise.
4>The person who is authorized to sign checks approves purchase orders for payment.
5>Some cash payments are not recorded because checks are not prenumbered.
6>Cash shortages are not discovered because there are no daily cash counts by
supervisors.
7>The treasurer of the company has not taken a vacation for over 20 years.
11) Depreciation expense for a period is the
a.original cost of an asset accumulated depreciation
b.book value of the asset useful life
c.portion of an assets cost that expired during the period
d.market value of the asset useful life
12) In recording business transactions, evidence that an accounting transaction has
taken place is obtained from
a.business documents
b.the Internal Revenue Service
c.the public relations department
d.the SEC
13) Swiss Clothing Store had a balance in the Accounts Receivable account of
$820,000 at the beginning of the year and a balance of $780,000 at the end of the year.
Net credit sales during the year amounted to $7,200,000. The accounts receivable
turnover ratio was
a.9.0 times
b.8.4 times
c.9.2 times
d.8.8 times
14) Financial accounting provides economic and financial information for all of the
following except
a.creditors
b.investors
c.managers
d.other external users
15) Which of the following changes in retained earnings during a period will be
reported in the financing activities section of the statement of cash flows?
1>Declaration and payment of a cash dividend during the period.
2>Net income for the period.
a.1
b.2
c.Neither 1 nor 2
d.Both 1 and 2
16) Sardine Kitchen Company produces three versions 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 all of the fixed expenses for the small size crock pot are avoidable. What will
be total net income if the line is dropped?
a.$55,000
b.$47,000
c.$95,000
d.$10,000
17) A mixed cost contains
a.a variable element and a fixed element
b.both selling and administrative costs
c.both retailing and manufacturing costs
d.both operating and nonoperating costs
18) Plotner Corporation has the following trading portfolio of stock investments as of
December 31, 2014 .
Security CostFair Value
A$19,000$15,000
B22,00027,000
C 34,000 29,000
$75,000$71,000
On January 22, 2015, Plotner Corporation sold security C for $32,000.
Instructions
(a)Prepare the adjusting entry for Plotner Corporation on December 31, 2014, to report
the portfolio at fair value.
(b)Indicate the balance sheet and income statement presentation of the fair value data
for Plotner Corporation at December 31, 2014 .
(c)Prepare the journal entry for the 2015 sale.
19) At the beginning of September, 2014, Stella Company reported Inventory of $8,000.
During the month, the company made purchases of $35,600. At September 30, 2014, a
physical count of inventory reported $8,400 on hand. Cost of goods sold for the month
is
a.$35,200
b.$35,600
c.$36,000
d.$43,600
20) Common Stock Dividends Distributable is classified as a(n)
a.asset account
b.stockholders’ equity account
c.expense account
d.liability account
21) In calculating cash flows from operating activities using the indirect method, a loss
on the sale of equipment will appear as a(n)
a.subtraction from net income
b.addition to net income
c.addition to cash flow from investing activities
d.subtraction from cash flow from investing activities
22) The most efficient way to accomplish closing entries is to
a.credit the income summary account for each revenue account balance
b.debit the income summary account for each expense account balance
c.credit the owner’s drawings balance directly to the income summary account
d.credit the income summary account for total revenues and debit the income summary
account for total expenses
23) The term residual claim refers to a stockholders right to
a.receive dividends
b.share in assets upon liquidation
c.acquire additional shares when offered
d.elect a board of directors
24) In Moyer Company, the Cutting Department had beginning work in process of
6,000 units, transferred out 16,000 units, and had an ending work in process of 3,000
units. How many units were started by Moyer during the month?
a.10,000
b.13,000
c.16,000
d.19,000
25) The total costs accounted for in a production cost report equal the
a.cost of units completed and transferred out only
b.cost of units started into production
c.cost of units completed and transferred out plus the cost of ending work in process
d.cost of beginning work in process plus the cost of units completed and transferred out
26) On January 1, 2014, Blue Company purchased 30,000 shares of the 100,000
common shares outstanding of Pilot Company for $1,500,000. During 2014, Pilot
Company reported net income of $500,000 and paid a cash dividend of $200,000. The
balance of the Stock Investments account on the books of Blue Company on December
31, 2014, is:
a.$1,440,000
b.$1,500,000
c.$1,590,000
d.$1,650,000
27) Lulzbot.com sells 6,000 units of its product for $500 each during the year ending
December 31, 2014 . The selling price includes a one-year warranty on parts. It is
expected that 3% of the units will be defective and that repair costs will average $50 per
unit. In the year of sale, warranty contracts are honored on 120 units for a total cost of
$6,000. What amount will be reported on Lulzbot.com’s balance sheet as Warranty
Liability on December 31, 2014?
a.$6,000
b.$9,000
c.$3,000
d.It cannot be determined
28) Davis Company is about to issue $900,000 of 8-year bonds paying a 12% interest
rate with interest payable semiannually. The discount rate for such securities is 10%.
