1) The higher the sales tax rate, the more profit a retailer can earn.
2) Premium on Bonds Payable is a contra account to Bonds Payable.
3) If volume increases, all costs will increase.
4) Once set, normal standards should not be changed during the year.
5) Using the direct method, major classes of investing and financing activities are listed
in the operating activities section.
6) The balances of the Depreciation Expense and the Accumulated Depreciation
accounts should always be the same.
7) Accountants record both internal and external transactions.
8) In deciding on the future status of an unprofitable segment, management should
recognize that net income could decrease by eliminating the unprofitable segment.
9) If a merchandising company sells land at more than its cost, the gain should be
reported in the sales revenue section of the income statement.
10) Debit and credit can be interpreted to mean increase and decrease, respectively.
11) Gross profit for a merchandiser is net sales minus
a.operating expenses
b.cost of goods sold
c.sales discounts
d.cost of goods available for sale
12) During the current year, Marin Company incurred several expenditures. Briefly
explain whether the expenditures listed below should be recorded as an operating
expense or as an intangible asset. If you view the expenditure as an intangible asset,
indicate the number of years over which the asset should be amortized. Explain your
answer.
(a)Spent $30,000 in legal costs in a patent defense suit. The patent was unsuccessfully
defended.
(b)Purchased a trademark from another company. The trademark can be renewed
indefinitely. Marin Company expects the trademark to contribute to revenue
indefinitely.
(c)Marin Company acquires a patent for $2,000,000. The company selling the patent
has spent $1,000,000 on the research and development of it. The patent has a remaining
life of 15 years.
(d)Marin Company is spending considerable time and money in developing a different
patent for another product. So far $3,000,000 has been spent this year on research and
development. Marin Company is very confident they will obtain this patent in the next
few years.
13) The purchase of office equipment for $20,000 cash:
a.is a cash outflow from operating activities
b.is a cash outflow from investing activities
c.is a cash outflow from financing activities
d.does not affect cash flows
14) Priscilla has the following inventory information.
July1Beginning Inventory20 units at $19$ 380
7Purchases70 units at $201,400
22Purchases10 units at $23 230
$2,010
A physical count of merchandise inventory on July 31 reveals that there are 35 units on
hand. Using the LIFO inventory method, the amount allocated to cost of goods sold for
July is
a.$1,280
b.$1,287
c.$1,306
d.$1,330
15) A company desires to sell a sufficient quantity of products to earn a profit of
$300,000. If the unit sales price is $20, unit variable cost is $12, and total fixed costs
are $500,000, how many units must be sold to earn net income of $300,000?
a.66,666 units
b.100,000 units
c.40,000 units
d.62,500 units
16) Either the straight-line method or the effective-interest method of amortization will
always result in
a.the same amount of interest expense being recognized over the term of the bonds
b.the same amount of interest expense being recognized each year
c.more interest expense being recognized than if premium or discounts were not
amortized
d.the same carrying value each year during the term of the bonds
17) The standard number of hours that should have been worked for the output attained
is 6,000 direct labor hours and the actual number of direct labor hours worked was
6,300. If the direct labor price variance was $3,150 favorable, and the standard rate of
pay was $9 per direct labor hour, what was the actual rate of pay for direct labor?
