1) The concept of present value is that an amount of cash to be received at some date in
the future is the equivalent of the same amount of cash held at an earlier date.
2) Under the perpetual inventory system, a company purchases merchandise on terms
2/10, n/30. If payment is made within 10 days of the purchase, the entry to record the
payment will include a credit to Cash and a credit to Purchase Discounts.
3) The accounts Purchases, Purchases Returns and Allowances, Purchases Discounts,
and Freight In are found on the balance sheet.
4) The last step of the accounting cycle is to prepare a post-closing trial balance.
5) Generally accepted accounting principles regulate how and what financial
information is reported by businesses.
6) Under the direct method of preparing a Statement of Cash Flows, the gain on the sale
of land is not adjusted or reported as part of cash flows from operating activities.
7) The effective-interest method of amortizing a bond discount or premium is the
preferred method.
8) A manufacturing business reports just two types of inventory on its balance sheet:
work in process inventory and finished goods inventory.
9) Only the value of the inventory that is sold will appear in the income statement.
10) If in evaluating a proposal by use of the net present value method there is a
deficiency of the present value of future cash inflows over the amount to be invested,
the proposal should be accepted.
11) If fixed costs are $400,000, the unit selling price is $25, and the unit variable costs
are $15, what is the break-even sales (units) if the variable costs are increased by $2?
A.50,000 units
B.30,770 units
C.40,000 units
D.26,667 units
12) Which of the following expenses incurred by the sporting goods department of a
department store is a direct expense?
A.Depreciation expense–office equipment
B.Insurance on inventory of sporting goods
C.Uncollectible accounts expense
D.Office salaries
13) Falcon Co. produces a single product. Its normal selling price is $30.00 per unit.
The variable costs are $19.00 per unit. Fixed costs are $25,000 for a normal production
run of 5,000 units per month. Falcon received a request for a special order that would
not interfere with normal sales. The order was for 1,500 units and a special price of
$20.00 per unit. Falcon Co. has the capacity to handle the special order and, for this
order, a variable selling cost of $1.00 per unit would be eliminated.
If the order is accepted, what would be the impact on net income?
A.decrease of $750
B.decrease of $4,500
C.increase of $3,000
D.increase of $1,500
14) Using the variable cost concept determine the mark-up per unit for 30,000 units
using the following data: Variable cost per unit $15.00, total fixed costs $90,000 and
desired profit $150,000.
A.$10
B.$15
C.$8
D.$23
15) On the statement of cash flows, the cash flows from financing activities section
would include
A.receipts from the sale of investments
B.payments for the acquisition of investments
C.receipts from a note receivable
D.receipts from the issuance of capital stock
16) On April 2nd, Granger Sales decides to establish a $125.00 Petty Cash Account to
relieve the burden on Accounting.
(a) Journalize this event.
(b) On April 10th, the petty cash fund has receipts for mail and postage of $43.50,
contributions and donations of $29.50, meals and entertainment of $38.25 and $13.55 in
cash. Journalize the replenishment of the fund.
(c) On April 11th, Granger Sales decides to increase petty cash to $200.00. Journalize
this event.
17) State the section(s) of the statement of cash flows prepared by the indirect method
(operating activities, investing activities, financing activities, or not reported) and the
amount that would be reported for each of the following transactions:
(a) Received $120,000 from the sale of land costing $70,000.
(b) Purchased investments for $75,000.
(c) Declared $35,000 cash dividends on stock. $5,000 dividends were payable at the
beginning of the year, and $6,000 were payable at the end of the year.
(d) Acquired equipment for $64,000 cash.
(e) Declared and issued 100 shares of $20 par common stock as a stock dividend, when
the market price of the stock was $32 a share.
(f) Recognized depreciation for the year, $37,000.
(g) Issued 85,000 shares of $10 par common stock for $25 a share, receiving cash.
(h) Issued $500,000 of 20-year, 10% bonds payable at 99.
