1) Net profit margin reflects the percent of net income in each dollar of net sales.
2) A master budget refers to a company’s sales budget that includes all of its segments
or departments.
3) Both U.S. GAAP and IFRS prepare the same four basic financial statements.
4) Authorized stock is the total number of shares outstanding.
5) The days’ sales uncollected ratio measures the liquidity of accounts receivable.
6) All expected future payments are liabilities.
7) An advantage of the break-even time (BET) method over the payback period method
is that it recognizes the time value of money.
8) The Discounts Lost account represents the savings earned in taking advantage of
purchase discounts.
9) Contribution margin is the amount of sales that exceeds total variable costs.
10) In a perpetual inventory system, the merchandise inventory account must be closed
at the end of the accounting period.
11) The journal entry to record the declaration of dividends on common stock includes
a debit to Retained Earnings and a credit to Common Dividend Payable.
12) The steps to reconcile the balance of the bank statement to the adjusted balance
include adding outstanding checks, deposits, and bank service charges.
13) Accounting for long-term investments in held-to-maturity securities requires
companies to record interest revenue as it is earned.
14) The cost of an intangible asset is systematically allocated to depreciation expense
over its estimated useful life.
15) If Department Q uses $60,000 of direct materials and Department T uses $15,000 of
direct materials, the following journal entry would be recorded by the process cost
accounting system:
16) After all process cost accounting journal entries are recorded and posted for a
reporting period, the Factory Payroll account should have a zero balance.
17) The understatement of the ending inventory balance causes:
A.Cost of goods sold to be overstated and net income to be understated
B.Cost of goods sold to be overstated and net income to be overstated
C.Cost of goods sold to be understated and net income to be understated
D.Cost of goods sold to be understated and net income to be overstated
E.Cost of goods sold to be overstated and net income to be correct
18) Which of the following statements is True?
A.Interest on bonds is tax deductible
B.Interest on bonds is not tax deductible
C.Dividends to stockholders are tax deductible
D.Bonds do not have to be repaid
E.Bonds always increase return on equity
19) All of the following statements regarding other comprehensive income are True
except:
A.Other comprehensive income includes unrealized gains and losses on
available-for-sale securities
B.Other comprehensive income is not considered when calculating comprehensive
income
C.Other comprehensive income includes foreign currency adjustments
D.Other comprehensive income includes pension adjustments
E.Accumulated other comprehensive income is defined as the cumulative impact of
other comprehensive income
20) Penn Company uses a job order cost accounting system. In the last month, the
system accumulated labor time tickets totaling $24,600 for direct labor and $4,300 for
indirect labor. These costs were accumulated in Factory Payroll as they were paid.
Which entry should Penn make to assign the Factory Payroll?
A.Debit Payroll Expense $28,900; credit Cash $28,900
B.Debit Payroll Expense $24,600; debit Factory Overhead $4,300; credit Factory
Payroll $28,900
C.Debit Goods in Process Inventory $24,600; debit Factory Overhead $4,300; credit
Factory Payroll $28,900
D.Debit Goods in Process Inventory $24,600; debit Factory Overhead $4,300; credit
Wages Payable $28,900
E.Debit Goods in Process Inventory $28,900; credit Factory Payroll $28,900
21) A company’s payroll for the week ended May 15 included earned salaries of
$20,000. All of that week’s pay is subject to FICA social security taxes of 6.2% and
Medicare taxes of 1.45%. In addition, the company withholds the following amounts
for this weekly pay period: $900 for medical insurance, $3,400 for federal income
taxes, and $180 for union dues.
a. Prepare the general journal entry to accrue the payroll.
b. The company is subject to state unemployment taxes at the rate of 2% and federal
unemployment taxes at the rate of 0.8%. By May 15, some employees had earned over
$7,000, so only $9,000 of the $20,000 weekly gross pay was subject to unemployment
tax. Prepare the general journal entry to accrue the employer’s payroll tax expense.
22) Cash investments by owners are listed on which of the following statements?
A.Balance sheet
B.Income statement
C.Statement of owner’s equity only
D.Statement of cash flows only
E.Statement of owner’s equity and statement of cash flows
23) A list of all accounts and the identification number assigned to each account used by
a company is called a:
A.Source document
B.Journal
C.Trial balance
D.Chart of accounts
E.General Journal
24) Activity based costing can be applied to:
A.Manufacturing activities only
B.Service activities only
C.Merchandising activities only
D.Any company in any industry
E.Government only
25) The annual amount of cash dividends distributed to common shareholders relative
to the common stock’s market value is the:
A.Dividend payout ratio
B.Dividend yield
C.Price-earnings ratio
D.Current yield
E.Earnings per share
26) Comparative statements for Kool Corporation are shown below:
Calculate trend percentages for all income statement amounts shown and comment on
the results. Use 2010 as the base year. Comment on the results.
27) If an issuer sells bonds at a date other than an interest payment date:
A.This means the bonds sell at a premium
B.This means the bonds sell at a discount
C.The issuing company will report a loss on the sale of the bonds
D.The issuing company will report a gain on the sale of the bonds
E.The buyers normally pay the issuer the purchase price plus any interest accrued since
the prior interest payment date
28) Presented below are terms preceded by letters a through h and followed by a list of
definitions 1 through 8. Enter the letter of the term with the definition, using the space
preceding the definition.
