1) Cost of goods sold is also called cost of sales.
2) Unearned revenues are liabilities.
3) When posting from special journals each debit and credit entry is entered as a
separate amount in the general ledger.
4) Although a fixed budget is only useful over the relevant range of operations, a
flexible budget is useful over all possible production levels.
5) In a process cost accounting system, the entry to record cost of materials assigned to
a production department requires a debit to the Raw Materials Inventory account and a
credit to the Goods in Process Inventory account for that department.
6) The manufacturing statement is also known as the schedule of manufacturing
activities or the schedule of cost of goods manufactured.
7) If the total balance of the accounts receivable ledger equals the total of the
controlling Accounts Receivable account, then the accounts are presumed to be correct.
8) Salvage value is an estimate of an asset’s value at the end of its benefit period.
9) The Securities and Exchange Commission (SEC) is a government agency that has
legal authority to establish GAAP.
10) When taking a physical count of inventory, the use of prenumbered inventory
tickets is an application of internal control.
11) An owner’s capital account normally has a debit balance.
12) An understatement of the beginning inventory balance will understate cost of goods
sold and overstate net income.
13) All companies desire a low return on total assets.
14) Cancelled checks are checks the bank has paid and deducted from the customer’s
account during the period.
15) While companies strive to achieve ideal standards, reality implies that some loss of
materials usually occurs with any process.
16) The manufacturing statement must be prepared monthly as it is a required
general-purpose financial statement.
17) A stock dividend:
A.Is not a liability on the balance sheet
B.Does not reduce a corporation’s assets and stockholders’ equity
C.Transfers a portion of equity from retained earnings to contributed capital
D.Does not affect total equity, but does affect the components of equity
E.All of these
18) Allocating joint costs to products can be based on their relative:
A.Sales values
B.Direct costs
C.Gross margins
D.Total costs
E.Variable costs
19) The ability to provide financial rewards sufficient to attract and retain financing is
called:
A.Liquidity and efficiency
B.Solvency
C.Profitability
D.Market prospects
E.Creditworthiness
20) Which of the following budgets is not an operating budget?
A.Sales budget
B.Cash budget
C.General and administrative expense budget
D.Selling expenses budget
E.Merchandise purchases
21) A company purchased equipment on July 3 of the current year and placed it in
service on August 1 . The following costs were incurred in acquiring the equipment:
Determine the amount to be recorded as cost for the equipment.
22) A company uses the percent of receivables method to determine its bad debts
expense. At the end of the current year, the company’s unadjusted trial balance reported
the following selected amounts:
All sales are made on credit. Based on past experience, the company estimates 3.5% of
credit sales to be uncollectible. What adjusting entry should the company make at the
end of the current year to record its estimated bad debts expense?
A.Debit Bad Debts Expense $13,975; credit Allowance for Doubtful Accounts $13,975
B.Debit Bad Debts Expense $15,225; credit Allowance for Doubtful Accounts $15,225
C.Debit Bad Debts Expense $16,475; credit Allowance for Doubtful Accounts $16,475
D.Debit Bad Debts Expense $7,350; credit Allowance for Doubtful Accounts $7,350
E.Debit Bad Debts Expense $17,350; credit Allowance for Doubtful Accounts $17,350
23) Unearned revenues are:
A.Also called deferred revenues
B.Amounts received in advance from customers for future delivery of products or
services
C.Also called collections in advance
D.Also called prepayments
E.All of these
24) Select the correct statement from the following:
A.Profit margin reflects a company’s ability to produce net sales from total assets
B.Total asset turnover reflects the percent of net income in each dollar of net sales
C.Return on total assets can be separated into gross margin ratio and price-earnings rati
D.High returns on total assets are desirable
E.Return on total assets analysis is beneficial in evaluating a company but is not useful
for competitor analysis
25) A company had no office supplies available at the beginning of the year. During the
year, the company purchased $250 worth of office supplies. On December 31, $75
worth of office supplies remained. How much should the company report as office
supplies expense for the year?
A.$75
B.$125
C.$175
D.$250
E.$325
26) A company had average total assets of $897,000. Its gross sales were $1,090,000
and its net sales were $1,000,000. The company’s total asset turnover equals:
A.0.82
B.0.90
C.1.09
D.1.11
E.1.26
Match each of the following terms a through j with the appropriate definition.27)
1>Weighted average inventory method A. The accounting constraint that aims to select
the less optimistic estimate when two or more estimates are about equally likely.
2>LIFO method B. The expected sales price of an item minus the cost of making the
sale.
3>Retail inventory method C. A method for estimating an ending inventory based on
the ratio of the amount of goods for sale at cost to the amount of goods for sale at retail
price.
4>Conservatism constraint D. An estimate of days needed to convert the inventory at
the end of the period into receivables or cash.
5>Interim statements E. An inventory pricing method that assumes the unit prices of the
beginning inventory and of each purchase are weighted by the number of units of each
in inventory; the calculation occurs at the time of each sale.
