1) The major advantage of residual income as a performance measure is that it gives
consideration to not only a minimum rate of return on investment but also the total
magnitude of income from operations earned by each division.
2) If paid-in-capital in excess of par/preferred stock is $30,000, preferred stock is
$200,000, paid-in-capital in excess of par/common stock is $20,000, common stock is
$525,000, and retained earnings is $105,000 (deficit), the total stockholders’ equity is
$880,000.
3) If land costing $145,000 was sold for $205,000, the $60,000 gain on the sale would
be added to net income in of the operating activities section of the statement of cash
flows (prepared by the indirect method).
4) Bondholders claims on the assets of the corporation rank ahead of stockholders.
5) One of the prerequisites to paying a cash dividend is sufficient retained earnings.
6) Preferred stockholders must receive their current year dividends before the common
stockholders can receive any dividends.
7) If a company has issued only one class of stock, the earnings per share are
determined by dividing net income plus interest expense by the number of shares
outstanding.
8) Revenue accounts are increased by credits.
9) Cash inflows and outflows are not netted in the investing or financing sections of the
statement of cash flows but are separately disclosed to give the reader full information.
10) By spending more in costs of controlling quality, the costs of failing to control
quality will decrease.
11) Just-in-Time (JIT) manufacturing focuses on reducing time, cost, and poor quality
in processes.
12) When the board of director’s declares a cash or stock dividend, this action decreases
retained earnings.
13) For a period during which the quantity of product manufactured exceeded the
quantity sold, income from operations reported under absorption costing will be larger
than income from operations reported under variable costing.
14) Multiple production department factory overhead rates are more accurate and more
costly than are plantwide factory overhead rates.
15) Adjusting entries are made at the end of an accounting period to adjust accounts on
the balance sheet.
16) Differential revenue is the amount of income that would result from the best
available alternative proposed use of cash.
17) Proper ethical conduct implies that you only consider what’s in your best interest.
18) If fixed costs are $561,000 and the unit contribution margin is $8.00, what is the
break-even point in units if variable costs are decreased by $.50 a unit?
A.66,000
B.70,125
C.74,800
D.60,000
19) Power Company sells merchandise with a one year warranty. In 2012, sales
consisted of 1,600 units. It is estimated that warranty repairs will average $10 per unit
sold, and 30% of the repairs will be made in 2012 and 70% in 2013. In the 2012 income
statement, Power should show warranty expense of
A.$4,800
B.$11,200
C.$16,000
D.$0
20) The units of an item available for sale during the year were as follows:
There are 50 units of the item in the physical inventory at December 31. The periodic
inventory system is used. Determine the ending inventory cost by (a) the first-in,
first-out method, (b) the last-in, first-out method, and (c) the average cost method.
Show your work.
21) Which of the following is true regarding normal balances of accounts?
A.All accounts have a normal debit balance
B.All expense accounts have a normal negative balance
C.Accounts that have a normal debit balance will only have debit entries, never credit
entries
D.The normal balance appears on the side of the account that also receives increase
entries
22) Penny Company sells 25,000 units at $59 per unit. Variable costs are $29 per unit,
and loss from operations is ($50,000). Determine the (a) unit contribution margin (b)
contribution margin ratio, and (c) fixed costs per unit at production of 25,000 units.
23) When a company receives an interest-bearing note receivable, it will
A.debit Notes Receivable for the maturity value of the note
B.debit Notes Receivable for the face value of the note
C.credit Notes Receivable for the maturity value of the note
D.credit Notes Receivable for the face value of the note
24) In which of the following types of accounts are increases recorded by credits?
A.revenues, liabilities
B.dividends, assets
C.liabilities, dividends
D.expenses, liabilities
25) The proper journal entry to record the purchase of $30,000 of raw materials on
account would be:
A.Raw Material Inventory 30,000
Accounts Receivable 30,000
B.Raw Material Inventory 30,000
Accounts Payable 30,000
C.Inventory 30,000
Accounts Receivable 30,000
D.Inventory 30,000
Cash 30,000
26) Which of the following is not true about closing entries?
A.There are four closing entries that update the retained earnings account
B.After the second closing entry, the income summary account is equal to the net
income or (loss) for the period
C.All real accounts are closed at the end of the period
D.By closing nominal accounts at the end of the period to zero, it is possible to isolate
next periods information correctly
27) There are three parties to a check. The drawer is
A.a written document signed by the company
B.is the one who signs the check ordering payment by the bank
C.the bank on which the check is drawn
D.the party to whom payment is to be made
28) Which of the following is an example of a factory overhead cost?
A.Repair and maintenance cost on the administrative building
B.Factory heating and lighting cost
C.Insurance premiums on salespersons’ automobiles
D.President’s salary
29) Under which of the following cases may a percentage change be computed?
A.There is no amount in the base year
B.There is a negative amount in the base year and a negative amount in the subsequent
year
C.The trend of the amounts is decreasing but all amounts are positive
D.There is a negative amount in the base year and a positive amount in the subsequent
year
30) The Swan Company produces their product at a total cost of $43 per unit. Of this
amount $8 per unit is selling and administrative costs. The total variable cost is $30 per
unit The desired profit is $20 per unit.
Determine the mark up percentage on product cost.
A.80%
B.46.5%
C.70%
D.110%
31) A firm’s internal control environment is not influenced by
A.management’s operating style
B.organizational structure
C.personnel policies
D.monitoring policies
32) As production increases, what would you expect to happen to fixed cost per unit?
A.Increase
B.Decrease
C.Remain the same
D.Either increase or decrease, depending on the variable costs
33) Which of the following is not a characteristic of useful managerial accounting
reports?
A.Accuracy
B.GAAP
C.historical and estimated data
D.reports prepared as needed
34) The charter of a corporation provides for the issuance of 100,000 shares of common
stock. Assume that 45,000 shares were originally issued and 5,000 were subsequently
reacquired. What is the amount of cash dividends to be paid if a $2 per share dividend is
declared?
A.$80,000
B.$10,000
C.$90,000
D.$100,000
35) Mandolin Company has two divisions. Division A is interested in purchasing
10,000 units from Division B. Capacity is available for Division B to produce these
units. The per unit market price is $30 per unit, with a variable cost of $17. The
manager of Division A has offered to purchase the units at $15 per unit. In an effort to
make this transfer price beneficial for the company as a whole, what is the range of
prices that should be used during negotiations between the two divisions?
A.$15 to $30
B.$15 to $17
C.over $30
D.$17 to $30
36) Cost flow is in the reverse order in which costs were incurred when using
A.weighted average
B.last-in, first-out
C.first-in, first-out
D.average cost
37) Assuming a 360-day year, proceeds of $48,750 were received from discounting a
$50,000, 90-day note at a bank. The discount rate used by the bank in computing the
proceeds was
A.6.25%
B.10.00%
C.10.26%
D.9.75%
38)
Which of the graphs in Figure 20-1 illustrates the behavior of a total fixed cost?
A.Graph 2
B.Graph 3
C.Graph 4
D.Graph 1
39) When job 711 was completed, direct materials totaled $4,000; direct labor, $5,600;
and factory overhead, $2,400 respectively. Units produced totaled 1,000. Unit costs are:
A.$12,000
B.$1,200
C.$120
D.$12
40) On November 14th the Milling Department has accepted Job 111407A for 1,000
pounds of Cereal Mix. The bill of materials (BOM) for the Cereal Mix is:
Manufacturing overhead is applied at $5.75 per pound completed, and $75.75 of
materials are returned to Raw Materials Inventory. The recipe produced 1,025 pounds
of cereal mix.
(a) Write the journal entry to transfer raw materials to Job 111407A.
(b) Write the journal entry to provide labor to Job 111407A.
(c) Write the journal entry to return 50 pounds oats, 5 pounds of barley, and 5 quarts of
honey back to raw materials inventory.
