1) Under the double-entry system, revenues must always equal expenses.
2) Under the equity method, the receipt of dividends from the investee company results
in an increase in the Stock Investments account.
3) Checks from customers who pay their accounts promptly are called outstanding
checks.
4) When purchasing land, the costs for clearing, draining, filling, and grading should be
charged to a Land Improvements account.
5) The net present value method can only be used in capital budgeting if the expected
cash flows from a project are an equal amount each year.
6) Unless stated otherwise in the partnership contract, profits and losses are shared
among the partners in the ratio of their capital equity balances.
7) In order to possess future service potential, an asset must have physical substance.
8) Using the net present value method, a net present value of zero indicates that the
project would be acceptable.
9) Land improvements are generally charged to the Land account.
10) In the owner’s equity statement, revenues are listed first, followed by expenses, and
net income (or net loss).
11) The monetary unit assumption requires that all dollar amounts be rounded to the
nearest dollar.
12) The gross profit section for a merchandising company appears on both the
multiple-step and single-step forms of an income statement.
13) Inventory is reported as a long-term asset on the balance sheet.
14) A cost center incurs costs and generates revenues and cost center managers are
evaluated on the profitability of their centers.
15) The first step performed in preparing a production cost report is computing the
equivalent units of production.
16) If a company deposits all its receipts in the bank and pays all its bills by check, then
the monthly bank statement balance will always agree with the company’s record of its
checking account balance.
17) Preparing a worksheet involves
a.two steps
b.three steps
c.four steps
d.five steps
18) Crue Company had the following transactions during 2014:
Sales of $4,800 on account
Collected $2,000 for services to be performed in 2015
Paid $1,625 cash in salaries
Purchased airline tickets for $250 in December for a trip to take place in 2015
What is Crues 2014 net income using accrual accounting?
a.$2,925
b.$3,175
c.$4,925
d.$5,175
19) Internal reports that review the actual impact of decisions are prepared by
a.department heads
b.the controller
c.management accountants
d.factory workers
20) On October 1, Eli’s Carpet Service borrows $125,000 from First District Bank on a
3-month, $125,000, 8% note. What entry must Eli’s Carpet Service make on December
31 before financial statements are prepared?
a.Interest Payable2,500
Interest Expense2,500
b.Interest Expense10,000
Interest Payable10,000
c.Interest Expense2,500
Interest Payable2,500
d.Interest Expense2,500
Notes Payable2,500
21) A patent
a.has a legal life of 40 years
b.is nonrenewable
c.can be renewed indefinitely
d.is rarely subject to litigation because it is an exclusive right
22) Munley Company estimates that variable costs will be 60% of sales and fixed costs
will total $1,800,000. The selling price of the product is $10, and 570,000 units will be
sold.
Instructions
Using the mathematical equation,
(a)Compute the break-even point in units and dollars.
(b)Compute the margin of safety in dollars and as a ratio.
(c)Compute net income.
23) The net income of the Crowe and Browning partnership is $450,000. The
partnership agreement specifies that Crowe and Browning have a salary allowance of
$120,000 and $180,000, respectively. The partnership agreement also specifies an
interest allowance of 10% on capital balances at the beginning of the year. Each partner
had a beginning capital balance of $300,000. Any remaining net income or net loss is
shared equally.
What is the balance of Browning’s Capital account at the end of the year after net
income has been distributed?
a.$510,000
b.$480,000
c.$555,000
d.$525,000
24) The production budget shows that expected unit sales are 80,000. The total required
units are 90,000. What are the required production units?
a.10,000
b.15,000
c.30,000
d.Cannot be determined from the data provided
25) Bowan Company reported the following information for the current year: Sales
(50,000 units) $1,000,000, direct materials and direct labor $500,000, other variable
costs $50,000, and fixed costs $288,000. What is Bowan contribution margin ratio?
a.68%
b.45%
c.32%
d.55%
26) Thread Company is preparing its manufacturing overhead budget for 2013 .
Relevant data consist of the following.
Units to be produced (by quarters): 10,000, 12,000, 14,000, 16,000.
Direct labor: Time is 1 hour per unit.
Variable overhead costs per direct labor hour: Indirect materials $0.80; indirect labor
$1.20; and maintenance $0.50.
