1) The accounts receivable turnover is calculated by dividing net sales by average
accounts receivable.
2) Sandra has a savings account that has accumulated to $50,000. She started with
$28,225, and earned interest at 10% compounded annually. It took her five years to
accumulate the $50,000.
3) Debentures always have specific assets of the issuing company pledged as collateral.
4) When defining direct costs and indirect costs in process costing, it is the process that
is the cost object.
5) Both financial and managerial accounting report monetary information; managerial
accounting also reports considerable nonmonetary information.
6) Managerial accounting is the area of accounting that provides internal reports to
assist the decision making needs of internal users.
7) The first step in the accounting cycle is to analyze transactions and events to prepare
for journalizing.
8) Credit terms for a purchase include the amounts and timing of payments from a
buyer to a seller.
9) The adjusted trial balance must be prepared before the adjusting entries are made.
10) Financial statement analysis lessens the need for expert judgment.
11) Items such as sales tickets, bank statements, checks, and purchase orders are source
documents.
12) Hamilton Industries has liabilities of $105 million and total assets of $350 million.
Its debt ratio is 40.0%.
13) When the usefulness of plant assets used to extract natural resources is directly
related to the depletion of a natural resource, their costs are depreciated using the
units-of-production method of depreciation, as long as the assets will not be moved to
and used at another site when extraction of the natural resources is complete.
14) Equipment, inventory, and investments are other accounts that can include detailed
information in a subsidiary ledger.
15) A corporation has a $42,000 credit balance in the Income Tax Payable account.
Period end information shows that the actual liability is $50,000. The company should
record an entry to debit Income Tax Expense for $8,000 and credit Income Taxes
Payable for $8,000.
16) Rocky Industries received its telephone bill in the amount of $300, and immediately
paid it. Rocky’s general journal entry to record this transaction will include a
A.Debit to Telephone Expense for $300
B.Credit to Accounts Payable for $300
C.Debit to Cash for $300
D.Credit to Telephone Expense for $300
E.Debit to Accounts Payable for $300
17) The rule that requires financial statements to reflect the assumption that the
business will continue operating instead of being closed or sold, unless evidence shows
that it will not continue, is the:
A.Going-concern assumption
B.Business entity assumption
C.Objectivity principle
D.Cost Principle
E.Monetary unit assumption
18) Common-size statements:
A.Reveal changes in the relative importance of each financial statement item
B.Do not emphasize the relative importance of each item
C.Compare financial statements over time
D.Show the dollar amount of change for financial statement items
E.Reveal patterns in data across successive periods
19) The number of days’ sales uncollected is calculated by:
A.Dividing accounts receivable by net sales
B.Dividing accounts receivable by net sales and multiplying by 365
C.Dividing net sales by accounts receivable
D.Dividing net sales by accounts receivable and multiplying by 365
E.Multiplying net sales by accounts receivable and dividing by 365
20) On June 30 of the current calendar year, Apricot Co. paid $7,500 cash for
management services to be performed over a two-year period. Apricot follows a policy
of recording all prepaid expenses to asset accounts at the time of cash payment. The
adjusting entry on December 31 for Apricot would include:
A.A debit to an expense for $5,625
B.A debit to a prepaid expense for $5,625
C.A debit to an expense for $1,875
D.A debit to a prepaid expense for $1,875
E.A credit to a liability for $1,875
21) A component of operating efficiency and profitability, calculated by expressing net
income as a percent of net sales, is the:
A.Acid-test ratio
B.Merchandise turnover
C.Price earnings ratio
D.Accounts receivable turnover
E.Profit margin ratio
22) A financial report that summarizes the amounts and types of costs that were
incurred in the manufacturing process during the period is a:
A.Materiality statement
B.Managerial statement
C.Manufacturing statement
D.Merchandise statement
E.Monetary statement
23) A special bank account used solely for the purpose of paying employees, by
depositing in the account each pay period an amount equal to the total employees’ net
pay and drawing the employees’ payroll checks on the account, is a(n):
A.Federal depository bank account
B.Employee’s Individual Earnings account
C.Employees’ bank account
D.Payroll register account
E.Payroll bank account
24) The following table of cost information is available for the Messier Company for
the month of November:
Based on the table of cost information above, prepare the general journal entry required
to record the:
a. Transfer of goods from the molding department to the finished goods inventory.
b. Cost of goods sold for November.
