1) Earnings per share is reported for both preferred and common stock.
2) An aging of accounts receivable schedule is based on the premise that the longer the
period an account remains unpaid, the greater the probability that it will eventually be
collected.
3) When the physical association of raw materials with the finished product is too small
to trace in terms of cost, they are usually classified as indirect materials.
4) A simple journal entry requires only one debit to an account and one credit to an
account.
5) Total budgeted fixed costs appearing on a flexible budget will be the same amount as
total fixed costs on the master budget.
6) Horizontal, vertical, and circular analyses are the most common tools of financial
statement analysis.
7) With an interest-bearing note, the amount of cash received upon issuance of the note
generally exceeds the note’s face value.
8) The elimination of an unprofitable product line may adversely affect the remaining
product lines.
9) Collusion may result when one individual circumvents prescribed controls and may
significantly impair the effectiveness of a system.
10) The loss on bond redemption is the difference between the cash paid and the
carrying value of the bonds.
11) Manufacturing costs in beginning work in process are ignored in computing the cost
of units transferred out and the cost of ending work in process.
12) Controlling is the process of determining whether planned goals are being met.
13) A debit memorandum could show the collection of a note receivable by the bank.
14) After a worksheet has been completed, the statement columns contain all data that
are required for the preparation of financial statements.
15) The use of an inexperienced worker instead of an experienced employee can result
in a favorable labor price variance but probably an unfavorable quantity variance.
16) For a merchandising company, all accounts that affect the determination of income
are closed to the Income Summary account.
17) Cash registers are an important internal control device used in controlling
over-the-counter receipts.
18) When there is no beginning work in process and materials are entered at the
beginning of the process, equivalent units of materials are the same as the units started
into production.
19) In a process cost system, costs are tracked through a series of connected
manufacturing processes or departments, rather than by individual jobs.
20) Job order cost sheets constitute the subsidiary ledger of the control account Work In
Process Inventory.
21) Suppose you have a winning sweepstakes ticket and you are given the option of
accepting $2,000,000 two years from now or taking the present value of the $2,000,000
now. The sponsor of the prize uses a 5% discount rate. If you elect to receive the
present value of the prize now, the amount you will receive is
a.$1,814,060
b.$1,780,000
c.$1,869,160
d.$2,000,000
22) Stanfield Company applies overhead on the basis of 160% of direct labor cost. Job
No. 305 is charged with $140,000 of direct materials costs and $240,000 of
manufacturing overhead. The total manufacturing costs for Job No. 305 is:
a.$530,000
b.$764,000
c.$380,000
d.$780,000
23) In May 2013, the budget committee of Crater, Inc. assembles the following data in
preparation of budgeted merchandise purchases for the month of June.
1>Expected sales: June $750,000, July $900,000.
2>Cost of goods sold is expected to be 80% of sales.
3>Desired ending merchandise inventory is 40% of the following (next) month’s cost of
goods sold.
4>The beginning inventory at June 1 will be the desired amount.
Instructions
(a)Compute the budgeted merchandise purchases for June.
(b)Prepare the budgeted income statement for June through gross profit.
24) Capital budgeting is the process
a.used in sell or process further decisions
b.of determining how much capital stock to issue
c.of making capital expenditure decisions
d.of eliminating unprofitable product lines
25) The following information is for Sunny Day Real Estate:
Sunny Day Real Estate
Balance Sheet
December 31, 2014
Cash$ 25,000Accounts Payable$ 60,000
Prepaid Insurance30,000Salaries and Wages Payable15,000
Accounts Receivable50,000Mortgage Payable 85,000
Inventory70,000Total Liabilities160,000
Land Held for Investment85,000
Land120,000
Building$100,000
Less AccumulatedOwners Capital 370,000
Depreciation(20,000)80,000
Trademark 70,000Total Liabilities and
Total Assets$530,000Owners Equity$530,000
The total dollar amount of assets to be classified as investments is
a.$0
b.$70,000
c.$85,000
d.$155,000
26) The return on common stockholders’ equity is computed by dividing net income
available to common stockholders by
a.ending total stockholders’ equity
b.ending common stockholders’ equity
c.average total stockholders’ equity
d.average common stockholders’ equity
27) Presented here is a partial amortization schedule for Graceland Company who sold
$100,000, five year 10% bonds on January 1, 2014 for $108,000 and uses annual
straight-line amortization.