1>Favorable variance A. Difference in sales or costs, when the actual value is compared
to the budgeted value, that contributes to a lower income.
2>Unfavorable variance B. A report that compares results with fixed budgeted amounts
and identifies the differences as favorable or unfavorable variances.
3>Spending variance C. The difference between the actual price of an item and its
standard price.
4>Overhead cost variance D. Difference in sales or costs, when the actual value is
compared to the budgeted value, that contributes to a higher income.
5>Flexible budget performance report E. Use of budgets by management to monitor
and control the operations of a company.
6>Quantity variance F. Difference between actual quantity of an input and the standard
quantity of the input.
7>Budgetary control G. Difference between the total overhead cost applied to products
and the total overhead cost actually incurred.
8>Fixed budget performance report H. A report that compares actual revenues and costs
with their variable budgeted amounts based on actual sales volume (or other level of
activity) and identifies the differences as variances.
29) The direct method for the preparation of the operating activities section of the
statement of cash flows:
A.Separately lists each major item of operating cash receipts and cash payments
B.Reports adjustments to reconcile net income to net cash provided or used by
operating activities in the statement
C.Reports a different amount of cash flows from operations than if the indirect method
is used
D.Is required if the company is a merchandiser
E.Is required by the FASB
30) Dividend yield is the percent of cash dividends paid to common shareholders
relative to the:
A.Common stock’s market value
B.Earnings per share
C.Investors’ purchase price of the stock
D.Amount of retained earnings
E.Amount of cash
31) Use the following company information to prepare a schedule of significant
noncash investing and financing activities:
(a) Sold a building with a book value of $125,000 for $195,000 cash and land with a
book value of $32,000 for $65,000 cash.
(b) Issued 10,000 shares of $10 par value common stock in exchange for equipment
with a market value of $135,000.
(c) Retired a $100,000, 10% bond by issuing another $100,000, 12% bond issue.
(d) Acquired land by issuing a ten-year, 9%, $44,000 note payable.
32) The following present value factors are provided for use in this problem.
Norman Co. wants to purchase a machine for $40,000, but needs to earn an 8% return.
The expected year-end net cash flows are $12,000 in each of the first three years, and
$16,000 in the fourth year. What is the machine’s net present value (round to the nearest
whole dollar)?
A.$(9,075)
B.$2,685
C.$42,685
D.$(28,240)
E.$52,000
33) A company has net sales and cost of goods sold of $825,000 and $547,000,
respectively. Its net income is $98,500. The company’s gross margin and operating
expenses are ________ and ___________, respectively.
A.$209,000; $191,470
B.$278,000; $179,500
C.$278,000; $98,500
D.$179,500; $98,500
E.$645,500; $179,500
34) A company provided the following direct materials cost information. Compute the
cost variance.
A.$2,500 Favorable
B.$78,250 Favorable
C.$78,250 Unfavorable
D.$80,750 Favorable
E.$80,750 Unfavorable
35) Prior period adjustments are reported in the:
A.Multiple-step income statement
B.Balance sheet
C.Statement of retained earnings
D.Statement of cash flows
E.Single-step income statement
36) Bard Manufacturing uses a job order cost accounting system. During one month
Bard purchased $198,000 of raw materials on credit; issued materials to production of
$195,000 of which $30,000 were indirect. Bard incurred a factory payroll of $150,000,
paid in cash, of which $40,000 is classified as indirect labor. Bard uses a predetermined
overhead application rate of 150% of direct labor cost. The journal entry to record the
application of factory overhead to production is:
A.Debit Goods in Process Inventory $225,000; credit Factory Overhead $225,000
B.Debit Goods in Process Inventory $165,000; credit Factory Overhead $165,000
C.Debit Factory Payroll $150,000; credit Goods in Process Inventory $150,000
D.Debit Factory Overhead $165,000; credit Goods in Process Inventory $165,000
E.Debit Goods in Process Inventory $165,000; credit Factory Payroll $165,000
37) The following information is available for some of Kalo’s segments (all amounts are
in millions)
a. Determine the segment return on assets for each geographic segment.
b. Comment on the results. How do the segments compare with respect to profitability?
38) Guidance for preparing a master budget is usually the responsibility of:
A.The company CEO
B.The marketing department
C.A budget committee
D.The chief financial officer
E.Lower level management
39) An employee earns $5,500 per month working for an employer. The FICA tax rate
for Social Security is 6.2% and the FICA tax rate for Medicare is 1.45%. The current
FUTA tax rate is 0.8%, and the SUTA tax rate is 4.4%. Both unemployment taxes are
applied to the first $7,000 of an employee’s pay. The employee has $182 in federal
income taxes withheld. The employee has voluntary deductions for health insurance of
$150 and contributes $75 to a retirement plan each month. What is the amount of net
pay for the employee for the month of January?