Fixed overhead costs per quarter: Supervisory salaries $42,000; depreciation $16,000;
and maintenance $12,000.
Instructions
Prepare the manufacturing overhead budget for the year, showing quarterly data.
27) A company would not likely use subsidiary ledgers for
a.inventory
b.owner’s capital
c.equipment
d.accounts receivable
28) On July 1, 2014, Melton Inc. invested $560,000 in a mine estimated to have
800,000 tons of ore of uniform grade. During the last 6 months of 2014, 100,000 tons of
or were mined and sold.
Instructions
(a)Prepare the journal entry to record depletion expense.
(b)Assume that the 100,000 tons of ore were mined, but only 85,000 units were sold.
How are the costs applicable to the 15,000 unsold units reported?
29) A company developed the following per unit materials standards for its product: 3
gallons of direct materials at $5 per gallon. If 2,000 units of product were produced last
month and 5,750 gallons of direct materials were used, the direct materials quantity
variance was:
a.$750 favorable
b.$1,250 favorable
c.$750 unfavorable
d.$1,250 unfavorable
30) In the Papyrus Corporation, cash receipts from customers were $136,000, cash
payments for operating expenses were $102,000, and one-third of the company’s $9,300
income taxes were paid during the year. Net cash provided by operating activities is:
a.$34,000
b.$24,700
c.$30,900
d.$27,800
31) The respective normal account balances of Sales Revenue, Sales Returns and
Allowances, and Sales Discounts are
a.credit, credit, credit
b.debit, credit, debit
c.credit, debit, debit
d.credit, debit, credit
32) For inventoriable costs to become expenses under the expense recognition
principle,
a.the product must be finished and in stock
b.the product must be expensed based on its percentage-of-completion
c.the product to which they attach must be sold
d.all accounts payable must be settled
33) At 18,000 direct labor hours, the flexible budget for indirect materials is $36,000. If
$37,600 are incurred at 18,400 direct labor hours, the flexible budget report should
show the following difference for indirect materials:
a.$1,600 unfavorable
b.$1,600 favorable
c.$800 favorable
d.$800 unfavorable
34) The fiscal year of a business is usually determined by
a.the IRS
b.a lottery
c.the business
d.the SEC
35) A major purpose of cost accounting is to
a.classify all costs as operating or nonoperating
b.measure, record, and report period costs
c.provide information to stockholders for investment decisions
d.measure, record, and report product costs
36) Which of the following is done to improve the reliability of the sales forecast?
a.Employ financial planning models
b.Lengthen the planning horizon to more than a year
c.Rely solely on outside consultants
d.Use the sales forecasts from the previous year
37) Kenny Corsig, an employee of Fenwick Company, has gross earnings for the month
of October of $3,000. FICA taxes are 7.65% of gross earnings, federal income taxes
amount to $476 for the month, state income taxes are 2% of gross earnings, and
authorizes voluntary deductions of $8 per month to the United Way. What is the net pay
for Kenny?
a.$2,295
b.$2,227
c.$2,235
d.$2,287
38) If a common stock investment is sold at a gain, the gain
a.is reported as operating revenue
b.is reported under a special section, “Discontinued investments”, on the income
statement
c.is reported in the Other revenues and gains section of the income statement
d.contributes to gross profit on the income statement
39) Mitchel Manufacturing is a small manufacturer that uses machine-hours as its
activity base for assigned overhead costs to jobs. The company estimated the following
amounts for 2014 for the company and for Job 62:
Company Job 62
Direct materials$70,000$5,500
Direct labor$30,000$2,800
Manufacturing overhead costs$76,500
Machine hours90,0001,500
During 2014, the actual machine-hours totaled 80,000, and actual overhead costs were
$70,000.
Instructions
(a)Compute the predetermined overhead rate.
(b)Compute the total manufacturing costs for Job 62 .
(c)How much overhead is over or underapplied for the year for the company? State
amount and whether it is over- or underapplied.
(d)If Mitchel Manufacturing sells Job 62 for $15,000, compute the gross profit.
40) Norton Company has accounts receivable of $40,000 in its general ledger at July
31: During August, the following transactions occurred.
Aug.1Added 1% finance charges to $13,000 of credit card balances for not paying
within the 30 day grace period.
