1) Accounting information systems are designed to capture information about a
company’s transactions and events and to provide output including financial,
managerial, and tax reports.
2) Generally, it does not matter how cost allocations are designed and explained,
because most managers do not care whether the allocations appear to be fair or not.
3) The higher a company’s debt ratio is, the higher the risk of a company not being able
to meet its obligations.
4) External users of financial statements are generally uninterested in segment
information to understand a company’s business activities.
5) Credit sales are recorded by crediting an Accounts Receivable.
6) One possible explanation for direct labor rate and efficiency variances is the use of
workers with different skill levels.
7) A flexible budget expresses variable costs on a per unit basis and fixed costs on a
total basis.
8) Employers must pay FICA taxes equal in amount to the FICA taxes withheld from
their employees.
9) Interim statements report a company’s business activities for a one-year period.
10) FOB shipping point (or FOB factory) implies that ownership of goods transfers to
the buyer at the buyer’s place of business.
11) Companies that use a series of repetitive manufacturing processes to produce
standardized products should use a process cost accounting system.
12) A company produces three different products that all require processing on the same
machines. There are only 27,000 machine hours available in each year. Production
information for each product is:
Required:
(1) Determine the preferred sales mix if there are no market constraints on any of the
products.
(2) Determine the preferred sales mix if the demand is limited to 5,000 units for each
product.
(3) Determine the preferred sales mix if the demand is limited to 3,000 units for each
product.
13) When purchase costs of inventory regularly decline, which method of inventory
costing will yield the lowest gross profit and income?
A.FIFO
B.LIFO
C.Weighted average
D.Specific identification
E.Gross margin
14) Monterey Corporation is considering the purchase of a machine costing $36,000
with a 6-year useful life and no salvage value. Monterey uses straight-line depreciation
and assumes that the annual cash inflow from the machine will be received uniformly
throughout each year. In calculating the accounting rate of return, what is Monterey’s
average investment?
A.$6,000
B.$7,000
C.$18,000
D.$21,000
E.$36,000
15) When a partner is added to a partnership:
A.The previous partnership ends
B.The underlying business operations end
C.The underlying business operations must close and then re-open
D.The partnership must continue
E.The partnership equity always increases
16) Della’s Donuts had cash inflows from operating activities of $27,000; cash outflows
from investing activities of $22,000, and cash outflows from financing activities of
$12,000. Calculate the net increase or decrease in cash.
A.$61,000 increase
B.$37,000 increase
C.$7,000 decrease
D.$7,000 increase
E.$34,000 decrease
17) All of the following statements regarding input devices are true except:
A.Input devices capture information from source documents and enable its transfer to
the system’s information processing component
B.Input devices convert data on source documents from written form to a form usable
for the system
C.Input devices include keyboards, scanners, and modems
D.Input devices include journal entries
E.Input devices are always reliable and no controls are needed to verify accuracy of
input
18) All of the following are True regarding ethics except:
A.Ethics are beliefs that separate right from wrong
B.Ethics rules are often set for CPAs
C.Ethics do not affect the operations or outcome of a company
D.Are critical in accounting
E.Ethics can be hard to apply
19) Preferred stock which confers no right to prior periods’ unpaid dividends if they
were not declared is called:
A.Noncumulative preferred stock
B.Participating preferred stock
C.Callable preferred stock
D.Cumulative preferred stock
E.Convertible preferred stock
20) The background on a company, its industry, and its economic setting is usually
included in which of the following sections of a financial statement analysis report?
