1) Generally accepted accounting principles require companies to use only one factory
overhead rate for product costing.
2) Developing and retaining quality managers is an advantage of decentralization.
3) In preparing the cash flows from operating activities section of the statement of cash
flows by the indirect method, the net decrease in inventories from the beginning to the
end of the period is added to net income for the period.
4) Office salaries expense for a department store is an indirect expense.
5) The use of the lower-of-cost-or-market method of inventory valuation increases net
income for the period in which the inventory replacement price declined.
6) Processing methods are the means by which the system collects, summarizes, and
reports accounting information.
7) FICA tax is a payroll tax that is paid only by employers.
8) The cash budget is affected by the sales budget, the various budgets for
manufacturing costs and operating expenses, and the capital expenditures budget.
9) The budgeted direct materials purchases is normally computed as the sum of (1) the
materials for production and (2) the desired ending inventory.
10) The responsibility for coordinating the preparation of a master budget should be
assigned to the CEO of a firm.
11) Cost systems using detailed estimates of each element of manufacturing cost
entering into the finished product are called standard cost systems.
12) Most companies invest excess cash in bonds as investments in order to profit
long-term from the growth of the investment.
13) Land acquired as a speculation is reported under Investments on the balance sheet.
14) Direct labor cost is an example of a period cost.
15) A corporation has 10,000 shares of $100 par value stock outstanding. If the
corporation issues a 5-for-1 stock split,the number of shares outstanding after the split
willbe40,000.
16) Businesses who have several bank accounts, petty cash, and cash on hand, would
maintain a separate ledger account for each type of cash.
17) If the buyer is to pay the freight costs of delivering merchandise, delivery terms are
stated as
A.FOB shipping point
B.FOB destination
C.FOB n/30
D.FOB buyer
18) When comparing a retail business to a service business, the financial statement that
changes the least is the
A.Balance Sheet
B.Income Statement
C.Statement of Owner’s Equity
D.Statement of Cash Flow
19) Which of the following should be added to net income in calculating net cash flow
from operating activities using the indirect method?
A.depreciation expense
B.an increase in inventory
C.a gain on the sale of equipment
D.dividends declared and paid
20) If the straight-line method of amortization of bond premium or discount is used,
which of the following statements is true?
A.Annual interest expense will increase over the life of the bonds with the amortization
of bond premium
B.Annual interest expense will remain the same over the life of the bonds with the
amortization of bond discount
C.Annual interest expense will decrease over the life of the bonds with the amortization
of bond discount
D.Annual interest expense will increase over the life of the bonds with the amortization
of bond discount
21) The method of analyzing capital investment proposals that divides the estimated
average annual income by the average investment is:
A.cash payback method
B.net present value method
C.internal rate of return method
D.average rate of return method
22) Ralston Company has income from operations of $75,000, invested assets of
$360,000, and sales of $790,000.
Required:
Use the DuPont formula to calculate the rate of return on investment, and show (a) the
profit margin, (b) the investment turnover, and (c) rate of return on investment.
Round profit margin percentage to two decimal places and investment turnover to three
decimal places.
23) In the manufacture of 15,000 units of a product, direct materials cost incurred was
$165,000, direct labor cost incurred was $105,000, and applied factory overhead was
$53,500. What is the total conversion cost?
A.$270,000
B.$158,500
C.$323,500
D.$53,500
24) On January 1, 2011, Zero Company obtained a $52,000, four-year, 6.5% installment
note from Regional Bank. The note requires annual payments of $15,179, beginning on
December 31, 2011. The December 31, 2012 carrying amount in the amortization table
for this installment note will be equal to:
A.$26,000
B.$27,635
C.$21,642
D.$28,402
25) Services performed for cash should be recorded in the
A.Revenue journal
B.Purchases journal
C.Cash Receipts journal
D.Cash Payments journal
26) The following financial information was summarized from the accounting records
of Train Corporation for the current year ended December 31:
The gross profit for the Locomotive Division is:
A.$57,960
B.$14,790
C.$27,240
D.$47,280
27) Magpie Corporation uses the total cost concept of product pricing. Below is cost
information for the production and sale of 60,000 units of its sole product. Magpie
desires a profit equal to a 25% rate of return on invested assets of $700,000.
The cost per unit for the production and sale of the company’s product is:
A.$12.11
B.$12.88
C.$15
D.$13.50
28) Selected transactions completed by a proprietorship are described below. Indicate
the effects of each transaction on assets, liabilities, and owner’s equity by inserting “+”
for increase and “-” for decrease in the appropriate columns at the right. If appropriate,
you may insert more than one symbol in a column.
