1) An advantage of common-size statements is that they reflect the dollar magnitude
(size) of the different companies under analysis.
2) A company that finances a relatively large portion of its assets with liabilities is said
to have a high degree of financial leverage.
3) If the predetermined overhead allocation rate is 350% of direct labor cost and the
Painting Department’s direct labor cost for the reporting period is $20,000, the
following entry would record the allocation of overhead to the products processed in
this department:
4) Risk is the uncertainty about the return we expect to earn.
5) Retained earnings generally consist of a company’s cumulative net income less any
net losses and dividends declared since its inception.
6) Dividend yield is defined as the market price per share of a company’s stock divided
by its earnings per share.
7) An adjusting entry often includes an entry to Cash.
8) The income statement reports on operating activities at a point in time.
9) A contingent liability is a potential obligation that depends on a future event arising
from a future transaction or event.
10) Dividend yield shows the annual amount of cash dividends distributed to common
shares relative to the stock’s market price.
11) Land is not subject to depreciation because it has an unlimited life. This means that
items which increase the usefulness of the land such as parking lots are not depreciated.
12) Consulting the persons affected by a budget when it is prepared can provide an
effective means of motivation and cooperation.
13) Continuous budgeting is the practice of preparing a new budget for a selected
number of future periods and replacing budgets for periods that have lapsed.
14) The general journal is used for transactions not covered by special journals and for
adjusting, closing, and correcting entries.
15) Gross profit is also called gross margin.
16) The file of job cost sheets for completed but undelivered jobs equals the balance in
the Goods in Process Inventory account.
17) Adjustments must be entered in the journal and posted to the ledger after the work
sheet is prepared.
18) Although direct labor and raw materials costs are treated as manufacturing costs and
therefore make up part of the finished goods inventory cost, factory overhead is charged
to expense as it is incurred because it is a period cost.
19) The purchases journal is used to record cash purchases of merchandise.
20) To compute trend percents the analyst should:
A.Select a base period, assign each item in the base period statement a weight of 100%,
and then express financial numbers from other periods as a percent of their base period
number
B.Subtract the analysis period number from the base period number
C.Subtract the base period amount from the analysis period amount, divide the result by
the analysis period amount, then multiply that amount by 100
D.Compare amounts across industries using Dun and Bradstreet
E.All of these
21) A flexible budget performance report compares the differences between:
A.Actual performance and budgeted performance based on actual sales volume
B.Actual performance over several periods
C.Budgeted performance over several periods
D.Actual performance and budgeted performance based on budgeted sales volume
E.Actual performance and standard costs at the budgeted sales volume
22) Choosing to outsource a component of a product or manufacture it internally is an
example of a(n):
A.Opportunity cost
B.Sunk cost
C.Out-of-pocket cost
D.Period cost
E.Fixed cost
23) You are reviewing the accounting records of Cathy’s Antiques, owned by Cathy
Miller. You have uncovered the following situations. Compose a memo to Ms. Miller.
Cite the appropriate accounting principle and suggest an action for each separate item.
1> In August, a check for $500 was written to Wee Day Care Center. This amount
represents child care for her son Brandon.
2> Cathy plans a Going Out of Business Sale for May, since she will be closing her
business for a month-long vacation in June. She plans to reopen July 1 and will
continue operating Cathy’s Antiques indefinitely.
3> Cathy received a shipment of pine furniture from Quebec, Canada. The invoice was
stated in Canadian dollars.
4> Joseph Clark paid $1,500 for a dining table. The amount was recorded as revenue.
The table will be delivered to Mr. Clark in six weeks.
24) Management decisions in accounting for inventory cost include all of the following
except:
A.Costing method
B.Inventory system (perpetual or periodic)
C.Customer demand for inventory
D.Use of market values or other estimates
E.Items included in inventory and their costs
25) The buyer who purchases and takes ownership of another company’s accounts
receivable is called a:
A.Payer
B.Pledgor
C.Factor
D.Payee
E.Pledgee
26) Jamesway Corporation has two separate divisions that operate as profit centers. The
following information is available for the most recent year:
The White Division occupies 20,000 square feet in the plant. The Grey Division
occupies 30,000 square feet. Rent is an indirect expense and is allocated based on
square footage. Rent expense for the year was $50,000. Compute departmental income
for the White and Grey Divisions, respectively.
