1) When the rate of return on total assets ratio is greater than the rate of return on
common stockholders’ equity ratio, the management of the company has effectively
used leverage.
2) The excess of the cash flowing in from revenues over the cash flowing out for
expenses is termed net discounted cash flow.
3) The difference between the balance in Accounts Receivable and the balance in the
Allowance for Doubtful Accounts is called the net realizable value.
4) A business using the perpetual inventory system, with its detailed subsidiary records,
does not need to take a physical inventory.
5) In a perpetual inventory system, when merchandise is returned to the seller, Cost of
Merchandise Sold is debited as part of the transaction.
6) The party promising to pay a note at maturity is the maker.
7) The major advantage of the rate of return on investment over income from operations
as a divisional performance measure is that divisional investment is directly considered
and thus comparability of divisions is facilitated.
8) The right hand side of a T account is known as a debit and the left hand side is
known as a credit.
9) Vertical analysis is useful for analyzing financial statement changes over time.
10) A contra asset account for Land will normally appear in the balance sheet.
11) When estimated costs are used in applying the cost-plus approach to product
pricing, the estimates should be based upon normal levels of performance.
12) Title to merchandise shipped FOB shipping point passes to the buyer upon delivery
of the merchandise to the buyer’s place of business.
13) The number of days’ sales in inventory is one means of expressing the relationship
between the cost of goods sold and inventory.
14) If a company has preferred stock, the preferred stock dividend is added to net
income when computing earnings per common share.
15) Which of the following is not a certification for accountants?
A.CIA
B.CMA
C.CISA
D.All are certifications
16) Eagle Co. manufactures bentwood chairs and tables. Wood for both products is
steam-bent in the same process, but different types of wood are used for each product.
Thus, materials cost is identified separately to each product. One production cycle uses
20 board feet. Labor cost is identified to the process as a whole, as is overhead cost.
Data for the month of July follow:
(a) Compute July’s predetermined rate for the steam-bending process.
(b) Compute July’s direct material costs for chairs and tables.
(c) Compute conversion costs to be applied to chairs and tables in July.
(d) Journalize the following entries:
(1) Assignment of direct materials to chairs and tables.
(2) Application of conversion costs to chairs and tables.
(3) The transfer of completed chairs and tables to the Finishing Department. All of
July’s production was completed in July.
17) Any unamortized premium should be reported on the balance sheet of the issuing
corporation as
A.a direct deduction from the face amount of the bonds in the liability section
B.as paid-in capital
C.a direct deduction from retained earnings
D.an addition to the face amount of the bonds in the liability section
18) Which of the following is included in the cost of land?
A.cost of paving a parking lot
B.brokerage commission
C.outdoor parking lot lighting attached to the land
D.fences on the land
19) A purchase of supplies on account is recorded in the
A.Revenue journal
B.General journal
C.Purchases journal
D.Cash Payments journal
20) The ability of a corporation to obtain capital is
A.less than a partnership
B.about the same as a partnership
C.restricted because of the limited life of the corporation
D.enhanced because of limited liability and ease of share transferability
21) Complete the missing items in the following chart:
Prepaid Expenses
Examples Adjusting Entry Financial Statement Impact if Adjusting Entry is
Omitted
Supplies,(a) Dr. Expense Cr. Asset Income Statement: Revenues: No effect Expenses:
Understated Net income: (b)Balance Sheet: Assets: (c) Liabilities: (d) Owners equity:
Overstated
Unearned Revenues
Examples Adjusting Entry Financial Statement Impact if Adjusting Entry is
Omitted
Unearned Rent,(e) (f) Income Statement: Revenues: (g) Expenses: No effect Net
income: (h)Balance Sheet: Assets: (i) Liabilities: Overstated Owners equity: (j)
Accrued Revenues
Examples Adjusting Entry Financial Statement Impact if Adjusting Entry is
Omitted
Interest income due on a note,(k) Dr. Asset Cr. Revenue Income Statement: Revenues:
(l) Expenses: (m) Net income: UnderstatedBalance Sheet: Assets: (n) Liabilities: (o)
Owners equity: Understated
Accrued Expenses
Examples Adjusting Entry Financial Statement Impact if Adjusting Entry is
Omitted
Interest due on a Notes Payable, (p) (q) Income Statement: Revenues: No effect
Expenses: (r) Net income: (s)Balance Sheet: Assets: (t) Liabilities: Understated Owners
equity: (u)
22) The following items were taken from the financial statements of Stanton, Inc., over
a three-year period:
Compute the following for each of the above time periods.
Round percentage to one decimal place.
23) Department G had 3,600 units, 25% completed at the beginning of the period,
11,000 units were completed during the period, 3,000 units were one-fifth completed at
the end of the period, and the following manufacturing costs were debited to the
departmental work in process account during the period:
Assuming that all direct materials are placed in process at the beginning of production
and that the first-in, first-out method of inventory costing is used, what is the total cost
of the units ‘started and completed” during the period (round unit cost calculations to
four decimal places)?