15Sold $21,000 of accounts receivable to Iron Factors Inc. who charge a 4%
commission.
28Collected $8,000 from Norton credit card customers including $400 of finance
charges previously billed.
Instructions
(a)Journalize the transactions.
(b)Indicate the statement presentation of finance and service charges.
41) Brusl Co. is planning to sell 400 hair dryers and produce 380 hair dryers during
March. Each hair dryer requires 500 grams of plastic and one-half hour of direct labor.
Plastic costs $10 per 500 grams and employees of the company are paid $14.00 per
hour. Manufacturing overhead is applied at a rate of 110% of direct labor costs. Brusl
Co. has 300 kilos of plastic in beginning inventory and wants to have 200 kilos in
ending inventory. How much is the total amount of budgeted direct labor for March?
a.$2,800
b.$5,600
c.$2,660
d.$5,320
42) A process cost system would most likely be used by a company that makes
a.motion pictures
b.repairs to automobiles
c.breakfast cereal
d.college graduation announcements
43) A process cost system would be used for all of the following products except
a.chemicals
b.computer chips
c.motion pictures
d.soft drinks
44) International standards are developed by the
a.IFRS
b.GAAP
c.IASB
d.FASB
45) Postings from the purchases journal to the general ledger are made
a.daily
b.monthly
c.weekly
d.yearly
46) In a job order cost system, which of the following accounts is not a control account?
a.Raw Materials Inventory
b.Manufacturing Overhead
c.Factory Labor
d.Finished Goods Inventory
47) In a production budget, total required units are the budgeted sales units plus
a.beginning finished goods units
b.desired ending finished goods units
c.desired ending finished goods units plus beginning finished goods units
d.desired ending finished goods units minus beginning finished goods units
48) The increased use of automation and less use of the work force in companies has
caused a trend towards an increase in
a.both variable and fixed costs
b.fixed costs and a decrease in variable costs
c.variable costs and a decrease in fixed costs
d.variable costs and no change in fixed costs
49) The corporate charter of Maine Yacht Corporation allows the issuance of a
maximum of 3,000,000 shares of $1 par value common stock. During its first three
years of operation, Maine issued 2,200,000 shares at $15 per share. It later acquired
30,000 of these shares as treasury stock for $25 per share.
Instructions
Based on the above information, answer the following questions:
(a)How many shares were authorized?
(b)How many shares were issued?
(c)How many shares are outstanding?
(d)What is the balance of the Common Stock account?
(e)What is the balance of the Treasury Stock account?
50) Mendez Company has budgeted the following unit sales:
2015 Units
January10,000
February8,000
March9,000
April11,000
May15,000
The finished goods units on hand on December 31, 2014, was 1,000 units. Each unit
requires 2 pounds of raw materials that are estimated to cost an average of $3 per
pound. It is the company’s policy to maintain a finished goods inventory at the end of
each month equal to 10% of next month’s anticipated sales. They also have a policy of
maintaining a raw materials inventory at the end of each month equal to 20% of the
pounds needed for the following month’s production. There were 3,920 pounds of raw
materials on hand at December 31, 2014 .
Instructions
For the first quarter of 2015, prepare (1) a production budget and (2) a direct materials
budget.
51) Journalize the following business transactions in general journal form. Identify each
transaction by number. You may omit explanations of the transaction.
1>Andrew Bird invested $35,000 cash to start an appliance repair business.
2>Hired an employee to be paid $400 per week, starting tomorrow.
3>Paid two years rent in advance, $7,440.
4>Paid the workers weekly wage.
5>Recorded revenue earned and received for the week, $1,900.
52) The Vogelson Company accumulates the following cost and market data at
December 31 .
Inventory CategoriesCost DataMarket Data
Camera$11,000$9,900
Camcorders7,8008,500
DVDs14,00012,000
What is the lower-of-cost-or-market value of the inventory?
53) A manufacturing company makes the products that it sells. Briefly identify and
define the cost elements that are incurred in making a product. After product cost
elements are identified, how is the cost of goods manufactured for a period determined?
54) A two column list of all accounts and their balances at a given time is a
______________.
55) Financial accounting information is prepared mainly for ______________ users,
while managerial accounting information is prepared primarily for ______________
users.