1) Adjusting entries are made after the preparation of financial statements.
2) The management concept of customer orientation causes a company to spend large
amounts on advertising to convince customers to buy the company’s standard products.
3) After posting the entries to close all revenue accounts and all expense accounts, the
Income Summary account of Waif Services has a $4,000 debit balance. This result
implies that Waif Services earned a net income of $4,000.
4) Owners of coupon bonds are not required to pay tax on the interest earned.
5) The heading on each financial statement lists the three W’s – Who (the name of the
organization), What (the name of the statement), and Where (the organization’s
address).
6) Unit costs can be significantly different when using activity-based costing compared
to traditional cost allocation methods.
7) The present value of an annuity table can be used to determine the series of equal
payments that are required by a loan agreement.
8) Overapplied or underapplied overhead should be removed from the Factory
Overhead account at the end of each accounting period.
9) Raw materials inventory includes only direct materials.
10) In the absence of a partnership agreement, the law says that income of a partnership
will be shared equally by the partners.
11) The effective interest method yields increasing amounts of bond interest expense
and decreasing amounts of premium amortization over the bond’s life for bonds issued
at a premium.
12) A corporation issued 6,000 shares of its $10 par value common stock in exchange
for land that has a market value of $84,000. The entry to record this transaction would
include:
A.A debit to Common Stock for $60,000
B.A debit to Land for $60,000
C.A credit to Land for $60,000
D.A credit to Paid-in Capital in Excess of Par Value, Common Stock for $24,000
E.A credit to Common Stock for $84,000
13) Stride Along has total assets of $385 million. Its total liabilities are $100 million
and its equity is $285 million. Calculate its debt ratio.
A.35.1%
B.26.0%
C.38.5%
D.28.5%
E.58.8%
14)
Identify the accounting information system principle below that applies to each of these
situations.
1>Cost-benefit A. Global Company has designed their accounting information system
to be adaptable to changes in technology, the business environment, and the needs of
decision makers.
2>Control B. Global Company has world-wide operations that must handle several
thousand different products, so the accounting information system is fairly complex,
encompassing marketing and manufacturing.
3>Flexibility C. Global Company’s accounting information system has policies to
ensure that financial statements will be reliable, assets are protected, and relevant laws
and regulations are complied with.
4>Compatibility D. Global Company’s accounting information system can be improved
markedly for a cost of about $30,000,000. E. However, the incremental benefits from
such improvements are not expected to outweigh this cost.
5>Relevance F. Global Company has designed their accounting information system so
that key managers can obtain the information they need to make decisions relating to
new products, sales, and controlling costs.
15) Match the following terms with the appropriate definitions.
1>Consolidated financial statements A. Investments in equity and debt securities that
are not readily convertible to cash or are not intended to be converted to cash in the
short term.
2>Subsidiary B. A corporation controlled by another company when the parent owns
more than 50% of the subsidiary’s voting stock.
3>Equity method C. Change in market value that is not yet realized through an actual
sale.
4>Available-for-sale securities D. Financial statements that show the financial position,
results of operations, and cash flows of all entities under the parent’s control, including
those of any subsidiaries.
5>Unrealized gain (loss) E. A company that owns a more than 50% controlling interest
in a subsidiary.
6>Parent company F. Debt and equity securities not classified as trading or
held-to-maturity.
7>Trading securities G. Debt securities that a company intends and is able to hold until
maturity.
8>Held-to-maturity securities H. Debt and equity securities that a company intends to
actively manage and trade for profit.
9>Long-term investments I. A measure of operating efficiency, computed as net income
divided by average total assets.
10>Return on total assets J. An accounting method for long-term investments in equity
when the investor has significant influence over the investee.
16) Cash equivalents:
A.Are readily convertible to a known cash amount
B.Include short-term investments purchased within 3 months of their maturity dates
C.Have a market value that is not sensitive to interest rate changes
D.Include short-term U.S. treasury bills
E.All of these
17) The following data are available for a company’s manufacturing activities:
If materials are added when the production process begins and direct labor is applied
uniformly throughout the process, what are the equivalent units for direct materials and
for direct labor, respectively using the FIFO method of process costing?
A.16,250; 19,250
B.16,250; 21,750
C.21,000; 19,250
D.19,250; 18,750
E.21,000; 22,250
18) Which interest rate column would you use from a present value table or a future
value table for 8% compounded quarterly?
A.12%
B.6%
C.3%
D.2%
E.1%
19) An accounts receivable ledger is:
A.A subsidiary ledger that contains an account for each credit customer
B.A list of the balances of selected accounts in the accounts receivable ledger that is
added to show the total amount of the significant accounts receivable outstanding
C.A book of original entry that is designed and used for recording only a specified type
of transaction
D.The ledger that contains the financial statement accounts of a business
E.A subsidiary ledger that contains a separate account for each creditor (supplier) to the
company
20) At the current year-end, Hardly Company found that its overhead was underapplied
by $2,500, and this amount was not deemed to be a material amount. Based on this
information, Hardly should
A.Close the $2,500 to Cost of Goods Sold
B.Close the $2,500 to Finished Goods Inventory
C.Do nothing about the $2,500, since it is not material, and it is likely that overhead
will be overapplied by the same amount next year
D.Carry the $2,500 to the income statement as “Other Expense”
E.Carry the $2,500 to the next period
21) Plans that identify costs and expenses under each manager’s control prior to the
reporting period are called:
A.Cost accounting systems
B.Managerial accounting systems
C.Responsibility accounting systems
D.Responsibility accounting budgets
E.Activity-based accounting systems
22) An account used to record the owner’s investments in the business is called a(n):
A.Withdrawals account
B.Capital account
C.Revenue account
D.Expense account
E.Liability account
23) Grafton is preparing a cash budget for June. The company has $25,000 cash at the
beginning of June and anticipates $95,000 in cash receipts and $111,290 in cash
disbursements during June. Compute the amount the company must borrow, if any, to
maintain a $20,000 cash balance. The company has no loans outstanding on June 1.
A.$28,710
B.$12,290
C.$16,290
D.$11,290
E.$6,290
24) A company factored $45,000 of its accounts receivable and was charged a 3%
factoring fee. The journal entry to record this transaction would include a:
A.Debit to Cash of $45,000, a debit to Factoring Fee Expense of $1,350, and credit to
Accounts Receivable of $43,650
B.Debit to Cash of $45,000 and a credit to Accounts Receivable of $45,000
C.Debit to Cash of $43,650, a debit to Factoring Fee Expense of $1,350, and a credit to
Accounts Receivable of $45,000
D.Debit to Cash of $46,350 and a credit to Accounts Receivable of $46,350
E.Debit to Cash of $45,000 and a credit to Notes Payable of $45,000
25) Current assets minus current liabilities is:
A.Profit margin
B.Financial leverage
C.Current ratio
D.Working capital
E.Quick assets
26) The account receivable turnover measures:
A.How long it takes to sell accounts receivable to a factor
B.How often, on average, receivables are received and collected during the period
C.The relation of cash sales to credit sales
D.How long it takes to sell merchandise inventory
E.All of these
27) A plan that shows the expected cash inflows and cash outflows during the budget
period, including receipts from loans needed to maintain a minimum cash balance and
repayments of such loans, is called a(n):
A.Capital expenditures budget
B.Operating budget
C.Rolling budget
D.Cash budget
E.Income statement
28) When recording variances in a standard cost system:
A.Only unfavorable material variances are debited
B.Only unfavorable material variances are credited
C.Both unfavorable material and labor variances are credited
D.All unfavorable variances are debited
E.All unfavorable variances are credited
29) Information to prepare the statement of cash flows usually comes from (a)
comparative balance sheets, (b) current income statement, and (c) additional
information.
30) When raw materials are purchased on account for use in a process costing system,
the corresponding journal entry that should be recorded will include:
A.A debit to Goods in Process Inventory
B.A debit to Accounts Payable
C.A credit to Cash
D.A debit to Raw Materials Inventory
E.A credit to Raw Materials Inventory
31) The modified accelerated cost recovery system (MACRS):
A.Is included in the U.S. federal income tax rules for depreciating assets
B.Is an out-dated system that is no longer used by companies
C.Is required for financial reporting
D.Is identical to units of production depreciation
E.All of these
32) Dina Corp. uses a job order cost accounting system. Four jobs were started during
the current year. The following is a record of the costs incurred:
Actual overhead costs were $55,800. The predetermined overhead allocation rate is
$2.40 per direct labor hour. During the year, Jobs 1010, 1012, and 1013 were
completed. Also, Jobs 1010 and 1013 were sold for $387,000. Assuming that this is
Dina’s first year of operations:
(a) Make the necessary journal entries to charge the costs to the jobs started and to
record the completion and sale of finished jobs.
(b) Calculate the balance in the Goods in Process Inventory, Finished Goods Inventory,
and Factory Overhead accounts. Does the Factory Overhead account balance indicate
an over- or under applied overhead?
33) If the times interest ratio:
A.Increases, then risk increases
B.Increases, then risk decreases
C.Is greater than 1.5, then the company is in default
D.Is less than 1.5, the company is carrying too little debt
E.Is greater than 3.0, the company is likely carrying too much debt
34) A company reported that its bonds with a par value of $50,000 and a carrying value
of $57,000 are retired for $60,000 cash, resulting in a loss of $3,000. The amount to be
reported under cash flows from financing activities is:
A.$(3,000)
B.$(60,000)
C.$(57,000)
D.Zero. This is an operating activity
E.Zero. This is an investing activity
35) A company uses a process cost accounting system and the weighted average method
for inventory costs. The following information is available regarding direct labor for the
current year:
(a) Calculate the equivalent units of production for direct labor for the year.
(b) Calculate the average cost per equivalent unit for direct labor (round to the nearest
cent).
36) Salta Company installs a manufacturing machine in its factory at the beginning of
the year at a cost of $87,000. The machine’s useful life is estimated to be 5 years, or
400,000 units of product, with a $7,000 salvage value. During its second year, the
machine produces 84,500 units of product. Determine the machines’ second year
depreciation under the straight-line method.
A.$16,900
B.$16,000
C.$17,400
D.$18,379
E.$20,880
37) Adjusting entries made at the end of an accounting period accomplish all of the
following except:
A.Updating liability and asset accounts to their proper balances
B.Assigning revenues to the periods in which they are earned
C.Assigning expenses to the periods in which they are incurred
D.Assuring that financial statements reflect the revenues earned and the expenses
incurred
E.Assuring that external transaction amounts remain unchanged
38) All of the following statements regarding inventory shrinkage are true except:
A.Inventory shrinkage refers to the loss of inventory.
B.Inventory shrinkage is determined by comparing a physical count of inventory with
recorded inventory amounts.
C.Inventory shrinkage is recognized by debiting an operating expense.
D.Inventory shrinkage is recognized by debiting Cost of Goods Sold.
E.Inventory shrinkage can be caused by theft or deterioration.
39) Medco Company uses special journals to record transactions. Medco uses the
perpetual inventory system. Journalize the following transactions in the appropriate
special journal. All credit sales have 2/10, n/30 terms.
40) A liability created by the receipt of cash from customers in payment for products or
services that have not yet been delivered to the customers is:
A.Recorded as a debit to an unearned revenue account
B.Recorded as a debit to a prepaid expense account
C.Recorded as a credit to an unearned revenue account
D.Recorded as a credit to a prepaid expense account
E.Not recorded in the accounting records until the earnings process is complete
41) Aniston Enterprises manufactures stylish hats for sophisticated women. All
materials are introduced at the beginning of the manufacturing process in the Cutting
Department. Conversion costs are incurred uniformly throughout the manufacturing
process. As the cutting of material is completed, the pieces are immediately transferred
to the Sewing Department. Information for the Cutting Department for the month of
May follows.
Goods in Process, May 1 (50,000 units, 100% complete for direct materials, 40%
complete with respect to direct labor and overhead; includes $70,500 of direct material
cost; $34,050 of conversion costs).
Goods in Process, May 31 (75,000 units, 100% complete for direct materials; 20%
complete for conversion costs).
If Aniston Enterprises uses the FIFO method of process costing, compute the equivalent
units for materials and conversion costs respectively for May.
A.225,000; 225,000
B.200,000; 195,000
C.275,000; 200,000
D.225,000; 195,000
E.200,000; 200,000
42) Financial budgets include all the following except the:
A.Sales budget
B.Budgeted balance sheet
C.Budgeted income statement
D.Cash budget
E.All of these are financial budgets
43) For which item does a bank NOT issue a debit memorandum?
A.To notify a depositor of all withdrawals through an ATM
B.To notify a depositor of a fee assessed to the depositor’s account
C.To notify a depositor of an uncollectible check
D.To notify a depositor of periodic payments arranged in advance, by a depositor
E.To notify a depositor of a deposit to their account
44) The times interest earned computation is:
A.(Net income + Interest expense + Income taxes)/Interest expense
B.(Net income + Interest expense – Income taxes)/Interest expense
C.(Net income – Interest expense – Income taxes)/Interest expense
D.(Net income – Interest expense + Income taxes)/Interest expense
E.Interest expense/(Net income + Interest expense + Income taxes expense)
45) The process of restating future cash flows in today’s dollars is known as:
A.Budgeting
B.Annualization
C.Discounting
D.Payback period
E.Capitalizing
46) A company’s calendar-year financial data are shown below. The company had total
assets of $339,000 and total equity of $144,400 for the prior year. No additional shares
of common stock were issued during the year. The December 31 market price per share
is $49.50. Cash dividends of $19,500 were paid during the year. Calculate the following
ratios for the company:
(a) debt ratio
(b) equity ratio
(c) debt-to-equity ratio
(d) times interest earned
(e) total asset turnover
47) The Lamb Company budgeted sales for January, February, and March of $96,000,
$88,000, and $72,000, respectively. Seventy percent of sales are on credit. The
company collects 60% of its credit sales in the month following sale, 35% in the second
month following sale, and 5% is not collected. What are Lamb’s expected cash receipts
for March related to all current and past sales?
48) ___________________________ means that partners can commit or bind the
partnership to any contract within the scope of the partnership business.
49) Marquis and Bose agree to accept Sherman into their partnership. Sherman will
contribute $25,000 in cash. Prepare the journal entry to record this transaction.
50) A company paid $500,000 for 12% bonds with a par value of $500,000. The bonds
pay 6% interest semiannually on September 1 and March 1. The company intends to
hold the bonds until they mature. Prepare the journal entries for the following dates and
transactions related to this bond acquisition.
(1)Bonds purchased on September 1
(2) Year-end adjusting entry, December 31
(3) Receipt of semiannual interest March 1
(4) Redemption of the bonds at maturity on August 31
51) The job cost sheet for Job number 93-471 includes the following information:
DIRECT MATERIALS:
7/12 Requisition R93-566: 20 units @ $3.50 per unit
7/13 Requisition R93-576: 18 units @ $5.00 per unit
7/13 Requisition R93-578: 4 units @ $25.00 per unit
7/14 Requisition R93-591: 40 units @ $1.25 per unit
DIRECT LABOR:
7/12 Employee 19: 8 hours @ $9.00 per hour
7/13 Employee 19: 6 hours @ $9.00 per hour
7/13 Employee 37: 6 hours @ $7.00 per hour
7/14 Employee 19: 5 hours @ $9.00 per hour
7/14 Employee 92: 5 hours @ $11.00 per hour
FACTORY OVERHEAD:
Assigned at 150% of direct labor cost.
What is the total cost of Job number 93-471?
52) Prepare a December 31 balance sheet in proper form for Surety Insurance using the
following accounts and amounts:
53) ____________________ is the accounting system component that keeps data in a
form accessible to information processors.
54) Explain how to record the issuance and sale of a bond between interest payment
dates.
55) Madera Iron Sculpting is planning on replacing one of its robotic welders in five
years by making a one-time deposit of $20,000 today and four yearly contributions of
$5,000 beginning at the end of year 1. The deposits will earn 10% interest. How much
money will Sierra have accumulated at the end of five years to replace the welder?
56) What are the general accounting procedures for recording asset disposals?