1) A reverse stock split increases the market value per share and the par value per share
of stock.
2) Plant assets can be disposed of by discarding, selling, or exchanging them.
3) Period costs are incurred by purchasing merchandise or manufacturing finished
goods.
4) Investment center is another name for profit center.
5) Comprehensive income refers to all changes in equity during a period except those
from owners’ investments and dividends.
6) Activity-based costing uses pre-determined overhead rates to allocate costs.
7) The cash flow on total assets ratio reflects actual cash flows and is therefore affected
by income recognition and measurement.
8) A company cannot have a liability if the amount of the obligation is unknown.
9) If budgeted beginning inventory is $8,300, budgeted ending inventory is $9,400, and
cost of goods sold is expected to be $10,260, then budgeted purchases should be
$11,360.
10) The factor for the present value of an annuity at 8% for 10 years is 6.7101. This
implies that an annuity of ten $15,000 payments at 8% yields a present value of $2,235.
11) Unlimited liability and separate taxation of the business are advantages of a sole
proprietorship.
12) Employers must keep individual earnings reports for each employee.
13) A particular feature of callable bonds is that they reduce the bondholder’s risk by
requiring the issuer to create a sinking fund of assets set aside at specified amounts and
dates to repay the bonds at maturity.
14) The process cost summary is an important managerial accounting report produced
by a process costing system.
15) A company purchased a tract of land for its natural resources at a cost of
$1,500,000. It expects to mine 2,000,000 tons of ore from this land. The salvage value
of the land is expected to be $250,000. The depletion expense per ton of ore is:
A.$0.75.
B.$0.625.
C.$0.875.
D.$6.00.
E.$8.00.
16) Dalworth and Minor have decided to form a partnership. Minor is going to
contribute a depreciable asset to the partnership as her equity contribution to the
partnership. The following information regarding the asset to be contributed by Minor
is available:
Based on this information, Minor’s beginning equity balance in the partnership will be:
A.$276,000
B.$158,000
C.$136,000
D.$127,000
E.$18,000
17) The following December 31 year-end adjusted trial balance is for Heath Wilmer Co.
The credit balance in Heath Wilmer, Owner Capital at the beginning of the year,
January 1, was $320,000. The owner, Heath Wilmer, invested an additional $300,000
during the current year. The land held for future expansion was also purchased during
the current year.
Required:
1> Prepare a classified year-end balance sheet. (Note: A $22,000 installment on the
long-term note payable is due within one year.)
2> Using the information presented:
(a) Calculate the current ratio. Comment on the ability of Heath Wilmer Co. to meets its
short-term debts.
(b) Calculate the debt ratio and comment on the financial position and risk analysis of
Heath Wilmer Co.
(c) Using the account balances to analyze the financial position of Heath Wilmer Co.,
why would the owner need to invest an additional $300,000 in the business when the
business is already profitable and the owner had an existing capital balance of
$320,000?
18) Wyman Corporation uses a process costing system. The company manufactured
certain goods at a cost of $800 and sold them on credit to Percy Corporation for $1,075.
The complete journal entry to be made by Wyman at the time of this sale is:
A.Debit Accounts Receivable $1,075; credit Sales $1,075; debit Cost of Goods Sold
$800; credit Finished Goods Inventory $800.
B.Debit Accounts Receivable $1,075; credit Sales $275; credit Finished Goods
Inventory $800.
C.Debit Cost of Goods Sold $1,075; credit Sales $1,075.
D.Debit Finished Goods Inventory $800; debit Sales $1,075; credit Accounts
Receivable $1,075; credit Cost of Goods Sold $800.
E.Debit Accounts Receivable $1,075; debit Selling expense $800; credit Sales $1,075;
credit Cost of Goods Sold $800.
19) On January 1, a company issues bonds dated January 1 with a par value of
$400,000. The bonds mature in 5 years. The contract rate is 7%, and interest is paid
semiannually on June 30 and December 31. The market rate is 8% and the bonds are
sold for $383,793. The journal entry to record the issuance of the bond is:
A.Debit Cash $400,000; debit Discount on Bonds Payable $16,207; credit Bonds
Payable $416,207.
B.Debit Cash $383,793; debit Discount on Bonds Payable $16,207; credit Bonds
Payable $400,000.
C.Debit Bonds Payable $400,000; debit Bond Interest Expense $16,207; credit Cash
$416,207.
D.Debit Cash $383,793; debit Premium on Bonds Payable $16,207; credit Bonds
Payable $400,000.
E.Debit Cash $383,793; credit Bonds Payable $383,793.
20) Using conversion cost per equivalent unit is appropriate for many business that use
process costing because:
A.Direct materials and direct labor are usually entered into the production process at the
same rate.
B.All manufacturing costs are entered into the production process in the same period.
C.Equivalent cost per unit is not sufficient measurement of production activity.
