1) An investor presumed to have significant influence owns as least 20% but not more
than 50% of another company’s voting stock.
2) The lower of cost or market rule for inventory valuation must be applied to each
individual unit separately, and not to major categories of inventory or to the entire
inventory.
3) Adjustments are necessary to bring an asset or liability account to its proper amount
and also update a related expense or revenue account.
4) One of the most important decisions in accounting for inventory is determining the
unit costs assigned to inventory items.
5) Bond sinking funds are examples of short-term investments.
6) A company paid $9,000 for a six-month insurance policy. The policy coverage began
on February 1. On February 28, $150 of insurance expense must be recorded.
7) The process of using accounts receivable as security for a loan is known as factoring
accounts receivable.
8) A direct labor cost variance may be broken down into a controllable variance and a
volume variance.
9) Job cost sheets are used to track all of the costs assigned to a job, including direct
materials, direct labor, overhead, and all selling and administrative costs.
10) Auditors rely on accounting system databases when they audit financial statements
and a company’s controls.
11) At an annual interest rate of 8% compounded annually, $5,300 will accumulate to a
total of $7,210.65 in 5 years.
12) Purchase allowances refer to merchandise a buyer acquires but then returns to the
seller.
13) A department’s direct expenses can be entirely avoided if the department manager
carefully controls and monitors operations.
14) Internal users include lenders, shareholders, brokers and managers.
15) A company had net income of $43,000, net sales of $380,500, and average total
assets of $220,000. Its profit margin and total asset turnover were, respectively:
A.11.3%; 1.73
B.11.3%; 19.5
C.1.7%; 19.5
D.1.7%; 11.3
E.19.5%; 11.3
16) 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. On October 4, Carter returns some of the
merchandise. The selling price of the merchandise is $500 and the cost of the
merchandise returned is $350. Carter pays the invoice on October 8, and takes the
appropriate discount. The journal entry that Courtland makes on October 8 is:
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
17) A company purchased property for $100,000. The property included a building, a
parking lot, and land. The building was appraised at $62,000; the land at $45,000, and
the parking lot at $18,000. Land should be recorded in the accounting records with an
allocated cost of:
A.$0
B.$36,000
C.$42,000
D.$45,000
E.$100,000
18) Minchoy Corporation uses a job order cost accounting system. Five jobs were
worked on during the current year. The predetermined overhead rate is 20% of direct
labor costs. The following cost information is available (all materials and time ticket
information applies to direct costs):
Part 1-Complete the job cost sheets for each job.
Part 2-Identify the amounts of each of the following accounts at the end of the period
a. Work in Process _____________________
b. Finished Goods _____________________
c. Cost of Goods Sold _____________________
19) Investing activities include: (a) the purchase and sale of long-term assets, (b)
lending and collecting on notes receivable, and (c) the purchase and sale of short-term
investments in the securities of other entities, other than cash equivalents and trading
securities.
20) Stocks that pay relatively large cash dividends on a regular basis are called:
A.Small capital stocks
B.Mid capital stocks
C.Growth stocks
D.Large capital stocks
E.Income stocks
21) Cost-volume-profit analysis is based on three basic assumptions. Which of the
following is not one of these assumptions?
A.Total fixed costs remain constant over changes in volume
B.Curvilinear costs change proportionately with changes in volume throughout the
relevant range
C.Variable costs per unit of output remain constant as volume changes
D.Sales price per unit remains constant as volume changes
E.All of these are basic assumptions
22) A cost that requires a current and/or future outlay of cash, and is usually an
incremental cost, is a(n):
A.Out-of-pocket cost
B.Sunk cost
C.Opportunity cost
D.Operating cost
E.Uncontrollable cost
23) Stritch Company is trying to decide how many units of merchandise to order each
month. The company’s policy is to have 20% of the next month’s sales in inventory at
the end of each month. Projected sales for August, September, and October are 30,000
units, 20,000 units, and 40,000 units, respectively. How many units must be purchased
in September?
A.14,000
B.20,000
C.22,000
D.24,000
E.28,000
24) Enterprise-resource planning software:
A.Refers to programs that help manage a company’s vital operations
B.Is another name for spreadsheet programs
C.Uses batch processing of business information
D.Is substantially declining in use
E.Is another name for database programs
25) Weston is preparing the company’s statement of cash flows for the fiscal year just
ended. Using the following information, determine the amount of cash flows from
financing activities:
A.$(168,000)
B.$200,000
C.$168,000
D.$(191,700)
E.$191,700
26) A company is considering the purchase of a new machine for $48,000. Management
predicts that the machine can produce sales of $16,000 each year for the next 10 years.
