1) Past performance is the best overall basis for evaluating current performance and
assessing the need for corrective action.
2) Supervisor salaries and indirect factory wages would normally appear in the direct
labor cost budget.
3) The difference between the balance in a fixed asset account and its related
accumulated depreciation account is the asset’s book value.
4) Inventory turnover measures the length of time is takes to acquire, sell and replace
the inventory.
5) 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.
6) A consignor who has goods out on consignment with an agent should include the
goods in ending inventory even though they are not in the possession of the consignor.
7) An equal stream of periodic payments is called an annuity.
8) Deferred expenses that benefit a relatively short period of time are listed on the
balance sheet as current assets.
9) Any gains or losses on the sale of bonds normally would be reported in the Other
Income (Loss) section of the income statement.
10) The DuPont formula uses financial information to measure the performance of a
business.
11) The effect of a sales return and allowance is a reduction in sales revenue and a
decrease in cash or accounts receivable.
12) Cash flows from operating activities, as part of the statement of cash flows, include
cash transactions that enter into the determination of net income.
13) Responsibility accounting reports that are given to lower level managers are usually
very detailed, in turn, higher level managers will be given a summary report.
14) The effective interest method produces a constant dollar amount of interest expense
to be reported each interest period.
15) The journal entry a company uses to record the issuance of a note for the purpose of
converting an existing account payable would be
A.debit Cash; credit Accounts Payable
B.debit Accounts, Payable; credit Cash
C.debit Cash; credit Notes Payable
D.debit Accounts Payable; credit Notes Payable
16) Fixed assets are ordinarily presented in the balance sheet
A.at current market values
B.at replacement costs
C.at cost less accumulated depreciation
D.in a separate section along with intangible assets
17) Tanya Inc.s static budget for 10,000 units of production includes $60,000 for direct
materials, $44,000 for direct labor, fixed utilities costs of $5,000, and supervisor
salaries of $20,000. A flexible budget for 12,000 units of production would show:
A.the same cost structure in total
B.direct materials of $72,000, direct labor of $52,800, utilities of $5,000, and supervisor
salaries of $20,000
C.total variable costs of $154,800
D.direct materials of $60,000, direct labor of $52,800, utilities of $6,000, and
supervisor salaries of $20,000
18) On the statement of cash flows, the cash flows from financing activities section
would include all of the following except
A.receipts from the sale of bonds payable
B.payments for dividends
C.payments for purchase of treasury stock
D.payments of interest on bonds payable
19) The difference between the balance of a fixed asset account and the related
accumulated depreciation account is termed
A.historical cost
B.contra asset
C.book value
D.market value
20) What cost concept used in applying the cost-plus approach to product pricing
includes only total manufacturing costs in the “cost” amount to which the markup is
added?
A.Variable cost concept
B.Total cost concept
C.Product cost concept
D.Opportunity cost concept
21) Using multiple department factory overhead rates instead of a single plantwide
factory overhead rate:
A.results in more accurate product costs
B.results in distorted product costs
C.is simpler and less expensive than a plantwide rate
D.applies overhead costs to all departments equally
22) In which of the following types of accounts are decreases recorded with debits?
A.assets
B.revenues
C.expenses
D.dividends
23) A disadvantage of static budgets is that they:
A.are dependent on previous year’s actual results
B.cannot be used by service companies
C.do not show possible changes in underlying activity levels
D.show the expected results of a responsibility center for several levels of activity
24) For each of the following errors, considered individually, indicate whether the error
would cause the trial balance totals to be unequal. If the error would cause the trial
balance totals to be unequal, indicate whether the debit or credit total is higher and by
how much.
a. Payment of a cash dividend of $6,800 was journalized and posted as a debit of $8,600
to Salaries Expense and a credit of $8,600 to Cash.
b. A fee of $9,780 earned was debited to Accounts Receivable for $7,980 and credited
to Fees Earned for $9,780.
c. A payment of $3,000 to a creditor was posted as a credit of $3,000 to Accounts
Payable and a credit of $3,000 to Cash.