(i) Borrowed $43,000 from Regional Bank, issuing a 5-year, 8% note for that amount.
18) Cash paid to purchase long-term investments would be reported in the statement of
cash flows in
A.the cash flows from operating activities section
B.the cash flows from financing activities section
C.the cash flows from investing activities section
D.a separate schedule
19) An aging of a company’s accounts receivable indicates that the estimate of
uncollectible accounts totals $6,400. If Allowance for Doubtful Accounts has a $1,300
debit balance, the adjustment to record the bad debt expense for the period will require
a
A.debit to Bad Debt Expense for $7,700
B.debit to Bad Debt Expense for $6,400
C.debit to Bad Debt expense for $5,100
D.credit to Allowance for Doubtful Accounts for $1,300
20) On October 1, Sebastian Company acquired new equipment with a fair market
value of $458,000. Sebastian received a trade-in allowance of $92,000 on the old
equipment of a similar type and paid cash of $366,000. The following information
about the old equipment is obtained from the account in the equipment ledger: Cost,
$336,000; accumulated depreciation on December 31, the end of the preceding fiscal
year, $220,000; annual depreciation, $20,000. Assuming the exchange has commercial
substance, journalize the entries to record: (a) the current depreciation of the old
equipment to the date of trade-in and (b) the exchange transaction on October 1
21) Manicotti Corporation sells a single product. Budgeted sales for the year are
anticipated to be 640,000 units, estimated beginning inventory is 108,000 units, and
desired ending inventory is 90,000 units. The quantities of direct materials expected to
be used for each unit of finished product are given below.
Material A .50 lb. per unit @ $ .60 per pound
Material B 1.00 lb. per unit @ $1.70 per pound
Material C 1.20 lb. per unit @ $1.00 per pound
The dollar amount of direct material A used in production during the year is:
A.$186,600
B.$181,200
C.$240,000
D.$210,600
22) Izabelle and Marta are forming a partnership. Izabelle will invest a piece of
equipment with a book value of $7,500 and a fair market value of $20,000. Marta will
invest a building with a book value of $40,000 and a fair market value of $58,000.
What amount will be recorded to the building account?
A.$28,000
B.$18,000
C.$40,000
D.$58,000
23) For the year ended December 31, 2014 Depot Maxs cost of merchandise sold was
$56,900. Inventory at the beginning of the year was $6,540. Ending inventory was
$7,250. Compute Depot Maxs inventory turnover for the year.
A.8.7
B.7.8
C.8.3
D.44
24) The Merchant Company issued 10-year bonds on January 1, 2011. The 15% bonds
have a face value of $100,000 and pay interest every January 1 and July 1. The bonds
were sold for $117,205 based on the market interest rate of 12%. Merchant uses the
effective-interest method to amortize bond discounts and premiums. On July 1, 2011,
Merchant should record interest expense (round to the nearest dollar) of
A.$7,032
B.$7,500
C.$8,790
D.$14,065
25) The journal entry a company uses to record accrued vacation privileges for its
employees at the end of the year is
A.debit Vacation Pay Expense; credit Vacation Pay Payable
B.debit Vacation Pay Payable; credit Vacation Pay Expense
C.debit Salary Expense; credit Cash
D.debit Salary Expense; credit Salaries Payable
26) When the bonds are sold for more than their face value, the carrying value of the
bonds is equal to
A.face value
B.face value plus the unamortized discount
C.face value minus the unamortized premium
D.face value plus the unamortized premium
27) The following are examples of external users of accounting information except:
A.government
B.customers
C.creditors
D.all of the above
28) The type of account and normal balance of Accumulated Depreciation is
A.asset, credit
B.asset, debit
C.contra asset, credit
D.contra asset, debit
29) A $150 petty cash fund has cash of $44 and receipts of $93. The journal entry to
replenish the account would include a
A.credit to Petty Cash for $49
B.debit to Cash for $93
C.debit to Cash Over and Short for $13
D.credit to Cash for $44
30) Which of the following accounts would be included in the chart of accounts of a
merchandising company using the: (a) periodic inventory system, (b) perpetual
inventory system, or (c) both systems?