Expenses are expected to include direct materials, direct labor, and factory overhead
totaling $8,000 per year plus depreciation of $4,000 per year. The company’s tax rate is
40%. What is the payback period for the new machine?
A.3.0 years
B.6.0 years
C.7.5 years
D.12.0 years
E.20.0 years
27) All of the following statements regarding a work sheet are true except:
A.A worksheet aids in the preparation of financial statements
B.A worksheet reduces the possibility of errors when working with many accounts and
adjustments
C.A worksheet does not assist in planning and organizing an audit of financial
statements
D.A worksheet helps in preparing interim financial statements
E.A worksheet shows the effects of proposed or “what-if” transactions
28) An overstatement of ending inventory will cause
A.An overstatement of assets and equity on the balance sheet
B.An understatement of assets and equity on the balance sheet
C.An overstatement of assets and an understatement of equity on the balance sheet
D.An understatement of assets and an overstatement of equity on the balance sheet
E.No effect on the balance sheet
29) Julia’s Candy Co. reports the following information from its sales account and sales
budget:
Cash sales are normally 25% of total sales and all credit sales are expected to be
collected in the month following the date of sale. The total amount of cash expected to
be received from customers in September is:
A.$30,000
B.$82,500
C.$112,500
D.$120,000
E.$202,500
30) Belgrade Lakes Properties is developing a golf course subdivision that includes 225
home lots; 100 lots are golf course lots and will sell for $95,000 each; 125 are street
frontage lots and will sell for $65,000. The developer acquired the land for $1,800,000
and spent another $1,400,000 on street and utilities improvement. Compute the amount
of joint cost to be allocated to the golf course lots using value basis.
A.$1,724,800
B.$1,777,920
C.$2,018,920
D.$1,422,080
E.$1,475,200
31) Use the following information from the current year financial statements of a
company to calculate the ratios below:
(a) Current ratio.
(b) Accounts receivable turnover. (Assume the prior year’s accounts receivable balance
was $100,000.)
(c) Days’ sales uncollected.
(d) Inventory turnover. (Assume the prior year’s inventory was $50,200.)
(e) Times interest earned ratio.
(f) Return on common stockholders’ equity. (Assume the prior year’s common stock
balance was $480,000 and the retained earnings balance was $128,000.)
(g) Earnings per share (assuming the corporation has a simple capital structure, with
only common stock outstanding).
(h) Price earnings ratio. (Assume the company’s stock is selling for $26 per share.)
(i) Divided yield ratio. (Assume that the company paid $1.25 per share in cash
dividends.)
32) Kent Company anticipates total sales for April, May, and June of $800,000,
$900,000, and $950,000 respectively. Cash sales are normally 25% of total sales. Of the
credit sales, 30% are collected in the same month as the sale, 65% are collected during
the first month after the sale, and the remaining 5% are not collected. Compute the
amount of cash received from total sales for June.
A.$561,500
B.$652,500
C.$817,500
D.$592,500
E.$890,000
33) An additional cost incurred only if a particular action is taken is a(n):
A.Period cost
B.Pocket cost
C.Discount cost
D.Incremental cost
E.Sunk cost
34) Grafton sells a product for $700. Unit sales for May were 400 and a 3% growth in
unit sales is forecasted for each month. Compute the total sales to be reported on the
sales budget for month ended June 30.
A.$280,000
B.$297,000
C.$271,600
D.$288,400
E.$364,000
35) Mutual agency implies that each partner in a partnership is a fully authorized agent
of the partnership. Which of the following statements is correct regarding the authority
of a partner to bind the partnership in dealings with third parties?
A.The partner’s authority must be derived from the partnership agreement
B.The partner’s authority may be effectively limited by a formal resolution of the other
partners, even if third parties are not aware of that limitation
C.Only a partner with a majority interest in a partnership has the authority to represent
the partnership to third parties
D.A partner has authority to deal with third parties on the behalf of the other partners
only if he has written permission to do so
E.A partner may be able to legally bind the partnership to actions even if the other
partners are unaware of his actions
36) Teller purchased merchandise from TechCom on October 17 of the current year and
TechCom accepted Teller’s $4,800, 90-day, 10% note. If the note is dishonored, what
entry should TechCom make on January 15 of the next year?
