1) A sole proprietorship is a business owned by one or more persons.
2) Companies are allowed to use FIFO for financial reporting and LIFO for tax
reporting, according to IRS requirements.
3) A reverse stock split reduces the market value per share and the par value per share
of stock.
4) Financial statements can be prepared directly from the information in the adjusted
trial balance.
5) Compound interest means that interest in a second period is based on the total
amount borrowed plus the interest accrued in the first period.
6) Control is the process of setting goals and determining ways to achieve them.
7) If a company purchases land paying cash, the journal entry to record this transaction
will include a debit to Cash.
8) A company has earnings per share of $6.45. Its dividend per share is $0.20, and its
market price per share is $80. Its price-earnings ratio equals 12.4.
9) When materials are used as indirect materials, their cost is debited to the Factory
Overhead account.
10) When the actual cost of direct materials used exceeds the standard cost, the
company must have experienced an unfavorable direct materials price variance.
11) Owners of a corporation are called shareholders or stockholders.
12) On September 30, Emerson Co. has $540,250 of accounts receivable. Emerson uses
the allowance method of accounting for bad debts and has an existing credit balance in
the allowance for doubtful accounts of $13,750. 1. Prepare journal entries to record the
following selected October transactions. The company uses the perpetual inventory
system. 2. Show how Accounts Receivable and the Allowance for Doubtful Accounts
appear on its October 31 balance sheet.
a. Sold $325,000 of merchandise (that cost $178,500) to customers on credit.
b. Received $425,100 cash in payment of accounts receivable.
c. Wrote off $16,700 of uncollectible accounts receivable.
d. In adjusting the accounts on October 31, its fiscal year-end, the company estimated
that 3.0% of accounts receivable will be uncollectible.
13) Internal control policies and procedures have limitations including:
A.Human error
B.Human fraud
C.Cost-benefit principle
D.Collusion
E.All of these
14) In a responsibility accounting system:
A.Controllable costs are assigned to managers who are responsible for them
B.Each accounting report contains all items allocated to a responsibility center
C.Organized and clear lines of authority and responsibility are only incidental
D.All managers at a given level have equal authority and responsibility
E.All of these
15) Costs that the manager has the power to determine or at least strongly influence are
called:
A.Uncontrollable costs
B.Controllable costs
C.Joint costs
D.Direct costs
E.Indirect costs
16) A capital deficiency means that:
A.The partnership has a loss
B.The partnership has more liabilities than assets
C.At least one partner has a debit balance in his/her capital account
D.At least one partner has a credit balance in his/her capital account
E.The partnership has been sold at a loss
17) Internal users of financial information:
A.Are not directly involved in operating a company
B.Are those individuals involved in managing and operating the company
C.Include shareholders and lenders
D.Include directors and customers
E.Include suppliers, regulators, and the press
18) An accounting system that provides information that management can use to
evaluate the performance of a department’s manager is called a:
A.Cost accounting system
B.Managerial accounting system
C.Responsibility accounting system
D.Financial accounting system
E.Activity-based accounting system
19) A partnership:
A.Is also called a sole proprietorship
B.Has unlimited liability for its partners
C.Has to have a written agreement in order to be legal
D.Is a legal organization separate from its owners
E.Has owners called shareholders
20) Which of the following characteristics applies to process cost accounting but not to
job order cost accounting?
A.Use of a predetermined overhead rate
B.Identifiable lots of production
C.Equivalent units of production
D.Labor time ticket for each employee
E.Use of a single Goods in Process Inventory account
21) Corporations often buy back their own stock:
A.To avoid a hostile take-over
B.To have shares available for a merger or acquisition
C.To have shares available for employee compensation
D.To maintain market value for the company stock
E.All of these
22) In general journal form, record the December 31 adjusting entries for the following
transactions and events. Assume that December 31 is the end of the annual accounting
period.
a. The Prepaid Insurance account shows a debit balance of $2,340, representing the cost
of a three-year fire insurance policy that was purchased on October 1 of the current
year.
b. The Office Supplies account has a debit balance of $400; a year-end inventory count
reveals $80 of supplies still on hand.
c. On November 1 of the current year, Rent Earned was credited for $1,500. This
amount represented the rent earned for a three-month period beginning November 1.
d. Estimated depreciation on office equipment is $600.
e. Accrued salaries amount to $400.
