1) A mixed cost has both selling and administrative cost elements.
2) In a process cost system, materials, labor and overhead are only added in the first
production department.
3) If inventories are valued using the LIFO cost assumption, they should not be
classified as a current asset on the balance sheet.
4) For external reporting, a company must prepare either an income statement or a
statement of cash flows, but not both.
5) Current maturities of long-term debt are often identified as long-term debt due within
one year on the balance sheet.
6) The use of standard costs in inventory costing is prohibited in financial statements.
7) The terms of the bond issue are set forth in a formal legal document called a bond
indenture.
8) Budget reports comparing actual results with planned objectives should be prepared
only once a year.
9) Transactions are entered in the ledger accounts and then transferred to journals.
10) Transactions that affect inventories on hand have an effect on both the balance sheet
and the income statement.
11) External transactions involve economic events between the company and some
other enterprise or party.
12) In activity-based costing, the focus is on the activities performed to produce
specific products.
13) The normal balance of an expense is a credit.
14) Race Repair Service, Inc. is trying to establish the standard labor cost of a typical
engine tune-up. The following data have been collected from time and motion studies
conducted over the past month.
Actual time spent on the tune-up1.0 hour
Hourly wage rate$16
Payroll taxes10% of wage rate
Setup and downtime10% of actual labor time
Cleanup and rest periods20% of actual labor time
Fringe benefits25% of wage rate
Instructions
(a)Determine the standard direct labor hours per tune-up
(b)Determine the standard direct labor hourly rate.
(c)Determine the standard direct labor cost per tune-up.
(d)If a tune-up took 1.75 hours at the standard hourly rate, what was the direct labor
quantity variance?
15) In liquidation, balances prior to the distribution of cash to the partners are: Cash
$240,000; Paley, Capital $112,000; Stengel, Capital $104,000, and King, Capital
$24,000. The income ratio is 6:2:2, respectively. How much cash should be distributed
to Paley?
a.$100,000
b.$104,000
c.$112,000
d.$120,000
16) Which of the following is true regarding the corporate form of business
organization?
a.Corporations are the most prevalent form of business organization
b.Corporate businesses are generally smaller in size than partnerships and
proprietor-ships
c.The revenues of corporations are greater than the combined revenues of partnerships
and proprietorships
d.Corporations are separate legal entities organized exclusively under federal law
17) ThoAon, Inc. collected the following production data for the past month:
Units ProducedTotal Cost
1,600$22,000
1,30019,000
1,50022,500
1,10016,500
If the high-low method is used, what is the monthly total cost equation?
a.Total cost = $4,400 + $11/unit
b.Total cost = $5,500 + $10/unit
c.Total cost = $0 + $15/unit
d.Total cost = $3,300 + $12/unit
18) In calculating a predetermined overhead rate, a recent trend in automated
manufacturing operations is to choose an activity base related to
a.direct labor hours
b.indirect labor dollars
c.machine hours
d.raw materials dollars
19) The statement of cash flows should help investors and creditors assess each of the
following except the
a.entity’s ability to generate future income
b.entity’s ability to pay dividends
c.reasons for the difference between net income and net cash provided by operating
activities
d.cash investing and financing transactions during the period
20) Munphy, Inc. manufactures one product called tybos. The company uses a standard
cost system and sells each tybo for $8. At the start of monthly production, Munphy
estimated 9,500 tybos would be produced in March. Munphy has established the
following material and labor standards to produce one tybo:
Standard QuantityStandard Price
Direct materials2.5 pounds$3 per pound
Direct labor0.6 hours$10 per hour
During March 2014, the following activity was recorded by the company relating to the
production of tybos:
1>The company produced 9,000 units during the month.
2>A total of 24,000 pounds of materials were purchased at a cost of $67,200.
3>A total of 24,000 pounds of materials were used in production.
4>5,000 hours of labor were incurred during the month at a total wage cost of $55,000.
Instructions
Calculate the following variances for March for Munphy, Inc.
(a)Materials price variance
(b)Materials quantity variance
(c)Labor price variance
(d)Labor quantity variance
21) The consistent application of an inventory costing method is essential for
a.conservatism
b.accuracy
c.comparability
d.efficiency
22) An awareness of the normal balances of accounts would help you spot which of the
following as an error in recording?
a.A debit balance in the drawings account
b.A credit balance in an expense account
c.A credit balance in a liabilities account
d.A credit balance in a revenue account
23) Dividends received are credited to what account under the equity method and cost
method, respectively?
