When a credit customer returns merchandise to the seller, under a perpetual inventory
system, the seller would debit Sales Returns and Allowances and credit Accounts
Receivable and also debit Merchandise Inventory and credit Cost of Goods Sold.
Both interest on bonds and dividends on stock are tax deductible.
The responsibility for coordinating the preparation of a master budget should be
assigned to the Chief Executive Officer.
Total depreciation expense over an asset’s useful life will be identical under all methods
of depreciation.
Natural resources are reported on the balance sheet at cost plus accumulated depletion.
The steps to reconcile the balance of the bank statement to the adjusted balance include
adding outstanding checks, deposits, and bank service charges.
Promissory notes are nonnegotiable meaning that they cannot be transferred from party
to party.
Vertical analysis is the comparison of a company’s financial condition and performance
across time.
When a partner leaves a partnership, the withdrawing partner is entitled to a bonus if
the recorded equity is overstated.
A Company had net sales of $23,000 million, and its average account receivables were
$5,860 million. Its accounts receivable turnover is 0.92.
An ore deposit costing $800,000 is expected to produce 1,600,000 tons of ore. A total of
70,000 tons are mined and sold in the current year. The depletion expense for the
current year is $35,000.
Collusion is when a person embezzles money from a company and tries to hide the
evidence.
Earnings per share is the amount of income earned per share of a company’s
outstanding (weighted-average) common stock.
The payee is the person who signs a check, authorizing its payment.
The accrual basis of accounting reflects the principle that revenue is recorded when it is
earned, not when cash is received.
The income statement shows the financial position of a business on a specific date.
The periodic inventory system is superior to the perpetual inventory system in
preventing inventory shrinkage.
The FIFO method does not use the costs of beginning inventory in computing cost per
equivalent unit for the current period.
Callable preferred stock gives its holders the option of exchanging their preferred
shares into common shares at a specified rate.
A stock dividend reduces a corporation’s assets and its stockholders’ equity.
A single liability can be divided between current and noncurrent liabilities.
Once a good system of internal control is in place, it rarely needs review.
A company issued 5-year, 7% bonds with a par value of $100,000 and received
proceeds of $96,909. The bond discount equals $10,091.
If Department Q uses $60,000 of direct materials and Department T uses $15,000 of
direct materials, the following journal entry would be recorded by the process cost
accounting system:
Short-term held-to-maturity debt securities are accounted for using the cost method
with amortization.
Ben and Jerry’s had total assets of $149,501,000, net income of $6,242,000, and net
sales of $209,203,000. Its profit margin was 2.98%.
Accounting for contingent liabilities covers three categories. (1) The future event is
probable and the amount cannot be reasonably estimated. (2) The future event is remote
or unlikely to recur. (3) The likelihood of the liability to occur is impossible.
The statement of cash flows reports the total change in cash.
A disadvantage of an investment with a short payback period is that it will produce
revenue for only a short period of time.
A common statutory restriction is reported on the income statement whereas; a common
contractual restriction is reported in the stockholders’ equity section of the balance
sheet.
Minimum legal capital requirements are intended to protect creditors by requiring a
minimum level of net assets.
All costs of the processes in a process costing system ultimately pass through the Cost
of Goods Sold account.
Cash dividends received and interest received are investing inflows.
A sole proprietorship is one or more individuals selling products or services for profit.
Return on assets measures the effectiveness of an organization’s ability to generate
profit using its assets.
Departmental wage expenses are direct expenses of that department.
The high-low method of deriving an estimated cost line uses all the data points
available.
A liability does not exist if there is any uncertainty about whom to pay, when to pay, or
how much to pay.
A loss on disposal of a plant asset can only occur if the cash proceeds received from the
asset sale is less than the asset’s book value.
The area of accounting aimed at serving the decision making needs of internal users is:
A.Financial accounting.
B.Managerial accounting.
C.External auditing.
D.SEC reporting.
E.Bookkeeping.
An additional cost incurred only if a particular action is taken is a(n):
A.Period cost.
B.Pocket cost.
C.Discount cost.
D.Incremental cost.
E.Sunk cost.
Collins and Farina are forming a partnership. Collins is investing a building that has a
market value of $80,000. However, the building carries a $56,000 mortgage that will be
assumed by the partnership. Farina is investing $20,000 cash. The balance of Collins’
Capital account will be:
A.$80,000.
B.$24,000.
C.$56,000.
D.$44,000.
E.$60,000.
An account linked with another account that has an opposite normal balance and that is
subtracted from the balance of the related account is a(n):
A.Accrued expense.
B.Contra account.
C.Accrued revenue.
D.Intangible asset.
E.Adjunct account.
