1) Using the units-of-activity method of depreciating factory equipment will generally
result in more depreciation expense being recorded over the life of the asset than if the
straight-line method had been used.
2) Every adjusting entry affects one balance sheet account and one income statement
account.
3) Dividends received on stock investments of less than 20% should be credited to the
Stock Investments account.
4) The stockholders’ equity section of a corporation’s balance sheet consists of (1)
paid-in capital, (2) retained earnings, and (3) drawings.
5) Accounting contributes to management’s decision-making process through internal
reports that review the actual impact of the decision.
6) A long-term note that pledges title to specific property as security for a loan is known
as a mortgage payable.
7) A prior period adjustment is reported as an adjustment of the beginning balance of
Retained Earnings.
8) In a job order cost system, each entry to the Work In Process Inventory account
should be accompanied by a posting to one or more job cost sheets.
9) The flexible budget report evaluates a manager’s performance in two areas: (1)
production and (2) costs.
10) The economic entity assumption states that economic events can be identified with
a particular unit of accountability.
11) A critical factor in budgeting for a service firm is to determine the amount of
products to purchase.
12) The predetermined overhead rate is based on the relationship between estimated
annual overhead costs and expected annual operating activity expressed in terms of a
common activity base.
13) If a corporation pays taxes on its income, then stockholders will not have to pay
taxes on the dividends received from that corporation.
14) A process cost accounting system is appropriate for similar products that are
continuously mass produced.
15) A one-column purchases journal is used to record purchases of merchandise on
account.
16) The formula for computing return on investment is controllable margin divided by
average operating assets.
17) The declining-balance method of depreciation is called an accelerated depreciation
method because it depreciates an asset in a shorter period of time than the asset’s useful
life.
18) A correction in income of a prior period involves either a debit or credit to the
Retained Earnings account.
19) When applying the high-low method, the variable cost element of a mixed cost is
calculated before the fixed cost element.
20) Which one of the following sections would not appear on a cash budget?
a.Cash receipts
b.Financing
c.Investing
d.Cash disbursements
21) The most rigorous of all standards is the
a.normal standard
b.realistic standard
c.ideal standard
d.conceivable standard
22) Encisco and Ollinger are partners who share profits and losses equally and have
capital balances of $280,000 and $245,000, respectively. Parks is admitted into the
partnership by investing $245,000 for a 30% capital interest. The account balance of
Ollinger, Capital after the admission of Parks would be
a.$231,000
b.$238,000
c.$252,000
d.$245,000
23) You are the general accountant for Unlimited Words, Inc., a typing service based in
San Francisco, California. The company has decided to upgrade its equipment. It
currently has a widely used version of a word processing program. The company wishes
to invest in more up-to-date software and to improve its printing capabilities.
Two options have emerged. Option #1 is for the company to keep its existing computer
system, and upgrade its word processing program. The memory of each individual work
station would be enhanced, and a larger, more efficient printer would be used. Better
telecommunications equipment would allow for the electronic transmission of some
documents as well.
Option #2 would be for the company to invest in an entirely different computer system.
The software for this system is extremely impressive, and it comes with individual laser
printers. However, the company is not well known, and the software does not connect
well with well-known software. The net present value information for these options
follows:
Option #1 Option #2
Initial Investment$(95,000)$(240,000)
ReturnsYear 155,00080,000
Year 230,00080,000
Year 3 10,000 80,000
Net Present Value00
Required:
Prepare a brief report for management in which you make a recommendation for one
system or the other, using the information given.
24) If a customer takes a sales discount, an entry is made in the
a.cash receipts journal
b.sales journal
c.cash payments journal
d.general journal
25) A company exchanges its old office equipment and $80,000 for new office
equipment. The old office equipment has a book value of $56,000 and a fair value of
$40,000 on the date of the exchange. The cost of the new office equipment would be
recorded at
a.$136,000
b.$120,000
c.$96,000
d.cannot be determined
26) Information on Francesca direct labor costs for the month of July is as follows:
Actual rate $12
Standard hours 11,000
Actual hours 10,000
Direct labor price varianceunfavorable $4,000
What was the standard rate for July?
a.$12.36c.$12.40
b.$11.60d.$11.63
27) Owner’s equity is decreased by all of the following except
a.owner’s investments
b.owner’s withdrawals
c.expenses
d.owner’s drawings
28) If the sum of the debit column equals the sum of the credit column in a trial
balance, it indicates
a.no errors have been made
b.no errors can be discovered
c.that all accounts reflect correct balances
d.the mathematical equality of the accounting equation
29) The overhead volume variance relates only to
a.variable overhead costs
b.fixed overhead costs
c.both variable and fixed overhead costs
d.all manufacturing costs
30) Arthur Roofing’s budgeted manufacturing costs for 50,000 squares of shingles are:
Fixed manufacturing costs$30,000
Variable manufacturing costs$20.00 per square
Arthur produced 45,000 squares of shingles during March. How much are budgeted
total manufacturing costs in March?
a.$930,000
b.$1,030,000
c.$900,000
d.$900,000
31) Given below are the production data for Department No. 3 for the first month of
operation:
Costs charged to Department 3:
Materials$12,000
Labor3,275
Overhead13,600
During this first month of operations, 3,000 units were started into production; 2,500
units were transferred out; and the remaining 500 units are 100% completed with
respect to materials and 40% complete with respect to conversion costs.