a.$8.50 per direct labor hour
b.$7.50 per direct labor hour
c.$9.50 per direct labor hour
d.$9.00 per direct labor hour
18) The private sector organization involved in developing accounting principles is the
a.Feasible Accounting Standards Body
b.Financial Accounting Studies Board
c.Financial Accounting Standards Board
d.Financial Auditors’ Standards Body
19) Cost of goods sold is determined only at the end of the accounting period in
a.a perpetual inventory system
b.a periodic inventory system
c.both a perpetual and a periodic inventory system
d.neither a perpetual nor a periodic inventory system
20) Recording depreciation each period is necessary in accordance with the
a.going concern principle
b.historical cost principle
c.expense recognition principle
d.asset valuation principle
21) Equivalent units of production are a measure of
a.units completed and transferred out
b.units transferred out
c.units in ending work in process
d.the work done in a period expressed in fully completed units
22) If there is a loss on bonds redeemed early, the
a.loss is debited directly to Retained Earnings
b.bonds carrying value was less than the redemption price
c.bonds carrying value was greater than the redemption price
d.loss is debited to Interest Expense, as a cost of financing
23) The income statement for the year 2014 of Fugazi Co. contains the following
information:
Revenues$70,000
Expenses:
Salaries and Wages Expense$45,000
Rent Expense12,000
Advertising Expense10,000
Supplies Expense6,000
Utilities Expense2,500
Insurance Expense 2,000
Total expenses 77,500
Net income (loss)$ (7,500)
At January 1, 2014, Fugazi reported owners equity of $50,000. Owner drawings for the
year totalled $10,000. At December 31, 2014, the company will report owners equity of
a.$17,500
b.$32,500
c.$40,000
d.$42,500
24) Which of the following would be added to net income using the indirect method?
a.An increase in accounts receivable
b.An increase in prepaid expenses
c.Depreciation expense
d.A decrease in accounts payable
25) Which of the following would not be considered a motive for making a stock
investment in another corporation?
a.Appreciation in the market value of the stock investment
b.Use of the investment for expanding its own operations
c.Use of the investment to diversify its own operations
d.An increase in the amount of interest revenue from the stock investment
26) If a company incurs legal costs in successfully defending its patent, these costs are
recorded by debiting
a.Legal Expense
b.an Intangible Loss account
c.the Patent account
d.a revenue expenditure account
27) A machine with a cost of $480,000 has an estimated salvage value of $30,000 and
an estimated useful life of 5 years or 15,000 hours. It is to be depreciated using the
units-of-activity method of depreciation. What is the amount of depreciation for the
second full year, during which the machine was used 5,000 hours?
a.$150,000
b.$90,000
c.$130,000
d.$160,000
28) Sarbanes Oxley applies to
a.U.S companies but not international companies
b.international companies but not U.S. companies
c.U.S. and Canadian companies but not other international companies
d.U.S and international companies
29) Blaine Company had these transactions pertaining to stock investments:
Feb. 1 Purchased 2,000 shares of Horton Company (10%) for $51,000 cash.
June 1 Received cash dividends of $2 per share on Horton stock.
Oct. 1 Sold 1,200 shares of Horton stock for $32,400.
The entry to record the purchase of the Horton stock would include a
a.debit to Stock Investments for $45,900
b.credit to Cash for $45,900
c.debit to Stock Investments for $51,000
d.debit to Investment Expense for $5,100
30) The declining-balance method of depreciation produces
a.a decreasing depreciation expense each period
b.an increasing depreciation expense each period
c.a declining percentage rate each period
d.a constant amount of depreciation expense each period
31) The December 31, 2013 balance sheet of Barone Company had Accounts
Receivable of $400,000 and a credit balance in Allowance for Doubtful Accounts of
$32,000. During 2014, the following transactions occurred: sales on account
$1,500,000; sales returns and allowances, $50,000; collections from customers,
$1,250,000; accounts written off $36,000; previously written off accounts of $6,000
were collected.
Instructions
(a)Journalize the 2014 transactions.
(b)If the company uses the percentage-of-sales basis to estimate bad debt expense and
anticipates 3% of net sales to be uncollectible, what is the adjusting entry at December
31, 2014?
(c)If the company uses the percentage of receivables basis to estimate bad debt expense
and determines that uncollectible accounts are expected to be 8% of accounts
receivable, what is the adjusting entry at December 31, 2014?
(d)Which basis would produce a higher net income for 2014 and by how much?
32) Zigley Industries recorded operating data for its Northern division for the year.
Zigley requires its return to be 10%.
