1) The accounting rate of return uses cash flows in its calculation.
2) Reversing entries are optional.
3) Efficiency refers to how productive a company is in using its assets, and is usually
measured relative to how much revenue is generated from a certain level of assets.
4) A financial statement analysis report helps to reduce uncertainty in business
decisions through a rigorous and sound evaluation.
5) The assignment of costs to cost of goods sold and inventory using weighted average
usually yields different results depending on whether a perpetual or periodic system is
used.
6) Raw materials purchased plus beginning raw materials inventory equals the ending
balance of raw materials inventory.
7) When computing a price variance, the price is held constant.
8) If the straight-line depreciation method is used, the annual average investment
amount used in calculating rate of return is calculated as (beginning book value +
ending book value)/2.
9) Underapplied overhead is the amount by which overhead applied to jobs using the
predetermined overhead allocation rate exceeds the overhead incurred during a period.
10) Variable budget is another name for a flexible budget.
11) Amortization is the process of allocating the cost of natural resources to periods
when they are consumed.
12) All plant assets, including land, eventually wear out or decline in usefulness.
13) Any unrealized gain or loss for the portfolio of available-for-sale securities is
reported on the income statement in the other gain or loss section.
14) An expense account is normally closed by debiting Income Summary and crediting
the expense account.
15) Generally the lower the risk, the lower the return that can be expected.
16) A company issued 60 shares of $100 par value stock for $7,000 cash. The total
amount of paid-in capital in excess of par is:
A.$100
B.$600
C.$1,000
D.$6,000
E.$7,000
17) The accounts receivable turnover is calculated by:
A.Dividing net sales by average accounts receivable
B.Dividing net sales by average accounts receivable and multiplying by 365
C.Dividing average accounts receivable by net sales
D.Dividing average accounts receivable by net sales and multiplying by 365
E.Dividing net income by average accounts receivable
18) A controlling influence over the investee is based on the investor owning voting
stock exceeding:
A.10%
B.20%
C.30%
D.40%
E.50%
19) A company’s board of directors votes to declare a cash dividend of $.75 per share.
The company has 15,000 shares authorized, 10,000 issued, and 9,500 shares
outstanding. The total amount of the cash dividend is:
A.$10,250
B.$14,625
C.$7,125
D.$7,500
E.$11,250
20) Trump and Hawthorne have decided to form a partnership. Trump is going to
contribute a depreciable asset to the partnership as his equity contribution to the
partnership. The following information regarding the asset to be contributed by Trump
is available:
*will be assumed by the partnership
Based on this information, Trump’s beginning equity balance in the partnership will be:
A.$76,000
B.$36,000
C.$18,000
D.$27,000
E.$45,000
21) Lara Company’s budget includes the following credit sales for the current year:
September, $25,000; October, $36,000; November, $30,000; December, $32,000.
Experience has shown that payment for the credit sales is received as follows: 15% in
the month of sale, 60% in the first month after sale, 20% in the second month after sale,
and 5% is uncollectible. How much cash can Lara Company expect to collect in
November as a result of current and past credit sales?
A.$19,700
B.$28,500
C.$30,000
D.$31,100
E.$33,900
22) Use the following selected information from Farris, LLC to determine the Year 2
and Year 1 trend percents for net sales using Year 1 as the base.
A.36.4% for Year 2 and 41.1% for Year 1
B.55.0% for Year 2 and 56.0% for Year 1
C.119.4% for Year 2 and 100.0% for Year 1
D.117.2% for Year 2 and 100.0% for Year 1
E.65.1% for Year 2 and 64.6% for Year 1
23) Match each of the following terms a through j with the appropriate definitions1
through
1>Net pay A. A measure that reflects a company’s stability in employing workers.
2>Withholding allowance B. Taxes assessed on both employer and employees under the
Federal Insurance Contributions Act. These taxes fund Social Security and Medicare.
3>Long-term liability C. Known obligations of an uncertain amount that can be
reasonably estimated.
4>Merit rating D. Obligations of a company not requiring payment within one year or
the operating cycle, whichever is longer.
5>FUTA taxes E. Gross pay less all deductions.
6>Estimated liability F. A table of amounts of income tax to be withheld from
employees’ wages.
7>Warranty G. A potential obligation that depends on a future event arising from a past
transaction.
8>Wage bracket withholding table H. A seller’s obligation to repair or replace a product
or service that fails to perform as expected within a specified period.
9>FICA taxes I. A number that is used to reduce the amount of federal income tax
withheld from an employee’s pay.
10>Contingent liability K. Payroll taxes on employers assessed by the federal
government to support the federal unemployment insurance program.
