1) If a company has no beginning inventory and the unit price of inventory is increasing
during a period, the cost of goods available for sale during the period will be the same
under the LIFO and FIFO inventory methods.
2) Capital budgeting decisions usually involve large investments and can have a
significant impact on a company’s future profitability.
3) Pro forma income usually excludes items that the company thinks are unusual or
nonrecurring.
4) A well-developed budget can operate and enforce itself.
5) Enterprise resource planning systems integrate all aspects of the organization,
including accounting, sales, human resource management, and manufacturing.
6) A static budget is an effective means to evaluate a manager’s ability to control costs,
regardless of the actual activity level.
7) Companies often use a combination of a process cost and a job order cost system,
called operations costing.
8) When equivalent units of production are different for materials and conversion costs,
unit costs are computed for materials, conversion, and total manufacturing.
9) When the disposal of a significant component occurs, the income statement should
report both income from continuing operations and income (loss) from discontinued
operations.
10) Common Stock Dividends Distributable is reported as additional paid-in capital in
the stockholders’ equity section.
11) An unrealized loss on available-for-sale securities is
a.reported under Other Expenses and Losses in the income statement
b.closed-out at the end of the accounting period
c.reported as a separate component of stockholders’ equity
d.deducted from the cost of the investment
12) The wages of a timekeeper in the factory would be classified as
a.a period cost
b.direct labor
c.indirect labor
d.compliance costs
13) Flint Company expects income of $3,000 per year over the life of an investment
that will cost $25,000. The calculation of the accounting rate of return is .16 . The rate
of return indicates that
a.Flint expects to earn 16% of $3,000 as profit each year the asset is used
b.Flint expects to earn 16% of its investment annually
c.Flint expects to earn 16% of its cash outlay back over the life of the asset
d.Flint expects the asset will earn 16 times as much profit as its cost
14) The following information is available for Blowing Rock Corporation:
Common Stock ($5 par)$1,600,000
Retained Earnings1,200,000
A 18% stock dividend is declared and paid when the market value was $16 per share.
Instructions
Compute each of the following after the stock dividend.
(a)Total stockholders’ equity.
(b)Number of shares outstanding.
15) The Manufacturing Overhead account shows debits of $30,000, $24,000, and
$28,000 and one credit for $80,000. Based on this information, manufacturing overhead
a.has been overapplied
b.has been underapplied
c.has not been applied
d.shows a zero balance
16) A company usually determines the amount of supplies used during a period by
a.adding the supplies on hand to the balance of the Supplies account
b.summing the amount of supplies purchased during the period
c.taking the difference between the supplies purchased and the supplies paid for during
the period
d.taking the difference between the balance of the Supplies account and the cost of
supplies on hand
17) Selected financial statement data for Freeman Company are presented below.
12/31/14
Cash$ 10,000
Short-term investments20,000
Accounts receivable 60,000
Inventories75,000
Total current liabilities100,000
Instructions
Compute the following ratios at December 31, 2014:
(a)Current.
(b)Acid-test.
18) Physical units are 160,000. Total conversion costs are $276,500. There are 4,000
units in ending inventory which are 50% complete as to conversion costs. How much is
the conversion cost per unit?
a.$1.75
b.$1.73
c.$1.71
d.$1.69
19) Molina Company had a $700 credit balance in Allowance for Doubtful Accounts at
December 31, 2014, before the current year’s provision for uncollectible accounts. An
aging of the accounts receivable revealed the following:
Estimated Percentage
Uncollectible
Current Accounts$120,0001%
130 days past due20,0003%
3160 days past due10,0006%
6190 days past due10,00012%
Over 90 days past due 8,00030%
Total Accounts Receivable$168,000
Instructions
(a)Prepare the adjusting entry on December 31, 2014, to recognize bad debt expense.
(b)Assume the same facts as above except that the Allowance for Doubtful Accounts
account had a $500 debit balance before the current year’s provision for uncollectible
accounts. Prepare the adjusting entry for the current year’s provision for uncollectible
accounts.
(c)Assume that the company has a policy of providing for bad debts at the rate of 1% of
sales, that sales for 2014 were $550,000, and that Allowance for Doubtful Accounts had
a $650 credit balance before adjustment. Prepare the adjusting entry for the current
year’s provision for bad debts.
20) The following totals for the month of June were taken from the payroll register of
Parks Company.
Salaries and wages$80,000
FICA taxes withheld6,132
Income taxes withheld17,600
Medical insurance deductions3,200
Federal unemployment taxes640
State unemployment taxes4,000
The journal entry to record the monthly payroll on June 30 would include a
a.debit to Salaries and Wages Expense for $80,000
b.credit to Salaries and Wages Payable for $80,000
c.debit to Salaries and Wages Payable for $80,000
d.debit to Salaries and Wages Expense for $53,068
21) On a classified balance sheet, inventory is classified as
a.an intangible asset
b.property, plant, and equipment
c.a current asset
d.a long-term investment
22) Budget data are not journalized in cost accounting systems with the exception of
a.the application of manufacturing overhead
b.direct labor budgets
c.direct materials budgets
d.cash budget data
23) For each of the following, describe a transaction that will have the stated effect on
the elements of the accounting equation.
