1) Pare Company reported a net loss of $30,000 for the year ended December 31, 2014 .
During the year, accounts receivable decreased $15,000, merchandise inventory
increased $25,000, accounts payable increased by $30,000, and depreciation expense of
$20,000 was recorded. During 2014, operating activities
a.used net cash of $10,000
b.used net cash of $25,000
c.provided net cash of $10,000
d.provided net cash of $25,000
2) SurferRosa Music Store borrowed $30,000 from the bank signing a 9%, 3-month
note on September 1 . Principal and interest are payable to the bank on December 1 . If
the company prepares monthly financial statements, the adjusting entry that the
company should make for interest on September 30, would be
a.Debit Interest Expense, $2,700; Credit Interest Payable, $2,700
b.Debit Interest Expense, $225; Credit Interest Payable, $225
c.Debit Notes Payable, $2,700; Credit Cash, $2,700
d.Debit Cash, $675; Credit Interest Payable, $675
3) Posting of journal entries should be done in
a.account number order
b.alphabetical order
c.chronological order
d.dollar amount order
4) Farr Company purchased a new van for floral deliveries on January 1, 2014 . The van
cost $56,000 with an estimated life of 5 years and $14,000 salvage value at the end of
its useful life. The double-declining-balance method of depreciation will be used. What
is the depreciation expense for 2014?
a.$11,200
b.$8,400
c.$16,800
d.$22,400
5) When using the payback method, payback is expressed in terms of
a.a percent
b.dollars
c.time
d.a discount factor
6) On January 1, 2014, $2,000,000, 10-year, 10% bonds, were issued for $1,943,000.
Interest is paid annually on January 1 . If the issuing corporation uses the straight-line
method to amortize discount on bonds payable, the monthly amortization amount is
a.$19,430
b.$5,700
c.$1,535
d.$475
7) If a company anticipates that other sales will be affected by the acceptance of a
special order, then
a.lost sales should be considered in the incremental analysis
b.lost sales should not be considered in the incremental analysis
c.the order should not be accepted
d.the order will only be accepted if the plant is below capacity
8) Rider Company reported net income of $420,000 for 2014 . The income statement
also indicates that interest expense for 2014 was $100,000. Assuming an income tax
rate of 30%, the times interest earned for 2014 was:
a.4.2 times
b.5.2 times
c.6 times
d.7 times
9) Postings to the control accounts in the general ledger are made
a.annually
b.daily
c.monthly
d.weekly
10) The Income statement is
a.required under GAAP but not under IFRS
b.required under IFRS in the same format as under GAAP
c.required under IFRS but not under GAAP
d.required under IFRS with some differences as compared to GAAP
11) Under IFRS and under GAAP, current assets are listed in
IFRS GAAP
a.order of liquidityorder of liquidity
b.reverse order of liquidityorder of liquidity
c.order of liquidityreverse order of liquidity
d.reverse order of liquidityreverse order of liquidity
12) Match the following external users of financial accounting information with the
type of decision that user will make with the information.
a.Creditor
b.Investor
c.Regulatory Agency
dInternal Revenue Service
_______(1)Is the company operating within prescribed guidelines?
_______(2)Is the company complying with tax laws?
_______(3)Is the company able to pay its debts?
_______(4)Is the company a good investment?
13) Queen Company is in the electronics industry and the price it pays for inventory is
decreasing.
Instructions
Indicate which inventory method will:
a.provide the highest ending inventory.
b.provide the highest cost of goods sold.
c.result in the highest net income.
d.result in the lowest income tax expense.
e.produce the most stable earnings over several years.
14) Most companies involved in interstate commerce are required to compute overtime
at
a.the worker’s regular hourly wage
b.1.25 times the worker’s regular hourly wage
c.1.5 times the worker’s regular hourly wage
d.2.5 times the worker’s regular hourly wage
15) The amount by which actual or expected sales exceeds break-even sales is referred
to as
a.contribution margin
b.unanticipated profit
c.margin of safety
d.target net income
16) The internal control standards applicable to Sarbanes-Oxley apply to
a.all U.S. and international companies
b.U.S. and international companies listed on U.S. exchanges
c.International companies listed on U.S. exchanges
d.U.S. companies listed on U.S. exchanges
17) Crea Company is considering buying a machine for $54,000 with an estimated life
of ten years and no salvage value. The straight-line method of depreciation will be used.
The machine is expected to generate cash inflow of $6,000 each year. The cash payback
on this investment is
a.15 years
b.10 years
c.9 years
d.4.5 years
18) One cost which is part of both manufacturing overhead and total manufacturing
costs is:
a.selling and administrative costs
b.direct materials
c.factory utilities
d.direct labor
19) FreeWater Company provided the following information from its accounting
records for 2014:
Expected production50,000 labor hours
Actual production45,000 labor hours
Budgeted overhead$1,257,500
Actual overhead$1,449,900
How much is the overhead application rate if Freewater Company bases it on direct
labor hours?
a.$29.00 per hour
b.$32.22 per hour
c.$27.94 per hour
d.$25.15 per hour
20) Vance Company reported the following summarized annual data at the end of 2014:
Sales revenue$1,000,000
Cost of goods sold* 600,000
Gross margin400,000
Operating expenses 250,000
Income before income taxes$ 150,000
*Based on an ending FIFO inventory of $250,000.
