1) Temporary investments are recorded at their cost which would include brokers
commissions.
2) If the standard to produce a given amount of product is 600 direct labor hours at $15
and the actual was 600 hours at $17, the rate variance was $1,200 unfavorable.
3) Form W-4 is a form authorizing employers to withhold a portion of employee
earnings for payment of an employees federal income taxes.
4) To determine cash payments for operating expenses for the cash flow statement using
the direct method, a decrease in accrued expenses is added to operating expenses other
than depreciation.
5) Perpetual inventory controlling accounts and subsidiary ledgers are maintained for
materials, work in process, and finished goods in cost accounting systems.
6) Income that cannot be associated definitely with operations, such as a gain from the
sale of a fixed asset, is listed as Other Income on the multiple-step income statement.
7) Planning is the process of monitoring operating results and comparing actual results
with the expected results.
8) A company pays an employee $3,000 for a five day work week, Monday – Friday.
The adjusting entry on December 31, which is a Wednesday, is debit Wages Expense,
$1,800 and credit Wages Payable, $1,800.
9) In a perpetual inventory system, the Merchandise Inventory account is only used to
reflect the beginning inventory.
10) Liabilities are debts owed by the business entity.
11) The vice presidents of production and sales and the controller hold line positions in
most large organizations.
12) When using the direct write-off method off accounting for uncollectible receivables,
the account Allowance for Doubtful Accounts is debited when a specific account is
determined to be uncollectible.
13) The journal entry a company records for the issuance of bonds when the contract
rate is greater than the market rate would be
A.debit Bonds Payable, credit Cash
B.debit Cash and Discount on Bonds Payable, credit Bonds Payable
C.debit Cash, credit Premium on Bonds Payable and Bonds Payable
D.debit Cash, credit Bonds Payable
14) The units of an item available for sale during the year were as follows:
There are 48 units of the item in the physical inventory at December 31. The periodic
inventory system is used. Determine the inventory cost by (a) the first-in, first-out
method, (b) the last-in, first-out method, and (c) the average cost method. Show your
work.
15) Which of the following statements is true regarding fixed and variable costs?
A.Both costs are constant when considered on a per unit basis
B.Both costs are constant when considered on a total basis
C.Fixed costs are constant in total, and variable costs are constant per unit
D.Variable costs are constant in total, and fixed costs vary in total
16) Assume in analyzing alternative proposals that Proposal F has a useful life of six
years and Proposal J has a useful life of nine years. What is one widely used method
that makes the proposals comparable?
A.Ignore the fact that Proposal F has a useful life of six years and treat it as if it has a
useful life of nine years
B.Adjust the life of Proposal J to a time period that is equal to that of Proposal F by
estimating a residual value at the end of year six
C.Ignore the useful lives of six and nine years and find an average (7 1/2 years)
D.Ignore the useful lives of six and nine years and compute the average rate of return
17) Significant changes in stockholders’ equity are reported in
A.income statement
B.retained earnings statement
C.statement of stockholders’ equity
D.statement of cash flows
18) Which of the following would be least likely to be considered a managerial
accounting report?
A.a report to analyze potential efficiencies and savings for the purchase of new
production equipment
B.a schedule of total manufacturing costs incurred
C.a statement of cost of goods manufactured
D.a statement of stockholders equity
19) The current ratio is
A.used to evaluate a company’s liquidity and short-term debt paying ability
B.is a solvency measure that indicated the margin of safety of a noteholder or
bondholder
C.calculated by dividing current liabilities by current assets
D.calculated by subtracting current liabilities from current assets
20) Treasury stock should be reported in the financial statements of a corporation as
a(n)
A.investment
B.liability
C.current asset
D.deduction from stockholderss equity
21) Income from operations of the Commercial Aviation Division is $2,225,000. If
income from operations before service department charges is $3,250,000:
A.operating expenses are $1,025,000
B.total service department charges are $1,025,000
C.noncontrollable charges are $1,025,000
D.direct manufacturing charges are $1,025,000
22) On December 15th, Great Designs Company hired an independent contractor for a
project. The contractor completed the project on December 29th and submitted an
invoice for $2,425 which was due on January 15th. The amount was duly paid on
January 15th.
(a) Prepare the journal entries necessary to record these transactions.
(b) Explain why you prepared this/these journal entries.
23) Mobile Co. issued a $45,000, 60-day, discounted note to Guarantee Bank. The
discount rate is 6%. At maturity, assuming a 360-day year, the borrower will pay:
A.$45,450
B.$42,300
C.$45,000
D.$44,550
24) Partners Ken and Macki each have a $40,000 capital balance and share income and
losses in a 3:2. Cash equals $20,000, noncash assets equal $120,000, and liabilities
equal $60,000. If the noncash assets are sold for $80,000, the Mackis capital account
will
A.decrease by $16,000
B.decrease by $24,000
C.increase by $24,000
D.decrease by $40,000
25) Chicks Corporation had $1,100,000 in invested assets, sales of $1,210,000, income
from operations amounting to $302,500, and a desired minimum rate of return of 15%.
The investment turnover for Chicks is:
A.1.3
B.1.5
C.1.0
D.1.1
26) One of the main disadvantages of the corporate form is the
A.professional management
B.double taxation of dividends
C.charter
D.corporation must issue stock
27) Which of the following is not a correct rule of debits and credits?
A.assets, expenses and withdrawals are increased by debits
B.assets are decreased by credits and have a normal debit balance
C.liabilities, revenues and owners equity are increased by credits
D.the normal balance for revenues and expenses is a credit
28) Which of the following is not a right possessed by common stockholders of a
corporation?
