1) A bank reconciliation is generally prepared by the bank and sent to the depositor
along with cancelled checks.
2) Long-term investments would appear in the property, plant, and equipment section of
the balance sheet.
3) A budget can facilitate the coordination of activities among the segments of a large
company.
4) If a partnership has a loss for the period, the closing entry to transfer the loss to the
partners will require a credit to the Income Summary account.
5) In service enterprises, the critical factor in budgeting is coordinating materials and
equipment with anticipated services.
6) Retained earnings represents the amount of cash available for dividends.
7) A budget can be a means of communicating a company’s objectives to external
parties.
8) An aging schedule is prepared only for old accounts receivables that have been past
due for more than one year.
9) In continuous process manufacturing, generally once the production begins, it
continues until the finished product emerges.
10) Gain on sale of equipment and interest expense are reported under other revenues
and gains in a multiple-step income statement.
11) The flow of costs in a process costing system requires that materials be added in
one department, labor added in another department and manufacturing overhead in a
third department.
12) Vertical analysis is a more sophisticated analytical tool than horizontal analysis.
13) The interest rate yielded by a project is a rate that will cause the present value of the
proposed capital expenditure to equal the present value of the expected annual cash
inflows.
14) A direct labor price standard is frequently called the direct labor efficiency standard.
15) The annual rate of return is computed by dividing expected annual net income by
average investment.
16) The sale of land for cash would be classified as a cash inflow from an investing
activity.
17) Production cost reports provide a basis for evaluating the productivity of a
department.
18) The starting point when budgeting for a not-for-profit organization is generally to
budget expenditures first.
19) In horizontal analysis, if an item has a negative amount in the base year, and a
positive amount in the following year, no percentage change for that item can be
computed.
20) A $1,000 face value bond with a quoted price of 98 is selling for
a.$1,000
b.$980
c.$908
d.$98
21) The entries recorded in the Other Accounts column of a cash payments journal
a.are posted to the accounts payable subsidiary ledger daily
b.are posted individually to accounts in the general ledger
c.are not posted individually but are posted as a column total to the general ledger
d.do not require posting
22) Department 1 of a two department production process shows:
Units
Beginning Work in Process10,000
Ending Work in Process50,000
Total units to be accounted for140,000
How many units were transferred out to Department 2?
a.50,000
b.90,000
c.140,000
d.130,000
23) The left side of an account is always:
a.the balance of that account
b.the credit side
c.the debit side
d.carried forward to the next accounting period
24) Ashbury Company incurred direct materials costs of $1,600,000 during the year.
Manu-facturing overhead applied was $280,000 and is applied at the rate of 70% of
direct labor costs. Ashbury Companys total manufacturing costs for the year was
a.$2,220,000
b.$1,880,000
c.$2,280,000
d.$2,580,000
25) If the total manufacturing costs are greater than the cost of goods manufactured,
which of the following is correct?
a.Work in Process Inventory has increased
b.Finished Goods Inventory has increased
c.Work in Process Inventory has decreased
d.Finished Goods Inventory has decreased
26) Arquette Company’s financial information is presented below.
Sales Revenue$ ????Cost of Goods Sold540,000
Sales Returns and Allowances40,000Gross Profit????
Net Sales900,000
The missing amounts above are:
Sales Revenue Gross Profit
a.$940,000$360,000
b.$860,000$360,000
c.$940,000$420,000
d.$860,000$420,000
27) What is balanced in the balanced scorecard approach?
a.The number of products produced
b.The emphasis on financial and non-financial performance measurements
c.The amount of costs allocated to products
d.The number of defects found on each product
28) Morton Watch Company reported the following income statement data for a 2-year
period.
2014 2015
Sales revenue$260,000$320,000
Cost of goods sold
Beginning inventory32,00044,000
Cost of goods purchased 193,000 225,000
Cost of goods available for sale225,000269,000
Ending inventory 44,000 57,000
Cost of goods sold 181,000 212,000
Gross profit$ 79,000$108,000
Mortan uses a periodic inventory system. The inventories at January 1, 2014, and
December 31, 2015, are correct. However, the ending inventory at December 31, 2014,
was overstated $5,000.
Instructions
(a)Prepare correct income statement data for the 2 years.
(b)What is the cumulative effect of the inventory error on total gross profit for the 2
years?
