1) A loss on disposal of a plant asset occurs if the cash proceeds received from the asset
sale is less than the asset’s book value.
2) A company reports basic earnings per share of $3.50, cash dividends per share of
$0.75, and a market price per share of $64.75. The company’s dividend yield equals
21.4%.
3) A pension plan is a contractual agreement between an employer and its employees in
which the employer provides benefits to employees after they retire.
4) On May 1, Franke Co. purchases 2,000 shares of Computech stock for $25,000. This
investment is considered to be an available-for-sale investment. On July 31 (Franke’s
year-end), the stock had a market value of $28,000. Franke should record a credit to
Unrealized Gain-Equity for $3,000.
5) Posting debits from the Sales journal to Accounts Receivable twice – once to the
general ledger account Accounts Receivable and once to the customer’s subsidiary
account – violates the accounting equation of debits equal credits.
6) A company can have a liability even if the amount of the obligation is unknown.
7) The cost of units transferred from Goods in Process Inventory to Finished Goods
Inventory is called the cost of goods manufactured.
8) One section of the process cost summary describes the equivalent units of production
for the department during the reporting period and presents the calculations of the costs
per equivalent unit.
9) An asset’s cost includes all normal and reasonable expenditures necessary to get the
asset in place and ready for its intended use.
10) A bank reconciliation explains any differences between the balance of a checking
account on the depositor’s records and the balance reported on the bank statement.
11) A company can change its inventory costing method without mentioning this
change in its financial statements because it is an internal management decision.
12) Cost variances are ignored under management by exception.
13) If actual overhead incurred during a period exceeds applied overhead, the difference
will be a credit balance in the Factory Overhead account at the end of the period.
14) The price-earnings ratio is calculated by dividing:
A.Market value per share by earnings per share
B.Earnings per share by market value per share
C.Dividends per share by earnings per share
D.Dividends per share by market value per share
E.Market value per share by dividends per share
15) If a company paid $38,000 of its accounts payable in cash, what was the effect on
the assets, liabilities, and equity?
A.Assets would decrease $38,000, liabilities would decrease $38,000, and equity would
decrease $38,000
B.Assets would decrease $38,000, liabilities would decrease $38,000, and equity would
increase $38,000
C.Assets would decrease $38,000, liabilities would decrease $38,000, and equity would
not change
D.There would be no effect on the accounts because the accounts are affected by the
same amount
E.None of these
16) Information from a manufacturing company’s current year income statement is as
follows. Calculate the company’s (a) profit margin ratio, (b) gross margin ratio, and (c)
times interest earned.
17) Raw materials that physically become part of the product and can be traced to
specific units or batches of product are called:
A.Raw materials sold
B.Chargeable materials
C.Goods in process
D.Indirect materials
E.Direct materials
18) A company purchased an equipment system for $325,000 on January 2. The
company expects the equipment to last for eight years or 60,000 hours of operation,
with an estimated salvage value of $25,000. During the first year, the equipment was in
operation for 8,000 hours, while in the second year, the equipment was in operation for
8,700 hours. Compute the depreciation expense relating to the equipment for Year 1 and
Year 2 using the following depreciation methods:
a. Straight-line.
b. Double-declining-balance.
c. Units-of-production.
19) On May 1, Carter Advertising Company received $3,600 from Kaitlyn Breanna for
advertising services to be completed April 30 of the following year. The Cash receipt
was recorded as unearned fees. The adjusting entry for the year ended December 31,
Year 2 would include:
A.a debit to Earned Fees for $3,600
B.a debit to Unearned Fees for $1,200
C.a credit to Unearned Fees for $1,200
D.a debit to Earned Fees for $2,400
E.a credit Earned Fees for $2,400
20) Holden, Phillips, and Rogers are partners with beginning-year capital balances of
$120,000, $60,000, and $60,000, respectively. Partnership net income for the year is
$84,000. Make the necessary journal entry to close Income Summary to the capital
accounts if:
a. Partners agree to divide income based on their beginning-year capital balances.
b. Partners agree to divide income based on the ratio of 5:3:2 (Holden:Phillips:Rogers),
respectively.
c. Partnership agreement is silent as to division of income and less.
21) A company has inventory of 15 units at a cost of $12 each on August 1. On August
5, it purchased 10 units at $13 per unit. On August 12 it purchased 20 units at $14 per
unit. On August 15, it sold 30 units. Using the FIFO perpetual inventory method, what
is the value of the inventory at August 12 after the sale?
