1) Sales Discounts and Sales Returns and Allowances are credited to close the accounts
during the closing process.
2) Profit margin can also be called return on sales.
3) The percent of accounts receivable method for bad debts estimation uses only
income statement account balances to estimate bad debts.
4) The aging of accounts receivable involves classifying each account receivable by
how long it is past its due date and estimating the percent of each uncollectible class.
5) Cash sales shorten the operating cycle for a merchandiser; credit sales lengthen
operating cycles.
6) An advantage of online processing is up-to-date databases.
7) Individual transactions in the sales journal are regularly posted to customer accounts
in the accounts payable ledger.
8) The number of periods in a present value calculation can only be expressed in years.
9) Selling and administrative expenses are normally product costs.
10) Most transactions for merchandising businesses fall into four groups: sales,
purchases, cash receipts, and cash disbursements.
11) Each transaction recorded in the sales journal yields a debit to Accounts Receivable
and a credit to Sales.
12) According to the cost principle, it is preferable for managers to report an estimate of
an asset’s value.
13) The relevant range of operations includes extremely high and low levels of
production that are unlikely to occur.
14) Cumulative preferred stock carries the right to be paid both current and all prior
periods’ unpaid dividends before any dividends are paid to common shareholders.
15) Strategic management is the process of determining the right mix of operating
activities for the type of organization, its plans, and its markets.
16) The statement of changes in partners’ equity shows the beginning balance in
retained earnings, plus investments, less withdrawals, the income or loss and the ending
balance in retained earnings.
17) In a process costing system, factory labor costs incurred in a reporting period are
presented on the income statement as Factory Labor Expense.
18) All stock dividends are recorded at par value and no paid-in capital in excess of par
value is ever recorded.
19) The present value of an annuity can be best or easier computed as the sum of the
individual future values for each payment.
20) A company had net sales and cost of goods sold of $752,000 and $543,000,
respectively. Its net income was $17,530. The company’s gross margin ratio equals:
A.18.9%
B.24.5%
C.27.8%
D.34.7%
E.35.2%
21) The following information is available to reconcile Litner Co.’s book balance of
cash with its bank statement cash balance as of April 30. The April 30 cash balance
according to the accounting records is $78,356, and the bank statement cash balance for
that date is $83,525.
a. The bank erroneously cleared a $480 check against the account in April that was not
issued by Litner. The check documentation included with the bank statement indicates
the check was actually issued by Lightning Co.
b. On April 30, the bank issued a credit memorandum for $53 interest earned on Litner’s
account.
c. When the April checks are compared with entries in the accounting records, it is
found that Check No. 1828 had been correctly drawn for $1,530 to pay for advertising
but was erroneously entered in the accounting records as $1,350.
d. A credit memorandum indicates that the bank collected $10,000 cash on a note
receivable for Litner, deducted a $30 collection fee, and credited the balance to the
company’s Cash account. Litner did not record this transaction before receiving the
statement.
e. A debit memorandum of $895 is enclosed with the bank statement for an NSF check
for $870 received from a customer. The bank assessed a $25 fee for processing it.
f. Litner’s April 30 daily cash receipts of $5,102 were placed in the bank’s night
depository on that date, but do not appear on the April 30 bank statement.
g. Litner’s April 30 cash disbursements journal indicates that Check No. 1837 for $584
and Check No. 1840 for $1,219 were both written and entered in the accounting
records, but are not among the canceled checks.
1> Prepare the bank reconciliation for this company as of April 30.
2> Prepare the journal entries necessary to bring the company’s book balance of cash
into conformity with the reconciled cash balance as of April 30.
22) Refer to the following selected financial information from Fennie’s, LLC. Compute
the company’s accounts receivable turnover for Year 2.
A.8.32
B.8.62
C.8.94
D.5.78
E.7.90
23) A company made an error in calculating and reporting depreciation expense in
2011. The error was discovered in 2012. The item should be reported as a prior period
adjustment:
A.on the 2011 statement of retained earnings
B.on the 2011 income statement
C.on the 2012 statement of retained earnings
D.on the 2012 income statement
E.accounted for with a cumulative “catch-up” adjustment
24) All of the following statements regarding accounting information systems are true
except:
A.Accounting information systems collect and process data from transactions and
events
B.Accounting information systems organize data in useful forms
C.Accounting information systems do not establish internal control procedures
D.Accounting information systems are crucial to effective decision making
E.Accounting information systems communicate information to business decision
makers
25) All of the following statements regarding valuation of receivables under U.S.