29) Significant noncash transactions would not include
a.conversion of bonds into common stock
b.asset acquisition through bond issuance
c.treasury stock acquisition
d.exchange of plant assets
30) The annual rate of return technique of capital budgeting ignores the:
a.time value of money
b.timing of the cash flows
c.length of time over which the cash flows will be received
d.All of the above
31) Oscar Co. is contemplating the replacement of an old machine with a new one. The
following information has been gathered:
Old MachineNew Machine
Cost$250,000$500,000
Accumulated Depreciation75,000-0-
Remaining useful life10 years-0-
Useful life-0-10 years
Annual operating costs$200,000$150,500
If the old machine is replaced, it can be sold for $20,000.
The net advantage (disadvantage) of replacing the old machine is
a.$15,000
b.$20,000
c.$(5,000)
d.$(50,000)
32) Glover Co. returned defective goods costing $5,000 to Mal Company on April 19,
for credit. The goods were purchased April 10, on credit, terms 3/10, n/30. The entry by
Glover Co. on April 19, in receiving full credit is:
a.Accounts Payable5,000
Inventory5,000
b.Accounts Payable5,000
Inventory150
Cash5,150
c.Accounts Payable5,000
Purchase Discounts120
Inventory4,850
d.Accounts Payable5,000
Inventory120
Cash4,850
33) Which statement is correct?
a.As long as a company consistently uses the cash basis of accounting, generally
accepted accounting principles allow its use
b.The use of the cash basis of accounting violates both the revenue recognition and
expense recognition principles
c.The cash basis of accounting is objective because no one can be certain of the amount
of revenue until the cash is received
d.As long as management is ethical, there are no problems with using the cash basis of
accounting
34) Which one of the following budgets would be prepared for a manufacturer but not
for a merchandiser?
a.Direct labor budget
b.Cash budget
c.Sales budget
d.Budgeted income statement
35) M. Abadie and S. Collier combine their individual sole proprietorships to start the
Abadie – Collier partnership. M. Abadie and S. Collier invest in the partnership as
follows
Book ValueFair Value
AbadieCollier AbadieCollier
Cash $21,000$6,000 $21,000$6,000
Accounts Receivable10,0005,00010,0005,000
Allowance for Doubtful
Accounts(1,500)(600) (2,100)(900)
Equipment 15,00024,000 13,5009,000
Accumulated Depreciation (3,000)(9,000)
The entries to record the investment will include a credit to:
a.Abadie, Capital of $41,500
b.Collier, Capital of $19,100
c.Abadie, Capital of $43,000
d.Collier, Capital of $25,100
36) Toolworks has a standard of 1.5 pounds of materials per unit, at $6 per pound. In
producing 2,000 units, Toolworks used 3,100 pounds of materials at a total cost of
$17,980. Toolworks materials quantity variance is
a.$20 F
b.$6,200 U
c.$600 U
d.$4,200 U
37) A job cost sheet of Tempus Company is given below.
Instructions
(a)Answer the following questions.
(1)What is the predetermined manufacturing overhead rate?
(2)What are the total cost and the unit cost of the completed job?
(b)Prepare the entry to record the completion of the job.
38) Which of the following is not necessary to know when computing the present value
of an annuity?
a.The discount rate
b.The amount of the periodic receipts or payments
c.The number of discount periods
d.The probability of receiving the amount due
39) Paden Company purchased merchandise from Emmett Company with freight terms
of FOB shipping point. The freight costs will be paid by the
a.seller
b.buyer
c.transportation company
d.buyer and the seller
40) JP Company is considering two capital investment proposals. Estimates regarding
each project are provided below:
Project EchoProject Charlie
Initial investment$400,000$600,000
Annual net income20,00042,000
Net annual cash inflow100,000142,000
Estimated useful life5 years6 years
Salvage value00
The company requires a 11% rate of return on all new investments.
Present Value of an Annuity of 1
Periods 9% 10% 11% 12%
53.8903.7913.6963.605
64.4864.3554.2314.111
The internal rate of return for Project Charlie is approximately
a.10%
b.11%
c.12%
d.9%
41) Directing includes
a.providing a framework for management to have criteria to terminate employees when
needed
b.running a department under quality control standards universally accepted
c.coordinating a company’s diverse activities and human resources to produce a
smooth-running operation
d.developing a complex performance ranking system to give certain high performers
good raises
42) The current portion of long-term debt should
a.be paid immediately
b.be reclassified as a current liability
c.be classified as a long-term liability
d.not be separated from the long-term portion of debt
43) Carter Company estimates its sales at 30,000 units in the first quarter and that sales
will increase by 6,000 units each quarter over the year. It has, and desires, a 25% ending
inventory of finished goods. Each unit sells for $25. 40% of the sales are for cash. 70%
of the credit customers pay within the quarter. The remainder is received in the quarter
following sale. Cash collections for the third quarter are budgeted at:
a.$508,500
b.$738,000
c.$1,023,000
d.$886,500
44) Which of the following would be considered as an unlikely occurrence?