6>Days’ sales in inventory F. Financial statements prepared for periods of less than one
year.
7>Net realizable value G. An inventory valuation method that assumes costs for the
most recent items purchased are sold first and charged to cost of goods sold.
8>Inventory turnover H. An inventory valuation method where the purchase cost of
each item in ending inventory is identified and used to determine the cost assigned to
inventory.
9>FIFO method I. An inventory valuation method that assumes that inventory items are
sold in the order acquired.
10>Specific identification method H. The number of times a company’s average
inventory is sold during a period.
28) A unit of a business that not only incurs costs, but also generates revenues, is called
a:
A.Performance center
B.Profit center
C.Cost center
D.Responsibility center
E.Expense center
29) Sam has a loan that requires a single payment of $4,000 at the end of 3 years. The
loan’s interest rate is 6%, compounded semiannually. How much did Sam borrow?
A.$3,358.40
B.$4,000.00
C.$3,660.40
D.$4,776.40
E.$3,350.00
30) The accounting principle that prescribes an accounting information system to report
useful, understandable, timely, and pertinent information for effective decision-making
is the:
A.Control principle
B.Compatibility principle
C.Relevance principle
D.Flexibility principle
E.Cost-Benefit principle
31) A company purchased merchandise inventory costing $15,000 with credit terms of
2/10, n/30 on November 7. On November 15, the company paid 1/3 of the amount due.
The remaining balance was paid on December 7.
Required:
a. Record the journal entries related to this transaction using the gross method of
recording purchases.
b. Record the journal entries related to this transaction using the net method of
recording purchases.
32) Which of the following is a benefit derived from budgeting?
A.Budgeting focuses management’s attention on the future
B.Budgeting provides coordination of departments
C.Budgeting provides a basis for evaluating performance
D.Budgeting provides motivation for managers and employees
E.All of these
33) A company issues at par 9% bonds with a par value of $100,000 on April 1. The
bonds pay interest semi-annually on January 1 and July 1. The cash received on July 1
by the bond holder(s) is:
A.$1,500
B.$3,000
C.$4,500
D.$6,000
E.$7,500
34) An example of an operating activity is:
A.Paying wages
B.Purchasing office equipment
C.Borrowing money from a bank
D.Selling stock
E.Paying off a loan
35) The useful life of a plant asset is:
A.The length of time it is productively used in a company’s operations
B.Never related to its physical life
C.Its productive life, but not to exceed one year
D.Determined by the FASB
E.Determined by law
36) A class of stock that does not have a par value, and can usually be issued at any
price without creating a minimum legal capital deficiency, is called:
A.Convertible stock
B.No-par stock
C.Callable stock
D.Noncumulative stock
E.Discounted stock
37) On October 1, Courtland Company sold merchandise in the amount of $5,800 to
Carter Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000.
Courtland uses the periodic inventory system. Carter pays the invoice on October 8, and
takes the appropriate discount. The journal entry that Courtland makes on October 8 is:
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
38) Sebring Company reports depreciation expense of $40,000 for Year 2. Also,
equipment costing $140,000 was sold for a $10,000 loss in Year 2. The following
selected information is available for Sebring Company from its comparative balance
sheet. Compute the cash received from the sale of the equipment.
A.$62,000
B.$38,000
C.$28,000
D.$18,000
E.$58,000
39) The following data relate to a product sold by Nelson Company:
(a) Calculate the number of units expected to be sold.
(b) Calculate the expected total dollar sales.
40) A company reported the following data:
Required:
1> Calculate the days’ sales in inventory for each year.
2> Comment on the trend in inventory management.
41) All of the following are liability accounts except:
A.Accounts Payable
B.Unearned Ticket Revenue
C.Taxes Payable
D.Commissions Earned
E.Notes Payable
42) Woodlawn Company is preparing the company’s statement of cash flows for the
fiscal year just ended. The following information is available:
Retained earnings balance at the beginning of the year $233,000
Cash dividends declared for the year $50,000
Proceeds from the sale of equipment $85,000
Gain on the sale of equipment $4,500
Cash dividends payable at the beginning of the year $22,000
Cash dividends payable at the end of the year $30,000
Net income for the year $110,000
The ending balance in retained earnings is:
A.$343,000
B.$213,000
C.$293,000
D.$297,500
E.$301,000
43) The unadjusted trial balance and the adjustment data for Harris Training Institute
are given below along with adjusting entry information. If these adjustments are not
recorded, what is the impact on net income? Show calculation for net income without
the adjustments and net income with the adjustments. Which one gives the most
accurate net income? What accounting principles are being violated if the adjustments
are not made?
Additional information items:
a. The Prepaid Insurance account consists of a payment for a 1 year policy. An analysis
of the insurance invoice indicates that one half of the policy has expired by the end of
the December 31 year-end.
b. A cash payment for space sublet for 8 months was received on July 1 and was
credited to Unearned Rent.
c. Accrued interest expense on the note payable of $1,000 has been incurred but not
paid.