GAAP and IFRS are True except:
A.Both require the allowance method for uncollectibles unless uncollectibles are
immaterial
B.Both require that receivables be reported net of estimated collectibles
C.Both require that the expenses for estimated collectibles be recorded in the same
period revenues generated from those receivables are recorded
D.Both allow using percent of sales, percent of receivables, or aging of receivables to
estimate uncollectibles
E.Both require that the expense related to uncollectibles be recorded when the
receivable is determined to be uncollectible
26) Renee Jackson is a partner in Sports Promoters. Her beginning partnership capital
balance for the current year is $55,000, and her ending partnership capital balance for
the current year is $62,000. Her share of this year’s partnership income was $5,250.
What is her partner return on equity?
A.8.47%
B.8.97%
C.9.54%
D.10.47%
E.10.60%
27) Of the following accounts, the one that normally has a credit balance is:
A.Cash.
B.Office Equipment.
C.Wages Payable.
D.Owner, Withdrawals.
E.Sales Salaries Expense.
28) Which one of the following statements is not true?
A.Total fixed costs remain the same regardless of volume within the relevant range
B.Total variable costs change with volume
C.Total variable costs decrease as the volume increases
D.Fixed costs per unit increase as the volume decreases
E.Variable costs per unit remain the same regardless of the volume
29) U. S. government bonds are:
A.High-risk and high-return investments
B.Low-risk and low-return investments
C.High-risk and low-return investments
D.Low-risk and high-return investments
E.High risk and no-return investments
30) The unemployment insurance program:
A.Is a joint federal and state program
B.Is administered by each state
C.Provides unemployment benefits to qualified workers
D.Adjusts rates paid by employers based on their merit rating
E.All of these
31) A check that was outstanding on last period’s bank reconciliation was not among the
cancelled checks returned by the bank this period. As a result, in preparing this period’s
reconciliation, the amount of this check should be:
A.Added to the book balance of cash
B.Deducted from the book balance of cash
C.Added to the bank balance of cash
D.Deducted from the bank balance of cash
E.Ignored in preparing the period’s bank reconciliation
32) The numbering system used in a company’s chart of accounts:
A.Is the same for all companies
B.Is determined by generally accepted accounting principles
C.Depends on the source documents used in the accounting process
D.Typically begins with balance sheet accounts
E.Typically begins with income statement accounts
33) A simple account form widely used in accounting as a tool to understand how debits
and credits affect an account balance is called a:
A.Withdrawals account
B.Capital account
C.Drawing account
D.T-account
E.Balance column sheet
34) The following information is available for the Avisa Company for the month of
November.
a. On November 30, after all transactions have been recorded, the balance in the
company’s Cash account has a balance of $27,202.
b. The company’s bank statement shows a balance on November 30 of $29,279.
c. Outstanding checks at November 30 include check #3030 in the amount of $1,525
and check #3556 in the amount of $1,459.
d. A credit memo included with the bank statement indicates that the bank collected
$780 on a noninterest-bearing note receivable for Avisa. The bank deducted a $10
collection fee, and credited the remainder of $770 to Avisa’s account.
e. A debit memo included with the bank statement shows a $67 NSF check from a
customer, J. Brown.
f. A deposit placed in the bank’s night depository on November 30 totaled $1,675, and
did not appear on the bank statement.
g. Examination of the checks on the bank statement with the entries in the accounting
records reveals that check #3445 for the payment of an account payable was correctly
written for $2,450, but was recorded in the accounting records as $2,540.
h. Included with the bank statement was a debit memorandum in the amount of $25 for
bank service charges. It has not been recorded on the company’s books.
1> Prepare the November bank reconciliation for the Avisa Company.
2> Prepare the general journal entries to bring the company’s book balance of cash into
conformity with the reconciled balance as of November 30.
35) Match each of the following terms with the appropriate definitions.
1>Authorized stock A. A limit on treasury stock purchases to the amount of retained
earnings.
2>Stock dividend B. A class of stock that has not been assigned a par value by the
corporate charter.
3>Minimum legal capital C. A corporation’s distribution of its own stock to its
stockholders without the receipt of any payment.
