1) The flexibility principle prescribes that an accounting information system conform
with a company’s activities, personnel, and structure and adapt to a company’s unique
characteristics.
2) Newly completed units are combined with beginning finished goods inventory to
make up total ending goods in process inventory.
3) The aging method of determining bad debts expense is based on the knowledge that
the longer a receivable is past due, the lower the likelihood of collection.
4) A perpetual inventory system requires updating of the inventory account only at the
beginning of an accounting period.
5) Advertising expense can be reasonably allocated to departments on the basis of sales.
6) An invoice is a document that is used within a company to notify the appropriate
persons that ordered goods have been received and to describe the quantities and
condition of the goods.
7) Liquidity and efficiency are considered to be building blocks of financial statement
analysis.
8) Revising an estimate of the useful life or salvage value of a plant asset is referred to
as a change in accounting estimate, and is reflected in the past, current, and future
financial statements.
9) The accounts receivable turnover indicates how often accounts receivable are
received and collected during the period.
10) The difference in the sales journal between the perpetual and periodic inventory
systems is that a column is used to record cost of goods sold and inventory amounts for
each sale under the perpetual system but not the periodic system.
11) Goods on consignment are goods shipped by their owner, called the consignee, to
another party called the consignor.
12) The practice of placing dishonored notes receivable into accounts receivable keeps
only notes that have not matured in the Notes Receivable account.
13) The matching principle is used by some companies to avoid allocating incidental
inventory costs to cost of goods sold.
14) A company purchased a plant asset for $45,000. The asset has an estimated salvage
value of $6,000, and an estimated useful life of 10 years. The annual depreciation
expense using the straight-line method is $3,900 per year.
15) If the purchase price of retired stock exceeds the net amount removed from paid-in
capital, the excess is debited to Retained Earnings.
16) The carrying value of a long-term note is computed as the present value of all
remaining future payments, discounted using the market rate at the time of issuance.
17) Materials requisitions and time tickets are cost accounting source documents.
18) A stock dividend transfers:
A.Contributed capital to retained earnings
B.Retained earnings to contributed capital
C.Retained earnings to assets
D.Contributed capital to assets
E.Assets to contributed capital
19) A company’s ledger accounts and their end-of-period balances before closing entries
are posted are shown below. What amount will be posted to Tricia DeBarre, Capital in
the process of closing the Income Summary account? (Assume all accounts have
normal balances.)
A.$16,780 debit.
B.$7,180 credit.
C.$16,780 credit.
D.$18,280 credit.
E.$23,780 credit.
20) Refer to the following selected financial information from Fennie’s, LLC. Compute
the company’s current ratio for Year 2.
A.2.26
B.1.98
C.2.95
D.3.05
E.1.88
21) Selected current year end financial information for a company is presented below.
Calculate the following company ratios:
(a) Profit margin.
(b) Total asset turnover.
(c) Return on total assets.
(d) Return on common stockholders’ equity (assume the company has no preferred
stock).
22) An unincorporated association of two or more persons to carry on a business for
profit as co-owners is a:
A.Partnership
B.Proprietorship
C.Contractual company
D.Mutual agency
E.Voluntary organization
23) The R&R Company’s production costs for August are: direct labor, $13,000;
indirect labor, $6,500; direct materials, $15,000; property taxes on production
equipment, $800; heat, lights and power, $1,000; and insurance on plant and equipment,
$200. R&R Company’s factory overhead incurred for August is:
A.$2,000
B.$6,500
C.$8,500
D.$21,500
E.$36,500
24) An account balance is:
A.The total of the credit side of the account
B.The total of the debit side of the account
C.The difference between the total debits and total credits for an account including the
beginning balance
D.Assets = liabilities + equity
E.Always a credit
25) Price Company’s flexible budget shows $10,710 of overhead at 75% of capacity,
which was the operating level achieved during May. However, the company applied
overhead to production during May at a rate of $2.00 per direct labor hour based on a
budgeted operating level of 6,120 direct labor hours (90% of capacity). If overhead
actually incurred was $11,183 during May, the controllable variance for the month was:
A.$473 unfavorable
B.$473 favorable
C.$1,530 favorable
D.$1,530 unfavorable
E.$1,057 favorable
26) Industry standards for financial statement analysis:
A.Are based on a company’s prior performance
B.Are set by the government
C.Are set by the financial performance and condition of the company’s industry
D.Are based on rules of thumb
E.Compare a company’s income with the prior year’s income
27) The group that attempts to create more harmony among the accounting practices of
different countries is the:
A.