25) Investment centers differ from profit centers in that they
A.are responsible for net income only
B.are able to invest in assets
C.have less responsibilities than cost centers and profit centers
D.are only responsible for revenues
26) Woodpecker Co. has $296,000 in accounts receivable on January 1. Budgeted sales
for January are $860,000. Woodpecker Co. expects to sell 20% of its merchandise for
cash. Of the remaining 80% of sales on account, 75% are expected to be collected in the
month of sale and the remainder the following month. The January cash collections
from sales are:
A.$812,000
B.$688,000
C.$468,000
D.$984,000
27) The depreciation method that does not use residual value in calculating the first
year’s depreciation expense is
A.straight-line
B.units-of-production
C.double-declining-balance
D.none of the above
28) Using a perpetual inventory system, the entry to record the return from a customer
of merchandise sold on account includes a
A.credit to Sales Returns and Allowances
B.debit to Merchandise Inventory
C.credit to Merchandise Inventory
D.debit to Cost of Merchandise Sold
29) On the statement of cash flows, the cash flows from operating activities section
would include
A.receipts from the issuance of capital stock
B.receipts from the sale of investments
C.payments for the acquisition of investments
D.cash receipts from sales activities
30) The balance of the account is determined by
A.adding all of the debits to all of the credits
B.always subtracting the debits from the credits
C.always subtracting the credits from the debits
D.adding all of the debits, adding all of the credits, and then subtracting the smaller sum
from the larger sum
31) Isaac Co. sells merchandise on credit to Sonar Co in the amount of $5,700. The
invoice is dated on April 1 with terms of 1/15, net 45. What is the amount of the
discount and up to what date must the invoice be paid in order for the buyer to take
advantage of the discount?
A.$114, April 15
B.$114, April 16
C.$57, April 15
D.$57, April 16
32) Match the following terms with their definitions.
1>Where a businesss revenues exactly equal costs A. Variable costs
2>A specific activity range over which the cost changes are of interest. B. Fixed costs
3>Vary in proportion to changes in activity levels. C. Break-even point
33) Which of the following expenses incurred by a department store is an indirect
expense?
A.Insurance on merchandise inventory
B.Sales salaries
C.Depreciation on store equipment
D.Salary of vice-president of finance
34) Motel Corporation is analyzing a capital expenditure that will involve a cash outlay
of $208,240. Estimated cash flows are expected to be $40,000 annually for seven years.
The present value factors for an annuity of $1 for 7 years at interest of 6%, 8%, 10%,
and 12% are 5.582, 5.206, 4.868, and 4.564, respectively. The internal rate of return for
this investment is:
A.10%
B.6%
C.12%
D.8%
35) Using the following information, prepare a bank reconciliation for Young Co. for
August 31, 2014:
(a) The bank statement balance is $4,690
(b) The cash account balance is $5,080.
(c) Outstanding checks amounted to $715.
(d) Deposits in transit are $1,020.
(e) The bank service charge is $40.
(f) A check for $72 for supplies was recorded as $27 in the ledger.
36) For which of the following businesses would a process cost system be appropriate?
A.Auto repair service
B.Paint manufacturer
C.Specialty printer
D.Custom furniture manufacturer
37) In the income statement of a manufacturing company, what replaces purchases in
the cost of goods section of a retail company?
A.Finished goods
B.Cost of merchandise available
C.Cost of goods manufactured
D.Work in process completed
38) To record estimated uncollectible receivables using the allowance method, the
adjusting entry would be a
A.debit to Bad Debs Expense and a credit to Allowance for Doubtful Accounts
B.debit to Accounts Receivable and a credit to Allowance for Doubtful Accounts
C.debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable
D.debit to Loss on Credit Sales and a credit to Accounts Receivable
39) Depreciation Expense and Accumulated Depreciation are classified, respectively, as
A.expense, contra asset
B.asset, contra liability
C.revenue, asset
D.contra asset, expense
40) On January 5, 2014, Garrett Company, a calendar-year company, issued $1,000,000
of notes payable, of which $200,000 is due on January 1 for each of the next five years.
