1) Generally, the lower the number of days’ sales in inventory, the better.
2) The acquisition of land in exchange for common stock is an example of noncash
investing and financing activity.
3) Entries required to close the balances of the temporary accounts at the end of the
period are called final entries.
4) Standby equipment held for use in the event of a breakdown of regular equipment is
reported as property, plant, and equipment on the balance sheet.
5) Unit variable cost does not change as the number of units of activity changes.
6) Land is an example of a plant asset.
7) When merchandise that was sold is returned, a credit to sales returns and allowances
is made.
8) An adjusting entry would adjust an expense account so the expense is reported when
incurred.
9) In a just-in-time (JIT) environment, raw materials are delivered less frequently than
in a traditional environment.
10) The process cost system is appropriate where few products are manufactured and
each product is made to customers’ specifications.
11) The ratio of income from operations to sales is termed the profit margin component
of the rate of return on investment.
12) Journalizing and posting the adjustments and closing entries updates the ledger for
the new accounting period.
13) One of the most important differences between a service business and a retail
business is in what is sold.
14) Depending on the capacity of the plant, a company may best be served by further
processing some of the product and leaving the rest as is, with no further processing.
15) Under the periodic inventory system, the merchandise inventory account
continuously discloses the amount of inventory on hand.
16) The majority of businesses end their fiscal year on December 31.
17) It is not possible for one company to influence the operating policies of another
company unless it owns more than 50% interest in that company.
18) Which of the following would be added to the balance per books on a bank
reconciliation?
A.Service charges
B.Outstanding checks
C.Deposits in transit
D.Notes collected by the bank
19) Kissimmee Paint Co. reported the following data for the month of July. There were
no beginning inventories and all units were completed (no work in process).
In the month of July, 28,000 of the 30,000 units manufactured were sold at a price of
$80 per unit.
(a) Prepare a variable costing income statement.
(b) Prepare an absorption costing income statement.
(c) Briefly explain why there is a difference in income from operations between the two
methods.
20) On January 2nd, Newsprint Manufacturing purchases 5 rolls of paper on account at
$125.00 per roll for use within the production process. On January 5th 4 rolls of this
paper are issued to Job 010507A in the Printing Department. The Printing Department
records $675.00 in direct labor and $1,150.00 of factory overhead to Job 010507A. On
January 8th Printing transfers Job 010507A to the Folding Department. The folding
department applies $450.00 in direct labor and $655.00 in factory overhead to Job
010507A. Job 010507A is transferred to Finished Goods Inventory on January 9th.
(a) Journalize the purchasing of the paper to Raw Materials Inventory.
(b) Journalize the transfer of raw materials to work in process, the application of direct
labor, and the application of manufacturing overhead to Job 010507A while in the
Printing Department.
(c) Journalize the transfer of Job 010507A to the Folding Department at actual cost.
(d) Journalize the application of direct labor, and the application of manufacturing
overhead to Job 010507A while in the Folding Department.
(e) Journalize the transfer of Job 010507A to Finished Goods Inventory at actual cost.
21) Project A requires an original investment of $65,000. The project will yield cash
flows of $15,000 per year for seven years. Project B has a calculated net present value
of $5,500 over a five year life. Project A could be sold at the end of five years for a
price of $30,000. (a) Using the proper table below determine the net present value of
Project A over a five-year life with salvage value assuming a minimum rate of return of
12%. (b) Which project provides the greatest net present value?
22) The Winston Company estimates that the factory overhead for the following year
will be $1,250,000. The company has decided that the basis for applying factory
overhead should be machine hours, which is estimated to be 50,000 hours. The total
machine hours for the year was 54,300. The actual factory overhead for the year was
$1,348,800.
a) Determine the total factory overhead amount applied.
b) Calculate the over or under applied amount for the year.
c) Prepare the journal entry to close factory overhead into Cost of Goods Sold.
23) The income statement columns in the worksheet show that debits are equal to
$55,800 and credits are $67,520. What does this information mean to the accountant?
A.Net income of $11,720
B.Net loss of $11,720
C.The accounts are out of balance, indicating an error has been made
D.The accounts have not been updated
24) Materials used by Best Bread Company in producing Division A’s product are
currently purchased from outside suppliers at a cost of $30 per unit. However, the same
materials are available from Division B. Division B has unused capacity and can
produce the materials needed by Division A at a variable cost of $20 per unit.
(a) If a transfer price of $25 per unit is established and 60,000 units of material are
transferred, with no reductions in Division B’s current sales, how much would Best
Bread Company’s total income from operations increase?
(b) Assuming transfer price of $25 per unit is established and 60,000 units of material
are transferred, with no reductions in Division B’s current sales, how much would the
income from operations of Division A increase?
