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1) To grant a customer a sales return, the seller credits Sales Returns and Allowances.
2) The operating cycle of a company is the average time required to collect the
receivables resulting from producing revenues.
3) Meaningful analysis of financial statements will include either horizontal or vertical
analysis, but not both.
4) The balance of the depreciation expense account will appear in the income statement
debit column of a worksheet.
5) Management consulting includes examining the financial statements of companies
and expressing an opinion as to the fairness of their presentation.
6) A partnership is an association of no more than two persons to carry on as co-owners
of a business for profit.
7) In computing the present value of an annuity, it is not necessary to know the number
of discount periods.
8) Inventory turnover is calculated as cost of goods sold divided by ending inventory.
9) There should be a separate job cost sheet for each job.
10) Planning involves coordinating the diverse activities and human resources of a
company to produce a smooth running operation.
11) The management function of organizing and directing is mainly concerned with
setting goals and objectives for the entity.
12) Earnings per share is calculated by dividing net income by the weighted-average
number of shares of preferred stock and common stock outstanding.
13) For CVP analysis, both variable and fixed costs are assumed to have a linear
relationship within the relevant range of activity.
14) Fewer materials requisitions are generally required in a process cost system than in
a job order cost system.
15) Corporations invest in other companies for all of the following reasons except to
a.house excess cash until needed
b.generate earnings
c.meet strategic goals
d.increase trading of the other companies stock
16) Which of the following assets does not decline in service potential over the course
of its useful life?
a.Equipment
b.Furnishings
c.Land
d.Fixtures
17) Eight transactions are recorded in the following T-accounts:
CASHACCOUNTS RECEIVABLE
(1)25,000(2)3,500(5)27,500(7)22,500
(7)22,500(3)1,950
(4)5,100
(6)8,000
(8)3,300
SUPPLIESEQUIPMENT
(3)1,950(2)13,500
OWNERS CAPITALSERVICE REVENUE
(1)25,000(5)27,500
ACCOUNTS PAYABLEOWNERS DRAWINGS
(6)8,000(2)10,000(8)3,300
SALARIES AND WAGES EXPENSE
(4)5,100
Indicate for each debit and each credit: (a) whether an asset,
liability, capital, drawing, revenue, or expense account was affected and (b) whether the
account was increased (+) or () decreased. Answers should be presented in the
following chart form:
TransactionAccount DebitedAccount Credited
No.TypeEffectTypeEffect
(1)(Example)Asset+Capital+
(2)
(3)
(4)
(5)
(6)
(7)
(8)
18) Which one of the following is a problem resulting from a service company being
overstaffed?
a.Labor costs will be disproportionately low
b.Profits will be higher because of the additional salaries
c.Staff turnover may increase
d.Revenue may be lost
19) When an owner makes a withdrawal
a.it doesn't have to be cash, it could be another asset
b.the drawing account will be increased with a credit
c.the capital account will be directly increased with a debit
d.the drawing account will be decreased with a debit
20) An investment center generated a contribution margin of $300,000, fixed costs of
$200,000 and sales of $2,000,000. The centers average operating assets were $800,000.
How much is the return on investment?
a.15%
b.33%
c. 10%
d.37.5%
21) A master budget consists of
a.an interrelated long-term plan and operating budgets
b.financial budgets and a long-term plan
c.interrelated financial budgets and operating budgets
d.all the accounting journals and ledgers used by a company
22) Which of the following is not a right or preference associated with preferred stock?
a.The right to vote
b.First claim to dividends
c.Preference to corporate assets in case of liquidation
d.To receive dividends in arrears before common stockholders receive dividends
23) All of the following intangible assets are amortized except
a.copyrights
b.limited-life franchises
c.patents
d.trademarks
24) Short-term notes receivable are reported at
a.cash (net) realizable value
b.face value
c.gross realizable value
d.maturity value
25) The accountant at Almira Company is figuring out the difference in income taxes
the company will pay depending on the choice of either FIFO or LIFO as an inventory
costing method. The tax rate is 30% and the FIFO method will result in income before
taxes of $8,190. The LIFO method will result in income before taxes of $7,290. What is
the difference in tax that would be paid between the two methods?
