1) If the profit margin for a division is 8% and the investment turnover is 1.20, the rate
of return on investment is 9.6%.
2) Unearned revenues that will be earned in a relatively short period of time are listed
on the balance sheet as current assets.
3) If bonds of $1,000,000 with unamortized discount of $10,000 are redeemed at 98, the
gain on redemption of bonds is $10,000.
4) In the merchandising income statement, sales will be reduced by sales discounts and
sales returns and allowances to arrive at net sales.
5) The reliability of cost-volume-profit analysis does NOT depend on the assumption
that costs can be accurately divided into fixed and variable components.
6) By ignoring and not posting the adjusting journal entries to the appropriate accounts,
net income will always be overstated.
7) Only a single line, which represents the difference between total sales revenues and
total costs, is plotted on the cost-volume-profit chart.
8) Opportunity cost is the amount of increase or decrease in cost that would result from
the best available alternative to the proposed use of cash or its equivalent.
9) The amortization of discounts or premiums are recorded as part of interest income on
the income statement.
10) To arrive at cash flows from operations, it is necessary to convert the income
statement from an accrual basis to the cash basis of accounting.
11) The primary disadvantage of decentralized operations is that decisions made by one
manager may affect other managers in such a way that the profitability of the entire
company may suffer.
12) The cost of wages paid to employees directly involved in converting materials to
finished product is classified as direct labor cost.
13) Notes Receivable and Accounts Receivable can also be called trade receivables.
14) The profit center income statement should include only controllable revenues and
expenses.
15) Investment turnover (as used in determining the rate of return on investment)
focuses on the rate of profit earned on each sales dollar.
16) Treasury stock shares are
A.shares held by the U.S. Treasury Department
B.part of the total outstanding shares but not part of the total issued shares of a
corporation
C.unissued shares that are held by the treasurer of the corporation
D.issued shares that have been reacquired by a corporation
17) 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
18) Where are selling and administrative expenses found on the multiple-step income
statement?
A.before gross profit
B.after sales and before gross profit
C.after net income before expenses
D.after gross profit
19) During the end-of-period processing, which of the following best describes the
logical order of steps?
A.preparation of adjustments, adjusted trial balance, financial statements
B.preparation of income statement, adjusted trial balance, balance sheet
C.preparation of adjusted trial balance, cross-referencing, journalizing
D.preparation of adjustments, adjusted trial balance, posting
20) The proper sequence of steps in the accounting cycle is as follows
A.analyze and record transactions, post transaction to the ledger, prepare a trial balance,
prepare financial statements, journalize closing entries, analyze adjustment data and
prepare adjusting entries
B.prepare a trial balance, analyze adjustment data, prepare adjusting entries, prepare
financial statements, journalize closing entries and post to the ledger, analyze and
record transactions, post transactions to the ledger
C.analyze and record transactions, post transactions to the ledger, prepare a trial
balance, analyze adjustment data, prepare adjusting entries, prepare financial
statements, journalize closing entries and post to the ledger
D.prepare financial statements, journalize closing entries and post to the ledger, analyze
and record transactions, post transactions to the ledger, prepare a trial balance, analyze
adjustment data, prepare adjusting entries
21) On February 12, Addison, Inc. purchased 6,000 shares of Lucas Company at $22
per share plus a $240 brokerage fee. On August 22, Lucas paid a $0.42 dividend per
share. On November 10, 4,000 shares of Lucas stock were sold for $28 per share less a
$160 brokerage fee. The journal entry to record the purchase would include:
A.a debit to Investments for $132,000
B.a credit to Cash for $132,000
C.a debit to Investments for $132,240
D.a credit to Investments for $240
22) Who pays the freight cost when the terms are FOB destination?
A.the seller
B.the buyer
C.the customer
D.either the buyer or the seller
23) Work in process inventory on December 31, 2011, is $42,000. Work in process
inventory decreased by 40% during 2011. Total manufacturing costs incurred in 2011
amount to $260,000. What is cost of goods manufactured?
