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1) A materials requisition is a source document used by materials managers of a
manufacturing company to order raw materials from suppliers; it serves the same
purpose as a purchase order in a merchandising company.
2) A company performs 20 days work on a 30-day contract before the end of the year.
The total contract is valued at $6,000 and payment is not due until the contract is fully
completed. The adjusting entry includes a $4,000 credit to unearned revenue.
3) Proper internal control means that responsibility for a task is clearly established and
assigned to one person.
4) A capital expenditures budget is prepared before the operating budgets.
5) Unlimited liability is an advantage of a sole proprietorship.
6) Sellers always offer a discount to buyers for prompt payment toward purchases made
on credit.
7) Job order production systems would be appropriate for companies that produce
custom homes, specialized equipment, and special computer systems.
8) A voucher system is a set of procedures and approvals designed to control cash
disbursements and the acceptance of obligations.
9) Comprehensive income refers to all changes in equity during a period except those
from owners' investments and dividends.
10) When a partner leaves a partnership, the withdrawing partner is entitled to a bonus
if the recorded equity is overstated.
11) Accounts receivable occur from credit sales to customers.
12) Which of the following items is not likely an extraordinary item?
A.Loss from an unexpected union strike
B.Condemnation of property by the city government
C.Loss of use of property due to a new and unexpected environmental regulation
D.Loss due to an earthquake in Florida
E.Expropriation of property by a foreign government
13) All of the following statements regarding increases in the value of plant assets
under U.S. GAAP and IFRS are True except:
A.U.S. GAAP prohibits companies to record increases in the value of plant assets
B.IFRS permits upward asset revaluations
C.Under IFRS, a company can reverse an impairment and record that increase in
income
D.Under U.S. GAAP, a company can reverse an impairment and can include it in
comprehensive income
E.Under IFRS, an impairment increase beyond as asset's original cost can be recorded
in comprehensive income
14) A formal statement of future plans, usually expressed in monetary terms, is a:
A.Variance report
B.Position statement
C.Budget
D.Prospectus
E.Variance analysis
15) Employer payroll taxes:
A.Are an added expense beyond the wages and salaries earned by employees
B.Represent the federal taxes withheld from employees
C.Represent the social security taxes withheld from employees
D.Are paid by the employee
E.All of these
16) The usual starting point for preparing a master budget is forecasting or estimating:
A.Expenditures
B.Sales
C.Production
D.Income
E.Cash payments
17) If a company failed to make the end-of-period adjustment to remove from the
Unearned Management Fees account the amount of management fees that were earned,
this omission would cause:
A.An overstatement of net income
B.An overstatement of assets
C.An overstatement of liabilities
D.An overstatement of equity
E.An understatement of liabilities
18) Narrows Co. is considering the production and sale of a new product line with the
following sales and cost data: unit sales price $125; unit variable costs $75; and total
fixed costs of $140,000. Calculate the break-even point:
(a) In units.
(b) In dollar sales.
19) The following statements are true regarding the operating cycle of a merchandising
company except:
A.The operating cycle begins with the purchase of merchandise.
B.The operating cycle is shortened by credit sales.
C.The operating cycle ends with the collection of cash from the sale of merchandise.
D.The operating cycle can vary in length among different merchandising companies.
E.The operating cycle sometimes involves accounts receivable.
20) Finished goods inventory is $190,000. If overhead applied to these goods is
$72,000, and the overhead rate is 120% of direct labor, how much direct materials cost
was incurred in producing the inventory?
A.$31,600
B.$58,000
C.$56,000
D.$60,000
E.$86,400
21) The break-even time (BET) method is a variation of the:
A.Payback method
B.Internal rate of return method
C.Accounting rate of return method
D.Net present value method
E.Present value method
22) Inge Industries received $3,000 from a customer for services rendered and not
previously recorded. Inge's general journal entry to record this transaction will be:
A.Debit Services Revenue, credit Accounts Receivable
B.Debit Cash, credit Accounts Payable
C.Debit Cash, credit Accounts Receivable
D.Debit Cash, credit Services Revenue
E.Debit Accounts Payable, credit Services Revenue
23) Refer to the following selected financial information from Hansen's, LLC. Compute
the company's debt-to-equity ratio for Year 2.
A.1.75
B.2.34
C.0.75
D.1.34
E.2.63
24) A machine originally had an estimated useful life of 5 years, but after 3 complete
years, it was decided that the original estimate of useful life should have been 10 years.
