1) Job order production systems would be appropriate for companies that produce
compact disks or disposable cameras.
2) Horizontal analysis is used to reveal changes in the relative importance of each
financial statement item.
3) Uncertainties from the development of new competing products are contingent
liabilities.
4) Transactions are first recorded in the ledger.
5) When using the equity method for investments in equity securities, the investor
records the receipt of cash dividends as revenue.
6) With deposits of $5,000 at the end of each year, you will have accumulated $38,578
at the end of the sixth year if the annual rate of interest is 10%
7) The matching principle requires that expenses get recorded in the same accounting
period as the revenues that are earned as a result of the expenses, not when cash is paid.
8) Trade accounts payable are amounts owed to suppliers for products or services
purchased on credit.
9) Since it is recommended by the FASB, the direct method of preparing the statement
of cash flows is most frequently used.
10) One of the major benefits of formal budgeting is the positive effect it can have on
employee attitudes if applied correctly.
11) When using the allowance method of accounting for uncollectible accounts, the
entry to write off Harold’s uncollectible account is a debit to Allowance for Doubtful
Accounts and a credit to Accounts Receivable – Harold.
12) Evaluation of company performance does not include analysis of (1) past and
current performance, (2) current financial position, and (3) future performance and risk.
13) Reversing entries are recorded in response to accrued assets and accrued liabilities
that were created by adjusting entries at the end of the prior accounting period.
14) The cost-benefit principle prescribes that the benefits from an activity in an
accounting information system outweigh the costs of that activity.
15) Goods in transit are automatically included in inventory.
16) The dollar amount of sales needed to achieve a target after-tax income is computed
by dividing the sum of fixed costs plus the desired after-tax income plus income taxes
by the contribution margin ratio.
17) External users of accounting information make the strategic and operating decisions
of a company.
18) A controlling investor is called the parent, and the investee company is called the
subsidiary.
19) A U. S. Company’s credit sale to an international customer allowing payment to be
made in a foreign currency requires using the same exchange rate for the date of sale
and the cash payment date.
20) A company has inventory with a market value of $217,000 and a cost of $241,000.
According to the lower of cost or market, the inventory should be written down to
$217,000.
21) A partnership in which all partners have mutual agency and unlimited liability is
called:
A.Limited partnership
B.Limited liability partnership
C.General partnership
D.S corporation
E.Limited liability company
22) Double-entry accounting is an accounting system:
A.That records each transaction twice
B.That records the effects of transactions and other events in at least two accounts with
equal debits and credits
C.In which each transaction affects and is recorded in two or more accounts but that
could include two debits and no credits
D.That may only be used if T-accounts are used
E.That insures that errors never occur
23) In the process of reconciling Marks Enterprises’ bank statement for September, Mr.
Marks compiles the following information:
The adjusted cash balance per the books on September 30 is:
A.$6,900
B.$8,160
C.$4,600
D.$6,520
E.$5,840
24) Typical cash flows from investing activities include:
A.Payments to purchase property, plant and equipment or other productive assets
(excluding inventory)
B.Proceeds from collecting the principal amount of notes receivable arising from
customer sales
C.Proceeds from collecting the principal amount of notes receivable arising from
intercompany transactions
D.Payments to acquire held-to maturity securities of other entities, except cash
equivalents
E.Proceeds from the sale of equipment
25) Reversing entries:
A.Are optional
B.Are mandatory
C.Correct errors in journal entries
D.Are required by GAAP
E.Are prepared on the worksheet
26) Static budget is another name for:
A.Standard budget
B.Flexible budget
C.Variable budget
D.Fixed budget
E.Master budget
27) Adams Co. uses the following standard to produce a single unit of its product:
variable overhead (2 hrs. @ $3/hr.) $6. Actual data for the month show variable
overhead costs of $150,000, and 24,000 units produced. The total variable overhead
variance is:
A.$6,000F
B.$6,000U
C.$78,000U
D.$78,000F
E.$0
28) The master budget includes:
A.Operating budgets
B.A capital expenditures budget
C.A budgeted income statement
D.A cash budget
E.All of these
29) The wage bracket withholding table is used to:
A.Compute social security withholding
B.Compute Medicare withholding
C.Compute federal income tax withholding
D.Prepare the W-4
E.All of these
30) During a recent fiscal year, Dawson Company reported pretax income of $125,000,
a contribution margin ratio of 25% and total contribution margin of $400,000. Total
variable costs must have been:
A.$1,100,000
B.$1,200,000
C.$500,000
D.$1,600,000
E.$2,100,000
31) A company acquires equipment for $75,000 cash. This represents a(n)
A.Operating activity
B.Investing activity
C.Financing activity
D.Revenue activity
E.Expense activity
32) Bower Co. is reviewing a capital investment of $50,000. This project’s projected
cash flows over a five-year period are estimated at $20,000 each year.
Required:
(a) Calculate the payback period.
