1) At the beginning of the year, Franklen Company estimates annual overhead costs to
be $1,050,000 and that 200,000 machine hours will be operated. Using machine hours
as a base, the amount of overhead applied during the year if actual machine hours for
the year was 205,000 hours is
a.$1,050,000
b.$1,024,390
c.$1,050,320
d.$1,076,250
2) Brandy Corporation’s trading portfolio at the end of the year is as follows:
Security Cost Fair Value
Common Stock C$10,000$12,000
Common Stock D 9,000 5,000
$19,000$17,000
At the end of the year, Brandy Corporation should
a.set up a Fair Value Adjustment account for Stock D
b.set up a Fair Value Adjustment account for the portfolio
c.recognize an Unrealized Gain or LossIncome for $4,000
d.report a loss on the income statement for $4,000 under “Other expenses and losses”
3) Lake Company reported the following on its income statement:
Income before income taxes$600,000
Income tax expense 150,000
Net income$450,000
An analysis of the income statement revealed that interest expense was $60,000. Lake
Company’s times interest earned was
a.11 times
b.10 times
c.8.5 times
d.7.5 times
4) Which of the following statements regarding the effective-interest method of
accounting for bonds characteristics is false?
a.GAAP usually requires use of the effective interest method
b.The amount of periodic interest expense decreases over the life of a discounted bond
issue when the effective-interest method is used
c.Over the life of the bonds, the carrying value increases for discounted bonds when
using the effective-interest method
d.The effective-interest method applies a constant percentage to the bond carrying value
to compute interest expense
5) A small stock dividend is defined as
a.less than 30% but greater than 25% of the corporation’s issued stock
b.between 50% and 100% of the corporation’s issued stock
c.more than 30% of the corporation’s issued stock
d.less than 2025% of the corporation’s issued stock
6) Norton Company purchased a building on January 2 by signing a long-term
$480,000 mortgage with monthly payments of $4,500. The mortgage carries an interest
rate of 10 percent. The amount owed on the mortgage after the first payment will be
a.$480,000
b.$479,500
c.$476,000
d.$475,500
7) Bad Debt Expense is considered
a.an avoidable cost in doing business on a credit basis
b.an internal control weakness
c.a necessary risk of doing business on a credit basis
d.avoidable unless there is a recession
8) Land improvements should be depreciated over the useful life of the
a.land
b.buildings on the land
c.land or land improvements, whichever is longer
d.land improvements
9) Spa Company uses the direct method in determining net cash provided by operating
activities. The income statement shows income tax expense $85,000. Income taxes
payable were $35,000 at the beginning of the year and $20,000 at the end of the year.
Cash payments for income taxes are
a.$70,000
b.$85,000
c.$100,000
d.$140,000
10) Lifetime sells softball equipment. On November 14, they shipped $3,000 worth of
softball uniforms to Palos Middle School, terms 2/10, n/30. On November 21, they
received an order from Tinley High School for $1,800 worth of custom printed bats to
be produced in December. On November 30, Palos Middle School returned $300 of
defective merchandise. Lifetime has received no payments from either school as of
month end. What amount will be recognized as net accounts receivable on the balance
sheet as of November 30?
a.$2,700
b.$3,000
c.$4,500
d.$4,800
11) Contribution margin is
a.the amount of revenue remaining after deducting fixed costs
b.available to cover fixed costs and contribute to income for the company
c.sales less fixed costs
d.unit selling price less unit fixed costs
12) When the effective-interest method of bond discount amortization is used,
a.the applicable interest rate used to compute interest expense is the prevailing market
interest rate on the date of each interest payment date
b.the carrying value of the bonds will decrease each period
c.interest expense will not be a constant dollar amount over the life of the bond
d.interest paid to bondholders will be a function of the effective-interest rate on the date
the bonds are issued
13) Othello Company understated its inventory by $20,000 at December 31, 2014 . It
did not correct the error in 2014 or 2015. As a result, Othello’s owner’s equity was:
a.understated at December 31, 2014, and overstated at December 31, 2015
b.understated at December 31, 2014, and properly stated at December 31, 2015
c.overstated at December 31, 2014, and overstated at December 31, 2015
d.understated at December 31, 2014, and understated at December 31, 2015
14) Net sales is sales revenue less
a.sales discounts
b.sales returns
c.sales returns and allowances
d.sales discounts and sales returns and allowances
15) If manufacturing overhead has been underapplied during the year, the adjusting
entry at the end of the year will show a
a.debit to Manufacturing Overhead
b.credit to Cost of Goods Sold
c.debit to Work in Process Inventory
d.debit to Cost of Goods Sold
16) A cost which remains constant per unit at various levels of activity is a
a.variable cost
b.fixed cost
c.mixed cost
d.manufacturing cost
17) For each item, identify all applicable cost labels. Use the following code in your
answer:
1 Product Cost
2 Period Cost
a.Advertising
b.Direct materials used
c.Sales salaries
d.Indirect factory labor
e.Repairs to office equipment
f.Factory manager’s salary
g.Direct labor
h.Indirect materials
18) Instructions: Match each item/event pair below with the indicated change in the
item. An individual classification may be used more than once, or not at all. For each
dividend, assume that both declaration and payment or distribution has occurred.
