1) Changes in accounting estimates are accounted for in current and future periods.
2) Material amounts of under- or overapplied factory overhead are always closed
entirely to Cost of Goods Sold at the end of an accounting period.
3) Cumulative preferred stock has a right to be paid both current and prior periods’
unpaid dividends before any dividend is paid to common shareholders.
4) If a company is highly leveraged, this means that it has relatively high risk of not
being able to repay its debt.
5) Allocating costs to service departments involves accumulating revenues and direct
expenses, allocating indirect expenses, and preparing the department income statement.
6) The carrying (book) value of a bond at the time when it is issued is always equal to
its par value.
7) A materials requisition is a source document used by materials managers of a
manufacturing company to order raw materials from suppliers; it serves the same
purpose as a purchase order in a merchandising company.
8) The indirect method separately lists each major item of operating cash receipts and
cash payments.
9) A disadvantage of an operating lease is the inability to deduct rental payments in
computing taxable income.
10) A partnership has a limited life.
11) On August 1, a $30,000, 6%, 3-year installment note payable is issued by a
company. The note requires equal payments of principal plus accrued interest be paid
each year on July 31. The present value of an annuity factor for 3 years at 6% is 2.6730.
The payment each July 31 will be:
A.$10,000.00.
B.$11,223.34.
C.$10,800.00.
D.$10,400.00.
E.$1,223.34.
12) Maxie’s Game World sold games to a customer on credit for $2,600, terms 1/10,
n/30 and the cost of the games was $1,700. When recording the collection from the
customer made within the discount period, in its cash receipts journal, Maxie’s would
enter:
A.$2,600 in the Cash Dr. column and $2,600 in the Accounts Receivable Cr. column.
B.$2,574 in the Cash Dr. column and $2,574 in the Accounts Receivable Cr. column.
C.$2,574 in the Cash Dr. column, $26 in the Sales Discount Dr. column and $2,600 in
the Accounts Receivable Cr. column.
D.$2,600 in the Accounts Receivable Dr./Sales Cr. column and $2,600 in the Cash Cr.
column.
E.$2,600 in the Cash Dr. column. $2,600 in the Sales Cr. column, and $1,700 in the
Cost of Goods Sold Dr./Inventory Cr. column.
13) Which of the following is not a step in the accounting process?
A.Record relevant transactions and events in a journal
B.Post journal information to the ledger accounts
C.Prepare and analyze the trial balance
D.Analyzing each transaction
E.Verify that revenues and expenses are equal
14) On January 1, Haymark Corporation leased a truck, agreeing to pay $15,252 every
December 31 for the six-year life of the lease. The present value of the lease payments,
at 6% interest, is $75,000. The lease is considered a capital lease.
(a) Prepare the general journal entry to record the acquisition of the truck with the
capital lease.
(b) Prepare the general journal entry to record the first lease payment on December 31.
(c) Record straight-line depreciation on the truck on December 31, assuming a 6-year
life and no salvage value.
15) Match the following definitions with the terms 1 through 9. Place the letter that
identifies the best definition in the blank space next to the term.
16) The unadjusted trial balance of Barber Housekeeping Service is entered on the
partial work sheet below.
Required:
Complete the work sheet using the following information:
(a) Salaries earned by employees that are unpaid and unrecorded, $5,000.
(b) An inventory of supplies showed $3,000 of unused supplies still on hand.
(c) Depreciation on automobiles, $30,000.
(d) Advertising for November and December in the amount of $8,000 remains unpaid
and unrecorded.
17) Northington, Inc. is preparing the company’s statement of cash flows for the fiscal
year just ended. Using the following information, determine the amount of cash flows
from investing activities:
A.($107,700).
B.$107,700.
C.($200,000).
D.($139,700).
E.($207,700).
18) Use the Hamilton Company’s investment center information below to calculate (a)
return on total investment and (b) investment center residual income.
19) The sales budget for Modesto Corp. shows that 20,000 units of Product A and
22,000 units of Product B are going to be sold for prices of $10 and $12, respectively.
The desired ending inventory of Product A is 20% higher than its beginning inventory
of 2,000 units. The beginning inventory of Product B is 2,500 units. The desired ending
inventory of B is 3,000 units. Total budgeted sales of both products for the year would
be:
A.$42,000.
B.$200,000.
C.$264,000.
D.$464,000.
E.$500,000.
20) The Menswear Department of Major’s Department Store had sales of $188,000, cost
of goods sold of $132,500, indirect expenses of $13,250, and direct expenses of
$27,500 for the current period. The Menswear Department’s contribution to overhead as
a percent of sales is:
A.7.8%.
B.14.9%.
C.29.5%.
D.66.7%.
E.85.4%.
21) The specific meaning of goodwill in accounting is:
A.The amount by which a company’s value exceeds the value of its individual assets
and liabilities.
B.Long term assets held as investment.
C.The support of the board of directors for the operating decisions of management.
