1) Owner’s capital at the end of the period is equal to
a.owner’s capital at the beginning of the period plus net income minus liabilities
b.owner’s capital at the beginning of the period plus net income minus drawings
c.net income
d.assets plus liabilities
2) The purpose of recording depreciation on productive assets is to:
a.reflect the decline in the market value of the assets each period
b.allocate the original cost of productive assets to expense over its useful life
c.reduce income when the company has an exceptionally profitable year
d.be in conformity with the revenue recognition principle
3) The collection of a $1,000 account after the 2 percent discount period will result in a
a.debit to Cash for $980
b.credit to Accounts Receivable for $1,000
c.credit to Cash for $1,000
d.debit to Sales Discounts for $20
4) Goldblum Company has the following account balances:
Purchases$96,000
Sales Returns and Allowances12,800
Purchase Discounts8,000
Freight-In6,000
Delivery Expense10,000
The cost of goods purchased for the period is
a.$80,800
b.$88,000
c.$94,000
d.$104,000
5) Nelson Manufacturing Company can make 100 units of a necessary component part
with the following costs:
Direct Materials$120,000
Direct Labor25,000
Variable Overhead45,000
Fixed Overhead70,000
If Nelson Manufacturing Company purchases the component externally, $30,000 of the
fixed costs can be avoided. At what external price for the 100 units is the company
indifferent between making or buying?
a.$190,000
b.$200,000
c.$210,000
d.$220,000
6) When opening a bank checking account, a signature card
a.indicates to whom money is to be paid
b.indicates each person authorized to sign checks on the account
c.is attached to all pre-printed checks
d.is required only when dealing with an out-of-state bank
7) Eneri Company’s inventory records show the following data:
UnitsUnit Cost
Inventory, January 110,000$9.20
Purchases:June 189,0008.00
November 86,0007.00
A physical inventory on December 31 shows 4,000 units on hand. Eneri sells the units
for $13 each. The company has an effective tax rate of 20%. Eneri uses the periodic
inventory method.
Under the FIFO method, the December 31 inventory is valued at
a.$28,000
b.$32,267
c.$32,960
d.$36,800
8) The amount you must deposit now in your savings account, paying 4% interest
compounded annually, in order to accumulate $20,000 for a down payment 3 years
from now on a new car is
a.$18,400
b.$17,277
c.$18,141
d.$17,780
9) Presented below are incomplete 2014 manufacturing cost data for Apex Corporation.
Direct Materials Used Direct Labor Manufacturing Overhead Total Manufacturing
Costs
(a) $45,000 $76,000 ? $183,000
(b) $97,000 ? $90,000 $325,000
(c) ? $90,000 $125,000 $270,000
Instructions
Determine the missing amounts.
10) Dayton Inc. is considering two alternatives to finance its construction of a new $5
million plant.
(a)Issuance of 500,000 shares of common stock at the market price of $10 per share.
(b)Issuance of $5 million, 9% bonds at par.
Instructions
Complete the following table.
Issue StockIssue Bonds
Income before interest and taxes$2,000,000$2,000,000
Interest expense from bonds__________________
Income before income taxes$$
Income tax expense (30%)__________________
Net income$________$________
Outstanding shares_________ 700,000
Earnings per share__________________
11) 1> UNCOLLECTIBLE ACCOUNTS
Instructions: Present the journal entries specified below; show supporting calculations.
The trial balance of Harlem Company at December 31, 2014 includes the following:
DebitsCredits
Accounts Receivable $80,000
Allowance for Doubtful Accounts $ 3,000
Sales (all on credit) 700,000
Sales Returns and Allowances 20,000
A.If Harlem uses the aging method and estimates that $5,000 of receivables will be
uncollectible, prepare the adjusting entry.
B.If Harlem estimates uncollectibles at 2% of net credit sales, prepare the appropriate
adjusting entry.
C.Assume that on February 10, 2015 the specific account of Jason Jones with a balance
of $300 is deemed uncollectible. Record the write-off.
D.Assume that on May 12, 2015, Jones pays his entire balance, previously written off in
entry (C). Record the appropriate entries.
2>SALE OF ACCOUNTS RECEIVABLE
Instructions: Present the journal entries specified below.
A.West Cycle sells $200,000 of accounts receivable to RT, Inc. for cash less a 4%
service charge. Record the sale.
B.Recognized MasterCard credit card sales totaling $6,000. A 3% service fee is charged
by MasterCard. Record the sale on the books of West Cycle.
12) Randie Company lends Luann Company $10,000 on April 1, accepting a
four-month, 6% interest note. Randie Company prepares financial statements on April
30. What adjusting entry should be made before the financial statements can be
prepared?
a.Note Receivable 10,000
Cash 10,000
b.Interest Receivable 50
Interest Revenue 50
c.Cash 50
Interest Revenue 50
d.Interest Receivable 200
Interest Revenue 200
13) If an adjusting entry is not made for an accrued revenue,
a.assets will be overstated
b.expenses will be understated
c.owner’s equity will be understated
d.revenues will be overstated
14) A company uses the periodic inventory method and the beginning inventory is
overstated by $7,000 because the ending inventory in the previous period was
overstated by $7,000. The amounts reflected in the current end of the period balance
sheet are
AssetsOwners Equity
a.OverstatedOverstated
b.CorrectCorrect
c.UnderstatedUnderstated
d.OverstatedCorrect
15) If an owner withdraws cash for personal use, the transaction should be recorded in
the
a.sales journal
b.cash receipts journal
c.general journal
d.cash payments journal
16) Enos Company has decided to change the estimate of the useful life of an asset that
has been in service for 2 years. Which of the following statements describes the proper
way to revise a useful life estimate?
a.Revisions in useful life are permitted if approved by the IRS
b.Retroactive changes must be made to correct previously recorded depreciation
c.Only future years will be affected by the revision
d.Both current and future years will be affected by the revision
17) The manager of an investment center can improve ROI by:
a.reducing variable and/or controllable fixed costs
b.reducing average operating assets
c.increasing sales
d.All of the above
18) Determine the missing amounts.
Unit Selling Price Unit Variable Costs Contribution Margin per Unit Contribution
Margin Ratio
1> $300 $195 A. B.
2> $600 C. $150 D.
3> E. F. $480 30%
19) Among the items that Thome Print Shop accounts for are the following:
1>Direct labor
2>Office supplies used
3>Depreciation on printing machines
4>Finished goods inventory, 12/31
5>Raw materials inventory, 1/1
6>Cost of goods manufactured
7>Work in process, 1/1
8>Office supplies inventory, 12/31
9>Indirect labor
10>Heat and electricity for the print shop
Thome Print Shop prepares the following schedule and financial statements on a yearly
basis:
(a)Cost of goods manufactured schedule.
(b)Income statement.
(c)Balance sheet.
Instructions
For each item, indicate by using the appropriate letter(s) the schedule and/or financial
statements in which the item will appear.
20) When listing accounts in the statement of cash flows worksheet, the accumulated
depreciation account is shown
a.with accounts that have credit balances
b.with accounts that have debit balances
c.as a credit under the reconciling items
d.as a debit under the reconciling items
21) Which one of the following statements concerning the accounting cycle is
incorrect?
a.The accounting cycle includes journalizing transactions and posting to ledger
accounts
b.The accounting cycle includes only one optional step
c.The steps in the accounting cycle are performed in sequence
d.The steps in the accounting cycle are repeated in each accounting period
22) Ban Co. purchased 50, 5% Waylan Company bonds for $50,000 cash plus
brokerage fees of $500. Interest is payable semiannually on July 1 and January 1 . The
entry to record the July 1 semiannual interest payment would include a
a.debit to Interest Receivable for $1,250
b.credit to Interest Revenue for $1,250
c.credit to Interest Revenue for $1,262.50
d.credit to Debt Investments for $1,262.50
23) The following information pertains to Ortiz Company. Assume that all balance
sheet amounts represent both average and ending balance figures. Assume that all sales
were on credit.
