1) Gain or loss on the disposal of assets is determined by comparing the disposed asset’s
book value to the value of any assets received.
2) Internal control devices for banking activities include signature cards, deposit tickets,
checks, and bank statements.
3) Four factors come together in the manufacturing process: beginning goods in process
inventory, direct materials, direct labor, and factory overhead.
4) The debt-to-equity ratio enables financial statement users to assess the risk of a
company’s financing structure.
5) Using the retail inventory method, if the cost to retail ratio is 60% and ending
inventory at retail is $45,000, then estimated ending inventory at cost is $27,000.
6) To calculate the break-even point in units, one must know unit fixed cost, unit
variable cost, and sales price.
7) A job cost sheet is useful for developing financial accounting numbers but does not
contain information that is useful for managing the production process.
8) An employee overstates his reimbursable expenses in one period in order to receive
needed additional cash. Since he intends to reduce his expenses the next period by the
current overstatement, this act is not considered fraudulent.
9) A budget is a formal statement of future plans, usually expressed in monetary terms.
10) Return on assets reflects the effectiveness of a company’s ability to generate profit
through productive use of its assets.
11) The debt ratio is calculated by dividing total assets by total liabilities.
12) The five basic principles of accounting information systems are control,
competency, compatibility, flexibility and cost-benefit.
13) Each employee records the number of withholding allowances claimed on form
W-4, which is the withholding allowance certificate that is filed with the employer.
14) Assets are the resources of a company and are expected to yield future benefits.
15) A stock dividend decreases the market price of the company’s stock.
16) A buyer records the costs of shipping goods in a Delivery Expense, or
transportation-out account when the buyer is responsible for these costs.
17) It can be expected that companies selling perishable goods have a higher inventory
turnover than companies selling nonperishable goods.
18) Prior to recording adjusting entries at the end of an accounting period, some
accounts may not show proper financial statement amounts even though all transactions
were correctly recorded.
19) Plant assets refer to intangible assets that are used in the operations of a business.
20) A company purchased and installed a machine on January 1 at a total cost of
$72,000. Straight-line depreciation was calculated based on the assumption of a
five-year life and no salvage value. The machine was disposed of on July 1 of the fourth
year. The company uses the calendar year.
1> Prepare the general journal entry to update depreciation to July 1 in the fourth year.
2> Prepare the general journal entry to record the disposal of the machine under each of
these three independent situations:
a. The machine was sold for $22,000 cash.
b. The machine was sold for $15,000 cash.
c. The machine was totally destroyed in a fire and the insurance company settled the
claim for $18,000 cash.
21) During August, Arena Company sells $356,000 in product that has a one year
warranty. Experience shows that warranty expenses average about 5% of the selling
price. The warranty liability account has a balance of $12,800 before adjustment.
Customers returned product for warranty repairs during the month that used $9,400 in
parts for repairs. The entry to record the customer warranty repairs is:
A.Debit Warranty Expense $17,800; credit Estimated Warranty Liability $17,800
B.Debit Warranty Expense $9,400; credit Estimated Warranty Liability $9,400
C.Debit Warranty Expense $14,400; credit Estimated Warranty Liability $14,400
D.Debit Estimated Warranty Liability $9,400; credit Parts Inventory $9,400
E.Debit Estimated Warranty Liability $17,800; credit Parts Inventory $17,800
22) Use the following information to calculate cash received from dividends:
A.$26,400
B.$29,000
C.$29,800
D.$30,600
E.$32,400
23) The two basic types of cost accounting systems are:
A.Job order costing and perpetual costing
B.Job order costing and customized product costing
C.Job order costing and customized service costing
D.Job order costing and process costing
E.Job order costing and periodic costing
24) A product sells for $30 per unit and has variable costs of $18 per unit. The fixed
costs are $720,000. If the variable costs per unit were to decrease to $15 per unit and
fixed costs increase to $900,000, and the selling price does not change, break-even
point in units would:
A.Increase by 20,000
B.Equal 6,000
C.Increase by 6,000
D.Decrease by 20,000
E.Not change
25) Amortizing a bond discount:
A.Allocates a portion of the total discount to interest expense each interest period
B.Increases the market value of the Bonds Payable
C.Decreases the Bonds Payable account
D.Decreases interest expense each period
E.Increases cash flows from the bond
26) Iolaus Company provides the following data for the current year:
Required:
a. Calculate the predetermined overhead allocation rate based on direct labor.
b. Determine the amount of overhead applied to production.
c. Prepare the journal entry to apply factory overhead to goods in process.
