1) How much sales are required to earn a target net income of $160,000 if total fixed
costs are $300,000 and the contribution margin ratio is 40%?
a.$766,667
b.$750,000
c.$1,150,000
d.$500,000
2) Match each of the principles and phases in the development of an accounting system
with the statement that best describes them.
a.Cost effectiveness
b.Flexibility
c.Useful output
_____1>Information must be understandable, relevant, reliable, timely, and accurate.
_____2>Benefits of information must outweigh the cost of providing it.
_____3>The system should accommodate a variety of users and changing information
needs.
_____4>The accounting system must consider the needs and knowledge of various
users.
_____5>The system should be capable of meeting the changes in the demands made
upon it.
3) Which of the following economic events would not be recorded in the cash receipts
journal?
a.Cash sales of merchandise
b.Collections of accounts receivable
c.Cash from sale of land
d.Cash purchases of merchandise
4) A static budget
a.should not be prepared in a company
b.is useful in evaluating a manager’s performance by comparing actual variable costs
and planned variable costs
c.shows planned results at the original budgeted activity level
d.is changed only if the actual level of activity is different than originally budgeted
5) When estimating the useful life of an asset, accountants do not consider
a.the cost to replace the asset at the end of its useful life
b.obsolescence factors
c.expected repairs and maintenance
d.the intended use of the asset
6) If a liability is dependent on a future event, it is called a
a.potential liability
b.hypothetical liability
c.probabilistic liability
d.contingent liability
7) Having one person post entries to accounts receivable subsidiary ledger and a
different person post to the Accounts Receivable Control account in the general ledger
is an example of
a.inadequate internal control
b.duplication of effort
c.external verification
d.segregation of duties
8) Rosle Company developed the following data for the current year:
Beginning work in process inventory$103,000
Direct materials used153,000
Actual overhead130,000
Overhead applied137,000
Cost of goods manufactured672,000
Total manufacturing costs645,000
How much is Rosle Company’s ending work in process inventory for the year?
a.$279,000
b.$355,000
c.$76,000
d.$130,000
9) Which of the following are accounted for at amortized cost?
a.Held-for-collection investments
b.Held-to-maturity investments
c.Non-trading equity investments
d.Both Held-for-collection and Held-to-maturity investments
10) An example of poor internal control is
a.The accountant should not have physical custody of the asset nor access to it
b.The custodian of an asset should not maintain or have access to the accounting
records
c.One person should be responsible for handling related transactions
d.A salesperson makes the sale, and a different person ships the goods
11) Which one of the following is a source document that impacts the job cost sheet?
a.Raw materials receiving slips
b.Materials purchase orders
c.Labor time tickets
d.Finished goods shipping documents
12) Using prenumbered checks and having an approved invoice for each check is an
example of
a.establishment of responsibility
b.segregation of duties
c.documentation procedures
d.independent internal verification
13) Partners Cantor and Dickens have capital balances in a partnership of $160,000 and
$240,000, respectively. They agree to share profits and losses as follows:
CantorDickens
As salaries$40,000$48,000
As interest on capital at the beginning of the year10%10%
Remaining profits or losses50%50%
If income for the year was $120,000, what will be the distribution of income to Cantor?
a.$52,000
b.$64,000
c.$40,000
d.$56,000
14) Given the following information, compute the amount of cash remitted by the
customer on February 21 .
Feb. 14Sale on credit, terms of 1/15, n/30$12,000
Feb. 19Allowance granted due to some items being damaged$600
Feb. 21Payment in full received from customer$?
a.$11,996
b.$12,000
c.$11,286
d.$11,400
15) Takei Company’s payroll for the week ending January 15 amounted to $367,000 for
salaries and wages. None of the employees has reached the earnings limits specified for
federal or state employer payroll taxes. The following deductions were withheld from
employees’ salaries and wages:
Federal Income Tax$75,000
State Income Tax13,500
FICA Taxes28,075
Union Dues4,100
United Fund Contributions2,700
Federal unemployment tax (FUTA) rate is 6.2% less a credit equal to the rate paid for
state unemployment taxes. The state unemployment tax (SUTA) rate is 5.4%.
Instructions
Prepare the journal entry to record the weekly payroll ending January 15 and also the
employers payroll tax expense on the payroll.
