1) In a process costing system, factory labor costs incurred in a reporting period are
presented on the income statement as Factory Labor Expense.
2) Graphical analysis of the balance sheet can be useful in assessing sources of
financing.
3) Term bonds are scheduled for maturity on one specified date, whereas serial bonds
mature at more than one date.
4) Companies have the option of using either the direct or indirect method to prepare
the operating section of the statement of cash flows.
5) Obsolescence refers to the insufficient capacity of a company’s plant assets to meet
the company’s growing productive demands.
6) Unearned revenues are current liabilities.
7) Roe Corporation owns 2,000 shares of WRJ Corporation stock. WRJ Corporation has
25,000 shares of stock outstanding. WRJ paid $4 per share in cash dividends to its
stockholders. The entry to record the receipt of these dividends is:
A.Debit Cash, $8,000; credit Long-Term Investments, $8,000.
B.Debt Long-Term Investment, $8,000; credit Cash, $8,000.
C.Debit Cash, $8,000; credit Dividend Revenue, $8,000.
D.Debit Unrealized Gain-Equity, $8,000; credit Cash, $8,000.
E.Debit Cash, $8,000; credit Unrealized Gain-Equity, $8,000.
8) A company purchased $60,000 of 5% bonds on May 1 at par value. The bonds pay
interest on March 1 and September 1. The amount of interest accrued on December 31
(the company’s year-end) would be:
A.$1,000.
B.$500.
C.$1,250.
D.$2,500.
E.$1,500.
9) If cash is received from customers in payment for products or services that have not
yet been delivered to the customers, the business would record the cash receipt as:
A.A debit to an unearned revenue account.
B.A debit to a prepaid expense account.
C.A credit to an unearned revenue account.
D.A credit to a prepaid expense account.
E.No entry is required at the time of collection.
10) All of the following statements regarding a business segment are true except:
A.A business segment is a part of a company’s operations that serves a particular
product line.
B.A segment has assets, liabilities, and financial results of operations that can be
distinguished from those of other parts of the company.
C.A company’s gain or loss from selling or closing down a segment is reported
separately.
D.The income tax effects of a discontinued segment are combined with income tax
from continuing operations.
E.A segment’s income for the period prior to the disposal and the gain or loss resulting
from disposing of the segment’s assets are reported separately.
11) Fletcher Company collected the following data regarding production of one of its
products. Compute the total direct labor variance.
A.$80,250 unfavorable.
B.$80,250 favorable.
C.$61,125 favorable.
D.$61,125 unfavorable.
E.$19,125 favorable.
12) Accounting standards:
A.Allow companies to omit the statement of cash flows from a complete set of financial
statements if cash is an insignificant asset.
B.Require that companies omit the statement of cash flows from a complete set of
financial statements if the company has no investing activities.
C.Require that companies include a statement of cash flows in a complete set of
financial statements.
D.Allow companies to include the statement of cash flows in a complete set of financial
statements if the cash balance makes up more than 50% of the current assets.
E.Allow companies to omit the statement of cash flows from a complete set of financial
statements if the company has no financing activities.
13) The Discount on Common Stock account reflects:
A.The difference between the par value of stock and its issue price when it is issued at a
price below par value.
B.One share’s portion of the issued corporation’s net assets recorded in its accounts.
C.The difference between the par value of the stock and the amount paid-in by
stockholders when the amount paid-in is more than par value.
D.An amount of assets defined by state law that stockholders must invest and leave
invested in a corporation.
E.The amount a corporation must pay in addition to dividends in arrears if and when it
exercises its right to retire a share of callable preferred stock.
14) Hutter Corporation declared a $0.50 per share cash dividend on its common shares.
The company has 20,000 shares authorized, 9,000 shares issued, and 8,000 shares of
common stock outstanding. The journal entry to record the dividend payment is:
A.Debit Retained Earnings $4,000; credit Common Dividends Payable $4,000.
B.Debit Common Dividends Payable $4,000; credit Cash $4,000.
C.Debit Retained Earnings $4,500; credit Common Dividends Payable $4,500.
D.Debit Common Dividends Payable $4,500; credit Cash $4,500.
E.Debit Retained Earnings $10,000; credit Common Dividends Payable $10,000.
15) If Houston Company billed a client for $10,000 of consulting work completed, the
accounts receivable asset increases by $10,000 and:
A.Accounts payable decreases $10,000.
B.Accounts payable increases $10,000.
C.Cash increases $10,000.
D.Revenue increases $10,000.
E.Revenue decreases $10,000
16) Marshall Enterprises charged the following amounts of overhead to jobs during the
year: $20,000 to jobs still in process, $60,000 to jobs completed but not sold, and
$120,000 to jobs finished and sold. At year-end, Marshall Enterprise’s Factory
Overhead account has a credit balance of $5,000, which is not a material amount. What
entry should Marshall make at year-end?
A.No entry is needed.
B.Debit Factory Overhead $5,000; credit Cost of Goods Sold $5,000.
C.Debit Cost of Goods Sold $5,000; credit Factory Overhead $5,000.
D.Debit Factory Overhead $5,000; credit Work in Process Inventory $5,000.
E.Debit Factory Overhead $5,000; credit Finished Goods Inventory $5,000.
17) A company issued 9%, 10-years bonds with a par value of $1,000,000 on September
1, Year 1 when the market rate was 9%. The bonds were dated June 30, Year 1. The
bond issue price included accrued interest. Interest is paid semiannually on December
31 and June 30.
(a) Prepare the issuer’s journal entry to record the issuance of the bonds on September
1.
(b) Prepare the issuer’s journal entry to record the semiannual interest payment on
December 31, Year 1.
18) The modified accelerated cost recovery system (MACRS):
A.Is included in the U.S. federal income tax rules for depreciating assets.
B.Is an outdated system that is no longer used by companies.
C.Is required for financial reporting.
D.Is identical to units of production depreciation.
E.Does not allow partial year depreciation.
19) A business’s source documents may include all of the following except:
A.Sales tickets.
B.Ledgers.
C.Checks.
D.Purchase orders.
E.Bank statements.
20) The following information is available for some of Branson’s segments (all amounts
are in millions):
a. Determine the segment return on assets for each geographic segment.
b. Comment on the results. How do the segments compare with respect to profitability?
21) A company issued financial statements for the year ended December 31, but failed
to include the following adjusting entries:
A. Accrued interest revenue earned of $1,200.
B. Depreciation expense of $4,000.
C. Portion of prepaid insurance expired (an asset) used $1,100.
D. Accrued taxes of $3,200.
E. Revenues of $5,200, originally recorded as unearned, have been earned by the end of
the year.
Determine the correct amounts for the December 31 financial statements by completing
the following table:
22) Benjamin Company had the following results of operations for the past year:
A foreign company (whose sales will not affect Benjamin’s market) offers to buy 4,000
units at $7.50 per unit. In addition to variable manufacturing costs, selling these units
would increase fixed overhead by $600 and selling and administrative costs by $300. If
Benjamin accepts the offer, its profits will:
A.Increase by $30,000.
B.Increase by $6,000.
C.Decrease by $6,000.
D.Increase by $5,200.
E.Increase by $4,300.
23) Describe the format of the statement of cash flows, including the reporting of
significant noncash investing and financing activities.
24) ____________________ is the charge for using borrowed money until its due date.
25) A company reported $1,050,000 in net income for the current year. Earnings per
common share is $1.75 and the year-end market price of the shares is $31.50. Calculate
the company’s price earnings ratio.
26) A corporation had the following stock outstanding when the company’s board of
directors declared a $55,000 cash dividend during the current year:
Allocate the cash dividend between the preferred and common stockholders assuming
the preferred stock is cumulative and nonparticipating and dividends are one year in
arrears.
27) A company has 2,000,000 common shares authorized, 400,000 common shares
issued, and 15,000 common shares in treasury stock at the current year-end. It paid
$0.96 per share cash dividends during the year. The year-end market price of the stock
is $15. Calculate (1) the total dividends paid and (2) the dividend yield.
28) The amount assigned per share to stock by the corporation in its charter is the
_____________________.
29) Early Co. offers its employees a bonus equal to 2% of the company’s net income.
The estimated net income for the year is expected to be $800,000. Prepare the general
journal entry to record the estimated employee bonus plan expense.