1) The internal rate of return method of analyzing capital investment proposals uses the
present value concept to compute an internal rate of return expected from the proposals.
2) Supervisor salaries and indirect factory wages would normally appear in the direct
labor cost budget.
3) Internal control is enhanced by separating the control of a transaction from the
record-keeping function.
4) Under the Internal Revenue Code, corporations are required to pay federal income
taxes.
5) In the vertical analysis of an income statement, each item is generally stated as a
percentage of total assets.
6) Premium on bonds payable may be amortized by the straight-line method if the
results obtained by its use do not materially differ from the results obtained by use of
the interest method.
7) All income statement accounts will be closed at the end of the period.
8) Financial statements should be prepared before the closing entries are journalized
and posted.
9) The variance from standard for factory overhead cost resulting from operating at a
level above or below 100% of normal capacity is termed volume variance.
10) Both Accounts Receivable and Notes Receivable represent claims that are expected
to be collected in cash.
11) For the current year ending April 30, Hal Company expects fixed costs of $60,000,
a unit variable cost of $70, and anticipated break-even of 1,715 sales units.
Round your answer to the nearest whole number.
12) A corporation purchases 10,000 shares of its own $10 par common stock for $35
per share, recording it at cost. What will be the effect on total stockholders’ equity?
A.increase, $100,000
B.increase, $350,000
C.decrease, $100,000
D.decrease, $350,000
13) For which of the following businesses would the job order cost system be
appropriate?
A.Meat processor
B.Automobile manufacturer
C.Oil refinery
D.Construction contractor
14) Merchandise inventory is classified on the balance sheet as a
A.Current Liability
B.Current Asset
C.Long-Term Asset
D.Long-Term Liability
15) Given the following cost and activity observations for Bounty Companys utilities,
use the high-low method to calculate Bounty variable utilities costs per machine hour.
A.$10.00
B.$.67
C.$.63
D.$.11
16) Mocha Company manufactures a single product by a continuous process, involving
three production departments. The records indicate that direct materials, direct labor,
and applied factory overhead for Department 2 were $100,000, $125,000, and
$150,000, respectively. The records further indicate that direct materials, direct labor,
and applied factory overhead for Department 3 were $50,000, $60,000, and $70,000,
respectively. In addition, work in process at the beginning of the period for Department
3 totaled $75,000, and work in process at the end of the period totaled $60,000. The
journal entry to record the flow of costs into Department 3 during the period for direct
materials is:
A.Work in Process–Department 3100,000
Materials100,000
B.Work in Process–Department 3125,000
Materials125,000
C.Work in Process–Department 350,000
Materials50,000
D.Work in Process–Department 370,000
Materials70,000
17) Assume the following sales data for a company:
What is the percentage increase in sales from 2014 to 2015?
A.100%
B.65%
C.165%
D.60.1%
18) Which of the following is not an example for safeguarding inventory?
A.Storing inventory in restricted areas
B.Physical devices such as two-way mirrors, cameras, and alarms
C.Matching receiving documents, purchase orders, and vendors invoice
D.Returning inventory that is defective or broken
19) Balance sheet accounts
A.represent amounts accumulated during a specific period of time
B.are called real accounts
C.have zero balances after the closing entries have been posted
D.are not affected by adjustments
20) Bob Evans owns a business, Beachside Realty, that rents condominiums and
furnishings. Below is the adjusted trial balance at December 31, 2014.
The entry required to close the expense accounts at the end of the period includes a:
A.a debit to Income Summary for $35,520
B.a credit to Income Summary for $35,520
C.a debit to Income Summary for $33,520
D.a credit to Income Summary for $33,520
21) Which of the following would not be included with the Cash and Equivalents on the
Balance Sheet?
