1) If a company determines that the likelihood of a future obligation arising from a
contingent liability is possible, the company must record a liability on its balance sheet.
2) The face value of Accounts Receivable less the balance in the Allowance for
Doubtful Accounts is equal to the net realizable value of the receivables.
3) Product costs include wages paid to assembly line workers.
4) A business and a person who owns the business are separate reporting entities.
5) The book value of equipment generally is one of the most important factors to
consider in deciding to replace the equipment.
6) Qualitative information is not relevant for decision making.
7) Most companies expense product costs at the time production is completed.
8) Depreciation on manufacturing equipment is an indirect product cost, while
depreciation on office equipment is a period cost.
9) Cost allocation is the process of dividing a total cost into its fixed and variable
components.
10) After closing, the only accounts with non-zero balances are assets, liabilities, and
equity.
11) A standard is the amount a price, cost, or quantity should be.
12) Johns Creek Company wishes to allocate rent expense of $24,000 to its three
operating departments. Assuming the three departments occupy 10,000, 20,000 and
30,000 square feet respectively, the cost allocation rate is $0.40 per square foot.
13) How a particular cost behaves (fixed versus variable) is independent of whether the
cost is classified as direct or indirect.
14) On a multistep income statement, gains and losses are included in the calculation of
operating income.
15) An adjusting entry that decreases Unearned Service Revenue and increases Service
Revenue is a claims exchange transaction.
16) The executives that manage a corporation on a daily business are hired by the
company’s stockholders.
17) Both liabilities and equity are sources of a business’s assets.
18) When a building is purchased simultaneously with land, the purchase price must be
allocated between the building and the land.
19) Dividends paid by a company are shown on the
A.income statement
B.balance sheet
C.statement of changes in stockholders’ equity
D.all of these
20) Which of the following transactions is an asset use transaction?
A.payment of cash dividends to owners
B.paying cash to acquire furniture
C.acquiring cash by issuing stock to owners
D.providing services to customers for cash
21) Which of the following costs would not be classified as overhead for a company
that produces small appliances?
A.Assembly labor
B.Plant supervisory labor
C.Indirect material costs
D.Plant utilities costs
22) Which statement characterizes the time value of money concept?
A.The future value of a present dollar is less than one dollar
B.The present value of a future dollar is less than one dollar
C.The timing of cash flows is not relevant to decision making
D.None of these
23) Which of the following would most likely not be depreciated or amortized using the
straight-line method?
A.Copyrights
B.Franchise
C.Timber reserves
D.Trademark
24) Select the correct statement regarding fixed costs.
A.Because they do not change, fixed costs should be ignored in decision making
B.The fixed cost per unit increases when volume increases
C.The fixed cost per unit decreases when volume increases
D.The fixed cost per unit does not change when volume decreases
25) Perez Company was founded in 2012 and engaged in the following transactions:
1> issued common stock for cash
2> purchased supplies on account
3> collected cash from a customer for services to be provided over a period of 1 year
4> paid a cash dividend to stockholders
5> purchased a 2-year fire insurance policy
6> provided services to customers on account
7> collected cash from accounts receivable
8> paid cash for various operating expenses
9> paid rent in advance for 3 months at a time
Required:
a) For which of these transactions would adjusting entries be required at the end of the
year?
b) Explain the reason why adjusting entries are required before financial statements can
be prepared.
26) On June 1, 2012, Siebens Enterprises loaned $20,000 to Tyler Company for one
year at 8 percent interest. Under the terms of the promissory note, Tyler will repay the
principal and pay one year’s interest on May 31, 2013 .
What total amount of cash will Siebens collect on May 31, 2013?
A.$20,000
B.$20,667
C.$21,600
D.None of the above
27) On January 1, 2010, Rusu Company purchased an asset that had cost $26,000. The
asset had a 6-year useful life and an estimated salvage value of $2,000. Rusu
depreciates its assets on the straight-line basis. On January 1, 2012 the company spent
$12,000 to improve the quality of the asset. Based on this information the recognition
of depreciation expense in 2012 would act to:
A.increase total assets by $7,000
B.reduce total equity by $7,000
C.reduce total assets by $12,000
D.increase total equity by $10,000
28) On January 1, 2012, Rugh Company purchased equipment with a list price of
$12,000 with a 2% cash discount. The equipment was delivered under terms of FOB
destination and freight costs amounted to $400. A total of $1,000 was paid for
installation and testing. During the first year, Rugh paid $300 for insurance on the
equipment and another $250 for routine maintenance and repairs. Rugh uses the
units-of-production method of depreciation. Useful life is estimated at 5 years or
300,000 units and estimated salvage value is $2,000. During 2012, the equipment
produced 60,000 units. What is the amount of depreciation for 2012?
A.$2,152
B.$2,352
C.$2,552
D.$2,632
29) Which of the following events involves an accrual?
A.a cash payment received from a customer before services are provided
B.supplies purchased with cash but not yet used
C.interest earned but not received
D.A and C
30) Assume Beta Company uses the perpetual inventory method and engaged in the
following transactions:
1) Purchased $5,000 of merchandise on account under terms 2/10, n/30 .
2) Returned $600 (list price) of merchandise to the supplier before payment was made.
3) Paid the account payable within the discount period.
4) Sold the merchandise for $6,500 cash.
The net cash flow from operating activities as a result of the four transactions is:
A.$1,012
B.$1,015
C.$2,100
D.$2,188
31) Select the incorrect statement about budgeting and human behavior.
A.People are often uncomfortable with budgets
B.Budgets are constraining
C.Budgets limit individual freedom in favor of an established plan
D.Few people find evaluation based on budget expectations stressful
32) Select the incorrect statement regarding the analysis of absolute amounts of various
accounts reported on the financial statements.