4>Preemptive right D. The number of shares of stock that a corporation’s charter allows
it to sell.
5>No-par value stock E. The basic stock of a corporation that usually carries voting
rights for controlling the corporation.
6>Organization expenses F. The right of common stockholders to maintain their
proportionate interest in a corporation by having the first opportunity to buy additional
proportionate shares of stock issued.
7>Common stock G. The least amount that buyers of stock must contribute to the
corporation or be subject to paying at a future date.
8>Convertible preferred stock H. Preferred stock that gives the issuing corporation the
right to purchase or retire it at specified future prices and dates.
9>Statutory restriction I. Preferred stock giving the holder the option of exchanging it
for common stock at a specified rate.
10>Callable preferred stock J. The costs of bringing a corporation into existence that
include legal fees, promoters’ fees, and amounts paid to obtain a charter.
36) A company has inventory of 10 units at a cost of $10 each on June 1. On June 3, it
purchased 20 units at $12 each. 12 units are sold on June 5. Using the FIFO perpetual
inventory method, what is the cost of the 12 units that were sold?
A.$120
B.$124
C.$128
D.$130
E.$140
37) A liquidating dividend is:
A.Only declared when a corporation closes down
B.A return of a portion of the capital contributed by stockholders
C.Not allowed under federal law
D.Only paid in assets other than cash
E.Only paid in shares of stock
38) A corporation sold 14,000 shares of its $10 par value common stock at a cash price
of $13 per share. The entry to record this transaction would include:
A.A debit to Paid-in Capital in Excess of Par Value, Common Stock for $42,000
B.A debit to Cash for $140,000
C.A credit to Common Stock for $182,000
D.A credit to Common Stock for $140,000
E.A credit to Paid-in Capital in Excess of Par Value, Common Stock for $182,000
39) The approach to preparing financial statements based on recognizing revenues
when they are earned and matching expenses to those revenues is:
A.Cash basis accounting
B.The matching principle
C.The time period assumption
D.Accrual basis accounting
E.Revenue basis accounting
40) Beyer Corporation is considering buying a machine for $25,000. Its estimated
useful life is 5 years, with no salvage value. Beyer anticipates annual net income after
taxes of $1,500 from the new machine. What is the accounting rate of return assuming
that Beyer uses straight-line depreciation and that income is earned uniformly
throughout each year?
A.6.0%
B.8.0%
C.8.5%
D.10.0%
E.12.0%
41) The practice of preparing budgets for each of several future periods and revising
those budgets as each period is completed, adding a new budget each period so that the
budgets always cover the same number of future periods, is called:
A.Participatory budgeting.
B.Capital budgeting
C.Balanced budgeting
D.Continuous budgeting
E.Primary budgeting
42) Long-term liability data for the budgeted balance sheet is derived from:
A.The cash budget and capital expenditures budget
B.The cash budget and sales budget
C.The cash budget and budgeted income statement
D.The sales budget and production budget
E.The asset budget and debt budget
43) Lomax Enterprises purchased a depreciable asset for $22,000 on March 1, Year 1.
The asset will be depreciated using the straight-line method over its four-year useful
life. Assuming the asset’s salvage value is $2,000, what will be the amount of
accumulated depreciation on this asset on December 31, Year 4?
A.$5,000.00
B.$4,166.67
C.$16,666.68
D.$20,000.00
E.$19,166.67
44) A hybrid costing system would be most appropriate when:
A.A manufacturer is able to standardize processes while at the same time attempting to
meet individual customer needs
B.Large quantities of identical products are being produced
C.The volume of production is low and costs are high
D.There is no standardization of units of production
E.All of these would necessitate a hybrid costing system
45) An _______________ is a series of equal payments at equal time intervals.
46) What are some of the variables that make a plant asset’s useful life difficult to
predict?
47) _____________________________________ consist of people, records, methods,
and equipment that collect and process data from transactions and events, organize
them in useful reports and communicate results to decision makers.
48) Explain the options a company has to convert its receivables to cash.
49) Laurel and Hardy are managers of two product lines for Keaton Company. One of
them is a candidate for promotion based on performance. Using the data below,
determine who had the better performance using performance measures such as net
income, profit margin, and return on assets. Show your calculations and support your
answer.
50) Revenues and expenses are two categories of ____________________ accounts.