1) An asset’s cost includes all normal and reasonable expenditures necessary to get the
asset in place and ready for its intended use.
2) All plant assets, including land, are depreciated.
3) An employee earnings report is a cumulative record of each employee’s hours
worked, gross earnings, deductions, and net pay.
4) A company that produces a large number of standardized units would normally use a
job order costing system.
5) A company with a high inventory turnover requires a smaller investment in inventory
than one producing the same sales with a lower turnover.
6) Part of the cash budget is based on information taken from the capital expenditures
budget.
7) The present value of an annuity can be best or quickly computed as the sum of the
individual future values for each payment.
8) Accounting for long-term investments in held-to-maturity securities requires
companies to record interest revenue as it is earned.
9) If a corporation receives assets other than cash in exchange for stock, it records the
assets received at their market value as of the date of the transaction.
10) Revenues are increases in equity from a company’s sales of products and services to
customers.
11) The purchases journal is typically used to record only purchases of inventory.
12) Beginning inventory plus net purchases equals merchandise available for sale.
13) Summerlin Company budgeted 4,000 pounds of material costing $5.00 per pound to
produce 2,000 units. The company actually used 4,500 pounds that cost $5.10 per
pound to produce 2,000 units. What is the direct materials quantity variance?
A.$400 unfavorable.
B.$450 unfavorable.
C.$2,500 unfavorable.
D.$2,550 unfavorable.
E.$2,950 unfavorable.
14) Long-term investments in held-to-maturity debt securities are accounted for using
the:
A.Fair value method with fair value adjustment to income.
B.Fair value method with fair value adjustment to equity.
C.Cost method without amortization.
D.Cost method with amortization.
E.Equity method.
15) On January 1, Fashion Forward Magazine received $15,000 from subscribers for
the annual subscriptions that it recorded in Unearned Subscription Revenue. The issues
of the magazine are mailed to subscribers quarterly. What amount of tuition revenue
should the magazine recognize on March 31 when the first issue is sent in March?
A.$15,000.
B.$1,250.
C.$7,500.
D.$3,750.
E.$0.
16) If a company borrows money from a bank, the interest paid on this loan should be
reported on the statement of cash flows as a(n):
A.Operating activity.
B.Investing activity.
C.Financing activity.
D.Noncash investing and financing activity.
E.This is not reported in the statement of cash flows.
17) Wilturner Company incurs $74,000 of labor related directly to the product in the
Assembly Department, $23,000 of labor not directly related to the product but related to
the Assembly Department as a whole, and $10,000 of labor for services that help
production in both the Assembly and Finishing departments. The journal entries to
record the labor would include:
A.Debit Work in Process Inventory $74,000; debit Factory Overhead $33,000.
B.Debit Work in Process Inventory $74,000; debit Wages Expense $33,000.
C.Debit Work in Process Inventory $97,000; debit Wages Expense $10,000.
D.Debit Work in Process Inventory $107,000.
E.Debit Work in Process Inventory $97,000; debit Factory Overhead $10,000.
18) Hassock Corp. produces woven wall hangings. It takes 2 hours of direct labor to
produce a single wall hanging. Bartels’ standard labor cost is $12 per hour. During
August, Bartels produced 10,000 units and used 21,040 hours of direct labor at a total
cost of $250,376. What is Bartels’ labor rate variance for August?
A.$2,000 favorable.
B.$2,104 unfavorable.
C.$2,104 favorable.
D.$4,160 favorable.
E.$2,000 unfavorable.
19) Based on the unadjusted trial balance for Highlight Styling and the adjusting
information given below, prepare the adjusting journal entries for Highlight Styling.
