1) Companies record a gain or loss on the exchange of plant assets because most
exchanges have commercial substance.
2) A major advantage of the partnership form of organization is that the partners have
unlimited liability.
3) The study of accounting will be useful only if a student is interested in working for a
profit-oriented business firm.
4) A note receivable is a written promise by the maker to the payee to pay a specified
amount of money at a definite time.
5) Private accountants are accountants who are not employees of business enterprises.
6) To determine a new depreciation amount after a change in estimate of a plant asset’s
useful life, the asset’s remaining depreciable cost is divided by its remaining useful life.
7) The book value of a plant asset is the amount originally paid for the asset less
anticipated salvage value.
8) Consistent use of the same accounting principles and methods is necessary for
meaningful analysis of trends within a company.
9) The total of the individual account balances in the accounts receivable subsidiary
ledger should agree with the total of the individual account balances in the accounts
payable subsidiary ledger.
10) The specific identification method of costing inventories tracks the actual physical
flow of the goods available for sale.
11) The partnership agreement between partners must be in writing.
12) Retained earnings is usually subtracted from paid-in capital to arrive at total
stockholders’ equity.
13) FICA taxes withheld and federal income taxes withheld are mandatory payroll
deductions.
14) At the time an asset is acquired, cost and fair value should be the same.
15) A compound journal entry requires several debits to one account and several credits
to one account.
16) A business entity has only one accounting cycle over its economic existence.
17) Preferred stockholders generally do not have the right to vote for the board of
directors.
18) Sawyer Company uses the perpetual inventory system and the moving-average
method to value inventories. On August 1, there were 10,000 units valued at $30,000 in
the beginning inventory. On August 10, 20,000 units were purchased for $6 per unit. On
August 15, 24,000 units were sold for $12 per unit. The amount charged to cost of
goods sold on August 15 was
a.$30,000
b.$108,000
c.$120,000
d.$144,000
19) The control principle related to not having the same person authorize and pay for
goods is known as
a.establishment of responsibility
b.independent internal verification
c.segregation of duties
d.rotation of duties
20) It is possible that a company’s financial statements may report inventories at
a.budgeted costs
b.standard costs
c.both budgeted and standard costs
d.none of these answer choices are correct
21) Cotton Company issued $500,000 of 7%, 10-year bonds on one of its interest dates
for $431,850 to yield an effective annual rate of 9%. The effective-interest method of
amortization is to be used. Interest is paid annually.
The journal entry on the first interest payment date, to record the payment of interest
and amortization of discount will include a
a.debit to Interest Expense for $35,000
b.credit to Cash for $38,867
c.credit to Discount on Bonds Payable for $3,867
d.debit to Interest Expense for $45,000
22) Penny Company made an inventory count on December 31, 2014. During the count,
one of the clerks made the error of counting an inventory item twice. For the balance
sheet at December 31, 2014, the effects of this error are
AssetsLiabilitiesOwners Equity
a.overstatedunderstatedoverstated
b.understatedno effectunderstated
c.overstatedno effectoverstated
d.overstatedoverstatedunderstated
23) Intangible assets
a.should be reported under the heading Property, Plant, and Equipment
b.are not reported on the balance sheet because they lack physical substance
c.should be reported as Current Assets on the balance sheet
d.should be reported as a separate classification on the balance sheet
24) Owners Capital has a beginning total of $60,000 and an ending total of $110,000. If
the owner withdrew $20,000 during the period for personal use, net income must have
been
a.$70,000
b.$50,000
c.$170,000
d.$80,000
25) Dividends are declared out of
a.Capital Stock
b.Paid-in Capital in Excess of Par
c.Retained Earnings
d.Treasury Stock
26) In published annual reports
a.subdivisions within the stockholders equity section are routinely reported in detail
b.capital surplus is used in place of retained earnings
c.the individual sources of additional paid-in capital are often combined
d.retained earnings is often not shown separately
27) On January 1, Sandez Manufacturing has a beginning cash balance of $126,000.
During the year, the company expects cash disbursements of $1,020,000 and cash
receipts of $870,000. If Sandez requires an ending cash balance of $120,000, Mendez
Manufacturing must borrow
a.$96,000
b.$120,000
c.$144,000
d.$276,000
28) Indicate which of these items is an asset (A), liability (L) or owners equity (OE)
account.
