1) Management may use both absorption and variable costing methods for analyzing a
particular product.
2) The product cost concept includes all manufacturing costs plus selling and
administrative expenses in the cost amount to which the markup is added to determine
product price.
3) Reducing wait time is directly linked to reducing inventory.
4) The cost method of accounting for the purchase and sale of treasury stock is a
commonly used method.
5) The fixed cost per unit varies with changes in the level of activity.
6) Variable costs are costs that remain constant in total dollar amount as the level of
activity changes.
7) The normal balance of a capital stock account is a debit.
8) The party promising to pay a note at maturity is the maker.
9) The amount of the “adjusted balance” appearing on the bank reconciliation as of a
given date is the amount that is shown on the balance sheet for that date.
10) A defined contribution plan promises employees a fixed annual pension benefit.
11) The rights or claims to the assets of a business may be subdivided into rights of
creditors and rights of owners.
12) Flexible budgeting builds the effect of changes in level of activity into the budget
system.
13) When bonds held as long-term investments are purchased at a price other than the
face value, the premium or discount should be amortized over the remaining life of the
bonds.
14) Interest payments on 12% bonds with a face value of $20,000 and interest paid
semiannually would be $2,400 every 6 months.
15) A manufacturer may employ a job order cost system for some of its products and a
process cost system for others.
16) At 12/31/2009, the cash and securities held in a sinking fund to redeem bonds in
2011 are classified on the balance sheet as current assets.
17) The main reason that the bank statement cash balance and the company’s cash
balance do not initially balance is due to timing differences.
18) About 90% of the businesses in the United States are organized as corporations.
19) Job order cost accounting systems may be used for planning and controlling a
service business.
20) The Kaumajet Factory produces two products – table lamps and desk lamps. It has
two separate departments – finishing and production. The overhead budget for the
finishing department is $550,000, using 500,000 direct labor hours. The overhead
budget for the production department is $400,000 using 80,000 direct labor hours.
If the budget estimates that a desk lamp will require 1 hours of finishing and 2 hours of
production, what is the total amount of factory overhead to be allocated to desk lamps
using the multiple production department factory overhead rate method with an
allocation base of direct labor hours, if 26,000 units are produced?
A.$540,000
B.$187,200
C.$475,000
D.$288,600
21) Carmelita Company sells 40,000 units at $18 per unit. Fixed costs are $62,000 and
income from operations is $258,000. Determine the (a) variable cost per unit, (b) unit
contribution margin, and (c) contribution margin ratio .
22) Prepare the required entries for the following transactions:
(a) Austin Company pays daily wages of $645 (Monday – Friday). Paydays are every
other Friday. Prepare the Monday, January 31 adjusting entry assuming that the last
payday was Friday, January 21.
(b) Prepare the journal entry to record the Austin Companys payroll on Friday, February
4.
(c) Annual depreciation expense on the companys fixed assets is $39,600. Prepare the
adjusting entry to recognize depreciation for the month of January.
(d) The companys office supplies account shows a debit balance of $3,755. A count of
office supplies on hand on January 31 shows $635 worth of supplies on hand. Prepare
the January 31 adjusting entry for Office Supplies.
23) All of the following would probably be considered a direct material except:
A.steel
B.fabric
C.glue
D.lumber
24) A corporation issues for cash $9,000,000 of 8%, 25-year bonds, interest payable
semiannually. The amount received for the bonds will be
A.present value of 50 semiannual interest payments of $360,000, plus present value of
$9,000,000 to be repaid in 25 years
B.present value of 25 annual interest payments of $720,000
C.present value of 25 annual interest payments of $720,000, plus present value of
$9,000,000 to be repaid in 25 years
D.present value of $9,000,000 to be repaid in 25 years, less present value of 50
semiannual interest payments of $360,000
25) Held to maturity securities
A.are reported at fair market value
B.include stocks as well as bonds
C.may be reported as current or noncurrent assets
D.all of the above
26) According to a summary of the payroll of Scotland Company, $450,000 was subject
to the 7.0% social security tax and $500,000 was subject to the 1.5% Medicare tax.
