1) A journal entry with a debit to cash of $980, a debit to Sales Discounts of $20, and a
credit to Accounts Receivable of $1,000 means that a customer has taken a 10% cash
discount for early payment.
2) A worksheet can be helpful in showing the effects of proposed or “what if”
transactions, as well as being useful in helping to prepare end-of-period financial
statements.
3) Depreciation expense is calculated using estimates of an asset’s salvage value and
useful life.
4) Business activities that generate or use cash are classified as operating, investing, or
financing activities on the statement of cash flows.
5) The statement of cash flows reports and proves the net change in cash for a reporting
period.
6) The formula for computing interest on a note is principal of the note times the annual
interest rate times time expressed in fraction of year.
7) Every business transaction leaves the accounting equation in balance.
8) Traditional budgeting is generally better than activity-based budgeting when
attempting to reduce costs by eliminating nonvalue-added activities.
9) The acid-test ratio is defined as current assets divided by current liabilities.
10) Plant assets can be disposed of by discarding, selling, or exchanging them.
11) Use of the internal rate of return method cannot be used with uneven cash flows.
12) A lessee has substantially all of the benefits and risks of ownership in an operating
lease.
13) A clock card is a source document that an employee uses to report how much time
was spent working on a job or on overhead and that is used to determine the amount of
direct labor to charge to the job or to determine the amount of indirect labor to charge to
factory overhead.
14) When a partner leaves a partnership, the present partnership ends, but the business
can still continue to operate.
15) From the perspective of a depositor, a savings account is a liability with interest.
16) The future value of $100 compounded semiannually for 3 years at 12% equals
$140.49.
17) A step-wise variable cost can be separated into a fixed component and a variable
component.
18) An internal report that helps management analyze the difference between actual
performance and budgeted performance based on the actual sales volume (or other level
of activity), and which presents the differences between actual and budgeted amounts as
variances, is called a(n):
A.Sales budget performance report
B.Flexible budget performance report
C.Master budget performance report
D.Static budget performance report
E.Operating budget performance report
19) The following information describes a product expected to be produced and sold by
Hadley Company:
Required:
(a) Calculate the contribution margin ratio.
(b) Calculate the break-even point in dollar sales.
(c) What dollar amount of sales would be necessary to achieve a pretax income of
$120,000?
20) Input devices include:
A.Bar-code readers
B.Printers
C.Software
D.Ledgers
E.Information processors
21) A term describing a firm’s normal range of operating activities is:
A.Relevant range of operations
B.Break-even level of operations
C.Margin of safety of operations
D.Relevant operating analysis
E.High-low level of operations
22) Changes in accounting estimates are:
A.Considered accounting errors
B.Reported as prior period adjustments
C.Accounted for with a cumulative “catch-up” adjustment
D.Extraordinary items
E.Accounted for in current and future periods
23) Standard costs are used in the calculation of:
A.Price and quantity variances
B.Price variances only
C.Quantity variances only
D.Price, quantity, and sales variances
E.Quantity and sales variances
24) On March 31, Phoenix, Inc. paid Melanie Publishing Company $15,480 for a 3-year
subscription for five different magazines. The subscriptions started immediately. What
is the amount of revenue that should be recorded by Melanie Publishing Company for
each year of the subscription assuming Melanie uses a calendar reporting period?
A.$15,480; $0; $0; $0
B.$5,160; $5,160; $5,160
C.$3,870; $5,160; $5,160; $1,290
D.$0; $0; $0; $15,480
E.The answer cannot be determined based on the information given
25) Marsden manufactures a cat food product called Special Export. Marsden currently
has 10,000 bags of Special Export on hand. The variable production costs per bag are
$1.80 and total fixed costs are $10,000. The cat food can be sold as it is for $9.00 per
bag or be processed further into Prime Cat Food and Feline Surprise at an additional
$2,000 cost. The additional processing will yield 10,000 bags of Prime Cat Food and
3,000 bags of Feline Surprise, which can be sold for $8 and $6 per bag, respectively. If
Special Export is processed further into Prime Cat Food and Feline Surprise, the total
gross profit would be:
A.$68,000
B.$78,000
C.$96,000
D.$98,000
E.$100,000
26) Dunkin Company manufactures and sells a single product that sells for $480 per
unit; variable costs are $300. Annual fixed costs are $990,000. Current sales volume is
$4,200,000. Compute the contribution margin per unit.