Which of the following amounts should be shown in cell (v)?
a.$109,600
b.$108,800
c.$106,400
d.$107,200
28) An analysis and aging of the accounts receivable of Hugh Company at December
31 revealed the following data:
Accounts Receivable$900,000
Allowance for Doubtful Accounts per books
before adjustment (Cr.)50,000
Amounts expected to become uncollectible56,000
The cash realizable value of the accounts receivable at December 31, after adjustment,
is:
a.$794,000
b.$844,000
c.$850,000
d.$894,000
29) The following financial statement information is available for James Corporation:
2014 2013
Net sales$780,000$697,000
Cost of goods sold406,000377,000
Net income120,00080,000
Tax expense48,00029,000
Interest expense14,00014,000
The profit margin ratio for 2014 is
a.15.4%
b.47.9%
c.32.1%
d.13.5%
30) Company A sells $2,500 of merchandise on account to Company B with credit
terms of 2/10, n/30. If Company B remits a check taking advantage of the discount
offered, what is the amount of Company B’s check?
a.$1,750
b.$2,000
c.$2,250
d.$2,450
31) Manor Company had the following department data:
Physical Units
Work in process, July 130,000
Completed and transferred out135,000
Work in process, July 3135,000
Materials are added at the beginning of the process. What is the total number of
equivalent units for materials in July?
a.135,000
b.140,000
c.200,000
d.170,000
32) If goods in transit are shipped FOB destination
a.the seller has legal title to the goods until they are delivered
b.the buyer has legal title to the goods until they are delivered
c.the transportation company has legal title to the goods while the goods are in transit
d.no one has legal title to the goods until they are delivered
33) Additional paid-in capital includes all of the following except the amounts paid in
a.over par value
b.over stated value
c.from treasury stock
d.for the par value of common stock
34) The interest on a $6,000, 6%, 60-day note receivable is
a.$60
b.$120
c.$180
d.$360
35) Depreciation is the process of
a.valuing an asset at its fair value
b.increasing the value of an asset over its useful life in a rational and systematic manner
c.allocating the cost of an asset to expense over its useful life in a rational and
systematic manner
d.writing down an asset to its real value each accounting period
36) Which of the following is not a true statement about the accounting for debt
investments?
a.At acquisition, the historical cost principle applies
b.The cost includes any brokerage fees
c.Debt investments include investments in government and corporation bonds
d.The cost includes any accrued interest
37) The two key parties to a promissory note are the
a.maker and a bank
b.debtor and the payee
c.maker and the payee
d.sender and the receiver
38) Equipment that cost $420,000 and on which $200,000 of accumulated depreciation
has been recorded was disposed of for $180,000 cash. The entry to record this event
would include a
a.gain of $40,000
b.loss of $40,000
c.credit to the Equipment account for $220,000
d.credit to Accumulated Depreciation for $200,000
39) Generally, the most important category on the statement of cash flows is cash flows
from
a.operating activities
b.investing activities
c.financing activities
d.significant noncash activities
40) Harris Company borrowed $800,000 from Liber Bank on January 1, 2013 in order
to expand its mining capabilities. The five-year note required annual payments of
$208,349 and carried an annual interest rate of 8.5%. What is the balance in the notes
payable account at December 31, 2014?
a.$800,000
b.$507,372
c.$659,651
d.$664,000
41) On a balance sheet, natural resources may be described more specifically as all of
the following except
a.land improvements
b.mineral deposits
c.oil reserves
d.timberlands
42) Preston Company manufactures a product with a unit variable cost of $140 and a
unit sales price of $264. Fixed manufacturing costs were $720,000 when 10,000 units
were produced and sold. The company has a one-time opportunity to sell an additional
3,000 units at $210 each in a foreign market which would not affect its present sales. If
the company has sufficient capacity to produce the additional units, acceptance of the
special order would affect net income as follows:
a.Income would decrease by $162,000
b.Income would increase by $156,000
c.Income would increase by $6,000
d.Income would increase by $210,000
43) A company has net credit sales of $750,000 for the year and it estimates that
uncollectible accounts will be 2% of sales. If Allowance for Doubtful Accounts has a
credit balance of $2,000 prior to adjustment, its balance after adjustment will be a credit
of
a.$13,000
b.$15,000
c.$15,040
d.$17,000
44) Which of the following would not be considered an internal user of accounting data
for the GHI Company?