A.$211,200
B.$120,060
C.$190,275
D.$20,934
24) Which of the following is most associated with financial accounting?
A.Can have both objective and subjective information
B.Can be prepared periodically, or as needed
C.Prepared in accordance with GAAP
D.Can be prepared for the entity or segment
25) The balance in the prepaid rent account before adjustment at the end of the year is
$32,000, which represents four months’ rent paid on December 1. The adjusting entry
required on December 31 is
A.debit Rent Expense, $8,000; credit Prepaid Rent, $8,000
B.debit Prepaid Rent, $24,000; credit Rent Expense, $8,000
C.debit Rent Expense, $24,000; credit Prepaid Rent, $8,000
D.debit Prepaid Rent, $8,000; credit Rent Expense, $8,000
26) A business is considering a cash outlay of $300,000 for the purchase of land, which
it could lease for $36,000 per year. If alternative investments are available which yield
an 18% return, the opportunity cost of the purchase of the land is:
A.$54,000
B.$36,000
C.$18,000
D.$72,000
27) The amount of the promissory note plus the interest earned on the due date is called
the
A.interest value
B.maturity value
C.face value
D.issuance value
28) Singer and McMann are partners in a business. Singers original capital was $40,000
and McManns was $60,000. They agree to salaries of $12,000 and $18,000 for Singer
and McMann respectively and 10% interest on original capital. If they agree to share
remaining profits and losses on a 3:2 ratio, what will McManns share of the income be
if the income for the year was $30,000?
A.$20,000
B.$18,000
C.$18,600
D.$17,400
29) Xavier and Yolanda have original investments of $50,000 and $100,000
respectively in a partnership. The articles of partnership include the following
provisions regarding the division of net income: interest on original investment at 10%,
salary allowances of $38,000 and $28,000 respectively, and the remainder equally. How
much of the net income of $75,000 is allocated to Yolanda?
A.$66,000
B.$40,000
C.$35,000
D.$43,000
30) The following production data were taken from the records of the Finishing
Department for June:
Determine the number of material equivalent units of production in the June 30
Finishing Department inventory, assuming that the first-in, first-out method is used to
cost inventories and materials were added at the beginning of the process.
A.7,000 units
B.68,000 units
C.72,000 units
D.76,000 units
31) Materials used by Best Bread Company in producing Division A’s product are
currently purchased from outside suppliers at a cost of $30 per unit. However, the same
materials are available from Division B. Division B has unused capacity and can
produce the materials needed by Division A at a variable cost of $20 per unit.
(a) If a transfer price of $25 per unit is established and 60,000 units of material are
transferred, with no reductions in Division B’s current sales, how much would Best
Bread Company’s total income from operations increase?
(b) Assuming transfer price of $25 per unit is established and 60,000 units of material
are transferred, with no reductions in Division B’s current sales, how much would the
income from operations of Division A increase?
(c) Assuming transfer price of $25 per unit is established and 60,000 units of material
are transferred, with no reductions in Division B’s current sales, how much would the
income from operations of Division B increase?
(d) If the negotiated price approach is used, what would be the range of acceptable
transfer prices?
32) Copy equipment was acquired at the beginning of the year at a cost of $72,000 that
has an estimated residual value of $9,000 and an estimated useful life of 5 years. It is
estimated that the machine has an estimated 1,000,000 copies. This year 315,000 copies
were made. Determine the (a) depreciable cost, (b) depreciation rate, and (c) the
units-of-production depreciation for the year.
33) Joshua Scott invests $40,000 into his new business. How would the journal entry
for this transaction be entered in the journal?
A.Cash 40,000
Joshua Scott, Capital 40,000
Invested cash in business
B.Cash 40,000
Joshua Scott, Capital 40,000
Invested cash in business
C.Joshua Scott, Capital 40,000
Cash 40,000
Invested cash in business
D.Joshua Scott, Loan 40,000
Cash 40,000Invested cash in business
34) Which of the following statements concerning taxation is accurate?
A.Corporations pay federal income taxes but not state income taxes
B.Corporations pay federal and state income taxes
C.Only the owners must pay taxes on corporate income
D.Corporations pay income taxes but their owners do not
35) At the end of the current year, Accounts Receivable has a balance of $700,000;
Allowance for Doubtful Accounts has a credit balance of $5,500; and net sales for the
year total $3,500,000. Bad debt expense is estimated at 1/2 of 1% of net sales.
Determine (a) the amount of the adjusting entry for bad debt expense; (b) the adjusted
balances of Accounts Receivable, Allowance of Doubtful Accounts; and Bad Debt
Expense; and (c) the net realizable value of accounts receivable.
36) Receipts from cash sales of $3,200 were recorded incorrectly in the cash receipts
journal as $2,300. What entry is required in the company’s accounts?
