1) A note payable must always be paid before an account payable.
2) The cash payback method is frequently used as a screening tool but it does not take
into consideration the profitability of a project.
3) Owners’ claims to total business assets take precedence over the claims of creditors
because owners invest assets in the business and are liable for losses.
4) If a new partner invests in a partnership at book value and acquires a 1/4 interest in
total partnership capital, it indicates that a bonus was paid to the original partners.
5) All plant assets (fixed assets) must be depreciated for accounting purposes.
6) A production cost report is an internal document for management that shows
production quantity and cost data for a particular job.
7) In a liquidation, the final distribution of cash to partners should be on the basis of
their income ratios.
8) In a perpetual inventory system, the cost of goods sold under the FIFO method is
based on the cost of the latest goods on hand during the period.
9) A company’s unadjusted balance in Inventory will usually not agree with the actual
amount of inventory on hand at year-end.
10) Under a periodic inventory system, freight-in on merchandise purchases should be
charged to the Inventory account.
11) The journal provides a chronological record of transactions.
12) Management by exception means that management will investigate areas where
actual results differ from planned results if the items are material and controllable.
13) Contingent liabilities should be recorded in the accounts if there is a remote
possibility that the contingency will actually occur.
14) In vertical analysis, the base amount in an income statement is usually net sales.
15) Most notes are not interest bearing.
16) The partners’ drawing accounts are closed each period into the Income Summary
account.
17) Consistency in accounting means that a company uses the same accounting
principles from one accounting period to the next accounting period.
18) The primary purpose of the statement of cash flows is to provide information about
the cash receipts and cash payments of a company during a period.
19) A debit balance in the Retained Earnings account is identified as a deficit.
20) Which of the following is not a benefit of activity-based costing?
a.More accurate product costing
b.Enhanced control over overhead costs
c.Better management decisions
d.Less costly to use
21) Niles Manufacturing estimates its sales at 220,000 units in the first quarter and that
sales will increase by 20,000 units each quarter over the year. They have, and desire, a
25% ending inventory of finished goods. Each unit sells for $35. 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.$5,334,000
b.$7,462,000
c.$8,400,000
d.$8,974,000
22) In order to close the owner’s drawings account, the
a.income summary account should be debited
b.income summary account should be credited
c.owner’s capital account should be credited
d.owner’s capital account should be debited
23) Hunt Company purchased factory equipment with an invoice price of $90,000.
Other costs incurred were freight costs, $1,100; installation wiring and foundation,
$2,200; material and labor costs in testing equipment, $700; oil lubricants and supplies
to be used with equipment, $500; fire insurance policy covering equipment, $1,400. The
equipment is estimated to have a $5,000 salvage value at the end of its 8-year useful
service life.
Instructions
(a)Compute the acquisition cost of the equipment. Clearly identify each element of cost.
(b)If the double-declining-balance method of depreciation was used, the constant
percentage applied to a declining book value would be __________.
24) Raw materials inventory, January 1$ 20,000
Raw materials inventory, December 3110,000
Work in process, January 16,000
Work in process, December 319,000
Finished goods, January 116,000
Finished goods, December 3120,000
Raw materials purchases400,000
Direct labor200,000
Factory utilities75,000
Indirect labor45,000
Factory depreciation180,000
Selling and administrative expenses210,000
Assume your answer to question 6 above is $400,000. Total manufacturing costs equal:
a.$600,000
b.$700,000
c.$780,000
d.$900,000
25) The statement of cash flows will not report the
a.amount of checks outstanding at the end of the period
b.sources of cash in the current period
c.uses of cash in the current period
d.change in the cash balance for the current period
26) The following is selected information from Motley Corporation for the fiscal year
ending October 31, 2014 .
Cash received from customers$300,000
Revenue recognized375,000
Cash paid for expenses180,000
Cash paid for computers on November 1, 2013 that will be used
for 3 years (annual depreciation is $16,000)48,000
Expenses incurred, including interest, but excluding any depreciation220,000
Proceeds from a bank loan, part of which was used to pay for
the computers100,000
Based on the accrual basis of accounting, what is Motley Corporations net income for
the year ending October 31, 2014?