_______(1)Supplies
_______(2)Owners Drawings
_______(3)Buildings
_______(4)Notes Payable
_______(5)Salaries and Wages Payable
29) A flexible budget can be prepared for which of the following budgets comprising
the master budget?
a.Sales
b.Overhead
c.Direct materials
d.All of these answer choices are correct
30) Victory Corporation sold 400 shares of treasury stock for $45 per share. The cost
for the shares was $35. The entry to record the sale will include a
a.credit to Gain on Sale of Treasury Stock for $14,000
b.credit to Paid-in Capital from Treasury Stock for $4,000
c.debit to Paid-in Capital in Excess of Par for $4,000
d.credit to Treasury Stock for $18,000
31) The ROI formula for an investment center is:
a.Controllable Margin Sales
b.Net Income Average Operating Assets
c.Controllable Margin Average Operating Assets
d.Contribution Margin Average Operating Assets
32) On September 1, Bud’s Painting Service borrows $150,000 from Highlands Bank
on a 4-month, $150,000, 6% note. What entry must Bud’s Painting Service make on
December 31 before financial statements are prepared?
a.Interest Payable3,000
Interest Expense3,000
b.Interest Expense9,000
Interest Payable9,000
c.Interest Expense3,000
Interest Payable3,000
d.Interest Expense3,000
Notes Payable3,000
33) Postings are made daily to the
a.Accounts Receivable control account
b.Accounts Payable control account
c.Accounts Receivable subsidiary ledger
d.control accounts in the general ledger
34) Credit sales of assets other than merchandise are recorded in the
a.cash payments journal
b.cash receipts journal
c.general journal
d.sales journal
35) The following terms relate to the fundamental qualities of useful information.
Match the key letter of the correct term with the descriptive statement below.
a.Confirmatory valuee.Faithful representation
b.Neutralf.Timely
c.Predictive valueg.Verifiable
d.Relevant
_____1>Accounting information that is not biased toward one position or another.
_____2>Providing information before it loses its capacity to influence decision.
_____3>Independent measures, using the same methods, obtain similar results.
_____4>Providing information that would make a difference in a business decision.
_____5>Provide information that accurately depicts what really happened.
_____6>Confirms or corrects prior decisions.
36) On November 30, capital balances are Forsytha $720,000, Lagassi $600,000 and
Kelly $600,000. The income ratios are 20%, 20% and 60% respectively. Forsytha
decides to retire from the partnership. In order for Lagassi and Kelly to have equal
capital interests after the retirement of Forsyth, how much partnership cash would have
to be paid to Forsytha for her partnership interest?
a.$0
b.$640,000
c.$720,000
d.Any amount paid to Forsyth will cause Lagassi and Kelly to still have equal capital
balances
37) Kaenzig Coffee Company issued 1,000 shares of no-par common stock for $11,000.
Which of the following journal entries would be made if the stock has a stated value of
$2 per share?
a.Cash11,000
Common Stock11,000
b.Cash11,000
Common Stock2,000
Paid-in Capital in Excess of Par9,000
c.Cash11,000
Common Stock2,000
Paid-in Capital in Excess of Stated Value9,000
d.Common Stock11,000
Cash11,000
38) Eneri Company’s inventory records show the following data:
UnitsUnit Cost
Inventory, January 110,000$9.20
Purchases:June 189,0008.00
November 86,0007.00
A physical inventory on December 31 shows 4,000 units on hand. Eneri sells the units
for $13 each. The company has an effective tax rate of 20%. Eneri uses the periodic
inventory method. The weighted-average cost per unit is
a.$8.00
b.$8.01
c.$8.24
d.$9.30
39) Which of the following is not a plausible explanation of why variable costs often
behave in a curvilinear fashion?
a.Labor specialization
b.Overtime wages
c.Total variable costs are constant within the relevant range
d.Availability of quantity discounts
40) Each of the following accounts is reported as long-term liabilities except
a.Interest Payable
b.Bonds Payable
c.Discount on Bonds Payable
d.Premium on Bonds Payable
41) The Holiday Division, a profit center of Valino Company, reported the following
data for the first quarter of 2014:
Sales revenue$12,000,000
Variable costs8,400,000
Controllable direct fixed costs1,650,000
Noncontrollable direct fixed costs1,060,000
Indirect fixed costs400,000
Instructions
(a)Prepare a performance report for the manager of the Holiday Division.
(b)What is the best measure of the manager’s performance? Why?
(c)How would the responsibility report differ if the division was an investment center?
