1) Permanent accounts carry their balances into the next accounting period. Moreover,
asset, liability and revenue accounts are not closed as long as a company continues in
business.
2) An understatement of the ending inventory balance will understate cost of goods sold
and overstate net income.
3) A high level of expected risk suggests a low price-earnings ratio.
4) A payroll register usually shows the pay period dates, hours worked, gross pay,
deductions, and net pay of each employee for every pay period.
5) Debit means the right side of an account.
6) Accountants use the term process cost accounting system because this system uses a
number of trained individuals and computers to process the collected cost information.
7) The payback method of evaluating an investment fails to consider how long the
investment will generate cash inflows beyond the payback period.
8) Closing entries are designed to transfer the end-of-period balances in the revenue
accounts, the expense accounts, and the withdrawals account to owner’s capital.
9) A partnership is a business owned by two or more people.
10) A corporation sometimes gives shares of its stock to promoters in exchange for their
services in organizing the corporation.
11) A process cost summary for a production department accounts for all costs assigned
to that department during the period plus costs that were in the department’s Goods in
Process Inventory account at the beginning of the period.
12) Closing entries result in net income or net loss being transferred to the owner’s
capital account.
13) Standards for comparison are necessary when making judgments about a company’s
performance.
14) A volume variance is the difference between overhead at maximum production
volume and that at the budgeted production volume.
15) Cash equivalents are investments that are readily converted to known amounts of
cash and mature within three months.
16) In a process cost accounting system, factory overhead costs can be allocated to
production departments by using a predetermined overhead allocation rate.
17) Financial statement analysis may be used for personal investment decisions.
18) Mutual agency means each partner can commit or bind the partnership to any
contract within the scope of the partnership business.
19) Two investments with exactly the same payback periods are always equally
valuable to an investor.
20) A company borrowed cash from the bank by signing a 5-year, 8% installment note.
The present value of an annuity at 8% for 5 years is 3.9927. Each annuity payment
equals $75,137.13. The present value of the note is:
A.$75,137.13
B.$94,013.13
C.$300,000.00
D.$375,137.13
E.$197,810.00
21) Cambria Company reports net sales of $4,315 million; cost of goods sold of $2,808
million; net income of $283 million; and average total assets of $2, Compute its total
asset turnover.
A.1.31
B.2.02
C.13
D.76
E.50
22) A company sells a climbing kit and uses the periodic inventory system to account
for its merchandise. The beginning balance of the inventory and its transactions during
January were as follows:
If the ending inventory is reported at $357, what inventory method was used?
A.LIFO
B.FIFO
C.Weighted average
D.Specific identification
E.Retail inventory method
23) On July 1 of the current year, Botox Mining Co. pays $5,400,000 for land estimated
to contain 7,200,000 tons of recoverable ore. It installs machinery on July 3 costing
$864,000 that has an 8 year life and no salvage value and is capable of mining the ore
deposit in six years. The company removes and sells 745,000 tons of ore during its first
six months of operations ending on December 31. Depreciation of the machinery is in
proportion to the mine’s depletion as the machinery will be abandoned after the ore is
mined.
Prepare entries to record (a) the purchase of the ore deposit, (b) the costs and
installation of the machinery, (c) the depletion assuming the land has a zero salvage
value, and (d) the depreciation on the machinery.
24) Axle Company can produce a product that incurs the following costs per unit: direct
materials, $10; direct labor, $24, and overhead, $16. An outside supplier has offered to
sell the product to Axle for $45. If Axle buys from the supplier, it will still incur 45% of
its overhead cost. Compute the net incremental cost or savings of buying.
A.$4.00 savings per unit
B.$4.00 cost per unit
C.$2.20 cost per unit
D.$3.80 cost per unit
E.$2.20 savings per unit
25) Presented below are terms preceded by letters a through f and followed by a list of
definitions 1 through 6. Match the letter of the terms with the definitions. Use the space
provided preceding each definition.
1>Net present value A. A cost that requires a current outlay of cash.
2>Out-of-pocket cost B. A rate used to evaluate the acceptability of an investment;
equals the after-tax periodic income divided by the average investment in the asset.
3>Incremental cost C. An estimate of an asset’s value to the company; calculated by
discounting the future cash flows from the investment at a satisfactory rate and then
subtracting the initial cost of the investment.
4>Accounting rate of return D. A cost that cannot be avoided or changed in any way
because it arises from past decision; irrelevant to current and future decisions.
5>Sunk cost E. An additional cost incurred only if a particular action is taken.
6>Opportunity cost F. The potential benefits of one alternative that are lost by choosing
an alternative course of action.
26) An internal control system consists of all of the following policies and procedures
except ones designed to:
A.Protect assets
B.Ensure reliable accounting
C.Guarantee a return to investors
D.Urge adherence to company policies
E.Promote efficient operations
27) A voucher is an internal file:
A.Prepared after an invoice is received
B.Used as a substitute for an invoice
C.Used to accumulate information needed to control cash disbursements and to ensure
that transactions are properly recorded
D.Takes the place of a bank check
E.Prepared before the company orders goods
28) A company’s warehouse was destroyed by a tornado on March 15. The following
information was the only information that was salvaged:
The company’s average gross profit ratio is 35%. What is the estimated cost of the lost
inventory?
A.$9,705
B.$25,995
C.$29,250
D.$44,000
E.$45,000
29) Patrick Corporation inadvertently produced 10,000 defective personal radios. The
radios cost $8 each to produce. A salvage company will purchase the defective units as
they are for $3 each. