1) A bank reconciliation should be prepared
a.whenever the bank refuses to lend the company money
b.when an employee is suspected of fraud
c.to explain any difference between the depositor’s balance per books and the balance
per bank
d.by the person who is authorized to sign checks
2) Times interest earned is also called the
a.money multiplier
b.interest coverage ratio
c.coupon coverage ratio
d.premium ratio
3) A chart of accounts usually starts with
a.asset accounts
b.expense accounts
c.liability accounts
d.revenue accounts
4) Pearson Manufacturing’s sales slumped badly in 2014 due to so many people
purchasing gifts online. The company’s income statement showed the following results
from selling 500,000 units of product: net sales $2,125,000; total costs and expenses
$2,500,000; and net loss $375,000. Costs and expenses consisted of the following:
TotalVariableFixed
Cost of goods sold$2,000,000$1,300,000$ 700,000
Selling expenses200,00050,000150,000
Administrative expenses 300,000 150,000 150,000
$2,500,000$1,500,000$1,000,000
Management is considering the following alternative for 2015:
Purchase new automated equipment that will change the proportion between variable
and fixed expenses sold to 45% variable and 55% fixed.
Instructions
(a)Compute the break-even point in dollars for 2014 .
(b)Compute the break-even point in dollars under the alternative course of action.
5) A credit balance in the Manufacturing Overhead account at the end of an interim
month means that:
a.the balance should be reported as a prepaid expense in the monthly balance sheet
b.overhead has been overapplied
c.corrective action by management is necessary
d.cost of goods sold should be debited on the monthly income statement
6) A Sales Returns and Allowances account is not debited if a customer
a.returns defective merchandise
b.receives a credit for merchandise of inferior quality
c.utilizes a prompt payment incentive
d.returns goods that are not in accordance with specifications
7) The financial statement columns of the worksheet for Miracle Max at December 31,
2014, are as follows:
MIRACLE MAX
Worksheet
For the Year Ended December 31, 2014
Income Statement Balance Sheet
Accounts Debit Credit Debit Credit
Cash13,000
Accounts Receivable7,000
Supplies4,000
Prepaid Insurance6,000
Equipment207,000
Accumulated DepreciationEquipment29,000
Accounts Payable19,000
Notes Payable70,000
Salaries and Wages Payable3,000
Owners Capital112,000
Owners Drawings18,000
Service Revenue123,000
Advertising Expense21,000
Depreciation Expense12,000
Insurance Expense3,000
Rent Expense17,000
Salaries and Wages Expense42,000
Supplies Expense 6,000
Totals101,000123,000255,000233,000
Net Income 22,000 22,000
123,000123,000255,000255,000
Instructions
(a)Calculate the balance of Owners Capital that would appear on a balance sheet at
December 31, 2014 .
(b)Prepare a classified balance sheet for Miracle Max at December 31, 2014 assuming
the note payable is a long-term liability.
8) Carlson, Inc. prepared a 2014 budget for 125,000 units of product. Actual production
in 2014 was 130,000 units. To be most useful, what amounts should a performance
report for this company compare?
a.The actual results for 130,000 units with the original budget for 125,000 units
b.The actual results for 130,000 units with a new budget for 130,000 units
c.The actual results for 130,000 units with last year’s actual results for 134,000 units
d.It doesn’t matter. All of these choices are equally useful
9) Cost of goods available for sale is computed by adding
a.freight-in to net purchases
b.beginning inventory to net purchases
c.beginning inventory to purchases and freight-in
d.beginning inventory to cost of goods purchased
10) If, at the end of the year, Manufacturing Overhead has been overapplied, it means
that
a.actual overhead costs were greater than the overhead assigned to jobs
b.actual overhead costs were less than the overhead assigned to jobs
c.overhead has not been applied to jobs still in process
d.cost of goods will have to be increased by the amount of the overapplied overhead
11) Chi Manufacturing Co.’s static budget at 12,000 units of production includes
$72,000 for direct labor and $12,000 for direct materials. Total fixed costs are $47,000.
Instructions
a.Determine how much would appear on Chi flexible budget for 2012 if 18,000 units
are produced and sold.
b.How would this comparison differ if a static budget were used instead of a flexible
budget for performance evaluation?
12) Because of automation, which component of product cost is declining?
a.Direct labor
b.Direct materials
c.Manufacturing overhead
d.Advertising
13) Which of the following adjustments to convert net income to net cash provided by
operating activities is correct?
