1) The budgeted balance sheet is prepared entirely from the budgets for the current year.
2) When an asset is purchased during the year, it is not necessary to record depreciation
expense in the first year under the declining-balance depreciation method.
3) A subsidiary ledger provides up-to-date information on specific account balances.
4) A successful corporation can have a continuous and perpetual life.
5) The post-closing trial balance is entered in the first two columns of a worksheet.
6) The total overhead variance is the difference between actual overhead costs and
overhead costs applied based on standard hours allowed.
7) In a decision concerning replacing old equipment with new equipment, the book
value of the old equipment can be considered a sunk cost.
8) A flexible budget can be prepared for each of the types of budgets included in the
master budget.
9) Measures of a company’s liquidity are concerned with the frequency and amounts of
dividend payments.
10) In order to accelerate the receipt of cash from receivables, owners may sell the
receivables to another company for cash.
11) Raw materials that can be conveniently and directly associated with a finished
product are called materials overhead.
12) The direct materials budget is derived from the direct materials units required for
production plus desired ending direct materials units less beginning direct materials
units.
13) Under a capital lease, the lease/asset is reported on the balance sheet under plant
assets.
14) Purchase Returns and Allowances and Purchase Discounts are subtracted from
Purchases to produce net purchases.
15) It is always better to sell now rather than process further because of the time value
of money.
16) When a prepaid expense is initially debited to an expense account, expenses and
assets are both overstated prior to adjustment.
17) The physical units in a department are another name for the equivalent units of
production.
18) In incremental analysis, total variable costs will always change under alternative
courses of action, and total fixed costs will always remain constant.
19) A companys break-even point can be decreased by increasing the contribution
margin ratio.
20) Ware Company had purchases of $260,000. The comparative balance sheet analysis
revealed a $15,000 decrease in inventory and a $25,000 increase in accounts payable.
What were Ware’s cash payments to suppliers?
a.$235,000
b.$220,000
c.$275,000
d.$300,000
21) Martinez Corporation issues 2,000, 10-year, 8%, $1,000 bonds dated January 1,
2014, at 98 . The journal entry to record the issuance will show a
a.debit to Cash of $2,000,000
b.credit to Discount on Bonds Payable for $40,000
c.credit to Bonds Payable for $2,040,000
d.debit to Cash for $1,960,000
22) The bookkeeper for Panda Bear Yard Service made a number of errors in
journalizing and posting as described below:
1>A debit posting to accounts receivable for $500 was omitted.
2>A payment of accounts payable for $600 was credited to cash and debited to accounts
receivable.
3>A credit to accounts receivable for $950 was posted as $95.
4>A cash purchase of equipment for $893 was journalized as a debit to equipment and a
credit to notes payable. The credit posting was made for $839 while the debit posting
was made for $893.
5>A debit posting of $400 for purchase of supplies was credited to supplies.
6>A debit to repairs expense for $451 was posted as $415.
7>A debit posting for salaries and wages expense for $900 was made twice.
8>A cash purchase of supplies for $700 was journalized and posted as a debit to
supplies for $70 and a credit to cash for $70.
Instructions
For each error, indicate (a) whether the trial balance will balance; if the trial balance
will not balance, indicate (b) the amount of the difference, and (c) the trial balance
column that will have the larger total. Consider each error separately. Use the following
form, in which error (1) is given as an example.
(A)(B)(C)
ErrorIn BalanceDifferenceLarger Column
1No$500Credit
23) Maxwell Manufacturing budgeted costs for 40,000 linear feet of block are:
Fixed manufacturing costs $24,000 per month
Variable manufacturing costs $16.00 per linear
Maxwell installed 50,000 linear feet of block during March. How much is budgeted
total manufacturing costs in March?
a.$640,000
b. $824,000
c. $800,000
d. $664,000
24) The rate that management expects to pay on borrowed or equity funds is known as
a.the hurdle rate
b.the cost of capital
c.the cutoff rate
d.all of these answer choices are correct
25) Current maturities of long-term debt
a.require an adjusting entry
b.are optionally reported on the balance sheet
c.can be properly classified during balance sheet preparation, with no adjusting entry
required
d.are not considered to be current liabilities
26) Adjusting entries are required
a.yearly
b.quarterly
c.monthly
d.every time financial statements are prepared
27) Newman Company developed the following standards for 2014:
NEWMAN COMPANY
Standard Cost Card
Cost ElementsStandard QuantityStandard Price=Standard Cost
Direct materials5 pounds$ 5$25
Direct labor1 hour$1818
Manufacturing overhead1 hour$10 10
$53
The company planned to produce 120,000 units of product and work at the 120,000
direct labor level of activity in 2014 . The company uses a standard cost accounting
system which records standard costs in the accounts and recognizes variances in the
accounts at the earliest opportunity. During 2014, 115,000 actual units of product were
produced.
Instructions
Prepare the journal entries to record the following transactions for Newman Company
during 2014 .
(a)Purchased 588,000 pounds of raw materials for $4.90 per pound on account.
(b)Actual direct labor payroll amounted to $2,108,000 for 114,000 actual direct labor
hours worked. Factory labor cost is to be recorded and distributed to production.
(c)Direct materials issued for production amounted to 588,000 pounds which actually
cost $4.90 per pound.
(d)Actual manufacturing overhead costs incurred were $1,154,000 in 2014 .
(e)Manufacturing overhead was applied when the 115,000 units were completed.
(f)Transferred the 115,000 completed units to finished goods.
28) Income Summary has a credit balance of $16,000 for G. Barney Co. after closing
revenues and expenses. The entry to close Income Summary is:
a.debit Income Summary $16,000, credit Owners Capital $16,000
b.credit Income Summary $16,000, debit Owners Drawing $16,000
c.credit Income Summary $16,000, debit Owners Capital $16,000
d.debit Income Summary $16,000, credit Owners Drawing $16,000
29) A measure frequently used to evaluate the performance of the manager of an
investment center is
a.the amount of profit generated
b.the rate of return on funds invested in the center
c.the percentage increase in profit over the previous year
d.departmental gross profit
30) What is the effect on total paid-in capital of a stock dividend and a stock split,
respectively?
Stock DividendStock Split
a.No effectNo effect
b.IncreaseNo effect
c.DecreaseNo effect
d.DecreaseDecrease
31) Dakota Company issued $700,000 of 6%, 5-year bonds at 98, with interest paid
annually. Assuming straight-line amortization, what is the carrying value of the bonds
after one year?
a.$686,000
b.$683,200
c.$688,800
d.$697,200
32) The two major steps in the flow of costs are
a.allocating and assigning
b.acquiring and accumulating
c.accumulating and assigning
d.accumulating and amortizing
33) Massimini Company had the following payroll data for the year:
Gross earnings of employees$740,000
Employee earnings not subject to Social Security tax140,000
Employee earnings not subject to FUTA or SUTA tax490,000
Assuming the following:
FICA tax rate on first $110,1007.65% (1.45% over $110,100)
State Unemployment tax rate5.4%(SUTA)
Federal Unemployment tax rate.8%(FUTA)
Instructions
Compute Massimini’s payroll tax expense for the year. Make a summary journal entry
to record the payroll tax expense.
34) A sales discount does not
a.provide the purchaser with a cash saving
b.reduce the amount of cash received from a credit sale
c.increase a contra-revenue account
d.increase an operating expense account
35) If a transaction cannot be recorded in a special journal
a.the company must refuse to enter into the transaction
b.it is recorded in the general journal
c.it is recorded directly in the accounts in the general ledger
d.it is recorded as an adjustment on the work sheet
36) A current liability is a debt the company reasonably expects to pay from existing
current assets within
a.one year
b.the operating cycle
c.one year or the operating cycle, whichever is longer
d.one year or the operating cycle, whichever is shorter
37) Assume that all balance sheet amounts for Carolina Company represent average
balance figures.
Stockholders equitycommon $360,000
Total stockholders equity800,000
Sales revenue400,000
Net income76,000
Number of shares of common stock40,000
Common stock dividends24,000
Preferred stock dividends4,000
What is the earnings per share for Carolina?
a.$1.90
b.$1.80
c.$1.20
d.$2.00
38) Bradford Corporation is considering several investments.
