1) Payments on an installment note normally include the accrued interest expense plus a
portion of the amount borrowed.
2) A visual line fit to points in a scatter diagram may be used to identify the
approximate relation between past cost and volume.
3) If the partners agree on a formula to share income and say nothing about losses, then
the losses are shared equally.
4) Investing activities are the acquiring and disposing of resources that an organization
uses to acquire and sell its products or services.
5) A common statutory restriction is reported on the income statement whereas; a
common contractual restriction is reported in the stockholders’ equity section of the
balance sheet.
6) Job order production systems would be appropriate for companies that produce
training films for a specific customer or custom-made furniture to be used in a new
five-star resort hotel.
7) In the same time period, it is possible that a production department can produce
1,000 equivalent finished units with respect to direct materials and 1,200 equivalent
finished units with respect to direct labor.
8) Input devices are the means to make accounting information available to users.
9) A budget performance report that includes variances can have variances caused by
both price differences and quantity differences.
10) The purchase of supplies appears on the statement of cash flows as an investing
activity because it involves the purchase of assets.
11) In some circumstances, a process cost accounting system can classify wages paid to
maintenance workers as direct labor costs instead of factory overhead.
12) The issue price of bonds is found by computing the future value of the bond’s cash
payments, discounted at the market rate of interest.
13) A company purchased a new truck at a cost of $42,000 on July 1. The truck is
estimated to have a useful life of 6 years and a salvage value of $3,000. The company
uses the straight-line method of depreciation. How much depreciation expense will be
recorded for the truck during the first year ended December 31?
A.$3,250
B.$3,500
C.$4,000
D.$6,500
E.$7,000
14) Darby uses the allowance method to account for uncollectible accounts. Its year-end
unadjusted trial balance shows Accounts Receivable of $104,500, allowance for
doubtful accounts of $665 (credit) and sales of $925,000. If uncollectible accounts are
estimated to be 4% of accounts receivable, what is the amount of the bad debts expense
adjusting entry?
A.$4,845
B.$4,180
C.$3,515
D.$3,700
E.$3,850
15) Plant assets are:
A.Current assets
B.Used in operations
C.Natural resources
D.Long-term investments
E.Intangible
16) On May 1 of the current year, Peck Company experienced a 500 year flood which
destroyed the company’s entire inventory. The company had not completed its month
end reporting for April and must estimate the amount of inventory lost. At the beginning
of April, the company reported beginning inventory of $215,450. Inventory purchased
during April (until the date of the disaster) was $192,530. Sales for the month of April
were $542,500. Assuming the company’s typical gross profit ratio is 40%, estimate the
amount of inventory destroyed in the flood.
A.$87,480
B.$134,520
C.$109,980
D.$82,480
E.$81,480
17) A 90-day note issued on April 10 matures on:
A.July 9
B.July 10
C.July 11
D.July 12
E.July 13
18) Steve’s Skateboards uses the perpetual inventory system and had the following sales
transactions during April:
Prepare the journal entries that Steve’s Skateboards must make to record these
transactions.
19) Determine the net income of a company for which the following information is
available for the month of May.
A.$190,000
B.$210,000
C.$230,000
D.$400,000
E.$610,000
20) The purchase of raw materials on account in a process costing system is recorded
with a:
A.Debit to Purchases and credit to Cash
B.Debit to Purchases and a credit to Accounts Payable
C.Debit to Raw Materials Inventory and a credit to Accounts Payable
D.Debit to Accounts Payable and a credit to Raw Materials Inventory
E.Debit to Goods in Process Inventory and a credit to Accounts Payable
21) Use the following information to calculate cash paid for wages and salaries:
A.$157,400
B.$163,800
C.$168,000
D.$172,200
E.$174,400
22) A company has bonds outstanding with a par value of $100,000. The unamortized
discount on these bonds is $4,500. The company retired these bonds by buying them on
the open market at 97 . What is the gain or loss on this retirement?
