1) Journalizing transactions using the double-entry bookkeeping system will eliminate
fraud.
2) All companies must use a calendar year as their fiscal year.
3) In computing the ratio of net sales to assets, long-term investments are excluded
from average total assets.
4) The cost of production report summarizes (1) the units for which the department is
accountable and the units to be assigned costs and (2) the costs charged to the
department and the allocation of those costs.
5) A budget can be an effective means of communicating managements plans to the
employees of a business.
6) The role of accounting is to provide many different users with financial information
to make economic decisions.
7) Non-financial measures are often lined to the inputs or outputs of an activity or
process.
8) A practical approach which is frequently used by managers when setting normal
long-run prices is the cost-plus approach.
9) The unit of measurement concept requires that economic data be recorded in a
common unit of measurement.
10) If the principal products of a manufacturing process are identical, a process cost
system is more appropriate than a job order cost system.
11) Free cash flow is
A.all cash in the bank
B.cash from operations
C.cash from financing, less cash used to purchase fixed assets to maintain productive
capacity and cash used for dividends
D.cash flow from operations, less cash used to purchase fixed assets to maintain
productive capacity and cash used for dividends
12) Use the following worksheet to answer the following questions.
The journal entry to close revenues would be:
A.debit Income Summary $155,000, credit Fees Earned $155,000
B.debit C. Finley, Capital $155,000, credit Fees Earned $155,000
C.debit Fees Earned $155,000; credit Income Summary $155,000
D.credit Fees Earned $155,000; credit C. Finley, Capital $155,000
13) Analyze the following transactions as to their effect on the accounting equation.
(a) The company paid $725 to a vendor for supplies purchased previously on account.
(b) The company performed $850 of services and billed the customer.
(c) The company received a utility bill for $395 and will pay it next month.
(d) The owner of the company withdrew $145 of supplies for personal use.
(e) The company paid $315 in salaries to its employees.
(f) The company collected $730 of cash from its customers on account.
Some of the possible effects of a transaction on the accounting equation are listed
below:
Put the appropriate letter next to each transaction.
14) Three identical units of Item Magnesium XP are purchased during May, as shown
below.
Assume that two units are sold on May 23 for $313. Determine the gross profit for May
and ending inventory on May 31 using (a) FIFO, (b) LIFO, and (c) average cost
methods.
15) A business pays bi-weekly salaries of $20,000 every other Friday for a ten-day
period ending on that day. The last pay day of December is Friday, December 27.
Assuming the next pay period begins on Monday, December 30 and the proper
adjusting entry is journalized at the end of the fiscal period (December 31). The entry
for the payment of the payroll on Friday, January 10 includes a:
A.debit to Salary Expense of $16,000
B.debit to Salary Expense of $4,000
C.credit to Salary Payable of $16,000
D.credit to Salary Payable of $4,000
16) Which of the following is NOT a disadvantage of decentralized operation?
A.Competition among managers decreases profits
B.Duplication of operations
C.Price cutting by departments that are competing in the same product market
D.Top management freed from everyday tasks to do strategic planning
17) Match each of the following investment terms with the appropriate definition
below.
1>A corporation owning all or the majority of the voting stock of another corporation.
A. Parent Company
2>Appropriate method for accounting for small stock investments. B. Valuation
Allowance for Investments
3>A corporation controlled by another corporation that owns all or the majority of its
voting stock. C. Subsidiary Company
4>Measurement of the rate of return to stockholders based on cash dividends. D. Equity
Method
5>Combined reporting of a corporation and other corporations it controls. E. Fair Value
6>The value assigned to held-to-maturity securities. F. Dividend Yield
7>A balance sheet account where the fair value adjustment for investments is reported.
G. Consolidated Financial Statements
8>The market price that would be received if an investment were sold. H. Unrealized
Gain or Loss on Investments.
9>Recognition of changes in the fair value of short-term investments. I. Amortized Cost
10>The method for accounting for investments of 20 – 50% in another companys stock.
J. Cost Method
18) Daniels Company is owned and operated by Thomas Daniels. The following
selected transactions were completed by Daniels Company during May:
Note: Each transaction has two entries.
19) On June 1, $50,000 of treasury bonds were purchased between interest dates. The
broker commission was $500. The bonds pay interest at 12%, which is paid
semiannually on January 1 and July 1. What is the total cost to be debited to the
Investment – Treasury Bonds account?