Add to Net IncomeDeduct from Net Income
a.Accounts Receivableincreasedecrease
b.Prepaid Expensesincreasedecrease
c.Inventorydecreaseincrease
d.Taxes Payabledecreaseincrease
14) The single most important output in preparing financial budgets is the
a.sales forecast
b.determination of the unit cost of the product
c.cash budget
d.budgeted income statement
15) Cash equivalents are highly liquid investments that can be converted into a specific
amount of cash with maturities of
a.1 month or less when purchased
b.3 months or less when purchased
c.6 months or less when purchased
d.1 year or less when purchased
16) Stockholders of a corporation directly elect
a.the president of the corporation
b.the board of directors
c.the treasurer of the corporation
d.all of the employees of the corporation
17) There are ten transactions listed below. Match the transactions that have the
identical effect on the accounting equation. You should end up with 5 matches.
a.Receive cash from customers on account.
b.Initial cash contribution by an owner.
c.Pay cash to reduce an accounts payable.
d.Purchase supplies for cash.
e.Pay cash to reduce a notes payable.
f.Purchase supplies on account.
g.Additional cash contribution by an owner.
h.Purchase equipment with a note payable.
i.Pay utilities with cash.
j.Owner withdraws money from the business for personal use.
18) Owner’s equity is often referred to as
a.residual equity
b.leftovers
c.spoils
d.second equity
19) Assume that actual sales results exceed the planned results for the second quarter.
This favorable difference is greater than the unfavorable difference reported for the first
quarter sales. Which of the following statements about the sales budget report on June
30 is true?
a.The year-to-date results will show a favorable difference
b.The year-to-date results will show an unfavorable difference
c.The difference for the first quarter can be ignored
d.The sales report is not useful if it shows a favorable and unfavorable difference for the
two quarters
20) For each of the following accounts, indicate (a) the type of adjusting entry (prepaid
expense, accrued revenue, etc.) and (b) the related account in the adjusting entry.
1>Depreciation Expense
2>Salaries and Wages Payable
3>Service Revenue
4>Supplies
5>Unearned Service Revenue
21) The following information is for Bright Eyes Auto Supplies:
Bright Eyes Auto Supplies
Balance Sheet
December 31, 2014
Cash$ 40,000Accounts Payable$ 130,000
Prepaid Insurance80,000Salaries and Wages Payable50,000
Accounts Receivable100,000Mortgage Payable 150,000
Inventory140,000Total Liabilities330,000
Land Held for Investment180,000
Land250,000
Building$200,000
Less AccumulatedOwners Capital 740,000
Depreciation(60,000)140,000
Trademark 140,000Total Liabilities and
Total Assets$1,070,000Owners Equity$1,070,000
The total dollar amount of assets to be classified as investments is
a.$0
b.$140,000
c.$180,000
d.$250,000
22) A company had net income of $210,000. Depreciation expense is $27,000. During
the year, Accounts Receivable and Inventory increased $17,000 and $42,000,
respectively. Prepaid Expenses and Accounts Payable decreased $5,000 and $6,000,
respectively. There was also a loss on the sale of equipment of $2,000. How much cash
was provided by operating activities?
a.$175,000
b.$179,000
c.$241,000
d.$271,000
23) JP Company is considering two capital investment proposals. Estimates regarding
each project are provided below:
Project EchoProject Charlie
Initial investment$400,000$600,000
Annual net income20,00042,000
Net annual cash inflow100,000142,000
Estimated useful life5 years6 years
Salvage value00
The company requires an 11% rate of return on all new investments.
Present Value of an Annuity of 1
Periods 9% 10% 11% 12%
53.8903.7913.6963.605
64.4864.3554.2314.111
The annual rate of return for Project Echo is
a.5%
b.10%
c.25%
d.50%
24) In a process cost system,
a.a Work in Process account is maintained for each product
b.a materials requisition must identify the job on which the materials will be used
c.a Work in Process account is maintained for each process
d.one Work in Process account is maintained for all the processes, similar to a job order
cost system
25) The adjusted trial balance of the Ricci and Napoli Partnership for the year ended
December 31, 2014, appears below:
RICCI AND NAPOLI PARTNERSHIP
Adjusted Trial Balance
December 31, 2014
Debit Credit
Current Assets19,000
Plant Assets80,000
Current Liabilities7,000
Long-term Debt40,000
Ricci, Capital20,000
Ricci, Drawings4,000
Napoli, Capital18,000
Napoli , Drawings7,000
Sales Revenue110,000
Cost of Goods Sold62,000
Operating Expenses 23,000
195,000195,000
The partnership agreement stipulates that a division of partnership net income or net
loss is to be made as follows:
1>A salary allowance of $12,000 to Ricci and $23,000 to Napoli.