23) A partnership recorded the following journal entry:
This entry reflects:
A.Acceptance of a new partner who invests $70,000 and receives a $20,000 bonus
B.Withdrawal of a partner who pays a $10,000 bonus to each of the other partners
C.Addition of a partner who pays a bonus to each of the other partners
D.Additional investment into the partnership by Tanner and Jackson
E.Withdrawal of $10,000 each by Tanner and Jackson upon the admission of a new
partner
24) A company reported the following stockholders’ equity on January 1 of the current
year:
Prepare journal entries for the following selected transactions related to this company’s
stock during the current year:
25) Plymouth Industries incurs the following costs during the current year:
Sales for the year were $80,000 and Plymouth Industries determined that only the direct
production costs (prime costs) and sales commissions are to be classified as variable
costs; all other costs are classified as fixed costs. Plymouth sold 400 units.
(a) Calculate the unit contribution margin and the contribution margin ratio for
Plymouth
Industries.
(b) Plymouth Industries is considering plans that would increase the contribution
margin ratio for next year. Should it pursue these plans? Explain.
26) Electron borrowed $75,000 cash from TechCom by signing a promissory note.
TechCom’s entry to record the transaction should include a:
A.Debit to Notes Receivable for $75,000
B.Debit to Accounts Receivable for $75,000
C.Credit to Notes Receivable for $75,000
D.Debit Notes Payable for $75,000
E.Credit to Sales for $75,000
27) Costs that the manager does not have the power to determine or at least strongly
influence are:
A.Variable costs
B.Uncontrollable costs
C.Indirect costs
D.Direct costs
E.Joint costs
28) Under the alternative method for recording prepaid expenses, which is the correct
set of journal entries?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
29) Which of the following statements is True regarding product and period costs?
A.Office salaries expense is a product cost and factory maintenance is a period cost
B.Office rent is a product cost and supervisors’ salaries expense is a period cost
C.Factory rent is a product cost and advertising expense is a period cost
D.Delivery expense is a product cost and indirect materials is a period cost
E.Sales commissions is a product cost and indirect labor is a period cost
30) If the Balance Sheet and Statement of Owner’s Equity columns of a work sheet fail
to balance when the amount of the net income is added to the Balance Sheet and
Statement of Owner’s Equity Credit column, the cause could be:
A.An expense amount entered in the Balance Sheet and Statement of Owner’s Equity
Debit column
B.A revenue amount entered in the Balance Sheet and Statement of Owner’s Equity
Credit column
C.An asset amount entered in the Income Statement and Statement of Owner’s Equity
Debit column
D.A liability amount entered in the Income Statement and Statement of Owner’s Equity
Credit column
E.An expense amount entered in the Balance Sheet and Statement of Owner’s Equity
Credit column
31) Prepare the required general journal entry to record the following transactions for
the Flaherty Company.
a. Incurred $95,000 of factory labor cost which is paid in cash.
b. Used $78,000 of direct labor in the production department.
c. Used $17,000 of indirect labor.
32) Schoodic Company had the following long-term available-for-sale securities in its
portfolio at December 31 for each of the years listed. The year-end cost and fair values
for its portfolio follow. Beginning with Year 1, prepare the appropriate journal entry to
record each year-end market adjustment for these securities.
33) Which of the following errors would cause the Balance Sheet and Statement of
Owner’s Equity columns of a work sheet to be out of balance?
A.Entering an asset amount in the Income Statement Debit column
B.Entering a liability amount in the Income Statement Credit column
C.Entering an expense amount in the Balance Sheet and Statement of Owner’s Equity
Debit column
D.Entering a revenue amount in the Balance Sheet and Statement of Owner’s Equity
Debit column
E.Entering a liability amount in the Balance Sheet and Statement of Owner’s Equity
Credit column
34) The ending inventory of finished goods has a total cost of $9,000 and consists of
600 units. If the overhead applied to these goods is $3,000, and the overhead rate is
75% of direct labor, how much direct materials cost was incurred in producing these
units?
