1) The periodicity assumption states that the business will remain in operation for the
foreseeable future.
2) Restricted retained earnings are available for preferred stock dividends but
unavailable for common stock dividends.
3) Cash which is restricted for a specific use should be separately reported.
4) A company whose current liabilities exceed its current assets may have a liquidity
problem.
5) A materials quantity variance is calculated as the difference between the standard
direct materials price and the actual direct materials price multiplied by the actual
quantity of direct materials used.
6) In order to compute the physical unit flow, a company must first compute unit
production costs.
7) The master budget consists of operating and financial budgets.
8) Profitability ratios are frequently used as a basis for evaluating management’s
operating effectiveness.
9) Treasury stock is a contra stockholders’ equity account.
10) Flexible budgets are widely used in production and service departments.
11) FICA taxes are a voluntary deduction from employee earnings.
12) The activity index used in preparing a flexible budget should not influence the
variable costs that are being budgeted.
13) Each transaction must be analyzed in terms of its effect on the accounts before it
can be recorded in a journal.
14) To obtain maximum benefit from a bank reconciliation, the reconciliation should be
prepared by an employee who has no other responsibilities pertaining to cash.
15) Inventories are reported in the current assets section of the balance sheet
immediately below receivables.
16) The statement of cash flows is a required statement that must be prepared along
with an income statement, balance sheet, and retained earnings statement.
17) The monetary unit assumption states that transactions that can be measured in terms
of money should be recorded in the accounting records.
18) Depletion is
a.a decrease in market value of natural resources
b.the amount of spoilage that occurs when natural resources are extracted
c.the allocation of the cost of natural resources to expense
d.the method used to record unsuccessful patents
19) Which of the following discount rates will produce the largest present value?
a.8%
b.9%
c.10%
d.4%
20) A trial balance will not balance if
a.a journal entry is posted twice
b.a wrong amount is used in journalizing
c.incorrect account titles are used in journalizing
d.a journal entry is only partially posted
21) A. Wiggins, L. Stokes, and K. Hayes are forming a partnership. Wiggins is
transferring $75,000 of personal cash to the partnership. Stokes owns land worth
$25,000 and a small building worth $120,000, which she transfers to the partnership.
Hayes transfers to the partnership cash of $14,000, accounts receivable of $48,000 and
equipment worth $28,000. The partnership expects to collect $45,000 of the accounts
receivable.
Instructions
Prepare the journal entries to record each of the partners investments.
What amount would be reported as total owners equity immediately after the
investments?
22) Liabilities of a company would not include
a.notes payable
b.accounts payable
c.salaries and wages payable
d.cash
23) For Metz Company, the predetermined overhead rate is 75% of direct labor cost.
During the month, $480,000 of factory labor costs are incurred of which $130,000 is
indirect labor. Actual overhead incurred was $250,500. The amount of overhead debited
to Work in Process Inventory should be:
a.$360,000
b.$250,500
c.$262,500
d.$350,000
24) Forrest Company issued $200,000 of 5-year bonds, with a stated rate of interest of
8%, payable semiannually. The market rate for such securities is 10%. How much did
Forrest receive from the sale of these bonds? (Round to the nearest dollar.)
a.$184,556
b.$200,000
c.$108,111
d.None of these answers are correct
25) Romanoff Industries had the following inventory transactions occur during 2014:
UnitsCost/unit
2/1/14Purchase54$45
3/14/14Purchase93$47
5/1/14Purchase66$49
The company sold 150 units at $70 each and has a tax rate of 30%. Assuming that a
periodic inventory system is used, what is the companys after-tax income using LIFO?
(rounded to whole dollars)
a.$2,323
b.$2,486
c.$3,318
d.$3,552
26) The use of fair value to report assets
a.is not allowed under GAAP or IFRS
b.is required by GAAP and IFRS
c.is increasing under GAAP and IFRS, but GAAP has adopted it more broadly
d.is increasing under GAAP and IFRS, but IFRS has adopted it more broadly
27) Roscoe Company incurred direct materials costs of $500,000 during the year.
Manufacturing overhead applied was $540,000 and is applied based on direct labor
costs. The predetermined overhead rate is 75%. How much are Roscoe Companys total
manufacturing costs for the year?
a.$1,220,000
b.$1,445,000
c.$1,040,000
d.$1,760,000
28) Blaine Company had these transactions pertaining to stock investments:
Feb. 1 Purchased 2,000 shares of Horton Company (10%) for $51,000 cash.
