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1) Instructions: Match the cash expenditures given below with the appropriate
accounting treatment. An individual classification may be used more than once, or not
at all.
Treatments
A.Record the expenditure as an asset and depreciate it.
B.Record the expenditure as an asset and amortize it.
C.Record the expenditure as an asset and deplete it.
D.Record the expenditure as an asset but do not systematically allocate it to expense.
E.Record the expenditure as an expense in the current period.
F.None of the above is appropriate.
Expenditures
____1>Acquired a piece of machinery for plant operations
____2>Purchased a producing copper mine
____3>Paid property taxes owed on land acquired
____4>Paid for an oil change to a vehicle
____ 5>Purchased a copyright from an author
2) Companies that are subject to, but fail to comply with, the Foreign Corrupt Practices
Act of 1977
a.may do so legally by obtaining an exemption
b.will be automatically dissolved
c.may be subject to fines and officer imprisonment
d.may be forced to sell their foreign subsidiaries
3) Stewart Corporation's balance sheet at December 31, 2013, showed the following:
Short-term investments, at fair value$46,500
Stewart Corporation's trading portfolio of stock investments consisted of the following
at December 31, 2013:
StockNumber of Shares Cost
Conn Common Stock200$28,000
Ares Preferred Stock4006,000
Hall Common Stock300 9,000
$43,000
During 2014, the following transactions took place:
Feb.5Sold 100 shares of Conn common stock for $18,000.
Mar.30Purchased 25 shares of Hall common stock for $1,000.
Sept.9Purchased 50 shares of Hall common stock for $3,000.
At year end on December 31, 2014, the fair values per share were:
Fair Value Per Share
Conn Common Stock$158.00
Ares Preferred Stock$14.00
Hall Common Stock$24.00
Instructions
(a)Prepare the journal entries to record the 2014 stock transactions.
(b)On December 31, 2014, prepare any adjusting entry that might be necessary relative
to the trading portfolio.
(c)Show how the stock investments will appear on Stewart Corporation's balance sheet
at December 31, 2014 .
4) The investigation of a materials quantity variance usually begins in the
a.production department
b.purchasing department
c.sales department
d.controller's department
5) CCCR Inc., has 2,000 shares of 6%, $50 par value, cumulative preferred stock and
100,000 shares of $1 par value common stock outstanding at December 31, 2013, and
December 31, 2014 . The board of directors declared and paid a $4,000 dividend in
2013 . In 2014, $24,000 of dividends are declared and paid. What are the dividends
received by the common stockholders in 2014?
a.$16,000
b.$12,000
c.$8,000
d.$6,000
6) Under IFRS, comprehensive income may be displayed (reported) in
a.the equity section of the statement of financial position
b.the one-statement or the two-statement approach
c.two-statement approach only
d.the retained earnings statement
7) A net loss will result during a time period when
a.assets exceed liabilities
b.assets exceed owner's equity
c.expenses exceed revenues
d.revenues exceed expenses
8) Casey Industries produced 256,000 units in 120,000 direct labor hours. Production
for the period was estimated at 264,000 units and 132,000 direct labor hours. A flexible
budget would compare budgeted costs and actual costs, respectively, at
a.128,000 hours and 132,000 hours
b.132,000 hours and 120,000 hours
c.128,000 hours and 120,000 hours
d.120,000 hours and 120,000 hours
9) In the direct materials budget, the quantity of direct materials to be purchased is
computed by adding direct materials required for production to
a.desired ending direct materials
b.beginning direct materials
c.desired ending direct materials less beginning direct materials
d.beginning direct materials less desired ending direct materials
10) Which one of the following items is not a consideration when recording periodic
depreciation expense on plant assets?
a.Salvage value
b.Estimated useful life
c.Cash needed to replace the plant asset
d.Cost
11) Which one of the following inventory methods is often impractical to use?
a.Specific identification
b.LIFO
c.FIFO
d.Average cost
12) Which of the following would not be included in the operating activities section of
a statement of cash flows?
a.Cash inflows from returns on loans (i.e., interest)
b.Cash inflows from returns on equity securities (i.e., dividends)
c.Cash outflows to reacquire treasury stock
d.Cash outflows to governments for taxes
13) If a customer agrees to retain merchandise that is defective because the seller is
willing to reduce the selling price, this transaction is known as a sales
a.discount
b.return
c.contra asset
d.allowance
14) Items waiting to be used in production are considered to be
a.raw materials
b.work in progress
c.finished goods
d.merchandise inventory
15) If an investment center has generated a controllable margin of $150,000 and sales
of $600,000, what is the return on investment for the investment center if average
operating assets were $1,000,000 during the period?
a.60%
b.25%
c. 45%
d.15%
16) Cost activity indexes might help classify costs as
a.temporary
b.permanent
c.variable
d.transient
17) Given the following data for Carlson Company, compute (A) total manufacturing
costs and (B) costs of goods manufactured:
Direct materials used$120,000Beginning work in process$20,000
Direct labor50,000Ending work in process10,000
Manufacturing overhead150,000Beginning finished goods25,000
Operating expenses175,000Ending finished goods15,000
(A) (B)
a.$330,000$340,000
b.$320,000$330,000
c.$320,000$310,000
d.$310,000$330,000
18) Which of the following accounts has a normal credit balance?
a.Sales Returns and Allowances
b.Sales Discounts
c.Sales Revenue
d.Selling Expense
19) Instructions: This problem is comprised of four independent parts covering different
types of decisions where incremental analysis is appropriate. Show appropriate, labeled
calculations in all cases!