a.Manufacturer offers a cash discount to a wholesaler
b.Wholesaler offers a cash discount to a retailer
c.Retailer offers a cash discount to a customer
d.All of these are standard practices
45) A corporation differs from a proprietorship and a partnership in that
a.assets and liabilities are presented differently on the balance sheet
b.a corporation is considered a separate legal entity for taxation purposes
c.the historical cost principle only applies to proprietorships and partnerships
dthe owners of the corporation do not have a claim on the net assets of the business
46) Zaneba Company enters materials at the beginning of the process. In January, there
was no beginning work in process, but there were 200 units in the ending work in
process inventory. The number of units completed equals the number of
a.units started
b.units started less 200
c.units started plus 200
d.equivalent units
47) Flamingo Music produces 60,000 CDs on which to record music. The CDs have the
following costs:
Direct Materials$11,000
Direct Labor15,000
Variable Overhead3,000
Fixed Overhead7,000
Flamingo could avoid $6,000 in fixed overhead costs if it acquires the CDs externally.
If cost minimization is the major consideration and the company would prefer to buy
the 60,000 units externally, what is the maximum external price that Flamingo would
expect to pay for the units?
a.$30,000
b.$29,000
c.$35,000
d.$36,000
48) Closing entries are journalized and posted
a.before the financial statements are prepared
b.after the financial statements are prepared
c.at management’s discretion
d.at the end of each interim accounting period
49) Under a consignment arrangement, the
a.consignor has ownership until goods are sold to a customer
b.consignor has ownership until goods are shipped to the consignee
c.consignee has ownership when the goods are in the consignee’s possession
d.consigned goods are included in the inventory of the consignee
50) A business pays weekly salaries of $30,000 on Friday for a five-day week ending on
that day. The adjusting entry necessary at the end of the fiscal period ending on a
Thursday is
a.debit Salaries and Wages Payable, $24,000; credit Cash, $24,000
b.debit Salaries and Wages Expense, $24,000; credit Cash, $24,000
c.debit Salaries and Wages Expense, $24,000; credit Salaries and Wages Payable,
$24,000
d.debit Salaries and Wages Expense, $6,000; credit Salaries and Wages Payable, $6,000
51) Sebold Manufacturing declared a 10% stock dividend when it had 700,000 shares
of $3 par value common stock outstanding. The market price per common share was
$12 per share when the dividend was declared. The entry to record this dividend
declaration includes a credit to
a.Stock Dividends for $210,000
b.Paid-in Capital in Excess of Par for $630,000
c.Common Stock for $210,000
d.Common Stock Dividends Distributable for $840,000
52) If a plant asset is retired before it is fully depreciated and no salvage value is
received,
a.a gain on disposal occurs
b.a loss on disposal occurs
c.either a gain or a loss can occur
d.neither a gain nor a loss occurs
53) Which of the following is a limitation of activity-based costing?
a.More cost bases
b.Less control over overhead costs
c.Poorer management decisions
d.Some arbitrary allocations continue
54) Allowance for Doubtful Accounts is presented as a (n)
a.addition to Accounts Receivable on the balance sheet
b.operating expense on the income statement
c.contra asset on the balance sheet
d.deduction from Sales Revenue on the income statement
55) A partners’ capital statement explains
a.the amount of legal liability of each of the partners
b.the types of assets invested in the business by each partner
c.how the partnership will be capitalized if a new partner is admitted to the partnership
d.the changes in each partner’s capital account and in total partnership capital during a
period
56) Accumulated Depreciation is
a.an expense account
b.an owner’s equity account
c.a liability account
d.a contra asset account
57) A major disadvantage resulting from the use of bonds is that
a.earnings per share may be lowered
b.interest must be paid on a periodic basis
c.bondholders have voting rights
d.taxes may increase
58) Using the percentage-of-receivables basis, the uncollectible accounts for the year is
estimated to be $38,000. If the balance for the Allowance for Doubtful Accounts is a
$7,000 debit before adjustment, what is the amount of bad debt expense for the period?
a.$7,000
b.$31,000
c.$38,000
d.$45,000
59) Instructions: Robertson Company maintains four special journals and a general
journal to record its transactions. For each of the transactions listed below, place an (X)
in the box which indicates the appropriate journal for recording that transaction.
