1) Payroll is an example of a contingent liability for the employer.
2) Working capital is computed as current liabilities minus current assets.
3) While companies strive to achieve ideal standards, reality implies that some loss of
materials usually occurs with any process.
4) Fixed budget performance reports compare actual results with the results expected
under a fixed budget.
5) The Work in Process Inventory account is found only in the ledgers of merchandising
companies.
6) Duncan reported net sales of $2,523 million and average total assets of $1,476
million. Its total asset turnover equals 1.71.
7) If a company plans to continue business into the future, closing entries are not
required.
8) A company’s ability to issue unsecured debt depends on its credit standing.
9) Deposits of amounts payable to the federal government may be paid through federal
depository banks.
10) Financial accounting and tax accounting require the same recordkeeping and there
should be no difference in results between the two accounting systems.
11) Farthington Soccer Supplies purchases merchandise from a supplier on credit, terms
2/10, n/30 for $15,300. When recording the purchase transaction in its purchases
journal, Farthington would enter:
A.$15,300 in the Accounts Payable Cr. column and $15,300 in the Inventory Dr.
column.
B.$15,300 in the Accounts Payable Cr. column and $15,300 in the Supplies Dr. column.
C.$15,300 in the Inventory Dr. column, $14,994 in the Accounts Payable Cr. column,
and $306 in the Purchase Discount Cr. column.
D.$14,994 in the Inventory Dr. column and $14,994 in the Accounts Payable Cr.
column.
E.$15,300 in the Other Accounts Dr. column and $15,000 in the Inventory Cr. column.
12) Debt guarantees are:
A.Never disclosed in the financial statements.
B.Considered to be contingent liabilities.
C.A bad business practice.
D.Recorded as liabilities even though it is highly unlikely that the original debtor will
default.
E.Considered to be current liabilities.
13) A corporation’s minimum legal capital is established by recording the par or stated
value of the number of shares:
A.Issued.
B.Authorized.
C.Subscribed.
D.Outstanding.
E.In treasury.
14) Juniper Company uses a perpetual inventory system. The company purchased
$9,750 of merchandise on August 7 with terms 1/10, n/30. On August 11, it returned
$1,500 worth of merchandise. On August 16, it paid the full amount due. The amount of
the cash paid on August 16 equals:
A.$8,167.50.
B.$9,652.50.
C.$9,750.00.
D.$8,250.00.
E.$8,152.50.
15) Nebraska Co. is reviewing a capital investment of $100,000. This project’s
projected cash flows over a five-year period are estimated at $35,000 each year.
Required:
(a) Calculate the payback period.
(b) Calculate the break-even time. Assume a 12% hurdle rate and use the table below:
(c) Using the results in (a) and (b), make a recommendation for the project.
16) At the beginning of the current year, Trenton 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. Trenton 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.1.42%.
17) In a company that employs continuous budgeting on a quarterly basis and has an
accounting period that ends December 31 of each year, what period would the first
revision and update to the January through December 2015 budget cover?
A.February 2015-January 2016
B.March 2015-February 2016
C.December 2015-November 2016
D.April 2015-March 2016
E.January 2016-December 2016
18) Cahuilla Corporation predicts the following sales in units for the coming four
months:
Each month’s ending Finished Goods inventory should be 40% of the next month’s sales
March 31 Finished Goods inventory is 96 units. A finished unit requires five pounds of
direct material B. The March 31 Raw Materials inventory has 200 pounds of B. Each
month’s ending Raw Materials inventory should be 30% of the following month’s
production needs. The budgeted purchases of pounds of direct material B during May
should be:
A.1,422 lbs.
B.288 lbs.
C.1,854 lbs.
D.276 lbs.
E.1,008 lbs.
19) When originally purchased, a vehicle costing $23,000 had an estimated useful life
of 8 and an estimated salvage value of $1,500. After 4 years of straight-line
depreciation, the asset’s total estimated useful life was revised from 8 years to 6 years
and there was no change in the estimated salvage value. The depreciation expense in
year 5 equals:
A.$5,375.00.
B.$2,687.50.
C.$5,543.75.
D.$10,750.00.
E.$2,856.25.
20) Operating budgets include all of the following except the:
A.Sales budget.
B.Budgeted balance sheet.
C.Production budget.
D.Selling expense budget.
E.General and administrative expense budget.
21) On July 1 Plum Co. paid $7,500 cash for management services to be performed
over a two-year period. Plum follows a policy of recording all prepaid expenses to asset
accounts at the time of cash payment. On July 1 Plum should record:
A.A debit to an expense and credit to a prepaid expense for $7,500.
B.A debit to an expense and credit to Cash for $7,500.
C.A debit to a prepaid expense and a credit to Cash for $7,500.
D.A credit to a prepaid expense and a debit to Cash for $7,500.
E.A debit to Cash for $7,500 and a credit to an expense for $7,500.
22) Jamison Company reports depreciation expense of $35,000 for Year 2. Also,
equipment costing $140,000 was sold for a $5,000 gain in Year 2. The following
selected information is available for Jamison Company from its comparative balance
sheet. Compute the cash received from the sale of the equipment.
A.$23,000.
B.$35,000.
C.$38,000.
D.$40,000.
E.$67,000.