Instructions
Compute the following:
(a)Unit materials cost.
(b)Equivalent units of conversion costs.
(c)Unit conversion cost.
(d)Total cost of 500 units in process at end of month.
(e)Total cost of 2,500 units transferred out.
32) An opportunity cost
a.should be initially recorded as an asset
b.is the cost of a new product proposal
c.is the potential benefit that may be obtained by following an alternative course of
action
d.is classified as manufacturing overhead
33) Which receivables accounting and reporting issue is essentially the same for IFRS
and GAAP?
a.The use of allowance accounts and the allowance method
b.How to record discounts
c.How to record factoring
d.All of these are essentially the same for IFRS and GAAP
34) A cost center
a.only incurs costs and does not directly generate revenues
b.incurs costs and generates revenues
c.is a responsibility center of a company which incurs losses
d.is a responsibility center which generates profits and evaluates the investment cost of
earning the profit
35) The gross profit rate is computed by dividing gross profit by
a.cost of goods sold
b.net income
c.net sales
d.sales revenue
36) Bell Company and Kene Company exchanged trucks on January 1, 2012 . Bell’s
truck cost $140,000, had accumulated depreciation of $115,000, and has a fair value of
$15,000. Kene’s truck cost $105,000, had accumulated depreciation of $90,000, and has
a fair value of $15,000.
Instructions
(a)Journalize the exchange for Bell Company.
(b)Journalize the exchange for Kene Company.
37) A manager of a cost center is evaluated mainly on
a.the profit that the center generates
b.his or her ability to control costs
c.the amount of investment it takes to support the cost center
d.the amount of revenue that can be generated
38) Net income results when
a.Assets > Liabilities
b.Revenues = Expenses
c.Revenues > Expenses
d.Revenues < Expenses
39) Lorax Company makes student book bags that sell for $20 each. For the coming
year, management expects fixed costs to be $225,000. Variable costs are $15 per unit.
Instructions
(a)Compute break-even sales in dollars using the mathematical equation.
(b)Compute break-even sales using the contribution margin ratio.
(c)Compute margin of safety ratio assuming actual sales are $1,100,000.
(d)Compute the sales required to earn net income of $175,000, using the mathematical
equation.
40) A plant asset was purchased on January 1 for $100,000 with an estimated salvage
value of $20,000 at the end of its useful life. The current year’s Depreciation Expense is
$10,000 calculated on the straight-line basis and the balance of the Accumulated
Depreciation account at the end of the year is $50,000. The remaining useful life of the
plant asset is
a.10 years
b.8 years
c.5 years
d.3 years
41) Entries in a sales journal are
a.posted only to accounts in an accounts receivable subsidiary ledger
b.posted only to accounts in the general ledger
c.posted to accounts in an accounts receivable subsidiary ledger and to accounts in the
general ledger
d.never posted
42) GAAP, compared to IFRS, tends to be more
a.simple in accounting requirements
b.rules-based
c.principles-based
d.simple in disclosures requirements
43) After gross profit is calculated, operating expenses are deducted to determine
a.gross margin
b.net income
c.gross profit on sales
d.net margin
44) Match the items below by entering the appropriate code letter in the space provided.
A.AccountF.Journal
B.Normal account balanceG. Posting
C.DebitH.Chart of accounts
D.Revenue accountI.Trial balance
E.Compound entryJ.Simple entry
1>An entry that involves three or more accounts.
2>Transferring journal entries to ledger accounts.
3>The side which increases an account.
4>A list of all the accounts used by an enterprise.
5>A record of increases and decreases in specific assets, liabilities, and owner’s equity
items.
6>Left side of an account.
7>An entry that involves only two accounts.
8>A book of original entry.
9>A list of accounts and their balances at a given time.
10>Has a credit normal balance
45) When there has been a change in accounting principle,
a.the old principle should be used in reporting the results of operations for the current
year
b.the cumulative effect of the change should be reported in the current years retained
earnings statement
c.the change should be reported retroactively
d.the new principle should be used in reporting the results of operations of the current
year, but there is no change to prior years
46) Postage stamps on hand are considered to be
a.cash
b.petty cash
c.cash equivalents
d.a prepaid expense
47) These financial statement items are for Rugen Company at year-end, July 31, 2014 .
Salaries and wages payable$ 2,980Notes payable (long-term)$ 3,000
Salaries and wages expense45,700Cash5,200
Utilities expense21,100Accounts receivable9,780
Equipment38,000Accumulated depreciation6,000
Accounts payable4,100Owners Drawings4,000
Service revenue57,200Depreciation expense4,000
Rent revenue6,500Owners capital (beginning48,000
of the year)
Instructions
(a)Prepare an income statement and an owner’s equity statement for the year. The owner
did not make any new investments during the year.