25) The Palos Company expects sales for June, July, and August of $48,000, $54,000,
and $44,000, respectively. Experience suggests that 40% of sales are for cash and 60%
are on credit. The company collects 50% of its credit sales in the month following sale,
45% in the second month following sale, and 5% are not collected. What are the
company’s expected cash receipts for August from its current and past sales?
A.$29,160
B.$46,760
C.$61,160
D.$66,200
E.$78,800
26) Kyle, Inc. has collected the following data on one of its products. The actual cost of
the direct materials used is:
A.$133,750
B.$150,000
C.$106,250
D.$158,750
E.$120,000
27) Rice, Hepburn, and DiMarco formed a partnership with Rice contributing $60,000,
Hepburn contributing $50,000 and DiMarco contributing $40,000. Their partnership
agreement called for the income (loss) division to be based on the ratio of capital
investments. If the partnership had income of $75,000 for its first year of operation,
what amount of income (rounded to the nearest thousand) would be credited to
DiMarco’s capital account?
A.$20,000
B.$25,000
C.$30,000
D.$40,000
E.$75,000
28) All of the following statements regarding sales returns and allowances are true
except:
A.Sales returns and allowances can include a reduction is the selling price because of
damaged merchandise.
B.Sales returns and allowances do not reflect the possibility of lost future sales.
C.Sales returns and allowances are recorded in a separate contra-revenue account.
D.Sales returns and allowances are rarely disclosed in published financial statements.
E.Sales returns and allowances are closed to the Income Summary account.
29) A log that is used to record and post transactions of a similar type is a:
A.Schedule
B.Columnar ledger
C.Special journal
D.General journal
E.Subsidiary ledger
30) Which of the following statements is true?
A.If the trial balance is in balance, it proves that no errors have been made in recording
and posting transactions
B.The trial balance is a book of original entry
C.Another name for the trial balance is the chart of accounts
D.The trial balance is a list of all accounts from the ledger with their balances at a point
in time
E.The trial balance is another name for the balance sheet as long as debits balance with
credits
31) In the accounting records of a defendant, lawsuits:
A.Are estimated liabilities
B.Should always be recorded
C.Should always be disclosed
D.Should be recorded if payment for damages is probable and the amount can be
reasonably estimated
E.Should never be recorded
32) Kent Company’s May sales budget calls for sales of $900,000. The store expects to
begin May with $50,000 of inventory and to end the month with $55,000 of inventory.
Gross margin is typically 45% of sales. Compute the budgeted cost of merchandise
purchases for May.
A.$550,000
B.$500,000
C.$495,000
D.$460,000
E.$490,000
33) The inventory turnover ratio is calculated as:
A.Cost of goods sold divided by average merchandise inventory
B.Sales divided by cost of goods sold
C.Ending inventory divided by cost of goods sold
D.Cost of goods sold divided by ending inventory
E.Cost of goods sold divided by ending inventory times 365
34) Financing activities include (a) the purchase and sale of long-term assets, (b) the
purchase and sale of short-term investments, and (c) lending and collecting on loans.
35) Using the information below, calculate gross profit for the period.
A.$714,000
B.$482,000
C.$1,022,000
D.$187,000
E.Cannot be determined from the information provided.
36) In a process costing system, when manufacturing overhead costs are applied to the
cost of production, they are debited to:
A.the Finished Goods Inventory account
B.the Cost of Goods Sold account
C.the Goods in Process Inventory account
D.the Manufacturing Overhead account
E.the Raw Materials Inventory account
37) A depreciation method that produces larger depreciation expense during the early
years of an asset’s life and smaller expense in the later years is a(an):
A.Accelerated depreciation method
B.Book value depreciation method
C.Straight-line depreciation method
D.Units-of-production depreciation method
E.Unrealized depreciation method
38) When using the indirect method to calculate and report net cash provided or used by
operating activities, which of the following is subtracted from net income?
A.Decrease in income taxes payable
B.Depreciation expense
C.Amortization of intangible assets
D.Bad debts expense
E.Decrease in merchandise inventory
39) A department store has budgeted sales of 12,000 men’s suits in September.
Management wants to have 6,000 suits in inventory at the end of the month to prepare
for the winter season. Beginning inventory for September is expected to be 4,000 suits.
What is the dollar amount of the purchase of suits? Each suit has a cost of $75.