A.Commercial Paper
B.Short-Term Receivables
C.Certificates of Deposit
D.Money Market Mutual Funds
22) A patient has a physical examination and asks the bookkeeper to mail the bill. The
bookkeeper should
A.make no entry until the cash is received
B.Cash, debit; Accounts Receivable, credit
C.Cash, debit; Fees Earned, credit
D.Accounts Receivable, debit; Fees Earned, credit
23) Earning revenue
A.increases assets, increases owners equity
B.increases assets, decreases owner’s equity
C.increases one asset, decreases another asset
D.decreases assets, increases liabilities
24) Identify the following costs as (a) prime cost, (b) conversion cost, (c) or both for a
cake factory.
1> _____ Frosting
2> _____ Wages of the baker
3> _____ Sprinkles for the topping (considered an indirect material)
4> _____ Depreciation on oven
25) The following data is given for the Harry Company:
Overhead is applied on standard labor hours.
The direct labor rate variance is:
A.6,000U
B.6,000F
C.33,000F
D.33,000U
26) The net income reported on the income statement for the current year was
$250,000. Depreciation recorded on fixed assets and amortization of patents for the
year were $40,000 and $9,000, respectively. Balances of current asset and current
liability accounts at the end and at the beginning of the year are as follows:
What is the amount of cash flows from operating activities reported on the statement of
cash flows prepared by the indirect method?
A.$271,000
B.$279,000
C.$327,000
D.$256,000
27) Starling Co. is considering disposing of a machine with a book value of $12,500
and estimated remaining life of five years. The old machine can be sold for $1,500. A
new high-speed machine can be purchased at a cost of $25,000. It will have a useful life
of five years and no residual value. It is estimated that the annual variable
manufacturing costs will be reduced from $26,000 to $23,500 if the new machine is
purchased. The total net differential increase or decrease in cost for the new equipment
for the entire five years is:
A.decrease of $11,000
B.decrease of $15,000
C.increase of $11,000
D.increase of $15,000
28) A bank reconciliation should be prepared periodically because
A.the company’s records and the bank’s records are in agreement
B.the bank has not recorded all of its transactions
C.any differences between the company’s records and the bank’s records should be
determined, and any errors made by either party should be discovered and corrected
D.the bank must make sure that its records are correct
29) A business pays bi-weekly salaries of $20,000 every other Friday for a ten-day
period ending on that day. The adjusting entry necessary at the end of the fiscal period
ending on the second Wednesday of the pay period includes a:
A.debit to Salary Expense of $8,000
B.debit to Salary Payable of $8,000
C.credit to Salary Expense of $16,000
D.credit to Salary Payable of $16,000
30) Match the following terms with their definitions.
1>Focuses on profits rather than on revenues or costs. A. Margin of safety
2>The relative distribution of sales among products sold by a company. B. Operating
leverage
3>Indicates the possible decrease in sales that may occur before operating loss results.
C. Cost-volume-profit chart
4>Focuses on costs, sales, and operating profit or loss. D. Profit-volume chart
5>Contribution margin divided by income from operations. E. Sales mix
31) The following unit data were assembled for the assembly process of the Super Co.
for the month of June. Direct materials are added at the beginning of the process.
Conversion costs are added uniformly over the production process. The company uses
the FIFO process.
The number of equivalent units produced with respect to direct materials costs is:
A.48,000
B.49,000
C.43,000
D.53,000
32) The process of transferring the journal entries to the accounts is known as
A.posting
B.updating
C.journalizing
D.summarizing
33) Use the correct number to designate each item below:
1) direct materials
2) selling and administrative expense
3) factory overhead
4) direct labor
a) rent expense on factory building
b) sales supplies used
c) factory supplies used
d) indirect materials used
e) wages of assembly line personnel
34) Robert Johnson contributed equipment, inventory, and $42,000 cash to the
partnership. The equipment had a book value of $25,000 and market value of $28,000.
The inventory has a book value of $50,000, but only had a market value of $15,000 due
to obsolescence. The partnership also assumed a $12,000 note payable owed by Robert
that was originally used to purchase the equipment.
What amount should Roberts capital account be recorded?
A.$85,000
B.$73,000
C.$117,000
D.$105,000
35) Which of the following entries records the payment of an account payable?
