1) Predetermined overhead rates are necessary because cost accountants use periodic
inventory systems.
2) The use of process costing is of little benefit to a service type of operation.
3) Changes in accounting estimates are accounted for in current and future periods.
4) Arrow’s net income of $117 million and average assets of $1,400 million results in a
return on assets of 8.36%.
5) The Modified Accelerated Cost Recovery System (MACRS) is part of the U.S.
federal income tax laws and is used for tax reporting.
6) Cost-volume-profit analysis is frequently based on the assumption that the
production level is the same as the sales level.
7) If a credit card sale is made, the seller can either debit Cash or debit Accounts
receivable at the time of the sale depending on the type of credit card.
8) Depreciation expense is not reported on a statement of cash flows prepared under the
direct method.
9) Selling expenses support a company’s overall operations and include expenses
related to accounting, human resource management, and financial management.
10) When preparing the operating activities section of the statement of cash flows using
the indirect method, nonoperating gains are added to net income.
11) After posting the entries to close all revenue and expense accounts, Hatfield
Company’s Income Summary account has a credit balance of $6,000, and its Hatfield,
Withdrawals account has a debit balance of $2,500. These balances indicate that net
income for the current accounting period amounted to $3,500.
12) The following information relates to the manufacturing operations of the IMH
Publishing Corporation for the year:
The raw materials used in manufacturing during the year totaled $118,000. Raw
materials purchased during the year amount to:
A.$107,000
B.$115,000
C.$118,000
D.$121,000
E.$126,000
13) Della’s Donuts owner made investments of $50,000 and withdrawals of $20,000.
The company has revenues of $83,000 and expenses of $64,000. Calculate its net
income.
A.$30,000
B.$83,000
C.$64,000
D.$19,000
E.$49,000
14) A production department’s output for the most recent month consisted of 10,000
units completed and transferred to the next stage of production and 10,000 units in
ending goods in process inventory. The units in ending goods in process inventory were
50% complete with respect to both direct materials and conversion costs. There were
1,000 units in beginning goods in process inventory, and they were 70% complete with
respect to both direct materials and conversion costs. Calculate the equivalent units of
production for the month, assuming the company uses the weighted average method.
A.10,000 units
B.10,300 units
C.15,000 units
D.15,300 units
E.10,700 units
15) A company has bonds outstanding with a par value of $100,000. The unamortized
premium on these bonds is $2,700. If the company retired these bonds at a call price of
99, the gain or loss on this retirement is:
A.$1,000 gain
B.$1,000 loss
C.$2,700 loss
D.$2,700 gain
E.$3,700 gain
16) A company ages its accounts receivables to determine its end of period adjustment
for bad debts. At the end of the current year, management estimated that $15,750 of the
accounts receivable balance would be uncollectible. Prior to any year-end adjustments,
the Allowance for Doubtful Accounts had a debit balance of $175. What adjusting entry
should the company make at the end of the current year to record its estimated bad
debts expense?
A.Option A
B.Option B
C.Option C
D.Option D
17) An opportunity cost:
A.Is an unavoidable cost
B.Requires a current outlay of cash
C.Results from past managerial decisions
D.Is the lost benefit of choosing an alternative course of action
E.Is irrelevant in decision making
18) A company reported the following information regarding its inventory.
Beginning inventory: cost is $70,000; retail is $130,000
Net purchases: cost is $65,000; retail is $120,000
Sales at retail: $145,000
The year-end inventory showed $105,000 worth of merchandise available at retail
prices. What is the cost of the ending inventory?
A.$48,300
B.$56,700
C.$56,441
D.$78,300
E.$105,000
19) Use the following financial statements and additional information to (1) prepare a
complete statement of cash flows for the year ended December 31, 2011. The cash
provided or used by operating activities should be reported using the direct method, and
(2) compute the company’s cash flow on total assets ratio for 2011.
Additional Information
a. A $20,000 note payable is retired at its carrying value in exchange for cash.
b. The only changes affecting retained earnings are net income and cash dividends paid.
c. New equipment is acquired for $120,000 cash.
d. Received cash for the sale of equipment that had cost $85,000, yielding a gain of
$4,700.
e. Prepaid expenses relate to Other Expenses on the income statement.
f. All purchases and sales of merchandise inventory are on credit.
