1) The sum of the direct materials costs, direct labor costs, and beginning work in
process is the total manufacturing costs for the year.
2) If a retailer accepts a national credit card such as Visa, the retailer must maintain
detailed records of customer accounts.
3) Notes payable are often used instead of accounts payable.
4) Budgets can have a positive or negative effect on human behavior depending on the
manner in which the budget is developed and administered.
5) The cost of a noncash asset acquired in exchange for common stock should be either
the fair value of the consideration given up or the consideration received, whichever is
more clearly determinable.
6) To close net income to owner’s capital, Income Summary is debited and Owner’s
Capital is credited.
7) The overhead controllable variance is the difference between the actual overhead
costs incurred and the budgeted costs for the standard hours allowed.
8) Goods that have been purchased FOB destination but are in transit, should be
excluded from a physical count of goods.
9) A static budget is changed only when actual activity is different from the level of
activity expected.
10) Net sales appears on both the multiple-step and single-step forms of an income
statement.
11) It is not necessary to prepare formal financial statements if a worksheet has been
prepared because financial position and net income are shown on the worksheet.
12) If a company changes its inventory valuation method, the effect of the change on
net income should be disclosed in the financial statements.
13) The ledger is merely a bookkeeping device and therefore does not provide much
useful data for management.
14) Return on common stockholders equity is computed by dividing net income by
ending stockholders equity.
15) Capital expenditures are expenditures that increase the company’s investment in
productive facilities.
16) Closing entries are made
a.in order to terminate the business as an operating entity
b.so that all assets, liabilities, and owner’s capital accounts will have zero balances
when the next accounting period starts
c.in order to transfer net income (or loss) and owner’s drawings to the owner’s capital
account
d.so that financial statements can be prepared
17) IFRS uses each of the following terms to describe retained earnings except
a.accumulated profit or loss
b.retained earnings
c.retained profits
d.share earnings
18) The standard direct labor cost for producing one unit of product is 5 direct labor
hours at a standard rate of pay of $15. Last month, 15,000 units were produced and
73,500 direct labor hours were actually worked at a total cost of $1,080,000. The direct
labor quantity variance was
a.$22,500 favorable
b.$33,750 unfavorable
c.$33,750 favorable
d.$22,500 unfavorable
19) Prepare the necessary journal entries to record the following transactions, assuming
a periodic inventory system:
(a)Purchased $450,000 of merchandise on account, terms 2/10, n/30.
(b)Returned $30,000 of damaged merchandise for credit.
(c)Paid for the merchandise purchased within 10 days.
20) At the break-even point of 2,000 units, variable costs are $120,000, and fixed costs
are $64,000. How much is the selling price per unit?
a.$92
b.$32
c.$28
d.Not enough information
21) A loss on the write down of obsolete inventory should be reported as
a.”other expenses and losses”
b.part of discontinued operations
c.an operating expense
d.an extraordinary item
22) Which of the following events is not a business transaction?
a.Investment of cash by the owner
b.Hired employees
c.Incurred utility expenses for the month
d.Earned revenue for services provided
23) Opportunity cost must be considered in decisions involving
a.budgeting
b.financial accounting
c.CVP analysis
d.resources that have alternative uses
24) A major difference between IFRS and GAAP relates to the
a.Retained Earnings account
b.Revaluation Surplus account
c.Share Capital account
d.Share Premium account
25) Capital is
a.an owner’s permanent investment in the business
b.equal to liabilities minus owner’s equity
c.equal to assets minus owner’s equity
d.equal to liabilities plus drawings
26) Storing cash in a company safe is an application of which internal control principle?
a.Segregation of duties
b.Documentation procedures
c.Physical controls
d.Establishment of responsibility
27) Kim Locke and Mary Leigh Coker have capital accounts of $420,000 and
$480,000, respectively. Jeff Doggett and Danny Cambrey are to join the partnership.
Doggett invests $425,000 in the partnership for which he receives a capital credit of
$425,000. Cambrey purchases a one-half interest from Locke for $300,000 and a
one-fourth interest from Coker for $90,000.
Instructions
(a)Prepare the journal entries to record the admission of Doggett and Cambrey to the
partnership.