a.President of the company
b.Production manager
c.Merchandise inventory clerk
d.President of the employees’ labor union
45) A corporation purchases 40,000 shares of its own $15 par common stock for $30
per share, recording it at cost. What will be the effect on total stockholders equity?
a.Increase by $600,000
b.Decrease by $1,200,000
c.Increase by $1,200,000
d.Decrease by $600,000
46) Under the gross profit method, each of the following items are estimated except for
the
a.cost of ending inventory
b.cost of goods sold
c.cost of goods purchased
d.gross profit
47) The IFRS standard dealing specifically with revenue recognition is based on
a.whether the revenue is realized or realizable
b.whether the revenue is earned
c.whether the revenue is realized or realizable, and earned
d.the probability that economic benefits will flow to the company, and reliability of
measurement
48) The projection of financial position at the end of the budget period is found on the
a.budgeted income statement
b.cash budget
c.budgeted balance sheet
d.sales budget
49) Himes Company sales are $1,200,000, cost of goods under absorption costing is
$900,000, and total operating expenses are $180,000. If cost of good sold is 70%
variable and total operating expenses are 60% fixed, what is the contribution margin
under variable costing?
a.$570,000
b.$498,000
c.$462,000
d.$390,000
50) When admitting a new partner by investment, a bonus to old partners
a.is usually unjustified because book values clearly reflect partnership net worth
b.is sometimes justified because goodwill may exist and it is not reflected in the
accounts
c.results if the debit to cash is less than the new partner’s capital credit
d.results if the debit to cash is equal to the new partner’s capital credit
51) Hawkeye Company estimates that annual manufacturing overhead costs will be
$4,000,000 for 2014 . The actual overhead costs at the end of 2014 are $4,200,000.
Activity base information for 2014 follows:
Activity Base Estimated Actual
Direct Labor Cost$3,200,000$3,400,000
Direct Labor Hours250,000262,000
Machine Hours200,000202,000
Instructions
(a)Compute the predetermined overhead rate for each activity base.
(b)Compute the amount of overhead applied in 2014 for each activity base.
(c)Compute the amount of under- or overapplied overhead for 2014 for each activity
base.
52) In recording the acquisition cost of an entire business,
a.goodwill is recorded as the excess of cost over the fair value of identifiable net assets
b.assets are recorded at the seller’s book values
c.goodwill, if it exists, is never recorded
d.goodwill is recorded as the excess of cost over the book value of identifiable net
assets
53) Tiny Tots Toys has actual sales of $400,000 and a break-even point of $275,000.
How much is its margin of safety ratio?
a.31.25%
b.68.75%
c.145.45%
d.45.45%
54) Dreamtime Laundry purchased $7,000 worth of supplies on June 2 and recorded the
purchase as an asset. On June 30, an inventory of the supplies indicated only $1,000 on
hand. The adjusting entry that should be made by the company on June 30 is
a.Debit Supplies Expense, $1,000; Credit Supplies, $1,000
b.Debit Supplies, $1,000; Credit Supplies Expense, $1,000
c.Debit Supplies, $6,000; Credit Supplies Expense, $6,000
d.Debit Supplies Expense, $6,000; Credit Supplies, $6,000
55) The conceptual framework that underlies IFRS
a.is very similar to that used to develop GAAP
b.does not define assets or liabilities
c.does not define equity
d.does not define income or expenses
56) If the month-end bank statement shows a balance of $72,000, outstanding checks
are $54,000, a deposit of $15,000 was in transit at month end, and a check for $3,000
was erroneously charged by the bank against the account, the correct balance in the
bank account at month end is
a.$33,000
b.$36,000
c.$72,000
d.$114,000
57) Which of the following will cause an increase in ROI?
a.An increase in variable costs
b.An increase in average operating assets
c.An increase in sales
d.An increase in controllable fixed costs
58) Martin Company is considering investing in an annuity contact that will return
$80,000 annually at the end of each year for 12 years. Martin has obtained the
following values related to the time value of money to help in its planning process and
compound interest decisions.
