1) The capital expenditures budget summarizes future plans for acquisition of fixed
assets.
2) In preparing a bank reconciliation, the amount indicated by a credit memo for a note
receivable collected by the bank is added to the balance per company’s records.
3) Both callable and non-callable bonds can be purchased by the issuing corporation in
the open market.
4) Prime costs are the combination of direct materials and direct labor costs.
5) If the debit portion of an adjusting entry is to an asset account, then the credit portion
must be to a liability account.
6) An account receivable is a claim against a customer arising from a sale on account.
7) Net present value and the payback period are examples of discounted cash flow
methods used in capital budgeting decisions.
8) The journal includes both debit and credit accounts for each transaction.
9) A company is considering the purchase of a new machine for $48,000. Management
expects that the machine can produce sales of $16,000 each year for the next 10 years.
Expenses are expected to include direct materials, direct labor, and factory overhead
totaling $8,000 per year plus depreciation of $4,000 per year. All revenues and expenses
except depreciation are on a cash basis. The payback period for the machine is 6 years.
10) If the costs for direct materials, direct labor, and factory overhead were $60,000,
$35,000, and $25,000, respectively, for 20,000 equivalent units of production, the
conversion cost per equivalent unit was $6.
11) The process of measuring and reporting operating data by areas of responsibility is
termed responsibility accounting.
12) When a company is showing a net loss, it is always best to discontinue the segment
in order not to continue with losses.
13) If total assets decreased by $30,000 during a specific period and owner’s equity
decreased by $35,000 during the same period, the period’s change in total liabilities was
an $65,000 increase.
14) Interest expense is reported in the operating expense section of the income
statement.
15) In a common size balance sheet, the 100% figure is:
A.total property, plant and equipment
B.total current assets
C.total liabilities
D.total assets
16) The management of Charlton Corporation is considering the purchase of a new
machine costing $380,000. The company’s desired rate of return is 6%. The present
value factor for an annuity of $1 at interest of 6% for 5 years is 4.212. In addition to the
foregoing information, use the following data in determining the acceptability in this
situation:
The cash payback period for this investment is:
A.4 years
B.5 years
C.19 years
D.3.3 years
17) Accrued expenses are ordinarily reported on the balance sheet as
A.assets
B.liabilities
C.fixed assets
D.prepaid expenses
18) ABC Corporation has three service departments with the following costs and
activity base:
ABC has three operating divisions, Micro, Macro and Super. Their revenue, cost and
activity information are as follows:
What is the service department charge rate for the Accounting Department?
A.$714
B.$250
C.$625
D.$.004
19) Multiple-step income statements show
A.gross profit but not income from operations
B.neither gross profit nor income from operations
C.both gross profit and income from operations
D.income from operations but not gross profit
20) The difference between the totals of the debit and credit columns of the Adjusted
Trial Balance columns on a work sheet
A.is the amount of net income or loss
B.indicates there is an error on the work sheet
C.is the amount of retained earnings
D.is the difference between revenue and expenses
21) Accompanying the bank statement was a debit memo for an NSF check received
from a customer. This item would be included on the bank reconciliation as a(n)
A.deduction from the balance per company’s records
B.addition to the balance per bank statement
C.deduction from the balance per bank statement
D.addition to the balance per company’s records
22) The direct write-off method of accounting for uncollectible accounts
A.emphasizes balance sheet relationships
B.is often used by small companies and companies with few receivables
C.emphasizes cash realizable value
D.emphasizes the matching of expenses with revenues
23) Set up T accounts for Cash; Accounts Receivable; Supplies; Accounts Payable;
Clay Potter, Capital; Clay Potter, Drawing; Professional Fees; and Operating Expenses.
(a) In the T accounts, record the following transactions of Potter Pool Services for June,
2011, identifying each entry by number:
(1) Potter invested $12,500 cash in the business.
(2) Purchased supplies on account, $6,250.
(3) Paid operating expenses, $5,500.
(4) Billed clients for fees, $7,440.
(5) Received cash from cash clients, $4,700.
(6) Paid creditors on account, $1,400.
(7) Received $3,100 from clients on account.
(8) Withdrew $1,500 cash for personal use.
(b) Prepare a trial balance as of June 30, 2011 for Potter Pool Services.
(c) Assuming that supplies expense (which has not been recorded) amounts to $1,500
for June, determine the following:
(1) Net income for the month.
(2) Owner’s equity as of June 30.
