1) A partnership cannot use salary allowances or interest allowances to allocate income
and losses to the partners because these items are not reported on the partnership
income statement.
2) Ben had total assets of $149,501,000, net income of $6,242,000, and net sales of
$209,203,000. Its profit margin was 2.98%.
3) A corporation reported cash of $14,000 and total assets of $178,300. Its common-size
percent for cash equals 7.85%.
4) Partners can invest both assets and liabilities into a partnership.
5) The method most likely to produce the most precise line of cost behavior is the
scatter diagram.
6) Conversion of preferred stock to common stock is disclosed in the financing section
of the statement of cash flows.
7) An estimated liability is a known obligation of an uncertain amount that can at least
be reasonably estimated.
8) Indirect expenses should be allocated to departments based upon the benefits
received by each department.
9) The reporting of financing activities in the statement of cash flows is identical under
either the direct or indirect methods.
10) Most companies use batch processing instead of online processing because batch
processing immediately updates databases.
11) Cost concepts such as variable, fixed, mixed, direct and indirect apply only to
manufacturers and not to service companies.
12) When the number of withholding allowances claimed on Form W-4 increases, the
amount of income tax withheld increases.
13) Horizontal analysis:
A.Is a method used to evaluate changes in financial data across time
B.Is also called vertical analysis
C.Is the presentation of financial ratios
D.Is a tool used to evaluate financial statement items relative to industry statistics
E.Evaluates financial data across industries
14) If a parcel of land that was originally purchased for $85,000 is offered for sale at
$150,000, is assessed for tax purposes at $95,000, is recognized by its purchasers as
easily being worth $140,000, and is sold for $137,000. What is the effect of the sale on
the accounting equation for the seller?
A.Assets increase $52,000; owner’s equity increases $52,000
B.Assets increase $85,000; owner’s equity increases $85,000
C.Assets increase $137,000; owner’s equity increases $137,000
D.Assets increase $140,000; owner’s equity increases $140,000
E.Assets decrease $85,000; owner’s equity decreases $85,000
15) Reasons that internal controls are crucial to companies that convert from U.S.
GAAP to IFRS include all of the following except:
A.Possible misstatement of financial information
B.Possible fraud
C.Controls are significantly different across the globe
D.Ineffective communication of the change to investors, creditors, and others
E.Management’s inability to certify the effectiveness of the controls
16) Goodwill:
A.Is not amortized, but is tested annually for impairment
B.Is amortized using the straight-line method
C.Is amortized using the units-of-production method
D.May be amortized using either the straight-line or units-of-production method
E.Is never amortized or tested for impairment
17) On July 1 of the current year, Suffox Company signed a contract to sublease space
in a building for 7 years. Suffox Company paid Alec Company $56,000 for the right to
sublease this space. After taking possession of the leased space, Suffox pays $140,000
for improving the office portion of the lease space. The improvements are paid on July
6 of the current year, and are estimated to have a useful life equal to the 14 years
remaining in the life of the building.
Prepare entries for Suffox to record (a) its payment to Alec for the right to sublease the
building space, (b) its payment for the office improvements, (c) the December 31
year-end entry to amortize the cost of the sublease, (d) the December 31 year-end entry
to amortize the office improvements.
18) Beginning inventory plus net purchases is:
A.Cost of goods sold.
B.Merchandise available for sale.
C.Ending inventory.
D.Sales.
E.Shown on the balance sheet.
19) During March, the production department of a process manufacturing system
completed a number of units of a product and transferred them to finished goods. Of the
units transferred, 25,000 were in process at the beginning of March and 110,000 were
started and completed in March. March’s beginning inventory units were 100%
complete with respect to materials and 55% complete with respect to labor. At the end
of March, 30,000 additional units were in process in the production department and
were 100% complete with respect to materials and 30% complete with respect to labor.
The production department incurred direct materials cost of $253,000 and its beginning
inventory included materials cost of $93,500. Compute the direct materials cost per
equivalent unit for the department using the weighted-average method.
A.$1.53
B.$2.48
C.$2.10
D.$2.57
E.$2.40
20) The comparison of a company’s financial condition and performance across time is
known as:
A.Horizontal analysis
B.Vertical analysis
C.Political analysis
D.Financial reporting
E.Investment analysis
21) A disadvantage of bonds is:
A.Bonds require payment of periodic interest
B.Bonds require payment of par value at maturity
C.Bonds can decrease return on equity
D.Bond payments can be burdensome when income and cash flow are low
E.All of these
22) To provide security to creditors and to reduce interest costs, bonds and notes
payable can be secured by:
A.Safe deposit boxes
B.Mortgages
C.Equity
D.The FASB
E.Debentures
23) The following information is available for Crandall Company before closing the
accounts. After all of the closing entries are made, what will be the balance in the
Crandall, Capital account?
A.$115,000
B.$225,000
C.$264,000
D.$186,000
E.$956,000
24) A corporation reported cash of $14,000 and total assets of $178,300. Its
common-size percent for cash equals:
A..0785%
B.7.85%
C.12.73%
D.1273%
E.7850%
25) The days’ sales uncollected ratio is used to:
A.Measure how many days of sales remain until the end of the year
B.Determine the number of days that have passed without collecting on accounts
receivable
C.Identify the likelihood of collecting sales on account
D.Estimate how much time is likely to pass before the amount of accounts receivable is
received in cash
E.Measure the amount of layaway sales for a period
26) Departmental contribution to overhead is calculated as revenues of the department
less:
A.Controllable costs
B.Product and period costs
C.Direct expenses
D.Direct and indirect costs
E.Joint costs
27) In a process cost accounting system, direct material costs incurred are recorded:
A.Indirectly to a Goods in Process Inventory account
B.Indirectly to a Finished Goods Inventory account
C.Directly to a Goods in Process Inventory account
D.Directly to a Finished Goods Inventory account
E.Directly to a Cost of Goods Sold account
28) Harvel Company is required by law to collect and remit sales taxes to the state. If
Havel has $8,000 of cash sales that are subject to an 8% sales tax, what is the journal
entry to record the cash sales?
