1) The FASB requires a reconciliation of net income to net cash provided or used by
operating activities when the direct method is used (which can be reported in the notes).
2) In producing oat bran, the joint cost of milling the oats into bran, oatmeal, and
animal feed is considered a direct cost to the oat bran, because the oat bran cannot be
produced without incurring the joint cost.
3) Process costing systems consider overhead costs to include those costs that cannot be
traced to a specific process.
4) A large stock dividend only occurs when a distribution of more than 50% of
previously outstanding shares is issued.
5) Gain or loss on the disposal of assets is determined by comparing the disposed asset’s
book value to the value of any assets received.
6) Advertising expense can be reasonably allocated to departments on the basis of each
department’s proportion of sales.
7) Raw materials purchased plus beginning raw materials inventory equals the ending
balance of raw materials inventory.
8) If a company is comparing this year’s financial performance to last year’s financial
performance, it is using horizontal analysis.
9) Cash equivalents:
A.Include savings accounts.
B.Include checking accounts.
C.Are readily converted to a known cash amount.
D.Include time deposits.
E.Have no immediate value.
10) The Work in Process Inventory account of a manufacturing company that uses an
overhead rate based on direct labor cost has a $4,400 debit balance after all posting is
completed. The cost sheet of the one job still in process shows direct material cost of
$2,000 and direct labor cost of $800. Therefore, the company’s overhead application
rate is:
A.40%.
B.50%.
C.80%.
D.200%.
E.220%.
11) When standard manufacturing costs are recorded in the accounts and the cost
variances are immaterial at the end of the accounting period, the cost variances should
be:
A.Carried forward to the next accounting period.
B.Allocated between cost of goods sold, finished goods, and work in process.
C.Closed to cost of goods sold.
D.Written off as a selling expense.
E.Ignored.
12) Jones Corp. reported current assets of $193,000 and current liabilities of $137,000
on its most recent balance sheet. The current assets consisted of $62,000 Cash; $43,000
Accounts Receivable; and $88,000 of Inventory. The acid-test (quick) ratio is:
A.1.4:1.
B.0.77:1.
C.0.54:1.
D.1:1.
E.0.64:1.
13) The principles of internal control include:
A.Separate recordkeeping from custody of assets.
B.Maintain minimal records.
C.Use only computerized systems.
D.Bond all employees.
E.Require automated sales systems.
14) The annual Federal Unemployment Tax Return is:
A.Form 940.
B.Form 1099.
C.Form 104.
D.Form W-2.
E.Form W-4.
15) Giorgio Italian Market bought $4,000 worth of merchandise from Food Suppliers
and signed a 90-day, 6% promissory note for the $4,000. Food Supplier’s journal entry
to record the collection on the maturity date is:
A.Debit Cash $4,060; credit Notes Receivable $4,060
B.Debit Notes Receivable $4,000; credit Cash $4,000
C.Debit Cash $4,000; debit Interest Receivable $60; credit Sales $4,000
D.Debit Notes Receivable $4,060; credit Sales $4,060
E.Debit Cash $4,060; credit Interest Revenue $60; credit Notes Receivable $4,000
16) Standards for comparison when interpreting financial statement analysis include
competitor and industry performance data.
17) When a partnership is liquidated:
A.Noncash assets are distributed to partners.
B.Any gain or loss on liquidation is allocated to the partner with the highest capital
account balance.
C.Liabilities are paid or settled.
D.Any remaining cash is distributed to the partners equally.
E.The business may continue to operate.
18) Use the following selected information from Wheeler, LLC to determine the 2015
and 2014 trend percentages for net sales using 2014 as the base.
A.36.4% for 2015 and 41.1% for 2014.
B.55.0% for 2015 and 56.0% for 2014.
C.119.4% for 2015 and 100.0% for 2014.
D.117.2% for 2015 and 100.0% for 2014.
E.65.1% for 2015 and 64.6% for 2014.
19) If a company uses $1,300 of its cash to purchase supplies, the effect on the
accounting equation would be:
A.Assets increase $1,300 and liabilities decrease $1,300.
B.One asset increases $1,300 and another asset decreases $1,300, causing no effect.
C.Assets decrease $1,300 and equity decreases $1,300.
