1) Receivables are valued and reported in the balance sheet at their gross amount less
any sales returns and allowances and less any cash discounts.
2) A deposit ticket is a negotiable instrument that can be transferred to another party by
endorsement.
3) The current ratio is a measure of all the ratios calculated for the current year.
4) When raw materials are received, there no effort at this point to associate the cost
of materials with specific jobs.
5) The carrying value of bonds is calculated by adding the balance of the Discount on
Bonds Payable account to the balance in the Bonds Payable account.
6) A major difference among corporations, proprietorships, and partnerships is that a
corporation’s income statement reports income tax expense.
7) Sales Returns and Allowances and Sales Discounts are both designed to encourage
customers to pay their accounts promptly.
8) Calculating financial ratios is a financial reporting requirement under generally
accepted accounting principles.
9) A company’s operating cycle and fiscal year are usually the same length of time.
10) The fixed cost element of a mixed cost is the cost of having a service available.
11) A company may use either a job order cost system or a process cost system, but not
both.
12) Cash and supplies are both classified as current assets.
13) The purchase of office equipment on credit increases total assets and total liabilities.
14) In a worksheet, cost of goods sold will be shown in the trial balance (Dr.), adjusted
trial balance (Dr.) and income statement (Dr.) columns.
15) If the market interest rate is greater than the contractual interest rate, bonds will sell
at a discount.
16) The sales revenue section of an income statement for a retailer would not include
a.Sales discounts
b.Sales revenue
c.Net sales
d.Cost of goods sold
17) A debit to an asset account indicates
a.an error
b.a credit was made to a liability account
c.a decrease in the asset
d.an increase in the asset
18) A process with 1,600 units of beginning work in process, completed and transferred
out 20,000 units during a period. There were 10,000 units in the ending work in process
that were 50% complete as to conversion costs. Materials are added 80% at the
beginning of the process and 20% when the units are 90% complete. How much is
equivalent units of production for the period for material costs?
a.24,000 equivalent units
b.30,000 equivalent units
c.22,000 equivalent units
d.28,000 equivalent units
19) Income Summary has a credit balance of $17,000 in S. Sufjan Co. after closing
revenues and expenses. The entry to close Income Summary is
a.credit Income Summary $17,000, debit Owners Capital $17,000
b.credit Income Summary $17,000, debit Owners Drawings $17,000
c.debit Income Summary $17,000, credit Owners Drawings $17,000
d.debit Income Summary $17,000, credit Owners Capital $17,000
20) The following totals for the month of April were taken from the payroll register of
Asplend Company.
Salaries and wages$72,000
FICA taxes withheld5,508
Income taxes withheld15,000
Medical insurance deductions2,700
Federal unemployment taxes192
State unemployment taxes1,296
The journal entry to record the monthly payroll on April 30 would include a
a.debit to Salaries and Wages Expense for $72,000
b.credit to Salaries and Wages Payable for $72,000
c.debit to Salaries and Wages Payable for $72,000
d.debit to Salaries and Wages Expense for $51,000
21) Imperial Company had the following information at December 31:
Finished goods inventory, January 1$ 60,000
Finished goods inventory, December 31170,000
If the cost of goods manufactured during the year amounted to $2,400,000 and annual
sales were $2,950,000, the amount of gross profit for the year is
a.$446,000
b.$720,000
c.$550,000
d.$660,000
22) A legal document which summarizes the rights and privileges of bondholders as
well as the obligations and commitments of the issuing company is called
a.a bond indenture
b.a bond debenture
c.trading on the equity
d.a term bond
23) In 2014, Spanish Fort Corporation had net sales of $500,000 and cost of goods sold
of $300,000. Operating expenses were $93,000, and interest expense was $7,500. The
corporation’s tax rate is 30%. The corporation declared preferred dividends of $7,000 in
2014, and its average common stockholders’ equity during the year was $500,000.
Instructions
(a) Prepare an income statement for Spanish Fort Corporation.
(b) Compute Tubb Corporation’s return on common stockholders’ equity for 2014 .