(c) Assuming transfer price of $25 per unit is established and 60,000 units of material
are transferred, with no reductions in Division B’s current sales, how much would the
income from operations of Division B increase?
(d) If the negotiated price approach is used, what would be the range of acceptable
transfer prices?
25) Using a perpetual inventory system, the entry to record the return of merchandise
purchased on account includes a
A.debit to Cost of Merchandise Sold
B.credit to Accounts Payable
C.credit to Merchandise Inventory
D.credit to Sales
26) Herberto Company had a net income of $74,000, and other comprehensive loss of
$8,500 for 2012. On January 1, 2012, the Retained Earnings balance was $425,000 and
the Accumulated Other Comprehensive Income balance was $52,000. Determine the (a)
comprehensive income for 2012, (b) Retained Earnings balance on December 31, 2012,
and (c) the Accumulated Other Comprehensive Income on December 31, 2012.
27) A company with 100,000 authorized shares of $4 par common stock issued 40,000
shares at $8. Subsequently, the company declared a 2% stock dividend on a date when
the market price was $11 a share. What is the amount transferred from the retained
earnings account to paid-in capital accounts as a result of the stock dividend?
A.$3,200
B.$6,400
C.$4,800
D.$8,800
28) Zang Co. manufacturers its products in a continuous process involving two
departments, Machining and Assembly. Present entries to record the following selected
transactions related to production during June:
(a) Materials purchased on account, $180,000.
(b) Materials requisitioned by: Machining, $73,000 direct and $9,000 indirect materials;
Assembly, $4,900 indirect materials.
(c) Direct labor used by Machining, $23,000, Assembly, $47,000.
(d) Depreciation expenses: Machining, $4,500; Assembly, $7,800.
(e) Factory overhead applied: Machining, $9,700; Assembly, $11,300.
(f) Machining Department transferred $98,300 to Assembly Department; Assembly
Department transferred $83,400 to finished goods.
(g) Sold goods on account, $100,000. Cost of goods sold, $68,000.
29) At the beginning of the period, the Assembly Department budgeted direct labor of
$110,000, direct material of $170,000 and fixed factory overhead of $28,000 for 8,000
hours of production. The department actually completed 10,000 hours of production.
What is the appropriate total budget for the department, assuming it uses flexible
budgeting.
A.$288,000
B.$305,000
C.$350,000
D.$378,000
30) On January 1, 2015, Yeargan Company obtained an $125,000, seven year 5%
installment note from Farmers Bank. The note requires annual payments of $21,602,
with the first payment occurring on the last day of the fiscal year. The first payment
consists of $6,250 interest and principal repayment of $15,352.
Requirement:
31) If fixed costs are $400,000 and the unit contribution margin is $20, what amount of
units must be sold in order to have a zero profit?
A.25,000 units
B.10,000 units
C.400,000 units
D.20,000 units
32) Paper Company receives a $6,000, 3-month, 6% promissory note from Dame
Company in settlement of an open accounts receivable. What entry will Paper Company
make upon receiving the note?
A.Notes Receivable 6,000
Accounts ReceivableDame Company 6,000
B.Notes Receivable 6,090
Accounts ReceivableDame Company 6,090
C.Notes Receivable 6,090
Accounts ReceivableDame Company 6,000
Interest Revenue 90
D.Notes Receivable 6,000
Interest Revenue 90Accounts ReceivableDame Company 6,000Interest Receivable 90
33) The journal entry a company records for the payment of interest, interest expense,
and amortization of bond premium is
A.debit Interest Expense, credit Cash and Premium on Bonds Payable
B.debit Interest Expense, credit Cash
C.debit Interest Expense and Premium on Bonds Payable, credit Cash
D.debit Interest Expense, credit Interest Payable and Premium on Bonds Payable
34) Southern Company is preparing a cash budget for April. The company has $12,000
cash at the beginning of April and anticipates $30,000 in cash receipts and $34,500 in
cash disbursements during April. Southern Company has an agreement with its bank to
maintain a cash balance of at least $10,000. To maintain the $10,000 required balance,
during April the company must:
A.borrow $4,500
B.borrow $2,500
C.borrow $7,500
D.borrow $5,000
35) Set up T accounts for Cash, Accounts Receivable, Supplies, Accounts Payable,
Capital Stock, Dividends, Professional Fees, and Operating Expenses.
(a) In the T accounts, record the following transactions of Potter Pool Services for June,
2011, identifying each entry by number:
(1) Dan Potter invested $12,500 cash in the business in exchange for stock.
(2) Purchased supplies on account, $6,250.
(3) Paid operating expenses, $5,500.
(4) Billed clients for fees, $7,440.