June 1 Received cash dividends of $3 per share on Horton stock.
Oct. 1 Sold 1,200 shares of Horton stock for $32,400.
The entry to record the receipt of the dividends on June 1 would include a
a.debit to Stock Investments for $6,000
b.credit to Dividend Revenue for $6,000
c.debit to Dividend Revenue for $6,000
d.credit to Stock Investments for $6,000
29) If the required direct materials purchases are 36,000 pounds, the direct materials
required for production is three times the direct materials purchases, and the beginning
direct materials are three and a half times the direct materials purchases, what are the
desired ending direct materials in pounds?
a.90,000
b.18,000
c.54,000
d.36,000
30) The annual rate of return method is based on
a.accounting data
b.time value of money data
c.market values
d.replacement values
31) Equipment costing $70,000 with a salvage value of $14,000 and an estimated life of
8 years has been depreciated using the straight-line method for 2 years. Assuming a
revised estimated total life of 5 years and no change in the salvage value, the
depreciation expense for year 3 would be
a.$ 8,400
b.$18,667
c.$14,000
d.$11,200
32) Which of the following would be accounted for using a job order cost system?
a.The production of personal computers
b.The production of automobiles
c.The refining of petroleum
d.The construction of a new campus building
33) The last department in a production process shows the following information at the
end of the period:
Units
Beginning Work in Process25,000
Started into Production175,000
Ending Work in Process50,000
How many units have been transferred out to finished goods during the period?
a.175,000
b.200,000
c.225,000
d.150,000
34) Transaction and adjustment data for Doty Company for the calendar year end is as
follows:
1>December 24 (initial salary entry): $12,000 of salaries earned between December 1
and December 24 are paid.
2>December 31 (adjusting entry): Salaries earned between December 25 and December
31 are $3,000. These will be paid in the January 8 payroll.
3>January 8 (subsequent salary entry): Total salary payroll amounting to $8,000 was
paid.
Instructions
Prepare two sets of journal entries as specified below. The first set of journal entries
should assume that the company does not use reversing entries, and the second set
should assume that reversing entries are utilized by the company.
Assume no reversing entriesAssume reversing entries
(a)Initial Salary Entry
Dec. 24
(b)Adjusting Entry
Dec. 31
(c)Closing Entry
Dec. 31
(d)Reversing Entry
Jan. 1
(e)Subsequent Salary Entry
Jan. 8
35) Jacob Manufacturing is planning to sell 1,200 boxes of ceramic tile, with
production estimated at 1,120 boxes during May. Each box of tile requires 44 pounds of
clay mix and a quarter hour of direct labor. Clay mix costs $0.50 per pound and
employees of the company are paid $15.00 per hour. Manufacturing overhead is applied
at a rate of 110% of direct labor costs. Jacob has 5,200 pounds of clay mix in beginning
inventory and wants to have 6,000 pounds in ending inventory.
What is the total amount to be budgeted in pounds for direct materials to be purchased
for the month?
a.50,080
b.48,480
c.49,280
d.53,600
36) Useful life is expressed in terms of use expected from the asset under the
a.declining-balance method
b.straight-line method
c.units-of-activity method
d.none of these answer choices are correct
37) Prepare the necessary journal entry for each of the following transactions for
Terpsichorp Corporation.
(a)Issued 2,000 shares of its $10 par value common stock for $20 per share.
(b)Issued 5,000 shares of its stock for land advertised for sale at $90,000. Terpsichorps
stock is actively traded at a market price of $16 per share.
38) Classify each of these items as an asset (A), liability (L), or owners equity (OE).
_____1>Accounts receivable
_____2>Accounts payable
_____3>Owners Capital
_____4>Supplies
_____5>Utilities expense
_____6>Cash
_____7>Notes payable
_____8>Equipment
Solution 183(5 min.)
1>A5>OE
2>L6>A
3>OE7>L
4>A8>A
39) Budget reports should be prepared
a.daily
b.monthly
c.weekly
d.as frequently as needed
40) The stockholders’ equity section of Makoto Corporation’s balance sheet at
December 31, 2013, appears below:
Stockholders’ equity
Paid-in capital
Common stock, $10 par value, 400,000 shares authorized;
250,000 issued and outstanding$2,500,000
Paid-in capital in excess of par 1,200,000
Total paid-in capital3,700,000
Retained earnings 600,000
Total stockholders’ equity$4,300,000
During 2014, the following stock transactions occurred:
Jan.18Issued 50,000 shares of common stock at $32 per share.