24) Taylor Corporation issues 20,000 shares of $50 par value preferred stock for cash at
$90 per share. The entry to record the transaction will consist of a debit to Cash for
$1,800,000 and a credit or credits to
a.Preferred Stock for $1,800,000
b.Preferred Stock for $1,000,000 and Paid-in Capital in Excess of ParPreferred Stock
for $800,000
c.Preferred Stock for $800,000 and Paid-in Capital from Preferred Stock for $1,000,000
d.Paid-in Capital from Preferred Stock for $1,800,000
25) Disclosures about inventory should include each of the following except the
a.basis of accounting
b.costing method
c.quantity of inventory
d.major inventory classifications
26) The use of computers in recording business events
a.has made the recording process more efficient
b.does not use the same principles as manual accounting systems
c.has greatly impacted the identification stage of the accounting process
d.is economical only for large businesses
27) Company A is a manufacturer and Company B is a merchandiser. What is the
difference in the budgets the two entities will prepare?
a.Company A will prepare a production budget, and Company B will prepare a
merchandise purchases budget
b.Company A will prepare a sales forecast, and Company B will prepare a sales budget
c.Company B will prepare a production budget, and Company A will prepare a
merchandise purchases budget
d.Both companies will prepare the same types of budgets
28) If a fully depreciated plant asset is still used by a company, the
a.estimated remaining useful life must be revised to calculate the correct revised
depreciation
b.asset is removed from the books
c.accumulated depreciation account is removed from the books but the asset account
remains
d.asset and the accumulated depreciation continue to be reported on the balance sheet
without adjustment until the asset is retired
29) Financial information is presented below for two different companies.
GowerMartini
DrugsFood and Liquor
Sales revenue $90,000 $ (e)
Sales returns and allowances (a) 3,000
Net sales 86,000 95,000
Cost of goods sold 56,000 (f)
Gross profit (b) 36,000
Operating expenses 22,000 (g)
Income from operations (c) (h)
Other expenses and losses 4,000 7,000
Net income (d) 11,000
Instructions
Determine the missing amounts.
30) A horizontal analysis performed on a statement of retained earnings would not show
a percentage change in
a.dividends paid
b.net income
c.expenses
d.beginning retained earnings
31) Christine Company had an increase in inventory of $55,000. The cost of goods sold
was $95,000. There was a $6,000 decrease in accounts payable from the prior period.
What were Thomas cash payments to suppliers?
a.$156,000
b.$61,000
c.$144,000
d.$101,000
32) The periodicity assumption states
a.the business will remain in operation for the foreseeable future
b.the life of a business can be divided into artificial time periods and that useful reports
covering those periods can be prepared
c.every economic entity can be separately identified and accounted for
d.only those things that can be expressed in money are included in the accounting
records
33) The cash account shows a balance of $40,000 before reconciliation. The bank
statement does not include a deposit of $9,200 made on the last day of the month. The
bank statement shows a collection by the bank of $3,960 and a customers check for
$1,300 was returned because it was NSF. A customers check for $1,380 was recorded
on the books as $1,920, and a check written for $318 was recorded as $390. The correct
balance in the cash account was
a.$42,048
b.$42,192
c.$43,128
d.$51,392
34) Landon Company developed the following information for 2014:
Selling and Administrative Expenses
Variable$30,000
Fixed$50,000
Units in beginning inventory-0-
Units sold26,000
Direct materials used$65,000
Direct labor$105,000
Units produced30,000
Manufacturing overhead
Variable$40,000
Fixed$90,000
Instructions
Answer the following questions.
(a)What would be the amount of the cost of goods sold under the absorption costing
approach?
(b)What would be the cost of the ending inventory under the variable costing approach?
(c)Which approach would show the greater income for 2014 and by how much?
35) Indicate where the issuance of common stock issued for cash would appear, if at all,
on the indirect statement of cash flows.
a.Operating activities section
b.Investing activities section
c.Financing activities section
d.Does not represent a cash flow
36) Drago Company purchased equipment on January 1, 2014, at a total invoice cost of
$1,200,000. The equipment has an estimated salvage value of $30,000 and an estimated
useful life of 5 years. What is the amount of accumulated depreciation at December 31,
2015, if the straight-line method of depreciation is used?
a.$240,000
b.$480,000
c.$234,000
d.$468,000
37) The direct materials quantity standard would not be expressed in
a.pounds
b.barrels
c.dollars
d.board feet
38) A company projects an increase in net income of $180,000 each year for the next
five years if it invests $900,000 in new equipment. The equipment has a five-year life
and an estimated salvage value of $300,000. What is the annual rate of return on this
investment?
a.30%
b.20%
c.40%
d.60%
39) Under IFRS, companies must classify income statement items by
a.function
b.nature
c.nature or function
d.date incurred
40) An entry is not required in the liquidation of a partnership to record the
a.payment of cash to creditors
b.distribution of cash to the partners
c.sale of noncash assets
d.allocation of a capital deficiency to partners with credit balances when the deficient
partner is expected to pay the deficiency
41) Under IFRS, income is defined as
a.revenue less expenses
b.revenues and gains, less expenses and losses
c.revenues and gains
d.revenues, gains, and contributions by owners
42) If employees are bonded
a.it means that they are not allowed to handle cash
b.they have worked for the company for at least 10 years
c.they have been insured against misappropriation of assets
d.it is impossible for them to steal from the company
43) The following reconciling items are applicable to the bank reconciliation for the
Spahn Company. Indicate how each item should be shown on a bank reconciliation.
a.Outstanding checks.
b.Bank credit memorandum for collecting a note for the depositor.
c.Bank debit memorandum for service charge.
d.Deposit in transit.