Below are available time value of money factors that Davis uses to calculate compound
interest.
To the closest dollar, how much can Davis expect to receive for the sale of these bonds?
a.$958,017
b.$688,113
c.$997,539
d.$1,620,000
29) A standard cost is
a.a cost which is paid for a group of similar products
b.the average cost in an industry
c.a predetermined cost
d.the historical cost of producing a product last year
30) The convergence issue that will be most difficult to resolve in the area of inventory
accounting is:
a.FIFO
b.LIFO
c.ownership of goods
d.costs to include in inventory
31) Newman, Inc. earned net income of $100,000 during 2014 . The company wants to
increase net income by $54,000 during 2015. The company’s fixed costs are expected to
be $84,000, and variable costs are expected to be 30% of sales.
32) Beal, Inc. provided the following information:
MarchAprilMay
Projected merchandise purchases$65,000$75,000$80,000
Beal pays 40% of merchandise purchases in the month purchased and 60% in the
following month.
General operating expenses are budgeted to be $20,000 per month of which
depreciation is $2,000 of this amount. Beal pays operating expenses in the month
incurred.
Instructions
Calculate Beals budgeted cash disbursements for May.
33) Only transactions that cannot be entered in a _______________ journal are
recorded in the _______________ journal.
34) When an investor owns between 20% and 50% of the common stock of a
corporation, it is generally presumed that the investor has _______________ influence
over the investee and therefore, the appropriate method of accounting for this type of
investment is the _______________ method.
35) Plexis Company reported net income of $148,000. For 2014, depreciation was
$45,000, and the company reported a gain on sale of investments of $12,000. Accounts
receivable increased $25,000 and accounts payable decreased $23,000.
Instructions
Compute net cash provided by operating activities using the indirect method.
36) Effective budgeting is dependent on an _________________________ in which
authority and responsibility are clearly defined.
37) A budget is a primary means of ________________ agreed upon objectives
throughout the business organization.
38) Lean Inc. budgeted to produce 10,000 widgets during 2014 . Lean has capacity to
produce 12,000 units. Fixed factory overhead is allocated to production. The following
estimated costs were provided:
Direct material ($7/unit)$ 70,000
Direct labor ($15/hr. 2 hrs./unit)300,000
Variable manufacturing overhead ($3/unit)30,000
Fixed factory overhead costs ($5/unit) 50,000
Total$450,000
Cost per unit = $45
Instructions
Answer each of the following independent questions:
1>Lean received an order for 1,000 units from a new customer in a country in which
Lean has never done business. This customer has offered $44 per widget. Should Lean
accept the order?
2>Lean received an offer from another company to manufacture the same quality
widgets for $39. Should Lean let someone else manufacture all 10,000 widgets and
focus only on distribution?
39) Garrison Company was organized on January 1 . During the first year of operations,
the following expenditures and receipts were recorded in random order in the account,
Land.
Debits
1>Cost of real estate purchased as a plant site (land and building).$ 250,000
2>Accrued real estate taxes paid at the time of the purchase of the real estate.4,000
3>Cost of demolishing building to make land suitable for construction of a new
building.15,000
4>Architect’s fees on building plans.14,000
5>Excavation costs for new building.24,000
6>Cost of filling and grading the land.5,000
7>Insurance and taxes during construction of building.6,000
8>Cost of repairs to building under construction caused by a small fire.7,000
9>Interest paid during the year, of which $54,000 pertains to the construction
period.64,000
10>Full payment to building contractor.780,000
11>Cost of parking lots and driveways.46,000
12>Real estate taxes paid for the current year on the land. 4,000
Total Debits$1,219,000
Credits
13>Insurance proceeds for fire damage.$3,000
14>Proceeds from salvage of demolished building 3,500
Total Credits$6,500
Instructions
Analyze the foregoing transactions using the following tabular arrangement. Insert the
number of each transaction in the Item space and insert the amounts in the appropriate
columns.
ItemLandBuildingsOtherAccount Title
40) Describe the process of preparing a trial balance. What is the purpose of preparing a
trial balance? If a trial balance does not balance, identify what might be the reasons
why it does not balance. If the trial balance does balance, does that insure that the
ledger accounts are correct? Explain.