1) It is necessary for a company to use the same depreciation method for all of its
depreciable assets.
2) The ratio of sales to invested assets is termed the investment turnover component of
the rate of return on investment.
3) On the balance sheet for a manufacturing business, the cost of direct materials, direct
labor, and factory overhead, which have entered into the manufacturing process but are
associated with products that have not been finished, is reported as direct materials
inventory.
4) If in evaluating a proposal by use of the net present value method there is a
deficiency of the present value of future cash inflows over the amount to be invested,
the proposal should be rejected.
5) Reducing wait time is not linked to reducing inventory.
6) The budgeted volume of production is based on the sum of (1) the expected sales
volume and (2) the desired ending inventory, less (3) the estimated beginning inventory.
7) A formal written statement of management’s plans for the future, expressed in
financial terms, is called a budget.
8) Cash flows from investing activities, as part of the statement of cash flows, include
receipts from the issuance of bonds payable.
9) The manager of a profit center does not make decisions concerning the fixed assets
invested in the center.
10) When a plantwide factory overhead rate is used, the total overhead costs allocated
to all products is the same.
11) Use of a plantwide factory overhead rate assumes that the activities causing
overhead costs are different across different departments and products.
12) Equivalent units should be computed separately for direct materials and conversion
costs.
13) Prime costs are the combination of direct labor costs and factory overhead costs.
14) Equipment with an original cost of $75,000 and accumulated depreciation of
$20,000 was sold at a loss of $7,000. As a result of this transaction, cash would
A.increase by $48,000
B.decrease by $7,000
C.increase by $55,000
D.decrease by $27,000
15) The term “inventory” can indicate
A.merchandise held for sale in the normal course ofbusiness
B.equipment used to manufacture products
C.supplies
D.any asset
16) For each of the following, journalize the necessary adjusting entry:
(a) A business pays weekly salaries of $22,000 on Friday for a five-day week ending on
that day. Journalize the necessary adjusting entry at the end of the fiscal period,
assuming that the fiscal period ends (1) on Tuesday, (2) on Wednesday.
(b) The balance in the prepaid insurance account before adjustment at the end of the
year is $18,000. Journalize the adjusting entry required under each of the following
alternatives: (1) the amount of insurance expired during the year is $5,300, (2) the
amount of unexpired insurance applicable to a future period is $2,700.
(c) On July 1 of the current year, a business pays $54,000 to the city for license taxes
for the coming fiscal year. The same business is also required to pay an annual property
tax at the end of the year. The estimated amount of the current year’s property tax
allocable to July is $4,800. (1) Journalize the two adjusting entries required to bring the
accounts affected by the taxes up to date as of July 31. (2) What is the amount of tax
expense for July?
(d) The estimated depreciation on equipment for the year is $32,000.
17) A chart of accounts for a merchandising business
A.usually is the same as the chart of accounts for a service business
B.usually requires more accounts than does the chart of accounts for a service business
C.usually is standardized by the FASB for all merchandising businesses
D.always uses a three-digit numbering system
18) If title to merchandise purchases passes to the buyer when the goods are shipped
from the seller, the terms are
A.n/30
B.FOB shipping point
C.FOB destination
D.consigned
19) Interest on a note can be calculated without knowledge of the
A.fair value of the note
B.rate of interest
C.notes duration
D.principal amount
20) Indicate whether each of the following would be reported in the financial statements
as a(n) (a) current asset, (b) current liability, (c) revenue, or (d) expense:
21) Businesses that are separated into two or more manageable units in which managers
have authority and responsibility for operations are said to be:
A.decentralized
B.consolidated
C.diversified
D.centralized
22) If variable manufacturing costs are $15 per unit and total fixed manufacturing costs
are $200,000, what is the manufacturing cost per unit if:
(a) 20,000 units are manufactured and the company uses the variable costing concept?
(b) 25,000 units are manufactured and the company uses the variable costing concept?
(c) 20,000 units are manufactured and the company uses the absorption costing
concept?
(d) 25,000 units are manufactured and the company used the absorption costing
concept?
23) The total factory overhead for Big Light Company is budgeted for the year at
$403,750. Big Light manufactures two different products – night lights and desk lamps.
Night lights is budgeted for 30,000 units. Each night light requires 1/2 hour of direct
labor. Desk lamps is budgeted for 40,000 units. Each desk lamp requires 2 hours of
direct labor. Determine (a) the total number of budgeted direct labor hours for year, (b)
the single plantwide factory overhead rate using direct labor hours as the allocation
base, and (c) the factory overhead allocated per unit for each product using the single
plantwide factory overhead rate calculated in (b).