A.Debit Cash $8,000; credit Sales $7,360; credit Sales Taxes Payable $640
B.Debit Sales Taxes Payable $640; debit Cash $7,360; credit Sales $8,000
C.Debit Cash $8,000; credit Sales $8,000; and record the taxes when paid
D.Debit Cash $8,640; credit Sales $8,000; credit Sales Taxes Payable $640
E.Debit Accounts Receivable $8,640; credit Sales $8,000; credit Sales Taxes Payable
$640
29) A company uses the following standard costs to produce a single unit of output.
During the latest month, the company purchased and used 58,000 pounds of direct
materials at a price of $1.00 per pound to produce 10,000 units of output. Direct labor
costs for the month totaled $56,350 based on 4,900 direct labor hours worked. Variable
manufacturing overhead costs incurred totaled $15,000 and fixed manufacturing
overhead incurred was $10,400. Based on this information, the direct materials price
variance for the month was:
A.$6,000 unfavorable
B.$1,800 favorable
C.$1,000 favorable
D.$5,800 unfavorable
E.$1,800 unfavorable
30) The assets section of a classified balance sheet usually includes:
A.Current assets, long-term investments, plant assets, and intangible assets
B.Current assets, long-term assets, revenues, and intangible assets
C.Current assets, long-term investments, plant assets, and equity
D.Current liabilities, long-term investments, plant assets, and intangible assets
E.Current assets, liabilities, plant assets, and intangible assets
31) On January 2, 2007, a company purchased a delivery truck for $45,000 cash. The
truck had an estimated useful life of seven years and an estimated salvage value of
$3,000. The straight-line method of depreciation was used. Prepare the journal entries
to record depreciation expense and the disposition of the truck on September 1, 2011,
under each of the following assumptions:
a. The truck and $45,000 cash were given in exchange for a new delivery truck that had
a cash price of $60,000. This transaction has commercial substance.
b. The truck and $40,000 cash were exchanged for a new delivery truck that had a cash
price of $60,000. This transaction lacks commercial substance.
32) The following summaries from the income statements and balance sheets of Neeko,
Inc. and Saxony, Inc. are presented below.
(1) For both companies for 2012, compute the
(a) Current ratio
(b) Acid-test ratio
(c) Accounts receivable turnover
(d) Inventory turnover
(e) Days’ sales in inventory
(f) Days’ sales uncollected
Which company do you consider to be the better short-term credit risk? Explain.
(2) For both companies for 2012, compute the
(a) Profit margin ratio
(b) Return on total assets
(c) Return on common stockholders’ equity
Which company do you consider to have better profitability ratios?
33) Dunkin Company manufactures and sells a single product that sells for $480 per
unit; variable costs are $300. Annual fixed costs are $990,000. Current sales volume is
$4,200,000. Compute the break-even point in dollars.
A.$2,790,000
B.$2,640,000
C.$2,880,000
D.$2,475,000
E.$2,500,000
34) Dividing ending inventory by cost of goods sold and multiplying the result by 365
is the:
A.Inventory turnover ratio
B.Profit margin
C.Days’ sales in inventory
D.Current ratio
E.Total asset turnover
35) Cambria owns equipment that cost $93,500 with accumulated depreciation of
$64,000. Cambria asks $35,000 for the equipment but sells the equipment for $33,000.
Compute the amount of gain or loss on the sale.
A.$3,500 loss
B.$5,500 gain
C.$5,500 loss
D.$3,000 gain
E.$3,500 gain
36) Short-term investments:
A.Are securities that management intends to convert to cash within the longer of one
year or the current operating cycle, and are readily convertible to cash
B.Include funds earmarked for a special purpose such as bond sinking funds
C.Include stocks not intended to be converted into cash
D.Include bonds not intended to be converted into cash
E.Include sinking funds not intended to be converted into cash
37) A company made no adjusting entry for accrued and unpaid employee salaries of
$9,000 on December 31. The entry to record the adjusting entry should have been:
A.debit Salary Expense, $9,000; credit Cash, $9,000
B.debit Salary Expense, $9,000; credit Fees Earned, $9,000
C.debit Salary Expense, $9,000; credit Prepaid Salary, $9,000
D.debit Salary Expense, $9,000; credit Salaries Payable, $9,000
E.debit Salaries Payable, $9,000; credit Salary Expense
38) Whitman Products and Rockland Industries report the following information at
December 31:
Required:
(a) Which company is a manufacturer? Explain.
(b) Prepare the Current Asset Section of the Balance Sheet for the manufacturer.
39) The _________________ method is commonly used to estimate the value of
inventory that has been destroyed, lost, or stolen.
40) Describe the recording process (including costs) for purchasing merchandise
inventory using a perpetual inventory system.
41) Briefly describe how manufacturing firms dispose of overapplied or underapplied
factory overhead.
42) If a 90-day note receivable is dated June 12, what is the maturity date of the note?
43) Compute Dave Company’s current ratio using the following information:
44) A favorable variance for a cost means that when compared to the budget, the actual
cost is ____________________ than the budgeted cost.
45) Describe the net method of accounting for purchases. Why do companies use the
net method?