28) A process of examining the differences between actual and budgeted costs and
describing them in terms of the amounts that resulted from price and quantity
differences is called:
A.Cost analysis
B.Flexible budgeting
C.Variable analysis
D.Cost variable analysis
E.Variance analysis
29) A source document that an employee uses to record the number of hours at work
and that is used to determine the total labor cost for each pay period is a:
A.Job cost sheet
B.Hours-of-production sheet
C.Time ticket
D.Job order ticket
E.Clock card
30) Target cost is calculated as
A.direct costs + desired profit
B.direct costs – desired profit
C.expected selling price – direct costs
D.expected selling price – desired profit
E.expected selling price + desired profit
31) A difficult problem in calculating the total costs and expenses of a department is:
A.Determining the gross profit ratio
B.Assigning direct costs to the department
C.Assigning indirect expenses to the department
D.Determining the amount of sales of the department
E.Determining the direct expenses of the department
32) A trial balance prepared after adjustments have been recorded is called a(n)
A.Balance sheet
B.Adjusted trial balance
C.Unadjusted trial balance
D.Classified balance sheet
E.Unclassified balance sheet
33) A key factor in a voucher system is:
A.Only approved departments and individuals are authorized to incur an obligation that
will result in the payment of cash
B.Procedures for purchasing, receiving and paying for merchandise are divided among
several departments
C.The system limits the individuals that can incur cash payment obligations for a
company
D.It should be extended to all expenses
E.All of these
34) The straight-line depreciation method and the double-declining-balance
depreciation method:
A.Produce the same total depreciation over an asset’s useful life
B.Produce the same depreciation expense each year
C.Produce the same book value each year
D.Are acceptable for tax purposes only
E.Are the only acceptable methods of depreciation for financial reporting
35) The Accounts Payable account in the general ledger is:
A.A controlling account for the subsidiary accounts payable ledger
B.The account that controls the purchases journal
C.The subsidiary account to the purchases journal
D.Part of a special journal
E.Part of a subsidiary ledger
36) Grafton budgets production of 300 units in June and 310 units in July. Each finished
unit requires 4 pounds of raw material K, which costs $5 per pound. Each month’s
ending inventory of raw materials should be 30% of the following month’s budgeted
production. The June 1 raw materials inventory has 360 pounds of raw material K.
Compute budgeted purchases for raw material K for June.
A.1,200 lbs
B.1,240 lbs
C.1,212 lbs
D.1,220 lbs
E.880 lbs
37) An advantage of bond financing is:
A.Bonds do not affect owners’ control
B.Interest on bonds is tax deductible
C.Bonds can increase return on equity
D.It allows firms to trade on the equity
E.All of these
38) Fun Land Toy Stores has taken a physical count of its inventory at January 31, its
fiscal year-end. After reviewing the accounting records and documentation, the
following items have been discovered: (a) An invoice from Fleck Co. indicates that
$30,000 of toys were shipped to Fun Land on January 27, terms FOB shipping point.
The toys and invoice did not arrive at Fun Land until February 2 and were not included
in the physical count. (b) An invoice from Grande indicates that $8,000 of toys were
shipped to Fun Land on January 29, terms FOB destination. The toys and invoice did
not arrive at Fun Land until February 2 and were not included in the physical count.
The physical count and cost assignment on January 31 prior to these two items is
$440,000. The cost of goods sold for Fun Land is $2,100,000.
1> Calculate the amount that should be reported as ending inventory for Fun Land.
2> Calculate the days’ sales in inventory before and after the appropriate adjustments
for inventory.
39) Williams Company began business on May 1. They use the perpetual inventory
method. The following transactions involving purchases and cash disbursements
occurred during the first week of May.
a. Use the purchases journal and the cash disbursements journal to record these
transactions.
b. Prepare a schedule of accounts payable. There was no accounts payable on May 1.
40) A limited partnership:
A.Includes a general partner with unlimited liability
B.Is subject to double taxation
C.Has owners called stockholders
D.Is the same as a corporation
E.May only have two partners
41) The following is taken from Ames Company’s internal records of its factory with
two operating departments. The cost driver for indirect labor is direct labor costs, and
the cost driver for the remaining items is number of hours of machine use. Compute the
total amount of overhead allocated to Dept.2 using activity-based costing.
A.$18,720
B.$12,930
C.$13,400
D.$19,190
E.$19,440
42) The statement of cash flows reports:
A.Cash flows from operating activities
B.Cash flows from financing activities
C.Cash flows from investing activities
D.Significant noncash financing and investing activities
E.All of these
43) Texas Toys, a retail store, has four sales departments supported by three service
departments. Cost and operational data for each department follow:
Determine the service department expenses to be allocated to Sales Department 1 for:
Advertising ___________________
Maintenance __________________
Purchasing ___________________
44) A company uses a process cost accounting system. Its Assembly Department’s
beginning inventory consisted of 50,000 units, 3/4 complete with respect to direct labor
and overhead. The department started and finished 127,500 units this period. The
ending inventory consists of 40,000 units that are 1/4 complete with respect to direct
labor and overhead. All direct materials are added at the beginning of the process. The
department incurred direct labor costs of $24,000 and overhead costs of $32,000 for the
period. Assuming the weighted average method, the direct labor cost per equivalent unit
(rounded to the nearest cent) is:
A.$0.14
B.$0.16
C.$0.17
D.$0.30
E.$0.37
45) The following is a partially completed lower section of a departmental expense
allocation spreadsheet for Stoneham. It reports the total amounts of direct and indirect
expenses for the four departments. Purchasing department expenses are allocated to the
operating departments on the basis of purchase orders. Maintenance department
expenses are allocated based on square footage. Compute the amount of Maintenance
department expense to be allocated to Fabrication.