A.Executive summary
B.Analysis overview
C.Evidential conclusions
D.Factor analysis
E.Inferences
21) Louise Company reported the following income statement information for Year 1
and Year 2:
The beginning inventory balance for Year 1 is correct. The ending inventory balance for
Year 2 is also correct. However, the ending inventory figure for Year 1 was overstated
by $20,000. Given this information, the correct gross profit figures for Year 1 and Year
2 would be:
A.$129,000 for Year 1 and $256,000 for Year 2
B.$281,000 for Year 1 and $274,000 for Year 2
C.$129,000 for Year 1 and $276,000 for Year 2
D.$169,000 for Year 1 and $236,000 for Year 2
E.$169,000 for Year 1 and $276,000 for Year 2
22) Grafton sells a product for $700. Unit sales for May were 400 and a 3% growth in
unit sales is forecasted for each month. Grafton pays a sales manager a monthly salary
of $3,000 and a commission of 2% of sales in dollars. Assume 30% of Grafton’s sales
are for cash. The remaining 70% are credit sales; these customers pay in the month
following the sale. Compute the budgeted cash receipts for June.
A.$282,520
B.$196,000
C.$201,880
D.$280,000
E.$285,880
23) A company has earnings per share net income of $900,000; its weighted-average
common shares outstanding are 180,000. Its dividend per share is $0.45, its market
price per share is $88, and its book value per share is $76. Its price-earnings ratio
equals:
A.9.0
B.17.6
C.12.5
D.15.2
E.16.9
24) Bardo Company allows customers to make purchases on credit. The terms of all
credit sales are 2/10, n/30, and all sales are recorded at the gross price. Other customers
can use a bank credit card where the bank deducts a 4% service charge for credit card
sales and credits the bank account of Bardo immediately when credit card receipts are
deposited. Bardo uses the perpetual inventory method. Prepare journal entries to record
the following selected transactions and events.
25) Alpha Co. can produce a unit of Beta for the following costs:
An outside supplier offers to provide Alpha with all the Beta units it needs at $60 per
unit. If Alpha buys from the supplier, Alpha will still incur 40% of its overhead. Alpha
should:
A.Buy Beta since the relevant cost to make it is $72
B.Make Beta since the relevant cost to make it is $56
C.Buy Beta since the relevant cost to make it is $48
D.Make Beta since the relevant cost to make it is $48
E.Buy Beta since the relevant cost to make it is $56
26) A company has a market value per share of $73.00. Its net income is $1,750,000
and the weighted-average number of shares outstanding is 350,000. The company’s
price-earnings ratio equals:
A.20.9
B.4.2
C.14.6
D.20.0
E.6.8
27) A company purchased $1,800 of merchandise on December 5. On December 7, it
returned $200 worth of merchandise. On December 8, it paid the balance in full, taking
a 2% discount. The amount of the cash paid on December 8 equals:
A.$200.
B.$1,564.
C.$1,568.
D.$1,600.
E.$1,800.
28) A management concept that applies quality improvement to all aspects of business
activities is called:
A.Continuous operations
B.Customer orientation
C.Just-in-time
D.Theory of constraints
E.Total quality management
29) The rule that (1) requires revenue to be recognized at the time it is earned, (2)
allows the inflow of assets associated with revenue to be in a form other than cash, and
(3) measures the amount of revenue as the cash plus the cash equivalent value of any
noncash assets received from customers in exchange for goods or services, is called the:
A.Going-concern assumption
B.Cost principle
C.Revenue recognition principle
D.Objectivity principle
E.Business entity assumption
30) The following statements regarding merchandise inventory are true except:
A.Merchandise inventory is reported on the balance sheet as a current asset.
B.Merchandise inventory refers to products a company owns and intends to sell.
C.Merchandise inventory can include the cost of shipping the goods to the store and
making them ready for sale.
D.Merchandise inventory does not appear on the balance sheet of a service company.
E.Merchandise inventory purchases are not considered part of the operating cycle for a
business.
31) Use the following data to determine the cost of goods manufactured.
A.$102,000
B.$110,100
C.$96,600
D.$113,700
E.$100,200
32) When the operating activities section of the statement of cash flows is reported
using the direct method, the FASB requires:
A.The preparation of the statement of cash flows under the indirect method be
completed and reported with the statement of cash flows prepared using the direct
method
B.A reconciliation of net income to net cash provided or used by operating activities
C.Footnotes to the financial statements disclosing the difference between net income
and the cash provided or used by financing activities
D.The income statement to be prepared under the cash basis of accounting
E.Noncash investing and financing activities be included in the statement of cash flows
33) A June sales forecast projects that 6,000 units are going to be sold at a price of
$10.50 per unit. The desired ending inventory of units is 15% higher than the beginning
inventory of 1,000 units. Total June sales are anticipated to be:
A.$63,000
B.$67,500
C.$61,250
D.$74,250
E.$60,000
34) Which of the following statements describing the debt ratio is false?
A.It is of use to both internal and external users of accounting information
B.A relatively high ratio is always desirable
C.The dividing line for a high and low ratio varies from industry to industry
D.Many factors such as a company’s age, stability, profitability and cash flow influence
the determination of what would be interpreted as a high versus a low ratio
E.The ratio might be used to help determine if a company is capable of increasing its
income by obtaining further debt
35) Alex Company has 10 employees, who earn a total of $1,800 in salaries each
working day. They are paid on Monday for the five-day workweek ending on the
previous Friday. Assume that year ended December 31, is a Wednesday and all
employees will be paid salaries for five full days on the following Monday. The
adjusting entry needed on December 31 is:
A.Debit Salaries Expense, $5,400; credit Salaries Payable, $5,400
B.Debit Salaries Expense, $3,600; credit Salaries Payable, $3,600
C.Debit Salaries Expense, $9,000; credit Salaries Payable, $9,000
D.Debit Salaries Payable, $5,400; credit Salaries Expense, $5,400
E.Debit Salaries Expense, $5,400; credit Cash, $5,400
36) At the beginning of the year, Beta Company’s balance sheet reported Total Assets of
$195,000 and Total Liabilities of $75,000. During the year, the company reported total
revenues of $226,000 and expenses of $175,000. Also, owner withdrawals during the
year totaled $48,000. Assuming no other changes to owner’s capital, the balance in the
owner’s capital account at the end of the year would be:
A.$174,000
B.$78,000
C.cannot be determined from the information provided
D.$120,000
E.$123,000
37) A company records the fees for legal services paid in advance by its clients in an
account called Unearned Legal Fees. If the company fails to make the end-of-period
adjusting entry to record the portion of these fees that has been earned, one effect will
be:
A.An overstatement of equity
B.An understatement of equity
C.An understatement of assets
D.An understatement of liabilities
E.An overstatement of assets
38) Adidas issued 10-year, 8% bonds with a par value of $200,000. Interest is paid
semiannually. The market rate on the issue date was 7.5%. Adidas received $206,948 in
cash proceeds. Which of the following statements is True?
A.Adidas must pay $200,000 at maturity and no interest payments
B.Adidas must pay $206,948 at maturity and no interest payments
C.Adidas must pay $200,000 at maturity plus 20 interest payments of $8,000 each
D.Adidas must pay $206,948 at maturity plus 20 interest payments of $8,000 each
E.Adidas must pay $200,000 at maturity plus 20 interest payments of $7,500 each
39) Able Company has two operating (production) departments: Assembly and
Fabricating. Assembly has 150 employees and occupies 44,000 square feet; Fabricating
has 100 employees and occupies 36,000 square feet. Indirect factory expenses for the
current period are as follows:
Administration is allocated based on workers in each department; maintenance is
allocated based on square footage. The total amount of indirect factory expenses that
should be allocated to the Assembly Department for the current period is:
A.$48,000
B.$55,000
C.$103,000
D.$104,000
E.$110,000
40) Partnership accounting:
A.Uses a capital account for each partner
B.Uses a withdrawals account for each partner
C.Allocates net income to each partner according to the partnership agreement
D.Allocates net loss to each partner according to the partnership agreement
E.All of these
41) 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. What is the firm’s break-even point in units of A and B?