(5) Received cash from cash clients, $4,700.
(6) Paid creditors on account, $1,400.
(7) Received $3,100 from clients on account.
(8) The company paid Dan $1,500 in cash dividends.
(b) Prepare a trial balance as of June 30, 2011 for Potter Pool Services.
(c) Assuming that supplies expense (which has not been recorded) amounts to $1,500
for June, determine net income for the month.
36) The following accounts appear in an adjusted trial balance of Brock Pool Service
Company. Indicate whether each account would be reported in the (a) current assets, (b)
property, plant, and equipment, (c) current liabilities, (d) long-term liabilities, or (e)
stockholders equity section of the December 31, 2011, balance sheet of Brock Pool
Service Company.
37) The present value index is computed using which of the following formulas?
A.Amount to be invested/Average rate of return
B.Total present value of net cash flow/Amount to be invested
C.Total present value of net cash flow/Average rate of return
D.Amount to be invested/Total present value of net cash flow
38) Which of the following would not be considered an internal centralized service
department?
A.Payroll accounting department
B.Manufacturing department
C.Information systems department
D.Purchasing department
39) If the market rate of interest is 8%, the price of 6% bonds paying interest
semiannually with a face value of $250,000 will be
A.Equal to $250,000
B.Greater than $250,000
C.Less than $250,000
D.Greater than or less than $250,000, depending on the maturity date of the bonds
40) Costs other than direct materials cost and direct labor cost incurred in the
manufacturing process are classified as:
A.factory overhead cost
B.miscellaneous expense
C.product costs
D.period cost
41) Allowance for Doubtful Accounts has a credit balance of $800 at the end of the year
(before adjustment), and an analysis of accounts in the customer ledger indicates the
estimated amount of uncollectible accounts should be $16,000. Based on the estimate
above, which of the following adjusting entries should be made?
A.debit Bad Debt Expense, $800; credit Allowance for Doubtful Accounts, $800
B.debit Bad Debt Expense, $15,200; credit Allowance for Doubtful Accounts, $15,200
C.debit Allowance for Doubtful Accounts, $800; credit Bad Debt Expense, $800
D.debit Bad Debt Expense, $16,800; credit Allowance for Doubtful Accounts, $16,800
42) Four financial statements are usually prepared for a business. The statement of cash
flows is usually prepared last. The retained earnings statement (RE), the balance sheet
(B), and the income statement (I) are prepared in a certain order to obtain information
needed for the next statement. In what order are these three statements prepared?
A.I, RE, B
B.B, I, RE
C.RE, I, B
D.B, RE, I
43) Free cash flow is
A.all cash in the bank
B.cash from operations
C.cash from financing, less cash used to purchase fixed assets to maintain productive
capacity and cash used for dividends
D.cash flow from operations, less cash used to purchase fixed assets to maintain
productive capacity and cash used for dividends
44) Which of the following amounts should be disclosed in the stockholders’ equity
section of the balance sheet?
A.the number of shares of common stock outstanding
B.the number of shares of common stock issued
C.the number of shares of common stock authorized
D.all of the above
45) The debt created by a business when it makes a purchase on account is referred to
as an
A.account payable
B.account receivable
C.asset
D.prepaid expense
46) The Clydesdale Company has sales of $4,500,000. It also has invested assets of
$2,000,000 and operating expenses of $3,600,000. The company has established a
minimum rate of return of 7%.
What is Clydesdale Company’s residual income?
A.$252,000
B.$900,000
C.$1,400,000
D.$760,000
47) A $550,000 capital investment proposal has an estimated life of four years and no
residual value. The estimated net cash flows are as follows:
The minimum desired rate of return for net present value analysis is 12%. The present
value of $1 at compound interest of 12% for 1, 2, 3, and 4 years is .893, .797, .712,
and .636, respectively. Determine the net present value.
48) On March 4th, Micro Sales makes $4,850.00 in sales on bank credit cards which
charge a 2.5% service charge and deposit the funds into Micro Sales bank accounts at
the end of the business day. Journalize the sales and recognition of expense.
49) On April 10, a company acquired land in exchange for 1,000 shares of $20 par
common stock with a current market price of $73. Journalize this transaction.
50) The following data is given for the Taylor Company:
Overhead is applied on standard labor hours.
Compute the direct labor rate and time variances for Taylor Company.
51) The following are the current assets from Hanes Co. as of December 31, 2014:
Prepare the current asset section of the balance sheet.
52) On January 8th, JumpStart purchased $20,000 worth of office equipment. Prepare
the journal entry to record this transaction.
53) CPA Associates was organized on January 1, 2011, as a corporation. List the errors
that you find in the following financial statements and prepare the corrected statements
for the three months ended March 31, 2011.