16) Hooverville Service Center just purchased an automobile hoist for $16,900. The
hoist has a 5-year life and an estimated salvage value of $1,250. Installation costs were
$3,770, and freight charges were $960. Laramie uses straight-line depreciation.
The new hoist will be used to replace mufflers and tires on automobiles. Mooresville
estimates that the new hoist will enable his mechanics to replace four extra mufflers per
week. Each muffler sells for $84.50 installed. The cost of a muffler is $46.50, and the
labor cost to install a muffler is $13.
Instructions
(a)Compute the payback period for the new hoist.
(b)Compute the annual rate of return for the new hoist. (Round to one decimal.)
17) Performance reports for cost centers compare actual
a.total costs with static budget data
b.total costs with flexible budget data
c.controllable costs with static budget data
d.controllable costs with flexible budget data
18) Management by exception
a.causes managers to be buried under voluminous paperwork
b.means that all differences will be investigated
c.means that only unfavorable differences will be investigated
d.means that material differences will be investigated
19) The standard direct labor cost for producing one unit of product is 5 direct labor
hours at a standard rate of pay of $1 Last month, 5,000 units were produced and 24,500
direct labor hours were actually worked at a total cost of $337,500. The direct labor
quantity variance was:
a.$11,250 unfavorable
b.$7,500 unfavorable
c.$7,500 favorable
d.$11,250 favorable
20) The formula for the labor price variance is
a.(AH) x (SR) less (SH) x (SR)
b.(AH) x (AR) less (AH) x (SR)
c.(AH) x (AR) less (SH) x (SR)
d.(AH) x (SR) less (AH) x (SR)
21) A major accounting contribution to the managerial decision-making process in
evaluating possible courses of action is to
a.assign responsibility for the decision
b.provide relevant revenue and cost data about each course of action
c.determine the amount of money that should be spent on a project
d.decide which actions that management should consider
22) Having one person responsible for the related activities of ordering merchandise,
receiving goods, and paying for them
a.increases the potential for errors and fraud
b.decreases the potential for errors and fraud
c.is an example of good internal control
d.is a good example of safeguarding the company’s assets
23) If accounting information has relevance, it is useful in making predictions about
a.future tax audits
b.new accounting principles
c.foreign currency exchange rates
d.the future events of a company
24) The cost of goods available for sale is allocated to the cost of goods sold and the
a.beginning inventory
b.ending inventory
c.cost of goods purchased
d.gross profit
25) Gruffin Manufacturing Company reported the following year-end information:
Beginning work in process inventory $1,420,000
Beginning raw materials inventory400,000
Ending work in process inventory1,200,000
Ending raw materials inventory640,000
Raw materials purchased1,250,000
Direct labor1,300,000
Manufacturing overhead960,000
Gruffin Manufacturing Company’s cost of goods manufactured for the year is
a.$3,270,000
b.$4,690,000
c.$2,900,000
d.$3,490,000
26) Turturro Department Store utilizes the retail inventory method to estimate its
inventories. It calculated its cost to retail ratio during the period at 75%. Goods
available for sale at retail amounted to $600,000 and goods were sold during the period
for $420,000. The estimated cost of the ending inventory is
a.$135,000
b.$180,000
c.$315,000
d.$450,000
27) Inventoriable costs include all of the following except the
a.freight costs incurred when buying inventory
b.costs of the purchasing and warehousing departments
c.cost of the beginning inventory
d.cost of goods purchased
28) A manager that is establishing objectives is performing which management
function?
a.Controlling
b.Directing
c.Planning
d.Constraining
29) A plant asset was purchased on January 1 for $60,000 with an estimated salvage
value of $12,000 at the end of its useful life. The current year’s Depreciation Expense is
$6,000 calculated on the straight-line basis and the balance of the Accumulated
Depreciation account at the end of the year is $30,000. The remaining useful life of the
plant asset is
a.10 years
b.8 years
c.5 years
d.3 years
30) Factory Labor is a(n)
a.expense account
b.control account
c.subsidiary account
d.manufacturing cost clearing account
31) A manufacturing company usually has three inventory accounts which are
(1)___________________, (2)___________________, and (3)___________________.