Sales revenue$1,400,000
Controllable margin180,000
Total average assets4,000,000
Fixed costs100,000
What is the ROI for the year?
a.4.5%
b.35.0%
c.5.7%
d.2.0%
33) Treasury stock is
a.stock issued by the U.S. Treasury Department
b.stock purchased by a corporation and held as an investment in its treasury
c.corporate stock issued by the treasurer of a company
d.a corporation’s own stock which has been issued and subsequently reacquired but not
retired
34) The accounts receivable turnover is computed by dividing
a.total sales by average net accounts receivable
b.net credit sales by average net accounts receivable
c.total sales by ending net accounts receivable
d.net credit sales by ending net accounts receivable
35) What is the primary difference between a static budget and a flexible budget?
a.The static budget contains only fixed costs, while the flexible budget contains only
variable costs
b.The static budget is prepared for a single level of activity, while a flexible budget is
adjusted for different activity levels
c.The static budget is constructed using input from only upper level management, while
a flexible budget obtains input from all levels of management
d.The static budget is prepared only for units produced, while a flexible budget reflects
the number of units sold
36) When common stock is issued for services or non-cash assets, cost should be
a.only the fair value of the consideration given up
b.only the fair value of the consideration received
c.the book value of the common stock issued
d.either the fair value of the consideration given up or the consideration received,
whichever is more clearly evident
37) If actual direct materials costs are greater than standard direct materials costs, it
means that
a.actual costs were calculated incorrectly
b.the actual unit price of direct materials was greater than the standard unit price of
direct materials
c.the actual unit price of raw materials or the actual quantities of raw materials used
was greater than the standard unit price or standard quantities of raw materials expected
d.the purchasing agent or the production foreman is inefficient
38) A buyer would record a payment within the discount period under a perpetual
inventory system by crediting
a.Accounts Payable
b.Inventory
c.Purchase Discounts
d.Sales Discounts
39) The following information is for Bright Eyes Auto Supplies:
Bright Eyes Auto Supplies
Balance Sheet
December 31, 2014
Cash$ 40,000Accounts Payable$ 130,000
Prepaid Insurance80,000Salaries and Wages Payable50,000
Accounts Receivable100,000Mortgage Payable 150,000
Inventory140,000Total Liabilities330,000
Land Held for Investment180,000
Land250,000
Building$200,000
Less AccumulatedOwners Capital 740,000
Depreciation(60,000)140,000
Trademark 140,000Total Liabilities and
Total Assets$1,070,000Owners Equity$1,070,000
The total dollar amount of assets to be classified as current assets is
a.$140,000
b.$220,000
c.$360,000
d.$500,000
40) Scan Manufacturing makes and sells toasters. Each toaster uses 3/4 pound of
plastic. Budgeted production of toasters in units for the next three months is as follows:
AprilMayJune
Budgeted production42,00040,00048,000
The company wants to maintain monthly ending inventories of plastic equal to 25% of
the following month’s budgeted production needs. The cost of plastic is $2.15 per
pound.
Instructions
Prepare a direct materials purchases budget for the month of May.
41) Why is the statement of cash flows useful?
42) The Fair Value Adjustment account is a balance sheet account. Identify the asset
account it is related to. Explain how this account is increased and describe the
procedure followed when its related asset account is disposed of.
43) Condensed financial data for Chester Highland Corporation are given below.
CHESTER HIGHLAND CORPORATION
Comparative Balance Sheet
December 31
Assets
2014 2013
Cash$ 131,000$ 40,000
Accounts receivable68,00054,000
Inventory200,000230,000
Land1,430,0001,300,000
Equipment1,006,000916,000
Accumulated depreciation (85,000) (40,000)
Total assets$2,750,000$2,500,000
Liabilities and Stockholders’ Equity
Accounts payable$ 104,000$ 24,000
Salaries payable42,00048,000
Bonds payable1,150,0001,150,000
Common stock1,338,0001,208,000
Retained earnings 116,000 70,000
Total liabilities and stockholders equity$2,750,000$2,500,000
Additional information for 2014:
1>A cash dividend of $45,000 was declared and paid during the year.
2>Additional equipment was purchased for cash.
3>Land was acquired by issuing common stock.
Instructions: Prepare a statement of cash flows for the year ended December 31, 2014,
using the indirect method.