A.$50,000
B.$50,500
C.$49,500
D.$53,000
20) A fixed asset’s estimated value at the time it is to be retired from service is called
A.book value
B.residual value
C.market value
D.carrying value
21) Present entries to record the following summarized operations related to production
for a company using a job order cost system:
(a) Materials purchased on account $167,000
(b) Prepaid expenses incurred on account 12,200
(c) Materials requisitioned:
For production orders 153,700
For general factory use 2,700
(d) Factory labor used:
On production orders 141,300
For general factory purposes 12,000
(e) Depreciation on factory equipment 37,000
(f) Expiration of prepaid expenses,
chargeable to factory 6,100
(g) Factory overhead costs incurred on account 67,000
(h) Factory overhead applied, based on machine hours 105,300
(i) Jobs finished 415,300
(j) Jobs shipped to customers: cost, $412,000;
selling price 638,000
22) All of the following are factors that may complicate capital investment analysis
except:
A.possible leasing alternatives
B.changes in price levels
C.sunk costs
D.federal income tax ramifications
23) All of the following are factors contributing to the trend for regulators to adopt
accounting principles using fair value concepts except:
A.a greater percentage of total assets existing as receivables and securities
B.pressure on regulators to adopt an international set of accounting principles and
standards
C.hybrid measurement methods within GAAP that conflict with each other
D.the ease of applying market values to assets and liabilities
24) Garrett Company sells merchandise with a one year warranty. In 2012, sales
consisted of 3,500 units. It is estimated that warranty repairs will average $15 per unit
sold, and 30% of the repairs will be made in 2012 and 70% in 2013. In the 2012 income
statement, Garrett should show warranty expense of
A.$36,750
B.$15,750
C.$52,500
D.$0
25) On June 1, $40,000 of treasury bonds were purchased between interest dates. The
broker commission was $600. The bonds pay interest at 12%, which is paid
semiannually on January 1 and July 1. How much interest revenue will be recorded on
July 1?
A.$400
B.$406
C.$2,000
D.$2,400
26) Requirement: Make the journal entries for both of the following:
(a) On December 1, $18,000 was received for a service contract to be performed from
December 1 through until April 30.
(b) If the service work for this contract is performed evenly and on a regular basis
throughout this period, prepare the adjusting journal entry as of year-end, December 31.
27) Which of the following costs is a mixed cost?
A.Salary of a factory supervisor
B.Electricity costs of $3 per kilowatt-hour
C.Rental costs of $10,000 per month plus $.30 per machine hour of use
D.Straight-line depreciation on factory equipment
28) Lambert invests $20,000 for a 1/3 interest in a partnership in which the other
partners have capital totaling $34,000 before admitting Lambert. After distribution of
the bonus, what is Lamberts capital?
A.$18,000
B.$20,000
C.$6,667
D.$11,333
29) For each of the following, identify whether it would be disclosed as an operating
(O), financing (F), or investing (I) activity on the statement of cash flows under the
indirect method.
a. Receipt of dividends
b. Payment of dividends
c. Purchase of equipment
d. Net income
e. Issuance of the companys common stock
f. Amortization expense
30) Costs that are used in generating revenues during the current period, but are not
involved in the manufacturing process are often referred to as:
A.period costs
B.conversion costs
C.factory overhead costs
D.product costs
31) If there is no written agreement as to the way income will be divided among
partners
A.they will share income and losses equally
B.they will share income and losses according to their capital balances
C.they will share income and losses according to the time devoted to the business
D.there really is no partnership agreement
32) An analysis in which all the components of an income statement are expressed as a
percentage of net sales is called
A.vertical analysis
B.horizontal analysis
C.liquidity analysis
D.solvency analysis
33) Donner Company is selling a piece of land adjacent to their business premises. An
appraisal reported the market value of the land to be $220,000. The Focus Company
initially offered to buy the land for $177,000. The companies settled on a purchase price
of $212,000. On the same day, another piece of land on the same block sold for
$232,000. Under the cost concept, at what amount should the land be recorded in the
accounting records of Focus Company?
A.$177,000
B.$212,000
C.$220,000
D.$232,000
34) ABC Corporation has three service departments with the following costs and
activity base:
ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost and
activity information are as follows:
What will the income of the Super Division be after all service department allocations?
A.$300,000
B.$325,000
C.$550,000
D.$200,000
35) Cameron Manufacturing Co.’s static budget at 5,000 units of production includes
$40,000 for direct labor and $5,000 for variable electric power. Total fixed costs are
$20,000. At 8,000 units of production, a flexible budget would show:
A.variable costs of $64,000 and $25,000 of fixed costs
B.variable costs of $64,000 and $20,000 of fixed costs
C.variable costs of $72,000 and $20,000 of fixed costs
D.variable and fixed costs totaling $104,000
36) Given the following cost data, what type of cost is shown?
A.mixed cost
B.variable cost
C.fixed cost
D.none of the above
37) A company sells goods for $150,000 that cost $60,000 to manufacture. Which
statement(s) are true?
A.The company will recognize sales on the balance sheet of $150,000
B.The company will recognize $90,000 gross profit on the balance sheet
C.The company will decrease finished goods by $60,000
D.All of these are true
38) The following information pertains to Carlton Company. Assume that all balance
sheet amounts represent both average and ending balance figures. Assume that all sales
were on credit.