Equity MethodCost Method
a.Stock InvestmentsStock Investments
b.Dividend RevenueStock Investments
c.Stock InvestmentsDividend Revenue
d.Dividend RevenueDividend Revenue
24) At April 30, Yaddof Company has the following bank information: cash balance per
bank $2,300; outstanding checks $390; deposits in transit $275; credit memo for
interest $50; bank service charge $10. What is Mareskas adjusted cash balance on April
30?
a.$2,185
b.$2,245
c.$2,300
d.$2,340
25) A trial balance may balance even when each of the following occurs except when
a.a transaction is not journalized
b.a journal entry is posted twice
c.incorrect accounts are used in journalizing
d.a transposition error is made
26) A responsibility report for a profit center will
a.not show controllable fixed costs
b.not show indirect fixed costs
c.show noncontrollable fixed costs
d.not show cumulative year-to-date results
27) The periodicity assumption states that the economic life of a business can be
divided into
a.equal time periods
b.cyclical time periods
c.artificial time periods
d.perpetual time periods
28) A company purchased office equipment for $40,000 and estimated a salvage value
of $8,000 at the end of its 5-year useful life. The constant percentage to be applied
against book value each year if the double-declining-balance method is used is
a.20%
b.25%
c.40%
d.5%
29) Which costing method cannot be used to determine the cost of inventory items
before lower-of-cost-or-market is applied?
a.Specific identification
b.FIFO
c.LIFO
d.All of these methods can be used
30) The effective-interest method for amortization of bond discounts is required under
a.GAAP only
b.IFRS only
c.Both GAAP and IFRS
d.Neither GAAP or IFRS
31) Which of the following is not a fixed cost?
a.Direct materials
b.Depreciation
c.Lease charge
d.Property taxes
32) A company has budgeted direct materials purchases of $50,000 in March and
$80,000 in April. Past experience indicates that the company pays for 70% of its
purchases in the month of purchase and the remaining 30% in the next month. During
April, the following items were budgeted:
Wages Expense$25,000
Purchase of office equipment12,000
Selling and Administrative Expenses8,000
Depreciation Expense6,000
The budgeted cash disbursements for April are:
a.$71,000
b.$108,000
c.$116,000
d.$122,000
33) Conversion cost per unit equals $4. Total materials costs equal $80,000. Equivalent
units for materials are 10,000. How much is the total manufacturing cost per unit?
a.$14
b.$4
c.$12
d.$8
34) Which of the following statements concerning receivables is incorrect?
a.Notes receivable are often listed last under receivables
b.The contingent liability from selling notes receivable should be disclosed
c.Both the gross amount of receivables and the allowance for doubtful accounts should
be reported
d.Interest revenue and gain on sale of notes receivable are shown under other revenues
and gains
35) Four thousand bonds with a face value of $1,000 each, are sold at 105 . The entry to
record the issuance is
a.Cash 4,200,000
Bonds Payable 4,200,000
b.Cash 4,000,000
Premium on Bonds Payable 200,000
Bonds Payable 4,200,000
c.Cash 4,200,000
Premium on Bonds Payable 200,000
Bonds Payable 4,000,000
d.Cash 4,200,000
Discount on Bonds Payable 200,000
Bonds Payable 4,000,000
36) Jolene is warehouse custodian and also maintains the accounting record of the
inventory held at the warehouse. An assessment of this situation indicates
a.documentation procedures are violated
b.independent internal verification is violated
c.segregation of duties is violated
d.establishment of responsibility is violated
37) Which one of the following costs would not be inventoriable?
a.Period costs
b.Factory insurance costs
c.Indirect materials
d.Indirect labor costs
38) Which of the following does not describe a characteristic of process costing?
a.Once production begins, it continues until the finished product emerges
b.All units of production receive precisely the same amount of material, labor, and
overhead
c.Job cost sheets must pass from one production department to the next on a daily basis
d.Work in process accounts are maintained for each production department
39) Selected financial statement data for Mure Company are presented below.
December 31, 2015December 31, 2014
Cash$ 40,000$30,000
Short-term investments20,00018,000
Receivables (net)100,00090,000
Inventories80,00060,000
Total current liabilities100,00090,000
During 2015, net sales were $950,000, and cost of goods sold was $770,000.
Instructions
Compute the following ratios at December 31, 2015:
(a)Current.
(b)Acid-test.
(c)Accounts receivable turnover.
(d)Inventory turnover.