A L OE
(a) Received cash from owner as an additional investment _____ _____ _____
(b) Purchased supplies on account _____ _____ _____
(c) Paid rent for the current month _____ _____ _____
(d) Received cash for services sold to customers _____ _____ _____
(e) Returned some defective supplies purchased in (b) _____ _____ _____
(f) Paid insurance premiums in advance _____ _____ _____
(g) Paid cash to creditor for purchases in (b) _____ _____ _____
(h) Charged customers for services sold on account _____ _____ _____
(i) Paid cash to a customer as a refund for an overcharge _____ _____ _____
(j) Received cash on account from customers _____ _____ _____
(k) Owner withdrew cash for personal use _____ _____ _____
(l) Recorded the cost of supplies used during the year _____ _____ _____
(m) Received invoice for electricity used _____ _____ _____
(n) Paid wages _____ _____ _____
(o) Purchased a truck for cash _____ _____ _____
29) The controlling account for the cost ledger is:
A.Finished Goods
B.Materials
C.Work in Process
D.Cost of Goods Sold
30) A sales invoice included the following information: merchandise price, $10,000;
freight, $900; terms 1/10, n/eom, FOB shipping point. Assuming that a credit for
merchandise returned of $500 is granted prior to payment and that the invoice is paid
within the discount period, what is the amount of cash that should be received by the
seller?
A.$10,305
B.$9,500
C.$9,306
D.$9,900
31) When a company exchanges machinery and receives a trade-in allowance less than
the book value, this transaction would be recorded with the following entry:
A.debit Machinery and Accumulated Depreciation; credit Machinery and Cash
B.debit Cash and Machinery; credit Accumulated Depreciation
C.debit Cash and Machinery; credit Accumulated Depreciation and Machinery
D.debit Machinery, Accumulated Depreciation, and Loss on Disposal; credit Machinery
and Cash
32) The general term used to indicate delaying the recognition of an expense already
paid or of a revenue already received is
A.depreciation
B.deferral
C.accrual
D.inventory
33) The management of California Corporation is considering the purchase of a new
machine costing $400,000. The company’s desired rate of return is 10%. The present
value factors for $1 at compound interest of 10% for 1 through 5 years are 0.909, 0.826,
0.751, 0.683, and 0.621, respectively. In addition to the foregoing information, use the
following data in determining the acceptability in this situation:
The present value index for this investment is:
A..88
B.1.45
C.1.14
D..70
34) When a firm uses internal auditors, it is adhering to which one of the following
internal control elements?
A.risk assessment
B.monitoring
C.proofs and security measures
D.separating responsibilities for related operations
35) For the fiscal years 2009 and 2010, Apple Co. reported the following:
a. Compute the accounts receivable turnover for 2010.
b. Compute the number of days sales in receivable at the end of 2010.
36) Using the FIFO method, the cost of goods completed and transferred out during
July was (use average cost per unit rounded to four decimal places in computations)
A.$227,270
B.$225,060
C.$236,905
D.$228,200
37) The Cardinal Company had a finished goods inventory of 55,000 units on January
1. Its projected sales for the next four months were: January – 200,000 units; February –
180,000 units; March – 210,000 units; and April – 230,000 units. The Cardinal Company
wishes to maintain a desired ending finished goods inventory of 20% of the following
months sales.
What would be the budgeted production for March?
A.256,000
B.206,000
C.214,000
D.298,000
38) Owner’s withdrawals
A.increase expenses
B.decrease expenses
C.increase cash
D.decrease owner’s equity
39) On the statement of cash flows, a $7,500 gain on the sale of fixed assets would be
A.added to net income in converting the net income reported on the income statement
to cash flows from operating activities
B.deducted from net income in converting the net income reported on the income
statement to cash flows from operating activities
C.added to dividends declared in converting the dividends declared to the cash flows
from financing activities related to dividends
D.deducted from dividends declared in converting the dividends declared to the cash
flows from financing activities related to dividends
40) Clifford Moore is starting his computer programming business and has deposited in
initial investment of $15,000 into the business cash account. Identify how the
accounting equation will be affected.
A.Increase Assets (Cash) and increase Liabilities (Accounts Payable)
B.Increase Assets (Cash) and increase Owners Equity (Clifford Moore, Capital)
C.Increase Assets (Accounts Receivable) and decrease Liabilities (Accounts Payable)
D.Increase Assets (Cash) and increase Assets (Accounts Receivable)
41) Which of the following is not an asset?
A.Investments
B.Cash
C.Inventory
D.Owners Equity
42) Journalize the following transactions (Assume a 360-day year when calculating
interest.):
43) Piano Companys costs were over budget by $47,000. The Piano Company is
divided in two regions. The first regions costs were over budget by $5,000. Determine
the amount that the second regions cost was over or under budget.
44) You began your new job as the accountant at Bolivar Industries during the month of
December. During your first month, you found several interesting issues.
1) While looking through the invoices, you found Invoices 213-242, 245-271, and
275-290. It appears that invoices 243, 244, 272, 273, and 274 are missing.
2) During the month, Clerk # 3 issued $250 in refunds as compared to Clerks #1, #2,
and #4 who issued less than $50 each.
3) The daily cash receipts and bank deposits reconcile, except on Tuesdays during the
month.
4) Business is generally brisk during the holiday season, but two weeks before
Christmas there was a sudden increase in slow payments.
REQUIRED:
Part A: What kind of warning signs could be associated with these issues?
Part B: What control could you put in place regarding cash refunds mentioned in Part A
(2)?
45) What is comprehensive income? How is it calculated? What are some examples of
items included in other comprehensive income? Where is comprehensive income
reported?
46) Beginning inventory, purchases and sales data for tennis rackets are as follows:
Complete the inventory cost card assuming the business maintains a perpetual
inventory system and calculates the cost of merchandise sold and ending inventory
using LIFO.