In reimbursing the petty cash fund:
A.Cash is debited.
B.Petty Cash is credited.
C.Petty Cash is debited.
D.Appropriate expense accounts are debited.
E.No expenses are recorded.
A company had sales of $375,000 and its gross profit was $157,500. Its cost of goods
sold equals:
A.$(217,000).
B.$375,000.
C.$157,500.
D.$217,500.
E.$532,500.
A company issues at par 9% bonds with a par value of $100,000 on April 1, which is 4
months after the most recent interest date. How much total cash interest is received on
April 1 by the bond issuer?
A.$ 750.
B.$5,250.
C.$1,500.
D.$3,000.
E.$6,000.
ABC Corporation’s total quick assets were $5,888,000, its current assets were
$11,700,000 and its current liabilities were $8,000,000. Its acid-test ratio equals:
A.0.50.
B.0.68.
C.0.74.
D.1.50.
E.2.20.
An asset’s book value is $36,000 on January 1, 2008. The asset is being depreciated
$500 per month using the straight-line method. Assuming the asset is sold on July 1,
2009 for $25,000, the company should record:
A.Neither a gain or loss is recognized on this type of transaction.
B.A gain on sale of $2,000.
C.A loss on sale of $1,000.
D.A gain on sale of $1,000.
E.A loss on sale of $2,000.
If a company borrows money from a bank, the interest paid on this loan should be
reported on the statement of cash flows as a(n):
A.Operating activity.
B.Investing activity.
C.Financing activity.
D.Noncash investing and financing activity.
E.None of these. This is not reported in the statement of cash flows.
A list of all accounts and the identification number assigned to each account used by a
company is called a:
A.Source document.
B.Journal.
C.Trial balance.
D.Chart of accounts.
E.General Journal.
A corporation declared and issued a 15% stock dividend on November 1. The following
up-to-date data were available immediately prior to the dividend:
The amount that total stockholders’ equity will increase (decrease) as a result of
recording this stock dividend is:
A.$45,000.
B.$135,000.
C.$(90,000).
D.$(135,000).
E.$0.
Sellers allow customers to use credit cards:
A. To avoid having to evaluate a customer’s credit standing for each sale.
B. To lessen the risk of extending credit to customers who cannot pay.
C. To speed up receipt of cash from the credit sale.
D. To increase total sales volume.
E. All of these.
The overhead cost applied to a job during a period is recorded with a credit to Factory
Overhead and a debit to:
A.Jobs Overhead Expense.
B.Cost of Goods Sold.
C.Finished Goods Inventory.
D.Indirect Labor.
E.Goods in Process Inventory.
Which of the following statements is true?
A.If the trial balance is in balance, it proves that no errors have been made in recording
and posting transactions.
B.The trial balance is a book of original entry.
C.Another name for the trial balance is the chart of accounts.
D.The trial balance is a list of all accounts from the ledger with their balances at a point
in time.
E.The trial balance is another name for the balance sheet as long as debits balance with
credits.
The allocation bases for assigning indirect costs include:
A.Only physical bases.
B.Only cost bases.
C.Only value bases.
D.Only unit bases.
E.Any appropriate and reasonable bases.
Lomax Enterprises purchased a depreciable asset for $22,000 on March 1, 2008. The
asset will be depreciated using the straight-line method over its four-year useful life.
Assuming the asset’s salvage value is $2,000, what will be the amount of accumulated
depreciation on this asset on December 31, 2011?
A.$5,000.00
B.$4,166.67
C.$16,666.68
D.$20,000.00
E.$19,166.67
Ethics:
A.Are beliefs that separate right from wrong.
B.And law often coincide.
C.Help to prevent conflicts of interest.
D.Are critical in accounting.
E.All of these.
It is obvious that an error occurred in the preparation and/or posting of closing entries
if:
A.all revenue and expense accounts have zero balances.
B.the owner’s capital account is debited for the amount of the net loss for the period.
C.the income summary account is debited for the amount of net income for the period.
D.all balance sheet accounts have zero balances.
E.only permanent accounts appear on the post-closing trial balance.
Risk is:
A.Net income divided by average total assets.
B.The reward for investment.
C.The uncertainty about the expected return to be earned.
D.Unrelated to expected return.
E.Derived from the idea of getting something back from an investment.
The amount by which a department’s revenues exceed its direct costs and expenses is:
A.Net sales.
B.Gross profit.
C.Departmental profit.
D.Contribution margin.
E.Departmental contribution to overhead.
The financial statement that describes where a company’s cash came from and where it
went during the period is the:
A.Statement of financial position.
B.Statement of cash flows.
C.Balance sheet.
D.Income statement.
E.Statement of changes in owner’s equity.