Classifications
A.Item increases
B.Item decreases
C.Item is unchanged
D.Direction of change cannot be determined
ItemEvent
____1>Par value per common shareCash dividend
____2>Book value per shareStock dividend
____3>Total retained earningsStock split
____4>Total stockholders’ equityPrior period adjustment increases
last year’s net income
____5>Earnings per common shareRestriction of retained earnings
____6>Total retained earningsChange in accounting principle
____7>Number of common shares outstandingStock dividend
____8>Total retained earningsCash dividend
____9>Par value per common shareStock dividend
____10>Total paid-in capitalStock dividend
19) A petty cash fund should not be used for
a.postage due
b.loans to the petty cash custodian
c.taxi fares
d.customer lunches
20) Sales revenues are usually considered earned when
a.cash is received from credit sales
b.an order is received
c.goods have been transferred from the seller to the buyer
d.adjusting entries are made
21) What type of relationship exists with a prepaid expense adjusting entry?
a.Asset/revenue
b.Expense/asset
c.Expense/liability
d.Liability/revenue
22) Maple Street Bookstore has collected $1,500 in sales taxes during April. If sales
taxes must be remitted to the state government monthly, what entry will Maple Street
Bookstore make to show the April remittance?
a.Sales Taxes Payable1,500
Cash1,500
b.Sales Tax Expense1,500
Cash1,500
c.Sales Tax Expense1,500
Sales Taxes Payable1,500
d.No entry required.
23) In using the high-low method, the fixed cost
a.is determined by subtracting the total cost at the high level of activity from the total
cost at the low activity level
b.is determined by adding the total variable cost to the total cost at the low activity level
c.is determined before the total variable cost
d.may be determined by subtracting the total variable cost from either the total cost at
the low or high activity level
24) Interest expense on an interest-bearing note is
a.always equal to zero
b.accrued over the life of the note
c.only recorded at the time the note is issued
d.only recorded at maturity when the note is paid
25) Journalizing in a sales journal will not
a.require a debit to Accounts Receivable
b.show a sales invoice number
c.affect the reference column of the journal
d.include a credit to the Sales Revenue account
26) If an individual asset is increased, then
a.there must be an equal decrease in a specific liability
b.there must be an equal decrease in owner’s equity
c.there must be an equal decrease in another asset
d.All of these answer choices are possible
27) Materials requisition slips are costed
a.by production supervisors
b.by factory personnel who work on the production line
c.after the goods have been sold
d.using any of the inventory costing methods
28) The debt to assets ratio measures
a.the company’s profitability
b.whether interest can be paid on debt in the current year
c.the proportion of interest paid relative to dividends paid
d.the percentage of the total assets provided by creditors
29) Mint Manufacturing uses a job order cost accounting system. On May 1, the
company has a balance in Work in Process Inventory of $5,500 and two jobs in process:
Job No. 429, $3,000 and Job No. 430, $2,500. During May, a summary of source
documents reveals the following:
ForMaterials Requisition SlipsLabor Time Tickets
Job No. 429$ 3,500$ 4,400
Job No. 4302,6003,400
Job No. 4313,4004,200
Job No. 4323,0004,000
General Use 1,000 1,500
$13,500$17,500
Mint Manufacturing applies manufacturing overhead to jobs at an overhead rate of 70%
of direct labor cost. Job No. 429 is completed during the month.
Instructions:
1>Prepare summary journal entries to record the requisition slips, time tickets, the
assignment of manufacturing overhead to jobs, and the completion of Job No. 429 .
Show computations.
2> (a)What is the balance in Work in Process Inventory at May 31?
(b)If Mint Manufacturing incurred $8,000 of manufacturing overhead in addition to
indirect materials and indirect labor, was overhead over- or underapplied in May and by
how much?
30) Indicate the proper sequence of the steps in the accounting cycle by placing
numbers 1-8 in the blank spaces.