2>The remainder is to be divided equally.
Instructions
(a)Prepare a schedule which shows the division of net income to each partner.
(b)Prepare the closing entries for the division of net income and for the drawings
accounts at December 31, 2014 .
26) (a)Cara Bleu asks your help in understanding the term “activity index.” Explain the
meaning and importance of this term for Cara.
(b)State the two ways that variable costs may be defined.
27) When determining costs of jobs, how does a company account for indirect
materials?
a.It is added to work in process as used
b.It remains part of raw materials inventory
c.It is transferred out of raw materials into manufacturing overhead when used
d.It is transferred out of raw materials into work in process as used
28) The job cost sheet does not show
a.costs chargeable to a specific job
b.the total costs of a completed job
c.the unit cost of a completed job
d.the cost of goods sold
29) Which statement is true?
a.An investment center is responsible for revenues and expenses, as well as earning a
return on assets
b.An investment center is only responsible for its investments
c.An investment center is only responsible for revenues and expenses
d.A profit center is evaluated using contribution margin, while an investment center is
evaluated using ROI
30) If a plant is operating at full capacity and receives a one-time opportunity to accept
an order at a special price below its usual price, then
a.only variable costs are relevant
b.fixed costs are not relevant
c.the order will likely be accepted
d.the order will likely be rejected
31) Selection of an inventory costing method by management does not usually depend
on
a.the fiscal year end
b.income statement effects
c.balance sheet effects
d.tax effects
32) Selected transactions for Parton Company are listed below. List the number of the
transaction and then describe the effect of each transaction on assets, liabilities, and
owner’s equity.
Sample: Made initial cash investment in the business.
The answer would beIncrease in assets and increase in owner’s equity.
1>Paid monthly utility bill.
2>Purchased new display case for cash.
3>Paid cash for repair work on security system.
4>Billed customers for services performed.
5>Received cash from customers billed in 4 .
6>Withdrew cash for owner’s personal use.
7>Incurred advertising expenses on account.
8>Paid monthly rent.
9>Received cash from customers when service was rendered.
33) Which of the following methods and bases of accounting for uncollectible accounts
receivable is inconsistent with the proper application of expense recognition?
Percentage of sales basis
Direct write-off method
c.Aging of receivables allowance method
d.Percentage of receivables basis
34) The framework used to record and summarize the economic activities of a business
enterprise is referred to as the accounting equation. State the basic accounting equation
and define its major components. How are business transactions and financial
statements related to the accounting equation?
35) Echota Corporation has the following capital stock outstanding at December 31,
2014:
7% Preferred stock, $100 par value, cumulative
15,000 shares issued and outstanding $1,500,000
Common stock, no par, $10 stated value, 500,000 shares authorized,
350,000 shares issued and outstanding 3,500,000
The preferred stock was issued at $120 per share. The common stock was issued at an
average per share price of $14.
Instructions
Prepare the paid-in capital section of the balance sheet at December 31, 2014 .
36) Nola Corporation gathered the following information for the fiscal year ended
December 31, 2014:
Sales$1,300,000
Extraordinary fire loss110,000
Selling and administrative expenses160,000
Cost of goods sold900,000
Loss on sale of equipment40,000
Nola Corporation is subject to a 30% income tax rate.
Instructions
Prepare a partial income statement, beginning with income before income taxes.
O: 6, Bloom: AP,
37) Managers are motivated to accomplish objectives if they feel that their efforts will
be fairly evaluated. Explain why an organization may use different bases for evaluating
the performance of managers of different types of responsibility centers.
38) Blalock Company sells products with a 2-year warranty. Past experience indicates
that 2% of the units sold will be returned during the warranty period for repairs. The
average cost of repairs under warranty is estimated to be $75 per unit. During 2014,
7,000 units were sold at an average price of $400. During the year, repairs were made
on 55 units at a cost of $3,600.
Instructions
Prepare journal entries to record the repairs made under warranty and estimated
warranty expense for the year.
39) In the case of an exchange of plant assets resulting in a loss on disposal, the cost of
the new asset acquired is equal to the ______________ of the asset given up plus any
cash paid by the purchaser.