1) The time period assumption assumes that an organization’s activities can be divided
into specific time periods such as months, quarters, or years.
2) The inventory turnover ratio is computed by dividing cost of goods sold by average
merchandise inventory.
3) Callable bonds can be exchanged for a fixed number of shares of the issuing
corporation’s common stock.
4) The selling expenses budget is normally prepared before the sales budget because
selling expenses affect the amount of sales.
5) Total depreciation expense over an asset’s useful life will be identical under all
methods of depreciation.
6) A receivable is an amount due from another party.
7) On May 15, Tumbleweed, Inc. purchased 10,000 shares of Dansell Corp. for
$80,000. The securities are considered available-for-sale securities. On September 30,
the stock had a market value of $85,000. The $5,000 difference must be reported on
Tumbleweed’s income statement as a $5,000 gain.
8) A manufacturing budget shows dollar amounts estimated to be spent to purchase
additional plant assets and amounts expected to be received from plant asset disposals.
9) If the predetermined overhead allocation rate is 245% of direct labor cost, and the
Baking Department’s direct labor cost for the reporting period is $10,000, the following
entry would be made to record the allocation of overhead to the products processed in
this department:
10) Three of the most common tools of financial analysis include horizontal analysis,
vertical analysis, and ratio analysis.
11) The gain or loss from retirement of debt is reported under cash flows from operating
activities on the statement of cash flows using the direct method.
12) Common shareholders always share equally with all other shareholders in
dividends.
13) A single liability cannot be divided between current and noncurrent liabilities.
14) Return on equity increases when the expected rate of return from the acquired
assets is higher than the interest rate on the debt issued to finance the acquired assets.
15) The use of the direct write-off method is allowed under the materiality constraint.
16) Use the following information as of December 31 to determine equity.
A.$57,000.
B.$141,000.
C.$297,000.
D.$438,000.
E.$579,000.
17) Wright, Bell, and Edison are partners and share income in a 2:5:3 ratio. The
partnership’s capital balances are as follows: Wright, $33,000, Bell $27,000 and Edison
$40,000. Edison decides to withdraw from the partnership, and the partners agree not to
revalue the assets upon Edison’s retirement. The journal entry to record Edison’s June 1
withdrawal from the partnership if Edison is paid $40,000 for his equity is:
A.Debit Edison, Capital $40,000; credit Cash $40,000.
B.Debit Wright, Capital $20,000; Debit Bell, Capital $20,000; credit Cash $40,000.
C.Debit Wright, Capital $20,000; Debit Bell, Capital $20,000; credit Edison, Capital
$40,000.
D.Debit Edison, Capital $40,000; credit Wright, Capital $20,000; credit Bell, Capital
$20,000.
E.Debit Cash $40,000; credit Edison, Capital $40,000.
18) Memphis 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 credit sales for June.
A.$561,500.
B.$652,500.
C.$817,500.
D.$592,500.
E.$890,000.
19) A company uses the FIFO method for inventory costing. At the beginning of a
period, the production department had 20,000 units in beginning Work 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 Work 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.
20) Bonds owned by investors whose names and addresses are recorded by the issuing
company, and for which interest payments are made with checks or cash transfers to the
bondholders, are called:
A.Callable bonds.
B.Serial bonds.
C.Registered bonds.
D.Coupon bonds.
E.Bearer bonds.
21) Alpha Company has assets of $600,000, liabilities of $250,000, and equity of
$350,000. It buys office equipment on credit for $75,000. What would be the effects of
this transaction on the accounting equation?
A.Assets increase by $75,000 and expenses increase by $75,000.
B.Assets increase by $75,000 and expenses decrease by $75,000.
C.Liabilities increase by $75,000 and expenses decrease by $75,000.
D.Assets decrease by $75,000 and expenses decrease by $75,000.
E.Assets increase by $75,000 and liabilities increase by $75,000.
22) Marjam Company owns 51,000 shares of MacKenzie Company’s 100,000
outstanding shares of common stock. MacKenzie Company pays $25,000 in total cash
dividends to its shareholders. Marjam’s entry to record this transaction should include a:
A.Debit to Dividend Revenue for $12,750.
B.Debit to Interest Revenue for $12,750.
C.Credit to Long-Term investments for $12,750.
D.Credit to Long-Term Investments for $25,000.
E.Credit to Dividend Revenue for $25,000.
23) A corporation reports the following year-end balance sheet data. Calculate the
following ratios:
(a) working capital
(b) acid-test ratio
(c) current ratio
(d) debt ratio
(e) equity ratio
(f) debt-to-equity ratio
24) The production activities for a customized product represent a(n):
A.Operation.
B.Job.
C.Unit.
D.Pool.
E.Process.
25) Milltown Company specializes in selling used cars. During the month, the
dealership sold 22 cars at an average price of $15,000 each. The budget for the month
was to sell 20 cars at an average price of $16,000. Compute the dealership’s sales
volume variance for the month.