a.$72,000
b.$104,000
c.$139,000
d.$155,000
27) If a department store fails to make the entry to accrue the finance charges due from
customers,
a.accounts receivable will be overstated
b.interest revenue will be understated
c.interest expense will be overstated
d.interest expense will be understated
28) In determining whether planned goals are being met, a manager is performing the
function of
a.planning
b.follow-up
c.directing
d.controlling
29) Suite Sixteen Makeup produces facial moisturizer. Each bottle of moisturizer costs
$10 to produce and can be sold for $13. The bottles can be sold as is, or processed
further into sunscreen at a cost of $14 each. Suite Sixteen Makeup could sell the bottles
of sunscreen for $22 each.
a.Moisturizer must be processed further because its profit is $8 each
b. Moisturizer must not be processed further because costs increase more than revenue
c.Moisturizer must not be processed further because it decreases profit by $2 each
d.Moisturizer must be processed further because it increases profit by $3 each
30) Prepare the necessary correcting entry for each of the following.
a.A collection on account of $350 from a customer was credited to Accounts Receivable
$530 and debited to Cash $530.
b.The purchase of supplies on account for $310 was recorded as a debit to Equipment
$310 and a credit to Accounts Payable $310.
31) If graphed, fixed costs that behave in a curvilinear fashion resemble a(n)
a.S-curve
b.inverted S-curve
c.straight line
d.stair-step pattern
32) If an asset cost $270,000 and is expected to have a $60,000 salvage value at the end
of its twelve-year life, and generates annual net cash inflows of $40,000 each year, the
cash payback period is
a.2.7 years
b.8.25 years
c.6.75 years
d.5.25 years
33) Comparisons of financial data made within a company are called
a.intracompany comparisons
b.interior comparisons
c.intercompany comparisons
d.intramural comparisons
34) The two ways that a corporation can be classified by purpose are
a.general and limited
b.profit and not-for-profit
c.state and federal
d.publicly held and privately held
35) The current carrying value of Lanes $800,000 face value bonds is $797,000. If the
bonds are retired at 103, what would be the amount Lane would pay its bondholders?
a.$797,000
b.$800,000
c.$820,910
d.$824,000
36) The officer who is generally responsible for maintaining the cash position of the
corporation is the
a.controller
b.treasurer
c.cashier
d.internal auditor
37) For the year ended December 31, 2014, Gomez Company reports the following:
Sales$6,000,000
Variable costs3,600,000
Controllable fixed costs1,400,000
Average operating assets4,000,000
Instructions: Compute ROI for each of the following situations. Show all computations.
1>The year ended December 31, 2014 .
_____________ _________________ = ________%
2>For 2015 assuming the following independent courses of action:
(a)Sales will increase 10% with no change in the contribution margin ratio.
_________________ _________________ = ________%
(b)Variable costs and controllable fixed costs will both be reduced 10%.
_________________ _________________ = ________%
(c)Average operating assets will be reduced 20%.
_________________ _________________ = ________%
38) Ale Company reports a $16,000 increase in inventory and a $8,000 increase in
accounts payable during the year. Cost of Goods Sold for the year was $150,000. The
cash payments made to suppliers were
a.$150,000
b.$158,000
c.$126,000
d.$174,000
39) The formula for determining budgeted merchandise purchases is budgeted
a.production + desired ending inventory beginning inventory
b.sales + beginning inventory desired ending inventory
c.cost of goods sold + desired ending inventory beginning inventory
d.cost of goods sold + beginning inventory desired ending inventory
40) What type of ratios best measure the short-term ability of the enterprise to pay its
maturing obligations and to meet unexpected needs for cash?
a.Leverage
b.Solvency
c.Profitability
d.Liquidity
41) The owners’ equity statement for a partnership is called the
a.partners’ proportional statement
b.partners’ capital statement
c.statement of shareholders’ equity
d.capital and drawing statement
42) Inventory turnover is calculated by dividing
a.cost of goods sold by the ending inventory
b.cost of goods sold by the beginning inventory
c.cost of goods sold by the average inventory
d.average inventory by cost of goods sold
43) Balance sheet accounts are considered to be
a.temporary owner’s equity accounts
b.permanent accounts
c.capital accounts
d.nominal accounts
44) The income statement for the year 2014 of Fugazi Co. contains the following
information:
Revenues$70,000
Expenses:
Salaries and Wages Expense$45,000
Rent Expense12,000
Advertising Expense10,000
Supplies Expense6,000
Utilities Expense2,500
Insurance Expense 2,000
Total expenses 77,500
Net income (loss)$ (7,500)
The entry to close Income Summary to Owners Capital includes
a.a debit to Revenue for $70,000
b.credits to Expenses totalling $77,500
c.a credit to Income Summary for $7,500
d.a credit to Owners Capital for $7,500
45) The following information pertains to Ortiz Company. Assume that all balance
sheet amounts represent both average and ending balance figures. Assume that all sales
were on credit.