1>Limited Resources
Canyon Corp. manufactures two models of a fishing reel: Deluxe and Supreme, selling
for $90 and $150, respectively. There are only 30,000 hours of the master craftsmen's
time available to manufacture reels. Direct labor and other variable costs come to $50
for the Deluxe model and $60 for the Supreme. Total fixed costs equal $70,000. It takes
the craftsmen 2 hours to make the Deluxe model and 4 hours for the Supreme. Demand
for these reels is such that it is estimated up to 6,000 of each type of reel can be sold.
How many of each reel should Canyon make in order to maximize net income?
2>Elimination of a Department
Rider Corporation has three departments. Condensed income statement data are as
follows:
Department ADepartment BDepartment C Total
Sales$300,000$280,000$120,000$700,000
Variable Expenses 160,000 175,000 105,000 440,000
Contribution Margin140,000105,00015,000260,000
Fixed Expenses 65,000 35,000 40,000 140,000
Net Income$ 75,000$ 70,000$ (25,000)$120,000
If Department C is discontinued, fixed expenses would drop $26,000 since the
departmental supervisor would leave; the remaining fixed expenses would continue.
Sales in Department A would drop 10%; Department B would be unaffected. Should
Department C be discontinued?
3>Make or Buy
Elite Electric has an offer from a potential supplier to provide 40,000 units at $65 each
that Elite now manufactures at a total cost of $75 per unit. The manufacturing costs for
40,000 units are: direct materials $900,000; direct labor $450,000; variable overhead
$900,000; and fixed overhead $750,000. All costs except $500,000 in fixed overhead
will be avoided if the parts are purchased.
(a)What should Elite do in this situation?
(b)Would your answer change if Elite could use the capacity that would become
available to produce additional income of $125,000? Explain.
4>Order at a Special Price
Metro Motors diesel engine plant is currently operating slightly above breakeven at
30% of its 200,000 unit capacity. Metro wants to take advantage of an opportunity to
bid on a special order from a potential customer. Metro's regular product sells for $400
and has the following costs per unit: variable manufacturing, $100; fixed
manufacturing, $180; variable selling and administrative, $35; fixed selling and
administrative, $50. The order would be for 40,000 units over each of the next 5 years,
with no hope for renewal because of product-line changes, and would require an
expenditure of $4,000,000 for special machinery that would have no alternative use.
Variable selling costs would be $10 less per unit on the special order, but variable
manufacturing would be $10 higher. If Metro requires a minimum of a $15 per unit
contribution towards profits on a special order, what should be its minimum bid?
20) The Other Accounts column of a multi-column journal is often referred to as the
a.Sundry Accounts column
b.Controlling Account column
c.Credit Account column
d.Debit Account column
21) In computing equivalent units, ___________ is not part of the equivalent units of
production formula.
a.units transferred out
b.beginning work in process
c.ending work in process
d.None of these answer choices are correct
22) On the basis of the budget reports,
a.management analyzes differences between actual and planned results
b.management may take corrective action
c.management may modify the future plans
d.all of these answer choices are correct
23) Instructions: Designate the terminology that best represents the definition or
statement given below by placing the identifying letter(s) in the space provided. No
term should be used more than once.
A.Accounts receivableR.Ideal standards
B.Annual rate of returnS.Liquidity ratios
C.Book value per shareT.Noncontrollable costs
D.Capital leaseU.Normal standards
E.Contribution marginV.Operating lease
F.Contribution margin ratioW.Overhead controllable variance
G.Controllable costsX.Overhead volume variance
H.Cost accountingY.Parent company
I.Cost methodZ.Period costs
J.Cost of capitalAA.Prior period adjustment
K.Discontinued operationsAB.Product costs
L.Earnings per shareAC.Retained earnings restriction
M.Equity methodAD.Solvency ratios
N.Extraordinary itemsAE.Stock dividend
O.Fixed costsAF.Stock split
P.Held-to-maturity securitiesAG.Variable costs
Q.Horizontal analysisAH.Variances
1>Costs that a manager has the authority to incur within a given period of time.
2>An accounting method in which the investment in stock is initially recorded at cost
and cash dividends are credited to Dividend Revenue.
3>The portion of retained earnings that is currently unavailable for dividend
declarations.
4>The difference between overhead budgeted for standard hours allowed and overhead
incurred.
