1) Companies with many employees rarely use a special payroll bank account from
which to pay employees.
2) If a long-term investment in an equity security gives the investor significant
influence over the investee, the investment is classified as available-for-sale.
3) Long-term investments include investments in land or other assets not used in a
company’s operations.
4) A partnership is an incorporated association of two or more people to pursue a
business for profit as co-owners.
5) Underapplied overhead is the amount by which overhead applied to jobs using the
predetermined overhead rate exceeds the overhead incurred during a period.
6) Signature cards, deposit tickets, checks, and bank statements are all examples of
internal control devices for banking activities.
7) Assets invested by a partner into a partnership become the property of the business.
8) Required payroll deductions include income taxes, Social Security taxes, pension and
health contributions, union dues, and charitable giving.
9) A 10-year bond issue with a $100,000 par value, 8% annual contract rate, with
interest payable semiannually means that the issuer must repay $100,000 at the end of
10 years and make 20 semiannual interest payments of $4,000 each.
10) Borden Corporation uses an activity-based costing system with three activity cost
pools. The company has provided the following data concerning its costs and its activity
based costing system:
Distribution of resource consumption:
How much cost, in total, would be allocated in the first-stage allocation to the Setting
Up activity cost pool?
A.$155,000
B.$279,000
C.$206,000
D.$217,000
E.$194,000
11) When a company is obligated for sales taxes payable, it is reported as a(n):
A.Estimated liability.
B.Contingent liability.
C.Current liability.
D.Business expense.
E.Long-term liability.
12) Pepper Department store allocates its service department expenses to its various
operating (sales) departments. The following data is available for its service
departments:
The following information is available for its three operating (sales) departments:
What is the total advertising expense allocated to Department C?
A.$30,000.
B.$9,000.
C.$12,500.
D.$10,800.
E.$7,500.
13) A company sold $12,000 worth of bicycles with an extended warranty. It estimates
that 2% of these sales will result in warranty work. The company should:
A.Consider the warranty expense a remote liability since the rate is only 2%.
B.Recognize warranty expense at the time the warranty work is performed.
C.Recognize warranty expense and liability in the year of the sale.
D.Consider the warranty expense a contingent liability.
E.Recognize warranty liability when the company purchases the bicycles.
14) The following information relates to the manufacturing operations of the JNR
Printing Company for the year:
The raw materials used in manufacturing during the year totaled $118,000. Raw
materials purchased during the year amount to:
A.$107,000.
B.$115,000.
C.$118,000.
D.$121,000.
E.$126,000.
15) On April 1, Griffith Publishing Company received $1,548 from Santa Fe, Inc. for
36-month subscriptions to several different magazines. The subscriptions started
immediately. What is the amount of revenue that should be recorded by Griffith
Publishing Company for the first year of the subscription assuming the company uses a
calendar reporting period?
A.$0.
B.$516.
C.$387.
D.$129.
E.$430.
16) Minstrel Manufacturing uses a job order costing system. During one month
Minstrel purchased $198,000 of raw materials on credit; issued materials to production
of $195,000 of which $30,000 were indirect. Minstrel incurred a factory payroll of
$150,000, paid in cash, of which $40,000 was indirect labor. Minstrel uses a
predetermined overhead rate of 150% of direct labor cost. The journal entry to record
the application of factory overhead to production is:
A.Debit Work in Process Inventory $225,000; credit Factory Overhead $225,000.
B.Debit Work in Process Inventory $165,000; credit Factory Overhead $165,000.
C.Debit Factory Payroll $150,000; credit Work in Process Inventory $150,000.
D.Debit Factory Overhead $165,000; credit Work in Process Inventory $165,000.
E.Debit Work in Process Inventory $165,000; credit Factory Payroll $165,000.
17) Available-for-sale debt securities are:
A.Recorded at cost and remain at cost over the life of the investment.
B.Reported at historical cost, adjusted for the amortized amount of any difference
between cost and maturity value.
C.Reported at fair value on the balance sheet.
D.Intended to be held to maturity.
E.Always classified as Long-Term Investments.
18) Jervis accepts all major bank credit cards, including those issued by Northern Bank
(NB), which assesses a 3% charge on sales for using its card. On June 28, Jervis had
$3,500 in NB Card credit sales. What entry should Jervis make on June 28 to record the
deposit?
A.Debit Cash $3,500; credit Sales $3,500
B.Debit Accounts Receivable $3,500; credit Sales $3,500
C.Debit Cash $3,605; credit Credit Card Expense $105; credit Sales $3,500
D.Debit Cash $3,395; debit Credit Card Expense $105; credit Sales $3,500
E.Debit Accounts Receivable $3,395; debit Credit Card Expense $105; credit Sales
$3,500
19) Epsilon Co. can produce a unit of product for the following costs:
An outside supplier offers to provide Epsilon with all the units it needs at $60 per unit.
If Epsilon buys from the supplier, the company will still incur 40% of its overhead.
Epsilon should choose to:
A.Buy since the relevant cost to make it is $72.
B.Make since the relevant cost to make it is $56.
C.Buy since the relevant cost to make it is $48.
D.Make since the relevant cost to make it is $48.
E.Buy since the relevant cost to make it is $56.
20) A company uses the weighted average 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.
