1) Under a just-in-time manufacturing system, large quantities of inventory are
accumulated throughout the factory to be certain that needed components are available
each time that they are needed.
2) Standard costs provide a basis for assessing the reasonableness of actual costs
incurred for producing a product or service.
3) Special journals allow an efficient division of labor, which is also an effective control
procedure.
4) Since a predetermined overhead allocation rate is established before a period begins,
this rate is revised many times during the period to compensate for inaccurate estimates
previously made.
5) Accounts that appear in the balance sheet are often called temporary (nominal)
accounts.
6) The state unemployment tax rates applied to an employer are adjusted according to
an employer’s merit rating.
7) The payback method, unlike the net present value method, does not ignore cash
flows after the point of cost recovery.
8) Foreign exchange rates fluctuate due to many factors including changing political
and economic conditions.
9) Management by exception allows managers to focus on the most significant
variances in performance.
10) Under both the periodic and perpetual inventory systems, the temporary account
Purchases Returns and Allowances is used to accumulate the cost of all returns and
allowances for a period.
11) Cost accounting information is helpful to management in controlling costs but has
no effect on pricing decisions.
12) Plant assets are used in operations and have useful lives that extend over more than
one accounting period.
13) A spreadsheet can help organize the information needed to prepare a statement of
cash flows.
14) The record in which transactions are first recorded is the:
A.Account balance
B.Ledger
C.Journal
D.Trial balance
E.Cash account
15) During the month of September, Norris Industries issued a check in the amount of
$845 to a supplier on account. The check cleared the bank during September. The
disbursement was recorded incorrectly as $854. The journal entry to correct this
mistake when discovered will include:
A.A debit to Accounts Payable for $854
B.A credit to Cash for $854
C.A credit to Cash for $9
D.A credit to Accounts Payable for $9
E.A debit to Cash for $49
16) The unadjusted trial balance of Quick Delivery 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, $5,000.
(b) An inventory of supplies showed $1,000 of unused supplies still on hand.
(c) Depreciation on delivery vans, $24,000.
(d) Services paid in advance by customers of $10,000 have now been provided to
customers.
17) For each of the following items, indicate whether it would be classified as an (O)
operating activity, an (I) investing activity, a (F) financing activity, or a significant (N)
noncash financing and investing activity.
1>operating activity, an A. Received cash dividends from investments in trading
securities.
2>financing activity, or a significant B. Collected accounts receivable from customers.
3>noncash financing and investing activity C. Issued bonds payable for cash.
4>financing activity, or a significant D. Paid wages to employees.
5>investing activity, a E. Issued stock for cash.
6>financing activity, or a significant F. Sold equipment for cash.
7>operating activity, an G. Purchased land in exchange for a note payable.
8>operating activity, an H. Paid cash dividends.
9>operating activity, an I. Received interest from investments in trading securities.
10>investing activity, a J. Purchases of land for cash.
18) Costs that flow directly to the current income statement are called:
A.Period costs
B.Product costs
C.General costs
D.Balance sheet costs
E.Capitalized costs
19) An adjusting entry could be made for each of the following except:
A.Prepaid expenses
B.Depreciation
C.Owner withdrawals
D.Unearned revenues
E.Accrued revenues
20) On January 1, a company issues bonds dated January 1 with a par value of
$300,000. The bonds mature in 5 years. The contract rate is 9%, and interest is paid
semiannually on June 30 and December 31. The market rate is 8% and the bonds are
sold for $312,177. The journal entry to record the first interest payment using the
effective interest method of amortization is:
A.Debit Interest Expense $12,487.08; debit Premium on Bonds Payable $1,012.92;
credit Cash $13,500.00
B.Debit Interest Payable $13,500; credit Cash $13,500.00
C.Debit Interest Expense $12,487.08; debit Discount on Bonds Payable $1,012.92;
credit Cash $13,500.00
D.Debit Interest Expense $14,717.70; credit Premium on Bonds Payable $1,217.70;
credit Cash $13,500.00
E.Debit Interest Expense $12,282.30; debit Premium on Bonds Payable $1,217.70;
credit Cash $13,500.00
21) Yamaguchi Company’s break even point in units is 1,000. The sales price per unit is
$10 and variable cost per unit is $7. If the company sells 2,500 units, what will net
income be?
A.$4,500
B.$7,500
C.$17,000
D.$35,000
E.Fixed costs must be known in order to predict net income
22) A job order cost accounting system would best fit the needs of a company that
makes:
A.Shoes and apparel
B.Paint
C.Cement
D.Custom machinery
E.Pencils and erasers
23) David and Jeannie formed This & That as a limited liability company. Unless the
member owners elect to be treated otherwise, the Internal Revenue Service will tax the
LLC as:
A.An S corporation
B.A C corporation
C.A non-taxable entity
D.A joint venture
E.A partnership
24) The following information is available for Hammel Company:
a. The Cash Budget for March shows a bank loan of $10,000 and an ending cash
balance of $48,000.
b. The Sales Budget for March indicates sales of $120,000. Accounts receivable is
expected to be 70% of the current-month sales.
c. The Merchandise Purchases Budget indicates that $90,000 in merchandise will be
purchased in March on account and ending inventory for March is predicted to be 600
units @ $35. Purchases on account are paid 100% in the month following the purchase.
d. The Budgeted Income Statement shows a net income of $48,000 and $26,000 in
income tax expense for the quarter ended March 31. Accrued taxes will be paid in April.
e. The Balance Sheet for February shows equipment of $84,000 with accumulated
depreciation of $30,000, common stock of $25,000 and ending retained earnings of
$8,000. There are no changes budgeted in the equipment or common stock accounts.