The income tax rate is 40%. The controller of the company is considering a switch from
FIFO to LIFO. He has determined that on a LIFO basis, the ending inventory would
have been $180,000.
Instructions
(a)Restate the summary information on a LIFO basis.
(b)What effect, if any, would the proposed change have on Vances income tax expense,
net income, and cash flows?
(c)If you were an owner of this business, what would your reaction be to this proposed
change?
Ans: N/A
21) Using the indirect method, if equipment is sold at a gain, the
a.sale proceeds received are deducted in the operating activities section
b.sale proceeds received are added in the operating activities section
c.amount of the gain is added in the operating activities section
d.amount of the gain is deducted in the operating activities section
22) The following are all quantitative capital budgeting techniques except
a.annual rate of return technique
b.cost-volume-profit technique
c.discounted cash flow technique
d.cash payback technique
23) Corporation income tax expense is
a.usually accrued in the adjusting entry process
b.not usually accrued because it is not known what the exact liability will be until the
tax return is filed
c.not reported in a separate section of a corporate income statement
d.reported similarly for corporations and partnerships
24) Financial information is presented below:
Operating Expenses$ 90,000
Sales Returns and Allowances18,000
Sales Discounts12,000
Sales Revenue320,000
Cost of Goods Sold174,000
Gross profit would be
a.$26,000
b.$116,000
c.$128,000
d.$134,000
25) Which of the following statements concerning taxation is accurate?
a.Partnerships pay state income taxes but not federal income taxes
b.Corporations pay federal income taxes but not state income taxes
c.Corporations pay federal and state income taxes
d.Only the owners must pay taxes on corporate income
26) During the year, Salaries Payable decreased by $5,000. If Salary Expense amounted
to $174,000 for the year, the cash paid to employees (including deductions from gross
pay) is
a.$179,000
b.$174,000
c.$169,000
d.$184,000
27) Masun Irwin has come to the accounting department for help in interpreting his
variance report. He says that he understands that last month was not a very good one for
output, but he really thought everyone put forth good effort, so he is confused about the
existence of an unfavorable labor efficiency variance. He cites as an example of the
workers’ effort their willingness to work extra hours to get full output, even when a
whole week’s worth of production had to be scrapped. He knew that his materials costs
would be higher, and that overtime would make his rate variance unfavorable, but he
certainly didn’t think his workers had been inefficient.
Required:
Write a short note to Mason explaining the probable cause of the unfavorable labor
efficiency variance.
28) The primary benefit of activity-based costing is ______________ product costing.
29) An adjusted trial balance proves the ______________ of the total debit and credit
balances after all ______________ entries have been made.
30) Important objectives of a system of internal controls are to safeguard assets and to
enhance the accuracy and reliability of the accounting records. Briefly discuss how (1)
cost-benefit considerations, (2) the human element, and (3) the size of the business,
affect the implementation of a system of internal controls.
31) Chipper Cow Dairy Inc. produces milk at a total cost of $75,000. The production
generates 55,000 gallons of organic milk which can be sold for $2 per gallon to a
pasteurization company, or the milk can be processed further into ice cream and then
sold for $4.50 per gallon. It costs $92,000 more to turn the annual milk supply into ice
cream.
Instructions
If Chipper Cow processes the milk into ice cream, how much is the incremental profit
or loss? Should Chipper Cow process the milk into ice cream or sell it as is?
32) A major limitation of the annual rate of return approach is that it does not consider
the _______________ of money.
33) The adjusted trial balance of Old 97 Automotive Service Company on June 30,
2014 includes the following accounts: Supplies, $300; Accumulated Depreciation,
$9,500; Salaries Payable, $1,550, Notes Payable $6,750; Service Revenue, $22,100;
Salaries and Wages Expense, $8,750; Depreciation Expense, $3,250; Supplies Expense,
$1,000; Rent Expense, $400; Utilities Expense, $350; and Interest Expense $250.
Prepare an income statement for the month of June.
34) Winston Company manufactured 5,000 units of a component part that is used in its
product and incurred the following costs:
Direct materials$35,000
Direct labor25,000
Variable manufacturing overhead20,000
Fixed manufacturing overhead 18,000
$98,000
Another company has offered to sell the same component part to the company for
$17.50 per unit. The fixed manufacturing overhead consists mainly of depreciation on
the equipment used to manufacture the part and would not be reduced if the component
part was purchased from the outside firm. If the component part is purchased from the
outside firm, Winston Company has the opportunity to use the factory equipment to
produce another product which is estimated to have a contribution margin of $19,000.
Instructions
Prepare an incremental analysis report for Winston Company which can serve as
informational input into this make or buy decision.