A.Using absolute amounts eliminates the problem of varying materiality levels
B.To fully appreciate an absolute amount, the analyst must consider the size of other
accounts of the business
C.Some economic statistics, such as gross national product, are built upon totals of
absolute amounts reported by businesses
D.Financial statement users with expertise in particular industries can look at absolute
amounts and assess a company’s performance in a certain area
33) Which of the following is not a procedure for control of cash payments?
A.Checks should be properly authorized with approval signatures
B.The business should provide written receipts to all cash customers
C.All checks should be prenumbered
D.Spoiled checks should be voided and retained
34) The Halogen Corporation issued a 5-year note payable on January 1, 2012 for
$2,500. The interest rate is 5% and the annual payment of $578, due each December 31,
includes both interest and principal.
Which of the following shows the effect of the December 31, 2012 payment? (Figures
rounded to nearest dollar)
A.Choice A
B.Choice B
C.Choice C
D.Choice D]
35) The following partial balance sheet is provided for Templeton Company:
What is the company’s debt to assets ratio?
A.33%
B.50%
C.67%
D.15%
36) Jaworski Company provided the following information regarding its first year of
operations:
Required:
Determine the following amounts:
a) Total overhead costs;
b) Total product costs;
c) Product cost per unit;
d) Total cost of ending finished goods inventory;
e) Total cost of goods sold;
37) Which of the following items would be an example of revenue?
A.cash investments made by owners
B.cash received from a bank loan
C.cash received from customers for services provided
D.all of these
38) Wall Company incurred $30,000 of fixed cost and $40,000 of variable cost when
1,000 units of product were made and sold.
If the company’s volume increases to 1,500 units, the cost per unit will be
A.$60
B.$55
C.$65
D.$70
39) Based on the information given for a variance, indicate whether the variance is
favorable or unfavorable.
40) Which of the following items typically found on the selling and administrative
expense budget will also impact the cash budget?
A.Utilities
B.Administrative salaries
C.Advertising expense
D.All of these
41) Porter Company experienced the following events during the year:
1> Acquired $40,000 cash by issuing common stock
2> Borrowed $10,000 cash from a creditor
3> Provided services to customers for $25,000 cash
4> Paid $18,000 cash for operating expenses
5> Paid a cash dividend of $1,000 to stockholders
6> Purchased equipment with cash, $6,000
Required:
a) Show how each of these events affects the accounting equation. Show amounts and
increases or decreases, using + for increases and – for decreases and NA for no effect.
The first event is done as an example.
b) Calculate the total amount of assets, liabilities, common stock, and retained earnings
at the end of the period.
42) At the end of 2012, Duffau Company had outstanding accounts receivable of
$109,760. Before recording the adjusting entry for uncollectible accounts, the balance
in the Allowance for Doubtful Accounts was $350. If Duffau estimates that it will not
collect 4 percent of its accounts receivable, what amount of uncollectible accounts
expense should Duffau record? Round to the nearest dollar.
A.$4,040
B.$4,740
C.$4,390
D.$5,090
43) The balance in the Prepaid Rent account at the end of the year, before adjustments,
was $18,000. This amount represented six months’ rent paid on November 1, 2012 .
a) What amount, if any, of Rent Expense will be shown on the 2012 income statement?
b) What amount, if any, would be shown on the statement of cash flows for 2012? In
which section would that amount appear?
44) Fixed cost per unit
A.decreases as production volume decreases
B.is not affected by changes in the production volume
C.increases as production volume increases
D.decreases as production volume increases
45) Purchase of treasury stock would be shown on the statement of cash flows as
A.an operating activity
B.an investing activity
C.a financing activity
D.none of these
46) A company’s year-end adjusting entry to recognize uncollectible accounts expense
will
A.increase assets and increase equity
B.increase liabilities and decrease equity
C.decrease assets and decrease equity
D.decrease liabilities and increase equity
47) The most favorable opinion that an auditor can express is the
A.Unqualified opinion
B.Qualified opinion
C.Adverse opinion
D.Disclaimer
48) On January 1, 2012, Rowley Company purchased a truck that cost $22,000. The
truck had an expected useful life of 5 years and a $4,000 salvage value. The amount of
depreciation expense recognized in 2012 assuming that Rowley uses the double
declining balance method is:
A.$4,320
B.$5,280
C.$7,200
D.$8,800
49) Why is cash management important to a business?
50) Explain how ‘separation of duties” can be used as a deterrent to corruption.
51) Indicate whether each of the following statements about costs is true or false.
1>Indirect materials used in a manufacturing company are recorded as an asset
2>The amount of general office supplies used in a business is recorded as an asset
3>Research and development costs to develop new manufacturing processes are
recorded as an asset
4>Depreciation on delivery equipment and store buildings is recorded as an asset
5>Wages of production workers are recorded initially as an asset
52) In 2012, Harp Co. sold 150,000 units of its product at a selling price of $40. The
variable cost per unit was $24, and Harp reported net income for the year of $400,000.
What was the amount of Harp’s fixed costs for the year?
53) Indicate whether each of the following statements is true or false.
1>The portion of a long-term liability due within one year or the operating cycle must
always be classified as a current liability
2>Current liabilities are those liabilities that are usually repaid using current assets
3>The liquidity of an asset refers to how recently the asset was received
4>A current liability is due within one year or the operating cycle, whichever is longer
5>The balance sheets for most companies show current assets and current liabilities
54) Why would a merchandising company need good internal controls related to its
inventory? List three of the key elements of an internal control system that would apply
to inventory, and explain how each of them relates to inventory.