A.$4,827.00
B.$4,672.25
C.$4,628.25
D.$4,386.25
E.$4,430.25
40) Expenses that support the overall operations of a business and include the expenses
relating to accounting, human resource management, and financial management are
called:
A.Cost of goods sold.
B.Selling expenses.
C.Purchasing expenses.
D.General and administrative expenses.
E.Nonoperating activities.
41) Investment center managers are usually evaluated using performance measures
A.that combine income and assets
B.that combine income and capital
C.based on assets only
D.based on income only
E.that combine assets and capital
42) Employee vacation benefits:
A.Are estimated liabilities
B.Are contingent liabilities
C.Are recorded as an expense when the employee takes a vacation
D.Are recorded as an expense when the employee retires
E.Increase net income
43) A responsibility accounting system:
A.Is designed to measure the performance of managers in terms of controllable costs
B.Assigns responsibility for costs to the appropriate managerial level that controls those
costs
C.Should not hold a manager responsible for costs over which the manager has no
influence
D.Can be applied at any level of an organization
E.All of these
44) A company uses the aging of accounts receivable method to estimate its bad debts
expense. On December 31 of the current year an aging analysis of accounts receivable
revealed the following:
Required:
a. Calculate the amount of the Allowance for Doubtful Accounts that should be reported
on the current year-end balance sheet.
b. Calculate the amount of the Bad Debts Expense that should be reported on the
current year’s income statement, assuming that the balance of the Allowance for
Doubtful Accounts on January 1 of the current year was $44,000 and that accounts
receivable written off during the current year totaled $49,200.
c. Prepare the adjusting entry to record bad debts expense on December 31 of the
current year.
d. Show how Accounts Receivable will appear on the current year-end balance sheet as
of December 31
45) When preparing a statement of cash flows on the indirect method, each of the
following should be classified as an operating activity cash flow except:
A.An increase in accounts receivable
B.A decrease in accounts payable
C.A gain from disposal of a long-term asset
D.An increase in prepaid expenses
E.A decrease in accrued expenses payable
46) Selected current year company information follows:
The total asset turnover is:
A.2.24 times
B.2.81 times
C.3.64 times
D.4.67 times
E.6.28 times
47) A company sells personal computers for $2,300 each. The price includes a two-year
warranty. During the current year, the company sells 400 computers. On the basis of
past experience, the warranty costs are estimated to be $250 per computer. The actual
warranty costs (paid in cash) by the company during the current year were $65,000.
Prepare general journal entries to record the (a) estimated warranty expense and (b)
warranty repair costs during current year.
48) Docksider Boats uses a job order cost accounting system. During one month
Docksider purchased $153,000 of raw materials on credit; issued materials to
production of $164,000 of which $24,000 were indirect. Docksider incurred a factory
payroll of $95,000, paid in cash, of which $25,000 is classified as indirect labor.
Docksider uses a predetermined overhead application rate of 170% of direct labor cost.
The journal entry to record the issuance of materials to production is:
A.Debit Raw Materials Inventory $153,000; credit Accounts Payable $153,000
B.Debit Goods in Process Inventory $140,000; debit Factory Overhead $24,000; credit
Raw Materials Inventory $164,000
C.Debit Raw Materials Inventory $195,000; credit Goods in Process Inventory
$195,000
D.Debit Goods in Process Inventory $140,000; debit Raw Materials Inventory $24,000;
credit Materials Inventory $164,000
E.Debit Finished Goods Inventory $140,000; credit Raw Materials Inventory $140,000
49) If accrued salaries were recorded on December 31 with a credit to Salaries Payable,
the entry to record payment of these wages on the following January 5 would include:
A.A debit to Cash and a credit to Salaries Payable
B.A debit to Cash and a credit to Prepaid Salaries
C.A debit to Salaries Payable and a credit to Cash
D.A debit to Salaries Payable and a credit to Salaries Expense
E.No entry would be necessary on January 5
50) Dart reported net sales of $8,739 million and average accounts receivable of $864
million. Its accounts receivable turnover is:
A.0.90
B.10.1
C.36.1
D.50.0
E.3,686
51) Disadvantages of a partnership include:
A.Limited life
B.Mutual agency
C.Unlimited liability
D.Co-ownership of property
E.All of these
52) The focus of managerial accounting is on providing ________________ reports
while the focus of financial accounting is on providing _____________ reports.
53) The _________________________ method of amortizing a bond discount allocates
an equal portion of the total bond interest expense to each interest period.
54) Heidel Co. paid $750,000 cash to buy the plant assets of Rogers Co. that went out
of business. An independent appraiser assigned the following values to the assets
acquired:
Prepare Heidel’s journal entry to record the acquisition of these assets.
55) Holders of ______________________________ have a right to be paid both
current and all prior periods’ unpaid dividends before any dividend is paid to common
shareholders.
56) A company’s income before interest expense and income taxes in 2010 and 2011 is
$395,000 and $427,000, respectively. Its fixed interest expense was $125,000 for both
years. Calculate the company’s times interest earned ratio, and comment on its level of
risk.
57) What are the ways a partner can withdraw from a partnership? Explain how to
account for the withdrawal of a current partner from a partnership.