24) The budgeted income statement presented below is for Griffith Corporation for the
coming fiscal year. If Griffith Corporation’s income tax rate is 40%, compute the
number of units that must be sold in order to achieve a target pretax income of
$130,000.
A.53,165
B.81,250
C.36,207
D.50,000
E.58,621
25) The International Accounting Standards Board (IASB)
A.Hopes to create harmony among accounting practices of different countries
B.Is the government group that establishes reporting requirements for companies that
issue stock to the public
C.Has the authority to impose its standards on companies
D.Is the only source of generally accepted accounting principles (GAAP)
E.Only applies to companies that are members of the European Union
26) O.K. Company uses a job order cost accounting system and allocates its overhead
on the basis of direct labor costs. O.K. expects to incur $800,000 of overhead during the
next period, and expects to use 50,000 labor hours at a cost of $10.00 per hour. What is
O.K. Company’s overhead application rate?
A.6.25%
B.62.5%
C.160%
D.1600%
E.67%
27) In many states, the minimum amount that stockholders must contribute to the
corporation, and which is intended to protect the creditors of the corporation, is called
the:
A.Par value of preferred
B.Minimum legal capital
C.Premium capital
D.Stated value
E.Working capital
28) Keegan Company manufactures a single product and has a JIT policy that ending
inventory must equal 10% of the next month’s sales. It estimates that May’s ending
inventory will consist of 20,000 units. June and July sales are estimated to be 280,000
and 290,000 units, respectively. Keegan assigns variable overhead at a rate of $1.80 per
unit of production. Fixed overhead equals $400,000 per month. Compute the number of
units to be produced and use to compute the total budgeted overhead that would appear
on the factory overhead budget for month ended June 30.
A.$520,200
B.$920,200
C.$922,000
D.$904,000
E.$905,800
29) Use the following information to compute the cost of goods manufactured:
A.$36,650
B.$30,950
C.$30,650
D.$30,350
E.$31,650
30) Abbe Company reported the following financial numbers for one of its divisions for
the year; average total assets of $4,100,000; sales of $4,525,000; cost of goods sold of
$2,550,000; and operating expenses of $1,372,000. Assume a target income of 10% of
average invested assets. Compute residual income for the division:
A.$203,000
B.$193,000
C.$150,500
D.$60,300
E.$197,500
31) Rights to purchase common stock at a fixed price over a specified period are:
A.Preferred stocks
B.Class B stocks
C.Stock options
D.Stock restrictions
E.Preemptive rights
32) The following is a partially completed lower section of a departmental expense
allocation spreadsheet for Stoneham. It reports the total amounts of direct and indirect
expenses for the four departments. Purchasing department expenses are allocated to the
operating departments on the basis of purchase orders. Maintenance department
expenses are allocated based on square footage. Compute the amount of Purchasing
department expense to be allocated to Assembly.
A.$6,400
B.$9,900
C.$8,100
D.$14,400
E.$25,600
33) The Machining Department started the current month with a beginning goods in
process inventory of $10,000. During the month, it was assigned the following costs:
direct materials, $76,000; direct labor, $24,000; and factory overhead, 50% of direct
labor cost. Also, inventory with a cost of $109,000 was transferred out of the
department to the next phase in the process. The ending balance of the Goods in Process
Inventory account for the Machining Department is:
A.$13,000
B.$56,000
C.$59,000
D.$110,000
E.$165,000
34) Wilkes Manufacturing uses a job order cost accounting system that charges
overhead to jobs on the basis of direct material cost. At year-end, the Goods in Process
Inventory account shows the following.
a. Determine the overhead rate used (based on direct material cost).
b. Only one job remained in the goods in process inventory at December 31. Its direct
materials cost is $60,000. How much direct labor cost and overhead cost are assigned to
it?
35) Brown Company’s bank statement for September 30 showed a cash balance of
$1,350. The company’s Cash account in its general ledger showed a $995 debit balance.
The following information was also available as of September 30.
a. A $125 debit memoranda is included with the bank statement and dealt with a
customer’s check for $100 marked NSF and returned to Brown Company by the bank.
In addition, the bank charged the company’s a $25 processing fee.
b. The September 30 cash receipts, $1,250, were placed in the bank’s night depository
after banking hours on that date and this amount did not appear on the September 30
bank statement.
c. A $15 debit memorandum for checks printed by the September 30 bank was included
with the canceled checks.
d. Outstanding checks amounted to $1,145.
e. A customer’s note for $900 was collected by the bank. A collection fee of $25 was
deducted by the bank and the difference was deposited in the account.
f. Included with the canceled checks was a check for $275, drawn on another company,
Browne Inc.
1> Prepare a bank reconciliation as of September 30.
2> Prepare any necessary adjusting journal entries necessary as a result of the bank
reconciliation.
