1) The direct write-off method records Bad Debt Expense in the year the specific
account receivable is determined to be uncollectible.
2) Sales Returns and Allowances is a contra-revenue account.
3) Bonds of major corporations are traded on bond exchanges.
4) The main disadvantage of the direct method of reporting cash flows from operating
activities is that the necessary data are often costly to accumulate.
5) A major disadvantage of the indirect method of reporting cash flows from operating
activities is that the difference between the net amount of cash flows from operating
activities and net income is emphasized.
6) Under the indirect method, expenses that do not affect cash are added to net income
in the operating activities section of the statement of cash flows.
7) Detailed supplemental schedules based on department responsibility are often
prepared for major items in the operating expenses budget.
8) A present value index can be used to rank competing capital investment proposals
when the net present value method is used.
9) In computing the rate earned on total assets, interest expense is subtracted from net
income before dividing by average total assets.
10) Garmo Co. has an operating leverage of 5. Next year’s sales are expected to increase
by 10%. The company’s operating income will increase by 50%.
11) Operating expenses incurred for the entire business as a unit that are not subject to
the control of individual department managers are called indirect expenses.
12) In a service organization, the multiple department overhead rate method is the most
effective in providing information about the cost of services.
13) The manager of the furniture department of a leading retailer does not control the
salaries of departmental personnel.
14) On March 15th Monroe Sales sells $9,525.00 on account to Garrison Brewer with
terms of 2/10, n/30. The cost of merchandise sold was $6,905.00.
(a) Journalize the sale and the recognition of the cost of the sale.
(b) On March 20th a $125.00 credit memo is given to Garrison Brewer due to
merchandise that was the wrong color. Journalize this event. The cost of the returned
merchandise was $65.
(c) On March 25th Garrison Brewer submits payment in full. Journalize this event.
15) Two common areas of accounting that respectively provide information to internal
and external users are
A.forensic accounting and financial accounting
B.managerial accounting and financial accounting
C.managerial accounting and environmental accounting
D.financial accounting and tax accounting systems
16) An activity base is used to charge service department expenses. Match each of the
following questions with an activity base.
1>Number of work orders A. Maintenance
2>Number of employees B. Human Resources
3>Number of computers in department C. Payroll Accounting
4>Number of miles D. Purchasing
5>Number of advertising campaigns E. Presidents office
6>Equally amongst divisions F. Marketing
7>Number of payroll checks G. Transportation
8>Number of purchase requisitions H. Information Systems
17) A company has a margin of safety of 25%, a contribution margin ratio of 30%, and
sales of $1,000,000.
(a) What is the break-even point?
(b) What is the operating income?
(c) If neither the relationship between variable costs and sales nor the amount of fixed
costs is expected to change in the next year, how much additional operating income can
be earned by increasing sales by $110,000?
18) Procedures designed to protect cash from theft and misuse from the time it is
received until it can be deposited in a bank are called
A.accounting controls
B.cash controls
C.preventive controls
D.detective controls
19) The following data were extracted from the income statement of Maine Solutions,
Inc.
Required:
20) Traditional manufacturing emphasizes all of the following except
A.team oriented employee involvement
B.process-oriented layout
C.push manufacturing
D.cost accumulation by department
21) The balances in the ledger of Good Landscape Services as of January 31, 2014
before adjustments are as follows:
Adjustment data are as follows: supplies on hand, January 31, $900; insurance expired
for January, $1,100; depreciation on equipment for January, $1,600; salaries accrued,
January 31, $1,650.
(a) Prepare a ten-column work sheet for Good Landscape Services for January, 2014.
(b) On the basis of the work sheet in (a), present the following in good order: (1)
income statement, (2) retained earnings statement (no additional investments were
made during the month), and (3) classified balance sheet.
(c) On the basis of the work sheet in (a), journalize the closing entries as of January 31,
2014.
22) The entry to record the return of merchandise from a customer would include a
A.debit to Sales
B.credit to Sales
C.debit to Sales Returns and Allowances
D.credit to Sales returns and Allowances
23) Match the following terms to the most appropriate answer:
1>the value of a bond stated on the bond certificate A. Debenture
2>the legal contract between issuer and bond holder B. Term bond
3>the principal of the bond is paid back in installments C. Face value
4>allows the bond hold to exchange bond for shares of stock D. Indenture
5>the entire principal of the bond is paid back on maturity date E. Callable bond
6>a bond issued without any collateral or security F. Serial bond
7>allows the issuer to redeem bonds before maturity date G. Convertible bond
24) The adjusting entry to record the depreciation of equipment for the fiscal period is
A.debit Depreciation Expense; credit Equipment
B.debit Depreciation Expense; credit Accumulated Depreciation
C.debit Accumulated Depreciation; credit Depreciation Expense
D.debit Equipment; credit Depreciation Expense
25) When the three sections of a balance sheet are presented on a page in a downward
sequence, it is called the
A.account form
B.comparative form
C.horizontal form
D.report form
26) Simpson Auto Body Repair purchased $20,000 of machinery. The company paid
$8,000 in cash at the time of the purchase and signed a promissory note for the
remainder to be paid in four monthly installments.
(a) How will the purchase affect the accounting equation?
(b) How will the payment of the first monthly installment affect the accounting
equation?
