1) At the end of a period (before adjustment), Allowance for Doubtful Accounts has a
credit balance of $5,000. The Accounts Receivable balance is analyzed by aging the
accounts and the amount estimated to be uncollectible is $50,000. The amount to be
recorded in the adjusting entry for the Bad Debt Expense is $45,000.
2) The amount of money a borrower receives from the lender is called discount rate.
3) During periods of increasing costs, an advantage of the LIFO inventory cost method
is that it matches more recent costs against current revenues.
4) The just-in-time (JIT) philosophy views inventory as an unnecessary waste of
resources.
5) Medicare taxes are withheld from an employee’s pay only until the employee has
earned a specific amount each year.
6) Nonmanufacturing costs are classified into two categories: selling and
administrative.
7) The variance from standard for factory overhead cost resulting from operating at a
level above or below 100% of normal capacity is termed volume variance.
8) The income statement is prepared from the adjusted trial balance or the income
statement columns on the work sheet.
9) Changes in technology, machinery, or production methods may make past cost data
irrelevant when setting standards.
10) The face value of a term bond is payable at a single specific date in the future.
11) If factory overhead applied exceeds the actual costs, overhead is said to be
underapplied.
12) A company is planning to purchase a machine that will cost $24,000, have a
six-year life, and have no salvage value. The company expects to sell the machines
output of 3,000 units evenly throughout each year. Total income over the life of the
machine is estimated to be $12,000. The machine will generate cash flows per year of
$6,000. The accounting rate of return for the machine is 16.7%.
13) The difference between deferred revenue and accrued revenue is that accrued
revenue has been recorded and needs adjusting and deferred revenue has never been
recorded.
14) Information about costs developed through a job order cost system can not be used
to evaluate an organizations cost performance.
15) Comprehensive income must be reported on the income statement.
16) Generally, all deductions made from an employee’s gross pay are required by law.
17) Indirect costs can be specifically identified to a cost object.
18) Which of the following would be considered a sunk cost?
A.Purchase price of new equipment
B.Equipment rental for the production area
C.Net book value of equipment that has no market value
D.Warehouse lease expense
19) The journal entry a company uses to record the estimated accrued product warranty
liability is
A.debit Product Warranty Expense; credit Product Warranty Payable
B.debit Product Warranty Payable; credit Cash
C.debit Product Warranty Expense; credit Cash
D.debit Product Warranty Payable; credit Product Warranty Expense
20) Expenditures that add to the utility of fixed assets for more than one accounting
period are
A.committed expenditures
B.revenue expenditures
C.utility expenditures
D.capital expenditures
21) The bank reconciliation
A.should be prepared by an employee who records cash transactions
B.is part of the internal control system
C.is for information purposes only
D.is sent to the bank for verification
22) The excess of issue price over par of common stock is termed a(n)
A.discount
B.income
C.deficit
D.premium
23) The unit of measure concept
A.is only used in the financial statements of manufacturing companies
B.is not important when applying the cost concept
C.requires that different units be used for assets and liabilities
D.requires that economic data be reported in yen in Japan or dollars in the United States
24) In an investment center, the manager has the responsibility for and the authority to
make decisions that affect:
A.the assets invested in the center, but not costs and revenues
B.costs and assets invested in the center, but not revenues
C.both costs and revenues for the department or division
D.not only costs and revenues, but also assets invested in the center
25) Yankton Company began the year without an investment portfolio. During the year
they purchased investments classified as available-for-sale securities at a cost of
$13,000. At the end of the year, the market value of the securities was $11,000. The
Yankton Company’s financial statements for the current year should show
A.a loss of $2,000 on the income statement and available-for-sale securities of $13,000
on the balance sheet
B.no loss on the income statement and available-for-sale securities of $13,000 on the
balance sheet
C.no loss on the income statement, available-for-sale securities of $11,000 and an
unrealized loss of $2,000 as a stockholders equity adjustment on the balance sheet
D.a loss of $2,000 on the income statement and temporary investments of $11,000 on
the balance sheet
26) The classification and normal balance of the accounts payable account is
A.an asset with a credit balance
B.a liability with a credit balance
C.an asset with a debit balance
D.an expense with a debit balance
27) The Post. Ref. columns are used to trace transactions from the journal to the
accounts. What will be entered in the Post. Ref. column of (a) the journal and (b) the
account?
A.(a) the amount of the debit or credit (b) the journal page number
B.(a) the journal page number (b) the date of the transaction
C.(a) the journal page number, (b) the account number
D.(a) the account number, (b) the journal page number
28) Super Security Company manufacturers home alarms. Currently it is manufacturing
one of its components at a variable cost of $45 and fixed costs of $15 per unit. An
outside provider of this component has offered to sell Safe Security the component for
$50. Determine the best plan and calculate the savings.