Aug.20Purchased 25,000 shares of Makoto Corporation’s common stock at $26 per
share to be held in the treasury.
Nov.5Reissued 9,000 shares of treasury stock for $28 per share.
Instructions
(a)Prepare the journal entries to record the above stock transactions.
(b)Prepare the stockholders’ equity section of the balance sheet for Makoto Corporation
at December 31, 2014 . Assume that net income for the year was $100,000 and that no
dividends were declared.
41) If business pays rent in advance and debits a Prepaid Rent account, the company
receiving the rent payment will credit
a.cash
b.prepaid rent
c.unearned rent revenue
d.rent revenue
42) Kent Co. manufactures a product with a standard direct labor cost of two hours at
$18.10 per hour. During August, 2,000 units were produced using 4,200 hours at $18.30
per hour. The labor quantity variance was
a.$3,660 F
b.$3,660 U
c.$840 U
d.$3,620 U
43) Yeloe Corporation sells 400 shares of common stock being held as an investment.
The shares were acquired six months ago at a cost of $60 a share. Yeloe sold the shares
for $40 a share. The entry to record the sale is
a.Cash16,000
Loss on Sale of Stock Investments 8,000
Stock Investments 24,000
b.Cash24,000
Gain on Sale of Stock Investments 8,000
Stock Investments 16,000
c.Cash16,000
Stock Investments 6,000
d.Stock Investments 16,000
Loss on Sale of Stock Investments 8,000
Cash24,000
44) One of the distinctions between standards and budgets is that:
a.a standard is generally not journalized; budgets may be incorporated into the cost
accounting system
b.a standard is a predetermined amount; a budget is not
c.inventories may be recorded at budget, but not standard, in external financial
statements
d.a standard is a unit amount, whereas a budget is a total amount
45) Use the following income statement for the year 2014 for Belle Company to
prepare entries to close the revenue and expense accounts for the company.
Service revenue$85,000
Expenses:
Salaries and Wages Expense$40,000
Rent Expense12,500
Advertising Expense 8,700
Total expenses 61,200
Net income (loss)$23,800
46) Stockholders elect the _______________, who in turn hire the ______________ of
the company who have day to day responsibility for running the corporation.
47) Murphy Painting Company has the following production data for March.
Ending Work in Process
BeginningUnits% Complete as to
MonthWork in ProcessTransferred OutUnitsConversion Cost
March3,00042,0008,00070%
Instructions
Compute equivalent units of production for March for both materials and conversion
costs. Materials are entered at the beginning of the process.
48) ______________ is calculated as cost of goods sold divided by average inventory.
49) Carey Enterprises sold equipment on January 1, 2014 for $10,000. The equipment
had cost $48,000. The balance in Accumulated Depreciation at January 1 is $40,000.
What entry would Carey make to record the sale of the equipment?
50) Instructions: Complete the partial worksheet presented below, inserting additional
labels as needed.
LAWN BUTLER
Partial Worksheet
For the Month Ended April 30, 2014
51) A two-variance approach to analyzing overhead variances requires the calculation
of the overhead _________________ variance and the overhead ________________
variance.
52) Budgeting can be an important management tool if implemented properly. Identify
several positive results when budgets are used properly. Since budgets affect people,
identify several negative aspects if budgets are not implemented properly.
53) Some of the following errors would cause the debit and credit columns of the trial
balance to have unequal totals. For each of the four cases, state whether the error would
cause unequal totals in the trial balance. If the error causes unequal totals, indicate the
amount of difference between the columns and state whether the debit or credit is larger.
Each case is to be considered independently of the others.
1>A payment of $500 to a creditor was recorded by a debit to Accounts Payable of $50
and a credit to Cash of $500.
2>A $480 payment for a printer was recorded by a debit to Equipment of $48 and a
credit to Cash for $48.
3>An account receivable in the amount of $2,500 was collected in full. The collection
was recorded by a debit to Cash for $2,500 and a debit to Accounts Payable for $2,500.
4>An account payable was paid by issuing a check for $800. The payment was
recorded by debiting Accounts Payable $800 and crediting Accounts Receivable $800.