5>The amount of revenue remaining after deducting variable costs.
6>The correction of an error in previously issued financial statements.
7>Costs that vary in total directly and proportionately with changes in the activity level.
8>The differences between actual costs and standard costs.
9>The net income earned by each share of outstanding common stock.
10>The rate of return that management expects to pay on all borrowed and equity
funds.
11>Standards based on optimum levels of performance under perfect operating
conditions.
12>Debt securities that the investor has the intent and ability to hold to maturity.
13>Computed as: expected annual net income divided by average investment.
14>Measures the ability of the company to survive over a long period of time.
15>The disposal of a significant segment of a business.
16>A pro rata distribution of the corporation's own stock to stockholders.
17>Events and transactions that are unusual in nature and infrequent in occurrence.
18>Measures of the short-term ability of an enterprise to pay its maturing obligations
and to meet unexpected needs for cash.
24) The lower-of-cost-or-market (LCM) basis may be used with all of the following
methods except
a.average cost
b.FIFO
c.LIFO
d.The LCM basis may be used with all of these
25) McIntyre Company made a purchase of merchandise on credit from Marvin
Company on August 8, for $9,000, terms 3/10, n/30. On August 17, McIntyre makes the
appropriate payment to Marvin. The entry on August 17 for McIntyre Company is:
a.Accounts Payable9,000
Cash9,000
b.Accounts Payable8,730
Cash8,730
c.Accounts Payable9,000
Purchase Returns and Allowances270
Cash8,730
d.Accounts Payable9,000
Inventory270
Cash8,730
26) Bellezone Corporations December 31, 2014 balance sheet showed the following:
8% preferred stock, $20 par value, cumulative, 20,000 shares
authorized; 17,000 shares issued$ 340,000
Common stock, $10 par value, 2,000,000 shares authorized;
1,900,000 shares issued, 1,880,000 shares outstanding19,000,000
Paid-in capital in excess of parpreferred stock68,000
Paid-in capital in excess of parcommon stock27,000,000
Retained earnings7,500,000
Treasury stock (20,000 shares)630,000
Bellezones total stockholders equity was
a.$53,338,000
b.$93,380,000
c.$54,538,000
d.$53,278,000
27) The income statement for Hyland Company for 2014 appears below.
HYLAND COMPANY
Income Statement
For the Year Ended December 31, 2014
Sales revenue (40,000 units)$1,000,000
Variable expenses 700,000
Contribution margin300,000
Fixed expenses 345,000
Net income (loss)$ (45,000)
Instructions
Answer the following independent questions and show computations using the
contribution margin technique to support your answers:
1>What was the company's break-even point in sales dollars in 2014?
2>How many additional units would the company have to sell in 2015 (compared to
2014) in order to earn net income of $45,000?
3>If the company is able to reduce variable costs by $4.50 per unit in 2015 and other
costs and unit revenues remain unchanged, how many units will the company have to
sell in order to earn a net income of $45,000?
28) Using the indirect approach, noncash charges in the income statement are
______________ to net income and noncash credits are ______________ to compute
cash provided by operations.
29) The declining-balance method of computing depreciation is known as an
_____________ depreciation method.
30) On January 2, Penny Company purchased 45, 10%, $1,000 Mikel Company bonds
for $45,000 cash. Interest is payable semiannually on July 1 and January 1 . On July 1,
the company received a semiannual interest payment on the Mikel Company bonds.
Journalize the entries to record the purchase of the bonds and the receipt of the interest
payment.
31) The three cost elements in manufacturing a product are (1)______________,
(2)______________, and (3)______________.
32) Small Company reported cost of goods sold of $179,000 on its 2014 income
statement. The companys beginning inventory was $35,000. The ending inventory was
valued at $40,000. The Accounts Payable balance at January 1 was $25,000. The
December 31 balance in Accounts Payable was $22,000.
Instructions
Compute cash payments to suppliers.
33) A company will incur product repair costs in the future if products that it sells
currently under warranty are brought in for repair during the warranty period. The
company will also incur bad debts expense in the future if customers who buy on credit
currently are unable to pay their accounts. Are the accounting procedures for these two
contingent costs (warranty expense and bad debt expense) related or guided by the same
accounting principle? Briefly explain.
34) Instructions: Brevin Company entered into the transactions listed below during
2014 . Prepare the appropriate journal entries for Brevin Company. You may omit
journal entry explanations but you should show computations.
Jan.10Purchased 500 shares of Doherty Company common stock for $37,000 as a
short-term investment in equity securities.
Apr.6Purchased 1,000 shares of Comfort Care Company common stock for $48 per
share as a short-term investment in equity securities.
Sept.20Sold 400 shares of Comfort Care Company common stock for $20,400.
Dec.31Use the following information for year-end adjusting entries:
Fair value per share:
Doherty Company Common Stock$72 per share.
Comfort Care Company Common Stock$45 per share.
Bevin classifies both investments as trading securities.