A.$480
B.$300
C.$200
D.$190
E.$180
27) A new manufacturing machine is expected to cost $286,000, have an eight-year life,
and a $30,000 salvage value. The machine will yield an annual incremental after-tax
income of $35,000 after deducting the straight-line depreciation. Compute the payback
period for the purchase.
A.8.7 years
B.3.8 years
C.4.3 years
D.7.3 years
E.5.4 years
28) Prepare adjusting entries for the year ended December 31, for each of these separate
situations. Assume that prepaid expenses are initially recorded in asset accounts and
that fees collected in advance are initially recorded as liabilities.
a. The Prepaid Rent account has a debit balance of $12,000 before adjustment,
representing a prepayment for four months rent made on December 1 of the current
year.
b. One-third of the work related to $18,000 of cash received in advance was performed
during this period.
c. Unpaid accrued salaries at December 31 amounts to $15,000
d. Work was completed for a client on December 31 in the amount of $21,000, but was
not previously billed or recorded.
e. Estimated depreciation on office equipment is $27,000.
29) A company has inventory of 15 units at a cost of $12 each on August 1. On August
5, it purchased 10 units at $13 per unit. On August 12 it purchased 20 units at $14 per
unit. On August 15, it sold 30 units. Using the FIFO periodic inventory method, what is
the value of the inventory at August 15 after the sale?
A.$140
B.$160
C.$210
D.$380
E.$590
30) On January 1, Year 1 a company borrowed $70,000 cash by signing a 9%
installment note that is to be repaid with 4 annual year-end payments of $21,607, the
first of which is due on December 31, Year 1
(a) Prepare the company’s journal entry to record the note’s issuance.
(b) Prepare the journal entries to record the first and second installment payments.
31) The following information is available for Johnson Manufacturing Company at
June 30:
Based on this information, Johnson Manufacturing Company should report Cash and
Cash Equivalents on June 30 of:
A.$15,062
B.$20,146
C.$20,072
D.$19,205
E.$19,462
32) The periodic expense created by allocating the cost of plant and equipment to the
periods in which they are used, representing the expense of using the assets, is called:
A.Accumulated depreciation
B.A contra account
C.The matching principle
D.Depreciation expense
E.An accrued account
33) Which of the following budgets is part of the manufacturing budget?
A.Sales budget
B.Direct materials budget
C.Production budget
D.Merchandise purchases budget
E.Cash budget
34) Match the following terms a through j with the appropriate definition.
35) The entry to record reimbursement of the petty cash fund for postage expense
should include:
A.A debit to Postage Expense
B.A debit to Petty Cash
C.A debit to Cash
D.A debit to Cash Short and Over
E.A debit to Supplies
36) All of the following statements regarding leases are True except:
A.For a capital lease the lessee records the leased item as its own asset
B.For a capital lease the lessee depreciates the asset acquired under the lease, but for an
operating lease the lessee does not
C.Capital leases create a long-term liability on the balance sheet, but operating leases
do not
D.Capital leases do not transfer ownership of the asset under the lease, but operating
leases often do
E.For an operating lease the lessee reports the lease payments as rental expense
37) On March 17, Grady Company agrees to accept a 60-day, 10%, $4,500 note from
Alert Company to extend the due date on an overdue account. What is the journal entry
needed to record the transaction by Alert Company?
A.Debit Notes Payable $4,500; credit Accounts Payable $4,500
B.Debit Accounts Payable $4,500; credit Notes Payable $4,500
C.Debit Accounts Receivable $4,500; credit Notes Payable $4,500
D.Debit Cash $4,500; credit Notes Payable $4,500
E.Debit Sales $4,500; credit Notes Payable $4,500
38) Use the following data to find the direct labor cost variance.