Assets
Liabilities and Stockholders Equity
Income Statement
What is the ratio of net sales to total assets for this company? Round your answer to
two decimal points.
A.1.00
B.1.89
C.0.36
D.0.29
39) The cost of a manufactured product generally consists of which of the following
costs?
A.Direct materials cost and factory overhead cost
B.Direct labor cost and factory overhead cost
C.Direct labor cost, direct materials cost, and factory overhead cost
D.Direct materials cost and direct labor cost
40) If fixed costs are $1,500,000, the unit selling price is $250, and the unit variable
costs are $130, what is the amount of sales required to realize an operating income of
$200,000?
A.14,166 units
B.12,500 units
C.16,000 units
D.11,538 units
41) Each account in the cost ledger is called a:
A.finished goods sheet
B.stock record
C.materials requisition
D.job cost sheet
42) Raptor Company is considering replacing equipment which originally cost
$500,000 and which has $420,000 accumulated depreciation to date. A new machine
will cost $790,000 and the old equipment can be sold for $8,000. What is the sunk cost
in this situation?
A.$72,000
B.$80,000
C.$88,000
D.$290,000
43) All of the following statements regarding the ratio of liabilities to owners equity are
true except:
A.A ratio of 1 indicates that liabilities equal owners equity
B.Corporations can use this ratio but substitute total stockholders equity for total
owners equity
C.The higher this ratio is, the better able a business is to withstand poor business
conditions and pay creditors
D.The lower this ratio is, the better able a business is to withstand poor business
conditions and pay creditors
44) Which one of the following is the authoritative body in the United States having the
primary responsibility for developing accounting principles?
A.FASB
B.IRS
C.SEC
D.
45) The Designer Company issued 10-year bonds on January 1, 2011. The 6% bonds
have a face value of $800,000 and pay interest every January 1 and July 1. The bonds
were sold for $690,960 based on the market interest rate of 8%. Designer uses the
effective-interest method to amortize bond discounts and premiums. On July 1, 2011,
Designer should record interest expense (round to the nearest dollar) of
A.$27,638
B.$24,000
C.$48,000
D.$55,277
46) On January 1, 2011, Citrus Retail Co. issued a $500,000, 5 year, 8% installment
note payable with payments of $100,000 principal plus interest due on January 1 of
each year for the next 5 years.
1> Prepare the adjusting journal entry at December 31, 2011 to accrue interest for the
year.
2> Show the account(s) and amount(s) and where it will appear on a multi-step income
statement prepared on December 31, 2011.
3> Show the account(s) and amount(s) and where they will appear on a classified
balance sheet prepared on December 31, 2011.
47) Robin Company purchased and used 520 pounds of direct materials to produce a
product with a 510 pound standard direct materials requirement. The standard materials
price is $2.10 per pound. The actual materials price was $2.00 per pound. Prepare the
journal entries to record (1) the purchase of the materials and (2) the material entering
production. Robin records standards and variances in the general ledger.
48) On December 31, the balance in the Office Supplies account is $1,385. A count
shows $435 worth of supplies on hand. Prepare the adjusting entry for supplies.
49) Define operating leverage. Explain the relationship between a companys operating
leverage and how a change in sales is expected to impact profits.
50) The board of directors declared cash dividends totaling $252,000 during the current
year. The comparative balance sheet indicates dividends payable of $48,000 at the
beginning of the year and $63,000 at the end of the year. What was the amount of cash
payments to stockholders during the year?
51) Allen Company used $71,000 of direct materials and incurred $37,000 of direct
labor costs during 2011. Indirect labor amounted to $2,700 while indirect materials used
totaled $1,600. Other operating costs pertaining to the factory included utilities of
$3,100; maintenance of $4,500; supplies of $1,800; depreciation of $7,900; and
property taxes of $2,600. There was no beginning or ending finished goods inventory,
but work in process inventory began the year with a $5,500 balance and ended the year
with a $7,500 balance.
Prepare a statement of cost of goods manufactured.
Allen Company
Statement of Cost of Goods Manufactured
For the Year Ended December 31, 2011
52) Record the following transactions for Sparkys Pet Shop using the general journal
form provided below. Assume Sparkys uses a perpetual inventory system. Omit
transaction descriptions from entries:
53) The assets and liabilities of S&P Day Spa at December 31, 2014 and its revenue and
expenses for the year are listed below. The capital of the owner is $68,000 at December
31, 2014. The owner invested an additional $10,000 during the year.
Determine the capital of the owner at January 1, 2014 (Hint: Calculate the
increase/decrease in owners equity first.). Prepare a statement of owners equity for the
current year ended December 31, 2014.
54) The cash flows from operating activities are reported by the direct method on the
statement of cash flows. Determine the following: