1) The FIFO method of process costing is simpler than the Average cost method.
2) If the adjustment for accrued salaries at the end of the period is inadvertently
omitted, both liabilities and owner’s equity will be understated for the period.
3) Paying an account payable increases liabilities and decreases assets.
4) A partnership is subject to federal income taxes.
5) Product costs include direct labor and advertising expense.
6) Opportunity cost is the amount of increase or decrease in cost that would result from
the best available alternative to the proposed use of cash or its equivalent.
7) Operating expenses incurred for the entire business as a unit that are not subject to
the control of individual department managers are called indirect expenses.
8) The normal balance of revenue accounts is a credit.
9) There is really no benefit in preparing financial statements in any particular order.
10) Rarely would the cash flows from operating activities, as reported on the statement
of cash flows, be the same as the net income reported on the income statement.
11) Under the LIFO inventory costing method, the most recent costs are assigned to
ending inventory.
12) The principal financial statements of a proprietorship are the income statement,
statement of owner’s equity, and the balance sheet.
13) A credit to the cash account will increase the account.
14) The method used to calculate the depletion of a natural resource is the straight line
method.
15) The financial statements resulting from combining parent and subsidiary statements
are called consolidated statements.
16) The direct write-off method records Bad Debt Expense in the year the specific
account receivable is determined to be uncollectible.
17) The primary purpose of a stock split is to reduce the number ofshares outstanding in
order to encourage more investors to enter the market for the company’s shares.
18) Computerized accounting systems prevent all journalizing errors.
19) The salary allocation to partners used in dividing net income would also appear as
salary expense on the partnership income statement.
20) The estimated total factory overhead cost and total machine hours for Department
40 for the current year are $250,000 and 56,250 respectively. During January, the first
month of the current year, actual machine hours used totaled 5,100 and factory
overhead cost incurred totaled $22,000.
(a) Determine the factory overhead rate based on machine hours.
(b) Present the entry to apply factory overhead to production in Department 40 for
January.
(c) What is the balance of Factory Overhead – Department 40 at January 31?
(d) Does the balance of Factory Overhead – Department 40 at January 31 represent
overapplied or underapplied factory overhead?
Round total cost to nearest dollar value.
21) A corporation issues $100,000, 10%, 5-year bonds on January 1, 2011, for
$104,200. Interest is paid semiannually on January 1 and July 1. If the corporation uses
the straight-line method of amortization of bond premium, the amount of bond interest
expense to be recognized on July 1, 2011, is
A.$10,420
B.$5,420
C.$5,000
D.$4,580
22) The liability for a dividend is recorded on which of the following dates?
A.the date of record
B.the date of payment
C.the last day of the fiscal year
D.the date of declaration
23) Using accrual accounting, revenue is recorded and reported only
A.when cash is received without regard to when the services are rendered
B.when the services are rendered without regard to when cash is received
C.when cash is received at the time services are rendered
D.if cash is received after the services are rendered
24) Using a perpetual inventory system, the entry to record the sale of merchandise on
account includes a
A.debit to Sales
B.debit to Merchandise Inventory
C.credit to Merchandise Inventory
D.credit to Accounts Receivable
25) Cash was paid by Aris Alarm Service to creditors on account. Which of the
following entries for Aris Alarm Service records this transaction?
A.Cash, debit; Ari Fleish, Capital, credit
B.Accounts Payable, debit; Cash, credit
C.Accounts Receivable, debit; Cash, credit
D.Accounts Payable, debit; Account Receivable, credit
26) A company has 10,000 shares of $10 par common stock outstanding. Prepare entries
to record the following:
(a) Purchased 1,000 shares of treasury stock at $12. The treasury stock is accounted for
by the cost method.
(b) Sold 500 shares of treasury stock at $15.
(c) Purchased equipment for $75,000, paying $25,000 in cash and issuing 4,000 shares
of common stock for the remaining.
(d) Sold 500 shares of treasury stock at $11.
27) For the past year, Hornbostel Company had fixed costs of $6,552,000, a unit
variable cost of $444, and a unit selling price of $600. For the coming year, no changes
are expected in revenues and costs, except that a new wage contract will increase
variable costs by $6 per unit. Determine the break-even sales (units) for (a) the past
year and (b) the coming year.
28) Office supplies were sold by Aris Alarm Service at cost to another repair shop, with
cash received. Which of the following entries for Aris Alarm Service records this
transaction?
A.Office Supplies, debit; Cash, credit
B.Office Supplies, debit; Accounts Payable, credit
C.Cash, debit; Office Supplies, credit
D.Accounts Payable, debit; Office Supplies, credit
29) Penny Company sells 25,000 units at $59 per unit. Variable costs are $29 per unit,
and loss from operations is ($50,000). Determine the (a) unit contribution margin (b)
contribution margin ratio, and (c) fixed costs per unit at production of 25,000 units.
30) Which of the following statements below is not a reason a company may purchase
another company’s stock?
A.earning a return on excess cash
B.sustain the other company’s stock price
C.gaining control of another company’s operations
D.developing or maintaining business relationships
31) The method of accounting for investments in equity securities in which the investor
records its share of periodic net income of the investee is the
A.cost method
B.market method
C.income method
D.equity method
32) On March 1, 2014, the amount of Norton Cook’s capital in Cooks Catering
Company was $150,000. During March, he withdrew $31,000 from the business. The
amounts of the various assets, liabilities, revenues, and expenses are as follows:
Present, in good form, (a) an income statement for March, (b) a statement of owner’s
equity for March, and (c) a balance sheet as of March 31.
33) The Boxwood Company sells blankets for $60 each. The following was taken from
the inventory records during May. The company had no beginning inventory on May 1.
Assuming that the company uses the perpetual inventory system, determine the cost of
merchandise sold for the sale of May 20 using the FIFO inventory cost method.
A.$120
B.$180
C.$136
D.$144
34) Cost flow is in the order in which costs were incurred when using
A.average cost
B.last-in, first-out
C.first-in, first-out
D.weighted average
35) Expenses follow the same debit and credit rules as
A.Revenues
B.Drawing Account
C.Capital Account
D.Liabilities
36) Assume the following sales data for a company:
What is the percentage increase in sales from 2014 to 2015?
A.75%
B.66.7%
C.25%
D.150%
37) Beginning inventory, purchases and sales data for T-shirts are as follows:
Assuming the business maintains a periodic inventory system, calculate the cost of
merchandise sold and ending inventory under the following assumptions:
a. FIFO
b. LIFO
c. Average cost (round cost of merchandise sold and ending inventory to the nearest
dollar)
38) Explain the meaning of:
(a) the objectivity concept and
(b) the unit of measure concept
39) If the market rate of interest is greater than the contractual rate of interest, bonds
will sell
A.at a premium
B.at face value
C.at a discount
D.only after the stated rate of interest is increased
40) 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
41) A work sheet includes columns for
A.adjusting entries
B.closing entries
C.reversing entries
D.adjusting and closing entries
42) The fiscal year selected by companies
A.is the same as the calendar year
B.begins with the first day of the month and ends on the last day of the twelfth month
C.must always begin on January 1
D.will change each year
43) Avey Corporation had $275,000 in invested assets, sales of $330,000, income from
operations amounting to $49,500 and a desired minimum rate of return of 7.5%. The
rate of return on investment for Avey Corporation is:
A.8%
B.10%
C.18%
D.7.5%
44) Cash paid for equipment would be reported in the statement of cash flows in
A.the cash flows from operating activities section
B.the cash flows from financing activities section
C.the cash flows from investing activities section
D.a separate schedule
45)
Which is the best explanation for this journal entry?
A.Purchased equipment, paid cash of $5,000, with the remainder to be paid in payments
B.Purchased equipment, paid cash of $10,000, with the remainder to be received in the
future
C.Purchased equipment, paid cash for the entire amount
D.Purchased equipment on credit
46) Which of the following describes the behavior of the variable cost per unit?
A.Varies in increasing proportion with changes in the activity level
B.Varies in decreasing proportion with changes in the activity level
C.Remains constant with changes in the activity level
D.Varies in direct proportion with the activity level
47) Which of the following account groups are all considered nominal accounts?
A.Cash, Owners Equity, Wages Payable
B.Prepaid Insurance, Property, Plant & Equipment, Fees Earned
C.Capital Account, Dividend Account, Income Summary
D.Rent Revenue, Fees Earned, Miscellaneous Expense
48) When a company uses the allowance method of accounting for uncollectible
receivables, the entry to reinstate a previously written off account would include:
A.A credit to Bad Debt Expense
B.A debit to Bad Debt Expense
C.A debit to Allowance for Doubtful Accounts
D.A credit to Allowance for Doubtful Accounts
49) A $6,000, 60-day, 12% note recorded on November 21 is not paid by the maker at
maturity. The journal entry to recognize this event is
A.debit Cash, $6,120; credit Notes Receivable, $6,120
B.debit Accounts Receivable, $6,120; credit Notes Receivable, $6,000; Credit Interest
Receivable, $120
C.debit Notes Receivable, $6,060; credit Accounts Receivable, $6,060
D.debit Accounts Receivable, $6,120; credit Notes Receivable, $6,000; Credit Interest
Revenue, $120
50) Collins Landscape Company purchased various landscaping supplies on account to
be used for landscape designs for their customers. How will this business transaction
affect the accounting equation?
51) Gull Corp. is considering selling its old popcorn machine and replacing it with a
newer one. The old machine has a book value of $5,000 and its remaining useful life is
5 years. Annual costs are $4,000. A high school is willing to buy it for $2,000. New
equipment would cost $18,000 and annual operating costs would be $1,500. The new
machine has an estimated useful life of 5 years. Should the machine be replaced?
Support your answer with calculations.
52) Journalize the entries to record the following selected bond investment transactions
for Southwest Bank:
53) The materials used by the Holly Company Division A are currently purchased from
outside supplier. Division B is able to supply Division A with 20,000 units at a variable
cost of $42 per unit. The normal price that Division B normally sells its units is $53 per
unit. What is the range of transfer prices that the two division managers should
negotiate?
54) Give the major disadvantage of disregarding the cost concept and constantly
revaluing assets based on appraisals and opinions.