Instructions
(a)One investment returns $15,000 per year for 5 years and provides a return of 10%.
What is the cost of this investment?
(b)Another investment cost $70,000 and returns a certain amount per year for 10 years,
providing an 8% return. What amount is received each year?
(c)A third investment costs $90,000 and returns $13,215 each year for 15 years. What is
the rate of return on this investment?
39) Presented below are Puch Companys monthly manufacturing cost data related to its
personal computer products.
(a)Taxes on factory building$830,000
(b)Raw materials 68,000
(c)Depreciation on manufacturing equip.220,000
(d)Wages for assembly line workers380,000
Instructions
Enter each cost item in the following table, placing an X under the appropriate
headings.
Product Costs
Direct Materials Direct Labor Manufacturing Overhead
(a) (b) (c) (d)
40) Which of the following is a true statement about closing the books of a
proprietorship?
a.Expenses are closed to the Expense Summary account
b.Only revenues are closed to the Income Summary account
c.Revenues and expenses are closed to the Income Summary account
d.Revenues, expenses, and the owner’s drawings account are closed to the Income
Summary account
41) The drawings account
a.appears on the income statement along with the expenses of the business
b.must show transactions every accounting period
c.is increased with debits and decreased with credits
d.is not a proper subdivision of owner’s equity
42) The per-unit standards for direct labor are 2 direct labor hours at $15 per hour. If in
producing 1,700 units, the actual direct labor cost was $48,000 for 3,000 direct labor
hours worked, the total direct labor variance is
a.$1,700 unfavorable
b.$3,000 favorable
c.$3,400 unfavorable
d.$3,000 unfavorable
43) Under IFRS
a.companies can apply fair value to property, plant, and equipment and natural
resources
b.companies can apply fair value to property, plant, and equipment but not to natural
resources
c.companies can apply fair value to neither property, plant, and equipment nor natural
resources
d.companies can apply fair value to natural resources but not to property, plant, and
equipment
44) Jack Birch invested his inheritance at 4% annual interest and left the money
invested without withdrawing any of the interest for 10 years. At the end of the 10
years, Jack withdrew the accumulated amount of money plus the accumulated interest
of $35,000. What amount had Jack invested, assuming the investment earned simple
interest?
a.$21,000
b.$25,000
c.$25,833
d.$28,500
45) Viking Company manufactures customized desks. The following pertains to Job No.
935:
Direct materials used$14,300
Direct labor hours worked500
Direct labor rate per hour$14.00
Machine hours used350
Applied factory overhead rate per machine hour$25.00
What is the total manufacturing cost for Job No. 935?
a.$30,050
b.$26,200
c.$35,550
d.$31,700
46) Depletion expense is computed using the:
a.double-declining-balance method
b.straight-line method
c.units-of-activity method
d.effective interest method
47) Secured bonds are bonds that
a.are in the possession of a bank
b.are registered in the name of the owner
c.have specific assets of the issuer pledged as collateral
d.have detachable interest coupons
48) At December 31, 2014, Wynne Company reported Accounts Receivable of $45,000
and Allowance for Doubtful Accounts of $3,500. On January 7, 2015, Brown
Enterprises declares bankruptcy and it is determined that the receivable of $1,200 from
Brown is not collectible.
1>What is the cash realizable value of Accounts Receivable at December 31, 2014?
2>What entry would Wynne make to write off the Brown account?
3>What is the cash realizable value of Accounts Receivable after the Brown account is
written off?
49) The ultimate effect of incurring an expense is to reduce stockholders’ equity. The
declaration of a cash dividend also reduces stockholders’ equity. Explain the difference
between an expense and a cash dividend and explain why they have the same effect on
stockholders’ equity.
50) On December 1, Cypress Grove Company introduces a new product that includes a
one-year warranty on parts. In December, 500 units are sold. Management believes that
5% of the units will be defective and that the average warranty costs will be $60 per
unit. Prepare the adjusting entry at December 31 to accrue the estimated warranty cost.
