1) Process costing is applied to operations with repetitive production and customized
products.
2) A company’s history indicates that 20% of its sales are for cash and the remaining
80% are on credit. Collections on credit sales are 30% in the month of the sale and 70%
the following month. Projected sales for January, February, and March are $75,000,
$92,000 and $60,000, respectively. The March expected cash receipts are $80,500.
3) Profit margin reflects the percent of net income in each dollar of net sales.
4) A potential lawsuit claim is disclosed when the claim can be reasonably estimated
and it is reasonably possible.
5) The date of record is the date that directors vote to pay a cash dividend to
shareholders.
6) The main difference between the cost of goods sold of a manufacturer and a
merchandiser is that the merchandiser includes cost of goods manufactured rather than
cost of goods purchased.
7) A stock dividend is a distribution of corporate assets that returns part of the original
investment to shareholders.
8) Paid-in capital is the total amount of cash and other assets the corporation receives
from its stockholders in exchange for its stock.
9) On January 1, a company issued a $500,000, 10%, 8-year bond payable, and received
proceeds of $473,845. Interest is payable each June 30 and December 31. The company
uses the straight-line method to amortize the discount. The amount of interest expense
to be recorded on June 30 is $25,000.
10) Ratios must refer to economically important relationships, such as a sale price
compared to its cost.
11) Hybrid costing systems can only be applied to auto manufacturing.
12) The primary purpose of the statement of cash flows is to report all major cash
receipts (inflows) and cash payments (outflows) during a period.
13) A company borrowed $16,000 by signing a 4-month promissory note at 12%. The
total interest on the note is $640.
14) A liability is a probable future payment of assets or services that a company is
presently obligated to make as a result of past transactions or events.
15) In process costing, the classification of materials as direct or indirect depends on
whether or not they are clearly linked with a specific process or department.
16) A granary allocates the cost of unprocessed wheat to the production of feed, flour,
and starch. For the current period, unprocessed wheat was purchased for $240,000, and
the following quantities of product and sales revenues were produced.
How much of the $240,000 cost should be allocated to feed?
A.$24,500.
B.$84,000.
C.$90,000.
D.$70,000.
E.$200,000.
17) An asset’s book value is $36,000 on January 1, Year 6. The asset is being
depreciated $500 per month using the straight-line method. Assuming the asset is sold
on July 1, Year 7 for $25,000, the company should record:
A.Neither a gain or loss is recognized on this type of transaction.
B.A gain on sale of $2,000.
C.A loss on sale of $1,000.
D.A gain on sale of $1,000.
E.A loss on sale of $2,000.
18) On January 1 of 2015, Parson Freight Company issues 7%, 10-year bonds with a
par value of $2,000,000. The bonds pay interest semi-annually. The market rate of
interest is 8% and the bond selling price was $1,864,097. The bond issuance should be
recorded as:
A.Debit Cash $2,000,000; credit Bonds Payable $2,000,000.
B.Debit Cash $1,864,097; credit Bonds Payable $1,864,097.
C.Debit Cash $2,000,000; credit Bonds Payable $1,864,097; credit Discount on Bonds
Payable $135,903.
D.Debit Cash $1,864,097; debit Discount on Bonds Payable $135,903; credit Bonds
Payable $2,000,000.
E.Debit Cash $1,864,097; debit Interest Expense $135,903; credit Bonds Payable
$2,000,000.
19) A production department’s output for the most recent month consisted of 8,000 units
completed and transferred to the next stage of production and 5,000 units in ending
Work in Process inventory. The units in ending Work in Process inventory were 50%
complete with respect to both direct materials and conversion costs. Calculate the
equivalent units of production for the month, assuming the company uses the weighted
average method.
A.6,500 units.
B.9,000 units.
C.13,000 units.
D.5,500 units.
E.10,500 units.
20) Kragle Corporation reported the following financial data for one of its divisions for
the year; average invested assets of $470,000; sales of $930,000; and income of
$105,000. The investment center profit margin is:
A.22.3%.
B.50.5%.
C.197.9%.
D.447.6%.
E.11.3%.
21) A company borrowed $80,000 from a bank by signing a long-term note payable.
The journal the transaction would be recorded in is the.
A.Cash disbursements journal.
B.Sales journal.
C.Cash receipts journal.
D.Purchases journal.
E.General journal.
22) On December 1, Watson Enterprises signed a $24,000, 60-day, 4% note payable as
replacement of an account payable with Erikson Company. What amount of interest
expense is accrued at December 31 on the note?
A.$0
B.$80
C.$320
D.$960
E.$160
23) The following information is available on a depreciable asset owned by Mutual
Savings Bank:
The asset’s book value is $70,000 on June 1, Year 3. On that date, management
determines that the asset’s salvage value should be $5,000 rather than the original
estimate of $10,000. Based on this information, the amount of depreciation expense the
company should recognize during the last six months of Year 3 would be:
A.$8,125.00
B.$7,375.00
C.$4,062.50
D.$3,750.00
E.$7,812.50
24) Cavern Company’s output for the current period results in a $5,250 unfavorable
direct material price variance. The actual price per pound is $56.50 and the standard
price per pound is $55.00. How many pounds of material are used in the current period?
A.5,393.
B.5,110.
C.3,500.
D.3,750.
E.4,000.
25) On April 1, Griffith Publishing Company received $1,548 from Santa Fe, Inc. for
36-month subscriptions to several different magazines. The company credited Unearned
Fees for the amount received and the subscriptions started immediately. What is the
adjusting entry that should be recorded by Griffith Publishing Company on December
31 of the first year?
A.debit Unearned Fees, $1,548; credit Fees Earned, $1,548.
B.debit Unearned Fees, $516; credit Fees Earned, $516.
C.debit Unearned Fees, $1,161; credit Fees Earned, $1,161.
D.debit Unearned Fees, $129; credit Fees Earned, $129.
E.debit Unearned Fees, $387; credit Fees Earned, $387.
26) Using the following list of accounts and identification letters A through J for
Homer€s Management Co., enter the type of account and its normal balance into the
table below. The first item is filled in as an example:
27) Non-operating activities that include interest expense, losses from asset disposals,
and casualty losses are reported as ____________________________.
28) For the following financial statement items, calculate trend percentages using 2014
as the base year:
29) Luxury Linens has three departments: Bath, Kitchen, and Bedding. The most recent
income statement, showing the total operating profit and departmental results is shown
below:
Based on this income statement, management is considering eliminating the Kitchen
department. If the Kitchen department is eliminated, the other departments will expand
to fill the space but sales are not expected to change. Twenty percent of Kitchen’s
allocated expenses will be avoided due to restructuring and the remainder reallocated
equally to Bath and Bedding. Show an analysis indicating whether the Kitchen
department should be eliminated.
30) Companies with many employees often use a special ____________________
account to pay employees.
31) Use the following cost information to calculate the direct labor rate and efficiency
variances and indicate whether they are favorable or unfavorable.
32) When purchase costs regularly rise, the ___________________ method of
inventory valuation yields the lowest gross profit and net income, providing a tax
advantage.
33) Nutley Company uses a job order cost system and last period incurred $70,000 of
overhead and $100,000 of direct labor. Nutley estimates that its overhead next period
will be $65,000. The company also expects to incur $100,000 of direct labor. If Nutley
bases its overhead applied on direct labor cost, what should be the overhead rate for the
next period?