24) Department R had 5,000 units in work in process that were 75% completed as to
labor and overhead at the beginning of the period, 30,000 units of direct materials were
added during the period, 32,000 units were completed during the period, and 3,000
units were 40% completed as to labor and overhead at the end of the period. All
materials are added at the beginning of the process. The first-in, first-out method is used
to cost inventories. The number of equivalent units of production for conversion costs
for the period was:
A.32,450
B.29,450
C.31,950
D.26,000
25) The contribution margin ratio is:
A.the same as the variable cost ratio
B.the same as profit
C.the portion of equity contributed by the stockholders
D.the same as the profit-volume ratio
26) The percentage analysis of increases and decreases in individual items in
comparative financial statements is called
A.vertical analysis
B.solvency analysis
C.profitability analysis
D.horizontal analysis
27) Retained earnings
A.is the same as contributed capital
B.cannot have a debit balance
C.changes are summarized in the retained earnings statement
D.is equal to cash on hand
28) When a company replaces a component of property, plant and equipment, which
statement below does not account for one of the steps in the process?
A.book value of the replaced component is written off to depreciation expense
B.the asset cost of the replaced component is credited
C.any cost to remove the old component is charged to expense
D.the identifiable direct costs associated with the new component are capitalized
29) The classified balance sheet will subsection the assets as follows
A.Current Assets and Other Assets
B.Current Assets and Property, Plant, and Equipment
C.Current Assets and Short-Term Assets
D.Other Assets and Property, Plant, and Equipment
30) Copper Hill Inc. manufactures laser printers within a relevant range of production
of 70,000 to 100,000 printers per year. The following partially completed
manufacturing cost schedule has been prepared:
Number of Printers Produced
70,000 90,000 100,000
Total costs:
Total variable costs $350,000 (d) (j)
Total fixed costs 630,000 (e) (k)
Total costs $980,000 (f) (l)
Cost per unit:
Variable cost per unit (a) (g) (m)
Fixed cost per unit (b) (h) (n)
Total cost per unit (c) (i) (o)
Complete the preceding cost schedule, identifying each cost by the appropriate letter (a)
through (o).
31) The following is a list of costs incurred by several business organizations:
(a) Telephone cable for a telephone company.
(b) Subscription to a health club for executives.
(c) Salary of the Director of Internal Auditing.
(d) Long-distance telephone bill for calls made by salespersons.
(e) Carrying cases for a manufacturer of video camcorders.
(f) Cotton for a textile manufacturer of blue jeans.
(g) Bandages for the emergency room of a hospital.
(h) Cost of company holiday party.
(i) Electricity used to operate factory machinery.
(j) State unemployment compensation taxes for factory workers.
(k) Gloves for factory machine operators.
(l) Fees paid for lawn service for office grounds.
(m) Salary of secretary to vice-president of finance.
(n) Salary of secretary to vice-president of marketing.
(o) Production supervisor’s salary.
(p) Engine oil for manufacturer and distributor of motorcycles.
(q) Oil lubricants for factory plant and equipment.
(r) Cost of a radio commercial.
(s) Depreciation on factory equipment.
(t) Wages of check-out clerk in company-owned retail outlet.
(u) Maintenance and repair costs for factory equipment.
(v) Depreciation on office equipment.
(w) Bonuses paid to salespersons.
(x) Insurance on factory building.
(y) Training for accounting personnel on use of microcomputer.
(z) Steel for a construction contractor.
Classify each of the preceding costs as product costs or period costs. For those costs
classified as product costs, indicate whether the product cost is a direct materials cost,
direct labor cost, or factory overhead cost. For those costs classified as period costs,
indicate whether the period cost is a selling expense or an administrative expense. Use
the following tabular headings for preparing your answer. Place an X in the appropriate
column.
32) The date on which a cash dividend becomes a binding legal obligation is on the
A.declaration date
B.date of record
C.payment date
D.last day of the fiscal year
33) Which of the following is not a part of comprehensive income?
A.foreign currency items
B.cash flows from stock investments
C.unrealized gains and losses
D.pension liability adjustments
34) Mocha Company manufactures a single product by a continuous process, involving
three production departments. The records indicate that direct materials, direct labor,
and applied factory overhead for Department 1 were $100,000, $125,000, and
$150,000, respectively. The records further indicate that direct materials, direct labor,
and applied factory overhead for Department 2 were $55,000, $65,000, and $80,000,
respectively. In addition, work in process at the beginning of the period for Department
1 totaled $75,000, and work in process at the end of the period totaled $60,000.
The journal entry to record the flow of costs into Department 2 during the period for
direct materials is:
A.Work in Process–Department 2100,000
Materials100,000
B.Work in Process–Department 255,000
Materials55,000
C.Work in Process–Department 2150,000
Materials150,000
D.Materials55,000
Work in Process–Department 255,000
35) The retained earnings statement should be prepared
A.before the income statement and after the balance sheet
B.before the income statement and balance sheet
C.after the income statement and balance sheet
D.after the income statement and before the balance sheet
36) Identify each of the following as an (1) increase in stockholders equity, or a (2)
decrease in stockholders equity.