21) Peters, Chong, and Aaron are dissolving their partnership. Their partnership
agreement allocates each partner an equal share of all income and losses. The current
period’s ending capital account balances are Peters, $54,000; Chong, $42,000; and
Aaron, $(2,000). After all assets are sold and liabilities are paid, there is $94,000 in cash
to be distributed. Aaron is unable to pay the deficiency. The journal entry to record the
distribution should be:
A.Debit Peters, Capital $54,000; debit Chong, Capital $40,000; credit Cash $94,000.
B.Debit Peters, Capital $54,000; debit Chong, Capital $42,000; credit Cash $96,000.
C.Debit Peters, Capital $53,000; debit Chong, Capital $41,000; credit Cash $94,000.
D.Debit Cash $94,000, debit Aaron, Capital $2,000, credit Peters, Capital $54,000,
credit Chong, Capital $42,000.
E.Debit Cash $94,000; credit Peters, Capital $47,000; credit Chong, Capital $47,000.
22) Sharmer Company issues 5%, 5 year bonds with a par value of $1,000,000 and
semiannual interest payments. On the issue date, the annual market rate for these bonds
is 6%. What is the bond’s issue (selling) price, assuming the Present Value of $1 factor
for 3% and 10 semi-annual periods is .7441 and the Present Value of an Annuity factor
for the same rate and period is 8.5302?
A.$957,355
B.$1,000,000
C.$1,250,000
D.$786,745
E.$1,213,255
23) Tressor Company is considering a 5-year project. The company plans to invest
$90,000 now and it forecasts cash flows for each year of $27,000. The company
requires that investments yield a discount rate of at least 14%. Selected factors for a
present value of an annuity of 1 for five years are shown below:
Calculate the internal rate of return to determine whether it should accept this project.
A.The project should be accepted because it will earn more than 14%.
B.The project should be accepted because it will earn more than 10%.
C.The project will earn more than 12% but less than 14%. At a hurdle rate of 14%, the
project should be rejected.
D.The project should be rejected because it will earn less than 14%.
E.The project should be rejected because it will not earn exactly 14%.
24) Minor Electric has received a special one-time order for 1,500 light fixtures (units)
at $5 per unit. Minor currently produces and sells 7,500 units at $6.00 each. This level
represents 75% of its capacity. Production costs for these units are $4.50 per unit, which
includes $3.00 variable cost and $1.50 fixed cost. To produce the special order, a new
machine needs to be purchased at a cost of $1,000 with a zero salvage value.
Management expects no other changes in costs as a result of the additional production.
Should the company accept the special order?
A.No, because additional production would exceed capacity.
B.No, because incremental costs exceed incremental revenue.
C.Yes, because incremental revenue exceeds incremental costs.
D.Yes, because incremental costs exceed incremental revenues.
E.No, because the incremental revenue is too low.
25) Minor Company installs a machine in its factory at the beginning of the year at a
cost of $135,000. The machine’s useful life is estimated to be 5 years, or 300,000 units
of product, with a $15,000 salvage value. During its first year, the machine produces
64,500 units of product. Determine the machines’ first year depreciation under the
units-of-production method.
A.$27,000.
B.$54,000.
C.$24,000.
D.$25,800.
E.$48,000.
26) A company buys a machine for $60,000 that has an expected life of 9 years and no
salvage value. The company anticipates a yearly net income of $2,850 after taxes of
30%, with the cash flows to be received evenly throughout each year. What is the
accounting rate of return?
A.2.85%.
B.4.75%.
C.6.65%.
D.9.50%.
E.42.75%.
27) A company paid $595,000 for property that included land appraised at $384,000;
land improvements appraised at $128,000; and a building appraised at $288,000. The
plan is to use the building as a manufacturing plant. Determine the amounts that should
be recorded as:
(a) Land $
(b) Land Improvements $
(c) Building $
28) Merchant Company purchased property for a building site. The costs associated
with the property were:
What portion of these costs should be allocated to the cost of the land and what portion
should be allocated to the cost of the new building?
A.$187,700 to Land; $19,000 to Building.
B.$200,700 to Land; $6,000 to Building.
C.$200,000 to Land; $6,700 to Building.
D.$185,000 to Land; $21,700 to Building.
E.$206,700 to Land; $0 to Building.
29) Rajan Company’s most recent balance sheet reported total assets of $1.9 million,
total liabilities of $0.8 million, and total equity of $1.1 million. Its Debt to equity ratio
is:
A.0.42
B.0.58
C.1.38
D.0.73
E.1.00
30) Short-term investments in held-to-maturity debt securities are accounted for using
the ______________________.
31) Explain the purpose of adjusting entries at the end of a period and provide an
example of an adjusting entry.
32) Lafferty Corporation reported earnings per share of $9.75, paid a $6.00 cash
dividend per share to preferred shareholders, and paid a $0.54 cash dividend per share
to common shareholders. There were 10,000 shares of preferred stock outstanding and
600,000 shares of common stock outstanding during the year, and the market price per
share of common stock was $41.60. Calculate the company’s dividend yield for
common stock.
33) A(n) _____________________ arises from a past decision and cannot be avoided
or changed; it is irrelevant to future decisions.
34) Explain how investors report investments in equity securities when the investor has
a controlling influence over an investee.