A patent:
A.Gives its owner the exclusive right to publish and sell a musical or literary work
during the life of the creator plus 70 years.
B.Gives its owner an exclusive right to manufacture and sell a patented item or to use a
process for 20 years.
C.Gives its owner an exclusive right to manufacture and sell a device or to use a
process for 50 years.
D.Is the amount by which the value of a company exceeds the fair market value of a
company’s net assets if purchased separately.
E.Gives its owner the exclusive right to publish and sell a musical or literary work
during the life of the creator plus 17 years.
A firm sells two products, A and B. For every unit of A the firm sells, two units of B are
sold. The firm’s total fixed costs are $1,612,000. Selling prices and cost information for
both products follow:
The contribution margin per composite unit is:
A.$12.
B.$20.
C.$32.
D.$44.
E.$52.
A company received cash proceeds of $206,948 on a bond issue with a par value of
$200,000. The difference between par value and issue price for this bond is recorded as
a:
A.Credit to Interest Income.
B.Credit to Premium on Bonds Payable.
C.Credit to Discount on Bonds Payable.
D.Debit to Premium on Bonds Payable.
E.Debit to Discount on Bonds Payable.
Interim statements:
A.Are required by the Congress.
B.Are necessary to achieve full disclosure about a business’s operations.
C.Are usually monthly or quarterly statements prepared for periods less than the
traditional, annual statements.
D.Require the use of the perpetual method for inventories.
E.Cannot be prepared if the company follows the conservatism principle.
A depreciation method that produces larger depreciation expense during the early years
of an asset’s life and smaller expense in the later years is a (an):
A.Accelerated depreciation method.
B.Book value depreciation method.
C.Straight-line depreciation method.
D.Units-of-production depreciation method.
E.Unrealized depreciation method.
Which of the following statements is incorrect?
A.Adjustments to prepaid expenses, depreciation, and unearned revenues involve
previously recorded assets and liabilities.
B.Accrued expenses and accrued revenues involve assets and liabilities that had not
previously been recorded.
C.Adjusting entries can be used to record both accrued expenses and accrued revenues.
D.Prepaid expenses, depreciation, and unearned revenues often require adjusting entries
to record the effects of the passage of time.
E.Adjusting entries affect the cash account.
When factory payroll costs for direct labor are recorded in a job cost accounting
system:
A.Factory Payroll is debited and Goods in Process is credited.
B.Goods in Process Inventory and Factory Overhead are debited and Factory Payroll is
credited.
C.Cost of Goods Manufactured is debited and Direct Labor is credited.
D.Direct Labor and Indirect Labor are debited and Factory Payroll is credited.
E.Goods in Process is debited and factory payroll is credited.
For product costs associated with a particular product to be expensed on the income
statement:
A.The product must be transferred to Finished Goods Inventory.
B.The product must still be in Goods In Process Inventory.
C.The product must be sold.
D.The product may be in any of the manufacturer’s inventory accounts.
E.The company must expect to sell the product during the next twelve months.
A company’s fixed interest expense is $8,000, its income before interest expense and
income taxes is $32,000. Its net income is $9,600. The company’s times interest earned
ratio equals:
A.0.25.
B.0.30.
C.0.83.
D.3.33.
E.4.0.
A fixed cost:
A.Requires the future outlay of cash and is relevant for future decision making.
B.Does not change with changes in the volume of activity within the relevant range.
C.Is directly traceable to a cost object.
D.Changes with changes in the volume of activity within the relevant range.
E.Has already been incurred and cannot be avoided so it is irrelevant for decision
making.
Hiller Co. anticipates total fixed costs of $120,000 and variable costs equal to 40% of
sales. What is the pretax income if sales are $650,000?
The first three steps in preparing a departmental income statement are: (1) accumulate
__________________ of the department, (2) allocate __________________ to the
department, and (3) allocate _____________________ to the operating departments.
When purchase costs regularly rise, the ___________________ method of inventory
valuation yields the highest gross profit and net income.
A company had income before interest expense and income taxes of $176,000, and its
interest expense is $55,000. Calculate the company’s times interest earned ratio.
When making capital budgeting decisions, companies usually prefer shorter payback
periods. Explain why shorter payback periods are desirable.
______________________ revenues are liabilities requiring delivery of products and
for services.
A corporation reported net income of $3,730,000 and paid preferred cash dividends of
$100,000 during the current year. There were 600,000 shares of common stock
outstanding and the market price per common share was $88.33 at year-end. Calculate
the company’s price-earnings ratio.
A common focus of financial statement users in evaluating a company’s performance
includes evaluation of its (1) ______________________________, (2)
________________________, and (3) ____________________________.