Highlight Stylings’ unadjusted trial balance for the current year follows:
Additional information:
a. An insurance policy examination showed $1,040 of expired insurance.
b. An inventory count showed $210 of unused shop supplies still available.
c. Depreciation expense on shop equipment, $350.
d. Depreciation expense on the building, $2,020.
e. A beautician is behind on space rental payments, and this $200 of accrued revenues
was unrecorded at the time the trial balance was prepared.
f. $800 of the Unearned Rent account balance was still unearned by year-end.
g. The one employee, a receptionist, works a five-day workweek at $50 per day. The
employee was paid last week but has worked four days this week for which she has not
been paid.
h. Three months’ property taxes, totaling $450, have accrued. This additional amount of
property taxes expense has not been recorded.
i. One month’s interest on the note payable, $600, has accrued but is unrecorded.
20) Cahuilla Corporation predicts the following sales in units for the coming four
months:
Each month’s ending finished goods inventory should be 40% of the next month’s sales.
March 31 finished goods inventory is 96 units. A finished unit requires five pounds of
direct material B. The March 31 Raw Materials inventory has 200 pounds of B. Each
month’s ending Raw Materials inventory should be 30% of the following month’s
production needs. The budgeted production for May is:
A.232 units.
B.168 units.
C.400 units.
D.280 units.
E.288 units.
21) The amount of annual cash dividends distributed to common shareholders relative
to the common stock’s market value is the:
A.Dividend payout ratio.
B.Dividend yield.
C.Price-earnings ratio.
D.Current yield.
E.Earnings per share.
22) All of the following are classified as liabilities except:
A.Accounts Receivable.
B.Notes Payable.
C.Wages Payable.
D.Accounts Payable.
E.Taxes Payable.
23) The person to whom a note is payable is known as the ______________.
24) What is a cash budget? How can management use a cash budget?
25) Given the following information about a corporation’s current year activities,
compute the retained earnings for the current year.
26) Compare the different depreciation methods (straight-line, units-of-production, and
double-declining-balance) with respect to the amounts of depreciation expense per
period and the total depreciation over the life of the asset.
27) Materials and labor costs that are clearly associated with a specific process or
department are known as ___________________. Those costs that are not clearly
associated with a specific process or department are called ________________.
28) The following costs are incurred by Gonzalez Manufacturing Co. Classify each cost
item as either a period cost or a product cost. If the cost is a product cost, identify it as a
prime and/or conversion cost.
29) In a process costing system, direct materials used are debited to the __________
account, and indirect materials used are debited to the ____________ account.
30) Oxford, Inc., is preparing its master budget for the quarter ended June 30. It sells a
single product for $40 each. Sales are 60% cash and 40% on credit. All credit sales are
collected in the month following the sale. At March 31, the balance in accounts
receivable is $12,000, which represents the uncollected balance on March sales.
Budgeted sales for the next four months follow:
The product cost is $20 per unit, and desired ending inventory is 60% of the following
month’s sales in units. Inventory at March 31 is 480 units. Purchases are paid 50% in
the month of purchase and 50% in the following month. At March 31, the balance in
accounts payable is $11,000, which represents the unpaid purchases from March.
Operating expenses are paid in the month incurred and consist of:
€¢ Commissions (10% of sales)
– Shipping (3% of sales)
– Office salaries ($3,000 per month)
– Rent ($5,000 per month)
Depreciation is $2,000 per month. Income taxes are 40%, and will be paid on July 1.
There are no taxes payable at March 31. A minimum cash balance of $12,000 is
required, and the beginning cash balance is $12,000. Loans are obtained at the end of
any month when a cash shortage occurs. Interest is 1% per month based on the
beginning of the month loan balance and is paid at each month end. If the ending cash
balance exceeds the minimum, the excess will be applied to repaying any outstanding
loan balance. At March 31, the loan balance is $2,000. Prepare a master budget (round
all dollar amounts to the nearest whole dollar) for each of the months of April, May, and
June that includes the:
– Sales budget
– Schedule of cash receipts
– Merchandise purchases budget
€¢ Schedule of cash disbursements for purchases of merchandise
– Schedule of cash disbursements for selling and administrative expenses (combined)
– Cash budget, including information on the loan balance
– Budgeted income statement for the quarter