A.$52,000; $163,000
B.$172,000; $352,000
C.$72,000; $163,000
D.$72,000; $193,000
E.$100,000; $241,000
27) Prior to recording adjusting entries, the Office Supplies account had a $359 debit
balance. A physical count of the supplies showed $105 of unused supplies available.
The required adjusting entry is:
A.Debit Office Supplies $105 and credit Office Supplies Expense $105
B.Debit Office Supplies Expense $105 and credit Office Supplies $105
C.Debit Office Supplies Expense $254 and credit Office Supplies $254
D.Debit Office Supplies $254 and credit Office Supplies Expense $254
E.Debit Office Supplies $105 and credit Supplies Expense $254
28) A company has 1,000 shares of $100 par preferred stock. It also has 25,000 shares
of common stock outstanding, and its total stockholders’ equity equals $500,000. The
book value per common share is:
A.$15.38
B.$16.00
C.$19.96
D.$20.00
E.$100.00
29) MixRecording Studios purchased $7,800 in electronic components from TechCom.
MixRecording Studios signed a 60-day, 10% promissory note for $7,800. TechCom’s
journal entry to record the sales portion of the transaction is:
A.Debit Accounts Receivable $7,800; credit Sales $7,800
B.Debit Accounts Receivable $7,930; credit Sales $7,930
C.Debit Notes Receivable $7,800; credit Sales $7,800
D.Debit Notes Receivable $7,930; credit Sales $7,930
E.Debit Notes Receivable $7,800; debit Interest Receivable $130; credit Sales $7,930
30) A company purchased a heating system on January 2 for $225,000. The system had
an estimated useful life of 15 years. On January 3 of the thirteenth year, the company
completed a renovation of the system at a cost of $33,000 and now expects the system
to be more efficient and last 8 years beyond the original estimate. The company uses the
straight-line method of depreciation.
(a) Prepare the journal entry at January 3, to record the renovation of the heating
system.
(b) Prepare the journal entry at December 31, to record the revised depreciation for the
thirteenth year.
31) Daniels Corporation is considering the purchase of new equipment costing $30,000.
The projected annual after-tax net income from the equipment is $1,200, after deducting
$10,000 for depreciation. The revenue is to be received at the end of each year. The
machine has a useful life of 3 years and no salvage value. Daniels requires a 12% return
on its investments. The present value of an annuity of 1 for different periods follows:
What is the net present value of the machine?
A.$24,018
B.$(3,100)
C.$30,000
D.$26,900
E.$(29,520)
32) Match the following definitions and terms by placing the letter that identifies the
best definition in the blank space next to the term.
1>A list of accounts and their balances at a point in time; the total debit balances should
equal the total credit balances. A. General journal
2>A column in journals where individual account numbers are entered when entries are
posted to ledger accounts B. Chart of accounts
3>The most flexible type of journal, it can be used to record any kind of transaction. C.
Note receivable
4>A record of the increases and decreases in a specific asset, liability, equity, revenue,
or expense item. D. T-account
5>A journal entry that affects at least three accounts E. Unearned revenues
6>A list of all accounts used by a company and the identification number assigned to
each account F. Compound journal entry
7>A simple form used as a helpful tool in understanding the effect of transactions and
events on specific accounts G. Posting reference column
8>A written promise from a customer to pay a definite sum of money on a specified
future date H. Posting
9>The process of transferring journal entry information to the ledger. I. Account
10>Liabilities created when customers pay in advance for products or services; satisfied
by delivering the products or services in the future J. Trial Balance
33) Timmons Company had a January 1, balance in its Allowance for Doubtful
Accounts of $7,000 for the current year. The following transactions and events affected
the Allowance for Doubtful Accounts during the current year:
What amount should appear in the allowance for doubtful accounts in the December 31,
balance sheet for the current year?
34) At the beginning of the year, a company’s balance sheet reported the following
balances: Total Assets = $125,000; Total Liabilities = $75,000; and Owner’s Capital =
$50,000. During the year, the company reported revenues of $46,000 and expenses of
$30,000. In addition, owner’s withdrawals for the year totaled $20,000. Assuming no
other changes to owner’s capital, the balance in the owner’s capital account at the end of
the year would be:
A.$66,000
B.$86,000
C.$(4,000)
D.$46,000
E.$54,000
35) On January 1 of Year 1, Drum Line Airways issued $3,500,000 of par value bonds
for $3,200,000. The bonds pay interest semiannually on January 1 and July 1. The
contract rate of interest is 7% while the market rate of interest for similar bonds is 8%.
The bond premium or discount is being amortized at a rate of $10,000 every six
months.
The amount of interest expense recognized by Drum Line Airways on the bond issue in
Year 1 would be:
A.$132,500
B.$225,000
C.$265,000
D.$245,000
E.$280,000
36) Pledging receivables:
A.Allows firms to raise cash
B.Allows a firm to retain ownership of its receivables
C.Does not transfer risk of bad debts to the lender
D.Should be disclosed in the financial statements
E.All of these
37) A company had revenues of $75,000 and expenses of $62,000 for the accounting
period. The owner withdrew $8,000 in cash during the same period. Which of the
following entries could not be a closing entry?
A.Debit Income Summary $13,000; credit Owner’s, Capital $13,000
B.Debit Income Summary $75,000; credit Revenues $75,000
C.Debit Revenues $75,000; credit Income Summary $75,000
D.Debit Income Summary $62,000, credit Expenses $62,000
E.Debit Owner’s, Capital $8,000, credit Owner’s, Withdrawals $8,000
38) Which of the following statements about budgeting is false?
A.Budgeting is an aid to planning and control
B.Budgets create standards for performance evaluation
C.Budgets help coordinate the activities of the entire organization
D.Budgeting forces managers to think ahead and formalize long-range objectives
E.The master budget should only be prepared by top management
39) Total asset turnover is calculated by dividing:
A.Gross profit by average total assets
B.Average total assets by gross profit
C.Net sales by average total assets
D.Average total assets by net sales
E.Net assets by total assets
40) A company issues at par 9% bonds with a par value of $100,000 on April 1, which
is 4 months after the most recent interest date. The cash received for accrued interest on
April 1 by the bond issuer is:
A.$750
B.$5,250
C.$1,500
D.$3,000
E.$6,000
41) A record of the increases and decreases in a specific asset, liability, equity, revenue,
or expense is a(n):
A.Journal
B.Posting
C.Trial balance
D.Account
E.Chart of accounts
42) Liabilities:
A.Must be certain
B.Must sometimes be estimated
C.Must be for a specific amount
D.Must always have a definite date for payment
E.Must involve an outflow of cash
43) When the maker of a note honors a note this indicates that the note is:
A.Signed
B.Paid in full
C.Guaranteed
D.Notarized
E.Cosigned
44) A subsidiary ledger that contains a separate account for each supplier (creditor) to
the company is a(n):
A.Controlling account
B.Accounts receivable ledger
C.Accounts payable ledger
D.General ledger
E.Special journal
45) PRO, Inc. had the following activities during its most recent period of operations:
(a) Purchased raw materials on account for $140,000 (both direct and indirect materials
are recorded in the Raw Materials Inventory account).
(b) Issued raw materials to production of $130,000 (80% direct and 20% indirect).
(c) Incurred and paid factory labor costs of $250,000 cash; allocated the factory labor
costs to production (70% direct and 30% indirect).
(d) Incurred factory utilities costs of $20,000; this amount is still payable.
(e) Applied overhead at 80% of direct labor costs.
(f) Recorded factory depreciation, $22,000.
