1) Gonzo Company reports a $25,000 increase in inventory and a $12,000 decrease in
accounts payable during the year. Cost of Goods Sold for the year was $185,000. Using
the direct method of reporting cash flows from operating activities, cash payments
made to suppliers were
a.$185,000
b.$197,000
c.$222,000
d.$148,000
2) On January 1, 2014, Timber Corporation issued $800,000, 6%, 5-year bonds for
$735,110. The bonds were sold to yield an effective-interest rate of 8%. Interest is paid
semiannually on June 30 and December 31 . The company uses the effective-interest
method of amortization.
Instructions
(a)Prepare a bond discount amortization schedule which shows the amortization of
discount for the first two interest payment dates. (Round to the nearest dollar.)
(b)Prepare the journal entries that Timber Corporation would make on January 1, June
30, and December 31, 2014, related to the bond issue.
3) Tomas Pest Control Products has the following information available:
Net Income$25,000
Cash Provided by Operations33,000
Cash Sales65,000
Capital Expenditures10,000
Dividends Paid2,000
What is Tomas free cash flow?
a.$27,000
b.$23,000
c.$21,000
d.$10,000
4) On December 31, 2014, Stanford, Inc. has 1,500 shares of 6% $100 par value
cumulative preferred stock and 90,000 shares of $10 par value common stock
outstanding. On December 31, 2014, the directors declare a $30,000 cash dividend. The
entry to record the declaration of the dividend would include:
a.a credit of $30,000 to Cash Dividends
b.a note in the financial statements that dividends of $3 per share are in arrears on
preferred stock for 2014
c.a debit of $30,000 to Common Stock
d.a credit of $30,000 to Dividends Payable
5) The high-low method is criticized because it
a.is not a graphical method
b.is a mathematical method
c.ignores much of the available data by concentrating on only the extreme points
d.doesn’t provide reasonable estimates
6) Sly’s Salon has total receipts for the month of $9,275 including sales taxes. If the
sales tax rate is 6%, what are Sly’s sales for the month?
a.$8,719
b.$9,832
c.$8,750
d.It cannot be determined
7) Instructions: Match the terms given below with the definitions or descriptions that
follow by placing the appropriate letter in the space provided.
A.Control accountD.Special journal
B.Cost effectivenessE.Subsidiary ledger
C.FlexibilityF.Usefulness
1>Used to record similar types of transactions
2>The accounting system should accommodate a variety of users and changing
information needs
3>An account in the general ledger that controls a subsidiary ledger
4>A group of accounts with a common characteristic
5>The benefits of information must outweigh the cost of providing it
6>Information must be understandable, relevant, reliable, timely, and accurate
8) If a loss of $25,000 is incurred in selling (for cash) office equipment having a book
value of $90,000, the total amount reported in the cash flows from investing activities
section of the statement of cash flows is
a.$65,000
b.$90,000
c.$115,000
d.$25,000
9) Effie Company uses a periodic inventory system. Details for the inventory account
for the month of January, 2014 are as follows:
UnitsPer unit priceTotal
Balance, 1/1/14200$5.00$1,000
Purchase, 1/15/141005.30530
Purchase, 1/28/141005.50550
An end of the month (1/31/14) inventory showed that 160 units were on hand. How
many units did the company sell during January, 2014?
a.60
b.160
c.200
d.240
10) Bearrs, Inc. produces hair brushes. The selling price is $20 per unit and the variable
costs are $8 per brush. Fixed costs per month are $4,800. If Bearrs sells 30 more units
beyond breakeven, how much does profit increase as a result?
a.$360
b.$400
c.$240
d.$600
11) Jack Company is about to issue $1,000,000 of 10-year bonds paying an 8% interest
rate with interest payable semiannually. The discount rate for such securities is 10%.
Below are available time value of money factors that Jack uses to calculate compound
interest.
To the closest dollar, how much can Jack expect to receive for the sale of these bonds?
a.$875,379
b.$731,592
c.$1,000,000
d.$1,756,879
12) A current liability is a debt that can reasonably be expected to be paid
a.within one year or the operating cycle, whichever is longer
b.between 6 months and 18 months
c.out of currently recognized revenues
d.out of cash currently on hand
13) Bond interest paid is
a.higher when bonds sell at a discount
b.lower when bonds sell at a premium
c.the same whether bonds sell at a discount or a premium
d.higher when bonds sell at a discount and lower when bonds sell at a premium
14) If merchandise is sold for $14,000 subject to credit terms of 1/15, n/30, the entry to
record collection in full within the discount period would include a:
a.credit to Sales Discounts for $140
b.credit to Accounts Receivable for $13,860
c.credit to Accounts Receivable for $140
d.None of the above
15) As one moves up to each higher level of managerial responsibility,
a.fewer costs are controllable
b.the responsibility for cost incurrence diminishes
c.a greater number of costs are controllable
d.performance evaluation becomes less important
16) Pinkett Company applies overhead on the basis of 150% of direct labor cost. Job
No. 501 is charged with $180,000 of direct materials costs and $360,000 of
manufacturing overhead. The total manufacturing costs for Job No. 501 is
a.$780,000
b.$1,080,000
c.$540,000
d.$600,000
17) (a) Explain the similarities and differences between standards and budgets.
(b) Contrast the accounting for standard and budgets.
18) Match the items below by entering the appropriate code letter in the space provided.
A.AnnuitiesD.Present value of a single amount
B.DiscountingE.Present value of an annuity
C.Compound interestF. Simple interest
_____1>The value today of a future amount to be received or paid.
_____2>A series of equal dollar amounts to be received or paid periodically.
_____3>Return on principal plus interest for two or more periods.
_____4>Value today of a series of future amounts to be received or paid.
_____5>The process of determining the present value of a future amount.
_____6>Return on principal only.
19) Contribution margin
a.is always the same as gross profit margin
b.excludes variable selling costs from its calculation
c.is calculated by subtracting total manufacturing costs per unit from sales revenue per
unit
d.equals sales revenue minus variable costs
20) Loren Company is considering two alternatives to finance its purchase of a new
$4,000,000 office building.
(a)Issue 400,000 shares of common stock at $10 per share.
(b)Issue 7%, 10-year bonds at par ($4,000,000).
Income before interest and taxes is expected to be $3,500,000. The company has a 30%
tax rate and has 600,000 shares of common stock outstanding prior to the new
financing.
Instructions
Calculate each of the following for each alternative:
(1)Net income.
(2)Earnings per share.
21) The income statement for the month of June, 2014 of Camera Obscura Enterprises
contains the following information:
Revenues$7,000
Expenses:
Salries and Wages Expense$3,000
Rent Expense1,500
Advertising Expense800
Supplies Expense300
Insurance Expense 100
Total expenses 5,700
Net income$1,300
At June 1, 2014, Camera Obscura reported owners equity of $35,000. The company had
no owner drawings during June. At June 30, 2014, the company will report owners
equity of
a.$29,300
b.$35,000
c.$36,300
d.$42,000
22) The acid-test (quick) ratio
a.is used to quickly determine a company’s solvency and long-term debt paying ability
b.relates cash, short-term investments, and net receivables to current liabilities
c.is calculated by taking one item from the income statement and one item from the
balance sheet
d.is the same as the current ratio except it is rounded to the nearest whole percent
23) Manufacturing costs include
a.direct materials and direct labor only
b.direct materials and manufacturing overhead only
c.direct labor and manufacturing overhead only
d.direct materials, direct labor, and manufacturing overhead
24) Which of the following items does not follow from the adoption of a budget?
a.Promote efficiency
b.Deterrent to waste
c.Basis for performance evaluation
d.Guarantee of accomplishing the profit objective
25) When the allowance method of recognizing bad debts expense is used, the entry to
recognize that expense
a.increases net income
b.decreases current assets
c.has no effect on current assets
d.has no effect on net income
26) IFRS and GAAP accounting is similar for
a.defined contribution plans
b.defined benefit plans
c.both defined benefit and defined contribution plans
d.none of the above
27) If Income Summary has a credit balance after revenues and expenses have been
closed into it, the closing entry for Income Summary will include a
a.debit to the owner’s capital account
b.debit to the owner’s drawings account
c.credit to the owner’s capital account
d.credit to the owner’s drawings account
28) The technique which identifies the time period required to recover the cost of the
investment is called the ________________ method.
29) On January 1, 2014, Gunne Corporation issued $800,000, 8%, 10-year bonds at
face value. Interest is payable semiannually on July 1 and January 1 . Gunne
Corporation has a calendar year end.
Instructions
Prepare all entries related to the bond issue for 2014 .
30) Sact Creek Company’s most recent financial statements showed dismal
performance. There was a net loss of $10,000 and the statement of cash flows showed a
net cash decrease in all categories. The company president called all the managers
together and asked them to do all they could to make sure the next quarter’s
performance was better.
Ted Flay, manager of the manufacturing division, sold off old manufacturing
equipment. He also reclassified several workers to part time (30 hours per week) and
hired additional temporary workers to take up the slack. This saved the company
money, since part-time workers do not have the same insurance and other benefits as
full-time workers.
Will Smith, financial manager, immediately suspended payments on all accounts except
those on which interest would accrue. He also instituted aggressive collection
procedures.
Required:
1>Were Ted Flay’s actions ethical? Explain.
2>Were Will Smith’s actions ethical? Explain.
3>Were the company president’s actions ethical? Explain.
31) Data for the cost of direct materials for the month ended March 31, 2014, are as
follows:
Materials inventory, March 1, 2014$75,000
Materials inventory, March 31, 201460,000
During March, the company purchased $250,000 of raw materials on account from
Garner Company and $93,000 of raw materials for cash from Bacon Company. In
addition, $60,000 was paid on the Garner account balance.
Instructions
Compute the cost of direct materials used during March.
32) Expense recognition is tied to revenue recognition.
33) Carro Company purchased 6,000 units of raw material on account for $17,600,
when the standard cost was $18,000. Later in the month, Carro Company issued 5,600
units of raw materials for production, when the standard units were 5,800.
Instructions
Journalize the transactions for Carro Company to account for this activity.
34) Identify which of the following reconciling items would require an adjusting entry
to be made by Danielle Doyle Company.
1>Deposits in transit totaled $2,000.
2>A check written to the company for $415 by Cartography Company was returned
NSF.
3>The bank charged the company $25 for printing checks.
4>Outstanding checks totaled $3,300
5>A debit memorandum reported an EFT of $178 to Salome Utilities
35) Under the cost method, dividends received from an investee company are credited
to the _______________ account, whereas under the equity method, dividends received
from an investee company are credited to the _______________ account.
36) A change in inventory methods during the year would be classified as a change in
__________________.
37) The difference between actual or expected sales and break-even sales is called the
__________________________.