A.$140
B.$160
C.$210
D.$380
E.$590
22) Which of the following statements is True?
A.Partners are employees of the partnership
B.Salaries to partners are expenses on the partnership income statement
C.Salary allowances usually reflect the relative value of services provided by partners
D.Salary allowances are expenses
E.Interest allowances are expenses
23) The overhead cost applied to a job during a period is recorded with a credit to
Factory Overhead and a debit to:
A.Jobs Overhead Expense
B.Cost of Goods Sold
C.Finished Goods Inventory
D.Indirect Labor
E.Goods in Process Inventory
24) A company rents a building with a total of 100,000 square feet, which are evenly
divided between two floors. The space on the first floor is considered twice as valuable
as that on the second floor. The total monthly rent for the building is $30,000. How
much of the monthly rental expense should be allocated to a department that occupies
10,000 square feet on the first floor?
A.$6,000
B.$5,000
C.$3,000
D.$4,000
E.$2,000
25) The amount by which a department’s revenues exceed its direct expenses is:
A.Net sales
B.Gross profit
C.Departmental profit
D.Contribution margin
E.Departmental contribution to overhead
26) The standard materials cost to produce 1 unit of Product M is 6 pounds of material
at a standard price of $50 per pound. In manufacturing 8,000 units, 47,000 pounds of
material were used at a cost of $51 per pound. What is the total direct materials cost
variance?
A.$48,000 unfavorable
B.$51,000 favorable
C.$51,000 unfavorable
D.$3,000 favorable
E.$3,000 unfavorable
27) Martha Company has an established petty cash fund in the amount of $500. The
fund was last reimbursed on November 30. At the end of December, the fund contained
the following petty cash receipts:
If, in addition to these receipts, the petty cash fund contains $301 of cash, the journal
entry to reimburse the fund on December 31 will include:
A.A debit to Transportation-In of $73
B.A debit to Transportation-Out of $73
C.A credit to Office Supplies of $66
D.A credit to Cash Over and Short of $10
E.A debit to Cash Over and Short of $10
28) Noncash investing and financing activities may be disclosed in:
A.A note in the financial statements or a schedule attached to the statement of cash
flows
B.The operating activities section of the statement of cash flows
C.The investing activities section of the statement of cash flows
D.The financing activities section of the statement of cash flows
E.The reconciliation of cash balance section
29) Presented below are terms or phrases preceded by letters a through j and followed
by a list of definitions 1 through 10. Match the correct definitions with the terms or
phrases by placing the letter of the term or phrase in the answer space provided at the
beginning of the definition.
1>Continuous budgeting A. A plan that lists the types and amounts of selling expenses
expected during the budget period.
2>Manufacturing budget plan that shows the predicted costs for direct materials, direct
labor, and overhead costs to be incurred in manufacturing the units in the production
budget.
3>Production budget B. An accounting report that presents predicted amounts of the
company’s assets, liabilities, and equity as of the end of the budget period.
4>Sales budget C. A formal statement of future plans, usually expressed in monetary
terms.
5>Cash budget D. A plan showing the units of goods to be sold and the sales to be
derived; usually the starting point in the budgeting process.
6>Capital expenditure budget E. A plan that lists dollar amounts to be both received
from disposing of plant assets and spent on purchasing additional plant assets to carry
out the budgeted business activities.
7>Budgeted balance sheet F. The practice of preparing budgets for a selected number of
several periods and revising those budgets as each period is completed.
8>Selling expense budget G. A plan showing the number of units to be produced each
month.
9>Budget H. A plan that shows the expected cash inflows and outflows during the
budget period, including receipts from loans needed to maintain a minimum cash
balance and repayments of such loans.
10>Rolling budgets I. A new set of budgets added to replace the ones that have lapsed
as each budget period goes by.
30) Brig Company had $800,000 in net sales, $350,000 in gross profit, and $200,000 in
operating expenses. Cost of goods sold equals:
A.$150,000.
B.$450,000.
C.$800,000.
D.$350,000.
E.$200,000.
