1) A post-closing trial balance will show
a.only permanent account balances
b.only temporary account balances
c.zero balances for all accounts
d.the amount of net income (or loss) for the period
2) If the present value of lease payments equals or exceeds 90% of the fair market value
of the leased property, the
a.conditions are met for the lease to be considered a capital lease
b.lease is uneconomical and should not be entered into
c.lease may be classified as an operating lease
d.recording of a lease liability is optionalthat is, the off-balance sheet approach can be
elected
3) The cumulative effect of the declaration and payment of a cash dividend on a
company’s balance sheet is to
a.decrease current liabilities and stockholders’ equity
b.increase total assets and stockholders’ equity
c.increase current liabilities and stockholders’ equity
d.decrease stockholders’ equity and total assets
4) Coordinating the preparation of the budget is the responsibility of the
a.treasurer
b.president
c.chief accountant
d.budget committee
5) Uncle Tupelo’s Gifts signs a three-month note payable to help finance increases in
inventory for the Christmas shopping season. The note is signed on November 1 in the
amount of $75,000 with annual interest of 12%. What is the adjusting entry to be made
on December 31 for the interest expense accrued to that date, if no entries have been
made previously for the interest?
a.Interest Expense1,500
Interest Payable1,500
b.Interest Expense2,250
Interest Payable2,250
c.Interest Expense1,500
Cash1,500
d.Interest Expense1,500
Notes Payable1,500
6) If total liabilities decreased by $30,000 and owners equity increased by $20,000
during a period of time, then total assets must change by what amount and direction
during that same period?
a.$50,000 decrease
b.$10,000 decrease
c.$10,000 increase
d.$50,000 increase
7) When stock is issued for legal services, the transaction is recorded by debiting
Organization Expense for the
a.stated value of the stock
b.par value of the stock
c.market value of the stock
d.book value of the stock
8) Kanet Company issued common stock for proceeds of $386,000 during 2014 . The
company paid dividends of $80,000 and issued a long-term note payable for $95,000 in
exchange for equipment during the year. The company also purchased treasury stock
that had a cost of $15,000. The financing section of the statement of cash flows will
report net cash inflows of
a.$291,000
b.$481,000
c.$306,000
d.$371,000
9) A profit center is
a.a responsibility center that always reports a profit
b.a responsibility center that incurs costs and generates revenues
c.evaluated by the rate of return earned on the investment allocated to the center
d.referred to as a loss center when operations do not meet the company’s objectives
10) The right side of an account
a.is the correct side
b.reflects all transactions for the accounting period
c.shows all the balances of the accounts in the system
d.is the credit side
11) Able Electronics Company issues a $1,000,000, 8%, 20-year mortgage note on
January 1 . The terms provide for semiannual installment payments, exclusive of real
estate taxes and insurance, of $58,276. After the first installment payment, the principal
balance is
a.$1,000,000
b.$941,724
c.$981,724
d.$962,717
12) A company is deciding on whether to replace some old equipment with new
equipment. Which of the following is not a relevant cost for incremental analysis?
a.Annual operating cost of the new equipment
b.Annual operating cost of the old equipment
c.Net cost of the new equipment
d.Accumulated depreciation on the old equipment
13) In the performance report for cost centers,
a.controllable and noncontrollable costs are reported
b.fixed costs are not reported
c.no distinction is made between fixed and variable costs
d.only materials and controllable costs are reported
14) Transactions in a journal are initially recorded in
a.account number order
b.dollar amount order
c.alphabetical order
d.chronological order
15) A system of internal control
a.is infallible
b.can be rendered ineffective by employee collusion
c.invariably will have costs exceeding benefits
d.is premised on the concept of absolute assurance
16) On January 1, Shade Corporation issued $3,000,000, 7%, 5-year bonds with interest
payable on December 31 . The bonds sold for $3,216,288. The market rate of interest
for these bonds was 6%. On the first interest date, using the effective-interest method,
the debit entry to Interest Expense is for
a.$180,000
b.$225,140
c.$192,977
d.$210,000
17) Which one of the following items is not generally used in preparing a statement of
cash flows?
a.Adjusted trial balance
b.Comparative balance sheets
c.Current income statement
d.Additional information
18) Manufacturing Overhead would not have a subsidiary account for
a.utilities
b.property taxes
c.insurance
d.raw materials inventory
19) Megan’s Products is undecided about which base to use in estimating uncollectible
accounts. On December 31, 2014, the balance in Accounts Receivable was $680,000
and net credit sales amounted to $3,800,000 during 2014 . An aging analysis of the
accounts receivable indicated that $40,000 in accounts are expected to be uncollectible.