a.$270
b.$630
c.$900
d.Cannot be determined from the information provided
26) A retail store credited the Sales Revenue account for the sales price and the amount
of sales tax on sales. If the sales tax rate is 5% and the balance in the Sales Revenue
account amounted to $262,500, what is the amount of the sales taxes owed to the taxing
agency?
a.$250,000
b.$262,500
c.$13,125
d.$12,500
27) The higher the rate of return for a given risk, the
a.more attractive the investment
b.less attractive the investment
c.higher the cost of capital
d.higher the hurdle rate
28) A common starting point in the budgeting process is
a.expected future net income
b.past performance
c.to motivate the sales force
d.a clean slate, with no expectations
29) For an activity base to be useful in cost behavior analysis,
a.the activity should always be stated in dollars
b.there should be a correlation between changes in the level of activity and changes in
costs
c.the activity should always be stated in terms of units
d.the activity level should be constant over a period of time
30) An example of a period cost, as opposed to a product cost, is:
a.factory utilities
b.wages of factory workers
c.salesperson's commissions
d.depreciation on the factory building
31) In the stockholders' equity section of the balance sheet, the classification of capital
stock consists of
a.additional paid-in capital and common stock
b.common stock and treasury stock
c.common stock, preferred stock, and treasury stock
d.common stock and preferred stock
32) If Chelsey Lynn invests $337,780 now and she will receive $500,000 at the end of
10 years, what annual rate of compound interest will she be earning on her investment?
a.4%
b.4.5%
c.5%
d.6%
33) Lager Company has other operating expenses of $260,000. There has been an
increase in prepaid expenses of $20,000 during the year, and accrued liabilities are
$15,000 lower than in the prior period. Using the direct method of reporting cash flows
from operating activities, what were Lager's cash payments for operating expenses?
a.$255,000
b.$265,000
c.$225,000
d.$295,000
34) Horizontal analysis is also called
a.linear analysis
b.vertical analysis
c.trend analysis
d.common size analysis
35) The accounting process involves all of the following except
a.identifying economic transactions that are relevant to the business
b.communicating financial information to users by preparing financial reports
c.recording nonquantifiable economic events
d.analyzing and interpreting financial reports
36) The liquidation of a partnership is a process containing the following steps:
1>Pay partnership liabilities in cash.
2>Allocate the gain or loss on realization to the partners on their income ratios.
3>Sell noncash assets for cash and recognize a gain or loss on realization.
4>Distribute remaining cash to partners on the basis of their remaining capital balances.
Identify the proper sequencing of the steps in the liquidation process.
a.3, 2, 4, 1
b.3, 2, 1, 4
c.1, 3, 2, 4
d.1, 4, 3, 2
37) Southern Foodie Company typically sells subscriptions on an annual basis, and
publishes six times a year. The magazine sells 80,000 subscriptions in January at $30
each. What entry is made in January to record the sale of the subscriptions?
a.Subscriptions Receivable2,400,000
Subscription Revenue2,400,000
b.Cash2,400,000
Unearned Subscription Revenue2,400,000
c.Subscriptions Receivable400,000
Unearned Subscription Revenue400,000
d.Prepaid Subscriptions2,400,000
Cash2,400,000
38) When a company owns more than 50% of the common stock of another company,
a.affiliated financial statements are prepared
b.consolidated financial statements are prepared
c.controlling financial statements are prepared
d.significant financial statements are prepared
39) The present value of a $10,000, 5-year bond, will be less than $10,000 if the
a.contractual interest rate is less than the market interest rate
b.contractual interest rate is greater than the market interest rate
c.bond is convertible
d.contractual interest rate is equal to the market interest rate
40) Free cash flow equals cash provided by
a.operations less capital expenditures and cash dividends
b.operations less cash dividends
c.investing activities less capital expenditures and cash dividends
d.operations less capital expenditures
41) Which of the following is an external user of accounting information?