A.$0 gain or loss
B.$1,500 gain
C.$1,500 loss
D.$3,000 gain
E.$3,000 loss
23) Abbe Company reported the following financial numbers for one of its divisions for
the year; average total assets of $4,100,000; sales of $4,525,000; cost of goods sold of
$2,550,000; and operating expenses of $1,372,000. Compute the division’s return on
assets:
A.30.3%
B.23.6%
C.13.3%
D.10.4%
E.14.7%
24) All of the following statements regarding accounting information systems are true
except:
A.Accounting information systems consist of people, records, methods, and equipment
B.Accounting information systems have the same goals and share basic components
C.Accounting information systems are less important than ever to decision makers
D.Accounting information systems are designed to provide output including financial,
managerial, and tax reports
E.Accounting information systems are designed to capture information about a
company’s transactions
25) A change in an accounting estimate is:
A.Reflected in past financial statements
B.Reflected in future financial statements and also requires modification of past
statements
C.Reflected in current and future years’ financial statements, not in prior statements
D.Not allowed under current accounting rules
E.Considered an error in the financial statements
26) Net income divided by average total assets is:
A.Profit margin
B.Total asset turnover
C.Return on total assets
D.Days’ income in assets
E.Current ratio
27) Winthrop Manufacturing produces a product that sells for $50.00. Fixed costs are
$260,000 and variable costs are $24.00 per unit. Winthrop can buy a new production
machine that will increase fixed costs by $11,400 per year, but will decrease variable
costs by $3.50 per unit. What effect would the purchase of the new machine have on
Winthrop’s break-even point in units?
A.800 unit increase
B.800 unit decrease
C.5,714 unit increase
D.4,444 unit decrease
E.No effect on the break-even point in units
28) Match each of the following terms with the appropriate definitions.
1>Employee benefits A. A record for a pay period that shows the pay period dates,
regular and overtime hours worked, gross pay, net pay and deductions.
2>Warranty B. Obligations due within one year or the company’s operating cycle,
whichever is longer.
3>Times interest earned C. A special bank account used solely for paying employees;
each pay period an amount equal to the total employees’ net pay is deposited and the
employees’ payroll checks are drawn on that account.
4>Payroll bank account D. A seller’s obligation to repair or replace a product or service
that fails to perform as expected within a specified period.
5>Gross pay E. Total compensation earned by an employee.
6>Federal depository bank F. Additional compensation paid to or on behalf of
employees, such as premiums for medical insurance and contributions to pension plans.
7>Current liabilities G. Payments of income taxes that are deferred until future years
because of temporary differences between H. GAAP and tax accounting rules.
8>Payroll register I. A bank authorized to accept deposits of amounts payable to the
federal government, including payroll taxes.
9>Deferred income tax liability J. Income before interest expense and income taxes
divided by interest expense.
10>Short-term note payable K. A written promise to pay a specified amount on a
definite future date within one year or the company’s operating cycle, whichever is
longer.
29) Another name for a capital expenditure is:
A.Revenue expenditure
B.Asset expenditure
C.Long-term expenditure
D.Contributed capital expenditure
E.Balance sheet expenditure
30) The Income Summary account is used:
A.To adjust and update asset and liability accounts
B.To close the revenue and expense accounts
C.To determine the appropriate withdrawal amount
D.To replace the income statement under certain circumstances
E.To replace the capital account in some businesses
31) The main purpose of adjusting entries is to:
A.Record external transactions and events
B.Record internal transactions and events
C.Recognize assets purchased during the period
D.Recognize debts paid during the period
E.Correct errors
32) Two accounting principles that are relied on in the adjusting process are:
A.Revenue recognition and monetary unit
B.Revenue recognition and going-concern
C.Matching and cost
D.Matching and business entity
E.Revenue recognition and matching
33) A $130 credit to Office Equipment was credited to Fees Earned by mistake. By
what amounts are the accounts under- or overstated as a result of this error?
A.Office Equipment, understated $130; Fees Earned, overstated $130
B.Office Equipment, understated $260; Fees Earned, overstated $130
C.Office Equipment, overstated $130; Fees Earned, overstated $130
D.Office Equipment, overstated $130; Fees Earned, understated $130
E.Office Equipment, overstated $260; Fees Earned, understated $130
34) Net sales divided by average accounts receivable, net is the:
A.Days’ sales uncollected
B.Average accounts receivable ratio
C.Current ratio
D.Profit margin
E.Accounts receivable turnover ratio
35) A record in which the effects of transactions are first recorded and from which
transaction amounts are posted to the ledger is a(n):
A.Account
B.Trial balance
C.Journal
D.T-account
E.Balance column account
36) On November 1, Carter Company signed a 120-day, 10% note payable, with a face
value of $9,000. What is the maturity value of the note on March 1?
