1) In preparing a statement of cash flows, an increase in the Common Stock and
Treasury Stock accounts during a period would be an investing activity.
2) A debit to the Overhead Volume Variance account indicates that the standard hours
allowed for the output produced was greater than the standard hours at normal capacity.
3) If a plant asset is sold at a gain, the gain on disposal should reduce the cost of goods
sold section of the income statement.
4) If a transaction cannot be recorded in a special journal, it indicates that the company
should adopt an electronic accounting system.
5) Both direct labor cost and indirect labor cost are product costs.
6) An account is often referred to as a T-account because of the way it is constructed.
7) If a company uses the FIFO cost assumption, the cost of goods sold for the period
will be the same under a perpetual or periodic inventory system.
8) Raw materials are equal to direct materials minus indirect materials.
9) Budget reports provide the feedback needed by management to see whether actual
operations are on course.
10) In calculating gross profit for a manufacturing company, the cost of goods
manufactured is deducted from net sales.
11) The basic accounting equation states that Assets = Liabilities.
12) Identifying is the process of keeping a chronological diary of events measured in
dollars and cents.
13) An adjusted trial balance should be prepared before the adjusting entries are made.
14) A flexible budget report will show both actual and budget cost based on the actual
activity level achieved.
15) Financial budgets must be completed before the operating budgets can be prepared.
16) Business documents can provide evidence that a transaction has occurred.
17) In 2014, Rondelli Company had net sales of $650,000 and cost of goods sold of
$455,000. Operating expenses were $150,000, and interest expense was $10,000.
Rondelli prepares a multiple-step income statement.
Instructions
(a)Compute Rondelli gross profit.
(b)Compute the gross profit rate.
(c)What is Rondelli income from operations and net income?
(d)If Rondelli prepared a single-step income statement, what amount would it report for
net income?
18) The individual amounts in the Accounts Payable column in the cash payments
journal are posted to the subsidiary ledger
a.daily
b.monthly
c.weekly
d.yearly
19) A company purchases 16.000 pounds of materials. The materials price variance is
$4,000 favorable. What is the difference between the standard and actual price paid for
the materials?
a.$1.00
b.$0.25
c.$4.00
d.Cannot be determined from the data provided
20) A voucher system is a series of prescribed control procedures
a.to check the credit worthiness of customers
b.designed to assure that disbursements by check are proper
c.which eliminates the need for a sales journal
d.specifically designed for small firms who may not have checking accounts
21) An extraordinary item is one that
a.occurs infrequently and is uncontrollable in nature
b.occurs infrequently and is unusual in nature
c.is material and is unusual in nature
d.is material and is uncontrollable in nature
22) Ratios that measure the short-term ability of the company to pay its maturing
obligations are
a.liquidity ratios
b.profitability ratios
c.solvency ratios
d.trend ratios
23) The financial statements of Gervais Manufacturing Company report net sales of
$500,000 and accounts receivable of $80,000 and $40,000 at the beginning and end of
the year, respectively. What is the accounts receivable turnover for Gervais?
a.6.3 times
b.8.3 times
c.10 times
d.12.5 times
24) The accountant at Cedric Company has determined that income before income taxes
amounted to $7,000 using the FIFO costing assumption. If the income tax rate is 30%
and the amount of income taxes paid would be $315 greater if the LIFO assumption
were used, what would be the amount of income before taxes under the LIFO
assumption?
a.$5,950
b.$7,000
c.$7,315
d.$8,050
25) Rosa Winery manufactures a fine wine in two departments, Fermenting and
Bottling. In the Fermenting Department, grapes are aged in casks for a period of 30
days. In the Bottling Department, the wine is bottled and then sent to the finished goods
warehouse. Labor and overhead are incurred uniformly through both processes.
Materials are entered at the beginning of both processes. Cost and production data for
the Fermenting Department for December 2014 are presented below:
Cost data
Beginning work in process inventory$ 36,000($30,000 of materials cost)
Materials390,000
Conversion costs 122,000
Total costs$548,000
Production data
Beginning work in process (gallons)5,000(40%)
Gallons started into production65,000
Ending work in process (gallons)8,000(25%)
Instructions
(a)Compute the equivalent units of production.