At that point the remaining cost to be depreciated should be allocated over the
remaining:
A.2 years
B.5 years
C.7 years
D.8 years
E.10 years
25) Describe what happens to the net income of a company under each of the following
assumptions: (a) Sales volume is less than break-even sales. (b) Sales volume is greater
than break-even sales. (c) Sales volume is equal to the break-even point.
26) A budget is best described as:
A.A formal statement of a company's future plans usually expressed in monetary terms
B.A master control device
C.An informal statement of company's future plans usually expressed in monetary
terms
D.The most crucial component of a company's evaluation process
E.The minimum acceptable performance level
27) Smith, West, and Krug form a partnership. Smith contributes $180,000, West
contributes $150,000, and Krug contributes $270,000. Their partnership agreement calls
for a 5% interest allowance on the partner's capital balances with the remaining income
or loss to be allocated equally. If the partnership reports income of $174,000 for its first
year, what amount of income is credited to West's capital account?
A.$58,000
B.$57,000
C.$61,500
D.$55,500
E.$48,000
28) Based on predicted production of 12,000 units, a company anticipates $150,000 of
fixed costs and $123,000 of variable costs. The flexible budget amounts of fixed and
variable costs for 10,000 units are:
A.$125,000 fixed and $102,500 variable
B.$125,000 fixed and $123,000 variable
C.$102,500 fixed and $150,000 variable
D.$150,000 fixed and $123,000 variable
E.$150,000 fixed and $102,500 variable
29) Prepare journal entries to record the following transactions and events for April
using a job order cost accounting system.
(a) Purchased raw materials on credit, $69,000.
(b) Raw materials requisitioned: $26,000 direct and $5,400 indirect.
(c) Factory payroll totaled $46,000 (paid in cash), including $9,500 indirect labor.
(d) Paid other actual overhead costs totaling $14,500 cash.
(e) Applied overhead totaling $28,200.
(f) Finished and transferred jobs totaling $77,500.
(g) Jobs costing $58,800 were sold on credit for $103,000.
30) A company purchased $10,000 of merchandise on June 15 with terms of 3/10, n/45.
On June 20, it returned $800 of that merchandise. On June 24, it paid the balance owed
for the merchandise taking any discount it is entitled to. The cash paid on June 24
equals:
A.$8,924.
B.$9,700.
C.$10,000.
D.$9,800.
E.$8,724.
31) Hartman Co. has fixed costs of $36,000 and a contribution margin ratio of 24%. If
expected sales are $200,000, what is the margin of safety as a percent of sales?
A.6%
B.25%
C.33%
D.50%
E.75%
32) Promissory notes that require the issuer to make a series of payments consisting of
both interest and principal are:
A.Debentures
B.Discounted notes
C.Installment notes
D.Indentures
E.Investment notes
33) Financial statements with data for two or more successive accounting periods
placed in columns side by side, sometimes with changes shown in dollar amounts and
percents, are referred to as:
A.Period-to-period statements
B.Controlling statements
C.Successive statements
D.Comparative statements
E.Serial statements
34) Revenues are:
A.The same as net income
B.The excess of expenses over assets
C.Resources owned or controlled by a company
D.The increase in equity from a company's earning activities
E.The costs of assets or services used
35) The deferred income tax liability:
A.Represents income tax payments that are deferred until future years because of
temporary differences between GAAP rules and tax accounting rules
B.Is a contingent liability
C.Can result in a deferred income tax asset
D.Is never recorded
E.Is recorded whether or not the difference between taxable income and financial
accounting income is permanent or temporary
36) On January 1, $300,000 of par value bonds with a carrying value of $310,000 is
converted to 50,000 shares of $5 par value common stock. The entry to record the
conversion of the bonds includes all of the following entries except:
A.Debit to Bonds Payable $310,000
B.Debit to Premium on Bonds Payable $10,000
C.Credit to Common Stock $250,000
D.Credit to Paid-In Capital in Excess of Par Value, Common Stock $60,000
E.Debit to Bonds Payable $300,000
37) Which of the following items represents a difference between financial and
managerial accounting?
A.Users of the information
B.Flexibility of practices
C.Timeliness and time dimension of the information reported
D.Nature of the information
E.All of these
38) A company is planning to purchase a machine that will cost $24,000, have a
six-year life, and be depreciated over a three-year period with no salvage value. The
company expects to sell the machine's output of 3,000 units evenly throughout each
year. A projected income statement for each year of the asset's life appears below. What
is the accounting rate of return for this machine?