a.Labor unions
b.Finance directors
c.Company officers
d.Managers
42) IFRS, compared to GAAP, tends to be more
a.detailed
b.rules-based
c.principles-based
d.full of disclosure requirements
43) Meca-Tech Industries had the following department information about physical
units and percentage of completion:
Physical Units
Work in process, June 1 (75%)8,000
Completed and transferred out15,000
Work in process, June 30 (50%)12,000
If materials are added at the beginning of the production process, what is the total
number of equivalent units for materials during June?
a.15,000
b.11,000
c.27,000
d.21,000
44) The ledger should be arranged in
a.alphabetical order
b.chronological order
c.dollar amount order
d.financial statement order
45) Adjusting entries can be classified as
a.postponements and advances
b.accruals and deferrals
c.deferrals and postponements
d.accruals and advances
46) Effie Company uses a periodic inventory system. Details for the inventory account
for the month of January, 2014 are as follows:
UnitsPer unit priceTotal
Balance, 1/1/14200$5.00$1,000
Purchase, 1/15/141005.30530
Purchase, 1/28/141005.50550
An end of the month (1/31/14) inventory showed that 160 units were on hand. If the
company uses LIFO, what is the value of the ending inventory?
a.$800
b.$832
c.$848
d.$868
47) The total direct labor hours required in preparing a direct labor budget are
calculated using the
a.sales forecast
b.production budget
c.direct materials budget
d.sales budget
48) The overhead controllable variance is calculated as the difference between actual
overhead costs incurred and the budgeted
a.overhead costs for the standard hours allowed
b.overhead costs applied to the product
c.overhead costs at the normal level of activity
d.fixed overhead costs
49) Messina Company is considering a capital investment of $300,000 in additional
productive facilities. The new machinery is expected to have a useful life of 5 years
with no salvage value. Depreciation is by the straight-line method. During the life of the
investment, annual net income and cash inflows are expected to be $30,000 and
$80,000, respectively. Messina has an 11% cost of capital rate, which is the minimum
acceptable rate of return on the investment.
Instructions
(Round to two decimals.)
(a)Compute (1) the annual rate of return and (2) the cash payback period on the
proposed capital expenditure.
(b)Using the discounted cash flow technique, compute the net present value.
50) When journalizing, the reference column is
a.left blank
b.used to reference the source document
c.used to reference the journal page
d.used to reference the financial statements
51) Which of the following statements concerning accrual-basis accounting is
incorrect?
a.Accrual-basis accounting follows the revenue recognition principle
b.Accrual-basis accounting is the method required by generally accepted accounting
principles
c.Accrual-basis accounting recognizes expenses when they are paid
d.Accrual-basis accounting follows the expense recognition principle
52) When units produced are greater than units sold, income under ________________
costing is higher than under ______________ costing.
53) Danielson Company uses a sales journal, a cash receipts journal, and a general
journal to record transactions with its customers. Record the following transactions in
the appropriate journals. The cost of all merchandise sold was 60% of the sales price.
July2Sold merchandise for $18,000 to B. Pine on account. Credit terms 2/10, n/30.
Sales invoice No. 100 .
July5Received a check for $1,100 from R. Giger in payment of his account.
July8Sold merchandise to F. Wenger for $900 cash.
July10Received a check in payment of Sales invoice No. 100 from B. Pine minus the
2% discount.
July15Sold merchandise for $9,000 to J. Long on account. Credit terms 2/10, n/30.
Sales invoice No. 101 .
July18Borrowed $20,000 cash from United Bank signing a 6-month, 10% note.
July20Sold merchandise for $12,000 to C. Judd on account. Credit terms 2/10, n/30.
Sales invoice No. 102 .
July25Issued a credit (reduction) of $700 to C. Judd as an allowance for damaged
merchandise previously sold on account.
July31Received a check from J. Long for $6,500 as payment on account.
DANIELSON COMPANY
Sales Journal
S1
InvoiceAcct. Rec. Dr.C. of G. S. Dr.
DateAccount DebitedNo.Ref.Sales Rev. Cr.Inventory. Cr.
DANIELSON COMPANY
General Journal
G1
DateExplanationRef.DebitCredit
DANIELSON COMPANY
Cash Receipts Journal
CR1
SalesAccountsSalesOther
AccountsCashDiscountsRec. Rev. AccountsC. of G. S. Dr.
DateCreditedRef.Dr.Dr.Cr. Cr.Cr.Inventory. Cr.
54) Production costs chargeable to the Brandinc Department in July in Magnum
Company are $30,000 for materials, $17,000 for labor, and $13,000 for manufacturing
overhead. Equivalent units of production are 25,000 for materials and 15,000 for
conversion costs.
Instructions
Compute the unit costs for materials and conversion costs.
55) Van Occupanther is the bookkeeper for Roscoe Company. Van has been trying to
get the balance sheet of Roscoe Company to balance. Roscoe s balance sheet is as
follows.
ROSCOE COMPANY
Balance Sheet
December 31, 2014
Assets Liabilities
Cash $ 9,400 Accounts payable $25,000
Supplies 7,100 Accounts receivable (19,500)
Equipment 45,000 Owners capital 65,200
Owners drawings 9,200 Total liabilities and
Total assets $70,700 owners equity $70,700
Instructions
Prepare a correct balance sheet.
56) On January 1, 2014, Lundy Corporation had Retained Earnings of $400,000.
During the year, Lundy had the following selected transactions:
1>Declared stock dividends of $50,000.
2>Declared cash dividends of $90,000.
3>A 2 for 1 stock split involving the issuance of 200,000 shares of $5 par value
common stock for 100,000 shares of $10 par value common stock.
4>Suffered a net loss of $70,000.
5>Corrected understatement of 2013 net income because of an inventory error of
$48,000.
Instructions
Prepare a retained earnings statement for the year.
57) Reineman Supply Company uses a periodic inventory system. During September,
the following transactions and events occurred.
Sept.3Purchased 90 backpacks at $25 each from Zuzu Company, terms 2/10, n/30.
Sept.6Received credit of $150 for the return of 6 backpacks purchased on Sept. 3 that
were defective.
Sept.9Sold 15 backpacks for $42 each to Bailey Books, terms 2/10, n/30.
Sept.13Paid Zuzu Company in full.
Instructions
Journalize the September transactions for Reineman Supply Company.
58) A new sales representative, Jiggs Lucero, has just received his copy of the
month-end financial reports. He is puzzled by the term "unearned revenue." He left the
following e-mail message for you on the company's bulletin board system:
What is this??? Creative Accounting, or what??? Line item 12 on year-to-date financials
shows over $25Gs in Unearned Revenue!!! Come on, guys! Either we earned it, or we
didn't ... Right??! Is this how you guys lower our commissions? Reply to j.lucero@sbd
Required:
Write a response to send to Jiggs.
59) Instructions: Complete the requirements specified for each of the following
independent situations.
1>Mellies Company purchased land and an office building on September 1 for a
combined cash price of $2,200,000. The land had a cost of $1,300,000 and the building
had a book value of $1,030,000 on the seller's books. The land and building had fair
market values of $1,400,000 and $800,000, respectively on September 1 . Mellies made
the following entry at acquisition:
Land 1,300,000
Building 1,700,000
Gain on Purchase 130,000
Accumulated Depreciation 670,000
Cash 2,200,000
Prepare the correct entry for the acquisition.
2>Arvil Company bought machinery on January 1, 2011 at a cost of $400,000. The
machinery had an estimated life of 8 years and salvage value of $20,000. In January
2014, Arvil estimates that the machinery will have a life of only 4 more years and an
$18,000 salvage value. Arvil uses straight-line depreciation. Compute the revised
annual depreciation for 2014 .
3>Braden Company bought equipment on April 1, 2014 at a total cost of $220,000. The
equipment has an estimated useful life of 4 years and salvage value of $40,000. Braden
uses the double-declining-balance method of depreciation. Compute depreciation for
2014 and 2015 .
60) The production cost report summarizes the activities that have taken place in a
department or process over a period of time. Identify the major types of information
found on a production cost report, and indicate who in the business organization uses
this type of information and for what purpose the information is used.