36) Using the information below for Hardy Company; determine the manufacturing
costs added during the current year:
A.$12,000
B.$16,100
C.$17,100
D.$18,100
E.$13,600
37) Which one of the following methods considers the time value of money in
evaluating alternative capital expenditures?
A.Accounting rate of return
B.Net present value
C.Payback period
D.Cash flow method
E.Return on average investment
38) FastLane has net income of $18,955, and assets at the beginning of the year of
$200,000. Assets at the end of the year total $246,000. Compute its return on assets.
A.7.7%
B.8.5%
C.9.5%
D.11.8%
E.13.0%
39) A debit:
A.Always increases an account
B.Is the right-hand side of a T-account
C.Always decreases an account
D.Is the left-hand side of a T-account
E.Is not need to record a transaction
40) A company issued 5-year, 7% bonds with a par value of $100,000. The market rate
when the bonds were issued was 6.5%. The company received $101,137 cash for the
bonds. Using the effective interest method, the amount of recorded interest expense for
the first semiannual interest period is:
A.$3,500.00
B.$7,000.00
C.$3,286.95
D.$6,573.90
E.$1,750.00
41) When closing entries are made:
A.All ledger accounts are closed to start the new accounting period
B.All temporary accounts are closed but not the permanent accounts
C.All real accounts are closed but not the nominal accounts
D.All permanent accounts are closed but not the nominal accounts
E.All balance sheet accounts are closed
42) On June 18, Johnson Company (a U.S. Company) sold merchandise to the Frater
Company of Denmark for 60,000 Euros, with a payment due in 60 days. If the
exchange rate was $1.14 per euro on the date of sale and $1.35 per euro on the date of
payment, Johnson Company should recognize a foreign exchange gain or loss in the
amount of:
A.$60,000 gain
B.$60,000 loss
C.$68,400 loss
D.$12,600 gain
E.$12,600 loss
43) On December 31 of the current year, Hewett Company reported an ending
inventory balance of $215,000. The following additional information is also available:
Hewett sold goods costing $38,000 to Trump Enterprises on December 28 and shipped
the goods on that date with shipping terms of FOB shipping point. The goods were not
included in the ending inventory amount of $215,000 because they were not in Hewett’s
warehouse.
Hewett purchased goods costing $44,000 on December 29. The goods were shipped
FOB destination and were received by Hewett on January 2 of the following year. The
shipment was a rush order that was supposed to arrive by December 31. These goods
were included in the ending inventory balance of $215,000.
Hewett’s ending inventory balance of $215,000 included $15,000 of goods being held
on consignment from Rumsfeld Company. (Hewett Company is the consignee.)
Hewett’s ending inventory balance of $215,000 did not include goods costing $95,000
that were shipped to Hewett on December 27 with shipping terms of FOB destination
and were still in transit at year-end.
Based on the above information, the correct balance for ending inventory on December
31 is:
A.$194,000
B.$209,000
C.$200,000
D.$171,000
E.$156,000
44) Assuming a bottom-up process of budget development, which of the following
should be initially responsible for developing sales estimates?
A.The budget committee
B.The accounting department
C.The sales department
D.Top management
E.The marketing department
45) An accounting procedure that (1) estimates and reports bad debts expense from
credit sales during the period the sales are recorded, and (2) reports accounts receivable
at the estimated amount of cash to be collected is the:
A.Allowance method of accounting for bad debts
B.Aging of notes receivable
C.Adjustment method for uncollectible debts
D.Direct write-off method of accounting for bad debts
E.Cash basis method of accounting for bad debts
46) A company reported total equity of $145,000 at the beginning of the year. The
company reported $210,000 in revenues and $165,000 in expenses for the year.
Liabilities at the end of the year totaled $92,000. What are the total assets of the
company at the end of the year?
A.$45,000
B.$92,000
C.$98,000
D.$210,000
E.$282,000
47) A company is authorized to issue 50,000 shares of $50 par, 10%, noncumulative,
nonparticipating preferred stock and 500,000 shares of no-par common stock. Prepare
journal entries to record the following selected transactions that occurred during this
year:
48) The BlueFin Partnership agrees to dissolve. The cash balance after selling all assets
and paying all liabilities is $56,000. The final capital account balances are: Smith,
$33,000; Nagy, $27,000; and Russ, ($4,000). Russ agrees to pay $4,000 cash from
personal funds to settle his deficiency. Prepare the journal entries to record the
transactions required to dissolve this partnership.
49) The accounting equation is _____________________________.
50) _____________________, or customized production, produces products in
response to customer orders.
51) Explain the difference between a large stock dividend and a small stock dividend. In
addition, explain how to record these two types of stock dividends.
52) Using the information presented below, prepare an income statement from the
adjusted trial balance of Hanson Storage.