A.$6,400
B.$9,900
C.$8,100
D.$9,000
E.$25,600
46) A cost that can be separated into fixed and variable components is called a:
A.Mixed cost
B.Step-variable cost
C.Composite cost
D.Curvilinear cost
E.Differential cost
47) On December 15 of the current year, Myers Legal Services signed a $50,000
contract with a client to provide legal services to the client in the following year. Which
accounting principle would require Myers Legal Services to record the legal fees
revenue in the following year and not the year the cash was received?
A.Monetary unit assumption
B.Going-concern assumption
C.Cost principle
D.Business entity assumption
E.Revenue recognition principle
48) If a parcel of land that was originally acquired for $85,000 is offered for sale at
$150,000, is assessed for tax purposes at $95,000, is recognized by its purchasers as
easily being worth $140,000, and is sold for $137,000, the land should be recorded in
the purchaser’s books at:
A.$95,000
B.$137,000
C.$138,500
D.$140,000
E.$150,000
49) On January 4, Year1, Larsen Company purchased 5,000 shares of Warner Company
for $59,500 plus a broker’s fee of $1,000. Warner Company has a total of 25,000 shares
of common stock outstanding and it is presumed the Larsen Company will have a
significant influence over Warner. During each of the next two years, Warner declared
and paid cash dividends of $0.85 per share, and its net income was $72,000 and
$67,000 for Year 1 and Year 2, respectively. The January 12, Year 3, entry to record the
sale of 3,000 shares of Warner Company stock for $39,000 cash should be:
A.Debit Cash $39,000; debit Loss on Sale of Investment $8,200; credit Long-Term
Investments $47,280
B.Debit Cash $39,000; debit Loss on Sale of Investment $8,880; credit Long-Term
Investments $47,880
C.Debit Cash $39,000; credit Gain on Sale of Investment $2,700; credit Long-Term
Investments $36,300
D.Debit Cash $39,000; credit Gain on Sale of Investment $8,750; credit Long-Term
Investments $30,250
E.Debit Cash $39,000; debit Loss on Sale of Investment $21,500; credit Long-Term
Investments $60,500
50) When preparing an unadjusted trial balance using a periodic inventory system, the
amount shown for Merchandise Inventory is:
A.The ending inventory amount.
B.The beginning inventory amount.
C.Equal to the cost of goods sold.
D.Equal to the cost of goods purchased.
E.Equal to the gross profit.
51) Using the information below for Talking Toys, Inc., determine cost of goods
manufactured for the year:
A.$13,000
B.$44,500
C.$57,500
D.$94,500
E.$52,000
52) On October 1, Courtland Company sold merchandise in the amount of $5,800 to
Carter Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000.
Courtland uses the periodic inventory system. The journal entry or entries that
Courtland will make on October 1 is:
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
53) The difference between the cost of an asset and the accumulated depreciation for
that asset is called
A.Depreciation Expense
B.Unearned Depreciation
C.Prepaid Depreciation
D.Depreciation Value
E.Book Value
54) Zed Bennett opened an art gallery and as a dealer completed these transactions:
Started the gallery, Artery, by investing $40,000 cash and equipment valued at $18,000.
2> Purchased $70 of office supplies on credit.
3> Paid $1,200 cash for the receptionist’s salary.
4> Sold a painting for an artist and collected a $4,500 cash commission on the sale.
5> Completed an art appraisal and billed the client $200.
What was the balance of the cash account after these transactions were posted?
A.$12,230
B.$12,430
C.$43,300
D.$43,430
E.$61,430
55) Source documents include all of the following except:
A.Sales tickets
B.Ledgers
C.Checks
D.Purchase orders
E.Bank statements
56) What is the purpose of closing entries? Describe the closing process.
57) On July 31, a corporation reported the following stockholders’ equity:
On July 31, the market value of the corporation’s stock was $15 per share. The directors
were considering declaring a 10% or 30% stock dividend but wanted to know what
effect each stock dividend would have on stockholders’ equity. Calculate the balances in
the following accounts for each proposed stock dividend distribution.
58) The net present value decision rule requires that when an asset’s expected cash
flows are discounted at the required rate and yield a positive net present value, the
project should be ___________________.
59) Match the appropriate definition with the following terms:
60) Describe the key attributes of inventory for a merchandising company.