20) Perch Company reported the following purchases and sales for its only product.
Perch uses a perpetual inventory system. Determine the cost assigned to ending
inventory using LIFO.
A.$2,260
B.$3,180
C.$1,860
D.$3,580
E.$2,100
21) Hancock Manufacturing allocates overhead to production on the basis of direct
labor costs. At the beginning of the year, Hancock estimated total overhead of
$396,000; materials of $410,000 and direct labor of $220,000. During the year Hancock
incurred $418,000 in materials costs, $413,200 in overhead costs and $224,000 in direct
labor costs. Compute the amount of under- or overapplied overhead for the year.
A.$10,000 overapplied
B.$17,200 overapplied
C.$10,000 underapplied
D.$17,200 underapplied
E.$4,800 underapplied
22) When purchase costs of inventory regularly decline, which method of inventory
costing will yield the lowest cost of goods sold?
A.FIFO
B.LIFO
C.Weighted average
D.Specific identification
E.Gross margin
23) The following information describes a company’s usage of direct labor in a recent
period. The direct labor rate variance is:
A.$28,000 favorable
B.$28,000 unfavorable
C.$45,000 unfavorable
D.$45,000 favorable
E.$17,000 unfavorable
24) Which of the following accounts would all appear on a manufacturing statement?
A.Raw materials, factory insurance expired, indirect labor
B.Raw materials, goods in process, finished goods
C.Factory buildings, delivery equipment, and depreciation on factory equipment
D.Direct labor, indirect labor, sales salaries
E.Direct labor, factory repairs and maintenance, wages payable
25)
The characteristics below apply to at least one of the forms of business organization.
a. Is a separate legal entity.
b. Is allowed to be owned by one person only.
c. Owner or owners are personally liable for debts of the business.
d. Is a taxable entity.
e. Is a business entity.
f. May have a contract specifying the division of profits among the owners.
g. Has an unlimited life
Use the following format to indicate (with a “yes” or “no”) whether or not a
characteristic applies to each type of business organization.
26) Bonds that give the issuer an option of retiring them before they mature are:
A.Debentures
B.Serial bonds
C.Sinking fund bonds
D.Registered bonds
E.Callable bonds
27) The following information comes from the records of Dina Co. for the current
period.
a. Compute the overhead controllable and volume variances. In each case, state whether
the variance is favorable or unfavorable.
b. Prepare the journal entries to charge overhead costs to goods in process and the
overhead variances to their proper accounts.
Factory overhead (based on budgeted production of 24,500 units)
Variable overhead $2.25/direct labor hour
Fixed overhead $1.95/direct labor hour
28) Which of the following is not one of the four steps in accounting for production
activity and assigning costs during a period under a process cost system?
A.Determine over or underapplied overhead
B.Determine the physical flow of units
C.Compute equivalent units of production
D.Compute the cost per equivalent unit
E.Assign and reconcile costs
29) Which of the following items appears only in a manufacturing company’s financial
statements?
A.Cost of goods sold
B.Cost of goods manufactured
C.Goods available for sale
D.Gross profit
E.Net income
30) Embark produces mulch for landscaping use. The following information
summarizes production operations for June. The journal entry to record June production
activities for overhead allocation is:
A.Debit Factory Overhead $248,000; credit Cash $248,000
B.Debit Goods in Process Inventory $160,000; credit Factory Payroll $160,000
C.Debit Goods in Process Inventory $248,000; credit Factory Overhead $248,000
D.Debit Goods in Process Inventory $160,000; credit Factory Overhead $160,000
E.Debit Goods in Process Inventory $160,000; credit Cash $160,000
31) At the beginning of January of the current year, Thomas Law Center’s ledger
reflected a normal balance of $52,000 for accounts receivable. During January, the
company collected $14,800 from customers on account and provided additional
services to customers on account totaling $12,500. Additionally, during January one
customer paid Thomas $5,000 for services to be provided in the future. At the end of
January, the balance in the accounts receivable account should be:
A.$54,700
B.$49,700
C.$2,300
D.$54,300
E.$49,300
32) Creditors’ claims on the assets of a company are called:
A.Net losses
B.Expenses
C.Revenues
D.Equity
E.Liabilities
33) Quick assets divided by current liabilities is the:
A.Acid-test ratio
B.Current ratio
C.Working capital ratio
D.Current liability turnover ratio
E.Quick asset turnover ratio
34) >Time ticket A. The production of products in response to special orders; also
called customized production.
