1) When bonds are converted into common stock, the carrying value of the bonds is
transferred to paid-in capital accounts.
2) The terms 2/10, n/30 state that a 2% discount is available if the invoice is paid within
the first 10 days of the next month.
3) Ordinary repairs should be recognized when incurred as revenue expenditures.
4) Inventories cannot be valued at standard cost in financial statements.
5) In accordance with the historical cost principle, brokerage fees should be added to
the cost of an investment.
6) Effective budgeting requires clearly defined lines of authority and responsibility.
7) When the discount rate is higher than the contractual rate, the present value of the
bonds will be lower than the bonds’ face value.
8) Closing entries are journalized after adjusting entries have been journalized.
9) The present value of a bond is a function of three variables: (1) the payment
amounts, (2) the discount rate, and (3) the age of the bond.
10) The board of directors may authorize more bonds than are issued.
11) A corporation can issue more shares than it is authorized in its charter, if the board
of directors approves of an increase in the number of authorized shares.
12) The high-low method is used in classifying a mixed cost into its variable and fixed
elements.
13) Accrued revenues are amounts recorded and received but not yet recognized.
14) Freight terms of FOB Destination means that the seller pays the freight costs.
15) Other receivables include nontrade receivables such as loans to company officers.
16) The economic entity assumption requires that the activities of an entity be kept
separate and distinct from the activities of its owner and all other economic entities.
17) A journal is also known as a book of original entry.
18) Nord Company had $375,000 of current assets and $150,000 of current liabilities
before borrowing $70,000 from the bank with a 3-month note payable. What effect did
the borrowing transaction have on Nord Company’s current ratio?
a.The ratio remained unchanged
b.The change in the current ratio cannot be determined
c.The ratio decreased
d.The ratio increased
19) A credit granted to a customer for returned goods requires a debit to
a.Sales Revenue and a credit to Cash
b.Sales Returns and Allowances and a credit to Accounts Receivable
c.Accounts Receivable and a credit to a contra-revenue account
d.Cash and a credit to Sales Returns and Allowances
20) Incremental analysis would not be appropriate for
a.a make or buy decision
b.an allocation of limited resource decision
c.elimination of an unprofitable segment
d.analysis of manufacturing variances
21) If a parent company has two wholly owned subsidiaries, how many legal and
economic entities are there from the viewpoint of the shareholders of the parent
company?
LegalEconomic
a.33
b.12
c.31
d.21
22) The following information is available for Rubio Corporation for the year ended
December 31, 2014: Sales $900,000; Other revenues and gains $72,000; Operating
expenses $110,000; Cost of goods sold $520,000; Other expenses and losses $32,000;
Preferred stock dividends $30,000. The company’s tax rate was 20%, and it had 40,000
shares outstanding during the entire year.
Instructions
(a) Prepare a corporate income statement.
(b) Calculate earnings per share.
23) Which is the last step in developing the master budget?
a.Preparing the budgeted balance sheet
b.Preparing the cost of goods manufactured budget
c.Preparing the budgeted income statement
d.Preparing the cash budget
24) Employee payroll deductions include each of the following except
a.federal unemployment taxes
b.federal income taxes
c.FICA taxes
d.insurance, pension plans, and union dues
25) In reviewing the activities of the Mixing Department for the month of June, the
manager of the department notices that there was an unfavorable materials price
variance for the month and there was an unfavorable materials quantity variance. Under
what circumstances, if any, can the responsibility for each variance be placed on (a) the
purchasing department and (b) the production department?
26) Peabody, Inc. has 5,000 shares of 7%, $100 par value, cumulative preferred stock
and 50,000 shares of $1 par value common stock outstanding at December 31, 2014 . If
the board of directors declares a $30,000 dividend, the
a.preferred shareholders will receive 1/10th of what the common shareholders will
receive
b.preferred shareholders will receive the entire $30,000
c.$30,000 will be held as restricted retained earnings and paid out at some future date
d.preferred shareholders will receive $15,000 and the common shareholders will
receive $15,000
27) Which of the following is not a principal characteristic of the partnership form of
business organization?
a.Mutual agency
b.Association of individuals
c.Limited liability
d.Limited life
28) A company is considering replacing old equipment with new equipment. Which of
the following is a relevant cost for incremental analysis?
a.Annual depreciation charge on the old equipment
b.Book value of the old equipment
c.Estimated annual depreciation of the new equipment
d.Cost of the new equipment
29) Which of the following is not a reason one set of international accounting standards
are needed?