A.$750,000
B.$900,000
C.$1,050,000
D.$1,200,000
E.$1,350,000
40) A company purchased a rope braiding machine for $190,000. The machine has a
useful life of 8 years and a residual value of $10,000. It is estimated that the machine
could produce 750,000 units of climbing rope over its useful life. In the first year,
105,000 units were produced. In the second year, production increased to 109,000 units.
Using the units-of-production method, what is the amount of depreciation that should
be recorded for the second year?
A.$25,200
B.$26,160
C.$26,660
D.$27,613
E.$53,160
41) When analyzing the changes on a spreadsheet used to prepare a statement of cash
flows, the cash flows from investing activities generally affect:
A.Net income, current assets, and current liabilities
B.Noncurrent assets
C.Noncurrent liability and the equity accounts
D.Both noncurrent assets and noncurrent liabilities
E.Equity accounts only
42) Which of the following budgets must be completed before a cash budget can be
prepared?
A.Capital expenditures budget
B.Sales budget
C.Merchandise purchases budget
D.General and administrative expense budget
E.All of these
43) Kent Company anticipates total sales for April, May, and June of $800,000,
$900,000, and $950,000 respectively. Cash sales are normally 25% of total sales. Of the
credit sales, 30% are collected in the same month as the sale, 65% are collected during
the first month after the sale, and the remaining 5% are not collected. Compute the
amount of cash received from credit sales for June.
A.$561,500
B.$652,500
C.$817,500
D.$592,500
E.$890,000
44) Interest is:
A.Time.
B.A borrower’s payment to the owner of an asset for its use.
C.The same as a savings account.
D.Always a liability.
E.Always an asset.
45) Calculate the gross margin ratio for each of the following separate cases A through
D:
46) Product A requires 5 machine hours per unit to be produced, Product B requires
only 3 machine hours per unit, and the company’s productive capacity is limited to
240,000 machine hours. Product A sells for $16 per unit and has variable costs of $6 per
unit. Product B sells for $12 per unit and has variable costs of $5 per unit. Assuming the
company can sell as many units of either product as it produces, the company should:
A.Produce only Product A
B.Produce only Product B
C.Produce equal amounts of A and B
D.Produce A and B in the ratio of 62.5% A to 37.5% B
E.Produce A and B in the ratio of 40% A and 60% B
47) A company uses the perpetual inventory system and recorded the following entry
This entry reflects a:
A.Purchase of merchandise on credit.
B.Return of merchandise.
C.Sale of merchandise on credit.
D.Payment of the account payable and recognition of a 2% cash discount taken.
E.Payment of the account payable and recognition of a 1% cash discount taken.
48) Montgomery Marketing Co. had assets of $475,000; liabilities of $275,500; and
equity of $199,500. Calculate its debt ratio.
49) Ceres Computer Sales uses the perpetual inventory system and had the following
transactions during December.
50) A product is sold for $45 and has variable costs of $33 per unit. The total fixed costs
for the firm are $180,600. If the firm desires to earn a pretax income of $77,400, how
many units must be sold?
51) When a job is finished, its job cost sheet is completed and moved from the jobs in
process file to the ____________________ file.
52) The ______________________ method of assigning costs to inventory and cost of
goods sold required that we divide the cost of goods available for sale by the units of
inventory available at the time of each sale.
53) Medlar Corp. maintains a Web-based general ledger. Overhead is applied on the
basis of direct labor costs. Its bookkeeper accidentally deleted most of the entries that
had been recorded for January. A printout of the general ledger (in T-account form)
showed the following:
A review of the prior year’s financial statements, the current year’s budget, and
January’s source documents produced the following information:
(1) Accounts Payable is used for raw material purchases only. January purchases were
$49,000.
(2) Factory overhead costs for January were $17,000 none of which is indirect
materials.
(3) The January 1 balance for finished goods inventory was $10,000.
(4) There was a single job in process at January 31 with a cost of $2,000 for direct
materials and $1,500 for direct labor.
(5) Total cost of goods manufactured for January was $90,000.
(6) All direct laborers earn the same rate ($13/hour). During January, 2,500 direct labor
hours were worked.
(7) The predetermined overhead allocation rate is based on direct labor costs. Budgeted
(expected) overhead for the year is $195,000 and budgeted (expected) direct labor is
$390,000.
Fill in the missing amounts a through o above in the T-accounts above.