44) If a company records prepayment of expenses in an asset account, the adjusting
entry would:
A.Result in a debit to an expense and a credit to an asset account
B.Cause an adjustment to prior expense to be overstated and assets to be understated
C.Cause an accrued liability account to exist
D.Result in a debit to a liability and a credit to an asset account
E.Decrease cash
45) Casco Co. planned to produce and sell 40,000 units. At that volume level, variable
costs are determined to be $320,000 and fixed costs are $30,000. The planned selling
price is $10 per unit. Casco actually produced and sold 42,000 units.
Using a contribution margin format:
(a) Prepare a fixed budget income statement for the planned level of sales and
production.
(b) Prepare a flexible budget income statement for the actual level of sales and
production.
46) Information for York Plastics as of December 31 follows. Prepare (a) the company’s
manufacturing statement for the year ended December 31; (b) prepare the company’s
income statement that reports separate categories for selling and general and
administrative expenses.
47) If the assets of a business increased $89,000 during a period of time and its
liabilities increased $67,000 during the same period, equity in the business must have:
A.Increased $22,000
B.Decreased $22,000
C.Increased $89,000
D.Decreased $156,000
E.Increased $156,000
48) Assume that the custodian of a $450 petty cash fund has $62.50 in coins and
currency plus $382.50 in receipts at the end of the month. The entry to replenish the
petty cash fund will include:
A.A debit to Cash for $377.50
B.A credit to Cash Over and Short for $5.00
C.A debit to Petty Cash for $382.50
D.A credit to Cash for $387.50
E.A debit to Cash for $387.50
49) A minimum acceptable rate of return for an investment decision is called the:
A.Internal rate of return
B.Average rate of return
C.Hurdle rate
D.Maximum rate
E.Payback rate
50) The sales journal is used for recording:
A.Credit purchases
B.Credit sales
C.Cash sales
D.Cash purchases
E.Cash receipts
51) On August 9, Pierce Company receives a $8,500, 90-day, 8% note from customer
Eric Simms as payment on his account. What entry should be made on the maturity date
assuming the maker pays in full?
A.Debit Notes Receivable $8,500; debit Interest Receivable $170; credit Sales $8,670
B.Debit Cash $8,670; credit Interest Revenue $170; credit Notes Receivable $8,500
C.Debit Cash $8,628; credit Interest Revenue $128; credit Notes Receivable $8,500
D.Debit Cash $8,613; credit Interest Revenue $113; credit Notes Receivable $8,500
E.Debit Cash $8 500; credit Notes Receivable $8,500
52) The comparative income statements for Golden Company are shown below.
Calculate the following ratios for 2012:
(a) profit margin.
(b) gross margin.
(c) times interest earned.
53) Sail Away takes special orders to manufacture sail boats for high end customers.
Complete the job cost sheets for Sail Away for September based on the following
information. Prepare journal entries to record the transactions as well as post to the job
cost sheets.
a. Purchased raw materials on credit, $145,000.
b. Materials requisitions: Job 240, $48,000; Job 241, $36,000; Job 242, $42,000;
indirect materials were $12,000.
c. Paid $130,000 for factory wages.
d. Time tickets used to charge labor to jobs: Job 240, $40,000; Job 241, $30,000; Job
242, $35,000, indirect labor is $25,000.
e. The company incurred the following additional overhead costs: depreciation of
factory building, $70,000; depreciation of factory equipment, $60,000; expired factory
insurance, $10,000; utilities and maintenance cost of $20,000 were paid in cash.
f. Applied overhead to all three jobs. The predetermined overhead rate is 190% of direct
labor cost.
g. Transferred jobs 240 and 242 to Finished Goods Inventory.
h. Sold job 240 for $300,000 for cash.
i. Closed the under- or over-applied overhead account balance.
54) A company had a bulldozer destroyed by fire. The bulldozer originally cost
$125,000 with accumulated depreciation of $60,000. The proceeds from the insurance
company were $90,000. The company should recognize:
A.A loss of $25,000
B.A gain of $25,000
C.A loss of $65,000
D.A gain of $65,000
E.A gain of $90,000
55) A corporation has 200,000 shares of $10 par value common stock outstanding. The
following selected transactions related to the company’s stock took place during the
current year:
Prepare the journal entries to record these transactions.
56) A management approach that emphasizes significant differences from plans is
known as _________________________________.
57) The current ratio and acid-test ratio are used to reflect the ____________ of a
business.
58) Tiger, Inc. has developed the following standard cost data based on 60,000 direct
labor hours, which is 75% of capacity.
During the last period, the company operated at 80% of capacity and produced 128,000
units. Actual costs were:
Determine the direct materials price and quantity variances and the direct labor rate and
efficiency variances. Indicate whether each variance is favorable or unfavorable.
59) A _____________________ is an unincorporated association of two or more people
to pursue a business for profit as co-owners.