23) A company’s flexible budget for the range of 35,000 units to 45,000 units of
production showed variable overhead costs of $2 per unit and fixed overhead costs of
$72,000. The company incurred total overhead costs of $148,800 while operating at a
volume of 40,000 units. The total controllable cost variance is:
A.$6,800 favorable.
B.$6,800 unfavorable.
C.$3,200 favorable.
D.$3,200 unfavorable.
E.$10,000 favorable.
24) MacKenzie Company sold $180 of merchandise to a customer who used a Regional
Bank credit card. Regional Bank deducts a 4% service charge for sales on its credit
cards. MacKenzie electronically remits the credit card sales receipts to the credit card
company and receives payment in approximately 5 days. The journal entry to record the
collection from the credit card company would be:
A.Debit Cash of $172.80 and credit Accounts Receivable-Regional $172.80.
B.Debit Cash of $180; credit Credit Card Expense $7.20 and credit Accounts
Receivable $172.80.
C.Debit Accounts Receivable-Regional $172.80; debit Credit Card Expense $7.20 and
credit Sales $180.
D.Debit Cash $172.80; debit Credit Card Expense $7.20 and credit Sales $180.
E.Debit Cash $172.80 and credit Sales $172.80.
25) 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.
26) Separate accounts receivable information for each customer is important because it
reveals all of the following except:
A.How much each customer has purchased on credit.
B.How much each customer has paid.
C.How much each customer still owes.
D.The basis for sending bills to customers.
E.When the customer intends to pay outstanding balances.
27) Bannister Co. is thinking about having one of its products manufactured by a
subcontractor.
Currently, the cost of manufacturing 1,000 units follows:
If Bannister can buy 1,000 units from a subcontractor for $100,000, it should:
A.Make the product because current factory overhead is less than $100,000.
B.Make the product because the cost of direct material plus direct labor of
manufacturing is less than $100,000.
C.Buy the product because the total incremental costs of manufacturing are greater than
$100,000.
D.Buy the product because total fixed and variable manufacturing costs are greater than
$100,000.
E.Make the product because factory overhead is a sunk cost.
28) MotorCity, Inc. purchased 40,000 shares of Shaw common stock for $232,000. This
represents 40% of the outstanding stock. The entry to record the transaction includes a:
A.Debit to Long-Term Investments for $92,800.
B.Debit to Long-Term Investments for $232,000.
C.Credit to Long-Term Investments for $92,800.
D.Debit to Long-Term Investments-HTM for $232,000.
E.Debit to Short-Term Investment-AFS for $232,000.
29) Franklin Manufacturing uses a job order costing system that charges overhead to
jobs on the basis of direct labor cost. Franklin used the following cost predictions:
overhead costs $1,285,750, and direct labor costs of $695,000. At year-end, the
company’s records show that actual overhead costs for the year are $1,278,800, and
actual direct labor costs are $692,000.
a. Determine the predetermined overhead rate for the year.
b. Compute the amount of overapplied or underapplied overhead.
c. Prepare the adjusting entry to allocate the over- or underapplied overhead assuming
the amount if immaterial.
30) Segmental Manufacturing owns 35% of Glesson Corp. stock. Glesson pays a total
of $47,000 in cash dividends for the period. Segmental’s entry to record the dividend
transaction would include a:
A.Credit to Long-Term Investments for $16,450.
B.Debit to Long-Term Investments for $16,450.
C.Debit to Cash for $47,000.
D.Credit to Cash for $16,450.
E.Credit to Investment Revenue for $47,000.
31) A company is trying to decide which of two new product lines to introduce in the
coming year. The predicted revenue and cost data for each product line follows:
The company has a 30% tax rate, it uses the straight-line depreciation method, and it
predicts that cash flows will be spread evenly throughout each year. Calculate each
product’s payback period. If the company requires a payback period of three years or
less, which, if either, product should be chosen?
32) Trimble Graphic Design receives $1,500 from a client billed in a previous month
for services provided. Which of the following general journal entries will Trimble
Graphic Design make to record this transaction?
33) A company’s inventory records indicate the following data for the month of January:
If the company uses the last-in, first-out perpetual inventory system, what would be the
cost of the ending inventory?
34) Return on total assets is computed by dividing ___________ by __________.
35) For a manufacturer, the cost of goods sold can be computed by adding the
beginning finished goods inventory to ________________________ and then
subtracting the ending finished goods inventory.
36) A company issued 10-year, 9% bonds with a par value of $500,000 when the market
rate was 9.5%. The company received $484,087 in cash proceeds. Using the
straight-line method, prepare the issuer’s journal entry to record the first semiannual
interest payment and the amortization of any bond discount or premium. (Round
amounts to the nearest whole dollar)
37) Ransom, Inc. budgets direct materials cost at $1.10/liter and each product requires 4
liters per unit of finished product. April’s activities show usage of 832 liters to complete
196 units at a cost of $798.72. Compute the direct materials price and quantity
variances. Indicate if the variance is favorable or unfavorable.
38) A company’s property records revealed the following information about its plant
assets:
Double-declining balance
Calculate the depreciation expense for each machine in Year 1 and Year 2 for the year
ended December 31.
Machine 1:
Year 1 ______________________ Year 2 _______________________
Machine 2:
Year 1 ______________________ Year 2 _______________________