A.$9,000
B.$9,100
C.$9,150
D.$9,200
E.$9,300
37) On September 1, a customer’s account balance of $2,300 was deemed to be
uncollectible. What entry should be recorded on September 1 to record the write-off
assuming the company uses the allowance method?
A.Debit Bad Debts Expense $2,300; credit Accounts Receivable $2,300
B.Debit Allowance for Doubtful Accounts $2,300; credit Bad Debts Expense $2,300
C.Debit Allowance for Doubtful Accounts $2,300; credit Accounts Receivable $2,300
D.Debit Bad Debts Expense $2,300; credit Allowance for Doubtful Accounts $2,300
E.Debit Accounts Receivable $250; credit Allowance for Doubtful Accounts $2,300
38) When analyzing the changes on a spreadsheet used to prepare a statement of cash
flows, the cash flows from operating activities generally affect:
A.Net income, current assets, and current liabilities
B.Noncurrent assets
C.Noncurrent liability and the equity accounts
D.Both noncurrent assets and noncurrent liabilities
E.Equity accounts only
39) All of the following statements regarding equity securities are True except:
A.Equity securities should be recorded at cost when acquired
B.Equity securities are valued at fair value if classified as trading securities
C.Equity securities are valued at fair value if classified as significant influence
securities
D.Equity securities are valued at fair value if classified as available-for-sale securities
E.Equity securities classified as available-for-sale record the dividend revenue when
received
40) All of the following are True regarding credit card expense except:
A.Credit card expense may be classified as a “discount” deducted from sales to get net
sales
B.Credit card expense may be classified as a selling expense
C.Credit card expense may be classified as an administrative expense
D.Credit card expense is not recorded by the seller
E.Credit card expense is a fee the seller pays for services provided by the card company
41) Identify the situation that will result in a favorable variance.
A.Actual revenue is higher than budgeted revenue
B.Actual revenue is lower than budgeted revenue
C.Actual income is lower than expected
D.Actual costs are higher than budgeted costs
E.Actual expenses are higher than budgeted expenses
42) Which of the following inventory costing methods will always result in the same
values for ending inventory and cost of goods sold regardless of whether a perpetual or
periodic inventory system is used?
A.FIFO and LIFO
B.LIFO and weighted-average cost
C.Specific identification and FIFO
D.FIFO and weighted-average cost
E.LIFO and specific identification
43) The appropriate section in the statement of cash flows for reporting the purchase of
land in exchange for common stock is:
A.Operating activities
B.Financing activities
C.Investing activities
D.Schedule of noncash investing or financing activity
E.Reconciliation of cash balance
44) A company allows its customers to use bank credit cards to charge purchases. When
customers use the credit cards, the net amount is deposited in the company’s checking
account. The company also is charged a 2.5% service charge for these credit card sales.
Assume that on April 13, the company sold $25,000 worth of merchandise to customers
who used credit cards. Prepare the company’s journal entry to record the credit card
sales for April 13 assuming the company deposited the receipts that same day.
45) Ringle Company is a manufacturer of compact disks (CDs). Place each of the
following costs in the appropriate column.
46) The _______________________________ is computed by dividing a project’s
after-tax net income by the average amount invested in it.
47) The following adjusted trial balance is for Clara Co. at year-end December 31. The
credit balance in Clara, Capital at the beginning of the year, January 1, was $320,000.
The owner, Sara Clara, invested an additional $100,000 during the current year. The
land held for future expansion was also purchased during the current year.
Required:
Prepare a classified balance sheet. (Note: A $21,000 installment on the long-term note
payable is due within one year.)
48) List the steps required to prepare a departmental income statement.
49) Refer to the following information about the Dipping Department of the Indiana
Factory for the month of August. Indiana Factory uses the FIFO method of inventory
costing.
The cost per equivalent unit of materials is $10.00, and the cost per equivalent unit of
labor and overhead is $22.00. Compute the cost that should be assigned to the ending
goods in process inventory for August.
50) A company uses the retail inventory method and has the following information
available concerning its most recent accounting period:
1>Use the retail inventory method to estimate the company’s year-end inventory at cost.
2> A year-end physical count at retail prices yields a total inventory of $404,800.
Prepare a calculation showing the company’s loss from shrinkage at cost and at retail.
51) Goods on consignment are goods that are shipped by the owner, called the
______________, to another party called the _____________________.
52) Creditors claims on assets that reflect obligations to transfer assets are called
____________.