1) The purchase of stock in another company is classified as a financing activity.
2) Long-term investments are usually held as an investment of cash for use in current
operations.
3) A payee of a note usually honors a note and pays it in full.
4) Product costs can be classified as one of three types: direct materials, direct labor, or
overhead.
5) Accrued expenses at the end of one accounting period are expected to result in cash
payments in a future period.
6) Recording expenses early overstates current-period income; recording expenses late
understates current period income.
7) Financial budgets are normally completed after preparation of operating and capital
expenditure budgets.
8) The managers of process manufacturing systems focus on the series of processes
needed to complete the production of products.
9) A production department is an organizational unit that has the responsibility for at
least partially processing a product.
10) Graphical analysis of the balance sheet can be useful in assessing sources of
financing.
11) Adjusting entries are normally entered in the general journal before they are posted
to the work sheet.
12) The closing process takes place after financial statements have been prepared.
13) The following journal entry would be made to record the use of $6,100 of direct
labor in a production department during the reporting period:
14) Generally, the ordering of accounts in a trial balance typically follows their
identification number from the chart of accounts, that is, assets first, then liabilities,
then owner’s capital and withdrawals, followed by revenues and expenses.
15) If a customer owes interest on accounts receivable, Interest Revenue is debited and
Accounts Receivable is credited.
16) Profit margin measures the relation of debt to assets.
17) Companies use two methods to account for uncollectible accounts, the direct
write-off method and the allowance method.
18) A liability does not exist if there is any uncertainty about whom to pay, when to pay,
or how much to pay.
19) All of the following statements regarding U.S. GAAP and IFRS are true except?
A.Both U.S. GAAP and IFRS include broad and similar guidance for the items and
costs making up merchandise inventory
B.For both U.S. GAAP and IFRS, merchandise inventory includes all items that a
company owns and holds for sale
C.Both U.S. GAAP and IFRS require companies to write down inventory when its
value falls below the cost presently recorded
D.Both U.S. GAAP and IFRS allow reversals of write downs up to the original
acquisition cost
E.With limited exceptions, neither U.S. GAAP nor IFRS allow inventory to be adjusted
upward beyond the original cost
20) A company declared a $0.55 per share cash dividend. The company has 200,000
shares authorized, 190,000 shares issued, and 8,000 shares in treasury stock. The
earnings per share is $4.53. The current market value of the stock is $20.00. The
dividend yield is:
A.22.7%
B.12.1%
C.4.2%
D.3.9%
E.2.8%
21) The contribution margin ratio:
A.Is the percent of each sales dollar that remains after deducting total unit variable cost
B.Is the percent of each sales dollar that remains after deducting total unit fixed cost
C.Is the percent of each sales dollar that remains to cover fixed costs and contribute to
the managers’ incomes
D.Cannot be used in conjunction with other analytical tools
E.Is the same as the unit contribution margin
22) Using the information below, compute the manufacturing cycle time:
A.7.5 hours
B.6.5 hours
C.8.0 hours
D.80.0 hours
E.7.1 hours
23) Net sales divided by average total assets is the:
A.Profit margin
B.Total asset turnover
C.Current ratio
D.Sales return ratio
E.Return on total assets
24) The accountant for Robinson Company is preparing the company’s statement of
cash flows for the fiscal year just ended. The following information is available:
What is the ending balance for retained earnings?
A.$276,000
B.$202,000
C.$254,000
D.$248,000
E.$174,000
25) Retained earnings:
A.Generally consists of a company’s cumulative net income less any net losses and
dividends declared since its inception
B.Can be subject to a statutory restriction by a state
C.Can be subject to restrictions due to loan agreements
D.Can be subject to appropriation by a corporation’s directors for special activities
E.All of these
26) A college uses advisors who work with all students in all divisions of the college.
The most useful allocation basis for the salaries of these employees would likely be
A.number of classes offered in each division
B.student graduation rate
C.square footage of each division
D.number of students advised from each division
E.relative salaries of division heads
27) The following statements regarding gross profit are true except:
A.Gross profit is also called gross margin.
B.Gross profit less other operating expenses equals income from operations.
C.Gross profit is not calculated on the multiple-step income statement.
D.Gross profit must cover all operating expenses to yield a return for the owner of the
business.
E.Gross profit equals net sales less cost of goods sold.
28) Bartels Corp. produces woodcarvings. It takes 2 hours of direct labor to produce a
carving. Bartels’ standard labor cost is $12 per hour. During August, Bartels produced
10,000 carvings and used 21,040 hours of direct labor at a total cost of $250,376. What
is Bartels’ labor rate variance for August?