____a.Analyze business transactions.
____b.Journalize and post adjusting entries.
____c.Journalize and post closing entries.
____d.Journalize the transactions.
____e.Prepare a post-closing trial balance.
____f.Prepare a trial balance.
____g.Prepare financial statements.
____h.Post to ledger accounts.
31) Zusey Company requires sales of $2,000,000 to cover its fixed costs of $400,000
and to earn net income of $600,000. What percent are variable costs of sales?
a.30%
b.55%
c.20%
d.50%
32) The entire group of accounts maintained by a company is called the
a.chart of accounts
b.general journal
c.general ledger
d.trial balance
33) On January 1, 2014, Grgante Corporation purchased 25% of the common stock
outstanding of Sheat Corporation for $270,000. During 2014, Long Corporation
reported net income of $80,000 and paid cash dividends of $40,000. The balance of the
Stock InvestmentsLong account on the books of Grgante Corporation at December 31,
2014 is
a.$270,000
b.$310,000
c.$350,000
d.$280,000
34) The Sales Returns and Allowances account is classified as a(n)
a.asset account
b.contra asset account
c.expense account
d.contra revenue account
35) (a)What is a budget?
(b)How does a budget contribute to good management?
36) All of the following statements are correct about controllable costs except
a.all costs are controllable at some level of responsibility within a company
b.all costs are controllable by top management
c.fewer costs are controllable as one moves up to each higher level of managerial
responsibility
d.costs incurred directly by a level of responsibility are controllable at that level
37) Grayson Company prepares monthly financial statements and uses the gross profit
method to estimate ending inventories. Historically, the company has had a 60% gross
profit rate. During September, net sales amounted to $160,000; the beginning inventory
on September 1 was $72,000; and the cost of goods purchased during September
amounted to $44,000. The estimated cost of Grayson Company’s inventory on
September 30 is:
a.$52,000
b.$96,000
c.$40,000
d.$64,000
38) Process cost systems are used to apply costs to similar products that are
____________ in a ____________ fashion.
39) Stocks traded on the New York Stock Exchange are considered readily marketable.
40) On January 1, 2014, Raleish Corporation had $2,000,000 of $10 par value common
stock outstanding that was issued at par and retained earnings of $1,000,000. The
company issued 200,000 shares of common stock at $12 per share on July 1 . On
December 15, the board of directors declared a 15% stock dividend to stockholders of
record on December 31, 2014, payable on January 15, 2015 . The market value of
Raleish Corporation stock was $15 per share on December 15 and $16 per share on
December 31 . Net income for 2014 was $500,000.
Instructions
(1)Journalize the issuance of stock on July 1 and the declaration of the stock dividend
on December 15 .
(2)Prepare the stockholders’ equity section of the balance sheet for Raleish Corporation
at December 31, 2014 .
41) How is it possible for a company to suffer a net loss for a given year, yet produce a
positive net cash flow from operating activities?
42) The inventory of columbo Company was destroyed by fire on April 1 . From an
examination of the accounting records, the following data for the first three months of
the year are obtained:
Sales Revenue$185,000
Sales Returns and Allowances5,000
Purchases110,000
Freight-In3,500
Purchase Returns and Allowances4,000
Instructions
Determine the merchandise lost by fire, assuming a beginning inventory of $50,000 and
a gross profit rate of 40% on net sales.
43) Determine whether each of the following is classified as:
DM:Direct materials
DL:Direct labor
MO:Manufacturing overhead
_____1>Assembly line workers’ wages.
_____2>Factory supervisors’ salaries.
_____3>Steel used in manufacturing product.
_____4>Insurance on factory building.
_____5>Rivets and screws used in production.
_____6>Tires used in manufacturing vehicles.
44) Kane Company has budgeted sales revenues as follows:
Budgeted Sales Revenues
January$75,000
February55,000
March90,000
April60,000
May45,000
June35,000
Past experience has indicated that 80% of sales each month are on credit and that
collection of credit sales occurs as follows: 60% in the month of sale, 30% in the month
following the sale, and 5% in the second month following the sale. The other 5% is
uncollectible.
Instructions
Prepare a schedule which shows expected cash receipts from sales for the months of
April, May, and June.
45) Hawey, Inc. uses standard costing for its one product, baseball bats. The standards
call for 3 board-feet of wood at $1.40 per board-foot, and 45 minutes of work at $12 per
hour per bat. Total manufacturing overhead costs were estimated at $9,450, of which
the variable portion was $0.50 per bat and the fixed portion was $1.00 per bat with an
estimate of 6,300 bats to be produced. Humphreys identifies price variances at the
earliest possible point in time.
During March, the company had the following results:
Direct labor used = 4,800 hours at a cost of $56,400
Actual manufacturing overhead fixed costs = $6,000
Actual manufacturing overhead variable costs = $3,100
Bats produced = 6,000
Instructions
Compute the following variances for March.
1>Labor quantity variance
2>Total labor variance
3>Overhead controllable variance
4>Overhead volume variance
46) The ___________________ is calculated by dividing net sales by average total
assets.