27) Xtreme Sports has $100,000 of 8% noncumulative, nonparticipating, preferred
stock outstanding. Xtreme Sports also has $500,000 of common stock outstanding. In
the company’s first year of operation, no dividends were paid. During the second year,
Xtreme Sports paid cash dividends of $30,000. This dividend should be distributed as
follows:
A.$8,000 preferred; $22,000 common
B.$16,000 preferred; $14,000 common
C.$7,500 preferred; $22,500 common
D.$15,000 preferred; $15,000 common
E.$0 preferred; $30,000 common
28) Smith, West, and Krug form a partnership. Smith contributes $180,000, West
contributes $150,000, and Krug contributes $270,000. Their partnership agreement calls
for the income or loss division to be based on the ratio of capital invested. If the
partnership reports income of $175,000 for its first year, what amount of income is
credited to Krug’s capital account?
A.$43,750
B.$78,750
C.$52,500
D.$58,333
E.$60,000
29) Becker Corporation paid cash dividends totaling $75,000 during its most recent
fiscal year. How should this information be reported on Becker’s statement of cash
flows?
A.In operating activities as a source of funds
B.In investing activities as a source of funds
C.In investing activities as a use of funds
D.In financing activities as a source of funds
E.In financing activities as a use of funds
30) The dollar change for a financial statement item is calculated by:
A.Subtracting the analysis period amount from the base period amount
B.Subtracting the base period amount from the analysis period amount
C.Subtracting the analysis period amount from the base period amount, dividing the
result by the base period amount, then multiplying that amount by 100
D.Subtracting the base period amount from the analysis period amount, dividing the
result by the base period amount, then multiplying that amount by 100
E.Subtracting the base period amount from the analysis amount, then dividing the result
by the base amount
31) Estimated overhead and direct labor costs for the year were $112,500 and $125,000,
respectively. During the year, actual overhead was $107,400 and actual direct labor cost
was $120,000. The entry to close the over- or underapplied overhead at year-end,
assuming an immaterial amount, would include:
A.A debit to Cost of Goods Sold for $600
B.A credit to Factory Overhead for $600
C.A credit to Finished Goods Inventory for $600
D.A debit to Goods in Process Inventory for $600
E.A credit to Cost of Goods Sold for $600
32) Variable budget is another name for:
A.Cash budget
B.Flexible budget
C.Fixed budget
D.Manufacturing budget
E.Rolling budget
33) 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
34) Land improvements are:
A.Assets that increase the usefulness of land, and like land, are not depreciated
B.Assets that increase the usefulness of land, but that have a limited useful life and are
subject to depreciation
C.Included in the cost of the land account
D.Expensed in the period incurred
E.Also called basket purchases
35) Rudy Co. has total fixed costs of $520,000. A unit of product sells for $15 and
variable costs per unit are $11.
a) Prepare a contribution margin income statement showing predicted net income (loss)
if Rudy Co. sells 100,000 units for the year ended December 31.
b) At a minimum, how many units must Rudy Co. sell in order not to incur a loss?
36) The operating cycle for a merchandiser that sells only for cash moves from:
A.Purchases of merchandise to inventory to cash sales.
B.Purchases of merchandise to inventory to accounts receivable to cash sales.
C.Inventory to purchases of merchandise to cash sales.
D.Accounts receivable to purchases of merchandise to inventory to cash sales.
E.Accounts receivable to inventory to cash sales.
37) Nano Company uses a weighted average process cost system. The department
started and finished 149,000 units during the current period. The ending inventory
consists of 60,000 units that are 75% complete with respect to direct labor and
overhead. All direct materials are added at the beginning of the process. The department
incurred direct labor costs of $262,500 and overhead costs of $126,000.
(a) Compute the equivalent cost per unit for direct labor.
(b) Compute the equivalent cost per unit for overhead.
38) Match each of the following items 1 through 8 with the financial statement a
through d in which each item would most likely appear. An item may appear on more
than one statement.
1>Statement of owner’s equity A. Assets.
2>Income statement B. Withdrawals.
3>Statement of cash flows C. Revenues.
4>Balance sheet D. Cash from investing activities.
5>Income statement E. Expenses.
6>Balance sheet F. Liabilities.
7>Statement of cash flows G. Cash from operating activities.
8>Statement of owner’s equity and Balance sheet H. Equity.
39) Management anticipates fixed costs of $72,500 and variable costs equal to 40% of
sales. What will pretax income equal if sales are $325,000?