Past experience has shown that about 1% of net credit sales eventually are
uncollectible.
Instructions
Prepare the adjusting entries to record estimated bad debt expense using the (1)
percentage of sales basis and (2) the percentage of receivables basis under each of the
following independent assumptions:
(a)Allowance for Doubtful Accounts has a credit balance of $3,200 before adjustment.
(b)Allowance for Doubtful Accounts has a debit balance of $730 before adjustment.
20) Medina Manufacturing Company makes specialty tools. In January, Medina incurs
manufacturing costs of $12,500,000 for direct materials, direct labor, and overhead.
20% of the total costs represents overhead applied. The overhead rate is $1 for every $2
of direct labor costs incurred. Inventory balances were:
January 1January 31
Raw materials$200,000$400,000
Work in process600,000500,000
Finished goods500,000200,000
At the end of January, there was $1,000 of overapplied overhead.
Instructions
(a)Determine the cost of raw materials purchased in January.
(b)Prepare a cost of goods manufactured schedule for January 2014 .
(c)Compute the cost of goods sold for January.
21) Compute the maturity date and interest for the following notes.
Dates of Notes TermsPrincipalInterest Rate
(a)April 1760 days$60,0006%
(b)August 113 months80,0008%
22) Budgeted overhead for Mangini Company at normal capacity of 30,000 direct labor
hours is $6 per hour variable and $4 per hour fixed. In April, $310,000 of overhead was
incurred in working 31,500 hours when 32,000 standard hours were allowed. The
overhead controllable variance is
a.$5,000 favorable
b.$2,000 favorable
c.$10,000 favorable
d.$10,000 unfavorable
23) The accounting process is correctly sequenced as
a.identification, communication, recording
b.recording, communication, identification
c.identification, recording, communication
d.communication, recording, identification
24) The gross earnings of factory workers for La Costa Company during the month of
January are $450,000. The employer’s payroll taxes for the factory payroll are $50,000.
Of the total accumulated cost of factory labor, 80% is related to direct labor and 20% is
attributable to indirect labor.
Instructions
(a)Prepare the entry to record the factory labor costs for the month of January.
(b)Prepare the entry to assign factory labor to production.
(c)Prepare the entry to assign manufacturing overhead to production, assuming the
predetermined overhead rate is 130% of direct labor cost.
25) The cash account shows a balance of $90,000 before reconciliation. The bank
statement does not include a deposit of $5,000 made on the last day of the month. The
bank statement shows a collection by the bank of $2,400 and a customers check for
$640 was returned because it was NSF. A customers check for $900 was recorded on
the books as $1,080, and a check written for $138 was recorded as $192. The correct
balance in the cash account was
a.$91,580
b.$91,634
c.$92,400
d.$96,634
26) Vonak Co. estimates its sales at 240,000 units in the first quarter and that sales will
increase by 24,000 units each quarter over the year. They have, and desire, a 25%
ending inventory of finished goods. Each unit sells for $25. 40% of the sales are for
cash. 70% of the credit customers pay within the quarter. The remainder is received in
the quarter following sale.