2>Underapplied overhead B. A source document that is used to record the number of
hours an employee works and to determine the total labor cost for each pay period.
3>Materials ledger card C. The amount by which the overhead applied to jobs in a
period with the predetermined overhead allocation rate exceeds the overhead incurred
in a period.
4>Materials requisition D. An accounting system for manufacturing activities based on
the periodic inventory system.
5>Overapplied overhead E. The rate established prior to the beginning of a period that
relates estimated overhead to an allocation factor such as estimated direct labor and is
used to assign overhead cost to a job.
6>Predetermined overhead allocation rate F. A cost accounting system designed to
determine the cost of producing each job or job lot.
7>Job order manufacturing G. A source document that production managers use to
request materials for manufacturing and that is used to assign materials costs to specific
jobs or to overhead.
8>General accounting system H. A perpetual record that is updated each time units of
raw material are both purchased and issued for use in production.
9>Job cost sheet I. A source document that is used to report how much time an
employee spent working on a job or on overhead activities and then to determine the
amount of direct labor to charge to the job or the amount of indirect labor to charge to
overhead.
10>Clock card J. The amount by which overhead incurred in a period exceeds the
overhead applied to jobs with the predetermined overhead allocation rate.
11>Job order cost accounting system K. A separate record maintained for each job in a
job order costing system; it shows direct materials, direct labor, and overhead for each
job.
35) Dina Kader withdrew a total of $35,000 from her business during the current year.
The entry needed to close the withdrawals account is:
A.Debit Income Summary and credit Cash for $35,000
B.Debit Dina Kader, Withdrawals and credit Cash for $35,000
C.Debit Income Summary and credit Dina Kader, Withdrawals for $35,000
D.Debit Dina Kader, Capital and credit Dina Kader, Withdrawals for $35,000
E.Debit Dina Kader, Withdrawals and credit Dina Kader, Capital for $35,000
36) Cabot Company collected the following data regarding production of one of its
products. Compute the direct labor rate variance.
A.$53,500 unfavorable
B.$40,500 favorable
C.$53,500 favorable
D.$13,000 unfavorable
E.$40,500 unfavorable
37) The following is an account for a production department, showing its costs for one
month:
Assume that materials are added at the beginning of the production process and that
direct labor and overhead are applied uniformly. If the units in ending goods in process
inventory cost $4,590, and the started and completed units cost $41,850, what was the
cost of completing the units in the beginning goods in process inventory?
A.$12,150
B.$2,160
C.$7,560
D.$54,000
E.$37,260
38) The recurring steps performed each reporting period, starting with analyzing and
recording transactions in the journal and continuing through the post-closing trial
balance, is referred to as the:
A.Accounting period
B.Operating cycle
C.Accounting cycle
D.Closing cycle
E.Natural business year
39) A company purchased a mineral deposit for $800,000. It expects this property to
produce 1,200,000 tons of ore and to have a salvage value of $50,000. In the current
year, the company mined and sold 90,000 tons of ore. Its depletion expense for the
current period equals:
A.$15,000
B.$60,000
C.$150,000
D.$56,250
E.$139,500
40) Gross pay is:
A.Take-home pay
B.Total compensation earned by an employee before any deductions
C.Salaries after taxes are deducted
D.Deductions withheld by an employer
E.The amount of the paycheck
41) Identify the five steps involved in managerial decision making.
42) For the following financial statement items, calculate trend percents using 2009 as
the base year:
43) The legal document identifying the rights and obligations of both the bondholders
and the issuer is called the ___________________________________.
44) The second step in the analyzing and recording process is to record the transactions
and events in the ____________________________.
45) Unearned revenue is classified as _______________ that is satisfied by delivering
products or services in the future.