Assets
Cash and short-term investments$ 45,000
Accounts receivable (net)25,000
Inventory20,000
Property, plant and equipment 310,000
Total Assets$400,000
Liabilities and Stockholders Equity
Current liabilities$ 50,000
Long-term liabilities90,000
Stockholders equitycommon 260,000
Total Liabilities and Stockholders Equity$400,000
Income Statement
Sales$ 300,000
Cost of goods sold 66,000
Gross profit234,000
Operating expenses 27,000
Net income$ 207,000
Number of shares of common stock6,000
Market price of common stock$20
Dividends per share.50
What is the profit margin for Ortiz?
a.113%
b.28.2%
c.69%
d.78%
24) The statement of cash flows
a.must be prepared on a daily basis
b.summarizes the operating, financing, and investing activities of an entity
c.is another name for the income statement
d.is a special section of the income statement
25) Under IFRS, the proceeds from the issuance of convertible debt are reported as
a.debt only
b.equity only
c.debt or equity depending on the circumstances
d.both debt and equity
26) A major element in budgetary control is
a.the preparation of long-term plans
b.the comparison of actual results with planned objectives
c.the valuation of inventories
d.approval of the budget by the stockholders
27) The following items are taken from the financial statements of the Postal Service
for the year ending December 31, 2014:
Accounts payable$ 18,000
Accounts receivable11,000
Accumulated depreciation equipment28,000
Advertising expense21,000
Cash15,000
Owners capital (1/1/14)102,000
Owners drawings14,000
Depreciation expense12,000
Equipment210,000
Insurance expense3,000
Note payable, due 6/30/1570,000
Prepaid insurance (12-month policy)6,000
Rent expense17,000
Salaries and wages expense32,000
Service revenue133,000
Supplies4,000
Supplies expense6,000
What is total liabilities and owners equity at December 31, 2014?
a.$176,000
b.$218,000
c.$190,000
d.$232,000
28) The relevant range of activity refers to the
a.geographical areas where the company plans to operate
b.activity level where all costs are curvilinear
c.levels of activity over which the company expects to operate
d.level of activity where all costs are constant
29) In March, gross earnings of Perlman Company totaled $250,000. All earnings are
subject to 7.65% FICA taxes, 5.4% state unemployment taxes, and 0.8% federal
unemployment taxes.
Instructions
(a)Compute the employer’s payroll tax expense.
(b)Prepare the entry to record payroll taxes.
30) Which of the following is in accordance with generally accepted accounting
principles?
a.Accrual-basis accounting
b.Cash-basis accounting
c.Both accrual-basis and cash-basis accounting
d.Neither accrual-basis nor cash-basis accounting
31) A compound journal entry involves
a.two accounts
b.three accounts
c.three or more accounts
d.four or more accounts
32) A check correctly written and paid by the bank for $872 is incorrectly recorded on
the company’s books for $827. The appropriate adjustment on a bank reconciliation
would be to:
a.add $45 to the bank’s balance
b.deduct $872 from the book’s balance
c.deduct $45 from the bank’s balance
d.deduct $45 from the book’s balance
33) From the following list of selected accounts taken from the records of Ward
Homeopathic Center, identify those that would appear on the balance sheet.
a. Owners Capitalf.Accounts Payable
b.Service Revenueg.Cash
c.Landh.Rent Expense
d.Salaries and Wages Expensei.Supplies
e.Notes Payablej.Utilities Expense
34) Under IFRS, companies can choose which inventory system?
LIFOFIFO
a.YesNo
b.YesYes
c.NoYes
d.NoNo
35) If a plant asset is retired before it is fully depreciated, and the salvage value
received is less than the asset’s book value,
a.a gain on disposal occurs
b.a loss on disposal occurs
c.there is no gain or loss on disposal
d.additional depreciation expense must be recorded
36) A plant asset acquired on October 1, 2014, at a cost of $400,000 has an estimated
useful life of 10 years. The salvage value is estimated to be $40,000 at the end of the
asset’s useful life.
Instructions
Determine the depreciation expense for the first two years using:
(a)the straight-line method.