(b)Prepare a classified balance sheet at July 31 .
48) Depreciation based on revaluation of land and buildings is permitted under
a.GAAP but not IFRS
b.IFRS but not GAAP
c.both IFRS and GAAP
d.neither IFRS nor GAAP
49) Renfro Company had accounts receivable of $100,000 on January 1, 2014 . The
only transactions that affected accounts receivable during 2014 were net credit sales of
$1,200,000, cash collections of $1,000,000, and accounts written off of $30,000.
Instructions
(a)Compute the ending balance of accounts receivable.
(b)Compute the accounts receivable turnover for 2014 .
(c)Compute the average collection period in days.
50) A corporation whose stock is regularly traded on a National securities exchange is a
a.Privately held corporation
b.Publicly held corporation
c.closely held corporation
d.legally held corporation
51) Determine the interest on the following notes:
(a)$2,000 at 6% for 90 days.
(b)$900 at 9% for 5 months.
(c)$3,000 at 8% for 60 days
(d)$1,600 at 7% for 6 months
52) Which account is credited by a seller when the seller grants credit for returned
goods?
a.Sales Revenue
b.Sales Returns and Allowances
c.Inventory
d.Accounts Receivable
53) If $250,000 of bonds are issued during the year but $130,000 of old bonds are
retired during the year, the statement of cash flows will show a(n)
a.net increase in cash of $120,000
b.net decrease in cash of $120,000
c.increase in cash of $250,000 and a decrease in cash of $130,000
d.net gain on retirement of bonds of $120,000
54) Lawrence Leather Goods recently instituted just-in-time management of its
inventories. The accounting department carefully modified all its reports to reflect these
changes.
Required:
Prepare a short memo to production department managers, briefly explaining the
primary changes they will see on the production cost report.
55) When a bond sells at a discount, what is probably true about the market interest rate
versus the stated interest rate? Discuss.
56) The residual claim on total assets of a business is known as ________________ and
is equal to total assets minus total liabilities.
57) Bond Company developed its annual manufacturing overhead budget for its master
budget for 2014 as follows:
Expected annual operating capacity240,000 Direct Labor Hours
Variable overhead costs
Indirect labor$840,000
Indirect materials180,000
Factory supplies 60,000
Total variable 1,080,000
Fixed overhead costs
Depreciation360,000
Supervision240,000
Property taxes 120,000
Total fixed 720,000
Total costs$1,800,000
The relevant range for monthly activity is expected to be between 16,000 and 24,000
direct labor hours.
Instructions
Prepare a flexible budget for a monthly activity level of 16,000 and 18,000 direct labor
hours.
58) There are two basic types of cost accounting systems: (1)__________________
system, and (2)__________________ system.
59) The financial statements of Lowz Company appear below:
LOWZ COMPANY
Comparative Balance Sheet
December 31
2014 2013
Assets
Cash$ 36,000$ 23,000
Accounts receivable25,00034,000
Merchandise inventory32,00015,000
Property, plant, and equipment50,00078,000
Accumulated depreciation (21,000) (24,000)
Total$122,000$126,000
Liabilities and Stockholders’ Equity
Accounts payable$ 18,000$ 23,000
Income taxes payable9,0008,000
Bonds payable8,00033,000
Common stock28,00024,000
Retained earnings 59,000 38,000
Total$122,000$126,000
LOWZ COMPANY
Income Statement
For the Year Ended December 31, 2014
Sales$400,000
Cost of goods sold 270,000
Gross profit130,000
Operating expenses 45,000
Income from operations85,000
Interest expense 5,000
Income before income taxes80,000
Income tax expense 24,000
Net income$ 56,000
The following additional data were provided:
1>Dividends declared and paid were $35,000.
2>During the year, equipment was sold for $17,000 cash. This equipment cost $28,000
originally and had a book value of $17,000 at the time of sale.
3>All depreciation expense is in the operating expenses.
4>All sales and purchases are on account.
5>Accounts payable pertain to merchandise suppliers.
6>All operating expenses except for depreciation were paid in cash.
Instructions
Prepare a statement of cash flows for Lowz Company using the direct method.
60) Using the following data for Renfro, Inc., compute its asset turnover.
Notson, Inc.
Net Income 2014$ 123,000
Total Assets 12/31/142,443,000
Total Assets 12/31/131,880,000
Net Sales 20142,135,000
61) The following financial information is available for Makoto Corporation.
2014 2013
Average common stockholders’ equity$1,600,000$1,200,000
Dividends paid to common stockholders50,00030,000
Dividends paid to preferred stockholders20,00020,000
Net income260,000182,000
The weighted average number of shares of common stock outstanding was 80,000 for
2013 and 100,000 for 2014 .
Instructions
Calculate earnings per share and return on common stockholders’ equity for 2014 and
2013 .