1) Gross profit rate is computed by dividing cost of goods sold by net sales.
2) Allowance for Doubtful Accounts is debited under the direct write-off method when
an account is determined to be uncollectible.
3) The admission of a new partner results in the legal dissolution of the existing
partnership and the beginning of a new partnership.
4) A characteristic of capital expenditures is that the expenditures occur frequently
during the period of ownership.
5) Accrued revenues are revenues that have been recognized and received before
financial statements have been prepared.
6) A CVP income statement classifies total costs by functional areas.
7) For efficiency of operations and better control over cash, a company should maintain
only one bank account.
8) Noncash investing and financing activities must be reported in the body of a
statement of cash flows.
9) A standard cost system may be used with a job order cost system but not with a
process cost system.
10) A primary driver of overhead costs in continuous manufacturing operations is
machine time used.
11) The partnership of Bher and Dhillips reports net income of $120,000. The partners
share equally in income and losses. The entry to record the partners’ share of net income
will include a
a.credit to Income Summary for $120,000
b.credit to Bher, Capital for $60,000
c.debit to Dhillips, Capital for $60,000
d.credit to Dhillips, Drawing for $60,000
12) The directors of Bennett Corp. are trying to decide whether they should issue par or
no par stock. They are considering three alternatives for their new stock, which they are
assuming will be issued at $8 per share. The alternatives are: (A) $5 par value, (B) no
par with a $1 stated value, and (C) no par, no stated value. If 60,000 shares are issued,
what amount will be credited to the common stock account in each of these cases?
(A) (B) (C)
a.$60,000$300,000$480,000
b.$60,000$480,000$480,000
c.$300,000$60,000$480,000
d.$480,000$480,000$480,000
13) The balance in the Accumulated Depreciation account represents the
a.cash fund to be used to replace plant assets
b.amount to be deducted from the cost of the plant asset to arrive at its fair market value
c.amount charged to expense in the current period
d.amount charged to expense since the acquisition of the plant asset
14) What activities and responsibilities are not associated with management’s functions?
a.Planning
b.Accountability
c.Controlling
d.Directing
15) The interest charged on a $100,000 note payable, at the rate of 6%, on a 2-month
note would be
a.$6,000
b.$3,000
c.$1,500
d.$1,000
16) Which one of the following is not an objective of a system of internal controls?
a.Safeguard company assets
b.Overstate liabilities in order to be conservative
c.Enhance the accuracy and reliability of accounting records
d.Reduce the risks of errors
17) In a JIT cost accounting system
a.reduced product quality is offset by reduced cost
b.manufacturing overhead is applied in the traditional manner
c.Raw Materials and Work in Process Inventory accounts are replaced by Raw and
In-Process Inventory
d.conversion costs are eliminated
18) Inventory items on an assembly line in various stages of production are classified as
a.Finished goods
b.Work in process
c.Raw materials
d.Merchandise inventory
19) Not-for-profit entities
a.do not use responsibility accounting
b.utilize responsibility accounting in trying to maximize net income
c.utilize responsibility accounting in trying to minimize the cost of providing services
d.have only noncontrollable costs
20) Norris Company uses the perpetual inventory system and had the following
purchases and sales during March.
Purchases Sales
UnitsUnit CostUnits Selling Price/Unit
3/1Beginning inventory100$40
3/3Purchase60$50
3/4Sales70$80
3/10Purchase200$55
3/16Sales80$90
3/19Purchase40$60
3/25Sales120$90
Instructions
Using the inventory and sales data above, calculate the value assigned to cost of goods
sold in March and to the ending inventory at March 31 using (a) FIFO and (b) LIFO.
21) Each of the following is reported for common stock except the
a.par value
b.shares issued
c.shares outstanding
d.liquidation value
22) Raw materials that can be physically and directly associated with the finished
product are called:
a.direct materials
b.conversion costs
c.indirect materials
d.finished materials
23) Previously issued financial statements with errors are required to be restated under
a.GAAP only
b.IFRS only
c.Both GAAP and IFRS
d.Neither GAAP or IFRS
24) Understating beginning inventory will understate
a.assets
b.cost of goods sold
c.net income
d.owner’s equity
25) Fugazi City College sold season tickets for the 2014 football season for $240,000. A
total of 8 games will be played during September, October and November. In
September, three games were played. The adjusting journal entry at September 30
a.is not required. No adjusting entries will be made until the end of the season in
November
b.will include a debit to Cash and a credit to Ticket Revenue for $60,000
c.will include a debit to Unearned Ticket Revenue and a credit to Ticket Revenue for
$90,000
d.will include a debit to Ticket Revenue and a credit to Unearned Ticket Revenue for
$80,000
26) If the entry to record the purchase of inventory is inadvertently omitted, but the
item is correctly included in ending inventory, the effect when using the periodic
inventory method is
Net Income Assets
a.OverstatedOverstated
b.OverstatedUnderstated
c.OverstatedNo effect
d.No effectNo effect
27) Variance reports are
a.external financial reports
b.SEC financial reports
c.internal reports for management
d.All of these answer choices are correct
28) Which of the following statements is true regarding inventory cost flow
assumptions?
a.A company may use more than one costing method concurrently
b.A company must comply with the method specified by industry standards
c.A company must use the same method for domestic and foreign operations
d.A company may never change its inventory costing method once it has chosen a
method
29) During the year, Slicks Pet Shops inventory decreased by $25,000. If the companys
cost of goods sold for the year was $500,000, purchases must have been
a.$475,000
b.$500,000
c.$525,000
d.Unable to determine
30) Candy Claws Company gathered the following reconciling information in preparing
its August bank reconciliation:
Cash balance per books, 8/31$19,500
Deposits in transit900
Notes receivable and interest collected by bank4,800
Bank charge for check printing120
Outstanding checks12,000
NSF check1,020
The adjusted cash balance per books on August 31 is
a.$11,160
b.$12,060
c.$23,160
d.$24,060
31) Which of the following steps in the accounting cycle would not generally be
performed daily?
a.Journalize transactions
b.Post to ledger accounts
c.Prepare adjusting entries
d.Analyze business transactions
32) Closing entries
a.are prepared before the financial statements
b.reduce the number of permanent accounts
c.cause the revenue and expense accounts to have zero balances
d.summarize the activity in every account
33) Baril Company’s financial information is presented below.
Sales$ ????Purchase Returns and Allowances$ 20,000
Sales Returns and Allowances30,000 Ending Inventory60,000
Net Sales1,010,000Cost of Goods Sold410,000
Beginning Inventory????Gross Profit????
Purchases450,000
The missing amounts above are:
SalesBeginning InventoryGross Profit
a.$980,000$20,000$630,000
b.$1,040,000$40,000$600,000
c.$1,040,000$20,000$600,000
d.$980,000$40,000$630,000
34) Why are budgets useful in the planning process?
a.They provide management with information about the company’s past performance
b.They help communicate goals and provide a basis for evaluation
c.They guarantee the company will be profitable if it meets its objectives
d.They enable the budget committee to earn their paycheck
35) Given below is an excerpt from a management performance report:
Budget Actual Difference
Contribution margin$1,200,000$1,160,000$40,000 U
Controllable fixed costs$400,000$440,000$40,000 U
The manager’s overall performance
a.is 10% above expectations
b.is 10% below expectations
c.is equal to expectations
d.cannot be determined from the information provided
36) Presented here is a partial amortization schedule for Graceland Company who sold
$200,000, six year 10% bonds on January 1, 2014 for $212,000 and uses annual
straight-line amortization.
Which of the following amounts should be shown in cell (iv)?
a.$10,800
b.$6,000
c.$11,400
d.$10,000
37) The process of evaluating financial data that change under alternative courses of
action is called
a.double entry analysis
b.contribution margin analysis
c.incremental analysis
d.cost-benefit analysis
38) Long-range planning usually encompasses a period of at least
a.six months
b.1 year
c.5 years
d.10 years
39) The cash payback formula is
a.Cost of capital investment Net income
b.Cost of capital investment Annual cash inflow
c.Average investment Net income
d.Average investment Annual cash inflow
40) Times interest earned is calculated by dividing _____________ before
_______________ and ________________ by interest expense.
41) Dots Company developed the following information for its product:
Per Unit
Sales price$90
Variable cost 63
Contribution margin$27
Total fixed costs$1,080,000
Instructions
Answer the following independent questions and show computations using the
contribution margin technique to support your answers.
1>How many units must be sold to break even?
2>What is the total sales that must be generated for the company to earn a profit of
$60,000?
3>If the company is presently selling 45,000 units, but plans to spend an additional
$108,000 on an advertising program, how many additional units must the company sell
to earn the same net income it is now making?
4>Using the original data in the problem, compute a new break-even point in units if
the unit sales price is increased 20%, unit variable cost is increased by 15%, and total
fixed costs are increased by $210,000.
42) Listed below are items that may be useful in preparing the March 2014, bank
reconciliation for Walker Machine Works.
Using the following code, insert in the space before each item the letter where the
amount would be located or otherwise treated in the bank reconciliation process.
CodeLocated or Treated
AAdd to the cash balance per books
BDeduct from the cash balance per books
C Add to the cash balance per bank
DDeduct from the cash balance per bank
EDoes not affect the bank reconciliation
1>Included with the bank statement materials was a check from Bob Simpson for $40
stamped “account closed.”
2>A personal deposit by Annie Walker to her personal account in the amount of $300
for dividends on her General Electric common stock was credited to the company
account.
3>The bank statement included a debit memorandum for $22.00 for two books of blank
checks for Walker Machine Works.
4>The bank statement contains a credit memorandum for $24.75 interest on the average
checking account balance.
5>The daily deposits of March 30 and March 31, for $3,362 and $3,125 respectively,
were not included in the bank statement postings.
6>Two checks totaling $316.86, which were outstanding at the end of February, cleared
in March and were returned with the March statement.
7>The bank statement included a credit memorandum dated March 28, 2014, for $45.00
for the monthly interest on a 6-month, $15,000 certificate of deposit that the company
owns.
8>Four checks, #8712, #8716, #8718, #8719, totaling $5,369.65, did not clear the bank
during March.
9>On March 24, 2014, Walker Machine Works delivered to the bank for collection a
$2,500, 3-month note from Don Decker. A credit memorandum dated March 29, 2014,
indicated the collection of the note and $90.00 of interest.
10>The bank statement included a debit memorandum for $25.00 for the collection
service on the above note and interest.
43) Cost of goods sold is deducted from net sales revenue for the period in order to
arrive at ________________.
44) Ashes Company earns 12% on an investment that will return $600,000 eleven years
from now. What is the amount that Ashes Company should invest now to earn this rate
of return?
45) The beginning cash balance is $20,000. Sales are forecasted at $700,000 of which
80% will be on credit. 70% of credit sales are expected to be collected in the year of
sale. Cash expenditures for the year are forecasted at $500,000. Accounts receivable
from previous accounting periods totaling $12,000 will be collected in the current year.
The company is required to make a $20,000 loan payment and an annual interest
payment on the last day of the year. The loan balance as of the beginning of the year is
$120,000, and the annual interest rate is 10%.
Instructions
How much will be reported as ‘cash’ on the budgeted balance sheet?
46) Doctor Company prepared the tabulation below at December 31, 2012 .
Net Income$307,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense, $32,000
Decrease in accounts receivable, $50,000
Increase in inventory, $12,000
Decrease in accounts payable, $8,600
Increase in income taxes payable, $1,500
Loss on sale of land, $5,000
Net cash provided (used) by operating activities
Instructions
Show how each item should be reported in the statement of cash flows. Use parentheses
for deductions.
47) Verde Company produces chairs from plastic resin. Verde has estimated production
and sales of chairs in units for the next 2 months as:
May June
Estimated production56,00064,000
Estimated sales66,00048,000
Each chair requires 0.25 pounds of resin. The cost of resin is $4.50 per pound. Verde
wants to have 20% of the next month’s materials requirements on hand at the end of
each month.
Instructions
Prepare a direct materials purchases budget for the month of May.
48) Galena Pharmacy reported cost of goods sold as follows:
2014 2015
Beginning inventory$ 54,000$ 64,000
Cost of goods purchased 847,000 891,000
Cost of goods available for sale901,000955,000
Ending inventory 64,000 55,000
Cost of goods sold$837,000$900,000
Jim Holt, the bookkeeper, made two errors:
(1)2014 ending inventory was overstated by $7,000.
(2)2015 ending inventory was understated by $16,000.
Instructions
Assuming the errors had not been corrected, indicate the dollar effect that the errors had
on the items appearing on the financial statements listed below. Also indicate if the
amounts are overstated (O) or understated (U).
20142015
Overstated/Overstated/
AmountUnderstated AmountUnderstated
Total assets$________________$________________
Owners equity$________________$________________
Cost of goods sold$________________$________________
Net income$________________$________________