31) Management Services, Inc. provides services to clients. On May 1, a client prepaid
Management Services $60,000 for 6-months services in advance. Management
Services’ general journal entry to record this transaction will include a
A.Debit to Unearned Management Fees for $60,000
B.Credit to Management Fees Earned for $60,000
C.Credit to Cash for $60,000
D.Credit to Unearned Management Fees for $60,000
E.Debit to Management Fees Earned for $60,000
32) The formula for computing annual straight-line depreciation is:
A.Depreciable cost divided by useful life in units
B.Cost plus salvage value divided by the useful life in years
C.Cost less salvage value divided by the useful life in years
D.Cost multiplied by useful life in years
E.Cost divided by useful life in units
33) Salta Company installs a manufacturing machine in its factory at the beginning of
the year at a cost of $87,000. The machine’s useful life is estimated to be 5 years, or
400,000 units of product, with a $7,000 salvage value. During its second year, the
machine produces 84,500 units of product. What journal entry would be needed to
record the machines’ second year depreciation under the units-of-production method?
A.Debit Depletion Expense $16,900; credit Accumulated Depletion $16,900
B.Debit Depletion Expense $16,000; credit Accumulated Depletion $16,000
C.Debit Depreciation Expense $16,900; credit Accumulated Depreciation $16,900
D.Debit Depreciation Expense $16,000; credit Accumulated Depreciation $16,000
E.Debit Amortization Expense $16,900; credit Accumulated Amortization $16,900
34) Prior period adjustments to financial statements can result from:
A.Changes in accounting estimates
B.Unacceptable accounting practices
C.Discontinued operations
D.Changes in tax law
E.Extraordinary items
35) Harris Co. has a net income of $43,000, assets at the beginning of the year are
$250,000 and assets at the end of the year are $300,000. Compute its return on assets.
A.8.4%
B.17.2%
C.14.3%
D.15.6%
E.1.5%
36) Lee Company manufactures and sells widgets for $2.00 per unit. Its variable cost
per unit is $1.70. Lee’s total fixed costs are $10,500. How many widgets must Lee
Company sell to break even?
A.5,250
B.6,176
C.35,000
D.52,500
E.61,760
37) Consolidated financial statements:
A.Show the results of operations, cash flows, and the financial position of all entities
under a parent’s control
B.Show the results of operations, cash flows, and the financial position of the parent
only
C.Show the results of operations, cash flows, and the financial position of the
subsidiary only
D.Include the investments account on the balance sheet
E.Do not include a balance sheet
38) Assuming prepaid expenses are originally recorded in balance sheet accounts, the
adjusting entry to record use of a prepaid expense is:
A.Increase an expense; increase a liability
B.Increase an asset; increase revenue
C.Decrease a liability; increase revenue
D.Increase an expense; decrease an asset
E.Increase an expense; decrease a liability
39) At the end of the day, the cash register tape shows $1,000 in cash sales but the count
of cash in the register is $1,035. The proper entry to account for this excess includes a:
A.Credit to Cash for $35
B.Debit to Cash for $35
C.Credit to Cash Over and Short for $35
D.Debit to Cash Over and Short for $35
E.Debit to Petty Cash for $35
40) An investment that is readily convertible to a known amount of cash and that is
sufficiently close to its maturity date so that its market value is relatively insensitive to
interest rate changes is a(n):
A.Short-term marketable equity security
B.Operating activity
C.Common stock
D.Cash equivalent
E.Financing activity
41) On January 1 of Year 1, Drum Line Airways issued $3,500,000 of par value bonds
for $3,200,000. The bonds pay interest semiannually on January 1 and July 1. The
contract rate of interest is 7% while the market rate of interest for similar bonds is 8%.
The bond premium or discount is being amortized using the straight-line method at a
rate of $10,000 every six months.
The life of these bonds is:
A.15 years
B.30 years
C.26.5 years
D.32 years
E.35 years
42) Argon Sales uses special journals to record business transactions. Argon sells
construction equipment. Argon completed the following transactions a through j.
Identify the journal in which each transaction should be recorded.
43) How is the cost principle applied to plant assets, acquisitions, including lump-sum
purchases?
44) A company purchased mining property containing 15,000,000 tons of ore for
$4,875,000. In Year 1, it mined 789,000 tons of ore and in Year 2, it mined 1,235,000
tons. Calculate the depletion expense for Year 1 and Year 2.
45) Mian sells American gourmet foods to merchandisers in Singapore. Prepare the
journal entries for Mian to record the following transactions. Include any year-end
adjustments.
46) A company reported net income of $275,000, net sales of $2,500,000, and average
total assets of $2,100,000 for the current year. Calculate this company’s profit margin,
total asset turnover, and return on total assets.
47) Maia’s Bike Shop uses the periodic inventory system and had the following
transactions during the month of May:
Prepare the required journal entries that Maia’s Bike Shop must make to record these
transactions.
48) ___________________ activities include those transactions that affect long-term
liabilities and equity.