1) At the break-even point, total contribution margin is equal to total fixed costs.
2) A highly automated computerized system of accounting eliminates the need for
internal control.
3) The extent of internal control features adopted by a company must be evaluated in
terms of cost-benefit.
4) The relationship between current liabilities and current assets is important in
evaluating a company’s ability to pay off its long-term debt.
5) A debt that is expected to be paid within one year through the creation of long-term
debt is a current liability.
6) When an entire business is purchased, goodwill is the excess of cost over the book
value of the net assets acquired.
7) Factory labor should be assigned to selling and administrative expenses on a
proportionate basis.
8) Accumulated Depreciation is a liability account and has a normal credit account
balance.
9) Consolidated financial statements are appropriate when an investor controls an
investee by ownership of more than 50% of the investee’s common stock.
10) Finished goods inventory for a manufacturing company is equivalent to
merchandise inventory for a merchandising company.
11) Research and development costs which result in a successful product which is
patentable are charged to the Patent account.
12) Rent received in advance and credited to a rent revenue account which is still
unearned at the end of the period, will require an adjusting entry crediting a liability
account for the amount still unearned.
13) A cost accounting system consists of manufacturing cost accounts that are fully
integrated into the general ledger of a company.
14) An accounts receivable subsidiary ledger has all the detailed information about the
cash sales to individual customers.
15) The maturity date of a 1-month note receivable dated June 30 is July 30 .
16) Firms use physical controls primarily to safeguard their assets.
17) The standard predetermined overhead rate must be based on direct labor hours as
the standard activity index.
18) Debt investments are investments in government and corporation bonds.
19) Rooney Company incurred $560,000 of research and development cost in its
laboratory to develop a patent granted on January 1, 2014 . On July 31, 2014, Rooney
paid $84,000 for legal fees in a successful defense of the patent. The total amount
debited to Patents through July 31, 2014, should be:
a.$560,000
b.$84,000
c.$644,000
d.$476,000
20) Horizontal analysis evaluates financial statement data
a.within a period of time
b.over a period of time
c.on a certain date
d.as it may appear in the future
21) A credit balance in Cash Over and Short is reported as a(n)
a.asset
b.liability
c.miscellaneous expense
d.miscellaneous revenue
22) Book value of old equipment is considered to be a
a.relevant cost
b.semi-relevant cost
c.sunk cost
d.cost that can be changed by a present or future decision
23) Intangible assets include each of the following except
a.copyrights
b.goodwill
c.land improvements
d.patents
24) The transactions of the Liberty Belle Store are recorded in the general journal
below. You are to post the journal entries to T-accounts.
General Journal
DateAccount TitlesDebitCredit
2014
Aug.5Accounts Receivable4,400
Service Revenue4,400
10Cash3,000
Service Revenue3,000
19Rent Expense1,100
Cash1,100
25Cash1,400
Accounts Receivable1,400
General Ledger
CashAccounts Receivable
Service RevenueRent Expense
25) Maldanado Company has a balance in its Accounts Payable control account of
$10,500 on January 1, 2014 . The subsidiary ledger contains three accounts: Smith
Company, balance $3,000; White Company, balance $2,500 and Marino Company.
During January, the following payable-related transactions occurred.
PurchasesPaymentsReturns
Smith Company$8,500$6,000$ -0-
White Company5,2502,5001,500
Marino Company 6,1006,250-0-
Instructions
(a)What is the January 1 balance in the Marino Company subsidiary account?
(b)What is the January 31 balance in the control account?
(c)Compute the balances in the subsidiary accounts at the end of the month.
(d)Which January transaction would not be recorded in a special journal?
26) On March 8, Black Candy Company bought supplies on account from the Arcade
Fire Company for $550. Black Candy Company incorrectly debited Equipment for
$500 and credited Accounts Payable for $500. The entries have been posted to the
ledger. the correcting entry should be:
a.Supplies550
Accounts Payable550
b.Supplies550
Accounts Payable500
Equipment50
c.Supplies550
Equipment550
d.Supplies550
Equipment500
Accounts Payable50
27) The decision rule on whether to sell or process further
a.varies from situation to situation
b.is process further as long as total revenue exceeds present revenues
c.is process further if incremental revenue from such processing exceeds incremental
fixed costs
d.is process further if incremental revenue from such processing exceeds the
incremental processing costs
28) Juanita Gomez and Brandi Toomey have formed the GT Partnership, and have
capital balances of $130,000 and $100,000, respectively, on January 1, 2014 . On June
1, 2014, Toomey invested an additional $30,000. Also during the year, Gomez withdrew
$60,000 and Toomey withdrew $48,000. Sales for the year amounted to $360,000 and
expenses were $240,000. Gomez and Toomey share income and losses on a 3:1 basis.
Instructions
(a)Prepare the closing entries at December 31, 2014, for the GT Partnership.
(b)Prepare a partners’ capital statement for 2014.
29) Adjusting entries are recorded
a.only on the worksheet
b.only in the general ledger
c.in the general journal
d.in the special journals
30) Stuckey Company borrowed $800,000 on January 1, 2014, by issuing $800,000, 8%
mortgage note payable. The terms call for semiannual installment payments of $60,000
on June 30 and December 31 .
Instructions
(a)Prepare the journal entries to record the mortgage loan and the first two installment
payments.
(b)Indicate the amount of mortgage note payable to be reported as a current liability and
as a long-term liability at December 31, 2014 .