D.The cost of developing, maintaining, or enhancing the value of a trademark.
E.Rights granted an entity to deliver a product or service under specified conditions.
22) A machine originally had an estimated useful life of 6 years, but after 4 complete
years, it was decided that the original estimate of useful life should have been 10 years.
At that point the remaining cost to be depreciated should be allocated over the
remaining:
A.2 years.
B.4 years.
C.6 years.
D.16 years.
E.10 years.
23) Harvey and Quick have decided to form a partnership. Harvey is going to contribute
a depreciable asset to the partnership as his equity contribution to the partnership. The
following information regarding the asset to be contributed by Harvey is available:
Based on this information, Harvey’s beginning equity balance in the partnership will be:
A.$76,000
B.$36,000
C.$18,000
D.$27,000
E.$45,000
24) The following information is available for Fenton Manufacturing Company at June
30:
Based on this information, Fenton Manufacturing Company should report Cash and
Cash Equivalents on June 30 of:
A.$28,495
B.$29,286
C.$23,286
D.$12,095
E.$22,495
25) A bond is issued at par value when:
A.The bond pays no interest.
B.The bond is not between interest payment dates.
C.Straight line amortization is used by the company.
D.The market rate of interest is the same as the contract rate of interest.
E.The bond is callable.
26) All of the following are true for Available-for-sale equity securities except:
A.Are recorded at cost when acquired.
B.May earn dividends that are reported in that year’s income statement.
C.May be classified as either short-term or long-term securities.
D.Are reported at market value on the balance sheet.
E.Are actively managed like Trading Securities.
27) Identify the financial analysis building block most appropriately associated with
each ratio listed below by placing the letter of the building block a through d beside
each ratio 1 through 10. Each building block may be used more than once.
A. Liquidity and Efficiency
B. Solvency
C. Profitability
D. Market Prospects
__________ (1) Price Earnings Ratio
__________ (2) Dividend Yield
__________ (3) Accounts Receivable Turnover
__________ (4) Days’ Sales in Inventory
__________ (5) Return on Total Assets
__________ (6) Equity Ratio
__________ (7) Debt Ratio
__________ (8) Inventory Turnover
__________ (9) Basic Earnings per Share
__________ (10) Times Interest Earned
28) Ratchet Manufacturing anticipates total sales for August, September, and October of
$200,000, $210,000, and $220,500 respectively. Cash sales are normally 25% of total
sales and the remaining sales are on credit. All credit sales are collected in the first
month after the sale. Compute the amount of accounts receivable to be reported on the
company’s budgeted balance sheet for August.
A.$150,000.
B.$50,000.
C.$157,500.
D.$52,500.
E.$200,000.
29) An employee earned $37,000 during the year working for an employer when the
maximum limit for Social Security was $117,000. The FICA tax rate for Social Security
is 6.2% and the FICA tax rate for Medicare is 1.45%. The employee’s annual FICA
taxes amount is:
A.$2,294.00.
B.$536.50.
C.$2,830.50.
D.$1,757.50.
E.$8,950.50.
30) For each item shown below, classify it as a product cost or a period cost, by placing
an X in the appropriate column. For each item that is a product cost, also indicate
whether it is a direct cost or an indirect cost with respect to a unit of finished product.
31) ____________________ are the part of the accounting information system that
provide the means to take information out of the system and make it available to users.
32) Salem Co. uses special journals to record its transactions. They use the perpetual
inventory system. Shown below are the purchasing and cash disbursement transactions
for current month of July:
Record these transactions in the following journals.
33) What is a stock split? How is a stock split different from a stock dividend?
34) Sturdivant Fasteners, Co. uses a traditional allocation of overhead based on direct
labor hours system. The manager has accumulated the following information on
engineering changes, which are indirect cost of their products, for two of the company’s
major products:
Compute the cost per unit using: The traditional two-stage allocation of the costs of
engineering changes based on direct labor hours.
35) Leto and Duncan allow Gunner to purchase a 25% interest in their partnership for
$30,000 cash. Gunner has exceptional talents that will enhance the partnership. Leto’s
and Duncan’s capital account balances are $55,000 each. The partners have agreed to
share income or loss equally. Prepare the general journal entry to record the admission
of Lepley to the partnership.
36) A capital budgeting method that considers how quickly a project recovers costs is
known as ______________. An enhancement to this method that also considers the
time value of money is called ____________.
37) The Redtail Partnership agrees to dissolve. The remaining cash balance after
liquidating partnership assets and liabilities is $70,000. The final capital account
balances are: Paulson, $35,000; Gray, $25,000; and Chang, $10,000. Prepare the journal
entry to distribute the remaining cash to the partners.
38) The accounts receivable turnover is calculated by dividing _________________ by
________________.
39) A manufacturing company’s finished goods inventory on January 1 was $68,000;
cost of goods manufactured was $147,000; and the December 31 finished goods
inventory was $77,000. What is the cost of goods sold for that year?