(a)Increase one asset and decrease another asset.
(b)Increase an asset and increase a liability.
(c)Decrease an asset and decrease a liability.
(d)Increase an asset and increase owner’s equity.
(e)Increase one asset, decrease one asset, and increase a liability.
24) Net income is gross profit less
a.financing expenses
b.operating expenses
c.other expenses and losses
d.other expenses
25) The accumulation of accounting data on the basis of the individual manager who
has the authority to make day-to-day decisions about activities in an area is called
a.static reporting
b.flexible accounting
c.responsibility accounting
d.master budgeting
26) A post-closing trial balance will show
a.zero balances for all accounts
b.zero balances for balance sheet accounts
c.only balance sheet accounts
d.only income statement accounts
27) Motts is admitted to a partnership with a 25% capital interest by a cash investment
of $90,000. If total capital of the partnership is $390,000 before admitting Motts, the
bonus to Mock is
a.$30,000
b.$15,000
c.$45,000
d.$60,000
28) The entry to record the granting of credit to a customer for a sales return is posted to
a.the accounts receivable subsidiary ledger only
b.the general ledger only
c.both the accounts receivable subsidiary ledger and the general ledger
d.both the accounts payable subsidiary ledger and the general ledger
29) On the statement of cash flows using the indirect method, patent amortization
expense will
a.be added to net income in the operating section
b.be deducted from net income in the operating section
c.appear as an inflow of cash in the investing section
d.appear as an outflow of cash in the investing section
30) If a bond has a stated interest rate of 6%, but the market interest rate is 7%, the
bond
a.will be issued at a discount
b.will be issued at a premium
c.may be issued at either a premium or a discount
d.will be issued at its par value
31) Avery Industries has equivalent units of 8,000 for materials and for conversion
costs. Total manufacturing costs are $160,000. Total materials costs are $120,000. How
much is the conversion cost per unit?
a.$15
b.$5
c.$40
d.$20
32) A stockholder who receives a stock dividend would
a.expect the market price per share to increase
b.own more shares of stock
c.expect retained earnings to increase
d.expect the par value of the stock to change
33) Which of the following would not cause an increase in partnership capital?
a.Drawings
b.Net income
c.Additional capital investment by the partners
d.Initial capital investment by the partners
34) Danielle Company purchased a new machine for $400,000 and will use the
straight-line method of depreciation over 4 years with no salvage value. If the
company’s minimum annual rate of return is 10%, this investment must generate
expected annual income of:
a.$50,000
b.$20,000
c.$10,000
d.$ 3,000
35) Which of the following is not a common time period chosen by businesses as their
accounting period?
a.Daily
b.Monthly
c.Quarterly
d.Annually
36) The following selected amounts are available for Vizio Company.
Retained earnings (beginning)$1,600
Net loss300
Cash dividends declared200
Stock dividends declared200
What is its ending retained earnings balance?
a.$1,300
b.$1,400
c.$900
d.$1,200
37) If the cost of an available-for-sale security exceeds its fair value by $40,000, the
entry to recognize the loss
a.is not required since the share prices will likely rebound in the long run
b.will show a debit to an expense account
c.will show a credit to a contra-asset account that appears in the stockholders’ equity
section of the balance sheet
d.will show a debit to an unrealized loss account that is deducted in the stockholders’
equity section of the balance sheet
38) In deciding whether the U.S. should adopt IFRS, the issue the SEC said should be
considered is
a.whether IFRS is sufficiently developed and consistent in application
b.whether the IFRS is established for the benefit of investors
c.the impact of a switch to IFRS on U.S. laws and regulations
d.all of these answer choices are correct
39) Manufacturers usually classify inventory into all the following general categories
except
a.work in process
b.finished goods
c.merchandise inventory
d.raw materials
40) Which of the following combinations presents correct examples of liquidity,
profitability, and solvency ratios, respectively?
LiquidityProfitabilitySolvency
a.Inventory turnoverInventory turnoverTimes interest earned
b.Current ratioInventory turnoverDebt to total assets
c.Accts Receivable turnoverReturn on assetsTimes interest earned
d.Quick ratioPayout ratioReturn on assets
41) If the labor quantity variance is unfavorable and the cause is inefficient use of direct
labor, the responsibility rests with the
a.sales department
b.production department
c.budget office
d.controller’s department
42) The cash balance per books for Feagen Company on September 30, 2012 is
$10,740.93. The following checks and receipts were recorded for the month of October,
2012:
ChecksReceipts
No. Amount No. Amount Amount Date
17$372.9622$ 578.84$843.8610/ 5
18$780.6223$1,687.50$941.5410/21
19$157.0024$ 921.30$808.5810/27
20$587.5025$ 246.03$967.0010/30
21$234.15
In addition, the bank statement for the month of October is presented below:
Balance Deposits and CreditsChecks and Debits Balance
Last StatementNo.Total AmountNo.Total AmountThis Statement
$5,404.845$9,178.3610$3,632.19$10,951.01
Checks and other debits DepositsDateBalance
No.AmountNo.AmountNo.Amount
14148.2917372.9622578.845,484.3810/ 1$9,875.31
18708.6224921.30843.8610/ 8$9,219.03
19157.0025246.03941.5410/23$9,541.58
21234.1525.00SC808.5810/29$10,101.01
240.00NSF1,100.00CM10/31$10,951.01
Symbols: NSF (Not sufficient funds) SC (Service charge) CM (Credit Memo)
Check No. 18 was correctly written for $708.62 for a payment on account. The NSF
check was from S. Long, a customer, in settlement of an accounts receivable. An entry
had not been made for the NSF check. The credit memo is for the collection of a note
receivable including interest of $60 which has not been accrued. The bank service
charge is $25.00.