A.33.3%
B.16.7%
C.50.0%
D.8.3%
E.4%
39) The right side of a T-account is a(n):
A.Debit
B.Increase
C.Credit
D.Decrease
E.Account balance
40) On October 1, Haslip Company rented warehouse space to a tenant for $2,500 per
month. The tenant paid five months' rent in advance on that date. The payment was
recorded to the Unearned Rent account. The company's annual accounting period ends
on December 31. The adjusting entry needed on December 31 is:
A.Debit Rent Receivable, $12,500; credit Rent Earned, $12,500
B.Debit Rent Receivable, $7,500; credit Rent Earned, $7,500
C.Debit Unearned Rent, $7,500; credit Rent Earned, $7,500
D.Debit Unearned Rent, $5,000; credit Rent Earned, $5,000
E.Debit Unearned Rent, $12,500; credit Rent Earned, $12,500
41) The Terrapin Manufacturing Company has the following job cost sheets on file.
They represent jobs that have been worked on during June of the current year. This
table summarizes information provided on each sheet:
(a) What is the cost of the goods in process inventory on June 30?
(b) What is the cost of the finished goods inventory on June 30?
(c) What is the cost of goods sold for the month of June?
42) A company made no adjusting entry for accrued and unpaid employee salaries of
$9,000 on December 31. Which of the following statements is true?
A.It will have no effect on income
B.It will overstate assets and liabilities by $9,000
C.It will understate net income by $9,000
D.It will understate assets by $9,000
E.It will understate expenses and overstate net income by $9,000
43) The understatement of the beginning inventory balance causes:
A.Cost of goods sold to be understated and net income to be understated
B.Cost of goods sold to be understated and net income to be overstated
C.Cost of goods sold to be overstated and net income to be overstated
D.Cost of goods sold to be overstated and net income to be understated
E.Cost of goods sold to be overstated and net income to be correct
44) Use the following selected information from Farris, LLC to determine the Year 2
and Year 1 common size percents for cost of goods sold using Year 1 net sales as the
base.
A.36.4% for Year 2 and 41.1% for Year 1
B.55.0% for Year 2 and 56.0% for Year 1
C.119.4% for Year 2 and 100.0% for Year 1
D.117.2% for Year 2 and 100.0% for Year 1
E.65.1% for Year 2 and 64.6% for Year 1
45) On August 9, Pierce Company receives a $8,500, 90-day, 8% note from customer
Eric Simms as payment on his account. Compute the maturity date for the note.
A.October 8
B.October 7
C.November 8
D.November 7
E.November 6
46) A corporation was formed on January 1. The corporate charter authorized 100,000
shares of $10 par value common stock. During the first month of operation, the
corporation issued 300 shares to its attorneys in payment of a $5,000 charge for
drawing up the articles of incorporation. The entry to record this transaction would
include:
A.A debit to Organization Expenses for $3,000
B.A debit to Organization Expenses for $5,000
C.A credit to Common Stock for $5,000
D.A credit to Paid-in Capital in Excess of Par Value, Common Stock for $5,000
E.A debit to Paid-in Capital in Excess of Par Value, Common Stock for $2,000
47) Total manufacturing costs incurred during the year do not include:
A.Direct materials used
B.Factory supplies used
C.Goods in process inventory, beginning balance
D.Direct labor
E.Depreciation of machinery
48) The sum of the variable overhead spending variance, the variable overhead
efficiency variance, the fixed overhead spending variance is the
___________________________.
49) For each item shown below, classify it as a product cost or a period cost, by placing
an X in the appropriate column. For each item that is a product cost, also indicate
whether it is a direct cost or an indirect cost with respect to a unit of finished product.
50) Job order manufacturing and process manufacturing are two major costing systems
used in manufacturing. Briefly contrast the characteristics of these two systems.
51) How are bond issue prices determined?
52) Explain the concept of the present value of an annuity.
53) ___________________________ are corrections of material errors in prior period
financial statements.
54) A pricing method where the customer pays the manufacturer for costs incurred on
the job plus a negotiated amount or rate of profit is known as a
_________________________ basis.
55) A company's flexible budget for 60,000 units of production showed sales of
$96,000, variable costs of $36,000, and fixed costs of $26,000. What operating income
would be expected if the company produces and sells 70,000 units?
56) Some companies use the _________________ principle or the
__________________ constraint to avoid assigning incidental costs of acquiring
merchandise to inventory.