A.$2,000 favorable
B.$2,104 unfavorable
C.$2,104 favorable
D.$4,160 favorable
E.$2,000 unfavorable
29) Chad is setting up a retirement fund, and he plans on depositing $5,000 per year in
an investment that will pay 7% annual interest. How long will it take him to reach his
retirement goal of $69,080?
A.13.816 years
B.0.072 years
C.10 years
D.20 years
E.5 years
30) A cost center is a unit of a business that incurs costs but does not directly generate
revenues. All of the following are considered cost centers except:
A.Accounting department
B.Purchasing department
C.Research department
D.Advertising department
E.All of these could be considered cost centers
31) Ajax Company accumulated the following account information for the year:
Using the above information, total factory overhead costs would be:
A.$9,800
B.$16,800
C.$15,800
D.$13,000
E.$7,800
32) Maria Sanchez began business as Sanchez Law Firm on November 1. Record the
following November transactions by making entries directly to the T-accounts provided.
Then, prepare a trial balance, as of November 30.
a) Sanchez invested $15,000 cash and a law library valued at $6,000.
b) Purchased $7,500 of office equipment from Johnson Bros. on credit.
c) Completed legal work for a client and received $1,500 cash in full payment.
d) Paid Johnson Bros. $3,500 cash in partial settlement of the amount owed.
e) Completed $4,000 of legal work for a client on credit.
f) Sanchez withdrew $2,000 cash for personal use.
g) Received $2,500 cash as partial payment for the legal work completed for the client
in (e).
h) Paid $2,500 cash for the legal secretary’s salary.
33) A primary difference between variable costs and fixed costs is:
A.Variable costs per unit change in varying increments while fixed costs per unit
change in equal increments over the relevant range of activity
B.Variable costs per unit fluctuate and fixed costs per unit remain constant over the
relevant range of activity
C.Variable costs per unit are fixed and fixed costs per unit are variable over the relevant
range of activity
D.Variable costs per unit change in equal increments while total fixed costs change in
proportion to the level of activity over the company’s relevant range
E.Total variable costs are fixed and fixed costs per unit never change over the relevant
range of activity
34) The principles of internal control include:
A.Establish responsibilities
B.Maintain minimal records
C.Use only computerized systems
D.Bond all employees
E.Require automated sales systems
35) A corporation borrowed $125,000 cash by signing a 5-year, 9% installment note
requiring equal annual payments each December 31 of $32,136. What journal entry
would the issuer record for the first payment?
A.Debit Interest Expense $7,136; debit Notes Payable $25,000; credit Cash $32,136
B.Debit Notes Payable $32,136; debit Interest Payable $11,250; credit Cash $43,386
C.Debit Interest Expense $11,250; debit Notes Payable $20,886; credit Cash $32,136
D.Debit Notes Payable $32,136; credit Cash $32,136
E.Debit Notes Payable $11,250; credit Cash $11,250
36) A plan that reports the units or costs of merchandise to be purchased by a
merchandising company during the budget period is called a:
A.Selling expenses budget
B.Merchandise purchases budget
C.Sales budget
D.Cash budget
E.Capital expenditures budget
37) Products that are in the process of being manufactured but are not yet complete are
called:
A.Raw materials inventory
B.Conversion costs
C.Cost of goods sold
D.Goods in process inventory
E.Finished goods inventory
38) A job cost sheet shows information about each of the following items except:
A.The direct labor costs assigned to the job
B.The name of the customer
C.The costs incurred by the marketing department in selling the job
D.The overhead costs assigned to the job
E.The direct materials costs assigned to the job
39) Calculate the cost of goods sold using the following information:
A.$680,500
B.$701,900
C.$687,100
D.$674,600
E.$772,600
40) Boston Co. is considering the production and sale of a new product with the
following sales and cost data: unit sales price, $300; unit variable costs, $180; total
fixed costs, $270,000; and projected sales, $900,000. What is the margin of safety:
(a) In dollar sales?
(b) As a percent of sales?
41) A plan that shows the predicted costs for direct materials, direct labor, and overhead
to be incurred in manufacturing the units in the production budget is called the:
A.Sales budget
B.Merchandise purchases budget
C.Production budget
D.Rolling budget
E.Manufacturing budget
42) The rate that yields a net present value of zero for an investment is the:
A.Internal rate of return
B.Accounting rate of return
C.Net present value rate of return
D.Zero rate of return
E.Payback rate of return
43) Unearned revenues are:
A.Revenues that have been earned and received in cash
B.Revenues that have been earned but not yet collected in cash
C.Liabilities created when a customer pays in advance for products or services before
the revenue is earned
D.Recorded as an asset in the accounting records
E.Increases to owners’ capital
44) If beginning and ending goods in process inventories are $5,000 and $15,000,
respectively, and cost of goods manufactured is $170,000, what is the total
manufacturing cost for the period?