(d) Write the journal entry to apply manufacturing overhead to Job 111407A.
(e) Write the journal entry to transfer Job 111407A to finished goods on November
14th.
41) The general term employed to indicate an expense that has not been paid and has
not yet been recognized in the accounts by a routine entry is
A.capital
B.deferral
C.accrual
D.inventory
42) Chang Co. issued a $50,000, 120-day, discounted note to Guarantee Bank. The
discount rate is 6%. Assuming a 360-day year, the cash proceeds to Chang Co. are
A.$49,750
B.$47,000
C.$49,000
D.$51,000
43) Mr. Potts issued a 90-day, 7% note for $200,000, dated February 3rd to Valley Co.
on account. (Assume a 360-day year when calculating interest.)
a. Determine the due date of the note.
b. Determine the interest.
c. Determine the maturity value of the note.
d. Journalize the entry to record the issuance of the note by Potts on Feb. 3.
e. Journalize the entry to record the receipt of payment of the note at maturity by Valley
Co.
44) The cash account for Santiago Co. on May 31, 2014 indicated a balance of $20,915.
The March bank statement indicated an ending balance of $25,645. Comparing the
bank statement, the canceled checks, and the accompanying memos with the records
revealed the following reconciling items:
a. Checks outstanding totaled $5,975
b. A deposit of $3,796 had been made too late to appear on the bank statement.
c. A check for $1,482 returned with the statement had been incorrectly recorded as
$482. The check was originally issued to pay on account.
d. The bank collected $4,515 on a note left for collection.
e. Bank service charges for May amounted to $70.
f. A check for $894 was returned by the bank because of insufficient funds.
Prepare a bank reconciliation as of May 31, 2014. Journalize the necessary entries.
Santiago Co.
Bank Reconciliation
May 31, 2014
Journal
45) Which of the following should be shown on a statement of cash flows under the
financing activity section?
A.the purchase of a long-term investment in the common stock of another company
B.the payment of cash to retire a long-term note
C.the proceeds from the sale of a building
D.the issuance of a long-term note to acquire land
46) Payroll entries are made with data from the
A.wage and tax statement
B.employee’s earning record
C.employer’s quarterly federal tax return
D.payroll register
47) Payroll taxes levied against employees become liabilities
A.the first of the following month
B.when salary is accrued
C.when data is entered in a payroll register
D.at the end of an accounting period
48) Which of the following accounts has a normal credit balance?
A.Sales Returns and Allowances
B.Sales
C.Merchandise Inventory
D.Delivery Expense
49) An unfinished desk is produced for $36.00 and sold for $65.00. A finished desk can
be sold for $75.00. The additional processing cost to complete the finished desk is
$5.95. Provide a differential analysis for further processing.
50) Determine the average rate of return for a project that is estimated to yield total
income of $250,000 over four years, cost $480,000, and has a $20,000 residual value.
51) Sweet Dreams, Inc. manufactures bedding sets. The budgeted production is for
52,000 comforters in 2012. Each comforter requires 1.5 hours to cut and sew the
material. If cutting and sewing labor costs $11.00 per hour, determine the direct labor
budget for 2012.
52) Future Sources, Inc. reported the following results for the year ending July 31,
2012:
Prepare a retained earnings statement for the fiscal year ended July 31, 2012.
53) Explain the interrelationship between the balance sheet and the statement of cash
flows.
54) Jimmy Co. is considering a 12-year project that is estimated to cost $1,050,000 and
has no residual value. Jimmy Co. seeks to earn an average rate of return of 18% on all
capital projects. Determine the necessary average annual income (using straight-line
depreciation) that must be achieved on this project for this project to be acceptable to
Jimmy Co.
55) Star Co. was organized on August 1 of the current year. Projected sales for the next
three months are as follows:
The company expects to sell 50% of its merchandise for cash. Of the sales on account,
30% are expected to be collected in the month of the sale and the remainder in the
following month.
Prepare a schedule indicating cash collections for August, September, and October.