The proper balance sheet presentation on December 31, 2014, is
A.Current Liabilities, $1,000,000.
B.Current Liabilities, $200,000; Long-term Debt, $800,000.
C.Long-term Debt, $1,000,000
D.Current Liabilities, $800,000; Long-term Debt, $200,000.
41) Match each of the following investment terms with the appropriate definition
below.
1>Recognition of changes in the fair value of short-term investments. A. Parent
Company
2>A corporation owning all or the majority of the voting stock of another corporation.
B. Valuation Allowance for Investments
3>The value assigned to held-to-maturity securities. C. Subsidiary Company
4>Appropriate method for accounting for small stock investments. D. Equity Method
5>The method for accounting for investments of 20 – 50% in another companys stock.
E. Fair Value
6>A balance sheet account where the fair value adjustment for investments is reported.
F. Dividend Yield
7>A corporation controlled by another corporation that owns all or the majority of its
voting stock. G. Consolidated Financial Statements
8>Combined reporting of a corporation and other corporations it controls. H.
Unrealized Gain or Loss on Investments.
9>Measurement of the rate of return to stockholders based on cash dividends. I.
Amortized Cost
10>The market price that would be received if an investment were sold. J. Cost Method
42) Determining the transfer price as the price at which the product or service
transferred could be sold to outside buyers is known as the:
A.Cost price approach
B.Negotiated price approach
C.Revenue price approach
D.Market price approach
43) The St. Augustine Corporation originally budgeted for $360,000 of fixed overhead
at 100% production capacity. Production was budgeted to be 12,000 units. The standard
hours for production were 5 hours per unit. The variable overhead rate was $3 per hour.
Actual fixed overhead was $360,000 and actual variable overhead was $170,000.
Actual production was 11,700 units.
Compute the factory overhead controllable variance.
A.$9,000F
B.$9,000U
C.$5,500F
D.$5,500U
44) In a just-in-time (JIT) environment, process problems are more visible than they are
in a traditional environment because:
A.inventories are maintained at higher levels
B.process problems cause production to shut down immediately
C.the push manufacturing system leads to increased inventory level
D.the lack of work in process inventory creates problems
45) Stevens Company started the year with an inventory cost of $145,000. During the
month of January they purchased inventory that cost of $53,000. January sales totaled
$140,000. Estimated gross profit is 35%. The estimated ending inventory as of January
31 is
A.$58,000
B.$91,000
C.$107,000
D.$69,300
46) For each of the following, identify whether it would be disclosed as an operating
(O), financing (F), or investing (I) activity on the statement of cash flows under the
indirect method.
a. Purchased treasury stock
b. Sold equipment at book value
c. Net income
d. Sold long-term investments
e. Issued common stock
f. Depreciation expense
47) How does the purchase of equipment by signing a note affect the accounting
equation?
A.assets increase; assets decrease
B.assets increase; liabilities decrease
C.assets increase; liabilities increase
D.assets increase; stockholders equity increases
48) A sales invoice included the following information: merchandise price, $10,000;
freight, $900; terms 1/10, n/eom, FOB shipping point. Assuming that a credit for
merchandise returned of $500 is granted prior to payment and that the invoice is paid
within the discount period, what is the amount of cash that should be received by the
seller?
A.$10,305
B.$9,500
C.$9,306
D.$9,900
49) Which of the following is considered to be unearned revenue?
A.Concert tickets sold last month for yesterdays performance
B.Concert tickets sold yesterday on credit for yesterdays performance
C.Concert tickets that were not sold for the current performance
D.Concert tickets sold for next months performance
50) Wonder Sales is authorized to issue 100,000 shares of $100 par, 2% preferred stock
and 1,000,000 shares of $10 par common stock.
