1) Revising depreciation estimates does affect the amounts of depreciation expense
recorded in past periods.
2) Both process and job order cost systems maintain perpetual inventory accounts with
subsidiary ledgers.
3) The Financial Accounting Standards Board (FASB) is the authoritative body that has
primary responsibility for developing accounting principles.
4) For strong internal control system over cash, it is important to have the duties related
to cash receipts and cash payments divided among different employees.
5) The special fund that is set aside to provide for the payment of bonds at maturity is
called a sinking fund.
6) The expected period of time that will elapse between the date of a capital investment
and the complete recovery in cash of the amount invested is called the cash payback
period.
7) The declaration of a stock dividend decreases a corporation’s stockholders’ equity
and increases its liabilities.
8) All costs of the processes in a process costing system ultimately pass through the
Cost of Goods Sold account.
9) Use of the retail inventory method requires taking a physical count of inventory.
10) Free cash flow is cash flow from operations, less cash used to purchase fixed assets
to maintain productive capacity and cash used for dividends.
11) If the buyer bears the freight costs related to a purchase, the terms are said to be
FOB destination.
12) During periods of increasing costs, the use of the FIFO method of costing inventory
will yield an inventory amount for the balance sheet that is higher than LIFO would
produce.
13) The two main sources of stockholders’ equity are investments contributed by
stockholders and net income retained in the business.
14) Once a static budget has been determined, it is changed regularly as the underlying
activity changes.
15) 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.
16) The bank statement for Gatlin Co. indicates a balance of $7,735.00 on June30,
2010. After the journals for June had been posted, the cash account had a balance of
$4,098.00. Prepare a bank reconciliation on the basis of the following reconciling items:
(a) Cash sales of $742 had been erroneously recorded in the cash receipts journal as
$724.
(b) Deposits in transit not recorded by bank, $425.00.
(c) Bank debit memo for service charges, $35.00.
(d) Bank credit memo for note collected by bank, $2,475 including $75 interest.
(e) Bank debit memo for $256.00 NSF (not sufficient funds) check from Janice Smith, a
customer.
(f) Checks outstanding, $1,860.00.
17) Merritt Company acquired a building valued at $210,000 for property tax purposes
in exchange for 12,000 shares of its $5 par common stock. The stock is widely traded
and selling for $18 per share. At what amount should the building be recorded by
Merritt Company?
A.$60,000
B.$216,000
C.$210,000
D.$156,000
18) Which of the following accounts should be closed to Income Summary at the end of
the fiscal year?
A.Supplies Expense
B.Accumulated Depreciation
C.Prepaid Insurance
D.Unearned Rent
19) The following items are reported on a companys balance sheet:
Determine the (a) current ratio, and (b) quick ratio. Round your answer to one decimal
place.
20) Equipment with an estimated market value of $30,000 is offered for sale at $45,000.
The equipment is acquired for $15,000 in cash and a note payable of $20,000 due in 30
days. The amount used in the buyer’s accounting records to record this acquisition is
A.$30,000
B.$35,000
C.$15,000
D.$45,000
21) The first budget customarily prepared as part of an entity’s master budget is the:
A.production budget
B.cash budget
C.sales budget
D.direct materials purchases
22) For the year ending June 30, Island Clinical Services mistakenly omitted adjusting
entries for $1,500 of supplies that were used, (2) unearned revenue of $4,200 that was
earned, and (3) insurance of $5,000 that expired. What is the combined effect of these
errors on (a) revenues, (b) expenses, and (c) net income for the year ending June 30?
23) Work in process inventory on December 31, 2011, is $44,000. Work in process
inventory increased by 60% during 2011. Cost of goods manufactured for 2011
amounts to $275,000. What are the total manufacturing costs incurred in 2011?
A.$291,500
B.$302,000
C.$275,750
D.$233,750
24) The income statement will include
A.revenues less expenses (ordered largest to smallest amount) with miscellaneous
expense listed last
B.revenues less expenses (ordered smallest to largest amounts) with miscellaneous
expense listed last
C.revenues less expenses (ordered in alphabetical order)
D.revenues less expenses (order is not important)
25) Martin Services Company provides their employees vacation benefits and a defined
contribution pension plan. Employees earned vacation pay of $39,500 for the period.
The pension plan requires a contribution to the plan administrator equal to 9% of
employee salaries. Salaries were $750,000 during the period. Provide the journal entry
for (a.) the vacation pay and (b.) the pension benefit.
26) The Thomlin Company forecasts that total overhead for the current year will be
$15,000,000 and that total machine hours will be 300,000 hours. Year to date, the actual
overhead is $16,000,000 and the actual machine hours are 330,000 hours. If the
Thomlin Company uses a predetermined overhead rate based on machine hours for
applying overhead, as of this point in time (year to date) the overhead is over/under
applied by
A.$1,000,000 overapplied
B.$1,000,000 underapplied
C.$500,000 overapplied
D.$500,000 underapplied
27) Which of the following is true of the cash payback period?
A.The longer the payback, the longer the estimated life of the asset.
B.The longer the payback, the sooner the cash spent on the investment is recovered.
C.The shorter the payback, the less likely the possibility of obsolescence.
D.All of the above are correct.
28) The beginning inventory is 5,000 units. All of the units manufactured during the
period and 3,000 units of the beginning inventory were sold. The beginning inventory
fixed costs are $25 per unit, and variable costs are $55 per unit. Determine (a) whether
variable costing income from operations is less than or greater than absorption costing
income from operations, and (b) the difference in variable costing and absorption
income from operations.