Assets
Cash and short-term investments$ 45,000
Accounts receivable (net)25,000
Inventory20,000
Property, plant and equipment 270,000
Total Assets$360,000
Liabilities and Stockholders Equity
Current liabilities$ 50,000
Long-term liabilities90,000
Stockholders equitycommon 220,000
Total Liabilities and Stockholders Equity$360,000
Income Statement
Sales$ 150,000
Cost of goods sold 66,000
Gross profit84,000
Operating expenses 29,000
Net income$ 55,000
Number of shares of common stock6,000
Market price of common stock$20
Dividends per share.50
What is the return on common stockholders equity for Ortiz?
a.25%
b.50%
c.12.5%
d.15.3%
46) Top management notices a variation from budget and an investigation of the
difference reveals that the department manager could not be expected to have controlled
the variation. Which of the following statements is applicable?
a.Department managers should be held accountable for all variances from budgets for
their departments
b.Department managers should only be held accountable for controllable variances for
their departments
c.Department managers should be credited for favorable variances even if they are
beyond their control
d.Department managers’ performances should not be evaluated based on actual results
to budgeted results
47) Expenditures that maintain the operating efficiency and expected productive life of
a plant asset are generally
a.expensed when incurred
b.capitalized as a part of the cost of the asset
c.debited to the Accumulated Depreciation account
d.not recorded until they become material in amount
48) Lester Company sells many products. Hackenberry is one of its popular items.
Below is an analysis of the inventory purchases and sales of Hackenberry for the month
of March. Lester Company uses the periodic inventory system.
PurchasesSales
UnitsUnit CostUnitsSelling Price/Unit
3/1Beginning inventory100$40
3/3Purchase60$50
3/4Sales70$80
3/10Purchase200$55
3/16Sales80$90
3/19Sales60$90
3/25Sales40$90
3/30Purchase40$65
Instructions
(a)Using the FIFO assumption, calculate the amount charged to cost of goods sold for
March. (Show computations)
(b)Using the weighted average method, calculate the amount assigned to the inventory
on hand on March 31 . (Show computations)
(c)Using the LIFO assumption, calculate the amount assigned to the inventory on hand
on March 31 . (Show computations)
49) A company exchanged an old machine, which originally cost $22,000 and has
accumulated depreciation to date of $12,000, for a new machine. The old machine had a
fair value of $14,000. The cost of the new machine should be recorded at
$_____________.
50) Identify (by letter) each of the following characteristics as being an advantage, a
disadvantage, or not applicable to the corporate form of business organization.
A = Advantage
D = Disadvantage
N = Not Applicable
Characteristics
1>Separate legal entity
2>Taxable entity resulting in additional taxes
3>Continuous life
4>Unlimited liability of owners
5>Government regulation
6>Separation of ownership and management
7>Ability to acquire capital
8>Ease of transfer of ownership
51) During a study session, a classmate states that it is not necessary to make journal
entries and then post them to the ledger. She states that it is sufficient to analyze the
transaction and simply record the information in T-accounts.
What is your response to this statement? Be brief, yet concise.
52) Income statements for corporations report _______________ in a separate section
before net income.
53) Nadhill, Inc. provided the following information:
MarchAprilMay
Projected merchandise purchases$76,000$65,000$70,000
Nadhill pays 40% of merchandise purchases in the month purchased and 60% in the
following month.
General operating expenses are budgeted to be $25,000 per month of which
depreciation is $2,000 of this amount. Nadhill pays operating expenses in the month
incurred.
Instructions
Calculate Nadhills budgeted cash disbursements for May.
54) On December 1, Maisins Furniture Corporation borrowed $10,000 on a 90-day, 6%
note. Prepare the entries to record the issuance of the note, the accrual of interest at year
end, and the payment of the note.
55) Nolen Company is preparing the annual financial statements dated December 31,
2014 . Information about inventory stocked for regular sale follows:
QuantityUnit CostReplacement Cost
Itemon HandWhen Acquired(market) at year end
A50$20$19
B1004545
C205962
D404036
Instructions
Compute the valuation for the December 31, 2014, inventory using the
lower-of-cost-or-market basis.
56) The mere recording of economic events is called ______________, and is just one
part of the _______________ process.