44) 1>Tompson, Gregson, and Timer are partners who share profits 50%, 25%, and
25%. Their capital balances were $117,000, $78,000, and $45,000, respectively, before
Timer’s retirement. Tompson and Gregson each paid Timer $30,000 from their personal
assets to buy half his interest. After Timer has withdrawn,
Tompson will have a capital balance of $____________
2>Sonya, Lott, and Wilkins are partners who share profits 40%, 20%, and 40%. Their
capital balances were $280,000, $120,000, and $80,000, respectively, before Wilkins
retirement. Wilkins was paid $56,000 from partnership assets to buy her interest. After
Wilkins has withdrawn,
Sonya will have a capital balance of $____________
3>Ross and Cannell are partners who share profits 60% and 40%. Their capital
balances were both $60,000 before Dixon was admitted to the partnership. Dixon
contributed $100,000 in cash to the partnership for a 30% interest. After Dixon is
admitted to the partnership,
Ross will have a capital balance of $____________
4>Brian and Aryn are partners who share profits 60% and 40%. Their capital balances
were both $270,000 before Drew was admitted to the partnership. Drew paid $150,000
each to Brian and Aryn for purchase of a 25% interest in the partnership. After her
admission to the partnership,
Drew will have a capital balance of $____________
5>Spnner and Mathers are partners who share profits 40% and 60%. Before Jax was
admitted to the partnership, Spinner’s and Mathers capital balances were $680,000 and
$480,000, respectively. Jax contributed $760,000 in cash to the partnership for a
one-half interest. After Jax is admitted to the partnership,
Mathers will have a capital balance of $____________
6>Max, Ajax, and Rotax are partners who share profits 30%, 30%, and 40%. Their
capital balances were $630,000, $420,000, and $210,000, respectively, before Rotax’
retirement. Rotax was paid $330,000 from partnership assets to buy his interest. After
Rotax has withdrawn,
Max will have a capital balance of $____________
45) The ledger accounts of Robertson Company are presented below, with an
identification number for each.
Instructions: Prepare appropriate job order cost system entries to record the data/events
given below. Place the appropriate identification number(s) in the debit and credit
columns provided and the dollar amount in the adjoining column.
1>Cash9>Accumulated Depreciation
2>Accounts Receivable10>Sales
3>Raw Materials Inventory11>Depreciation Expense
4>Work in Process Inventory12>Factory Labor
5>Finished Goods Inventory13>Wages Expense
6>Manufacturing Overhead14>Cost of Goods Sold
7>Accounts Payable15>Other Accounts
8>Factory Wages Payable
Account(s)Account(s)Dollar
Entry InformationDebitedCreditedAmount
1>Purchased raw materials on account $270,000
2>Incurred factory labor$100,000
3>Charged direct materials to job 152$55,000
4>Charged direct labor to job 152$80,000
5>Incurred manufacturing overhead on account$65,000
6>Recorded the remaining factory labor as indirect labor
7>Recognized depreciation on factory equipment$25,000
8>Charged overhead to job 152 at 150% of direct labor cost
9>Recorded completion of job 152
10>Recorded cost of sales for job 152
11>Recorded revenue from sale of job 152 on account $400,000
12>Assume total actual overhead was $2,250,000 and total applied overhead was
$2,280,000 for the year. Record the entry to close the manufacturing overhead account.
46) Accountants who are employees of business enterprises are referred to as
________________ accountants.
47) Pimento Company is preparing its master budget for 2014 . Relevant data
pertaining to its sales budget are as follows:
Sales for the year are expected to total 12,000,000 units. Quarterly sales are 25%, 30%,
15%, and 30%, respectively. The sales price is expected to be $2.10 per unit for the first
quarter and then be increased to $2.30 per unit beginning in the second quarter.
Instructions
Prepare a sales budget for 2014 for Pimento Company.
48) On January 1, 2014, Petersen Enterprises purchased natural resources for
$1,800,000. The company expects the resources to produce 12,000,000 units of product.
(1) What is the depletion cost per unit? (2) If the company mined and sold 20,000 units
in January, what is depletion expense for the month?