46) The following information is available for Holland Company at December 31:
Based on this information, Holland Company should report Cash and Cash Equivalents
on December 31 of:
A.$35,421
B.$50,421
C.$37,546
D.$36,246
E.$40,439
47) The sales level at which a company neither earns a profit nor incurs a loss is the:
A.Relevant range
B.Margin of safety
C.Step-wise variable level
D.Break-even point
E.Contribution margin
48) Bonds that have interest coupons attached to their certificates, which the
bondholders detach during each interest period and present to a bank for collection, are
called:
A.Coupon bonds
B.Callable bonds
C.Serial bonds
D.Convertible bonds
E.Registered bonds
49) What is the proper adjusting entry at December 31, the end of the accounting
period, if the balance in the prepaid insurance account is $7,750 before adjustment, and
the unexpired amount per analysis of policies is, $3,250?
A.Debit Insurance Expense, $3,250; credit Prepaid Insurance, $3,250
B.Debit Insurance Expense, $4,500; credit Prepaid Insurance, $4,500
C.Debit Prepaid Insurance, $4,500; credit Insurance Expense, $4,500
D.Debit Insurance Expense, $7,750; credit Prepaid Insurance, $7,750
E.Debit Cash, $7,750; Credit Prepaid Insurance, $7,750
50) Brown Company’s contribution margin ratio is 24%. Total fixed costs are $84,000.
What is Brown’s break-even point in sales dollars?
A.$20,160
B.$110,526
C.$350,000
D.$240,000
E.$84,000
51) Teller purchased merchandise from TechCom on October 17 of the current year and
TechCom accepted Teller’s $4,800, 90-day, 10% note. What entry should TechCom
make on December 31, to record the accrued interest on the note?
A.Debit Cash $20; credit Notes Receivable $20
B.Debit Cash $100; credit Notes Receivable $100
C.Debit Interest Receivable $20; credit Interest Revenue $20
D.Debit Interest Receivable $100; credit Interest Revenue $100
E.Debit Cash $120; credit Interest Revenue $100; credit Interest Receivable $20
52) Griggs Company uses the direct write-off method of accounting for uncollectible
accounts receivable. On December 6, Year 1, Griggs sold $6,300 of merchandise to the
Hillman Company. On August 8, Year 2, after numerous attempts to collect the account,
Griggs determined that the $6,300 account of the Hillman Company was uncollectible.
a. Prepare the journal entry required to record the transactions on August 8.
b. Assuming that the $6,300 is material, explain how the direct write-off method
violates the matching principle in this case.
53) The following information relating to a company’s overhead costs is available.
Based on this information, the total overhead variance is:
Based on this information, the total overhead variance is:
A.$7,000 favorable
B.$6,000 favorable
C.$1,000 unfavorable
D.$6,000 unfavorable
E.$1,000 favorable
54) The following information describes a product expected to be produced and sold by
Pepin Corporation:
Required:
(a) Calculate the contribution margin per unit.
(b) Calculate the break-even point in units.
55) A basis for allocating the cost of a resource to an activity cost pool or allocating the
cost of an activity cost pool to a cost object is a(n):
A.Direct factor
B.Indirect factor
C.Cost driver
D.Joint cost
E.Opportunity cost
56) BC Company uses a job order cost accounting system. During the month of April,
the following events occurred:
(a) Purchased raw materials on credit, $32,000.
(b) Raw materials requisitioned: $25,800 as direct materials and $10,500 indirect
materials.
(c) Paid factory payroll for the month totaling $37,700 which includes $8,200 indirect
labor.
(d) Assigned the factory payroll to jobs and overhead.
Make the necessary journal entries to record the above transactions and events.
57) The following information is available for the Travis Travel Agency. After these
closing entries what will be the balance in the Jay Travis, Capital account?
A.$65,000
B.$80,000
C.$130,000
D.$145,000
E.$280,000
58) Josephine’s Bakery had the following assets and liabilities at the beginning and end
of the current year:
If Josephine invested an additional $12,000 in the business during the year, but
withdrew no assets during the year, what was the amount of net income earned by
Josephine’s Bakery?
59) What are the accounting basics for debt securities, including recording their
acquisition, interest earned, and their disposal?
60) The following information refers to Annie’s Attic and its competitors in the antiques
business.
61) Define liabilities and explain the difference between current and long-term
liabilities.
62) The amounts and timing of payment from a buyer to a seller are the
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