A.31,000 of A and 31,000 of B
B.31,000 of A and 62,000 of B
C.10,333 of A and 20,667 of B
D.36,167 of A and 72,333 of B
E.62,000 of A and 31,000 of B
42) A cost that changes with volume, but not at a constant rate, is called a:
A.Variable cost
B.Curvilinear cost
C.Step-wise variable cost
D.Fixed cost
E.Differential cost
43) A company had a beginning balance in retained earnings of $43,000. It had net
income of $6,000 and paid out cash dividends of $5,625 in the current period. The
ending balance in retained earnings equals:
A.$54,625
B.$42,625
C.$11,625
D.$43,375
E.$49,000
44) All of the following regarding a Certified Public Accountant are True except:
A.Must meet education and experience requirements
B.Must pass an examination
C.Must exhibit ethical character
D.May also be a Certified Management Accountant
E.Cannot hold any certificate other than a CPA
45) Match the definitions 1 through 9 with the correct term or phrase a through i.
1>Budgeted income statement A. A plan that shows the units or costs of merchandise to
be purchased by a merchandising company during the budget period.
2>Cash budget B. An accounting report that presents predicted amounts of the
company’s assets, liabilities, and equity balances at the end of the budget period.
3>General and administrative expense budget C. A plan showing the units of goods to
be sold and the sales to be derived; the usual starting point in the budgeting process.
4>Budgeted balance sheet D. An accounting report that presents predicted amounts of
the company’s revenues and expenses for the budgeting period.
5>Merchandise purchases budget E. A quantity of inventory or materials over the
minimum to reduce the risk of running short.
6>Budget F. A comprehensive business plan that includes specific plans for expected
sales, the units of product to be produced, the merchandise or materials to be purchased,
the expenses to be incurred, the long-term assets to be purchased, and the amounts of
cash to be borrowed or loans to be repaid, as well as a budgeted income statement and
balance sheet.
7>Sales budget G. A formal statement of a company’s future plans, usually expressed in
monetary terms.
8>Master budget H. A plan that shows predicted operating expenses not included in the
selling expenses budget.
9>Safety stock I. A plan that shows the expected cash inflows and cash outflows during
the budget period, including receipts from any loans needed to maintain a minimum
cash balance and repayments of such loans.
46) Capital budgeting decisions usually involve analysis of:
A.Cash outflows only
B.Short-term investments
C.Long-term investments
D.Investments with certain outcomes only
E.Operating revenues
47) Merchandise inventory includes:
A.All goods owned by a company and held for sale
B.All goods in transit
C.All goods on consignment
D.Only damaged goods
E.Only non-damaged goods
48) A company has the following unadjusted account balances at December 31, of the
current year; Accounts Receivable of $185,700 and Allowance for Doubtful Accounts
of $1,600 (credit balance). The company uses the aging of accounts receivable to
estimate its bad debts. The following aging schedule reflects its accounts receivable at
the current year-end:
1> Calculate the amount of the Allowance for Doubtful Accounts that should appear on
the December 31, of the current year, balance sheet.
2> Prepare the adjusting journal entry to record bad debts expense for the current year.
49) Explain the difference between the single-step and multiple-step income statements.
50) _________________________ leases are short-term or cancelable leases in which
the lessor retains the risks and rewards of ownership.
51) DT Co. produces picture frames. It takes 3 hours of direct labor to produce a frame.
DT’s standard labor cost is $11.00 per hour. During March, DT produced 4,000 frames
and used 12,400 hours at a total cost of $133,920. What is DT’s labor rate variance for
March?
52) The China Department of the Coulsen Department Store had sales of $282,000, cost
of goods sold of $198,750, indirect expenses of $19,875, and direct expenses of
$41,250 for the current period. What is the China Department’s contribution to
overhead as a percent of sales?
53) What is a cost accounting system? What are the two basic types of cost accounting
systems?
54) A company’s employer payroll tax rates are 0.8% for federal unemployment taxes,
5.4% for state unemployment taxes, 6.2% for FICA social security taxes on earnings up
to $106,800, and 1.45% for FICA Medicare taxes on all earnings. Compute the W-2
Wage and Tax Statement information required below for the following employees:
55) Dylan Lauren of Dylan’s Candy Bar knew good business practice requires the use
of effective internal controls. Identify some of the internal controls that Dylan’s Candy
Bar implemented and explain how those controls contributed to the firm’s success.