24) Department E had 4,000 units in Work in Process that were 40% completed at the
beginning of the period at a cost of $12,500. 14,000 units of direct materials were added
during the period at a cost of $28,700. 15,000 units were completed during the period,
and 3,000 units were 75% completed at the end of the period. All materials are added at
the beginning of the process. Direct labor was $32,450 and factory overhead was
$18,710. The number of equivalent units of production for the period for conversion if
the first-in, first-out method is used to cost inventories was:
A.15,650
B.14,850
C.14,150
D.14,650
25) Three identical units of Item Steele Plate are purchased during March, as shown
below.
Assume that one unit is sold on March 23 for $1,125. Determine the gross profit for
March and ending inventory on March 31 using (a) FIFO, (b) LIFO, and (c) average
cost methods.
26) A machine with a cost of $75,000 has an estimated residual value of $5,000 and an
estimated life of 4 years or 18,000 hours. What is the amount of depreciation for the
second full year, using the double declining-balance method?
A.$17,500
B.$37,500
C.$18,750
D.$16,667
27) On August 3rd, Sonar Sales decides to establish a $275.00 Petty Cash Account to
relieve the burden on Accounting.
(a) Journalize this event.
(b) On August 11th, the petty cash fund has receipts for mail and postage of $124.75,
contributions and donations of $53.25, meals and entertainment of $63.85 and $32.75 in
cash. Journalize the replenishment of the fund.
(c) On August 12th, Sonar Sales decides to increase petty cash to $400.00. Journalize
this event.
28) The operating agreement for a Limited Liability Company is sometimes called:
A.articles of organization
B.articles of partnership
C.Schedule C
D.the Uniform Partnership Act
29) The budgetary unit of an organization which is led by a manager who has both the
authority over and responsibility for the unit’s performance is known as a:
A.control center
B.budgetary area
C.responsibility center
D.managerial department
30) The sales, income from operations, and invested assets for each division of
Grosbeak Company are as follows:
31) When units manufactured exceed units sold:
A.variable costing income equals absorption costing income
B.variable costing income is less than absorption costing income
C.variable costing income is greater than absorption costing income
D.variable costing income is greater by the number of units produced multiplied by the
variable cost ratio
32) Match the following terms with the best definition given.
1>Standard variable overhead for actual units produced A. Direct labor time variance
2>(Actual direct hours – Standard direct hours) x Standard Rate per Hour B. Direct
labor rate variance
3>(Actual rate per hour – Standard rate per hour) x Actual hours C. Direct materials
price variance
4>(Actual quantity – Standard quantity) x Standard Price D. Direct materials quantity
variance
5>(Actual price – Standard price) x Actual quantity E. Budgeted variable factory
overhead
33) A company with a break-even point at $900,000 in sales revenue had fixed costs of
$225,000. When actual sales were $1,000,000 variable costs were $750,000. Determine
(a) the margin of safety expressed in dollars, (b) the margin of safety expressed as a
percentage of sales, (c) the contribution margin ratio, and (d) the operating income.
34) Managerial accountants would be responsible for providing the following
information:
A.Tax reports to government agencies
B.Profit reports to owners and management
C.Expansion of a product line report to management
D.Consumer reports to customers
35) Mocha Company manufactures a single product by a continuous process, involving
three production departments. The records indicate that direct materials, direct labor,
and applied factory overhead for Department 1 were $100,000, $125,000, and
$150,000, respectively. The records further indicate that direct materials, direct labor,
and applied factory overhead for Department 2 were $50,000, $60,000, and $70,000,
respectively. Department 2 has transferred-in costs of $390,000 for the current period.
In addition, work in process at the beginning of the period for Department 2 totaled
$75,000, and work in process at the end of the period totaled $90,000. The journal entry
to record the flow of costs into Department 3 during the period is:
A.Work in Process–Department 3375,000
Work in Process–Department 2375,000
B.Work in Process–Department 3570,000
Work in Process–Department 2570,000
C.Work in Process–Department 3490,000
Work in Process–Department 2490,000
D.Work in Process–Department 3555,000
Work in Process–Department 2555,000
36) Match each item with its definition.