(b)Determine the capital balances of the partners after the admission of Doggett and
Cambrey.
28) Presented below are three different aircraft lease transactions that occurred for
Northwest Airways in 2014 . All the leases start on January 1, 2014 . In no case does
Northern receive title to the aircraft during or at the end of the lease period; nor is there
a bargain purchase option.
Lessor
Yale InsuranceNexcs LeasingBanner Leasing
Type of property747 Aircraft727 AircraftL-1011 Aircraft
Yearly rental$8,508,645$6,357,660$2,851,861
Lease term15 years20 years15 years
Estimated economic life25 years25 years25 years
Fair value of
leased asset$80,000,000$63,000,000$32,000,000
Present value of lease
rental payments$73,000,000$54,000,000$28,000,000
Instructions
(a)Which of the above leases are operating leases and which are capital leases? Explain
your answer.
(b)How should the lease transaction with Yale Insurance be recorded in 2014?
(c)How should the lease transaction with Banner Leasing be recorded in 2014?
29) A debit balance in the Allowance for Doubtful Accounts
a.is the normal balance for that account
b.indicates that actual bad debt write-offs have exceeded previous provisions for bad
debts
c.indicates that actual bad debt write-offs have been less than what was estimated
d.cannot occur if the percentage of sales method of estimating bad debts is used
30) Loonis Company uses both standards and budgets. The company estimates that
production for the year will be 200,000 units of Product Accelerated. To produce these
units of Product Accelerated, the company expects to spend $600,000 for materials and
$1,000,000 for labor.
Instructions
Compute the estimates for (a) a standard cost and (b) a budgeted cost.
31) On July 1, Runner’s Sports Store paid $14,000 to Corona Realty for 4 months rent
beginning July 1 . Prepaid Rent was debited for the full amount. If financial statements
are prepared on July 31, the adjusting entry to be made by Runners Sports Store is
a.Debit Rent Expense, $14,000; Credit Prepaid Rent, $3,500
b.Debit Prepaid Rent, $3,500; Credit Rent Expense, $3,500
c.Debit Rent Expense, $3,500; Credit Prepaid Rent, $3,500
d.Debit Rent Expense, $14,000; Credit Prepaid Rent, $14,000
32) Up Company purchased Down Company on September 1, 2014, for $11,000,000.
On that date the book value of Down’s net assets was $6,500,000; the fair market value
of the net assets was $9,500,000. The entry to record the purchase of Down Company
should include Goodwill of:
a.$11,000,000
b.$4,500,000
c.$1,500,000
d.$0
33) The basic accounting equation cannot be restated as
a.Assets Liabilities = Owner’s Equity
b.Assets Owner’s Equity = Liabilities
c.Owner’s Equity + Liabilities = Assets
d.Assets + Liabilities = Owner’s Equity
34) Ryan Adams, an employee of Heartbreaker Corp., will not receive her paycheck
until April 2. Based on services performed from March 15 to March 31, his salary was
$1,000. The adjusting entry for Heartbreaker Corp. on March 31 is
a.Salaries and Wages Expense1,000
Salaries and Wages Payable1,000
b.No entry is required.
c.Salaries and Wages Expense1,000
Cash1,000
d.Salaries and Wages Payable1,000
Cash1,000
35) For each of the following unrelated transactions, (a) determine the amount of the
amortization or depletion expense for the current year, and (b) present the adjusting
entries required to record each expense at year end.
(1)Timber rights were purchased on a tract of land for $480,000. The timber is
estimated at 1,200,000 board feet. During the current year, 75,000 board feet of timber
were cut and sold.
(2)Costs of $8,000 were incurred on January 1 to obtain a patent. Shortly thereafter,
$22,000 was spent in legal costs to successfully defend the patent against competitors.
The patent has an estimated legal life of 12 years.