29) The contribution margin ratio is computed as:
A.sales divided by contribution margin
B.contribution margin divided by sales
C.contribution margin divided by cost of sales
D.contribution margin divided by variable cost of sales
30) If the allowance method of accounting for uncollectible receivables is used, what
general ledger account is debited to write off a customer’s account as uncollectible?
A.Uncollectible Accounts Expense
B.Allowance for Doubtful Accounts
C.Accounts Receivable
D.Interest Expense
31) The budget process involves doing all the following except:
A.establishing specific goals
B.executing plans to achieve the goals
C.periodically comparing actual results with the goals
D.dismissing all managers who fail to achieve operational goals specified in the budget
32) Goods that are partially completed by a manufacturer are referred to as:
A.merchandise inventory
B.work in process inventory
C.finished goods inventory
D.materials inventory
33) If Department H had 600 units, 60% completed, in process at the beginning of the
period, 6,000 units were completed during the period, and 700 units were 30%
completed at the end of the period, what was the number of equivalent units of
production for conversion costs for the period, if the first-in, first-out method is used to
cost inventories?
A.7,300
B.5,640
C.6,700
D.5,850
34) Which of the following budgets is not directly associated with the production
budget?
A.Direct materials purchases budget
B.Factory overhead cost budget
C.Capital Expenditures budget
D.Direct labor cost budget
35) Bank reconciliation information for Cole Co. for May 31, 2011 is as follows:
(a) The bank statement balance is $2,936.
(b) The cash account balance is $3,194.
(c) Outstanding checks amounted to $465.
(d) Deposits in transit are $655.
(e) The bank service charge is $50.
(f) A check for $97 for supplies was recorded as $79 in the ledger.
Record the appropriate journal entry for Cole Co.
36) Which of the following entities would probably use a process costing system?
A.A custom boat builder
B.A custom furniture manufacturer
C.A one of a kind jewelry creator
D.An oil refinery
37) The journal entry a company uses to record partially funded pension rights for its
salaried employees, at the end of the year is
A.debit Salary Expense; credit Cash
B.debit Pension Expense; credit Unfunded Pension Liability
C.debit Pension Expense; credit Unfunded Pension Liability and Cash
D.debit Pension Expense; credit Cash
38) Which of the following financial statements reports information as of a specific
date?
A.income statement
B.retained earnings statement
C.statement of cash flows
D.balance sheet
39) When determining whether to record an asset as a fixed asset, what two criteria
must be met?
A.Must be an investment and must be long lived
B.Must be long lived and must use the asset in a productive manner
C.Must be short lived and must be a tangible asset
D.Must be a tangible asset and must be an investment
40) Tanning Company analyzes its receivables to estimate bad debt expense. The
accounts receivable balance is $390,000 and credit sales are $1,300,000. An aging of
accounts receivable shows that approximately 5% of the outstanding receivables will be
uncollectible. What adjusting entry will Tanning Company make if the Allowance for
Doubtful Accounts has a credit balance of $2,500 before adjustment?
A.Bad Debt Expense 17,000
Allowance for Doubtful Accounts 17,000
B.Bad Debt Expense 19,500
Allowance for Doubtful Accounts 19,500
C.Bad Debt Expense 22,000
Allowance for Doubtful Accounts 22,000
D.Bad Debt Expense 65,000
41) Cumberland Co. sells $2,000 of inventory to Hancock Co. for cash. Cumberland
paid $1,250 for the merchandise. Under a perpetual inventory system, which of the
following journal entry(ies) would be recorded?
A.Cash $2,000 Dr, Merchandise Inventory $1,250 Cr
B.Cash $2,000 Dr, Sales $2,000 Cr, and Cost of Merchandise Sold $1,250 Dr,
Merchandise Inventory $1,250 Cr
C.Cash $1,250 Dr, Sales $1,250 Cr
D.Accounts Receivable $2,000 Dr, Sales $2,000 Cr, and Cost of Merchandise Sold
$1,250 Dr, Merchandise Inventory $1,250 Cr
42) Falcon Co. produces a single product. Its normal selling price is $30.00 per unit.
The variable costs are $19.00 per unit. Fixed costs are $25,000 for a normal production
run of 5,000 units per month. Falcon received a request for a special order that would
not interfere with normal sales. The order was for 1,500 units and a special price of
$20.00 per unit. Falcon Co. has the capacity to handle the special order and, for this
order, a variable selling cost of $1.00 per unit would be eliminated.
Should the special order be accepted?
A.Cannot determine from the data given
B.Yes
C.No
D.There would be no difference in accepting or rejecting the special order
43) What are the three sections of the statement of cash flows?
44) During the current year, merchandise is sold for $86,000 cash and for $93,950 on
account. The cost of the merchandise sold is $76,240. What is the amount of the gross
profit?
45) Prepare a journal entry for the purchase of a truck on April 4 for $85,700, paying
$15,000 cash and the remainder on account.
46) The Core Company had the following assets and liabilities as of December 31,
2012:
Calculate: Current Ratio, Working Capital and Quick Ratio
47) Indicate whether the following error would cause the adjusted trial balance totals to
be unequal. If the error would cause the adjusted trial balance totals to be unequal,
indicate whether the debit or credit total is higher and by how much.