Journal Code:
S=Sales journal
CR=Cash receipts journal
CP=Cash payments journal
P=One column purchases journal
G=General journal
60) Old Hampton Company is preparing adjusting entries at December 31 . An analysis
reveals the following:
1>During December, Old Hampton Company sold 3,000 units of a product that carries
a 60-day warranty. The sales for this product totaled $100,000. The company expects
4% of the units to need repair under the warranty and it estimates that the average repair
cost per unit will be $15.
2>The company has been sued by a disgruntled employee. Legal counsel believes that
it is reasonably possible that the company will have to pay $200,000 in damages.
3>The company has been named as one of several defendants in a $400,000 damage
suit. Legal counsel believes it is unlikely that the company will have to pay any
damages.
4>Employees earn vacation pay at a rate of 1 day per month. During December, ten
employees qualify for vacation pay. Their average daily wage is $90 per employee.
Instructions
Prepare adjusting entries, if required, for each of the four items.
61) Accounts receivable, which are also referred to as ______________ receivables, are
amounts owed by customers on account.
62) Three plans for financing a $20,000,000 corporation are under consideration by its
organizers. Under each of the following plans, the securities will be issued at their par
or face amount and the income tax rate is estimated at 30%.
Plan 1 Plan 2 Plan 3
9% Bonds$10,000,000
6% Preferred Stock, $100 par$10,000,0005,000,000
Common Stock, $10 par$20,000,000 10,000,000 5,000,000
Total$20,000,000$20,000,000$20,000,000
It is estimated that income before interest and taxes will be $5,000,000.
Instructions
Determine for each plan, the expected net income and the earnings per share on
common stock.
63) Depreciation expense for a period is an ______________ rather than a factual
measurement of cost that has expired.
64) The income statement for a merchandising company presents five amounts not
shown on a service companys income statement. Identify and briefly explain the five
unique amounts.
65) The following transactions took place for Xiu Xiu company:
1>Purchased equipment on account for $9,000.
2>Billed customers $5,000 for services performed.
3>Made payment of $2,300 on account for equipment purchased earlier in month.
4>Collected $2,900 on customer accounts.
1>What is the balance in Accounts Payable at June 30, 2014?
2>What is the balance in Accounts Receivable at June 30, 2014?
66) During January, LPA Company incurs 1,850 hours of direct labor at an hourly cost
of $11.50 in producing 1,000 units of its finished product. LPA standard labor cost per
unit of output is $22 (2 hours x $11.00).
Instructions
Compute the total, price, and quantity labor variances for LPA Company for January.
67) Sandlen Company has two production departments: Fabricating and Finishing.
Beginning inventories are: Work in ProcessFabricating, $6,030; Work in
ProcessFinishing, $4,100; and Finished Goods, $5,600. During the month the following
transactions occurred:
1>Purchased $40,000 of raw materials on account.
2>Incurred $65,000 of factory labor. Wages are unpaid.
3>Incurred $50,000 of manufacturing overhead; $45,000 was paid and the remainder is
unpaid.
4>Requisitioned materials for Fabricating, $10,000 and Finishing, $8,000.
5>Used factory labor for Finishing, $52,000 and Fabricating, $12,000.
6>Applied $45,000 of overhead based on machine hours used in each department. The
Finishing Department used twice as many machine hours as did Fabricating.
Instructions
Journalize the transactions for the month.
68) Kristie and Dawn have formed a partnership and are interested in seeing the results
of various income and loss sharing arrangements before they finalize their partnership
agreement. Kristie and Dawn will have beginning capital balances of $100,000 and
$125,000, respectively.
Instructions: Prepare a schedule indicating the amounts to be debited or credited to the
capital accounts in each of the following independent situations. (Be sure to designate
debit or credit!)
1>Net income is $60,000. Dawn receives a salary allowance of $29,000 with any
remainder divided equally.
KristieDawnTotal
2>Net income is $75,000. Each partner is allowed 10% interest on beginning capital
balances with any remainder divided equally.
KristieDawnTotal
3>Net income is $85,000. Kristie receives a salary allowance of $47,500; each partner
is allowed a 12% interest on beginning capital balances with any remainder divided
equally.
KristieDawnTotal
4>Net income is $40,000. Use the sharing arrangement described in 3, above.
KristieDawnTotal
5>Prepare the journal entry to record the distribution of income computed in 4, above.