36) Jack Company provides for bad debt expense at the rate of 2% of credit sales. The
following data are available for 2014:
Allowance for doubtful accounts, 1/1/14 (Cr.)$ 12,000
Accounts written off as uncollectible during 2014 9,000
Credit sales in 20141,200,000
The Allowance for Doubtful Accounts balance at December 31, 2014, should be
a.$3,000
b.$21,000
c.$24,000
d.$27,000
37) The most important information needed to determine if companies can pay their
current obligations is the
a.net income for this year
b.projected net income for next year
c.relationship between current assets and current liabilities
d.relationship between short-term and long-term liabilities
38) Long-term creditors are usually most interested in evaluating
a.liquidity and solvency
b.solvency and marketability
c.liquidity and profitability
d.profitability and solvency
39) On November 30, capital balances are Forsyth $720,000, Lagassi $600,000 and
Kelly $600,000. The income ratios are 20%, 20% and 60% respectively. Forsytha
decides to retire from the partnership. The partnership pays Forsyth $600,000 cash for
her partnership interest. After Forsyths retirement, what is the balance of Kellys capital
account?
a.$528,000
b.$600,000
c.$672,000
d.$690,000
40) Standard costs are:
a.useful for cost control purposes
b.useful in evaluating management performance
c.useful in setting selling prices of finished goods
d.All of the above
41) Indrisano’s Used Cars uses the specific identification method of costing inventory.
During March, Indrisano purchased three cars for $12,000, $14,400, and $19,200,
respectively. During March, two cars are sold for a total of $34,600. Indrisano
determines that at March 31, the $14,400 car is still on hand. What is Indrisanos gross
profit for March?
a.$1,000
b.$3,400
c.$4,200
d.$8,200
42) Define par value, and discuss its significance in accounting.
43) Meyer Manufacturing Company uses a process cost system. The Molding
Department adds materials at the beginning of the process and conversion costs are
incurred uniformly throughout the process. Work in process on May 1 was 75%
complete and work in process on May 31 was 40% complete.
Instructions
Complete the Production Cost Report for the Molding Department for the month of
May using the above information and the information below.
MEYER MANUFACTURING COMPANY
Molding Department
Production Cost Report
For the Month Ended May 31, 2014
Equivalent Units
QUANTITIESPhysical UnitsMaterialsConversion Costs
Units to be accounted for
Work in process, May 17,000
Started into production28,000
Total units35,000
Units accounted for
Transferred out30,000
Work in process, May 31 5,000
Total units35,000
COSTS
Unit costsMaterials Conversion Costs Total
Costs in May$140,000$160,000$300,000
Equivalent units
Unit costs$$$
Costs to be accounted for
Work in process, May 1$ 60,000
Started into production 240,000
Total costs$300,000
Cost Reconciliation Schedule
Costs accounted for
Transferred out$
Work in process, May 31
Materials$
Conversion costs
Total costs$300,000
44) On April 1, Sign Company buys 4,000 shares of Polk common stock for $61,500.
On October 1, Sign sells 1,000 shares of Polk stock for $20,500..
Instructions
Prepare journal entries for the purchase and sale of the Polk common stock.
45) Neko Case decides to open a cleaning and laundry service near the local college
campus that will operate as a sole proprietorship. Analyze the following transactions for
the month of June in terms of their effect on the basic accounting equation. Record each
transaction by increasing (+) or decreasing () the dollar amount of each item affected.
Indicate the new balance of each item after a transaction is recorded. It is not necessary
to identify the cause of changes in owner’s equity.
Transactions
(1)Neko Case invests $20,000 in cash to start a cleaning and laundry business on June 1
.
(2)Purchased equipment for $5,000 paying $3,000 in cash and the remainder due in 30
days.
(3)Purchased supplies for $1,200 cash.
(4)Received a bill from College News for $300 for advertising in the campus
newspaper.
(5)Cash receipts from customers for cleaning and laundry amounted to $2,400.
(6)Paid salaries of $600 to student workers.
(7)Billed the Lion Soccer Team $450 for cleaning and laundry services.
(8)Paid $300 to College News for advertising that was previously billed in Transaction
4 .
(9)Neko Case withdrew $1,500 from the business for living expenses.
(10)Incurred utility expenses for month on account, $500.
Trans-AccountsAccountsOwners
actionCash+Receivable+Supplies+Equipment=Payable+Capital
(1)
Balance
(2)
Balance
(3)
Balance
(4)
Balance
(5)
Balance
(6)
Balance
(7)
Balance
(8)
Balance
(9)
Balance
(10)
Totals
46) Liabilities are generally classified as either ______________ or ______________
on a classified balance sheet.