40) An account is an individual accounting record of increases and decreases in specific
a.liabilities
b.assets
c.expenses
d.assets, liabilities, and owner’s equity items
41) Each of the following are particularly interested in the statement of cash flows
except
a.creditors
b.employees
c.shareholders
d.government agencies
42) An overhead volume variance is calculated as the difference between normal
capacity hours and standard hours allowed
a.times the total predetermined overhead rate
b.times the predetermined variable overhead rate
c.times the predetermined fixed overhead rate
d.divided by actual number of hours worked
43) At January 31, 2014, the balance in Aislers Inc.s supplies account was $750. During
February, Aislers purchased supplies of $900 and used supplies of $1,125. At the end of
February, the balance in the supplies account should be
a.$525 debit
b.$975 debit
c.$525 credit
d.$975 debit
44) Assuming a FICA tax rate of 7.65% on the first $110,100 in wages, and a federal
income tax rate of 20% on all wages, what would be an employee’s net pay for the year
if he earned $180,000 for the year?
a.$135,577
b.$126,141
c.$144,000
d.$134,564
45) Planner Corporation’s comparative balance sheets are presented below.
PLANNER CORPORATION
Comparative Balance Sheets
December 31
2014 2013
Cash$ 21,570$ 10,700
Accounts receivable 18,20023,400
Land18,00026,000
Building70,00070,000
Accumulated depreciation (15,000) (10,000)
Total$112,770$120,100
Accounts payable$ 12,370$31,100
Common stock 75,00069,000
Retained earnings 25,400 20,000
Total$112,770$120,100
Additional information:
1>Net income was $27,900. Dividends declared and paid were $22,500.
2>All other changes in noncurrent account balances had a direct effect on cash flows,
except the change in accumulated depreciation. The land was sold for $5,900.
Instruction
(a)Prepare a statement of cash flows for 2014 using the indirect method.
(b)Compute free cash flow.
46) Which of the following statements about partnerships is incorrect?
a.Partnership assets are co-owned by partners
b.If a partnership is terminated, the assets do not legally revert to the original
contributor
c.If the partnership agreement does not specify the manner in which net income is to be
shared, it is distributed according to capital contributions
d.Each partner has a claim on assets equal to the balance in the partner’s capital account
47) Labor data for making one pound of finished product in Orzo Company are as
follows: (1) Pricehourly wage rate $11.00, payroll taxes $1.80, and fringe benefits
$1.20. (2) Quantityactual production time 1.1 hours, rest periods and clean up 0.50
hours, and setup and downtime 0.15 hours.
Instructions
Compute the following.
(a)Standard direct labor rate per hour.
(b)Standard direct labor hours per pound.
(c)Standard labor cost per pound.
48) On September 5, Bete Gas Corporation acquired 2,500 shares of its own $1 par
common stock for $23 per share. On October 15, 1,000 shares of the treasury stock is
sold for $25 per share.
Instructions
Journalize the purchase and sale of the treasury stock assuming that the company uses
the cost method.
49) Malone Company had sales in 2014 of $1,600,000 on 80,000 units. Variable costs
totaled $960,000, and fixed costs totaled $400,000.
A new raw material is available that will decrease the variable costs per unit by 20% (or
$2.40). However, to process the new raw material, fixed operating costs will increase by
$40,000. Management feels that one-half of the decline in the variable costs per unit
should be passed on to customers in the form of a sales price reduction. The marketing
department expects that this sales price reduction will result in a 5% increase in the
number of units sold.
Instructions
Prepare a CVP income statement for 2014, assuming the changes are made as
described.
50) The _____________ basis of estimating uncollectibles provides a better
_____________ of bad debt expense with sales revenue and therefore emphasizes
income statement relationships.
51) At the end of the month, the accountant for Seneca Company prepared a schedule of
accounts receivable from the accounts receivable subsidiary ledger. Its total did not
agree with the balance in the Accounts Receivable control account in the general ledger.
Briefly describe the procedure that should be followed in reconciling the two balances.
52) The chart of accounts used by Notwist Copy Company is listed below. You are to
indicate the proper accounts to be debited and credited for the following transactions by
writing the account number(s) in the appropriate boxes.
CHART OF ACCOUNTS
101Cash209Unearned Service Revenue
112Accounts Receivable301Owners Capital
125Supplies306Owners Drawings
157Equipment400Service Revenue
200Notes Payable610Advertising Expense
201Accounts Payable729Rent Expense
Number(s)Number(s)
of account(s)of account(s)
debitedcredited
1>M. Acher invests $70,000 cash to start the business.
2>Purchased three pieces of equipment for $160,000, paying $50,000 cash and signing
a 5-year, 10% note for the remainder.
3>Purchased $5,000 supplies on credit.
4>Cash revenue amounted to $7,000.
5>Paid $500 cash for radio advertising.
6>Paid $800 on account for supplies purchased in transaction 3.
7>Owner withdrew $2,100 from the business for personal expenses.
8>Paid $1,200 cash for rent for the current month.
9>Received $2,000 cash advance from a customer for future copying.
10>Billed a customer for $575 for photocopy work done.
53) What purposes are served by a production cost report?