31) In the balance sheet, mortgage notes payable are reported as
a.a current liability only
b.a long-term liability only
c.both a current and a long-term liability
d.a current liability except for the reduction in principal amount
32) Usually, under- or overapplied overhead is considered to be an adjustment to
a.work in process
b.finished goods
c.finished goods and cost of goods sold
d.cost of goods sold
33) The two ways that a corporation can be classified by ownership are
a.publicly held and privately held
b.stock and non-stock
c.inside and outside
d.majority and minority
34) Under GAAP, companies can choose which inventory system?
LIFOFIFO
a.YesNo
b.YesYes
c.NoYes
d.YesNo
35) Short-term notes receivables
a.have a related allowance account called Allowance for Doubtful Notes Receivable
b.are reported at their gross realizable value
c.use the same estimations and computations as accounts receivable to determine cash
realizable value
d.present the same valuation problems as long-term notes receivables
36) Each of the following may be shown on a supporting schedule instead of on the
balance sheet except the
a.current maturities of long-term debt
b.conversion privileges
c.interest rates
d.maturity dates
37) Which of the following statements about a cash dividend is incorrect?
a.The legality of a cash dividend depends on state corporation laws
b.The legality of a dividend does not indicate a company’s ability to pay a dividend
c.Dividends are not a liability until declared
d.Shareholders usually vote to determine the amount of income to be distributed in the
form of a dividend
38) Characteristics associated with relevant accounting information are
a.comparability and timeliness
b.predictive value and confirmatory value
c.neutral and verifiable
d.consistency and understandability
39) At the high level of activity in November, 7,000 machine hours were run and power
costs were $16,000. In April, a month of low activity, 3,000 machine hours were run
and power costs amounted to $8,000. Using the high-low method, the estimated fixed
cost element of power costs is
a.$16,000
b.$2,000
c.$8,000
d.$14,000
40) Ransford Company had a net loss of $150,000 in 2014 when the selling price per
unit was $20, the variable costs per unit were $14, and the fixed costs were $600,000.
Management expects per unit data and total fixed costs to be the same in 2015 .
Management has set a goal of earning net income of $75,000 in 2015 .
Instructions
(a)Compute the units sold in 2014 .
(b)Compute the number of units that would have to be sold in 2015 to reach
management’s desired net income level.
(c)Assume that Ransford Company sells the same number of units in 2015 as it did in
2014 . What would the selling price have to be in order to reach the target net income?
Use the mathematical equation.
41) Comanic Corp. has common stock of $5,400,000, retained earnings of $2,000,000,
unrealized gains on trading securities of $100,000 and unrealized losses on
available-for-sale securities of $200,000. What is the total amount of its stockholders
equity?
a.$7,200,000
b.$7,400,000
c.$7,300,000
d.$7,500,000
42) When customers make purchases with a national credit card, the retailer
a.is responsible for maintaining customer accounts
b.is not involved in the collection process
c.absorbs any losses from uncollectible accounts
d.receives cash equal to the full price of the merchandise sold from the credit card
company
43) The body of theory underlying accounting is not based on
a.physical laws of nature.
b.concepts
c.principles
d.definitions
44) An investment costing $90,000 is being contemplated by Mergenthaler Inc. The
investment will have a life of 8 years with no salvage value and will produce annual
cash flows of $16,870.
Instructions
Compute the approximate internal rate of return for this investment. (Table C-2 is
needed)
45) Teenage Fanclub Printings sold annual subscriptions to their magazine for $30,000
in December, 2013 . The magazine is published monthly. The new subscribers received
their first magazine in January, 2014 .
1>What adjusting entry should be made in January if the subscriptions were originally
recorded as a liability?
2>What amount will be reported on the January 2014 balance sheet for Unearned
Subscription Revenue?
46) Compute the dollar amount of current assets based on the following account
balances.
Accounts Receivable$22,000
Accumulated DepreciationEquipment27,000
Cash8,400
Equipment93,000
Prepaid Rent7,000
Short-term Investments15,000
47) During 2014, Blaine Company sold a building with a book value of $145,000 for
proceeds of $175,000. The company also sold long-term investments for proceeds of
$32,000. The company purchased land and a new building for $320,000 by signing a
long-term note payable. No other transactions impacted long-term asset accounts during
2014 .
Instructions
Compute net cash flows from investing activities.
48) The preparation of a bank reconciliation is an important cash control procedure. If a
company deposits cash receipts daily and makes all cash disbursements by check,
explain why the cash balance per books might not agree with the cash balance shown
on the bank statement. Identify specific examples that may cause differences between
the cash balance per books and the cash balance per bank.
49) The adjusted account balances of the Fitness Center at July 31 are as follows:
AccountsAccount BalancesAccountsAccount Balances
Cash$ 16,000Service Revenue$105,000
Accounts Receivable15,000Interest Revenue8,000
Supplies4,000Depreciation Expense27,000
Prepaid Insurance8,000Insurance Expense6,000
Buildings300,000Salaries and Wages Expense35,000
Accumulated DepreciationSupplies Expense9,000
Buildings120,000Utilities Expense12,000
Accounts Payable19,000
Owners Capital195,000
Owners Drawings15,000
Instructions
Prepare the end of the period closing entries for the Fitness Center.
50) ______________ is the process of allocating the cost of a plant asset to expense
over its service life in a rational and systematic manner.
51) Niro Company has money available for investment and is considering two projects
each costing $71,000. Each project has a useful life of 3 years and no salvage value.
The investment cash flows follow:
Project AProject B
Year 1$ 8,000$28,000
Year 224,00028,000
Year 352,00028,000
Instructions
If 8% is an acceptable earnings rate, which project should be selected? Justify your
response. (Table 1 from Appendix C is needed.)
52) Welly Company employees are entitled to one days vacation for each month
worked. In February, 60 employees worked the full month. Record the vacation pay
liability for February assuming the average daily pay for each employee is $90.