1) The margin of safety is the amount that sales can drop before the company incurs a
loss.
2) Whether a cost is controllable or not controllable by an employee depends on the
employee’s level of responsibility.
3) A company factored $35,000 of its accounts receivable and was charged a 2%
factoring fee. The journal entry to record this transaction would include a debit to Cash
of $35,000, a debit to Factoring Fee Expense of $700, and credit to Accounts
Receivable of $35,700.
4) Stock is attractive to investors because stockholders are not liable for the
corporation’s actions and debts and because stock is easily transferred.
5) Sales taxes payable is credited and cash is debited when companies send sales taxes
collected from customers to the government.
6) The purchases journal is identical under both the periodic and the perpetual inventory
systems.
7) There are two basic types of cost accounting systems: job order costing and periodic
costing.
8) Accounting for the exchange of assets depends on whether the transaction has
commercial substance; commercial substance implies that it alters the company’s future
cash flows.
9) The collection of cost sheets for unfinished jobs makes up a subsidiary ledger
controlled by the Goods in Process Inventory account in the general ledger.
10) Employers must keep certain payroll records, including individual earnings reports
for each employee.
11) Vertical analysis is the comparison of a company’s financial condition and
performance across time.
12) Budgeting is an informal plan for future business activities.
13) The greater the times interest earned ratio, the greater the risk a company is exposed
to.
14) Salary allowances are reported as salaries expense on a partnership income
statement.
15) If the dividends account is not recorded as a reduction to Retained Earnings on the
date of declaration, the dividends account is closed to Retained Earnings at the end of
the accounting period.
16) Huffington Company traded in an old delivery truck for a new one. The old truck
had a cost of $75,000 and accumulated depreciation of $60,000. The new truck had an
invoice price of $125,000. Huffington was given a $12,000 trade-in allowance on the
old truck, which meant they paid $113,000 in addition to the old truck to acquire the
new truck. If this transaction has commercial substance, what is the recorded value of
the new truck?
A.$15,000
B.$75,000
C.$113,000
D.$125,000
E.$128,000
17) A cost that changes in proportion to changes in volume of activity is a(n):
A.Differential cost
B.Fixed cost
C.Incremental cost
D.Variable cost
E.Product cost
18) If one unit of Product X used $2.50 of direct materials and $3.00 of direct labor,
sold for $8.00, and was assigned overhead at the rate of 30% of direct labor costs, how
much gross profit was realized from this sale?
A.$8.00
B.$5.50
C.$2.50
D.$1.60
E.$0.90
19) Buying stock in a corporation is attractive to investors because:
A.Stockholders are not liable for the corporate acts or debts
B.Stock is easily transferred
C.A corporation has unlimited life
D.Shareholders are not mutual agents of the corporation
E.All of these
20) An employee earned $4,300 working for an employer. The current rate for FICA
Social Security is 6.2% and the rate for FICA Medicare 1.45%. The employer’s total
FICA payroll tax for this employee is:
A.$62.35
B.$266.60
C.$328.95
D.$657.90
E.Zero, since the FICA tax is a deduction from an employee’s pay, and not an employer
tax
21) The following are all of the accounts of Flaherty Company that have a balance at
the end of August. All accounts have normal balances:
a. Calculate net income.
b. Determine the amount of owner’s equity to be shown on the August 31 balance sheet.
22) Vans purchased 40,000 shares of Skechs common stock for $232,000. This
represents 40% of the outstanding stock. The entry to record the transaction includes a:
A.Debit to Long-Term Investments for $92,800
B.Debit to Long-Term Investments for $232,000
C.Credit to Long-Term Investments for $92,800
D.Debit to Long-Term Investments-HTM for $232,000
E.Debit to Short-Term Investment-AFS for $232,000
23) Based on the unadjusted trial balance for Bella’s Beauty Salon and the adjusting
information given below, prepare the adjusting journal entries for Bella’s Beauty Salon.