(a) On January 2nd, Wonder Sales issues 5,000 shares of preferred stock for $110 per
share and 65,000 shares of common stock at $10 per share. Journalize this issuance.
(b) On January 25th, Wonder Sales issued 250 shares of preferred stock to a Morton
Law Firm for settlement of an invoice for incorporation services. The invoice was for
$36,000. Journalize this issuance.
(c) On January 31st, Wonder Sales issues 500 shares of common stock to Setup Inc. for
fixtures. The fixtures have a fair market value of $8,500. Journalize this issuance.
51) A corporation issues for cash $1,000,000 of 10%, 20-year bonds, interest payable
annually, at a time when the market rate of interest is 12%. The straight-line method is
adopted for the amortization of bond discount or premium. Which of the following
statements is true?
A.The amount of the annual interest expense is computed at 10% of the bond carrying
amount at the beginning of the year
B.The amount of the annual interest expense gradually decreases over the life of the
bonds
C.The amount of unamortized discount decreases from its balance at issuance date to a
zero balance at maturity
D.The bonds will be issued at a premium
52) Income from operations for Division K is $220,000, and income from operations
before service department charges is $975,000. Therefore:
A.total operating expenses are $755,000
B.total manufacturing expenses are $755,000
C.direct materials, direct labor, and factory overhead total $755,000
D.total service department charges are $755,000
53) Match the following terms with their definitions.
1>Contribution margin divided by income from operations. A. Margin of safety
2>Focuses on costs, sales, and operating profit or loss. B. Operating leverage
3>The relative distribution of sales among products sold by a company. C.
Cost-volume-profit chart
4>Indicates the possible decrease in sales that may occur before operating loss results.
D. Profit-volume chart
5>Focuses on profits rather than on revenues or costs. E. Sales mix
54) If Department K had 2,500 units, 45% completed, in process at the beginning of the
period, 15,000 units were completed during the period, and 1,200 units were 40%
completed at the end of the period, what was the number of equivalent units of
production for the period for conversion if the first-in, first-out method is used to cost
inventories? Assume the completion percentage applies to both direct materials and
conversion cost.
A.16,855
B.16,605
C.13,460
D.14,355
55) On the basis of the following data taken from the Adjusted Trial Balance columns
of the work sheet for the year ended March 31 for Boles Athletic Company, journalize
the four closing entries.
56) On September 1, 2012, Parsons Company purchased $84,000, 10 year, 7%
government bonds at 100 plus accrued interest. The semi-annual interest payment dates
are June 30 and December 31. Interest calculations are done by the month. Required:
57) Brubeck Co. issued $10,000,000 of 30-year, 8% bonds on May 1 of the current
year, with interest payable on May 1 and November 1. The fiscal year of the company
is the calendar year. Journalize the entries to record the following selected transactions
for the current year:
58) The actual cash received during the week ended June 7 for cash sales was
$18,632.00, and the amount indicated by the cash register total was $18,628.00.
Journalize the entry to record the cash receipts and cash sales.
Journal
59) Maxim Technologies projected sales of 35,000 computers for 2012. The estimated
January 1, 2012, inventory is 3,000 units, and the desired December 31, 2012, inventory
is 9,000 units. What is the budgeted production (in units) for 2012?
60) Using the following information, prepare a factory overhead flexible budget for
Andover Company where the total factory overhead cost is $75,500 at normal capacity
(100%). Include capacity at 75%, 90%, 100%, and 110%. Total variable cost is $6.25
per unit and total fixed costs are $38,000. The information is for month ended August
31, 2012. (Hint: Determine units produced at normal capacity.)
61) On December 31, the balance in the Office Supplies account is $1,385. A count
shows $435 worth of supplies on hand. Prepare the adjusting entry for supplies.
62) The units of an item available for sale during the year were as follows:
There are 30 units of the item in the physical inventory at December 31. The periodic
inventory system is used. Determine the ending inventory cost using FIFO.