1) After net income or loss is entered on the work sheet, the debit column total must
equal the credit column total of the Balance Sheet columns.
2) If the adjustment for accrued salaries at the end of the period is inadvertently
omitted, both liabilities and stockholders equity will be understated for the period.
3) The data required for determining the break-even point for a business are the total
estimated fixed costs for a period, stated as a percentage of net sales.
4) To determine cash payments for income tax for the cash flow statement using the
direct method, an increase in income taxes payable is added to the income tax expense.
5) Cash dividends are normally paid on shares of treasury stock.
6) Assets are increased with debits and decreased with credits.
7) Methods that ignore present value in capital investment analysis include the net
present value method.
8) In using the total cost concept of applying the cost-plus approach to product pricing,
selling expenses, administrative expenses, and profit are covered in the markup.
9) A capital lease is accounted for as if the asset has been purchased.
10) In contribution margin analysis, the unit price or unit cost factor is computed as the
difference between actual quantity sold and the planned quantity sold, multiplied by the
planned unit sales price or unit cost.
11) Activity-based costing is a method of accumulating and allocating costs by
department.
12) The income summary account is also known as the clearing account.
13) If the buyer is to pay the freight costs of delivering merchandise, delivery terms are
stated as
A.FOB shipping point
B.FOB destination
C.FOB n/30
D.FOB buyer
14) A favorable cost variance occurs when
A.Actual costs are more than standard costs
B.Standard costs are more than actual costs
C.Standard costs are less than actual costs
D.None of the above
15) An element of internal control is
A.risk assessment
B.journals
C.subsidiary ledgers
D.controlling accounts
16) On April 25, Gregg Repair Service extended an offer of $115,000 for land that had
been priced for sale at $140,000. On May 3, Gregg Repair Service accepted the sellers
counteroffer of $125,000. On June 20, the land was assessed at a value of $95,000 for
property tax purposes. On August 4, Gregg Repair Service was offered $150,000 for the
land by a national retail chain. At what value should the land be recorded in Gregg
Repair Services records?
A.$115,000
B.$95,000
C.$140,000
D.$125,000
17) Under variable costing, which of the following costs would not be included in
finished goods inventory?
A.wages of machine operator
B.steel costs for a machine tool manufacturer
C.salary of factory supervisor
D.electricity used by factory machinery
18) Which of the following costs incurred by a paper manufacturer would NOT be
included in the group of costs referred to as conversion costs?
A.Factory supervisor’s salary
B.Machine operator’s wages (direct labor)
C.Raw lumber (direct materials)
D.Factory maintenance personnel supplies
19) An employee receives an hourly rate of $40, with time and a half for all hours
worked in excess of 40 during a week. Payroll data for the current week are as follows:
hours worked, 46; federal income tax withheld, $350; cumulative earnings for year
prior to current week, $99,700; social security tax rate, 6.0% on maximum of $100,000;
and Medicare tax rate, 1.5% on all earnings. What is the gross pay for the employee?
A.$775.00
B.$1,840.00
C.$1,960.00
D.$1,562.60
20) In a process cost system, the amount of work in process inventory is valued by:
A.finding the sum of all open job costs
B.allocating departmental costs between completed and partially completed units
C.multiplying units in ending inventory by the direct materials cost per unit
D.all of the above
21) Widgeon Co. manufactures three products: Bales; Tales; and Wales. The selling
prices are: $55; $78; and $32, respectively. The variable costs for each product are: $20;
$50; and $15, respectively. Each product must go through the same processing in a
machine that is limited to 2,000 hours per month. Bales take 5 hours to process, Tales
take 7 hours, and Wales take 1 hour.
Assume that Widgeon produced enough product with the highest contribution margin
per unit to use 1,000 hours of machine time. Product demand does not warrant any
more production of that product. What is the maximum additional contribution margin
that can be realized by utilizing the remaining 1,000 hours on the product with the
second highest contribution margin per hour?
A.$35,000
B.$7,000
C.$4,000
D.$28,000
22) The cumulative effect of the declaration and payment of a cash dividend on a
companys financial statements is to
A.decrease total liabilities and stockholders equity
B.increase total expenses and total liabilities
C.increase total assets and stockholders equity
D.decrease total assets and stockholders equity
23) If the merchandise costs $3,500, insurance in transit costs $250, tariff costs $75,
processing the purchase order by the purchasing department costs $50, and the
company receiving dock personnel cost $25, what is the total cost charged to the
merchandise?
A.$3,825
B.$3,850
C.$3,875
D.$3,500
24) The process of transferring the cost of metal ores and other minerals removed from
the earth to an expense account is called
A.depletion
B.deferral
C.amortization
D.depreciation
25) Which of the following would probably not be found in the accounting system of a
service provider?
A.Cost ledger
B.Finished jobs ledger
C.Deferred revenue account
D.Job cost sheets
26) Which of the following is a cost pool used with the activity-based costing method?
A.total selling and administrative overheads
B.direct material dollars
C.total factory overheads
D.production setups
27) The numerator of the rate earned on common stockholders’ equity ratio is equal to
A.net income
B.net income minus preferred dividends
C.income before income tax
D.operating income minus interest expense
28) Equivalent production units, usually are determined for
A.direct materials and conversion costs
B.direct materials only
C.conversion costs only
D.direct materials and direct labor costs only
29) Revenue should be recognized when
A.cash is received
B.the service is performed
C.the customer places an order
D.the customer charges an order
30) The units of Manganese Plus available for sale during the year were as follows:
There are 15 units of the product in the physical inventory at November 30. The
periodic inventory system is used. Determine the inventory cost by (a) FIFO, (b) LIFO,
and (c) average cost methods.
31) The following are steps to the accounting cycle. Of the following, which step
should be done first?
A.Closing entries are journalized and posted to the ledger
B.Transactions are posted to the ledger
C.Adjusting entries are journalized and posted to the ledger
D.Financial statements are prepared
32) The formula to compute direct materials price variance is to calculate the difference
between
A.actual costs – (actual quantity * standard price)
B.actual cost + standard costs
C.actual cost – standard costs
D.(actual quantity * standard price) -standard costs
33) Using the letter preceding each account, arrange the following selected accounts in
the order they would normally appear in a chart of accounts of a company that uses a
multiple-step income statement.
(a) Accounts Payable
(b) Accounts Receivable
(c) Merchandise Inventory
(d) Miscellaneous Selling Expense
(e) Sales Discounts
(f) Interest Expense
(g) Income Summary
(h) Misc. Admin. Expense
(i) Freight Out
(j) Sales Returns and Allowances
34) Which of the following is not true of accounting principles?
A.Financial accountants follow generally accepted accounting principles (GAAP)
B.Following GAAP allows accounting information users to compare one company to
another
C.A new accounting principle can be adopted with stockholders approval
D.The Financial Accounting Standards Board (FASB) has primary responsibility for
developing accounting principles
35) Which of the following accounts would be included in the chart of accounts of a
merchandising company using the: (a) periodic inventory system, (b) perpetual
inventory system, or (c) both systems?
(1) Purchases
(2) Freight in
(3) Sales Returns and Allowances
(4) Delivery Expense
(5) Purchases Returns and Allowances
36) For the past year, Pedi Company had fixed costs of $70,000, unit variable costs of
$32, and a unit selling price of $40. For the coming year, no changes are expected in
revenues and costs, except that property taxes are expected to increase by $10,000.
Determine the break-even sales (units) for (a) the past year and (b) the coming year.
37) If fixed costs are $750,000 and variable costs are 60% of sales, what is the
break-even point in sales dollars?
A.$1,250,000
B.$450,000
C.$1,875,000
D.$300,000
38) The dates of importance in connection with a cash dividend of $50,000 on a
corporations common stock are January 15, February 15, and March 15. Journalize the
entries required on each date.
39) Two companies are financed as follows:
Income tax is estimated at 40% of income.
Determine for each company the earnings per share of common stock, assuming that
the income before bond interest and income taxes is $2,280,000 each.
40) Journalize the following selected transactions for April 2011 in a two-column
journal. Journal entry explanations may be omitted.
41) What is a major advantage of using percentages rather than dollar changes in doing
horizontal and vertical analysis?
42) The Beauty Beyond Words Salon uses an activity-based costing system in its beauty
salon to determine the cost of services. The salon has determined the costs of services
by activity as follows:
Calculate the cost of services for a Hi-light.
43) A business using the retail method of inventory costing determines that merchandise
inventory at retail is $2,300,000. If the ratio of cost to retail price is 55%, what is the
amount of inventory to be reported on the financial statements?
44) The following units of a particular item were available for sale during the year:
The firm uses the perpetual inventory system and there are 240 units of the item on
hand at the end of the year. What is the total cost of ending inventory according to
LIFO?
45) An analysis of the general ledger accounts indicates that equipment, with an
original cost of $134,000 and accumulated depreciation of $105,000 on the date of sale,
was sold for $20,000 during the year. Using this information, indicate the items to be
reported on the statement of cash flows using the indirect method.