Instructions
(a)Prepare a bank reconciliation at October 31 .
(b)Prepare the adjusting journal entries required by the bank reconciliation.
43) The following amounts were taken from the financial statements of Leaf Company:
2014 2013
Total assets$800,000$1,000,000
Net sales720,000650,000
Gross profit352,000320,000
Net income150,000117,000
Weighted average number of common shares outstanding50,00090,000
Market price of common stock$64.50$39
The price-earnings ratio for 2014 is
a.21.5 times
b.36 times
c.4.5 times
d.3.0 times
44) Which of the following is not a condition that indicates a capital lease?
a.The lessee may purchase the property at fair market value anytime during the lease
period
b.The lease transfers ownership to lessee
c.The lease term is equal to 75% or more of the economic life of the property
d.The present value of lease payments equals or exceeds 90% of the fair market value
of the property
45) On October 1, 2014, Pennington Company issued an $800,000, 10%, nine-month
interest-bearing note. Assuming interest was accrued in June 30, 2015, the entry to
record the payment of the note on July 1, 2015, will include a:
a.debit to Interest Expense of $20,000
b.credit to Cash of $800,000
c.debit to Interest Payable of $60,000
d.debit to Notes Payable of $860,000
46) The journal entry to record a return of merchandise purchased on account under a
perpetual inventory system would credit
a.Accounts Payable
b.Purchase Returns and Allowances
c.Sales Revenue
d.Inventory
47) All of the following would be entries in assigning accumulated costs to the Work In
Process Inventory except
a.the purchase of raw materials
b.raw materials are used
c.overhead is applied
d.factory labor is used
48) Asset turnover measures
a.how often a company replaces its assets
b.how efficiently a company uses its assets to generate sales
c.the portion of the assets that have been financed by creditors
d.the overall rate of return on assets
49) Thorpe Manufacturing Inc.’s accounting records reflect the following inventories:
Dec. 31, 2013Dec. 31, 2014
Raw materials inventory$180,000$145,000
Work in process inventory260,000235,000
Finished goods inventory225,000207,000
During 2014, Thorpe purchased $1,400,000 of raw materials, incurred direct labor costs
of $230,000, and incurred manufacturing overhead totaling $290,000.
How much would Thorpe Manufacturing report as cost of goods manufactured for
2014?
a.$1,885,000
b.$1,859,000
c.$1,980,000
d.$1,955,000
50) Kingston Company purchased a piece of equipment on January 1, 2014 . The
equipment cost $200,000 and had an estimated life of 8 years and a salvage value of
$25,000. What was the depreciation expense for the asset for 2015 under the
double-declining-balance method?
a.$21,667
b.$37,500
c.$50,000
d.$39,063
51) Management can choose between two bases in calculating the estimated
uncollectible accounts under the allowance method. One basis emphasizes an income
statement viewpoint whereas the other emphasizes a balance sheet viewpoint. Identify
the two bases and contrast the two approaches. How do the different points of view
affect the amount recognized as Bad Debt Expense during the accounting period?
52) Maxim Corporation had the following transactions pertaining to debt investments.
Jan. 1Purchased 80, 8%, $1,000 Woodrow Company bonds for $80,000.
July 1Sold 20 Woodrow Company bonds for $21,500.
Instructions
Prepare journal entries for the purchase and sale of the Woodrow Company bonds.
53) The ______________ ratio specifies the basis for sharing income and losses.
54) In computing cash payments for operating expenses, a decrease in prepaid expenses
is ______________ and an increase in accrued expenses payable is ______________ to
(from) operating expenses, exclusive of depreciation.
55) Joe Foss has worked for Dr. Sam Milton for several years. Joe demonstrates a
loyalty that is rare among employees. He hasn’t taken a vacation in the last three years.
One of Joe’s primary duties at the medical office is to open the mail and list the checks
received. He also takes cash from patients at the cashier window as patients leave. At
times it is so hectic that Joe doesn’t bother with giving each patient a receipt for the cash
paid on their accounts. He assures them he will see to it that they receive the proper
credit. When the traffic is slow in the office, Joe offers to help Ann post the payments to
the patients’ accounts receivable. She is always happy to receive his help, because he is
a very conscientious worker.
Instructions
Identify any principles of internal control that may be violated in this medical office
situation.
56) A sales slip, a check, and a cash register tape are examples of ________________
used as evidence that a transaction has taken place.