A.debit Cash; credit Accounts Payable
B.debit Accounts Receivable; credit Cash
C.debit Cash; credit Supplies Expense
D.debit Accounts Payable; credit Cash
36) The Cardinal Company had a finished goods inventory of 55,000 units on January
1. Its projected sales for the next four months were: January – 200,000 units; February –
180,000 units; March – 210,000 units; and April – 230,000 units. The Cardinal Company
wishes to maintain a desired ending finished goods inventory of 20% of the following
months sales.
What would be the budgeted production for February?
A.186,000
B.181,000
C.222,000
D.174,000
37) 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
38) Carmelita Inc., has the following information available:
At the beginning of the period, there were 500 units in process that were 60 percent
complete as to conversion costs and 100 percent complete as to direct materials costs.
During the period 4,500 units were started and completed. Ending inventory contained
340 units that were 30 percent complete as to conversion costs and 100 percent
complete as to materials costs. (Assume that the company uses the FIFO process cost
method.)
The cost of completing a unit during the current period was
A.$36.19
B.$34.88
C.$35.95
D.$35.89
39) Heston and Burton, CPAs, currently work a five-day week. They estimate that net
income for the firm would increase by $75,000 annually if they worked an additional
day each month. The cost associated with the decision to continue the practice of a
five-day work week is an example of:
A.differential revenue
B.sunk cost
C.differential income
D.opportunity cost
40) To record estimated uncollectible receivables using the allowance method, the
adjusting entry would be a
A.debit to Bad Debs Expense and a credit to Allowance for Doubtful Accounts
B.debit to Accounts Receivable and a credit to Allowance for Doubtful Accounts
C.debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable
D.debit to Loss on Credit Sales and a credit to Accounts Receivable
41) Match the following accounts to the financial statement where they can be found.
(Hint: Some of the accounts can be found in more than one financial statement.)
A. Balance Sheet
B. Income Statement
C. Statement of Cash Flows
D. Statement of Owners Equity
42) Match the following terms to the most appropriate answer:
1>a bond issued without any collateral or security A. Debenture
2>allows the bond hold to exchange bond for shares of stock B. Term bond
3>the value of a bond stated on the bond certificate C. Face value
4>the principal of the bond is paid back in installments D. Indenture
5>allows the issuer to redeem bonds before maturity date E. Callable bond
6>the entire principal of the bond is paid back on maturity date F. Serial bond
7>the legal contract between issuer and bond holder G. Convertible bond
43) Standards that represent levels of operation that can be attained with reasonable
effort are called:
A.theoretical standards
B.ideal standards
C.variable standards
D.normal standards
44) Sabas Company has 40,000 shares of $100 par, 1% preferred stock and 100,000
shares of $50 par common stock. The following amounts were distributed as dividends:
Determine the dividends per share for preferred and common stock for each year.
45) Maxi Companys perpetual inventory records indicate that $820,300 of merchandise
should be on hand on October 31, 2014. The physical inventory indicates that $781,900
is actually on hand. Journalize the adjusting entry for the inventory shrinkage for Maxi
Company for the year ended October 31, 2014.
46) Sutton Company purchased 10% of the outstanding stock of Roberts Company on
January 1, 2012. Roberts reported net income of $155,000 and declared dividends of
$40,000 during 2012. How would these events be reported by Sutton using the cost
method?
47) What are the three sections of the Statement of Cash Flows?
48) Travis Company purchased merchandise on account from a supplier for $5,700,
terms 2/10, net 30. Travis returned $1,100 of the merchandise and received full credit.
Travis Company paid for the merchandise within the discount period.
Under a perpetual inventory system, record all of the journal entries required for the
above transactions.
49) Journalize the following transactions using the direct write-off method of
accounting for uncollectible receivables:
Feb 20 Received $1,000 from Andrew Warren and wrote off the remainder owed of
$4,000 as uncollectible.
May 10 Reinstated the account of Andrew Warren and received $4,000 cash in full
payment.
50) Why would you or why wouldnt you compare an organization like Ford Motor
Company to the local car dealer Johnson City Ford/Lincoln/Mercury in vertical and
horizontal analysis?