Federal income tax withheld was $98,000. Also, $15,000 was subject to state (4.2%)
and federal (0.8%) unemployment taxes. The journal entry to record accrued salaries
would include:
A.a debit to Salary Payable of $450,000
B.a credit to Salary Payable of $500,000
C.a debit to Salary Expense of $500,000
D.a credit to Salary Expense of $450,000
27) Computer equipment was acquired at the beginning of the year at a cost of $65,000
that has an estimated residual value of $3,800 and an estimated useful life of 8 years.
Determine the (a) depreciable cost, (b) straight-line rate, and (c) annual straight-line
depreciation.
28) An August sales forecast projects 6,000 units are going to be sold at a price of
$11.50 per unit. The desired ending iventory in units is 15% higher than the beginning
inventory of 1,000 units. Total August sales are anticipated to be:
A.$80,500
B.$69,000
C.$60,000
D.$57,500
29) When a job is completed in a service organization, the job costs are transferred to
the
A.work in process account
B.cost of services account
C.finished goods account
D.cost of goods sold account
30) For February, sales revenue is $700,000; sales commissions are 5% of sales; the
sales manager’s salary is $96,000; advertising expenses are $80,000; shipping expenses
total 2% of sales; and miscellaneous selling expenses are $2,500 plus 1/2 of 1% of
sales. Total selling expenses for the month of February are:
A.$151,000
B.$227,500
C.$225,000
D.$231,000
31) A business issues 20-year bonds payable in exchange for preferred stock. This
transaction would be reported on the statement of cash flows in
A.a separate schedule
B.the cash flows from financing activities section
C.the cash flows from investing activities section
D.the cash flows from operating activities section
32) Which of the following best describes the effect on direct labor when management
adopts a just-in-time environment?
A.Workers typically perform one function
B.The environment becomes more labor intensive
C.Each employee runs a single machine
D.Workers are often cross-trained to perform more than one function
33) Which of the following systems provides for a separate record of the cost of each
particular quantity of product that passes through the factory?
A.Job order cost system
B.General cost system
C.Replacement cost system
D.Process cost system
34) The following data are for Trendy Fashion Apparel:
Determine the contribution margin for (a) Skirts and (b) the South Region.
35) Sifton Electronics Corporation manufactures and assembles electronic motor drives
for video cameras. The company assembles the motor drives for several accounts. The
process consists of a just-in-time cell for each customer. The following information
relates only to one customer’s just-in-time cell for the coming year. Projected labor and
overhead, $7,370,000; materials costs, $28 per unit. Planned production included 4,000
hours to produce 27,500 motor drives. Actual production for August was 1,600 units,
and motor drives shipped amounted to 1,380 units.
From the foregoing information, determine the production costs transferred to Cost of
Goods Sold during August.
A.$369,840
B.$408,480
C.$428,800
D.$473,600
36) If bonds are issued at a discount, it means that the
A.bondholder will receive effectively less interest than the contractual rate of interest
B.market interest rate is lower than the contractual interest rate
C.market interest rate is higher than the contractual interest rate
D.financial strength of the issuer is suspect
37) Cost of goods manufactured during 2011 is $240, work in process inventory on
December 31, 2011, is $50. Work in process inventory during 2011 decreased by 60%.
Total manufacturing costs incurred during 2011 amount to:
A.$190
B.$165
C.$290
D.$315
38) When a borrower receives the face amount of a discounted note less discount, this
amount is known as:
A.the note proceeds
B.the note discount
C.the note deferred interest
D.the note principal
39) A corporation has 50,000 shares of $25 par value stock outstanding. If the
corporation issues a 3-for-1 stock split, the number of shares outstanding after the split
will be
A.150,000 shares
B.50,000 shares
C.100,000 shares
D.16,666 shares
40) 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.
Assuming that Widgeon Co. can sell all of the products they can make, what is the
maximum contribution margin they can earn per month?
A.$49,000
B.$70,000
C.$56,000
D.$34,000
41) Match the following accounts to the financial statement where they can be found.
(Hint: Some of the accounts can be found in more than one financial statement.)
