1) When preparing the operating activities section of the statement of cash flows using
the indirect method, non-operating gains are added to net income.
2) Participating preferred stock has a feature that allows its holders to share with
common shareholders in any dividends paid in excess of the percent or dollar amount
stated on the preferred stock.
3) The units-of-production method of depreciation charges a varying amount of expense
for each period of an asset’s useful life depending on its usage.
4) Two common ways of retiring bonds before maturity are to (1) exercise a call option
or (2) purchase them on the open market.
5) If indirect materials costing $37,500 that were not clearly linked with any specific
production process or department were used during a reporting period, the following
journal entry would be recorded in the process costing system:
6) Under a job order costing system, individual jobs are always charged with actual
overhead costs when they are transferred to finished goods.
7) Debit means increase and credit means decrease for all accounts.
8) Under a perpetual inventory system, when a credit customer returns merchandise to
the seller, the seller debits Sales Returns and Allowances and credits Accounts
Receivable and also debits Merchandise Inventory and credits Cost of Goods Sold.
9) A bond’s par value is not necessarily the same as its market value.
10) Asset turnover is computed by dividing net sales by average total assets.
11) An example of a service department is the human resources department.
12) Corporations issue preferred stock to raise capital without sacrificing control of the
corporation and/or to boost the return earned by common shareholders.
13) Merchandise inventory refers to products that a company owns and intends to sell
to customers.
14) Preparation of a trial balance is the first step in processing a financial transaction.
15) Compounded means that interest during a second period is based on the total
amount borrowed plus the interest accrued in the first period.
16) Cox, North, and Lee form a partnership. Cox contributes $180,000, North
contributes $150,000, and Lee contributes $270,000. Their partnership agreement calls
for a 5% interest allowance on the partner’s capital balances with the remaining income
or loss to be allocated equally. If the partnership reports income of $174,000 for its first
year, what amount of income is credited to Lee’s capital account?
A.$58,000.
B.$57,000.
C.$61,500.
D.$55,500.
E.$48,000.
17) The Marina Corp. has applied overhead to jobs during the period as follows:
100,000
The application of overhead has resulted in a $5,600 credit balance in the Factory
Overhead account, and this amount is not material. The entry to dispose of this
remaining factory overhead balance is:
A.Debit Cost of Goods Sold $5,600; credit Factory Overhead $5,600.
B.Debit Factory Overhead $5,600; credit Cost of Goods Sold $5,600.
C.Debit Factory Overhead $5,600; credit Work in Process Inventory $5,600.
D.Debit Work in Process Inventory $5,600; credit Factory Overhead $5,600.
E.No entry is needed.
18) Garcia Manufacturing’s April sales forecast projects that 5,000 units will sell at a
price of $10.50 per unit. The desired ending inventory is 30% higher than the beginning
inventory, which was 1,000 units. Budgeted purchases of units in April would be:
A.5,000 units.
B.6,000 units.
C.5,300 units.
D.6,300 units.
E.Some other amount.
19) Calculate the cost of goods manufactured using the following information:
A.$680,500.
B.$701,900.
C.$687,100.
D.$674,600.
E.$772,600.
20) Farthington Soccer Supplies purchases merchandise from a supplier on credit, terms
2/10, n/30 for $15,300. When recording the payment transaction made within the
discount period in its cash disbursement journal, Farthington would enter:
A.$15,300 in the Cash Cr. column and $15,300 in the Inventory Dr. column.
B.$15,300 in the Cash Cr. column and $15,300 in the Accounts Payable Dr. column.
C.$15,300 in the Inventory Cr. column; $14,994 in the Accounts Payable Dr. column;
and $306 in the Inventory Cr. column.
D.$14,994 in the Accounts Payable Dr. column and $14,994 in the Cash Cr. column.
E.$15,300 in the Accounts Payable Dr. column; $14,994 in the Cash Cr. column; and
$306 in the Inventory Cr. column.
21) When a partner is added to a partnership:
A.The previous partnership ends.
B.The underlying business operations end.
C.The underlying business operations must close and then re-open.
D.The partnership must continue.
E.The partnership equity always increases.
22) The unadjusted trial balance and the adjustment data for Porter Business Institute
are shown below along with adjusting entry information. What is the impact of the
adjusting entries on the balance sheet? Show the calculation for total assets, total
liabilities, and owner’s equity without the adjustments; show the calculation for total
assets, total liabilities, and owner’s equity with the adjustments. Which one provides the
most accurate presentation of the balance sheet?
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.
23) Adams Manufacturing allocates overhead to production on the basis of direct labor
costs. At the beginning of the year, Adams estimated total overhead of $396,000;
materials of $410,000 and direct labor of $220,000. During the year Adams incurred
$418,000 in materials costs, $413,200 in overhead costs and $224,000 in direct labor
costs. Compute the overhead application rate.
A.180%.
B.55.6%.
C.186%.
D.184%.
E.96.6%.
24) Alto Company issued 7% preferred stock with a $100 par value. This means that:
A.Preferred shareholders have a guaranteed dividend.
B.The amount of the potential dividend is $7 per year per preferred share.
C.Preferred shareholders are entitled to 7% of the annual income.