1>Focuses on a companys ability to generate net income A. Horizontal analysis
2>The percentage analysis of the relationship of each component in a financial
statement to a total within the statement. B. Extraordinary Items
3>Something that is both unusual and infrequent. C. Current position analysis
4>An analysis of a companys ability to pay its current liabilities. D. Vertical analysis
5>Useful for comparing one company to another or a company with industry averages
E. Discontinued Operations
6>A percentage analysis of increases and decreases in related items in comparative
financial statements. F. Profitability analysis
7>Occurs when a company abandons a segment. G. Common-sized financial statements
8>This requires a restatement of prior period financial statements. H. Change from one
generally accepted accounting principle to another
37) In the accounting cycle, the last step is
A.preparing the financial statements
B.journalizing and posting the adjusting entries
C.preparing a post-closing trial balance
D.journalizing and posting the closing entries
38) The state charter allows a corporation to issue only a certain number of shares of
each class of stock. This amount of stock is called
A.treasury stock
B.issued stock
C.outstanding stock
D.authorized stock
39) The three categories of manufacturing costs comprising the cost of work in process
are direct labor, direct materials, and:
A.office expenses
B.direct expenses
C.sales salaries expense
D.factory overhead
40) A change in the ownership of a partnership results in the
A.consolidating of the partnership
B.liquidating of the partnership
C.realization of the partnership
D.dissolution of the partnership
41) The purpose of an audit is to
A.determine whether or not a company is a good investment
B.render an opinion on the fairness of the statements
C.determine whether or not a company complies with corporate social responsibility
D.determine whether or not a company is a good credit risk
42) If a business had sales of $4,000,000 and a margin of safety of 25%, the break-even
point was:
A.$5,000,000
B.$3,000,000
C.$12,000,000
D.$1,000,000
43) Debenture bonds are
A.bonds secured by specific assets of the issuing corporation
B.bonds that have a single maturity date
C.issued only by the federal government
D.issued on the general credit of the corporation and do not pledge specific assets as
collateral
44) The following information pertains to Carlton Company. Assume that all balance
sheet amounts represent both average and ending balance figures. Assume that all sales
were on credit.
Assets
Liabilities and Stockholders Equity
Income Statement
What is the rate earned on common stockholders equity for this company? Round your
answer to one decimal point.
A.6.8%
B.13.3%
C.16.7%
D.23.3%
45) Which of the following costs incurred by a paper manufacturer would NOT be
included in the group of costs referred to as conversion costs?
A.Factory supervisor’s salary
B.Machine operator’s wages (direct labor)
C.Raw lumber (direct materials)
D.Factory maintenance personnel supplies
46) Which one of the following accounts below would likely be included in a deferral
adjusting entry?
A.Interest Revenue
B.Unearned Revenue
C.Salaries Payable
D.Accounts Receivable
47) An indication that the work sheet columns are in balance and the work sheet is
completed is
A.the word “Total” is written at the bottom of each pair of columns
B.each pair of columns is double underlined
C.each pair of columns has the totals circled
D.the final figures are written in ink
48)
49) Production estimates for July are as follows:
For each unit produced, the direct materials requirements are as follows:
The number of pounds of materials A and B required for July production is:
A.216,000 lbs. of A; 36,000 lbs. of B
B.216,000 lbs. of A; 72,000 lbs. of B
C.234,000 lbs. of A; 39,000 lbs. of B
D.225,000 lbs. of A; 37,500 lbs. of B
50) Moon Company uses the variable cost concept of applying the cost-plus approach
to product pricing. The costs and expenses of producing and selling 75,000 units of
Product T are as follows:
Moon desires a profit equal to a 18% rate of return on invested assets of $1,440,000.
(a) Determine the amount of desired profit from the production and sale of Product T.
(b) Determine the total variable costs for the production and sale of 75,000 units of
Product T.
(c) Determine the markup percentage for Product T.
(d) Determine the unit selling price of Product T.
Round your markup percentage to one decimal place and other intermediate
calculations and final answer to two decimal places.
51) Research Company sells merchandise with a one year warranty. In 2012, sales
consisted of 2,500 units. It is estimated that warranty repairs will average $10 per unit
sold, and 30% of the repairs will be made in 2012 and 70% in 2013. In the 2012 income
statement, Research should show warranty expense of
A.$25,000
B.$7,500
C.$17,500
D.$0
52) A(n) ___________ system is the methods and procedures for collecting, classifying,
summarizing and reporting a businesss financial and operating information.
A.accounting
B.fiduciary
C.operations
D.auditing
53) Prepare entries to record the following selected transactions completed during the
current fiscal year:
54) According to a summary of the payroll of Sinclair Company, $505,000 was subject
to the 6.0% social security tax and $545,000 was subject to the 1.5% Medicare tax.
Also, $10,000 was subject to state and federal unemployment taxes.
Required:
55) Journalize the entries to record the following selected equity investment
transactions completed by Perry Company during 2012. Perry accounts for this
investment using the cost method.:
56) What is the purpose of an adjusted trial balance? What type(s) of error does it
detect? What type(s) of error does it not detect?
57) The net income reported on an income statement for the current year was $58,000.
Depreciation recorded on fixed assets for the year was $24,000. In addition, equipment
with an original cost of $130,000 and accumulated depreciation of $115,000 on the date
of the sale, was sold for $20,000. Balances of the current asset and current liability
accounts at the end and beginning of the year are listed below. Prepare the cash flows
from operating activities section of a statement of cash flows using the indirect method.