(a) Fees Earned
(b) Wages Expense
(c) Dividends
(d) Lawn Care Revenue
(e) Issue Capital Stock
(f) Supplies Expense
37) The inventory costing method that reports the most current prices in ending
inventory is
A.FIFO
B.Specific identification
C.LIFO
D.Average cost
38) The Everest Company has income from operations of $80,000, invested assets of
$500,000, and sales of $1,050,000.
What is the profit margin?
A.47.6%
B.7.6%
C.55.2%
D.4.8%
39) Horizontal analysis of comparative financial statements includes the
A.development of common size statements
B.calculation of liquidity ratios
C.calculation of dollar amount changes and percentage changes from the previous to the
current year
D.the evaluation of each component in a financial statement to a total within the
statement
40) The cost of production of completed and finished goods during the period amounted
to $450,000, and the finished products shipped to customers had total production costs
of $357,000. From the following, select the entry to record the transfer of costs from
finished goods to cost of goods sold.
A.Finished Goods450,000
Cost of Goods Sold450,000
B.Finished Goods357,000
Cost of Goods Sold 357,000
C.Cost of Goods Sold357,000
Finished Goods357,000
D.Cost of Goods Sold450,000
Finished Goods450,000
41) Which of the following would be most effective in a small owner/manager-operated
business?
A.Profit centers
B.Centralization
C.Investment centers
D.Cost centers
42) The form of income statement that derives its name from the fact that the total of all
expenses is deducted from the total of all revenues is called a
A.multiple-step statement
B.revenue statement
C.report-form statement
D.single-step statement
43) Common allocation bases are
A.direct labor dollars, direct labor hours, direct material dollars
B.direct labor dollars, direct labor hours, machine hours
C.direct labor dollars, direct labor hours, machine dollars
D.machine dollars, direct labor dollars, machine hours
44) Which of the following items that appeared on the bank reconciliation did not
require an adjusting entry?
A.bank service charges
B.deposits in transit
C.NSF checks
D.A check for $630, recorded in the check register for $360
45) Just-in-time operations attempt to significantly reduce
A.profits
B.inventory needed to produce products
C.inspection time and moving time
D.processing time
46) The amount of income under absorption costing will be more than the amount of
income under variable costing when units manufactured:
A.exceed units sold
B.equal units sold
C.are less than units sold
D.are equal to or greater than units sold
47) The amount of the average investment for a proposed investment of $90,000 in a
fixed asset, with a useful life of four years, straight-line depreciation, no residual value,
and an expected total net income of $21,600 for the 4 years, is:
A.$10,800
B.$21,600
C.$ 5,400
D.$45,000
48) The document authorizing the issuance of materials from the storeroom is the:
A.materials requisition
B.purchase requisition
C.receiving report
D.purchase order
49) Bonds Payable has a balance of $900,000 and Premium on Bonds Payable has a
balance of $10,000. If the issuing corporation redeems the bonds at 103, what is the
amount of gain or loss on redemption?
A.$1,200 loss
B.$1,200 gain
C.$17,000 loss
D.$17,000 gain
50) Machinery was purchased on January 1, 2010 for $51,000. The machinery has an
estimated life of 7 years and an estimated salvage value of $9,000. Double-declining
balance depreciation for 2011 would be
A.$10,929
B.$6,000
C.$10,500
D.$10,408
51) After posting the second closing entry to the income summary account, the balance
will be equal to
A.zero
B.retained earnings
C.revenues for the period
D.the net income or (loss) for the period
52) On the basis of the following data related to assets due within one year for Webb
Co., prepare a partial balance sheet in good form at December 31, 2014. Show total
current assets.
53) Given below are the accounts and amounts for Bright Futures Company as of
August 31, 2011. All of the revenue and expense amounts are for the month of August.
Based on the data provided for Bright Futures Company, prepare in good format a
retained earnings statement for the month ended August 31, 2011.
54) If a company records inventory purchases at standard cost and also records
purchase price variances, prepare the journal entry for a purchase of widgets that were
bought at $7.45 per unit and have a standard cost of $7.15. The total amount owed to
the vendor for this purchase is $33,525.
55) Assume that three identical units of merchandise are purchased during October, as
follows:
Assume one unit is sold on October 31 for $28. Determine Cost of Merchandise Sold,
Gross profit, and Ending Inventory under the FIFO method.
56) Louis Company sells a single product at a price of $65 per unit. Variable costs per
unit are $45 and total fixed costs are $625,500. Louis is considering the purchase of a
new piece of equipment that would increase the fixed costs to $800,000, but decrease
the variable costs per unit to $42.
Required:
If Louis Company expects to sell 44,000 units next year, should they purchase this new
equipment?
57) List the five steps in the process by which accounting provides information to users.
58) The Bottling Department of Mountain Springs Water Company had 4,000 liters in
beginning work in process inventory (40% complete). During the period, 66,000 liters
were completed. The ending work in process inventory was 3,000 liters (70%
complete). What are the equivalent units for conversion costs, using the FIFO method?
59) A company reports the following:
Determine the companys earnings per share on common stock.