(1) Sales Discounts
(2) Merchandise Inventory
(3) Sales
(4) Purchases Discounts
(5) Cost of Merchandise Sold
(6) Freight In
(7) Delivery Expense
(8) Sales Returns and Allowances
31) The Winston Company estimates that the factory overhead for the following year
will be $1,250,000. The company has decided that the basis for applying factory
overhead should be machine hours, which is estimated to be 50,000 hours. The total
machine hours for the year was 54,300. The actual factory overhead for the year was
$1,375,000. Determine the over or under applied amount for the year.
A.$17,500 overapplied
B.$17,500 underapplied
C.$118,250 overapplied
D.$118,250 underapplied
32) Variances from standard costs are usually reported to:
A.suppliers
B.stockholders
C.management
D.creditors
33)
The following cash receipts headings have been suggested for Tower Tree-Trimming
Service Company. Which of the following statements is false?
A.The second column should be Account Credited
B.The Cash column should be a debit
C.The Other Accounts column should be a credit
D.The Accounts Receivable column should be a debit
34) Identify which of the following accounts appear on a balance sheet.
(a) Cash
(b) Fees Earned
(c) Joe Brown, Capital
(d) Wages Payable
(e) Rent Expense
(f) Prepaid Advertising
(g) Land
35) The proper sequence of steps in the accounting cycle is as follows
A.analyze and record transactions, post transaction to the ledger, prepare a trial balance,
prepare financial statements, journalize closing entries, analyze adjustment data and
prepare adjusting entries
B.prepare a trial balance, analyze adjustment data, prepare adjusting entries, prepare
financial statements, journalize closing entries and post to the ledger, analyze and
record transactions, post transactions to the ledger
C.analyze and record transactions, post transactions to the ledger, prepare a trial
balance, analyze adjustment data, prepare adjusting entries, prepare financial
statements, journalize closing entries and post to the ledger, and finally prepare a
post-closing trial balance
D.prepare financial statements, journalize closing entries and post to the ledger, analyze
and record transactions, post transactions to the ledger, prepare a trial balance, analyze
adjustment data, prepare adjusting entries
36) The following items are reported on a companys balance sheet:
Determine the (a) current ratio, and (b) quick ratio. Round your answer to one decimal
place.
37) When a company changes from one acceptable accounting method to another, the
change is reported
A.in the statement of retained earnings, as a correction to the beginning balance
B.in the income statement, below income from continuing operations
C.in the income statement, above income from continuing operations
D.through a retroactive restatement of prior period earnings
38) If fixed costs are $250,000, the unit selling price is $125, and the unit variable costs
are $73, what is the break-even sales (units)?
A.3,425 units
B.2,381 units
C.2,000 units
D.4,808 units
39) The manufacturing cost of Prancer Industries for three months of the year are
provided below:
Using the high-low method, the variable cost per unit, and the total fixed costs are:
A.$32.30 per unit and $77,520 respectively
B.$33 per unit and $21,100 respectively
C.$32 per unit and $76,800 respectively
D.$32.30 per unit and $22,780 respectively
40) Preferred stock issued in exchange for land would be reported in the statement of
cash flows in
A.the cash flows from financing activities section
B.the cash flows from investing activities section
C.a separate schedule
D.the cash flows from operating activities section
41) The St. Augustine Corporation originally budgeted for $360,000 of fixed overhead
at 100% production capacity. Production was budgeted to be 12,000 units. The standard
hours for production were 5 hours per unit. The variable overhead rate was $3 per hour.
Actual fixed overhead was $360,000 and actual variable overhead was $170,000.
Actual production was 11,700 units.
Compute the factory overhead controllable variance.