A.$57,500
B.$122,500
C.$130,000
D.$181,250
E.$252,500
40) Arena Company provides health insurance to its employees that costs $15,000 per
month. In addition, the company contributes 5% of the employees’ $150,000 gross
salary to a retirement program. The entry to record the accrued benefits for the month
would include a:
A.Debit to Medical Insurance Payable $15,000
B.Debit to Employee Retirement Program Payable $7,500
C.Debit to Employee Benefits Expense $22,500
D.Credit to Employee Benefits Expense $15,000
E.Credit to Employee Benefits Expense $22,500
41) All of the following statements regarding accounting for trading securities under
U.S. GAAP are True except:
A.The entire portfolio of trading securities is reported at is fair value
B.An unrealized gain or loss from a change in fair value is reported on the income
statement
C.An unrealized gain or loss is recorded with an adjusting entry when the securities are
sold
D.An unrealized gain or loss is recorded with an adjusting entry at the end of each
period
E.Unrealized gains and losses are recorded in a temporary account that is closed to
Income Summary at the end of the period
42) Marsden manufactures a cat food product called Special Export. Marsden currently
has 10,000 bags of Special Export on hand. The variable production costs per bag are
$1.80 and total fixed costs are $10,000. The cat food can be sold as it is for $9.00 per
bag or be processed further into Prime Cat Food and Feline Surprise at an additional
$2,000 cost. The additional processing will yield 10,000 bags of Prime Cat Food and
3,000 bags of Feline Surprise, which can be sold for $8 and $6 per bag, respectively.
The net advantage (incremental income) of processing Special Export further into
Prime and Feline Surprise would be:
A.$98,000
B.$96,000
C.$8,000
D.$6,000
E.$2,000
43) A company can buy a machine that is expected to have a three-year life and a
$30,000 salvage value. The machine will cost $1,800,000 and is expected to produce a
$200,000 after-tax net income to be received at the end of each year. If a table of
present values of 1 at 12% shows values of 0.8929 for one year, 0.7972 for two years,
and 0.7118 for three years, what is the net present value of the cash flows from the
investment, discounted at 12%?
A.$118,855
B.$583,676
C.$629,788
D.$705,391
E.$1,918,855
44) Which of the following transactions or events should be reported as a source of cash
from operating activities when using the direct method?
A.Credit sales
B.Cash collections from customers
C.Depreciation expense
D.Cash received from the sale of a building
E.Cash received from the sale of treasury stock
45) Prepare journal entries to record the following production activities for Sherman
Manufacturing.
a. Incurred $105,100 of factory labor cost which is paid in cash.
b. Used $93,900 of direct labor in the production department.
c. Used $11,200 of indirect labor.
46) Depletion:
A.Is the process of allocating the cost of natural resources to periods in which they are
consumed
B.Is also called depreciation
C.Is also called amortization
D.Is an unrealized expense reported in equity
E.Is the process of allocating the cost of intangibles to periods in which they are used
47) Another name for equity is:
A.Net income
B.Expenses
C.Net assets
D.Revenue
E.Net loss
48) A company’s normal operating range, which excludes extremely high and low
volumes that are not likely to occur, is called the:
A.Margin of safety
B.Contribution range
C.Break-even point
D.Relevant range
E.High-low point
49) At the beginning of the recent period, there were 900 units of product in a
department, one-third completed. These units were finished and an additional 5,000
units were started and completed during the period. 800 units were still in process at the
end of the period, one-fourth completed. Using the weighted average method, the
equivalent units produced by the department were:
A.5,000 units
B.5,900 units
C.6,100 units
D.5,500 units
E.6,700 units
50) A ____________________ is a business that is owned by only one person.
51) From the adjusted trial balance given below for the Mirror Company, prepare a
multiple-step income statement in good form. Salaries expense and depreciation
expense on the building are equally divided between selling activities and the general
and administrative activities.
52) 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?
53) List the principles of internal control.
54) Evaluate each inventory error separately and determine whether it overstates or
understates cost of goods sold and net income.
55) Explain the effects of inventory valuation methods on the cost of ending inventory,
income, and income taxes.
56) The following is a list of accounts and identification letters A through J for Shannon
Management Co.:
Use the form below to identify the type of account and its normal balance. The first
item is filled in as an example.
57) Flexible budgets may be prepared before or after an actual period of activity. Why
would management prepare such budgets at differing time frames?
58) When preferred stock is cumulative and the directors either do not declare a
dividend to preferred stockholders or declare one that does not cover the total amount
of cumulative dividends, the unpaid amount is called __________________________.