A.$232,000
B.$302,000
C.$288,000
D.$190,000
24) Which of the following expenses incurred by the sporting goods department of a
department store is a direct expense?
A.Depreciation expense–office equipment
B.Insurance on inventory of sporting goods
C.Uncollectible accounts expense
D.Office salaries
25) If merchandise inventory is being valued at cost and the purchase price is steadily
falling, which method of costing will yield the largest net income?
A.average cost
B.LIFO
C.FIFO
D.weighted average
26) A project has estimated annual cash flows of $90,000 for three years and is
estimated to cost $250,000. Assume a minimum acceptable rate of return of 10%. Using
the following tables determine the (a) net present value of the project and (b) the
present value index, rounded to two decimal places.
27) Accounting for just-in-time operations requires fewer transactions because
A.large batches of inventory are combined in a smaller number of transactions
B.costs are accumulated in one department and then transferred to the next department
C.combined material and conversion costs are transferred to finished goods
D.costs are transferred from department to department allowing for better controls in
costs
28) For each of the following companies, identify whether it is a service,
merchandising, or manufacturing business.
A. Dillards
B. Time Warner Cable
C. General Motors
D. Netflix
E. Stanley Steemer
F. Sony
G. Best Buy
H. Banana Republic
I. H & R Block
29) When the corporation issuing the bonds has the right to repurchase the bonds prior
to the maturity date for a specific price, the bonds are
A.convertible bonds
B.unsecured bonds
C.debenture bonds
D.callable bonds
30) The cost of production of completed and finished goods during the period amounted
to $450,000, and the finished products shipped to customers had total production costs
of $357,000. From the following, select the entry to record the transfer of costs from
work in process to finished goods.
A.Finished Goods357,000
Work in Process357,000
B.Finished Goods450,000
Work in Process450,000
C.Work in Process450,000
Finished Goods450,000
D.Work in Process357,000
Finished Goods357,000
31) Nighthawk Inc. is considering disposing of a machine with a book value of $22,500
and an estimated remaining life of three years. The old machine can be sold for $6,250.
A new machine with a purchase price of $68,750 is being considered as a replacement.
It will have a useful life of three years and no residual value. It is estimated that the
annual variable manufacturing costs will be reduced from $43,750 to $20,000 if the
new machine is purchased. The net differential increase or decrease in cost for the entire
three years for the new equipment is:
A.$8,750 increase
B.$31,250 decrease
C.$8,750 decrease
D.$2,925 decrease
32) Preferred stock issued in exchange for land would be reported in the statement of
cash flows in
A.the cash flows from financing activities section
B.the cash flows from investing activities section
C.a separate schedule
D.the cash flows from operating activities section
33) Abbott Company uses the allowance method of accounting for uncollectible
accounts. Abbott estimates that 3% of net credit sales will be uncollectible. On January
1, 2010, the Allowance for Doubtful Accounts had a credit balance of $2,400. During
2010, Abbott wrote-off accounts receivable totaling $1,800 and made credit sales of
$100,000. There were no Sales Returns or Sales Discounts during the year. After the
adjusting entry, the December 31, 2010, balance in the Bad Debt Expense would be
A.$1,200
B.$3,000
C.$3,600
D.$7,200
34) Sparrow Co. is currently operating at 80% of capacity and is currently purchasing a
part used in its manufacturing operations for $8.00 a unit. The unit cost for Sparrow Co.
to make the part is $9.00, which includes $.60 of fixed costs. If 4,000 units of the part
are normally purchased each year but could be manufactured using unused capacity,
what would be the amount of differential cost increase or decrease for making the part
rather than purchasing it?
A.$12,000 cost decrease
B.$4,000 cost increase
C.$20,000 cost decrease
D.$1,600 cost increase
35) The following information is for the standard and actual costs for the Happy
Corporation.
Standard Costs:
Budgeted units of production – 16,000 (80% of capacity)
Standard labor hours per unit – 4
Standard labor rate – $26 per hour
Standard material per unit – 8 lbs.
Standard material cost – $ 12 per pound
Standard variable overhead rate – $15 per labor hour
Budgeted fixed overhead – $640,000
Fixed overhead rate is based on budgeted labor hours at 80% capacity.
Actual Cost:
Actual production – 16,500 units
Actual material purchased and used – 130,000 pounds
Actual total material cost – $1,600,000
Actual labor – 65,000 hours
Actual total labor costs – $1,700,000
Actual variable overhead – $1,000,000
Actual fixed overhead – $640,000
Actual variable overhead – $1,000,000
Determine: (a) the quantity variance, price variance, and total direct materials cost
variance; (b) the time variance, rate variance, and total direct labor cost variance; and
(c) the volume variance, controllable variance, and total factory overhead cost variance.
36) Quail Co. can further process Product B to produce Product C. Product B is
currently selling for $60 per pound and costs $42 per pound to produce. Product C
would sell for $92 per pound and would require an additional cost of $13 per pound to
produce. What is the differential revenue of producing and selling Product C?
A.$32 per pound
B.$42 per pound
C.$50 per pound
D.$18 per pound
37) Long-term investments are held for all of the listed reasons below except
A.to earn the interest or dividend income
B.for its long-term gain potential
C.to influence over another business entity
D.to meet current cash needs
38) The statement of owner’s equity shows
A.only net income, beginning and ending capital
B.only total assets, beginning and ending capital
C.only net income, beginning capital, and withdrawals
D.all the changes in the owner’s capital as a result of net income, net loss, additional
investments, and withdrawals
39) On June 1, 2014, Aaron Company purchased equipment at a cost of $120,000 that
has a depreciable cost of $90,000 and an estimated useful life of 3 years and 30,000
hours.
Using straight line depreciation, calculate depreciation expense for the second year.
A.$17,500
B.$30,000
C.$12,500
D.$40,000
40) Match each of the following terms with the best definition.
1>Evaluation of how income will change based on an alternative course of action. A.
Product cost distortion
2>Strategy that focuses on reducing bottlenecks. B. Opportunity cost
3>Not relevant to future decisions. C. Theory of constraints
4>Possible result of using an inappropriate overhead allocation method. D. Sunk cost
5>Revenue forgone from an alternative use of an asset. E. Differential analysis
41) A building with a book value of $54,000 is sold for $63,000 cash Using the indirect
method, this transaction should be shown on the statement of cash flows as follows:
A.an increase of $54,000 from investing activities
B.an increase of $63,000 from investing activities and a deduction from net income of
$9,000
C.an increase of $9,000 from investing activities
D.an increase of $54,000 from investing activities and an addition to net income of
$9,000
42) Bar code scanners are now being used to track incoming materials and to
electronically transmit this data. Scanners have replaced which of the following:
A.receiving report
B.materials requisition
C.materials ledger
D.job cost sheet
43) A list of the accounts is called
A.ledger
B.chart of accounts
C.T account
D.debit
44) On August 1, Jones Corporations packaging department had Work in Process
inventory of 8,000 units that were 75% complete with respect to materials and 30%
complete with respect to conversion costs. The cost of these units was $99,525 ($62,000
transferred-in from previous departments, $28,775 in materials, and $8,750 in labor and
overhead). During August, 125,000 units were transferred into the department. These
units had accumulated costs in previous departments of $1,418,560. The packaging
department incurred costs of $799,225 for materials and $498,010 for conversion costs
in August and transferred 131,000 units out of the department. The 2,000 units
remaining in ending inventory are 50% complete with respect to materials and 20%
complete with respect to conversion costs. Jones Corporation uses the average cost
method to cost its inventories.
Required
a. Calculate the cost per equivalent unit for transferred-in costs, materials, and
conversion costs.
b. Calculate the cost of the units transferred out of the department.
c. Calculate the cost of the ending inventory.
45) The profit margin for Division B is 8% and the investment turnover is 1.20. What is
the rate of return on investment for Division B?
A.8%
B.6.7%
C.7.3%
D.9.6%
46) A company has 10,000 shares of $10 par common stock outstanding. Prepare entries
to record the following:
(a) Purchased 1,000 shares of treasury stock at $12. The treasury stock is accounted for
by the cost method.
(b) Sold 500 shares of treasury stock at $15.
(c) Purchased equipment for $75,000, paying $25,000 in cash and issuing 4,000 shares
of common stock for the remaining.
(d) Sold 500 shares of treasury stock at $11.
47) The initials GAAP stand for
A.General Accounting Procedures
B.Generally Accepted Plans
C.Generally Accepted Accounting Principles
D.Generally Accepted Accounting Practices
48) Set up time is disregarded as an improvement priority under the ____
manufacturing concept.
A.traditional
B.just-in-time
C.total quality management
D.product cost
49) The amount of the estimated average income for a proposed investment of $90,000
in a fixed asset, giving effect to depreciation (straight-line method), with a useful life of
four years, no residual value, and an expected total income yield of $21,600, is:
A.$10,800
B.$21,600
C.$ 5,400
D.$45,000
50) ____ manufacturing philosophy emphasizes quality and zero defects.
A.Traditional
B.Just-In-Time
C.Zero-Based
D.Strategic
51) A building with an appraisal value of $154,000 is made available at an offer price of
$172,000. The purchaser acquires the property for $40,000 in cash, a 90-day note
payable for $45,000, and a mortgage amounting to $75,000. The cost basis recorded in
the buyer’s accounting records to recognize this purchase is
A.$154,000
B.$172,000
C.$160,000
D.$120,000
52) On the basis of the following data for Barker Industries as of December 31, 2011,
determine the value of the inventory at the lower of cost or market. Also, show how the
merchandise inventory would appear on the balance sheet (assume that the cost was
determined by the FIFO method). Apply lower of cost or market to each inventory item.
53) Discuss the use of job order costing for professional services businesses. What are
the similarities and differences between service and manufacturing business job order
costing?
54) Given the following data, prepare an amortization schedule (use the straight line
method)
1/1/10 – issued $800,000, 9%, 3 year bonds, interest paid annually on 12/31 to yield 8%
Use the following format (round to nearest dollar, may have small rounding difference);
55) During the taking of its physical inventory on December 31, 2011, Gentry Supplies
Company incorrectly counted its inventory as $245,000 instead of the correct amount of
$254,000. Indicate the affect of the misstatement on Gentry Supplies Companys
balance sheet and income statement for the year ended December 31, 2011.
56) On February 13, Epperson Company issue for cash 75,000 shares of no-par
common stock (with a stated value of $125) at $140. On September 9, Epperson issued
at par 15,000 share of 1%, $60 par preferred stock at par for cash On November 23,
Epperson issued for cash 8,000 shares of 1%, $60 par preferred stock at $70.
Required: Journalize the entries to record the February 13, September 9 and November
23 transactions.
57) A $400,000 capital investment proposal has an estimated life of four years and no
residual value. The estimated net cash flows are as follows:
The minimum desired rate of return for net present value analysis is 12%. The present
value of $1 at compound interest of 12% for 1, 2, 3, and 4 years is .893, .797, .712,
and .636, respectively. Determine the net present value.
58) Explain the concept of equivalent units. Give an example to validate your
explanation.
59) On January 1, 2010, Cary Parsons established a catering service. Listed below are
accounts she would like to open in the general ledger. List the accounts in the order in
which they should appear in the ledger and propose a two-digit account numbering
scheme that is consistent with the rules of a proper chart of accounts.
60) The Grant Company has sales of $300,000, and the break-even point in sales dollars
if $225,000. Determine the companys margin of safety percentage.
61) Keeton Company had the following data:
Cost of Materials Used $60,000
Direct Labor costs $58,000
Factory Overhead $33,000
Work in Process, beg. $29,000
Work in Process, end. $18,000
Finished Goods,beg. $32,000
Finished Goods, end. $18,000
Show your calculations to determine the Cost of Goods Sold.