A.$3,750
B.$2,000
C.$4,000
D.$6,000
E.$9,000
35) An opportunity cost is:
A.An uncontrollable cost
B.A cost of potential benefit lost
C.A change in the cost of a component
D.A direct cost
E.A sunk cost
36) IFRS reporting currently does not allow which method of inventory costing?
A.Specific identification
B.FIFO
C.LIFO
D.Weighted average
E.Lower of cost or market
37) Managerial accounting information:
A.Is used mainly by external users
B.Involves gathering information about costs for planning and control decisions
C.Is generally the only accounting information available to managers
D.Can be used for control purposes but not for planning purposes
E.Has little to do with controlling costs
38) A corporation issued 5,000 shares of $10 par value common stock in exchange for
some land with a market value of $60,000. The entry to record this exchange is:
A.Debit Land $60,000; credit Common Stock $50,000; credit Paid-In Capital in Excess
of Par Value, Common Stock $10,000
B.Debit Land $60,000; credit Common Stock $60,000
C.Debit Land $50,000; credit Common Stock $50,000
D.Debit Common Stock $50,000; debit Paid-In Capital in Excess of Par Value,
Common Stock $10,000; credit Land $60,000
E.Debit Common Stock $60,000; credit Land $60,000
39) Mutual agency means
A.Creditors can apply their claims to partners’ personal assets
B.Partners are taxed on partnership withdrawals
C.All partners must agree before the partnership can act
D.The partnership has a limited life
E.A partner can commit or bind the partnership in any contract within the scope of the
partnership business
40) A company that uses a job order cost accounting system would make the following
entry to record the flow of direct materials into production:
A.debit Goods in Process Inventory, credit Cost of Goods Sold
B.debit Goods in Process Inventory, credit Raw Materials Inventory
C.debit Goods in Process Inventory, credit Factory Overhead
D.debit Factory Overhead, credit Raw Materials Inventory
E.debit Finished Goods Inventory, credit Raw Materials Inventory
41) Bentley records adjusting entries at its December 31 year end. At December 31,
employees had earned $12,000 of unpaid and unrecorded salaries. The next payday is
January 3, at which time $30,000 will be paid. Prepare the January 1 journal entry to
reverse the effect of the December 31 salary expense accrual.
A.Debit Salaries expense $12,000; credit Salaries payable $12,000
B.Debit Salaries expense $18,000; debit Salaries payable $12,000; credit Cash $30,000
C.Debit Salaries payable $18,000; credit Cash $18,000
D.Debit Salaries payable $12,000, credit Salaries expense $12,000
E.Debit Salaries expense $18,000; credit Salaries payable $18,000
42) Information storage:
A.Eliminates the need for professional judgment
B.Keeps data in a form accessible to information processors
C.Provides the basic information processed by an accounting system
D.Captures information from source documents
E.Cannot be online
43) A financial statement analysis report:
A.Enables readers to see the process and rationale of analysis
B.Forces preparers to organize their reasoning and to verify the logic of analysis
C.Serves as a method of communication to users
D.Helps users and preparers to refine conclusions based on evidence from key building
blocks
E.All of these
44) The number of shares that a corporation’s charter allows it to sell is referred to as:
A.Issued stock
B.Outstanding stock
C.Common stock
D.Preferred stock
E.Authorized stock
45) Costs that are first assigned to inventory are called:
A.Period costs
B.Product costs
C.General costs
D.Administrative costs
E.Fixed costs
46) Cycle time is calculated by process time plus inspection time plus move time plus
__________________.
47) The __________________ principle requires that an accounting information system
must be able to adapt to changes in the company, business environment, and needs of
decision makers.
48) Mason Company sold a piece of equipment for $25,000 cash on December 31 after
recording the annual depreciation on the asset. The equipment had an original cost of
$92,500 and accumulated depreciation of $60,000. Prepare the general journal entry to
record the sale of this asset.
49) An employer is unsure if an act by an employee constitutes fraud. What are some of
the indications that an employee is involved in a fraud scheme?
50) A person who controls or has access to an asset must not keep that asset’s
accounting records. This describes the internal control principle of
_______________________.
51) Express the following income statement information in common-size percents and
in trend percents using 2011 as the base year.