D.The weighted average method of calculating equivalent units requires it.
E.Direct labor and factory overhead enter the production process at the same rate.
21) Another title for work in process inventory is:
A.Indirect materials inventory.
B.Goods in process inventory.
C.Conversion costs.
D.Direct materials inventory.
E.Raw materials inventory.
22) Kreighton Manufacturing purchased on credit £50,000 worth of production
materials from a British company when the exchange rate was $1.97 per British pound.
At the year-end balance sheet date the exchange rate increased to $2.76. If the liability
is still unpaid at that time, Kreighton must record a:
A.gain of $39,500.
B.loss of $39,500.
C.gain of $138,000.
D.loss of $138,000.
E.neither a gain nor loss.
23) A company sold $12,000 worth of bicycles with an extended warranty. It estimates
that 2% of these sales will result in warranty work. The current period’s entry to record
the warranty expense is:
A.Debit Warranty Expense $240; credit Cash $240.
B.Debit Prepaid Warranties $240; credit Warranty Expense $240.
C.Debit Estimated Warranty Liability $240; credit Cash $240.
D.Debit Sales Allowances $240; credit Estimated Warranty Liability $240.
E.Debit Warranty Expense $240; credit Estimated Warranty Liability $240.
24) Net income divided by net sales is the:
A.Return on total assets.
B.Profit margin.
C.Current ratio.
D.Total asset turnover.
E.Days’ sales in inventory.
25) A manufacturer’s total cost of making and finishing products in the period is called:
A.Ending finished goods inventory.
B.Total manufacturing costs.
C.Ending work in process inventory.
D.Cost of goods manufactured.
E.Cost of goods sold.
26) Masco, Short, and Henderson who are partners in the MSH Company share income
and loss in a 2:2:1 ratio. They plan to liquidate their partnership. At liquidation, their
balance sheet appears as follows. Prepare journal entries for (a) the sale of land and
equipment sold as a package for $500,000, (b) the allocation of the gain or loss, (c) the
payment of the liabilities, and (d) the distribution of cash to the individual partners.
27) Define joint costs and explain how joint costs can be allocated.
28) Port Manufacturing Company uses a process costing system. Materials are added at
the beginning of the process. Direct labor and overhead are added evenly throughout
the process. The company uses monthly reporting periods for its weighted-average
process costing. The following are the operating and cost data information for October.
The October 1 beginning Work in Process Inventory consisted of 20,000 units. The
costs for this inventory are $82,500 of direct materials, $24,400 of direct labor, and
$48,800 of factory overhead. Factory overhead is applied at 200% of direct labor cost.
In addition to the beginning inventory costs, the company issued the following costs
into Work in Process Inventory; direct materials, $240,000; direct labor, $68,000;
factory overhead, $136,000.
During October, the company completed and transferred 60,000 units of its product to
finished goods. At the end of the month, the Work in Process inventory consisted of
15,000 units that were 40% complete with respect to direct labor and factory overhead
and 100% complete with respect to materials.
Prepare the company’s process cost summary for October using the weighted average
method.
29) In this chapter, you examined several short-term managerial decision tasks. Identify
(list) any three of these types of decision tasks:
_________________________; _________________________;
_________________________
30) Holliday, Inc., operates a retail store with two departments, A and B. Its
departmental income statement for the current year follows:
Holliday allocates building depreciation, maintenance, and utilities on the basis of
square footage. Office expenses are allocated on the basis of sales.
Management is considering an expansion to a three-department operation. The
proposed Department C would generate $120,000 in additional sales and have a 17.5%
contribution to overhead. The company owns its building. Opening Department C
would redistribute the square footage to each department as follows: A, 19,040; B,
21,760 sq. ft.; C, 13,600. Increases in indirect expenses would include: maintenance,
$500; utilities, $3,800; and office expenses, $1,200.
Complete the following departmental income statements, showing projected results of
operations for the three sales departments. (Round amounts to the nearest whole dollar.)
31) Information for Maxim Manufacturing is presented below. Compute both the cost
of goods manufactured and the cost of goods sold for Maxim Manufacturing.
32) Chancellor Company is divided into four departments. Departments A and B are
service departments and Departments 1 and 2 are operating (production) departments.
The services of the two service departments are used by the other departments as
follows:
Complete the following table:
33) Expenditures necessary and integral to the manufacture of finished products are
________________ costs.
34) The following cost items relate to the Henning Company. Classify each cost as a
variable cost or a fixed cost by placing an X in the appropriate column. Each cost
should be evaluated in terms of the volume of units of finished products produced. Also
indicate with an X for each item if it is a product cost or a period cost.
35) An ____________________ is the number of units that could have been started and
completed given the costs incurred during the period.
36) Richardson Fields receives $31,680 cash in advance ticket sales for 11 home soccer
games. Record the advance ticket sales on March 31. Record the revenue earned for the
first game played on August 17.