A. Balance Sheet
B. Income Statement
C. Statement of Cash Flows
D. Retained Earnings Statement
42) An employee receives an hourly rate of $15, with time and a half for all hours
worked in excess of 40 during the week. Payroll data for the current week are as
follows: hours worked, 48; federal income tax withheld, $120; cumulative earnings for
the year prior to this week, $24,500; Social security tax rate, 6% on maximum of
$100,000; and Medicare tax rate, 1.5% on all earnings; state unemployment
compensation tax, 3.4% on the first $7,000; federal unemployment compensation tax, .
8% on the first $7,000. What is the net amount to be paid to the employee?
A.$568.74
B.$601.50
C.$660.00
D.$574.90
43) Which of the following would be included in the cost of a product manufactured
according to variable costing?
A.sales commissions
B.property taxes on factory buildings
C.interest expense
D.direct materials
44) If sales are $500,000, variable costs are 75% of sales, and operating income is
$40,000, what is the operating leverage?
A.0
B.1.25
C.1.3
D.3.1
45) A $140 petty cash fund has cash of $20 and receipts of $117. The journal entry to
replenish the account would include a credit to
A.Cash for $20
B.Cash Over and Short for $3
C.Petty Cash for $120
D.Cash for $120
46) Sensational Soft Drinks makes three products: iced tea, soda, and lemonade. The
following data are available:
Sensational is experiencing a bottleneck in one of its processes that affects each product
as follows:
47) A voucher
A.is received from customers to explain the purpose of a payment
B.is normally prepared in the Accounting Department
C.system is used to control cash receipts
D.system is an internal control procedure to verify that the assets in the ledger are the
ones the company owns
48) Indicate how the following transactions affect the accounting equation:
(a) The purchase of supplies on account.
(b) The purchase of supplies for cash.
(c) Cash dividends paid to stockholders.
(d) Revenues received in cash.
(e) Revenues received on account.
49) Equipment costing $80,000 with a useful life of 10 years and a residual value of
$8,000 has been depreciated for 6 years by the straight-line method. Assume a fiscal
year ending December 31.
50) The Cash and Accounts Receivable for a company are provided below:
Based on this information, what is the amount and percentage of increase or decrease
that would be shown in a balance sheet with horizontal analysis?
51) Rachel Cake Factory normally sells their specialty cake for $22. An offer to buy
100 cakes for $19 per cake was made by an organization hosting a national event in the
city. The variable cost per cake is $11. A special decoration per cake will add another $1
to the cost. Determine the differential income or loss per cake from selling the cakes.
52) The balance in the unearned fees account, before adjustment at the end of the year,
is $10,250. Journalize the adjusting entry required if the amount of unearned fees at the
end of the year is $3,125.
53) Prepare a journal entry on October 12 for the fees earned on account, $14,600.
54) The following accounts were taken from the Adjusted Trial Balance columns of the
work sheet for the year ended April 30, 2011, for Finnegan Co.:
Prepare an income statement.
55) Purple Inc. production budget for Product X for the year ended December 31 is as
follows:
In Purple’s production operations, Materials A, B, and C are required to make Product
X. The quantities of direct materials expected to be used for each unit of product are as
follows:
Prepare a direct materials purchases budget for Product X, assuming that there are no
beginning or ending inventories for direct materials (all units purchased are used in
production).
56) A company issued $2,000,000 of 30-year, 8% callable bonds on April 1, 2011, with
interest payable on April 1 and October 1. The fiscal year of the company is the
calendar year. Journalize the entries to record the following selected transactions:
57) On the first day of the fiscal year, a company issues a $1,000,000, 7%, 5 year bond
that pays semi-annual interest of $35,000 ($1,000,000 7% 1/2), receiving cash of
$884,171. Journalize the first interest payment and the amortization of the related bond
discount using the straight-line method. Round answer to the nearest dollar.
58) Given the following data, prepare the journal entry to record interest expense and
any related amortization on December 31st of the first year using the effective method.
Assume interest is paid annually on January 1. The bonds were issued on January 1 for
$7,411,233.
Bonds Payable $8,000,000 (matures in 10 years)
Contract rate = 5%
Yield = 6%