Prepare a budgeted balance sheet for March.
25) For each of the following items, indicate whether it would be classified as either an
(O) operating activity, an (I) investing activity, a (F) financial activity, or a significant
(N) noncash financing and investing activity.
1>noncash financing and investing activity A. Cash sales of merchandise.
2>operating activity, an B. Sale of land for cash.
3>financial activity, or a significant C. Signed a note payable in exchange for cash.
4>operating activity, an D. Purchased supplies for cash.
5>investing activity, a E. Paid cash to settle an account payable.
26) Eagle Company is considering the purchase of an asset for $100,000. It is expected
to produce the following net cash flows. The cash flows occur evenly throughout each
year. Compute the break-even time (BET) period for this investment. (Round to two
decimal places.)
A.2.85 years
B.2.57 years
C.3.17 years
D.2.98 years
E.3.62 years
27) The balance in the prepaid insurance account before adjustment at the end of the
year is $4,800, which represents the insurance premiums for four months. The
premiums were paid on November 1. The adjusting entry required on December 31 is:
A.Debit Insurance Expense, $2,400; credit Prepaid Insurance, $2,400
B.Debit Prepaid Insurance, $2,400; credit Insurance Expense, $2,400
C.Debit Insurance Expense, $1,200; credit Prepaid Insurance, $1,200
D.Debit Prepaid Insurance, $1,200; credit Insurance Expense, $1,200
E.Debit Cash, $4,800; Credit Prepaid Insurance, $4,800
28) A company has fixed costs of $90,000. Its contribution margin ratio is 30% and the
product sells for $75 per unit. What is the company’s break-even point in dollar sales?
A.$60,000
B.$128,571
C.$180,000
D.$210,000
E.$300,000
29) Thomas Enterprises purchased a depreciable asset on October 1, Year 1 at a cost of
$100,000. The asset is expected to have a salvage value of $15,000 at the end of its
five-year useful life. If the asset is depreciated on the double-declining-balance method,
the asset’s book value on December 31, Year 3 will be:
A.$27,540
B.$21,600
C.$32,400
D.$18,360
E.$90,000
30) All of the following statements regarding recognition of receivables under U.S.
GAAP and IFRS are True except:
A.U.S. GAAP and IFRS have similar asset criteria that apply to recognition of
receivables
B.Receivables that arise from revenue-generating activities are subject to broadly
similar criteria for U.S. GAAP and IFRS
C.The realization principle under IFRS implies an arm’s length transaction occurs
D.Both refer to the realization principle and an earnings process
E.Differences arise mainly from industry-specific guidance under U.S. GAAP
31) Which of the following characteristics does not usually apply to process
manufacturing systems?
A.Each unit of product is separately identifiable
B.Partially completed products are transferred between processes
C.Different managers are responsible for different processes
D.The output of all processes except the final process is an input to the next process
E.All of these are characteristics of process manufacturing systems
32) Cash equivalents:
A.Include savings accounts
B.Include checking accounts
C.Are short-term investments sufficiently close to their maturity date that their value is
not sensitive to interest rate changes
D.Include time deposits
E.Have no immediate value
33) Collins and Farina are forming a partnership. Collins is investing a building that has
a market value of $80,000. However, the building carries a $56,000 mortgage that will
be assumed by the partnership. Farina is investing $20,000 cash. The balance of Collins’
Capital account will be:
A.$80,000
B.$24,000
C.$56,000
D.$44,000
E.$60,000
34) Teller purchased merchandise from TechCom on October 17 of the current year and
TechCom accepted Teller’s $4,800, 90-day, 10% note. What entry should TechCom
make on January 15 of the next year when the note is paid?
A.Debit Notes Receivable $4,800; debit Interest Receivable $120; credit Sales $4,920
B.Debit Cash $4,920; credit Notes Receivable $4,920
C.Debit Cash $4,920; credit Interest Revenue $100; credit Interest Receivable $20;
credit Notes Receivable $4,800
D.Debit Cash $4,920; credit Interest Revenue $20; credit Interest Receivable $100;
credit Notes Receivable $4,800
E.Debit Cash $4,920; credit Interest Revenue $120; credit Notes Receivable $4,800
35) Book value per share:
A.Reflects the value per share if a company is liquidated at balance sheet amounts
B.Is assets divided by equity
C.Is assets divided by the number of common shares outstanding
D.Measures the worth of assets
E.Is equal to par value per share
36) Philip Company uses special journals to record transactions. Below are the sales
journal and cash receipts journal for Philip. Prepare the following:
a. Open an accounts receivable subsidiary ledger having a T-account for each customer.