A.$6,125 unfavorable
B.$7,000 unfavorable
C.$7,000 favorable
D.$12,250 favorable
E.$6,125 favorable
39) Job order production is also known as:
A.Mass production
B.Process production
C.Unit production
D.Customized production
E.Standard costing
40) A company’s gross profit was $83,750 and its net sales were $347,800. Its gross
margin ratio equals:
A.4.2%.
B.24.1%.
C.75.9%.
D.$83,750.
E.$264,050.
41) If the liabilities of a company increased $74,000 during a period of time and equity
in the company decreased $19,000 during the same period, what was the effect on the
assets?
A.Assets would have increased $55,000
B.Assets would have decreased $55,000
C.Assets would have increased $19,000
D.Assets would have decreased $19,000
E.None of these
42) Carmel Company acquires a mineral deposit at a cost of $5,900,000. It incurs
additional costs of $600,000 to access the deposit, which is estimated to contain
2,000,000 tons and is expected to take 5 years to extract. Compute the depletion
expense for the first year assuming 418,000 tons were mined.
A.$1,233,100
B.$1,358,500
C.$1,300,000
D.$1,180,000
E.$1,280,000
43) Stock options are often used to encourage employees to:
A.Focus on company performance
B.Take a long-run approach
C.Remain with the company
D.None of these
E.All of these
44) On April 1, Year 1, SAS Corp. purchased and placed in service a plant asset. The
following information is available regarding the plant asset:
Make the necessary adjusting journal entries at December 31, Year 1, and December 31,
Year 2 to record depreciation for each year under the following depreciation methods:
a. Straight-line.
b. Double-declining-balance.
45) A company has 40,000 shares of common stock outstanding. The stockholders’
equity applicable to common shares is $470,000, and the par value per common share is
$10. The book value per share is:
A.$0.09
B.$1.75
C.$10.00
D.$11.75
E.$47.50
46) Jane, Castle, and Sean are partners who share income and loss in a 4:2:2 ratio. The
partnership’s capital balances are as follows: Jane, $292,000; Castle, $114,000; and
Sean, $194,000. Conner is admitted to the partnership on March 1 with a 25% equity.
Prepare the journal entries to record Conner’s entry into the partnership under each of
the following separate assumptions: Conner invests (a) $200,000; (b) $180,000; and (c)
$240,000.
47) In preparing financial budgets:
A.The budgeted balance sheet is usually prepared last
B.The cash budget is usually not prepared
C.The budgeted income statement is usually not prepared
D.The capital expenditures budget is usually prepared last
E.The merchandise purchases budget is the key budget
48) Managers place a high priority on internal control systems because the systems
assist managers in the:
A.Prevention of avoidable losses
B.Planning of operations
C.Monitoring of company performance
D.Monitoring of employee performance
E.Assurance that no loss will occur
49) When the maker of a note is unable or refuses to pay at maturity, the note is said to
be _________________.
50) A company reported stockholders’ equity on January 1 of the current year as
follows: Common Stock, $5 par value, 1,000,000 shares authorized, 600,000 shares
issued; Paid-in Capital in Excess of Par Value, Common Stock, $1,025,000; Retained
Earnings, $2,850,000. Prepare journal entries to record the following transactions:
51) What is the cycle time for a manufacturer? What does it reveal about the
manufacturing process?
52) FastForward purchased $25,000 of equipment for cash. The Equipment asset
account is _______________ for $25,000 and the cash account is _______________
for $25,000.
53) What is the amount of interest that is due on a $36,000, 90-day, 4% note receivable
at maturity?
54) The year-end adjusted trial balance of ABC Supply for the current year, is shown
below:
Prepare Closing entries at December 31 for the current year.
55) A ___________________________ gives a complete record of each transaction in
one place, and shows debits and credits for each transaction.
56) The ________________ assumption states that transactions and events are
expressed in money units.
57) A(n) _______________________ is a department whose manager is responsible for
using the center’s assets to generate income for the center.
58) Matt and Bryan Walls of SnorgTees stress the importance of managing liabilities.
What are some of the liabilities that the brothers discovered they would have to manage
to be successful?