Bella Beauty Salon’s unadjusted trial balance for the current year follows:
Additional information:
a. An insurance policy examination showed $1,240 of expired insurance
b. An inventory count showed $210 of unused shop supplies still available.
c. Depreciation expense on shop equipment, $350.
d. Depreciation expense on the building, $2,220.
e. A beautician is behind on space rental payments, and this $200 of accrued revenues
was unrecorded at the time the trial balance was prepared.
f. $800 of the Unearned Rent account balance was earned by year-end.
g. The one employee, a receptionist, works a five-day workweek at $50 per day. The
employee was paid last week but has worked four days this week for which she has not
been paid.
h. Three months’ property taxes, totaling $450, have accrued. This additional amount of
property taxes expense has not been recorded
i. One month’s interest on the note payable, $600, has accrued but is unrecorded.
24) Prepaid expenses, depreciation, accrued expenses, unearned revenues, and accrued
revenues are all examples of:
A.Items that require contra accounts
B.Items that require adjusting entries
C.Asset and equity
D.Asset accounts
E.Income statement accounts
25) The indirect method for the preparation of the operating activities section of the
statement of cash flows:
A.Separately lists each major item of operating cash receipts
B.Separately lists each major item of operating cash payments
C.Reports net income and then adjusts it for items necessary to determine net cash
provided or used by operating activities
D.Is required if the company is a merchandiser
E.Must not be used in all circumstances
26) Select the appropriate financial statement for each of the following accounts.
(Note: Some items may appear on more than one financial statement.)
1>Income statement A. Cash
2>Income statement B. Cash Withdrawals
3>Balance sheet C. Notes payable
4>Balance sheet D. Fees earned
5>Income statement E. Jay Miller, Capital
6>Statement of owner’s equity, Balance sheet F. Accounts receivable
7>Statement of owner’s equity, Statement of cash flows G. Rent Expense
8>Balance sheet, Statement of cash flows H. Supplies Expense
27) Seamark buys $300,000 of Eider’s 8% five-year bonds payable at par value. Interest
payments are made semiannually. Seamark plans to hold the bonds for the five year life.
When the bonds mature, the journal entry to record the proceeds will be:
A.Debit Long-Term Investments-HTM $300,000; credit Cash $300,000
B.Debit Cash $300,000; credit Interest Revenue $300,000
C.Debit Cash $300,000; credit Long-Term Investments-HTM $300,000
D.Debit Cash $300,000; credit Interest Receivable $300,000
E.Debit Cash $300,000; credit Bonds Payable $300,000
28) A company’s total liabilities divided by its total stockholders’ equity is called the:
A.Equity ratio
B.Return on total assets ratio
C.Pledged assets to secured liabilities ratio
D.Debt-to-equity ratio
E.Times secured liabilities earned ratio
29) A company receives a 10%, 90-day note for $1,500. The total interest due on the
maturity date is:
A.$50.00
B.$150.00
C.$75.00
D.$37.50
E.$87.50
30)
The accounting process begins with:
A.Analysis of business transactions and source documents
B.Preparing financial statements and other reports
C.Summarizing the recorded effect of business transactions
D.Presentation of financial information to decision-makers
E.Preparation of the trial balance
31) Standards for comparison when interpreting financial statement analysis include
competitor and industry performance data.
32) Contingent liabilities can be:
A.Probable
B.Remote
C.Reasonably possible
D.Estimable
E.All of these
33) The Goods 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%
34) A company had average total assets of $1,760,000, total cash flows of $1,320,000,
cash flows from operations of $205,000, and cash flows from financing of $850,000.
The cash flow on total assets ratio equals:
A.1.33%
B.8.58%
C.11.65%
D.15.5%
E.75%
35) A firm produces and sells two products, Mica and Plax. The following information
is available relating to setup costs (a part of factory overhead):
With traditional two-stage allocation of overhead costs, using direct labor hours as the
allocation base, the setup cost portion of overhead that is allocated to each unit of
product for Mica and Plax, respectively is:
A.$80; $.80
B.$3.20; $3.20
C.$4.00; $4.00
D.$160.00; $12,800.00
E.$200.00; $16,000.00
36) A company borrowed $10,000 by signing a 180-day promissory note at 11%. The
total interest due on the maturity date is.
A.$50
B.$275
C.$550
D.$825
E.$1,100
37) Match each of the following transactions 1 through 10 with the applicable internal
control principle a through g (some answers refer to more than one principle).
1>Divide responsibility for related transactions, Maintain adequate records A. Cashier
does not have access to the cash register recorded tape or file.