a.Multinational corporations
b.Mergers and acquisitions
c.Information technology
d.All of these answer choices are reasons one set of international accounting standards
are needed
30) Colt Widgets prepared its income statement for management using a standard cost
accounting system. Which of the following appears at the standard amount?
a.Sales revenue
b.Selling expenses
c.Gross profit
d.Cost of goods sold
31) A company is considering the following alternatives:
Option 1 Option 2
Revenues$330,000$330,000
Variable costs120,00098,000
Fixed costs165,000165,000
Which of the following are relevant in choosing between the alternatives?
a.Variable costs
b.Revenues
c.Fixed costs
d.Variable costs and fixed costs
32) Two categories of expenses for merchandising companies are:
a.operating expenses and financing expenses
b.cost of goods sold and operating expenses
c.cost of goods sold and financing expenses
d.sales and cost of goods sold
33) Sonic Youth Corporation purchased a one-year insurance policy in January 2014 for
$49,500. The insurance policy is in effect from March 2014 through February 2015 . If
the company neglects to make the proper year-end adjustment for the expired insurance
a.net income and assets will be understated by $41,250
b.net income and assets will be overstated by $41,250
c.net income and assets will be understated by $8,250
d.net income and assets will be overstated by $8,250
34) Flores Company has identified that the cost of new manufacturing equipment will
be $60,000, but with the use of the new equipment, net income will increase by $5,000
a year. If depreciation expense is $5,000 a year, the cash payback period is:
a.16.7 years
b.11.4 years
c.12 years
d.6 years
35) The following selected account balances appear on the December 31, 2014 balance
sheet of Superchunk Co.
Land (location of the corporations office building)$150,000
Land (held for future use)225,000
Corporate Office Building800,000
Inventory300,000
Equipment675,000
Office Furniture225,000
Accumulated Depreciation640,000
What is the total amount of property, plant, and equipment that will be reported on the
balance sheet?
a.$1,210,000
b.$1,435,000
c.$1,510,000
d.$1,850,000
36) Which of the following is not an indirect fixed cost?
a.Company president’s salary
b.Depreciation on the company building housing several profit centers
c.Company personnel department costs
d.Profit center supervisory salaries
37) All of the following statements about the post-closing trial balance are correct
except it
a.shows that the accounting equation is in balance
b.provides evidence that the journalizing and posting of closing entries have been
properly completed
c.contains only permanent accounts
d.proves that all transactions have been recorded
38) Right Industries had average operating assets of $4,000,000 and sales of $2,000,000
in 2014 . If the controllable margin was $500,000, the ROI was
a.8%
b.12.5%
c.25%
d.50%
39) Carlson Company has gathered the following information
Units in beginning work in process20,000
Units started into production120,000
Units in ending work in process30,000
Percent complete for conversion costs in
ending work in process60%
Costs incurred:
Direct materials$161,000
Direct labor$235,400
Overhead$180,600
Instructions
(a)Compute equivalent units of production for materials and for conversion costs.
(b)Determine the unit costs of production.
(c)Show the assignment of costs to units transferred out and in process.
40) Maximum benefit from independent internal verification is obtained when
a.it is made on a pre-announced basis
b.it is done by the employee possessing custody of the asset
c.discrepancies are reported to management
d.it is done at the time of the audit
41) Which of the following statements is correct with respect to inventories?
a.The FIFO method assumes that the costs of the earliest goods acquired are the last to
be sold
b.It is generally good business management to sell the most recently acquired goods
first
c.Under FIFO, the ending inventory is based on the latest units purchased
d.FIFO seldom coincides with the actual physical flow of inventory
42) During 2014, Parker Enterprises generated revenues of $90,000. The companys
expenses were as follows: cost of goods sold of $45,000, operating expenses of $18,000
and a loss on the sale of equipment of $3,000.
Yoders net income is
a.$24,000
b.$27,000
c.$45,000
d.$90,000
43) In a retain or replace equipment decision, trade-in allowance available on old
equipment
a.increases the cost of the new equipment
b.is relevant because it will not be realized if the old equipment is retained
c.is not relevant to the decision
d.reduces the cost of the old equipment
44) In a period of increasing prices, which inventory flow assumption will result in the
lowest amount of income tax expense?
a.FIFO
b.LIFO
c.Average Cost
d.Income tax expense for the period will be the same under all assumptions
45) On December 1, the accounts receivable control account balance in the general
ledger of the Worf Company was $9,000. The accounts receivable subsidiary ledger
contained the following detailed customer balances: Stewart $2,000, Gates $2,100,
Burton $2,600, and Levar $2,300. The following information is available from the
company’s special journals for the month of December:
Cash Receipts Journal: Cash received from Burton $2,200, from Stewart $1,600, from
Mirana $1,700, and from Gates $1,800.