(b)the double-declining-balance method.
37) The Choppine Department production process shows:
Units
Beginning Work in Process10,000
Ending Work in Process50,000
Total units to be accounted for150,000
How many units were started into production in Department 1?
a.160,000
b.100,000
c.150,000
d.140,000
38) If the market interest rate is 5%, a $10,000, 6%, 10-year bond, that pays interest
semiannually would sell at an amount
a.less than face value
b.equal to face value
c.greater than face value
d.that cannot be determined
39) Once a company decides to convert to IFRS, the transition date is the
a.end of the period for which full comparative IFRS information is presented
b.closing balance sheet date for the first IFRS financial statements
c.beginning of the earliest period for which full comparative IFRS information is
presented
d.reporting date for the first IFRS financial statements
40) The payback method is criticized on the grounds that it
a.ignores obsolescence factors
b.ignores the cost of an investment
c.is complicated to use
d.ignores the time value of money
41) The ________________ principle states that assets should be recorded at the value
exchanged at the time the asset is acquired.
42) You are a supervisor in the accounting department of a large manufacturing
company. Two weeks ago, you were anxious to leave for your vacation, and so you
hurriedly recorded a whole stack of journal entries so that the others would not have as
much to do while you were gone. When you returned, you realized that you had entered
a payment on account of a customer, Horton, as payment on another customer’s
account, Holten. Even worse, you realized that Horton’s payment had been on an
overdue account, and that Holten had received a refund for overpayment.
Required:
Write a memo to Paula Prezzoli, your boss, explaining your mistake.
43) Identify which principle of internal control is being followed in each of the
following cases.
1>Warehouse employees do not have access to the accounting records.
2>Prenumbered shipping documents are prepared for each shipment of goods.
3>The locked warehouse is accessible only by warehouse employees with keys.
44) Richter Company sells merchandise on account for $2,500 to Lynch Company with
credit terms of 3/10, n/60. Lynch Company returns $200 of merchandise that was
damaged, along with a check to settle the account within the discount period. What
entry does Richter Company make upon receipt of the check and the damaged
merchandise?
45) Raymond Company receives a $90,000, 6-year note bearing interest of 8% (paid
annually) from a customer at a time when the discount rate is 9%. What is the present
value of the note received by Raymond Company?
46) Hewitt Company is considering purchasing equipment. The equipment will produce
the following cash flows: Year 1, $20,000; Year 2, $25,000; Year 3, $40,000. Hewitt
requires a minimum rate of return of 12%. What is the maximum price Hewitt should
pay for this equipment?
47) Scotsman Company prepares monthly financial statements. Below are listed some
selected accounts and their balances in the September 30 trial balance before any
adjustments have been made for the month of September.
SCOTSMAN COMPANY
Trial Balance (Selected Accounts)
September 30, 2014
Debit Credit
Supplies$ 3,200
Prepaid Insurance4,200
Equipment16,200
Accumulated DepreciationEquipment$1,000
Unearned Rent Revenue1,200
(Note: Debit column does not equal credit column because this is a partial listing of
selected account balances)
An analysis of the account balances by the company’s accountant provided the
following additional information:
1>A physical count of supplies revealed $1,000 on hand on September 30 .
2>A two-year life insurance policy was purchased on June 1 for $4,800.
3>Equipment depreciated $3,000 per year.
4>The amount of rent received in advance that remains unearned at September 30 is
$500.
Instructions
Using the above additional information, prepare the adjusting entries that should be
made by Scotsman Company on September 30 .
48) Maddy Peters’s regular hourly wage rate is $14, and she receives an hourly rate of
$21 for work in excess of 40 hours. During a March pay period, Maddy works 47 hours.
Maddys federal income tax withholding is $80, and she has no voluntary deductions.
Compute Maddy Peterss gross earnings and net pay for the pay period.
49) ABC seeks to identify the _______________ that measure the activities performed
on the product.
50) Mike Hilyer is confused about under and overapplied manufacturing overhead.
Define the terms for Mike and indicate the balance in the manufacturing overhead
account applicable to each term.