A.$22,000 unfavorable.
B.$10,000 favorable.
C.$22,000 favorable.
D.$32,000 unfavorable.
E.$32,000 favorable.
26) Quantum Corporation has provided the following data from its activity-based
costing system:
The company makes 340 units of product J71B a year, requiring a total of 980
machine-hours, 36 orders, and 22 inspection-hours per year. The product’s direct
materials cost is $27.50 per unit and its direct labor cost is $18.10 per unit. According to
the activity-based costing system, the total overhead cost for producing the 340 units of
the J71B product is:
A.$15,504.00
B.$30,972.72
C.$37,126.72
D.$21,622.72
E.$17,957.92
27) During November, the production department of a process operations system
completed and transferred to finished goods 35,000 units that were in process at the
beginning of November and 110,000 that were started and completed in November.
November’s beginning inventory units were 100% complete with respect to materials
and 55% complete with respect to conversion. At the end of November, 40,000
additional units were in process in the production department and were 100% complete
with respect to materials and 30% complete with respect to conversion. Compute the
number of equivalent units with respect to conversion for November using the
weighted-average method.
A.145,000.
B.157,000.
C.55,500.
D.83,500.
E.185,000.
28) Expenses that are not easily associated with a specific department, and which are
incurred for the joint benefit of more than one department, are:
A.Fixed expenses.
B.Indirect expenses.
C.Direct expenses.
D.Uncontrollable expenses.
E.Variable expenses.
29) Mace and Bowen are partners and share equally in income or loss. Mace’s current
capital balance is $135,000 and Bowen’s is $120,000. Mace and Bowen agree to accept
Kent with a 30% interest in the partnership. Kent invests $115,000 in the partnership.
The balances in Mace’s and Bowen’s capital accounts after admission of the new partner
equal:
A.Mace $135,000; Bowen $120,000.
B.Mace $137,000; Bowen $122,000.
C.Mace $133,000; Bowen $118,000.
D.Mace $139,000; Bowen $120,000.
E.Mace $135,000; Bowen $124,000.
30) CakeCo, Inc. has three operating departments. Information about these departments
is listed below. Maintenance is service department at CakeCo that incurred $12,000 of
costs during the period. If allocated maintenance cost is based on floor space occupied
by each of the operating departments, compute the amount of maintenance cost
allocated to the Baking Department.
A.$400.
B.$1,200.
C.$4,000.
D.$7,500.
E.$6,000.
31) Employees earn vacation pay at the rate of one day per month. During the month of
June, 10 employees qualify for one vacation day each. Their average daily wage is $150
per day. Which of the following is the necessary adjusting journal entry to record the
June vacation benefits?
A.Debit Vacation Benefits Expense $1,500; credit Prepaid Vacation Benefits $1,500.
B.Debit Vacation Benefits Expense $1,500; credit Vacation Benefits Payable $1,500.
C.Debit Payroll Tax Expense $1,500; credit Payroll Taxes Payable $1,500.
D.Debit Prepaid Vacation Benefits $1,500; credit Vacation Benefits Payable $1,500.
E.Debit Vacation Benefits Payable; credit Vacation Benefits Expense $1,500.
32) SaveMart had income before interest expense and income taxes of $12,581 million
and interest expense of $1,063 million. Valueland had income before interest expense
and income taxes of $3,596 million and interest expense of $1,143 million. Calculate
the times interest earned for each company and comment on the results.
33) Contingent liabilities are recorded in the accounts if the future event is
_______________ and the amount owed can be _______________.
34) Climbers Unlimited uses special journals to record its daily transactions. They use
the perpetual inventory system. Shown below is its cash receipts journal and selected
ledger accounts. Post the cash receipts journal to the appropriate ledger accounts.
35) What is a cost center and how is its performance evaluated?
36) Complete the following by filling in the blanks:
(1) The Prepaid Insurance account had a $545 debit balance at the beginning of the
current year; $650 of insurance premiums were paid during the year; and the year-end
balance sheet showed $420 of prepaid insurance; consequently, the income statement
for the year must have shown $______________ of insurance expense.
(2) The Office Supplies account began the current year with a $235 debit balance; the
income statement for the year showed $475 of office supplies expense; and the year-end
balance sheet showed the current asset, office supplies, at $275; consequently, if all
supplies were accounted for, $____________ of office supplies must have been
purchased during the year.
37) The Tigre Company uses special journals for sales, purchases, cash receipts, cash
disbursements, and uses a general journal. They operate with a perpetual inventory
system. Record the following transactions related to purchases and cash payments that
occurred during the current month of June:
Record the above transactions into the appropriate journals shown below.
38) Identify and explain the four building blocks of financial statement analysis.
39) List the four goals of an internal control system.
40) How are bond issue prices determined?
41) A _____________________ is a seller’s obligation to replace or correct a product or
service that fails to perform as expected within a specified period.