A.$180,000
B.$155,000
C.$160,000
D.$175,000
E.$165,000
45) Par value of a stock refers to the:
A.Issue price of the stock
B.Value assigned per share of stock by the corporate charter
C.Market value of the stock on the date of the financial statements
D.Maximum selling price of the stock
E.Dividend value of the stock
46) A plan that states the number of units to be manufactured during each future period
covered by the budget, based on the budgeted sales for the period and the levels of
inventory needed to support future sales, is the:
A.Sales budget
B.Merchandise purchases budget
C.Production budget
D.Cash budget
E.Manufacturing budget
47) The number of days’ sales uncollected:
A.Is used to evaluate the liquidity of receivables
B.Is calculated by dividing accounts receivable by sales
C.Measures a company’s ability to pay its bills on time
D.Measures a company’s debt to income
E.Is calculated by dividing sales by accounts receivable
48) A balance sheet lists:
A.The types and amounts of the revenues and expenses of a business
B.Only the information about what happened to equity during a time period
C.The types and amounts of assets, liabilities, and equity of a business as of a specific
date
D.The inflows and outflows of cash during the period
E.The assets and liabilities of a company but not the owner’s equity
49) A company reports basic earnings per share of $3.50, cash dividends per share of
$0.75, and a market price per share of $64.75. The company’s dividend yield equals:
A.1.16%
B.2.14%
C.4.67%
D.5.41%
E.18.50%
50) Which of the following statements is incorrect?
A.Working papers are useful aids in the accounting process
B.On the work sheet, the effects of the accounting adjustments are shown on the
account balances
C.After the work sheet is completed, it can be used to help prepare the financial
statements
D.On the work sheet, the adjusted amounts are sorted into columns according to
whether the accounts are used in preparing the unadjusted trial balance or the adjusted
trial balance
E.A worksheet is not a substitute for financial statements
51) A total asset turnover ratio of 3.5 indicates that:
A.For every $1 in sales, the firm acquired $3.50 in assets during the period
B.For every $1 in assets, the firm produced $3.50 in net sales during the period
C.For every $1 in assets, the firm earned gross profit of $3.50 during the period
D.For every $1 in assets, the firm earned $3.50 in net income
E.For every $1 in assets, the firm paid $3.50 in expenses during the period
52) Dolly Barton began Barton Office Services in October and during that month
completed these transactions:
a. Invested $10,000 cash, and $15,000 of computer equipment.
b. Paid $500 cash for an insurance premium covering the next 12 months.
c. Completed a word processing assignment for a customer and collected $1,000 cash.
d. Paid $200 cash for office supplies.
e. Paid $2,000 for October’s rent.
Prepare journal entries to record the above transactions. Explanations are unnecessary.
53) The following data concerns a proposed equipment purchase:
Assuming that net cash flows are received evenly throughout the year, the accounting
rate of return is:
A.62.3%
B.32.0%
C.15.0%
D.7.7%
E.5.0%
54) Prenumbered printed checks are an example of which internal control principle?
A.Technological controls
B.Maintain adequate records
C.Perform regular and independent reviews
D.Establish responsibilities
E.Divide responsibility for related transactions
55) A company discarded a display case originally purchased for $8,000. The
accumulated depreciation was $7,200. The company should recognize a(an):
A.$0 gain or loss.
B.$800 loss
C.$800 gain
D.$8,000 loss
E.$7,200 loss
56) On September 30 a company needed to estimate its ending inventory to prepare its
third quarter financial statements. The following information is available:
Beginning inventory, July 1: $4,000
Net sales: $40,000
Net purchases: $41,000
The company’s gross margin ratio is 15%. Using the gross profit method, the cost of
goods sold would be:
A.$4,000
B.$5,000
C.$21,000
D.$25,000
E.$34,000
57) Explain variance analysis. Describe how variance analysis assists managers.
58) Explain why temporary accounts are closed each period.
59) The ______________________ method of assigning costs to inventory and cost of
goods sold assumes that the most recent purchases are sold first.
60) Explain the present value concept as it applies to long term liabilities.
61) A company uses the retail inventory method and has the following information
available concerning its most recent accounting period:
1> What is the cost-to-retail ratio using the retail method?
2> What is the estimated cost of the ending inventory?
62) Based on the following trial balance for Sal’s Beauty Shop, prepare an income
statement, statement of owner’s equity, and a balance sheet. Sal made no additional
investments in the company during the year.
63) What is a scatter diagram? How is a scatter diagram used to estimate cost behavior?