A.debit Sales; credit Cash
B.debit Cash; credit Accounts Receivable
C.debit Cash; credit Sales
D.debit Accounts Receivable; credit Cash
37) Determine the depreciation, for the year of acquisition and for the following year, of
a fixed asset acquired on October 1 for $500,000, with an estimated life of 5 years, and
residual value of $50,000, using (a) the declining-balance method at twice the
straight-line rate and (b) the straight-line method. Assume a fiscal year ending
December 31
38) Jacks Corporation purchases $200,000 bonds plus accrued interest for 2 months of
$2,000 from Kennedy Company on March 1. The bonds have an annual interest rate of
6% payable on June 30 and December 31. The entry to record the purchase of the bonds
would include:
A.Interest Receivable debit $2,000
B.Investment in Bonds debit $202,000
C.Cash debit $200,000
D.Interest Revenue credit $2,000
39) The following is a measure of a managers performance working in an investment
center.
A.rate of return on investment
B.residual income
C.divisional income statements
D.all of the responses
40) Shiny Kar Company had the following transactions. For each transaction, show the
effect on the accounting equation by putting the amount and direction (plus, minus, or
NC for no change) in each box of the table below.
Assets Liabilities Owners Equity
a. Shiny Kar withdrew $500 cash for food.
b. Shiny Kar Company sold 2 cars for a total of $55,000 on account.
c. The cost of the cars sold in (b) above was $40,000.
d. Shiny Kar received $35,000 payment for a car previously sold on account.
e. Shiny Kar paid $450 for advertising.
f. Shiny Kar purchased $150 of cleaning supplies on account.
41) A business pays weekly salaries of $25,000 on Friday for a five-day week ending on
that day. The adjusting entry necessary at the end of the fiscal period ending on Tuesday
is
A.debit Salaries Payable, $10,000; credit Cash, $10,000
B.debit Salary Expense, $10,000; credit Drawing, $10,000
C.debit Salary Expense, $10,000; credit Salaries Payable, $10,000
D.debit Drawing, $10,000; credit Cash, $10,000
42) The account Unrealized Gain (Loss) on Trading Securities should be included in the
A.Income statement as Other Revenue (Expenses)
B.Balance sheet as an adjustment to the asset account
C.Balance sheet as an adjustment to Stockholders’ Equity
D.Statement of Retained Earnings
43) Below is a table for the present value of $1 at Compound interest.
Below is a table for the present value of an annuity of $1 at compound interest.
Using the tables above, what is the present value of $4,000 (rounded to the nearest
dollar) to be received at the end of each of the next four years, assuming an earnings
rate of 12%?
A.$2,544
B.$1,000
C.$12,148
D.$14,420
44) Fees receivable would appear on the balance sheet as a(n)
A.asset
B.liability
C.fixed asset
D.unearned revenue
45) Selected transaction data of a business for September are summarized below.
Determine the following amounts for September: (a) total revenue, (b) total expenses,
(c) net income.
46) The entry to adjust for the cost of supplies used during the accounting period is
A.debit Supplies Expense; credit Supplies
B.debit Owner Capital; credit Supplies
C.debit Accounts Payable; credit Supplies
D.debit Supplies; credit Owner Capital
47) Purchased $400,000 of ABC Co. 5% bonds at 100 plus accrued interest of $4,500.
Sold $250,000 of bonds at 97 plus accrued interest. The journal entry for the sale would
include:
A.a debit to Cash for $242,500
B.a credit to Loss on Sale for $7,500
C.a credit to Gain on Sale for $7,500
D.a debit to Cash for $244,300
48) Which of the following is required by the Sarbanes-Oxley Act of 2002?
A.A price-earnings ratio
B.A report on internal control
C.A vertical analysis
D.A common-sized statement
49) Department J had no work in process at the beginning of the period, 18,000 units
were completed during the period, 2,000 units were 30% completed at the end of the
period, and the following manufacturing costs were debited to the departmental work in
process account during the period (Assuming the company uses FIFO and rounds
average cost per unit to two decimal places):
Assuming that all direct materials are placed in process at the beginning of production,
what is the total cost of the 18,000 units completed during the period?
A.$90,000
B.$193,140
C.$16,438
D.$283,140
50) Define the meaning of B2C and B2B.
51) Safeguarding inventory from damage or theft is a primary objective for the control
of inventory. If you were running a clothing store, name three specific controls you
would implement to guard inventory from theft.
52) A portion of the divisional income statement for the year just ended is presented
below in condensed form.
The operating expenses of Department B include $50,000 for direct expenses.
It is estimated that the discontinuance of Department B would not have affected the
sales of the other departments nor have reduced the indirect expenses of the business.
Assuming the accuracy of these estimates, determine the effect (increase or decrease
and amount) on the income from operations of the business if Department B had been
discontinued.
53) Equipment acquired on January 2, 2011 at a cost of $273,500 has an estimated
useful life of eight years and an estimated residual value of $35,500.
Required:
54) During August, the first month of the fiscal year, sales totaled $875,000 and the cost
of merchandise available for sale totaled $700,000. Estimate the cost of the
merchandise inventory as of August 31, based on an estimated gross profit rate of 45%.
55) List and define each of the five elements of internal control.