A.$5 savings per unit – Manufacture
B.$5 savings per unit – Purchase
C.$10 savings per unit – Manufacture
D.$15 savings per unit – Purchase
29) The formula for depreciable cost is
A.initial cost + residual value
B.initial cost – residual value
C.initial cost – accumulated depreciation
D.depreciable cost = initial cost
30) The expected average rate of return for a proposed investment of $600,000 in a
fixed asset, with a useful life of four years, straight-line depreciation, no residual value,
and an expected total net income of $240,000 for the 4 years, is:
A.40%
B.20%
C.60%
D.24%
31) The current portion of long-term debt should
A.be classified as a long-term liability
B.not be separated from the long-term portion of debt
C.be paid immediately
D.be reclassified as a current liability
32) A company with 100,000 authorized shares of $4 par common stock issued 50,000
shares at $9. Subsequently, the company declared a 2% stock dividend on a date when
the market price was $10 a share. The effect of the declaration and issuance of the stock
dividend is to
A.decrease retained earnings, increase common stock, and increase paid-in capital
B.increase retained earnings, decrease common stock, and decrease paid-in capital
C.increase retained earnings, decrease common stock, and increase paid-in capital
D.decrease retained earnings, increase common stock, and decrease paid-in capital
33) Gomez Service Company paid its first installment on a note payable for an amount
of $2,000. How will this transaction affect the accounting equation?
A.Increase Liabilities (Notes Payable) and decrease Assets (Cash)
B.Decrease Assets (Cash) and decrease Stockholders Equity (Note Payable Expense)
C.Decrease Assets (Cash) and decrease Assets (Notes Receivable)
D.Decrease Assets (Cash) and decrease Liabilities (Notes Payable)
34) The following data is given for the Stringer Company:
Overhead is applied on standard labor hours.
The direct material quantity variance is:
A.22,800F
B.22,800U
C.52,000F
D.52,000U
35) On January 31, the end of the first month of the year, the usual adjusting entry
transferring expired insurance to an expense account was omitted. Which items will be
incorrectly stated because of the error on (a) the income statement for January and (b)
the balance sheet as of January 31? Also indicate whether the items in error will be
overstated or understated.
36) If the effect of the credit portion of an adjusting entry is to increase the balance of a
liability account, which of the following describes the effect of the debit portion of the
entry?
A.increases the balance of a contra asset account
B.increases the balance of an asset account
C.decreases the balance of a stockholders equity account
D.increases the balance of an expense account
37) What is the purpose of the Statement of Cost of Goods Manufactured?
A.to determine the ending materials inventory
B.to determine the ending work in process inventory
C.to determine the amounts transferred to finished goods
D.all of the answers are true
38) Which one of the following items below would not affect the investor’s income for
the period?
A.interest received on a temporary investment in bonds
B.dividends received on a long-term investment in stock where the investor owns 10%
of the investee’s stock
C.dividends received on a long-term investment in stock where the investor owns 30%
of the investee’s stock
D.interest received on a long-term investment in bonds
39) Which of the following would most likely be a period cost?
A.Depreciation on factory lunchroom furniture
B.Salary of telephone receptionist in the sales office
C.Salary of a security guard for the factory parking lot
D.Computer chips used by a computer manufacturer
40) During the period, labor costs incurred on account amounted to $275,000 including
$200,000 for production orders and $75,000 for general factory use. In addition, factory
overhead applied to production was $32,000. From the following, select the entry to
record the factory overhead applied to production.
A.Work in Process75,000
Factory Overhead 75,000
B.Factory Overhead32,000
Work in Process32,000
C.Work in Process32,000
Factory Overhead32,000
D.Factory Overhead75,000
Accounts Payable75,000
41) In which order are the accounts listed in the chart of accounts?
A.assets, expenses, liabilities, stockholders equity, revenues
B.stockholders equity, assets, liabilities, revenues, expenses
C.assets, liabilities, stockholders equity, revenues, expenses
D.assets, liabilities, revenues, expenses, stockholders equity
42) The account Unrealized Gain (Loss) on Trading Securities should be included in the
A.Income statement as Other Revenue (Expenses)
B.Balance sheet as an adjustment to the asset account
C.Balance sheet as an adjustment to Stockholders’ Equity
D.Statement of Retained Earnings
43) When using the variable cost concept of applying the cost-plus approach to product
pricing, what is included in the markup?