44) The adjusted trial balance for Katy Corporation at the end of 2014 contained the
following accounts:
Bonds payable, 10%$700,000
Interest payable20,000
Discount on bonds payable40,000
Lease liability50,000
Mortgage notes payable, 9%, due 201790,000
Accounts payable120,000
Instructions
(a)Prepare the long-term liabilities section of the balance sheet.
(b)Indicate the proper balance sheet classification for the accounts listed above that do
not belong in the long-term liabilities section.
45) Which of the following statements concerning IFRS and U.S. GAAP is true?
a.IFRS permits revaluation of all intangible assets, whereas U.S. GAAP prohibits
revaluation of intangible assets
b.Gains on exchange of assets when the exchange has commercial substance are
recognized under both IFRS and U.S. GAAP
c.Changes in depreciation method under IFRS are reported in current and future
periods, under U.S. GAAP such changes are treated as prior period adjustments
d.All of the choices are true regarding IFRS and U.S. GAAP
46) The Molding Department of Kenst Company has the following production data:
beginning work in process 40,000 units (60% complete), started into production
680,000 units, completed and transferred out 690,000 units, and ending work in process
70,000 units (40% complete). Assuming materials are entered at the beginning of the
process, equivalent units for materials are:
a.760,000
b.650,000
c.690,000
d.800,000
47) An assumption of CVP analysis is that variable and fixed costs have a
_______________ relationship with an activity base.
48) The adjusted trial balance of Sodajerk Company at December 31, 2014 includes the
following accounts: Owner’s Capital $12,600; Owner’s Drawings $7,000; Service
Revenue $38,000; Salaries and Wages Expense $13,000; Insurance Expense $2,000;
Rent Expense $3,500; Supplies Expense $2,500; and Depreciation Expense $2,000.
Prepare an owners equity statement for the year.
49) What purposes are served by reporting Unrealized Gains (Losses)Equity in the
stockholders equity section?
50) Moon City Enterprises relies heavily on a copier machine to process its paperwork.
Recently the copy clerk has not been able to process all the necessary copies within the
regular work week. Management is considering updating the copier machine with a
faster model.
Current CopierNew Model
Original purchase cost$15,000$21,000
Accumulated depreciation12,000
Estimated operating costs (annual)9,0003,700
Useful life4 years4 years
If sold now, the current copier would have a salvage value of $1,000. If operated for the
remainder of its useful life, the current machine would have zero salvage value. The
new machine is expected to have zero salvage value after five years.
Instructions
Prepare an analysis to show whether the company should retain or replace the machine.
51) Flaherty Company had beginning inventory on May 1 of $12,000. During the
month, the company made purchases of $40,000 but returned $2,000 of goods because
they were defective. At the end of the month, the inventory on hand was valued at
$15,500.
Calculate cost of goods available for sale and cost of goods sold for the month.
52) At December 31, Ling Company reported the following balances in its accounts:
Cost of Goods Sold$212,000
Finished Goods Inventory30,000
The companys balance in its Manufacturing Overhead account at the same date was a
credit of $2,600.
Instructions
Prepare the entry to adjust the over- or underapplied overhead amount at December 31 .
53) During 2014 Lopez Corporation reported net sales of $3,200,000 and net income of
$1,200,000. Its balance sheet reported average total assets of $1,600,000.
Instructions
Calculate the asset turnover.
54) The current sections of Donny Inc.’s balance sheets at December 31, 2013 and
2014, are presented here.
Donny’s net income for 2014 was $203,000. Depreciation expense was $25,000.
2014 2013
Current assets
Cash$115,000$99,000
Accounts receivable105,00089,000
Inventory 154,000 172,000
Prepaid expense 27,000 21,000
Total current assets$401,000$381,000
Current liabilities
Accrued expenses payable$ 15,000$ 5,000
Accounts payable 85,000 93,000
Total current liabilities$100,000$ 98,000
Instructions
Prepare the net cash provided by operating activities section of the company’s statement
of cash flows for the year ended December 31, 2014, using the indirect method.