Present Value of 1 for 12 periods at 9%0.35554
Future Value of 1 for 12 periods at 9%2.81267
Present Value of an Annuity of 1 for 12 periods at 9%7.16073
Future Value of an Annuity of 1 for 12 periods at 9%20.14072
To the closest dollar, what amount should Martin Company pay for this investment if it
earns a 9% return?
a.$795,306
b.$628,011
c.$225,014
d.$572,859
59) The final decision as to what standard costs should be is the responsibility of
a.the quality control engineer
b.the managerial accountants
c.the purchasing agent
d.management
60) If bonds can be converted into common stock,
a.they will sell at a lower price than comparable bonds without a conversion feature
b.they will carry a higher interest rate than comparable bonds without the conversion
feature
c.they will be converted only if the issuer calls them in for conversion
d.the bondholder may benefit if the market price of the common stock increases
substantially
61) Jefferson Company has three employees whose monthly salaries and accumulated
year-to-date wages at September 30, 2014 are as follows:
Accumulated
EmployeeWages 9/30/14October Salary
Ansell$62,000$6,900
Comer91,00010,000
Francis6,000800
The following payroll taxes are applicable:
FICA tax on first $100,0008%
FUTA tax on first $7,0006.2%*
SUTA tax on first $7,0005.4%
*Less a credit equal to the state unemployment tax rate.
The amount of federal income tax withholding for the October payroll is $900, $1,700,
and $150 for Ansell, Comer, and Francis, respectively.
Instructions: Prepare the journal entries to record the October payroll and the
employer’s payroll tax expense for the month of October.
62) Abel Quail Farm, Inc. produces a crop of heritage quail at a total cost of $66,000.
The production generates 16,000 quail which can be sold for $4 each to restaurants, or
the quail can be processed in house and then sold for $9 each. It costs $55,000 more to
process the quail .
Instructions
If Abel Quail Farm processes the quail, determine how much incremental profit or loss
it would report. What should Abel Quail Farm do?
63) If a bonus is given to a new partner, the old partners’ capital accounts are decreased
based on their ______________ ratio prior to the admission of the new partner.
64) The freight cost incurred by a seller to deliver goods sold to a customer is called
________________.
65) Assume you have just taken a position as controller for a new company that
manufactures and sells wrought iron wall hangings. Although the founder of the
company, who is the president and CEO, is a great artisan, she has very limited
knowledge of accounting.
Instructions
To help your new boss better understand accounting for a manufacturing organization,
prepare a response to her in which you: (1) identify, (2) describe, and (3) provide
examples of the three manufacturing costs and the three inventory accounts used in
accounting for a manufacturing company.
66) Inventory on hand can be obtained from detailed inventory records when a
________________ inventory system is maintained.
67) Instructions: Prepare the necessary journal entries to record the following
transactions in 2014 for Dorsett Company.
1>May 1Exchanged old store equipment and $80,000 cash for new store equipment.
The old store equipment originally cost $160,000 and had a book value of $100,000 on
the date of exchange. The old store equipment had a fair market value of $144,000 on
the date of exchange. Assume depreciation on the old equipment has already been
recorded for the current year. The exchange had commercial substance.
2>July 31Exchanged a delivery truck and $40,000 cash for a new delivery truck. The
old delivery truck originally cost $46,000 and had accumulated depreciation of $31,000
on the date of exchange. The fair market value of the old delivery truck on the date of
exchange was $12,000. Assume the depreciation on the truck has already been recorded
for the current year. The exchange had commercial substance.
3>Aug. 31Equipment with a 5-year useful life was purchased on January 1, 2011, for
$84,000 and was sold for $30,000. The equipment had been depreciated using the
straight-line method with an estimated salvage value of $12,000. Depreciation Expense
was last recorded on December 31, 2013 .
68) In order to encourage prompt payment of a trade receivable, companies often offer
______________ to customers.
69) Selected financial information for Trant Corporation is presented below.
December 31, 2015December 31, 2014
Current assets$ 55,000$ 40,000
Long-term liabilities90,00080,000
Retained earnings125,000100,000
Instructions
Prepare a schedule showing a horizontal analysis for 2015 using 2014 as the base year.
70) Shep Company combines its operating expenses for budget purposes in a selling
and administrative expense budget. For the first quarter of 2013, the following data are
developed:
1>Sales: 20,000 units; unit selling price:$30
2>Variable costs per dollar of sales:
Sales commissions6%
Delivery expense2%
Advertising4%
3>Fixed costs per quarter:
Sales salaries$24,000
Office salaries19,000
Depreciation6,000
Insurance2,000
Utilities1,000
Instructions
Prepare a selling and administrative expense budget for the first quarter of 2013 .