Cash collections for the third quarter are budgeted at
a.$4,068,000
b.$5,904,000
c.$7,092,000
d.$8,208,000
27) Evidence that would not help with determining the effects of a transaction on the
accounts would be a(n)
a.cash register sales tape
b.bill
c.advertising brochure
d.check
28) Under the lower-of-cost-or-market basis in valuing inventory, market is defined as
a.current replacement cost
b.selling price
c.historical cost plus 10%
d.selling price less markup
29) Zen Arcade paid the weekly payroll on January 2 by debiting Salaries and Wages
Expense for $47,000. The accountant preparing the payroll entry overlooked the fact
that Salaries and Wages Expense of $27,000 had been accrued at year end on December
31 . The correcting entry is
a.Salaries and Wages Payable27,000
Cash27,000
b.Cash20,000
Salaries and Wages Expense20,000
c.Salaries and Wages Payable27,000
Salaries and Wages Expense27,000
d.Cash27,000
Salaries and Wages Expense27,000
30) Baylor Industries uses a process cost system. Products are processed first by
Department A, second by Department B, and then they are transferred to the finished
goods warehouse. Shown below is the cost information for Department B during the
month of October:
Costs of units transferred in$120,000
Manufacturing costs added in Department B:
Direct materials$50,000
Direct labor6,000
Manufacturing overhead 19,000 75,000
Total costs charged to Department B in October$195,000
The cost of work in process in Department B at October 1 is $25,000, and the cost of
work in process at October 31 has been determined to be $35,000.
Instructions
Prepare journal entries to record for the month of October:
(a)The transfer of production from Department A to B.
(b)The manufacturing costs incurred by Department B.
(c)The transfer of completed units from Department B to the finished goods warehouse.
31) The balance sheet of a partnership will
a.report retained earnings below the partnership capital accounts
b.show a separate capital account for each partner
c.show a separate drawing account for each partner
d.show the amount of income that was distributed to each partner
32) Under an effective system of internal control, the authorization for issuing materials
is made
a.orally
b.on a prenumbered materials requisition slip
c.by the accounting department
d.by anyone on the production line
33) A company that receives an interest bearing note receivable will
a.debit Notes Receivable for the maturity value of the note
b.credit Notes Receivable for the maturity value of the note
c.debit Notes Receivable for the face value of the note
d.credit Notes Receivable for the face value of the note
34) Which of the following show the proper effect of a stock split and a stock dividend?
ItemStock SplitStock Dividend
a.Total paid-in capitalIncreaseIncrease
b.Total retained earningsDecreaseDecrease
c.Total par value (common)DecreaseIncrease
d.Par value per shareDecreaseNo change
35) Buffalo Tom Cruises purchased a five-year insurance policy for its ships on April 1,
2014 for $60,000. Assuming that April 1 is the effective date of the policy, the adjusting
entry on December 31, 2014 is
a.Prepaid Insurance9,000
Insurance Expense9,000
b.Insurance Expense9,000
Prepaid Insurance9,000
c.Insurance Expense12,000
Prepaid Insurance12,000
d.Insurance Expense3,000
Prepaid Insurance3,000
36) Match the items below by entering the appropriate code letter in the space provided.
A.Limited liabilityF.Preemptive right
B.Capital stockG.Par value
C.Board of directorsH.Legal capital
D.Paid-in capitalI.Treasury stock
E.Retained earningsJ.Cumulative feature
____1>Net income retained in the corporation.
____2>The amount that must be retained in the business for the protection of creditors.
____3>Preferred stockholders have a right to receive current and unpaid prior-year
dividends before common stockholders receive any dividends.
____ 4>Creditors only have corporate assets to satisfy their claims.
____5>Responsible to stockholders for corporate activity.
____6>The amount assigned to each share of stock in the corporate charter.
____7>Unit of ownership in a corporation.
____8>Enables stockholders to maintain their same percentage ownership when new
shares are issued.
____9>Corporation’s own stock that has been reacquired by the corporation but not
retired.
____10>Total amount paid-in on capital stock.
37) Cost and fair value data for the trading securities of McMahon Company at
December 31, 2014, are $110,000 and $85,000, respectively. Which of the following
correctly presents the adjusting journal entry to record the securities at fair value?
a.Dec. 31Unrealized LossIncome 25,000
Trading Securities 25,000
b.Dec. 31Unrealized GainIncome 25,000
Trading Securities 25,000
c.Dec. 31Unrealized LossIncome 25,000
Fair Value AdjustmentTrading 25,000
d.Dec. 31Fair Value Adjustment -Trading 25,000
Unrealized Gain-Income 25,000
38) Which of the following is true if a company can accept a special order without
affecting its regular sales and is within plant capacity?