D.Assets decrease $1,300 and equity increases $1,300.
E.Assets increase $1,300 and liabilities increase $1,300.
20) Which department is often responsible for the direct materials price variance?
A.The accounting department.
B.The production department.
C.The purchasing department.
D.The finance department.
E.The budgeting department.
21) Bonita Company estimates uncollectible accounts using the allowance method at
December 31. It prepared the following aging of receivables analysis.
a. Estimate the balance of the Allowance for Doubtful Accounts using the aging of
accounts receivable method.
b. Prepare the adjusting entry to record Bad Debts Expense using the estimate from part
a. Assume the unadjusted balance in the Allowance for Doubtful Accounts is a $550
credit.
c. Prepare the adjusting entry to record Bad Debts Expense using the estimate from part
a. Assume the unadjusted balance in the Allowance for Doubtful Accounts is a $300
debit.
22) In many states, the minimum amount that stockholders must contribute to the
corporation, and which is intended to protect the creditors of the corporation, is called
the:
A.Par value of preferred.
B.Minimum legal capital.
C.Premium capital.
D.Stated value.
E.Working capital.
23) Refer to the following selected financial information from Graceworks, Corp.
Compute the company’s days’ sales in inventory for Year 2.
A.203.4.
B.228.4.
C.179.5.
D.215.1.
E.113.3.
24) Martinez owns an asset that cost $87,000 with accumulated depreciation of
$40,000. The company sells the equipment for cash of $42,000. At the time of sale, the
company should record:
A.A gain on sale of $2,000.
B.A loss on sale of $2,000.
C.A loss on sale of $5,000.
D.A gain on sale of $5,000.
E.A loss on sale of $45,000.
25) Summerlin Company budgeted 4,000 pounds of material costing $5.00 per pound to
produce 2,000 units. The company actually used 4,500 pounds that cost $5.10 per
pound to produce 2,000 units. What is the direct materials price variance?
A.$400 unfavorable.
B.$450 unfavorable.
C.$2,500 unfavorable.
D.$2,550 unfavorable.
E.$2,950 unfavorable.
26) Jakobs, Penn, and Lundt are partners with beginning-of-year capital balances of
$400,000, $320,000, and $160,000, respectively. The partners agreed to share income
and loss as follows: Salary of $30,000 to Jakobs, $50,000 to Penn, and $36,000 to
Lundt. An interest allowance of 8% on beginning-of-year capital balances. Any
remaining balance is to be divided equally. If partnership net income for the year is
$190,000, determine each partner’s share and make the appropriate journal entry to
close the Income Summary to the capital accounts.
27) On March 12, Klein Company sold merchandise in the amount of $7,800 to Babson
Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,500. Klein
uses the perpetual inventory system. The journal entry or entries that Klein will make
on March 12 is:
28) _______________ are beliefs that distinguish right from wrong.
29) Express the following income statement information in common-size percentages
and in trend percentages using 2014 as the base year.
30) A company issued 9.2%, 10-year bonds with a par value of $100,000. Interest is
paid semiannually. The annual market interest rate on the issue date was 10%, and the
issuer received $95,016 cash for the bonds. The issuer uses the effective interest method
for amortization. On the first semiannual interest date, what amount of discount should
the issuer amortize?
31) Parlay Corporation has 2,000,000 shares of $0.50 par value common stock
outstanding. The following selected transactions related to the company’s stock took
place during the current year:
Prepare necessary journal entries to record the events of April 15, May 1 and May 10.
32) Identify by marking an X in the appropriate column, whether each of the following
items would likely serve as a source document. The first one is done as an example.
33) A company reported the following information for the month of July:
34) On September 30 of the current year, a company acquired and placed in service a
machine at a cost of $700,000. It has been estimated that the machine has a service life
of five years and a salvage value of $40,000. Using the double-declining-balance
method of depreciation, complete the schedule below showing depreciation amounts for
all six years (round answers to the nearest dollar). The company closes its books on
December 31 of each year.
35) Prepare journal entries to record the following merchandising transactions of
Margin Company, which applies the perpetual inventory system. Margin Company
offers all of its credit customers credit terms of 2/10, n/30.