Sales Journal: Sales to Mirana $3,900, to Burton $1,700, to Stewart $3,100, and to
Levar $1,900.
Additionally, Burton returned defective merchandise for credit for $650. Stewart
returned defective merchandise for $600 which he had purchased for cash.
Instructions
(a)Using T-accounts for Accounts Receivable Control and the detail customer accounts,
post the activity for the month of December.
(b)Reconcile the accounts receivable control account with the subsidiary ledger by
preparing a detail list of customer balances at December 31 .
46) The ratio that uses weighted average common shares outstanding in the
denominator is the
a.price-earnings ratio
b.return on common stockholders’ equity
c.earnings per share
d.payout ratio
47) For its fiscal year ending December 31, 2014, Conner Corporation reported the
following partial data
Income before income taxes$1,200,000
Income tax expense (30% x 950,000)285,000
Income before extraordinary items915,000
Extraordinary loss from flood250,000
Net income$665,000
The flood loss is considered an extraordinary item. The income tax rate is 30% on all
items.
Instructions
Prepare a correct income statement, beginning with income before income taxes.
48) The adjusted trial balance of C.S. Financial Planners appears below. Using the
information from the adjusted trial balance, you are to prepare for the month ending
December 31, 2014:
1>an income statement.
2>an owner’s equity statement.
3>a balance sheet.
C.S. Financial Planners
Adjusted Trial Balance
December 31, 2014
Debit Credit
Cash$ 4,900
Accounts Receivable2,200
Supplies1,800
Equipment15,000
Accumulated DepreciationEquipment$ 4,000
Accounts Payable3,300
Unearned Service Revenue6,000
Owner’s Capital14,400
Owner’s Drawings2,500
Service Revenue4,200
Supplies Expense600
Depreciation Expense2,500
Rent Expense 2,400
$31,900$31,900
49) The ratios used in evaluating a company’s liquidity and short-term debt paying
ability that complement each other are the ______________ ratio and the
______________ ratio.
50) The book value of a plant asset is obtained by subtracting ______________ from
the ______________ of the plant asset.
51) The condensed financial statements of Clair Corporation for 2014 are presented
below.
Clair CorporationClair Corporation
Balance SheetIncome Statement
December 31, 2014For the Year Ended December 31, 2014
AssetsRevenues$2,000,000
Current assetsExpenses
Cash and short-termCost of goods sold960,000
investments$ 30,000Selling and administrative
Accounts receivable70,000 expenses740,000
Inventories 140,000Interest expense 50,000
Total current assets240,000Total expenses 1,750,000
Property, plant, andIncome before income taxes250,000
equipment (net) 760,000Income tax expense 100,000
Total assets$1,000,000Net income$ 150,000
Liabilities and Stockholders’ Equity
Current liabilities$ 100,000
Long-term liabilities350,000
Stockholders’ equity 550,000
Total liabilities and
stockholders’ equity$1,000,000
Additional data as of December 31, 2013: Inventory = $100,000; Total assets =
$800,000; Stockholders’ equity = $450,000.
Instructions: Compute the following listed ratios for 2014 showing supporting
calculations.
1>Current ratio = .
2>Debt to total assets ratio = .
3>Times interest earned = .
4>Inventory turnover = .
5>Profit margin = .
6>Return on stockholders’ equity = .
7>Return on assets = .
52) Kinser Company incurred the following high and low maintenance costs totals
during 2014: $370,000 at 20,000 units of activity during March and $274,000 at 12,000
units during August.
Instructions: Answer parts 1 through 3 below, presenting carefully labeled supporting
calculations in all cases.
1>Use the high-low method to compute the variable cost per unit and the total fixed
cost element of the mixed cost component.
2>Based on the above analysis, express the total maintenance cost in formula format.
3>Compute the total maintenance cost for June when activity is 16,000 units.
53) The master budget and flexible budgets are important aids to management in
performing the management functions of planning and control. Briefly describe how
planning and control are facilitated by preparing a master budget and flexible budgets.
How are these two types of budgets interrelated with planning and control?