A.$9,000F
B.$9,000U
C.$5,500F
D.$5,500U
42) In most business organizations, the chief management accountant is called the:
A.chief accounting officer
B.controller
C.chairman of the board
D.chief executive officer
43) Which of the following errors will cause the trial balance totals to be unequal?
A.posting the debit portion of a journal entry incorrectly when the credit portion of the
entry is correctly posted
B.failure to record a transaction or to post a transaction
C.recording the same transaction more than once
D.recording the same erroneous amount for both the debit and the credit parts of a
transaction
44) Selected accounts from the ledger of Garrison Company appear below. For each
account, indicate the following:
45) The following totals for the month of June were taken from the payroll register of
Arcon Company:
The entry to record the payment of net pay would include a
A.debit to Salaries Payable for $14,000
B.Debit to Salaries Payable for $9,350
C.Credit to Salaries Expense for $9,350
D.Credit to Salaries Payable for $9,350
46)
Which of the graphs in Figure 20-1 illustrates the behavior of a total variable cost?
A.Graph 2
B.Graph 3
C.Graph 4
D.Graph 1
47) For each of the following companies, identify whether they are a service,
merchandising, or manufacturing business.
A. Dillards
B. Time Warner Cable
C. General Motors
D. Blockbuster
E. Applebees
F. Sony
G. Best Buy
H. Banana Republic
I. H & R Block
48)
49) Flying Cloud Co. has the following operating data for its manufacturing operations:
The company has decided to increase the wages of hourly workers which will increase
the unit variable cost by 10%. Increases in the salaries of factory supervisors and
property taxes for the factory will increase fixed costs by 4%. If sales prices are held
constant, the next break-even point for Flying Cloud Co. will be:
A.increased by 640 units
B.increased by 400 units
C.decreased by 640 units
D.increased by 800 units
50) Lamar Corporation purchased land for $150,000. Later in the year the company
sold land with a book value of $190,000 for $200,000. Show how the effects of these
transactions are reported on the statement of cash flows using the indirect method.
51) A one-year insurance policy was purchased on June 1, 2011 for $1,500. The
adjusting entry on December 31, 2011 would be:
52) The Cavy Company accumulated 560 hours of direct labor on Job 345 and 800
hours on Job 777. The direct labor was incurred at a rate of $20 per direct labor hour for
Job 345 and $21 per direct labor for Job 777. Journalize the entry to record the flow of
labor costs into production.
53) You have just accepted your first job out of college, which requires you to evaluate
loan requests at Beach Front National Bank. The first loan request you receive is from
Surfer Dude Enterprises, a small proprietorship. Marty Monroe, the owner, is requesting
$75,000 and brings you the following trial balance (or Statement of Accounts) for his
first year of operations ended December 31, 2010.
What three accounts do you think should be relabeled for greater clarity?
54) On September 1st, Erika Company purchased land for $47,500 cash. Write the
journal entry in the space below.
55) The cost and fair value of the trading securities held by AdBrand Company as of
December 31, 2012 are as follows:
Required:
(1) Complete the table above to find the total cost and fair value for the companys
trading securities portfolio.
(2) Calculate and record the required December 31, 2012 adjustment.
(3) Explain how the adjustment from step (2) is reported on AdBrands 2012 financial
statements.
56) Explain how net income or loss is determined by using the work sheet.
57) Discount Mart utilizes the allowance method of accounting for uncollectible
receivables. On December 12th the company receives a $550 check from Chad Thomas
in settlement of Thomas $1,100 outstanding accounts receivable. Due to Thomas failing
health he is closing his company and is expecting to make no further payments to
Discount Mart. Journalize this declaration.
58) Beginning inventory, purchases and sales data for widgets are as follows:
Complete the inventory cost card assuming the business maintains a perpetual
inventory system and calculates the cost of merchandise sold and ending inventory
using LIFO.
59) Journalize the following transactions for Riley Corporation: