1) For analysis purposes, the high-low method usually produces a(n)
a.reasonable estimate
b.precise estimate
c.overstated estimate
d.understated estimate
2) The following data are taken from the financial statements of Dands Company:
2015 2014
Monthly average accounts receivable$ 565,000$ 700,000
Net sales on account$6,200,000$7,000,000
Terms for all sales are 2/10, n/30
Instructions
(a)Compute the accounts receivable turnover and the average collection period for both
years.
(b)What conclusion can an analyst draw about the management of the accounts
receivable?
3) A numbering system for a chart of accounts
a.is prescribed by GAAP
b.is uniform for all businesses
c.usually starts with income statement accounts
d.usually starts with balance sheet accounts
4) Noble Company had net income of $175,000 and net sales of $625,000 in 2014 . The
companys total assets for 2013/2014 averaged $4,000,000. Its common stockholders
equity for the period averaged $2,340,000. Calculate (a) profit margin, (b) return on
assets, and (c) return on common stockholders equity.
5) JP Company is considering two capital investment proposals. Estimates regarding
each project are provided below:
Project EchoProject Charlie
Initial investment$400,000$600,000
Annual net income20,00042,000
Net annual cash inflow100,000142,000
Estimated useful life5 years6 years
Salvage value00
The company requires a 11% rate of return on all new investments.
Present Value of an Annuity of 1
Periods 9% 10% 11% 12%
53.8903.7913.6963.605
64.4864.3554.2314.111
The net present value for Project Charlie is
a.$600,802
b.$802
c.$100,000
d.$178,900
6) Kirk Company issued a $3,500,000, 10%, 10-year mortgage note payable to finance
the construction of a building at December 31, 2014 . The terms provide for semiannual
installment payments of $200,608.
Instructions
Prepare the entry to record:
(a)the mortgage loan on December 31, 2014 .
(b)the first installment payment.
7) If bonds are issued at a discount, it means that the
a.financial strength of the issuer is suspect
b.market interest rate is higher than the contractual interest rate
c.market interest rate is lower than the contractual interest rate
d.bondholder will receive effectively less interest than the contractual interest rate
8) If the total debit column exceeds the total credit column of the income statement
columns on a worksheet, then the company has
a.earned net income for the period
b.an error because debits do not equal credits
c.suffered a net loss for the period
d.to make an adjusting entry
9) Grayson Company is considering two new projects, each requiring an equipment
investment of $72,000. Each project will last for three years and produce the following
annual net income.
Year TIP TOP
1$ 8,000$ 9,000
29,0009,000
3 14,000 9,000
$31,000$27,000
The equipment will have no salvage value at the end of its three-year life. Grayson
Company uses straight-line depreciation. Grayson requires a minimum rate of return of
12%. Present value data are as follows:
Present Value of 1Present Value of an Annuity of 1
Period12%Period 12%
1.8931.893
2.79721.690
3.71232.402
Instructions
(a)Compute the net present value of each project.
(b)Which project should be selected? Why?
10) The steps in preparing a trial balance include all of the following except
a.listing the account titles and their balances
b.totaling the debit and credit columns
c.proving the equality of the two columns
d.transferring journal amounts to ledger accounts
11) Which of the following is not a true statement regarding short-term debt
investments?
a.The securities usually pay interest
b.Investments are frequently government or corporate bonds
c.This type of investment must be currently traded in the securities market
d.Debt investments are recorded at the price paid less brokerage fees
12) The market rate of interest for a bond issue which sells for more than its face value
is
a.independent of the interest rate stated on the bond
b.higher than the interest rate stated on the bond
c.equal to the interest rate stated on the bond
d.less than the interest rate stated on the bond
13) Murphy Industries has equivalent units of 8,000 for materials and for conversion
costs. Total manufacturing costs are $144,000. Total materials costs are $120,000. How
much is the conversion cost per unit?
a.$15
b.$3
c.$18
d.$6
14) The conceptually superior approach to capital budgeting is
a.a discounted cash flow method
b.the payback method
c.the annual rate of return method
d.none of these answer choices are correct
15) The steps in the preparation of a worksheet do not include
a.analyzing documentary evidence
b.preparing a trial balance on the worksheet
c.entering the adjustments in the adjustment columns
d.entering adjusted balances in the adjusted trial balance columns
16) Which of the following presents key aspects of the process of accounting in the
correct chronological order?
a.Recording, totaling, and auditing
b.Identifying, recording, and communicating
c.Totaling, auditing, and budgeting
d.Budgeting, recording, and communicating
17) In many companies, responsibility for coordinating the preparation of the budget is
assigned to
a.the company’s independent certified public accountants
b.the company’s internal auditors
c.the company’s board of directors
d.a budget committee
18) Salem Company hired Kirk Construction to construct an office building for
£6,400,000 on land costing £1,600,000, which Salem Company owned. The building
was complete and ready to be used on January 1, 2014 and it has a useful life of 40
years. The price of the building included land improvements costing £480,000 and
personal property costing £600,000. The useful lives of the land improvements and the
personal property are 10 years and 5 years, respectively. Salem Company uses
component depreciation, and the company uses straight-line depreciation for other
similar assets. What is the net amount reported for the building on Salem Companys
December 31, 2014 statement of financial position?
a.£6,132,000
b.£6,059,000
c.£5,187,000
d.£6,240,000
19) Sales revenue
a.may be recorded before cash is collected
b.will always equal cash collections in a month
c.only results from credit sales
d.is only recorded after cash is collected
20) When a note receivable is honored, Cash is debited for the note’s
a.net realizable value
b.maturity value
c.gross realizable value
d.face value
21) Which of the following would not be an appropriate heading for a column in the
cash receipts journal?
a.Cash
b.Accounts Payable
c.Sales Discounts
d.Sales Revenue
22) A subsidiary ledger is
a.used in place of the general ledger if the general ledger is destroyed or stolen
b.a group of accounts used by branches and subsidiaries of a corporate business
c.a group of accounts with a common characteristic that provides detailed information
about a control account in the general ledger
d.used to post excess transactions if a general ledger account becomes full during an
accounting period
23) A gain or loss on disposal of a plant asset is determined by comparing the
a.replacement cost of the asset with the asset’s original cost
b.book value of the asset with the asset’s original cost
c.original cost of the asset with the proceeds received from its sale
d.book value of the asset with the proceeds received from its sale
24) Sandor Manufacturing Inc.’s accounting records reflect the following inventories:
Dec. 31, 2013Dec. 31, 2014
Raw materials inventory$110,000$ 90,000
Work in process inventory156,000174,000
Finished goods inventory138,000150,000
During 2014, Sandor purchased $1,440,000 of raw materials, incurred direct labor costs
of $300,000, and incurred manufacturing overhead totaling $84,000.
Assume Sandor Manufacturings cost of goods manufactured for 2014 amounted to
$1,740,000. How much would it report as cost of goods sold for the year?
a.$1,752,000
b.$1,878,000
c.$1,878,000
d.$1,728,000
25) Harris Company borrowed $800,000 from Liber Bank on January 1, 2013 in order
to expand its mining capabilities. The five-year note required annual payments of
$208,349 and carried an annual interest rate of 8.5%. What is the amount of expense
Harris must recognize on its 2014 income statement?
a.$68,000
b.$56,070
c.$43,127
d.$49,659
26) Which one of the following is not a direct material?
a.A tire used for a lawn mower
b.Plastic used in the covered case for a home PC
c.Steel used in the manufacturing of steel-radial tires
d.Lubricant for a ball-bearing joint for a large crane
27) At Greenwood Company, materials are entered at the beginning of each process.
Work in process inventories, with the percentage of work done on conversion, and
production data for its Painting Department in selected months are as follows:
Beginning Work In ProcessEnding Work In Process
PercentageUnits CompletedPercentage
MonthUnitsCompletedand Transferred OutUnitsCompleted
July-0-10,00050090%
Sept.2,50020%9,0004,00070%
Instructions
(a)Compute the physical units for July.
(b)Compute the equivalent units of production for materials and conversion costs for
September.
28) Stately Decor signed an $18,000 six-month note payable on September 1 that bears
interest at a rate of 5%. How much is the total interest to be accrued on this note at
December 31?
$900
$75
c.$300
d.$450
29) Brigg Enterprises produces miniature parasols. Each parasol consists of $1.20 of
variable costs and $.90 of fixed costs and sells for $4.50. A French wholesaler offers to
buy 8,000 units at $1.40 each, of which Pederson has the capacity to produce. Brigg
will incur extra shipping costs of $.12 per bear.
Instructions
Determine the incremental income or loss that Brigg Enterprises would realize by
accepting the special order.
30) Instructions: Using the following data, complete the requirements given below.
When you are given amounts to assume as the answers to previous requirements, be
careful to use such assumed amounts rather than your answers (in order to minimize
carry-through errors)
The Machining Department of Sinclair Corporation reports the following for October
2014:
Production: All materials are added at the beginning of the process. Beginning work in
process 20,000 units, 40% complete. Units started into production 200,000 units.
Ending work in process 10,000 units, 70% complete.
Manufacturing Costs: Beginning work in process, $45,000, comprised of $17,000 of
materials and $28,000 on conversion costs. Materials added $203,000; labor and
overhead added $774,900.
1>Required: Compute equivalent units of production for (1) materials and (2)
conversion costs.
MaterialsConversion
2>Required: Compute the unit costs for the month.
MaterialsConversion
3>Assume your answers to (b) above were $1.00 for materials and $3.50 for conversion
costs. Required: Determine the costs to be assigned to the units transferred out.
4>Assume the same unit costs as given in (c) above.
Required: Determine the costs assigned to the units in ending work in process.
31) A consolidated balance sheet reports the financial position of two or more legal
entities just as if they were one reporting unit. Explain why all the individual items
appearing on the separate balance sheets of each of the affiliated companies cannot be
added together to arrive at a consolidated total for each item.
32) Penn Corporation had the following transactions during its first month of
operations:
1>Purchased raw materials on account, $88,000.
2>Raw Materials of $40,000 were requisitioned to the factory. An analysis of the
materials requisition slips indicated that $7,500 was classified as indirect materials.
3>Factory labor costs incurred were $140,000 of which $120,000 pertained to factory
wages payable and $20,000 pertained to employer payroll taxes payable.
4>Time tickets indicated that $125,000 was direct labor and $15,000 was indirect labor.
5>Overhead costs incurred on account were $164,000.
6>Manufacturing overhead was applied at the rate of 140% of direct labor cost.
7>Goods costing $118,000 are still incomplete at the end of the month; the other goods
were completed and transferred to finished goods.
8>Finished goods costing $105,000 to manufacture were sold on account for $137,000.
Instructions
Journalize the above transactions for Penn Corporation.