A.Total costs plus desired profit
B.Desired profit
C.Total selling and administrative expenses plus desired profit
D.Total fixed manufacturing costs, total fixed selling and administrative expenses, and
desired profit
44) On August 1, Clayton Co. issued $1,300,000 of 20-year, 9% bonds, dated August 1,
for $1,225,000. Interest is payable semiannually on February 1 and August 1. Present
the entries to record the following transactions for the current year:
45) The balanced scorecard measures
A.only financial information
B.only nonfinancial information
C.both financial and nonfinancial information
D.external and internal information
46) Which of the following is not a certification for accountants?
A.CIA
B.CMA
C.CISA
D.All are certifications
47) On what effects does contribution margin analysis focus?
A.the quantity factor
B.the unit cost factor
C.the unit sales price factor
D.all of the above
48) The accounting equation may be expressed as
A.Assets = Equities – Liabilities
B.Assets + Liabilities = Stockholders Equity
C.Assets = Revenues – Liabilities
D.Assets – Liabilities = Stockholders Equity
49) Racer Industries has fixed costs of $900,000. Selling price per unit is $250 and
variable cost per unit is $130.
Required:
a. How many units must Racer sell in order to break even?
b. How many units must Racer sell in order to earn a profit of $480,000?
c. A new employee suggests that Racer Industries sponsor a company 10-K as a form of
advertising. The cost to sponsor the event is $7,200. How many more units must be sold
to cover this cost?
50) Operating expenses directly traceable to or incurred for the sole benefit of a specific
department and usually subject to the control of the department manager are termed:
A.miscellaneous administrative expenses
B.direct expenses
C.indirect expenses
D.fixed expenses
51) The amount of income that would result from an alternative use of cash is called:
A.differential income
B.sunk cost
C.differential revenue
D.opportunity cost
52) Net income appears on the work sheet in the
A.debit column of the Balance Sheet columns
B.debit column of the Adjustments columns
C.debit column of the Income Statement columns
D.credit column of the Income Statement columns
53) The budgeting process does not involve which of the following activities:
A.Specific goals are established
B.Periodic comparison of actual results to goals
C.Execution of plans to achieve goals
D.Increase in sales by increasing marketing efforts
54) The Everest Company has income from operations of $80,000, invested assets of
$500,000, and sales of $1,050,000.
What is the investment turnover?
A.1.8
B.2.1
C..48
D.13.13
55) The asset created by a business when it makes a sale on account is termed
A.accounts payable
B.prepaid expense
C.unearned revenue
D.accounts receivable
56) The just-in-time (JIT) philosophy attempts to reduce setup times, which will:
A.increase batch sizes
B.not affect batch sizes
C.increase within-batch wait time
D.decrease within-batch wait time
57) Which of the following is characteristic of the just-in-time system?
A.Fewer work in process account transactions
B.Work in process and raw materials accounts combined
C.Elimination of the direct labor account
D.All of the above
58) Journalize the entries to record the following selected equity investment
transactions completed by Perry Company during 2012. Perry accounts for this
investment using the cost method.:
59) At the beginning of the period, the Molding Department budgeted direct labor of
$33,000 and supervisor salaries of $24,000 for 3,000 hours of production. The
department actually completed 2,500 hours of production. Determine the budget for the
department assuming that it uses flexible budgeting?
60) Balances of the current asset and current liability accounts at the end and beginning
of the year are as follows:
Use the direct method to prepare the cash flows from operating activities section of a
statement of cash flows.
61) On March 1, 2011, Chase Inc. purchases 35% of the outstanding shares of Glory
Corporation stock for $325,000. On December 31, 2011, Glory reports net income of
$162,000. On January 15, 2012, Glory pays total dividends to stockholders of $33,000.
Required: Journalize the three transactions described above.
62) DogMart Company records depreciation to Office Equipment and Production
Equipment. Depreciation for the period ending December 31 is $1,400 for Office
Equipment and $2,650 for Production Equipment. Prepare two entries to record the
Office Equipment and Production Equipment depreciation.
63) The Mountain Springs Water Company has two departments. Purifying and
Bottling. The Bottling Department received 58,000 liters from the Purifying
Department. During the period, the Bottling Department completed 56,000 liters,
including 4,000 liters of work in process at the beginning of the period. The ending
work in process was 6,000 liters. How many liters were started and completed during
the period?
64) Indicate whether the following actions would (+) increase, (-) decrease, or (0) not
affect a company’s total assets, liabilities, and stockholders’ equity.
65) Tipper Co. is considering a 10-year project that is estimated to cost $700,000 and
has no residual value. Tipper seeks to earn an average rate of return of 15% on all
capital projects. Determine the necessary average annual income (using straight-line
depreciation) that must be achieved on this project for this project to be acceptable to
Tipper Co.