D.The market price per share will approximate $100 per share.
E.Only 7% of the total paid-in capital can be preferred stock.
25) Flamingos, Inc. has four departments. The Administrative Department costs are
allocated to the other three departments based on the number of employees in each and
the Maintenance Department costs are allocated to the Assembly and Packaging
Departments based on their occupied space. Data for these departments follows:
The total amount of the Administrative Department’s cost that would eventually be
allocated to the Packaging Department is:
A.$4,800.
B.$12,000.
C.$10,000.
D.$18,000.
E.$13,000.
26) An employer’s federal unemployment taxes (FUTA) are reported:
A.Annually.
B.Semiannually.
C.Quarterly.
D.Monthly.
E.Weekly.
27) The following information is available for Jergenson Company:
a. The Cash Budget for March shows a bank loan of $10,000 and an ending cash
balance of $48,000.
b. The Sales Budget for March indicates sales of $120,000. Accounts receivable is
expected to be 70% of the current-month sales.
c. The Merchandise Purchases Budget indicates that $90,000 in merchandise will be
purchased in March on account and ending inventory for March is predicted to be 600
units @ $35. Purchases on account are paid 100% in the month following the purchase.
d. The Budgeted Income Statement shows a net income of $48,000 and $21,000 in
income tax expense for the quarter ended March 31. Accrued taxes will be paid in April.
e. The Balance Sheet for February shows equipment of $77,000 with accumulated
depreciation of $28,000, common stock of $25,000 and retained earnings of $8,000.
There are no changes budgeted in the equipment or common stock accounts.
Prepare a budgeted balance sheet for March.
28) The variable overhead spending variance, the fixed overhead spending variance,
and the variable overhead efficiency variance can be combined to find the:
A.Production variance.
B.Quantity variance.
C.Volume variance.
D.Price variance.
E.Controllable variance.
29) Starlight Company has inventory of 8 units at a cost of $200 each on October 1. On
October 2, it purchased 20 units at $205 each. 11 units are sold on October 4. Using the
LIFO perpetual inventory method, what amount will be reported in cost of goods sold
for the 11 units that were sold?
A.$2,239.
B.$2,255.
C.$2,200.
D.$2,228.
E.$2,215.
30) A partnership that has two classes of partners, general and limited, where the
limited partners have no personal liability beyond the amounts they invest in the
partnership, and no active role in the partnership, except as specified in the partnership
agreement is a:
A.Mutual agency partnership.
B.Limited partnership.
C.Limited liability partnership.
D.General partnership.
E.Limited liability company.
31) Mercury Company reports depreciation expense of $40,000 for Year 2. Also,
equipment costing $150,000 was sold for its book value in Year 2. The following
selected information is available for Mercury Company from its comparative balance
sheet. Compute the cash received from the sale of the equipment.
A.$32,000.
B.$68,000.
C.$38,000.
D.$40,000.
E.$36,000.
32) Calwell Corp. uses a job order costing system. Four jobs were started during the
current year. The following is a record of the costs incurred:
Actual overhead costs were $55,800. The predetermined overhead rate is $2.40 per
direct labor hour. During the year, Jobs 1010, 1012, and 1013 were completed. Also,
Jobs 1010 and 1013 were sold for $387,000. Assuming that this is Calwell’s first year of
operations:
(a) Make the necessary journal entries to charge the costs to the jobs started and to
record the completion and sale of finished jobs.
(b) Calculate the balance in the Work in Process Inventory, Finished Goods Inventory,
and Factory Overhead accounts. Does the Factory Overhead account balance indicate
an over- or underapplied overhead?
33) Spilker Linens Store has three departments: Bath, Kitchen, and Bedding. The most
recent income statement, showing the total operating profit and departmental results is
shown below:
Based on this income statement, management is planning on eliminating the Bedding
department, as it is generating a net loss. If the Bedding department is eliminated, the
Kitchen department will expand to fill the space, but sales will not change in total, nor
will direct expenses. None of Bedding’s allocated expenses will be avoided, but they
will be reallocated to Bath and Kitchen. Bath will be allocated $100,000 additional
expenses, and Kitchen will be allocated $75,000 additional expenses. Prepare a new
income statement for Spilker Linens Store, showing the results if the Bedding
Department is eliminated and indicate whether eliminating the department is advisable.
34) The accounts of Mason Company at the end of the past year report the following
amounts:
If the beginning equity for the year was $173,000, calculate the ending equity for
Mason Company.
35) What is footing and crossfooting of the column totals in special journals? What is
the purpose?
36) Dynasty Corporation had stockholders’ equity on January 1 as follows: Common
Stock, $5 par value, 1,000,000 shares authorized, 400,000 shares issued; Paid-in Capital
in Excess of Par Value, Common Stock, $800,000; Retained Earnings, $3,600,000.
Prepare journal entries to record the following transactions:
37) Cosmos Corporation had the following long-term investment transactions.
Prepare the journal entries Cosmos Corporation should record for these transactions and
events.
38) Return on equity increases when the expected rate of return from the acquired
assets is __________________ than the rate of interest on the bonds used to finance the
asset acquisition.