A.Debit Notes Receivable $4,800; debit Interest Receivable $120; credit Sales $4,920
B.Debit Cash $4,920; credit Notes Receivable $4,920
C.Debit Cash $4,920; credit Interest Revenue $100; credit Interest Receivable $20,
credit Notes Receivable $4,800
D.Debit Cash $4,920; credit Interest Revenue $20; credit Interest Receivable $100,
credit Notes Receivable $4,800
E.Debit Accounts Receivable $4,920; credit Interest Revenue $20; credit Interest
Receivable $100, credit Notes Receivable $4,800
37) The following information is available regarding John Smith’s capital account in
Technology Consulting Group, a general partnership, for a recent year:
What is Smith’s partner return on equity during the year in question?
A.36.6%
B.34.7%
C.10.8%
D.11.4%
E.55.7%
38) A company had the following accounts and balances year-end:
If all of the accounts have normal balances, what are the totals for the trial balance?
A.$45,200
B.$67,000
C.$104,800
D.$209,600
E.$186,600
39) Use the following partial work sheet from Matthews Lanes to prepare its income
statement, statement of owner’s equity and a classified balance sheet (Assume the
owner did not make any investments in the business this year.)
40) A plan that lists the types and amounts of operating expenses expected that are not
included in the selling expenses budget is a:
A.General and administrative expense budget
B.Sales budget
C.Cash payments budget
D.Overhead budget
E.Selling expense budget
41) Which financial statement reports an organization’s financial position at a point in
time?
A.Income statement
B.Balance sheet
C.Statement of owner’s equity
D.Cash flow statement
E.Trail balance
42) Accounts receivable information for specific customers is important because it
reveals:
A.How much each customer has purchased on credit
B.How much each customer has paid
C.How much each customer still owes
D.The basis for sending bills to customers
E.All of these
43) A company records the following journal entry: debit Cash $1,470, debit Sales
Discounts $30, and credit Accounts Receivable $1,500. This means that a customer has
taken a ___ cash discount for early payment.
A.1%
B.2%
C.5%
D.10%
E.15%
44) On January 1, Southwest College received $1,200,000 in Unearned Tuition
Revenue from its students for the spring semester, which spans four months beginning
on January 2. What amount of tuition revenue should the college recognize on January
31?
A.$300,000
B.$600,000
C.$800,000
D.$900,000
E.$1,200,000
45) A company uses the FIFO method for inventory costing. During a period, a
production department had 20,000 units in beginning goods in process inventory which
were 40% complete; the department completed and transferred 165,000 units. At the
end of the period, 22,000 units were in the ending goods in process inventory and are
75% complete. Compute the number of equivalent units produced by the department.
A.181,500
B.165,000
C.173,500
D.145,000
E.187,000
46) A leasehold:
A.Is a short-term rental agreement
B.Is the same as a patent
C.Are the rights granted to the lessee by the lessor of a lease
D.Is recorded as revenue expenditure when paid
E.Is an investment asset
47) Seamark buys $300,000 of Eider’s 8% five-year bonds payable at par value. Interest
payments are made semiannually. Seamark plans to hold the bonds for the five year life.
The journal entry to record the purchase should include:
A.A debit to Long-Term Investments-AFS $300,000
B.A debit to Short-Term Investments-Trading $300,000
C.A debit to Long-Term Investments-HTM $300,000
D.A debit to Short-Term Investments-AFS $300,000
E.A debit to Cash $300,000
48) A partnership that has two classes of partners, general and limited, where the
limited partners have no personal liability beyond the amounts they invest in the
partnership, and no active role in the partnership, except as specified in the partnership
agreement is a:
A.Mutual agency partnership
B.Limited partnership
C.Limited liability partnership
D.General partnership
E.Limited liability company
49) ______________________ is the total compensation an employee earns including
wages, salaries, commissions, bonuses, and any compensation earned before deductions
such as taxes.
50) Kramer Corporation had the following long-term investment transactions.
Prepare the journal entries Kramer Corporation should record for these transactions and
events.
51) ____________________ inventory consists of products in the process of being
manufactured but not yet complete.
52) Browning Company sells a mix of three related products. Total fixed costs are
$144,000. The following additional information is available for Browning Company.
Use the weighted average method to determine the company’s break-even point for
composite units.
53) Contingent liabilities are recorded in the accounts if the future event is
_______________ and the amount owed can be _____________.
54) Plumley Ad Agency contracted with a company to prepare an ad campaign.
Plumley uses a job order costing system. Plumley estimates that the job will take 145
designer hours at $90 per hour and 85 staff hours at $45 per hour. Plumley uses two
overhead rates in applying overhead to jobs: Designer-related at $100 per designer hour
and staff-related at $50 per staff hour. Determine the total estimated cost for this job.
55) Retained earnings generally consists of a company’s cumulative
____________________ less any ____________________ and __________________.
56) ____________________________ are banks authorized to accept deposits of
amounts payable to the federal government, including amounts due for payroll taxes.