Post the invoices to the subsidiary ledger.
b. Open an Accounts Receivable controlling T-Account. Post the end-of the month
totals that affect the Accounts Receivable account only.
c. Prepare a schedule of accounts receivable and prove that its total equals the Accounts
Receivable controlling account balance.
37) Use the information in the adjusted trial balance presented below to calculate the
current ratio for Jones Company:
A.1.87
B..54
C.3.92
D.1.77
E.1.60
38) A company using the net method of recording purchases failed to take advantage of
a discount available. When they pay the full (gross) amount of an invoice at the end of
the credit period the journal entry will include a debit to:
A.Merchandise Inventory
B.Sales Discounts
C.Discounts Lost
D.Cash
E.Accounts Receivable
39) The most useful evaluation of a manager’s cost performance is based on:
A.Controllable costs
B.Contribution percentages
C.Departmental contributions to overhead
D.Uncontrollable expenses
E.Direct costs
40) Match each of the following terms with the appropriate definitions.
1>Stated value stock A. A preferred stock that has the right to be paid both the current
and all prior periods’ unpaid dividend before any dividend is paid to common
stockholders.
2>Call price B. The value assigned to a share of stock by the corporate charter when the
stock is authorized.
3>Stockholders’ equity C. The difference between the par value of stock and its issue
price when it is issued at a price above par value.
4>Market value per share D. Stockholders equity applicable to common shares divided
by the number of common shares outstanding.
5>Financial leverage E. The earning of a higher return on common stock by paying
dividends on preferred stock or interest on debt at a rate that is less than the rate of
return earned with the assets from issuing preferred stock or debt.
6>Book value per common share F. The amount that must be paid to call and retire a
preferred share.
7>Par value G. The price at which stock is bought or sold in the market.
8>Premium on stock H. The equity of a corporation.
9>Preferred stock I. Stock that gives its owners a priority status over common
stockholders in one or more ways, such as the payment of dividends or the distribution
of assets.
10>Cumulative preferred stock J. No-par stock to which the directors assign a stated
value per share; this amount becomes the minimum legal capital.
41) At the beginning of the current year, Taunton Company’s total assets were $248,000
and its total liabilities were $175,000. During the year, the company reported total
revenues of $93,000, total expenses of $76,000 and owner withdrawals of $5,000.
There were no other changes in owner’s capital during the year and total assets at the
end of the year were $260,000. Taunton Company’s debt ratio at the end of the current
year is:
A.70.6%
B.67.3%
C.32.7%
D.48.6%
E.Cannot be determined from the information provided
42) External users of accounting information include all of the following except:
A.Shareholders
B.Customers
C.Purchasing managers
D.Government regulators
E.Creditors
43) The measurement of key relations among financial statement items is known as:
A.Financial reporting
B.Horizontal analysis
C.Investment analysis
D.Ratio analysis
E.Risk analysis
44) On October 1, a $30,000, 6%, 3-year installment note payable is issued by a
company. The note requires equal payments of principal plus accrued interest be paid at
the end of each year on September 30. The present value of an annuity factor for 3 years
at 6% is 2.6730. The payment will be:
A.$10,000.00
B.$11,223.34
C.$10,800.00
D.$10,400.00
E.$1,223.34
45) Period costs for a manufacturing company would flow directly to:
A.The current income statement
B.Factory overhead
C.The current balance sheet
D.Job cost sheet
E.The current manufacturing statement
46) An asset created by prepayment of an expense is:
A.Recorded as a debit to an unearned revenue account
B.Recorded as a debit to a prepaid expense account
C.Recorded as a credit to an unearned revenue account
D.Recorded as a credit to a prepaid expense account
E.Not recorded in the accounting records until the earnings process is complete
47) _____________ are the federal income tax rules for depreciating assets.
48) Calculate the percent increases for each of the following selected balance sheet
items.
49) A company made the following purchases during the year:
On December 31, there were 28 units in ending inventory. These 28 units consisted of 1
from the January 10 purchase, 2 from the March 15 purchase, 5 from the April 25
purchase, 15 from the July 30 purchase, and 5 from the October 10 purchase. Using
specific identification, calculate the cost of the ending inventory.
50) ___________________ bonds have an option exercisable by the issuer to retire
them at a stated dollar amount prior to maturity.
51) Increases in assets are _______________ to asset accounts, increases in liabilities
are _______________ to liability accounts.
52) A company has a goal of earning $100,000 in after-tax income. The company must
pay $28,000 in income tax if it achieves the goal. The contribution margin ratio is 30%.
What dollar amount of sales must be achieved to reach the goal if fixed costs are
$64,000?
53) The ________________ method of accounting for bad debts records the loss from
an uncollectible account receivable at the time it is determined to be uncollectible (and
not before).
54) During the year, RB Corp. introduced 132,000 units into production and 144,000
units were completed and transferred to finished goods. At the end of the year, the
company had 13,600 units in process that were 80% complete. Determine how many
units the company had in goods in process at the beginning of the year.