51) 1>Adam Corporation purchased 3,000 shares of Ozark Company’s common stock
for $12 per share as a long-term available-for-sale investment on June 30, 2014 . Ozark
declared and paid a cash dividend of $1.00 per share on its common stock on
September 30, and had a closing fair value of $18 per share on December 31 .
Assuming this investment is appropriately accounted for using the fair value method, it
will increase Adam’s 2014 income before taxes by:
$_______________.
2>Clayton Inc. purchased 30% of the outstanding common stock of Austin Industries
on January 1, 2014, for $180,000. Austin reported net income of $70,000 for 2014 and
declared and paid cash dividends on common stock of $30,000. The amount of
Clayton’s investment in Austin on December 31, 2014, should be:
$_______________.
3>Shep Company purchased 40% of the outstanding common stock of Sanchez Corp.
on January 1, 2014 . Sanchez reported net income of $90,000 for 2014 and declared and
paid cash dividends on common stock of $25,000. Shep should report revenue from its
investment in Sanchez for 2014 of:
$_______________.
4>Pacific Company bought 35% of the outstanding common stock of Atlantic Inc. on
January 1, 2014, for $400,000. Atlantic reported net income of $200,000 for 2014 and
declared and paid no dividends for the year. This investment was sold for $500,000 on
December 31, 2014 . Pacific should report a gain on sale of this investment on its 2014
income statement of:
$_______________.
5>Copper Inc. accounts for its investment in Ridge Corporation using the fair value
method. Copper bought 3,000 shares (5%) of Ridge’s outstanding common stock for
$28 per share on January 1, 2014 . Ridge earned $3 per share for 2014, declared and
paid cash dividends of $1 per common share, and had a closing fair value of $24 per
share on December 31 . The reported balance sheet value of Copper’s investment in
Ridge at December 31, 2014 is:
$_______________.
52) A trusted employee of Outback Tours was caught in the act of embezzling funds. He
confessed to earlier embezzlements, but retracted the confession on the advice of his
attorney. Over the course of the most recent quarter, it has been determined that $20,000
was embezzled.
Outback Tours has suffered adverse publicity in the recent past because of serious
injury to five tourists that occurred during a two week “Winter Wilds Adventure” tour.
The company has therefore decided to avoid publicity and has agreed to drop all
charges against the embezzling employee. In return, the employee has agreed to a
notation of “TerminatedNot to be Rehired” to be appended to his personnel file.
Required:
1>Who are the stakeholders in the decision not to prosecute?
2>Was it ethical for the company to decide not to prosecute? Explain.
53) The following cases are independent and relate to short-term notes payable.
Principal and interest are to be paid at maturity in all cases. Fill in the missing items in
the table below. If no number is required, enter zero. Items marked XXXX need not be
computed.
Note to beInterest Payable2015 Interest
CasePrincipalInterest RateNote GivenRepaid12/31/14Expense
1>$80,0007%6/30/146/30/15
2>$140,0009%9/1/139/1/14$0
3>$50,0006%12/31/15$0$3,000
4>$20,0002/1/142/1/15$1,650______
5>8%4/1/144/1/15______$2,500
6>5%10/1/146/1/15$600______
54) Erving Company had a beginning inventory of 600 units at a cost of $8 per unit on
August 1 . During the month, the following purchases and sales were made.
PurchasesSales
Aug6400 units at $9Aug9400 units
Aug17800 units at $8Aug13500 units
Aug22200 units at $10Aug19600 units
Aug26300 units
Erving uses a periodic inventory system.
Instructions: Determine ending inventory and cost of goods sold under (1) average cost,
(2) FIFO, and (3) LIFO.
1>Average cost:
Ending inventory = $________; cost of goods sold = $_____________.
2>FIFO:
Ending inventory = $_____________; cost of goods sold = $____________.
3>LIFO:
Ending inventory = $_____________; cost of goods sold = $____________.
55) Alice Brown purchased an investment for $53,680.64. From this investment, she
will receive $8,000 annually for the next 10 years starting one year from now. What rate
of interest will Alice be earning on her investment?
56) A debit balance in a partner’s capital account is called a _____________.