a.Net income will not be affected
b.Net income will increase if the special sales price per unit exceeds the unit variable
costs
c.Net income will decrease
d.Additional fixed costs will probably be incurred
39) A company’s planned activity level for next year is expected to be 200,000 machine
hours. At this level of activity, the company budgeted the following manufacturing
overhead costs:
VariableFixed
Indirect materials$180,000Depreciation$75,000
Indirect labor240,000Taxes15,000
Factory supplies30,000Supervision70,000
A flexible budget prepared at the 180,000 machine hours level of activity would show
total manufacturing overhead costs of
a.$405,000
b.$550,000
c.$565,000
d.$450,000
40) The board of directors of Les Corporation is considering two plans for financing the
purchase of new plant equipment. Plan #1 would require the issuance of $5,000,000,
6%, 20-year bonds at face value. Plan #2 would require the issuance of 100,000 shares
of $5 par value common stock which is selling for $50 per share on the open market.
Les Corporation currently has 100,000 shares of common stock outstanding and the
income tax rate is expected to be 35%. Assume that income before interest and income
taxes is expected to be $500,000 if the new factory equipment is purchased.
Instructions
Prepare a schedule which shows the expected net income after taxes and the earnings
per share on common stock under each of the plans that the board of directors is
considering.
41) Comfy Carrier Systems, Inc. (CCS) modifies vans that seat 1520 people by adding
additional safety features or wheelchair ramps. Most of its customers are cities and
counties, who use the vans to transport school children, the elderly, or the handicapped.
The company has specialized in a no-frills approach, emphasizing safety, high quality,
and low cost. The company’s president was quoted as saying, “Let the other guys make
a van pretty. We get people where they need to gofaster, better, and cheaper than
anybody else.”
The company obtains jobs by being the lowest bidder in a sealed bidding process.
Recently, the company was solicited by a top-10 college to submit a bid for a van to be
used by its athletic team. Some specialized items were required, such as the school’s
logo on the outside of the van, and the vinyl seats had to be covered in school colors.
The company submitted a bid, and was very surprised to obtain it.
When the job was being prepared, the job manager pointed out that several extra costs
could result in this job showing a loss. The boss, an ardent supporter of sports in general
and this team in particular, told the manager to just record the standard labor and
overhead cost for this job. He says that they could use the preset rate for specialized
jobs, and increase the overhead application rate (used in submitting bids) by 5% for
future routine jobs. “After all,” he says, “nobody else comes close to our price anyway.
This could start a whole new line of business for us.”
Required:
1>Who are the stakeholders in the decision to increase overhead for routine jobs?
2>Is the decision to subsidize special jobs by increasing the overhead rate on routine
jobs ethical? Briefly explain.
42) Booker Corporation had the following comparative current assets and current
liabilities:
Dec. 31, 2015Dec. 31, 2014
Current assets
Cash$ 60,000$ 30,000
Short-term investments40,00010,000
Accounts receivable55,00095,000
Inventory110,00090,000
Prepaid expenses 35,000 20,000
Total current assets$300,000$245,000
Current liabilities
Accounts payable$140,000$110,000
Salaries payable40,00030,000
Income tax payable 20,000 15,000
Total current liabilities$200,000$155,000
During 2015, credit sales and cost of goods sold were $750,000 and $400,000,
respectively.
Instructions
Compute the following liquidity measures for 2015:
1>Current ratio.
2>Working capital.
3>Acid-test ratio.
4>Accounts receivable turnover.
5>Inventory turnover.
43) Post the following transactions to T-accounts and determine each account’s ending
balance.
1>Supplies2,800
Accounts Payable2,800
2>Accounts Receivable4,000
Service Revenue4,000
3>Cash3,000
Accounts Receivable3,000
4>Accounts Payable1,000
Cash1,000
44) On June 1, during its first month of operations, Crooked Rain purchased supplies
for $4,500 and debited the supplies account for that amount. At June 30, an inventory of
supplies showed $1,000 of supplies on hand. What adjusting journal entry should be
made for June?