A.the right to vote in the election of the board of directors
B.the right to receive a minimum amount of dividends
C.the right to sell their stock to anyone they choose
D.the right to share in assets upon liquidation
29) Four financial statements are usually prepared for a business. The statement of cash
flows is usually prepared last. The statement of owner’s equity (OE), the balance sheet
(B), and the income statement (I) are prepared in a certain order to obtain information
needed for the next statement. In what order are these three statements prepared?
A.I,OE, B
B.B, I, OE
C.OE, I, B
D.B,OE, I
30) The three phases of setting up an accounting system are, in order
A.design, implementation, analysis
B.analysis, design, implementation
C.design, analysis, implementation
D.implementation, design, analysis
31) An advantage of the partnership form of business organization is
A.unlimited liability
B.mutual agency
C.ease of formation
D.limited life
32) The accounts in the ledger of Monroe Entertainment Co. are listed in alphabetical
order. All accounts have normal balances.
Prepare a trial balance. The total of the debits is
A.$13,900
B.$11,200
C.$12,700
D.$9,700
33) The following data were extracted from the income statement of Maine Solutions,
Inc.
Required:
34) Department B had 3,000 units in Work in Process that were 25% completed at the
beginning of the period at a cost of $12,500. 13,700 units of direct materials were added
during the period at a cost of $28,700. 15,000 units were completed during the period,
and 1,700 units were 95% completed at the end of the period. All materials are added at
the beginning of the process. Direct labor was $32,450 and factory overhead was
$18,710.
The number of equivalent units of production for the period for conversion if the
first-in, first-out method is used to cost inventories was:
A.14,365
B.13,615
C.12,000
D.15,865
35) If Everly Company issues 1,000 shares of $5 par value common stock for $75,000,
the account
A.Common Stock will be credited for $75,000
B.Paid-in Capital in excess of Par Value will be credited for $5,000
C.Paid-in Capital in excess of Par Value will be credited for $70,000
D.Cash will be debited for $70,000
36) If the effect of the credit portion of an adjusting entry is to increase the balance of a
liability account, which of the following describes the effect of the debit portion of the
entry?
A.increases the balance of a contra asset account
B.increases the balance of an asset account
C.decreases the balance of an owner’s equity account
D.increases the balance of an expense account
37) 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.
38) On June 8, Alton Co. issued an $80,000, 6%, 120-day note payable to Seller Co.
Assume that the fiscal year of Seller Co. ends June 30. Using the 360-day year in your
calculations, what is the amount of interest revenue recognized by Seller in the
following year?
A.$1,200.00
B.$1,208.89
C.$1,306.67
D.$1,600.00
39) The following information is available for Taylor Company:
Which of the following statements is correct?
A.The price-earnings ratio is 20 and a share of common stock was selling for 20 times
the amount of earnings per share at the end of 2012
B.The price-earnings ratio is 5.0% and a share of common stock was selling for 5.0%
more than the amount of earnings per share at the end of 2012
C.The price-earnings ratio is 10 and a share of common stock was selling for 125 times
the amount of earnings per share at the end of 2012
D.The market price per share and the earnings per share are not statistically related to
each other
40) Accrued salaries of $600 owed to employees for December 29, 30, and 31 are not
taken into consideration in preparing the financial statements for the year ended
December 31. Indicate which items will be erroneously stated, because of the error, on
(a) the income statement for the year and (b) the balance sheet as of December 31. Also
indicate whether the items in error will be overstated or understated.
41) Prime costs are
A.direct materials and factory overhead
B.direct materials and direct labor
C.direct labor and factory overhead
D.period costs and factory overhead
42) A business received an offer from an exporter for 30,000 units of product at $16 per
unit. The acceptance of the offer will not affect normal production or domestic sales
prices. The following data are available:
What is the differential cost from the acceptance of the offer?
A.$120,000
B.$330,000
C.$300,000
D.$510,000
43) Supplies are recorded as assets when purchased. Therefore, the credit to supplies in
the adjusting entry is for the amount of supplies
A.still on hand
B.purchased
C.used
D.required for the next accounting period
44) What is the major difference between a periodic and perpetual inventory system?
A.Under the periodic inventory system, the purchase of inventory will be debited to the
Purchases account
B.Under the periodic inventory system, no journal entry is recorded at the time of the
sale of inventory for the cost of the inventory
C.Under the periodic inventory system, all adjustments such as purchases returns and
allowances and discounts are reconciled at the end of the month
D.All are correct
45) The payroll summary for December 31 for Waters Co. revealed total earnings of
$80,000. Earnings subject to 6% social security tax were $60,000; earnings subject to
1.5% Medicare tax were $80,000; and earnings of $3,000 were subject to 4.3% state
and 0.8% federal unemployment compensation tax. Journalize the entry to record the
accrual of payroll taxes.
46) Hadley Industries warrants its products for one year. The estimated product
warranty is 4% of sales. Assume that sales were $210,000 for June. In July, a customer
received warranty repairs requiring $205 of parts and $75 of labor.
Required:
47) Selected transactions completed by Breezeway Construction during the current
fiscal year are as follows:
Required: Journalize the transactions.
48) List three different security measures taken by stores to safeguard inventory.
49) Journalize the six entries to adjust the accounts at December 31. (Hint: One of the
accounts was affected by two different adjusting entries).
50) Explain the concept of equivalent units. Give an example to validate your
explanation.