(b) Calculate the break-even time. Assume a 12% hurdle rate and use the table below:
(c) Using the results in (a) and (b), make a recommendation for the project.
33) Merchandise inventory:
A.Is a long-term asset.
B.Is a current asset.
C.Includes supplies.
D.Is classified with investments on the balance sheet.
E.Must be sold within one month.
34) A job cost sheet includes:
A.Direct materials, direct labor, operating costs
B.Direct materials, overhead, administrative costs
C.Direct labor, overhead, selling costs
D.Direct material, direct labor, overhead
E.Direct materials, direct labor, selling costs
35) Refer to the following selected financial information from Fennie’s, LLC. Compute
the company’s days’ sales uncollected for Year 2.
A.43.9
B.42.3
C.46.2
D.80.0
E.113.3
36) When a company uses special journals, the general journal is used for selected
transactions and events including:
A.Recording adjusting transactions
B.Posting transactions to special journals
C.Accumulating debits and credits
D.Collecting detailed listings of amounts
E.Recording cash receipts
37) A company is considering investing in a project that is expected to return $350,000
four years from now. How much is the company willing to pay for this investment if the
company requires a 12% return?
A.$55,606
B.$137,681
C.$222,425
D.$265,764
E.$350,000
38) Foreign exchange rates fluctuate due to changes in:
A.Political conditions
B.Economic conditions
C.Supply and demand for currencies
D.Expectations of future events
E.All of these
39) The financial statement that shows the beginning balance of owner’s equity; the
changes in equity that resulted from new investments by the owner, net income (or net
loss); withdrawals; and the ending balance, is the:
A.Statement of financial position
B.Statement of cash flows
C.Balance sheet
D.Income statement
E.Statement of owner’s equity
40) The following information describes a company’s usage of direct labor in a recent
period. The direct labor efficiency variance is:
A.$28,000 unfavorable
B.$28,000 favorable
C.$45,000 unfavorable
D.$45,000 favorable
E.$17,000 unfavorable
41) A manufacturing company has a beginning finished goods inventory of $14,600,
raw material purchases of $18,000, cost of goods manufactured of $32,500, and an
ending finished goods inventory of $17,800. The cost of goods sold for this company is:
A.$21,200
B.$29,300
C.$32,500
D.$47,100
E.$27,600
42) A statement of cash flows should reconcile the differences between the beginning
and ending balances of:
A.Net income
B.Equity
C.Cash and cash equivalents
D.Working capital
E.Cash, cash equivalents, and short-term investments
43) The budgeted income statement presented below is for Griffith Corporation for the
coming fiscal year. If Griffith Corporation is able to achieve the budgeted level of sales,
its margin of safety in dollars would be:
A.$172,420
B.$150,000
C.$262,500
D.$275,862
E.$310,115
44) The Unadjusted Trial Balance columns of a work sheet total $84,000. The
Adjustments columns contain entries for the following:
1> Office supplies used during the period, $1,200.
2> Expiration of prepaid rent, $700.
3> Accrued salaries expense, $500.
4> Depreciation expense, $800.
5> Accrued service fees receivable, $400.
The Adjusted Trial Balance columns total is:
A.$80,400
B.$84,000
C.$85,700
D.$85,900
E.$87,600
45) Long-term investments can include:
A.Held-to-maturity debt securities
B.Available-for-sale debt securities
C.Available-for-sale equity securities
D.Equity securities giving an investor significant influence over an investee
E.All of these
46) Hamilton Company owns 51,000 of Hennie Company’s 100,000 outstanding shares
of common stock. Hennie Company pays $25,000 in total cash dividends to its
shareholders. Hamilton’s entry to record this transaction should include a:
A.Debit to Dividend Revenue for $12,750
B.Debit to Interest Revenue for $12,750
C.Credit to Long-Term investments for $12,750
D.Credit to Long-Term Investments for $25,000
E.Credit to Dividend Revenue for $25,000
47) Short-term investments in held-to-maturity debt securities are accounted for using
the:
A.Fair value method with fair value adjustment to income
B.Fair value method with fair value adjustment to equity
C.Cost method with amortization
D.Cost method without amortization
E.Equity method
48) Financial statements are typically prepared in the following order:
A.Balance sheet, statement of owner’s equity, income statement
B.Statement of owner’s equity, balance sheet, income statement
C.Income statement, balance sheet, statement of owner’s equity
D.Income statement, statement of owner’s equity, balance sheet
E.Balance sheet, income statement, statement of owner’s equity
49) Which of the following assets is not depreciated?
A.Store fixtures
B.Computers
C.Land
D.Buildings
E.All of these are depreciated
50) A company uses the following standard costs to produce a single unit of output.