27) For the coming year, River Company estimates fixed costs at $109,000, the unit
variable cost at $21, and the unit selling price at $85. Determine (a) the break-even
point in units of sales, (b) the unit sales required to realize operating income of
$150,000 and (c) the probable operating income if sales total $500,000.
Round units to the nearest whole number and percentage to one decimal place.
28) Income statements for Debras Design Services are shown below.
(a) Prepare a vertical analysis of Debras Design Services income statements.
(b) Does the analysis indicate favorable or unfavorable trend(s)?
(c) What other information would enhance the analysis?
29) Most manufacturing plants are considered cost centers because they have control
over
A.sales and costs
B.fixed assets and costs
C.costs only
D.fixed assets and sales
30) The journal entry a company uses to record the payment of a discounted note is
A.debit Notes Payable and Interest Expense; credit Cash
B.debit Notes Payable; credit Cash
C.debit Cash; credit Notes Payable
D.debit Accounts Payable; credit Cash
31) What cost concept used in applying the cost-plus approach to product pricing
includes only desired profit in the “markup”?
A.Product cost concept
B.Variable cost concept
C.Sunk cost concept
D.Total cost concept
32) Journalize the following merchandise transactions:
33) A sporting goods store purchased $7,000 of ski boots in October. The store had
$3,000 of ski boots in inventory at the beginning of October, and expects to have
$2,000 of ski boots in inventory at the end of October to cover part of anticipated
November sales. What is the budgeted cost of goods sold for October?
A.$10,000
B.$5,700
C.$8,000
D.$9,500
34) The entry to record the issuance of 150 shares of $5 par common stock at par to an
attorney in payment of legal fees for organizing the corporation includes a credit to
A.Organizational Expenses
B.Goodwill
C.Common Stock
D.Cash
35) Manicotti Corporation sells a single product. Budgeted sales for the year are
anticipated to be 640,000 units, estimated beginning inventory is 108,000 units, and
desired ending inventory is 90,000 units. The quantities of direct materials expected to
be used for each unit of finished product are given below.
Material A .50 lb. per unit @ $ .60 per pound
Material B 1.00 lb. per unit @ $1.70 per pound
Material C 1.20 lb. per unit @ $1.00 per pound
The dollar amount of direct material A used in production during the year is:
A.$186,600
B.$181,200
C.$240,000
D.$210,600
36) Challenger Factory produces two similar products – regular widgets and deluxe
widgets. The total plant overhead budget is $675,000 with 300,000 estimated direct
labor hours. It is further estimated that deluxe widget production will need 3 direct
labor hours for each unit and regular widget production will require 2 direct labor hours
for each unit.
Using the single plantwide factory overhead rate with an allocation base of direct labor
hours, how much factory overhead will be allocated to the regular widget production if
budgeted production for the period is 75,000 units and actual production for the period
is 72,000 units?
A.$168,750
B.$324,000
C.$162,000
D.$337,500
37) Which of the following results in long lead time?
A.long setup times
B.large batch sizes
C.large inventories
D.all of the above
38) The relationship of $325,000 to $125,000, expressed as a ratio, is
A.2.0 to 1
B.2.6 to 1
C.2.5 to 1
D.0.45 to 1
39) How does paying a liability in cash affect the accounting equation?
A.assets increase; liabilities decrease
B.assets increase; liabilities increase
C.assets decrease; liabilities decrease
D.liabilities decrease; stockholders equity increases
40) A corporation issues for cash $2,000,000 of 8%, 15-year bonds, interest payable
annually, at a time when the market rate of interest is 7%. The straight-line method is
adopted for the amortization of bond discount or premium. Which of the following
statements is true?
A.The carrying amount increases from its amount at issuance date to $2,000,000 at
maturity
B.The carrying amount decreases from its amount at issuance date to $2,000,000 at
maturity
C.The amount of annual interest paid to bondholders increases over the 15-year life of
the bonds
D.The amount of annual interest expense decreases as the bonds approach maturity
41) The net income reported on the income statement for the current year was
$210,000. Depreciation recorded on equipment and a building amount to $62,500 for
the year. Balances of the current asset and current liabilities accounts at the beginning
and end of the year are as follows:
Required:
42) Discuss the characteristics of a LLC (Limited liability company).
43) Compare and contrast why companies invest cash in short-term temporary
investments vs. long-term investments.
44) Finch, Inc. has bought a new server and is having to decide what to do with the old
one. The cost of the old server was originally $60,000 and has been depreciated
$45,000. The company has received two offers that it must consider. One offer was
made to purchase the equipment outright for $18,500 less a 5% sales commission. The
other offer was to lease the equipment for $7,000 for the next five years but the
company will be required to provide maintenance and insurance totaling $3,000 per
year. What offer should Finch, Inc. accept?
45) Big Wheel, Inc. collects 25% of its sales on account in the month of the sale and
75% in the month following the sale. If sales on account are budgeted to be $225,000
for March and $250,000 for April, what are the budgeted cash receipts from sales on
account for April?
46) On the basis of the following data for Branch Co. for the year ended December 31,
2011 and the preceding year, prepare a statement of cash flows using the indirect
method of reporting cash flows from operating activities.
Assume that equipment costing $125,000 was purchased for cash and the land was sold
for $15,000. The stock was issued for cash and the only entries in the retained earnings
account were net income of $56,000 and cash dividends declared and paid of $18,000.