32) Indicate how each of the following items would be shown on a bank reconciliation.
1>Bank error (The bank charged our account with another company’s check)
2>Check printing charge
3>Deposits in transit
4>Note collected by the bank
5>NSF checks
6>Outstanding checks
33) Seacrest Corporation has the following stockholders’ equity accounts on January 1,
2014:
Common Stock, $10 par value $1,500,000
Paid-in Capital in Excess of Par200,000
Retained Earnings 500,000
Total Stockholders’ Equity$2,200,000
The company uses the cost method to account for treasury stock transactions. During
2014, the following treasury stock transactions occurred:
April1Purchased 15,000 shares at $18 per share.
August1Sold 5,000 shares at $21 per share.
October1Sold 6,000 shares at $15 per share.
Instructions
Journalize the treasury stock transactions for 2014 .
34) One of the major benefits of JIT is the elimination of ______________ and
____________ inventory accounts.
35) On December 31, 2014, Fashion Nugget Company prepared an income statement
and balance sheet and failed to take into account three adjusting entries. The incorrect
income statement showed net income of $35,000. The balance sheet showed total
assets, $115,000; total liabilities, $45,000; and owner’s equity, $70,000.
The data for the three adjusting entries were:
(1)Depreciation of $10,000 was not recorded on equipment.
(2)Wages amounting to $7,000 for the last two days in December were not paid and not
recorded. The next payroll will be in January.
(3)Rent of $12,000 was paid for two months in advance on December 1 . The entire
amount was debited to Rent Expense when paid.
Instructions
Complete the following tabulation to correct the financial statement amounts shown
(indicate deductions with parentheses):
Item Net IncomeTotal AssetsTotal LiabilitiesOwners Equity
Incorrect balances$ 35,000$115,000$ 45,000$ 70,000
Effects of:
Depreciation
Wages
Rent
Correct Balances
36) Using _______________ documents is a control measure which helps in accounting
for all documents in a series and also prevents a document from being recorded more
than once.
37) Matthew Corporation manufactures paper shredding equipment. You are requested
to “audit” a sampling of computations made by Matthew’s internal accountants via your
independent recalculation of the information. Instructions: Compute the requested
information for each of the following independent situations (present supporting
calculations). 1>Each paper shredder has a standard materials cost of 20 pounds at
$7.50 per pound or $150.00 in total. 40,000 pounds of materials were purchased for
$320,000 during the period and 39,000 pounds were used in the production of 2,000
good units. Compute the direct materials price and quantity variances, and label them as
favorable or unfavorable. 2>Matthew uses a process costing system. 2,000 units were
in process at the beginning of the period, 60% complete. 20,000 units were started into
production during the period; 1,000 were in process at the end of the period, 60%
complete. Compute equivalent units for conversion costs. 3>Matthew sells each unit
for $500. Variable costs per unit equal $300. Total fixed costs equal $800,000. Matthew
is currently selling 5,000 units per period and would like to earn net income of
$400,000. Compute: (1) breakeven point in dollars; (2) sales units necessary to attain
desired income; and (3) margin of safety ratio for current operations. (a)Breakeven =
$_______________________________________________. (b)Desired sales =
___________________________________________ units. (c)Margin of safety =
_____________________________________________%.
38) Walter Bector and Sandy Melos began detail work on automobiles as a hobby. First,
they used a mail-order kit to add “pin striping” to their own cars, a 1968 Mustang and a
1970 GTO Judge, respectively. Then Walter added more flourishes, including his name.
Sandy practiced painting flames on his Judge. Gradually, their cars became recognized
around town and others began to ask them to add a flourish here or there to their cars.
They were talked into attending a “muscle car” show in a nearby large city to show off
their cars. They had more requests for work than they could handle. Now, they are
considering quitting their other jobs and making this a permanent business. Sandy, for
example, turns down more jobs than he accepts and still gets more requests every week.
Walter and Sandy are unsure how to proceed. They like the idea of a partnership, but
they only know they work well togetherthings like how to split payment have just been
settled individually for each job, depending on which one did more work. Walters father
suggests a written partnership agreement. Walter disagrees. He believes that it will spoil
the whole arrangement by reducing it to words.
Required:
Write a brief note to Walter explaining why he needs a partnership agreement.