(b)Determine the unit production costs.
(c)Determine the costs to be assigned to units transferred out and ending work in
process.
26) Each of the following decreases retained earnings except a
a.cash dividend
b.liquidating dividend
c.stock dividend
d.All of these decrease retained earnings
27) Managerial accounting information is generally prepared for
a.stockholders
b.creditors
c.managers
d.regulatory agencies
28) In a process cost system, unit costs are determined using a
a.numerator of costs of each job
b.denominator of units produced during the period
c.denominator of units produced for the job
d.denominator of units produced for the day
29) From a liquidity standpoint, it is more desirable for a company to have current
a.assets equal current liabilities
b.liabilities exceed current assets
c.assets exceed current liabilities
d.liabilities exceed long-term liabilities
30) On January 14, Edamame Industries purchased supplies of $700 on account. The
entry to record the purchase will include
a.a debit to Supplies and a credit to Accounts Payable
b.a debit to Supplies Expense and a credit to Accounts Receivable
c.a debit to Supplies and a credit to Cash
d.a debit to Accounts Receivable and a credit to Supplies
31) The statement of cash flows
a.is prepared instead of an income statement under generally accepted accounting
principles
b.is used to assess an entity’s ability to pay dividends and meet obligations
c.is prepared from comparative income statements
d.reflects earnings per share figures on a cash basis and on an accrual basis in the body
of the statement
32) If the total debits exceed total credits in the balance sheet columns of the worksheet,
owner’s equity
a.will increase because net income has occurred
b.will decrease because a net loss has occurred
c.is in error because a mistake has occurred
d.will not be affected
33) Prior period adjustments
a.may only increase retained earnings
b.may only decrease retained earnings
c.may either increase or decrease retained earnings
d.do not affect retained earnings
34) The cash effects of transactions that create revenues and expenses are
a.financing activities
b.investing activities
c.operating activities
d.processing activities
35) Presented below are Locust Companys monthly manufacturing cost data related to
its personal computer products.
a.Hard drives and memory sticks$35,000
b.Wages to assemble equipment$75,000
c.Insurance on manufacturing building$43,000
d.Wages for factory supervisors$84,000
Instructions
Enter each cost item in the following table, placing an X under the appropriate
headings.
Product Costs
Direct Materials Direct Labor Manufacturing Overhead
a.
b.
c.
d.
36) Smita Quinn, earns $30 per hour for a 40 hour work week and $45 per hour for
overtime work. If Smita works 44 hours, her gross earnings are:
a.$1,320
b.$1,380
c.$1,568
d.$1,980
37) Indicate in the space provided by each item whether it would appear on the Income
Statement (IS), Balance Sheet (BS), or Owner’s Equity Statement (OE):
a.Service Revenueg. Accounts Receivable
b.Utilities Expenseh.Owner’s Capital (ending)
c.Cashi.Equipment
d.Accounts Payablej.Advertising Expense
e.Suppliesk.Owner’s Drawing
f.Salaries and Wages Expensel.Notes Payable
38) In developing an accounting system, cost effectiveness does not imply that
a.the benefits obtained from the system outweigh the costs
b.an electronic system must be cheaper than the system it is replacing
c.the system should be cost effective
d.the value of an accounting report should be at least equal to the cost of producing it
39) Smith-Hawke is a nonprofit organization that captures stray deer bewildered within
residential communities. Fixed costs are $15,000. The variable cost of capturing each
deer is $10.00 each. Smith-Hawke is funded by a local philanthropy in the amount of
$50,000 for 2014 . How many deer can Smith-Hawke capture during 2014?
a.3,500
b.5,000
c.6,500
d.35,000
40) All of the following are advantages of standard costs except they
a.facilitate management planning
b.are useful in setting selling prices
c.simplify costing in inventories
d.increase net income
41) If a plant asset is retired before it is fully depreciated, and no salvage or scrap value
is received,
a.a gain on disposal will be recorded
b.phantom depreciation must be taken as though the asset were still on the books
c.a loss on disposal will be recorded
d.no gain or loss on disposal will be recorded
42) Indicate whether the following items would be reported as an ordinary or an
extraordinary item in Mallak Corporation’s income statement.