During the latest month, the company purchased and used 58,000 pounds of direct
materials at a price of $1.00 per pound to produce 10,000 units of output. Direct labor
costs for the month totaled $56,350 based on 4,900 direct labor hours worked. Variable
manufacturing overhead costs incurred totaled $15,000 and fixed manufacturing
overhead incurred was $10,400. Based on this information, the direct labor efficiency
variance for the month was:
A.$3,650 favorable
B.$2,450 favorable
C.$1,200 unfavorable
D.$1,200 favorable
E.$2,450 unfavorable
51) Match each of the following terms with the appropriate definitions.
1>Callable bonds A. Bonds that have specific assets of the issuer pledged as collateral.
2>Carrying value B. A series of equal payments at equal intervals.
3>Secured bonds C. The difference between the par value of a bond and its higher issue
price or carrying value.
4>Annuity D. Bonds that give the issuer an option of retiring them at a stated amount
prior to maturity.
5>Sinking fund bonds E. The interest rate specified in the bond indenture.
6>Contract rate F. The contract between the bond issuer and the bondholder(s); it
identifies the rights and obligations of the parties.
7>Bond indenture G. Bonds that require the issuer to create a fund of assets at specified
amounts and dates to repay the bonds at maturity.
8>Bond H. The net amount at which bonds are reported on the balance sheet.
9>Debt-to-equity ratio I. The ratio of total liabilities to total stockholders’ equity.
10>Premium on bonds J. A written promise to pay an amount identified as the par value
along with interest at a stated rate.
52) The adjusted trial balance contains information pertaining to:
A.Asset accounts only
B.Balance sheet accounts only
C.Income statement accounts only
D.All general ledger accounts
E.Revenue accounts only
53) A company expects to invest $5,000 today at 12% annual interest and plans to
receive $15,529 at the end of the investment period. How many years will elapse before
the company accumulates the $15,529?
A.0.322 years
B.3.1058 years
C.5 years
D.8 years
E.10 years
54) The following information pertains to the Hewett Corporation. Calculate the cost of
goods sold for the period:
A.$250,000
B.$290,000
C.$242,000
D.$258,000
E.$246,000
55) A company issues 9%, 20-year bonds with a par value of $750,000. The current
market rate is 8%. The amount of interest owed to the bondholders for each semiannual
interest payment is.
A.$60,000
B.$33,750
C.$67,500
D.$30,000
E.$375,000
56) On May 1, Giltus Advertising Company received $1,500 from Julie Bee for
advertising services to be completed April 30 of the following year. The Cash receipt
was recorded as unearned fees and at year-end on December 31, $1,000 of the fees had
been earned. The adjusting entry on December 31 would include:
A.A debit to Unearned Fees for $500
B.A credit to Unearned Fees for $500
C.A credit to Earned Fees for $1,000
D.A debit to Earned Fees for $1,000
E.A debit to Earned Fees for $500
57) While in the process of posting from the journal to the ledger a company failed to
post a $500 debit to the Office Supplies account. The effect of this error will be that:
A.The Office Supplies account balance will be overstated
B.The trial balance will not balance
C.The error will overstate the debits listed in the journal
D.The total debits in the trial balance will be larger than the total credits
E.The error will overstate the credits listed in the journal
58) Match the following terms with the appropriate definition(s).
1>Cash disbursements journal A. The people, records, methods, and equipment that
collect and process data from transactions and events, organize them in useful forms,
and communicate results to decision makers.
2>Enterprise resource planning B. A part of a company that can be separately identified
by the products or services that it provides, or by the geographic market that it serves.
3>Business segment C. The special journal used to record all receipts of cash.
4>Relevance principle D. An information system principle requiring that an accounting
information system aid managers in controlling and monitoring business activities.
5>Cash receipts journal E. An information system principle requiring that an
accounting system report useful, understandable, timely, and pertinent information for
decision making.
6>Accounting information system F. Programs that manage a company’s vital
operations which range from order-taking to manufacturing to accounting.
7>Information processor G. The special journal that is used to record all payments of
cash.
8>Control principle H. Links among computers giving different users and different
computers access to common databases and programs.
9>Computer network I. The component of an accounting system that interprets,
transforms, and summarizes information for use in analysis and reporting.
10>Schedule of accounts receivable J. A list of each customer from the accounts
receivable ledger with their balances and the total.
59)
A company had income before interest expense and income taxes of $176,000, and its
interest expense is $55,000. Calculate the company’s times interest earned ratio.
60) Graham Roofing Company, owned by R. Graham, began operations in May and
completed the following transactions during that first month of operations. Show the
effects of the transactions on the accounts of the accounting equation by recording
increases and decreases in the appropriate columns in the table below. Do not determine
new account balances after each transaction. Determine the final total for each account
and verify that the equation is in balance.
61) A company sold for $40,000 cash a machine that originally cost $90,000. The
accumulated depreciation on this machine was $47,000 at the time of the sale. What
was the company’s gain or loss on this sale?
62) What is a merchandise purchases budget? How is the merchandise purchases budget
constructed?
63) The following information is available for the McCartney Corporation:
Calculate the company’s inventory turnover and its days’ sales in inventory.