2>Establish responsibility, Divide responsibility for related transactions B. A company
uses a voucher system.
3>Apply technological .controls C. No two clerks share the same cash drawer.
4>Perform regular and independent reviews D. The bookkeeper prepares and signs
checks.
5>Divide responsibility for related transactions, Separate recordkeeping from custody
of assets E. A company uses a computerized point of sale system.
6>Separate recordkeeping from custody of assets F. A company hires CPAs to perform
an audit.
7>Apply technological controls G. A company buys an insurance policy to protect
against employee theft.
8>Insure assets and bond employees H. A company has separate departments for
purchasing, receiving, and accounts payable.
9>Perform regular and independent reviews I. A company has an internal auditor on
staff.
10>Establish responsibility, Separate recordkeeping from custody of assets J. A
company uses a check protector.
38) The sales budget for Carmel shows that 20,000 units of Product A and 22,000 units
of Product B are going to be sold for prices of $10 and $12, respectively. The desired
ending inventory of Product A is 20% higher than its beginning inventory of 2,000
units. The beginning inventory of Product B is 2,500 units. The desired ending
inventory of B is 3,000 units. Budgeted purchases of Product A for the year would be:
A.22,400 units
B.20,400 units
C.20,000 units
D.19,500 units
E.12,200 units
39) Match each of the following terms with the appropriate definitions.
1>Total asset turnover A. The amount by which the company’s value exceeds the value
of its individual assets and liabilities.
2>Units-of production method B. An expenditure reported on the current income
statement as an expense because it does not provide a material benefit in future periods.
3>Accelerated depreciation C. An expenditure to make a plant asset more efficient or
productive.
4>Intangible assets D. A method that yields larger depreciation expense during the early
years of an asset’s life and smaller expense in the later years.
5>Goodwill E. Expenditures made to keep a plant asset in normal, good operating
condition.
6>Betterment F. The process of allocating the cost of natural resources to periods when
they are consumed.
7>Revenue expenditure G. A measure of a company’s ability to use its assets to
generate sales.
8>Depletion H. A change in a financial statement amount that results from new
information, subsequent developments, better insight, or improved judgment.
9>Ordinary repairs I. A depreciation method that charges a varying amount to expense
for each period of an asset’s useful life depending on its usage.
10>Change in accounting estimate J. Certain nonphysical assets used in operations that
confer on their owners long-term rights, privileges, or competitive advantages.
40) Partners’ withdrawals of assets are:
A.Credited to their withdrawals accounts
B.Debited to their withdrawals accounts
C.Credited to their retained earnings
D.Debited to their retained earnings
E.Debited to their asset accounts
41) Shown below is Adventure Travel’s adjusted trial balance as of the end of its annual
accounting period:
(a) Prepare the necessary closing entries.
(b) Prepare a post-closing trial balance.
42) Weston is preparing the company’s statement of cash flows for the fiscal year just
ended. Using the following information, determine the amount of cash flows from
operating activities using the indirect method:
A.$332,200
B.$236,800
C.$261,400
D.$186,800
E.$189,400
43) 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
accounting rate of return for the investment.
A.22.2%
B.23.4%
C.46.9%
D.12.2%
E.24.5%
44) Web Services is organized as a limited partnership, with David White as one of its
partners. David’s capital account began the year with a balance of $45,000. During the
year, David’s share of the partnership income was $7,500, and David received $4,000 in
distributions from the partnership. What is David’s partner return on equity?
A.7.8%
B.8.9%
C.15.4%
D.16.0%
E.16.7%
45) Selected balances from a company’s financial statements are shown below.
Calculate the following ratios for 2012:
(a) accounts receivable turnover
(b) inventory turnover
(c) days’ sales uncollected
(d) days’ sales in inventory
(d) profit margin.
(e) return on total assets.
46) Following is the year-end adjusted trial balance for Yakima’s Sporting Goods for the
current year:
Prepare the closing entries at December 31 for the current year.
47) What are rolling budgets? Why are rolling budgets prepared?
48) What are the unit contribution margin and the contribution margin ratio? What do
these measures reveal about a company’s cost structure?
49) A ___________ is an intermediary that buys products from manufacturers and sells
to retailers.
50) Explain the difference between the retail inventory method and gross profit
inventory method for valuing inventory.