(a)Loss attributable to labor strike.
(b)Gain on sale of fixed assets.
(c)Loss from fire. Mallak is a chemical company.
(d)Loss from sale of short-term investments.
(e)Expropriation of property by a foreign government.
(f)Loss from hurricane damage. Mallak Corporation is located in the New Orleans area.
(g)Loss from government condemnation of property through newly enacted law.
43) When an account is written off using the allowance method, accounts receivable
a.is unchanged and the allowance account increases
b.increases and the allowance account increases
c.decreases and the allowance account decreases
d.decreases and the allowance account increases
44) Which one of the following is not an enhancing quality of useful information?
a.Timeliness
b.Understandability
c.Materiality
d.Comparability
45) On January 1, Sanchez Corporation purchased a 35% equity in Lawton Company
for $380,000. At December 31, Lawton declared and paid a $40,000 cash dividend and
reported net income of $98,000. Prepare the necessary journal entries for Sanchez
Corporation.
46) Petersen Company received a letter from Jane Kimler, a customer. Jane had
purchased $425 worth of clothing from Petersen on credit. She has made two payments
of $50 each. She has missed the last two payments, and has received a collection letter
from Petersen. Her total debt presently, with interest and late fees, is $351.13.
Jane sent a letter to Petersen in which she asked for her debt to be forgiven. She said
she had heard that companies make allowances for accounts they are doubtful about
collecting, and that Petersen certainly should have been doubtful about herthat as a
college student she had changed her major three times. She also said that she could not
enjoy a high quality of life when making such high payments, but that she didn’t want to
be embarrassed by bill collectors, either. She especially didn’t want her parents to find
out that she had not paid her debts. Having Petersen write off her account seemed to her
the best solution in the circumstances. She added that the clothes she bought at Petersen
were among the best she had ever owned, and that she “told everybody” that Petersen
was definitely the best place to get clothes.
Required:
You are the accounting manager for Petersen. Write a short letter to Jane explaining
why her debt cannot be written off.
47) Loyd Company manufactures sweaters. The budgeted units to be produced and sold
are below:
Expected ProductionExpected Sales
August6,2005,800
September5,6007,800
It takes 24 yards of yarn to produce a sweater. The company’s policy is to maintain yarn
at the end of each month equal to 5% of next month’s production needs and to maintain
a finished goods inventory at the end of each month equal to 20% of next month’s
anticipated production needs. The cost of yarn is $0.30 a yard. At August 1, 7,440 yards
of yarn were on hand.
Instructions
Compute the budgeted cost of purchases for August.
48) The accounts receivable turnover is calculated by dividing _________________ by
average ___________________.
49) Instructions: Place a check in the appropriate columns to designate whether each of
the following accounts: (1) has a debit or credit normal balance; and (2) is an asset,
liability, or owner’s equity account.
(1)(2)
Owner’s
AccountDebitCreditAssetLiabilityEquity
1>Notes Payable
2>Rent Expense
3>Owners Capital
4>Supplies
5>Accounts Payable
6>Accounts Receivable
7>Owners Drawing
8>Unearned Service Revenue
9>Service Revenue
10>Prepaid Insurance
50) The ABC Partnership is to be liquidated and you have been hired to prepare a
Schedule of Cash Payments for the partnership. Partners Alexa, Bitsy, and Coco share
income and losses in the ratio of 4:3:3, respectively. Assume the following:
1>The noncash assets were sold for $70,000.
2>Liabilities were paid in full.
3>The remaining cash was distributed to the partners. (If any partner has a capital
deficiency, assume that the partner is unable to make up the capital deficiency.)
Instructions
Using the above information, complete the Schedule of Cash Payments below:
ABC PARTNERSHIP
Schedule of Cash Payments
NoncashAlexaBitsyCoco
ItemCash+ Assets=Liabilities+Capital+Capital+Capital
Balances before
liquidation25,000+150,000=50,000+25,000+35,000+65,000