42) In 2014, Warehouse 13 had net credit sales of $750,000. On January 1, 2014,
Allowance for Doubtful Accounts had a credit balance of $16,000. During 2014,
$29,000 of uncollectible accounts receivable were written off. Past experience indicates
that the allowance should be 10% of the balance in receivables (percentage of
receivable basis). If the accounts receivable balance at December 31 was $150,000,
what is the required adjustment to the Allowance for Doubtful Accounts at December
31, 2014?
a.$150,000
b.$29,000
c.$28,000
d.$31,000
43) Which of the following manufacturing cost elements occurs in a process cost
system?
a.Direct materials
b.Direct labor
c.Manufacturing overhead
d.All of these answer choices are correct
44) Which account below is not a subdivision of owner’s equity?
a.Drawings
b.Revenues
c.Expenses
d.Liabilities
45) Wu and Mannis each sell 1/3 of their partnership interest to Patel, receiving
$105,000 each. At the time of the admission, each partner has a $315,000 capital
balance. The entry to record the admission of Patel will show a
a.debit to Cash for $210,000
b.credit to Patel, Capital for $315,000
c.debit to Mannis, Capital for $315,000
d.debit to Wu, Capital for $105,000
46) Instead of a production budget, a merchandiser will prepare a
a.pseudo-production budget
b.merchandise purchases budget
c.master time sheet
d.sales forecast
47) Fergie Company sells a product for $50 per unit. The fixed costs are $750,000 and
the variable costs are 60% of the selling price. As a result of new automated equipment,
it is anticipated that fixed costs will increase by $175,000 and variable costs will be
50% of the selling price. The new break-even point in units is:
a.37,000
b.23,000
c.30,000
d.25,000
48) Which of the following would generally not affect a make-or-buy decision?
a.Selling expenses
b.Direct labor
c.Variable manufacturing costs
d.Opportunity cost
49) Renee Company has old inventory on hand that cost $12,000. Its scrap value is
$16,000. The inventory could be sold for $40,000 if manufactured further at an
additional cost of $12,000. What should Renee do?
a.Sell the inventory for $16,000 scrap value
b.Dispose of the inventory to avoid any further decline in value
c.Hold the inventory at its $12,000 cost
d.Manufacture further and sell it for $40,000
50) Match the items below by entering the appropriate code letter in the space provided.
A.Net salesF.FOB shipping point
B.Sales discountsG.Freight-out
C.Purchase invoiceH.Gross profit
D.Periodic inventory systemI.Operating expenses
E.FOB destinationJ.Income from operations
1>An incentive to encourage customers to pay their accounts early.
2>Expenses incurred in the process of earning sales revenue.
3>Freight terms that require the seller to pay the freight cost.
4>Sales revenue less sales returns and allowances and sales discounts.
5>A document that supports each credit purchase.
6>Net sales less cost of goods sold.
7>Freight cost to deliver goods to customers reported as a selling expense.
8>Requires a physical count of goods on hand to compute cost of goods sold.
9>Gross profit less total operating expenses.
10>Freight terms that require the buyer to pay the freight cost.
51) The tax that is paid equally by the employer and employee is the
a.federal income tax
b.federal unemployment tax
c.state unemployment tax
d.FICA tax
52) Under the equity method, the Stock Investments account is credited when the
a.investee reports net income
b.investee reports a net loss
c.investment is originally acquired
d.investee reports net income and when the investment is originally acquired
53) On February 1, Results Income Tax Service received a $3,000 cash retainer for tax
preparation services to be rendered equally over the next 4 months. The full amount
was credited to the liability account Unearned Service Revenue. Assuming that the
revenue is recognized equally over the 4-month period, what balance would be reported
on the February 28 balance sheet for Unearned Service Revenue?
54) In September 2014, the management of Gilian Company assembles the following
data in preparation of budgeted merchandise purchases for the months of October and
November.
1>Expected Sales
October$1,500,000
November2,100,000
December2,300,000
2>Cost of goods sold is expected to be 68% of sales.
3>Desired ending merchandise inventory is 25% of the next month’s cost of goods sold.
4>The beginning inventory at October 1 will be the desired amount.
Instructions
Compute the budgeted merchandise purchases for October and November. Use a
columnar format with separate columns for each month.
55) Balance sheet amounts as of December 31, 2014 for Matt Pond’s Learning Service
are listed below. Prepare a balance sheet in good form.
Accounts Payable$ 400
Accounts Receivable1,000
Cash300
Owners Capital?
56) Which of the following events cannot be quantified into dollars and cents and
recorded as an accounting transaction?
The appointment of a new CPA firm to perform an audit
The sale of store equipment
The purchase of a new computer
d.Payment of income taxes
57) The ______________ ratio measures the percentage of earnings distributed in the
form of cash dividends.
58) Josh Melindez wants to buy a car in three years. He will need $2,000 for a down
payment. If the annual interest rate is 9%, how much money must Josh invest today for
the purchase?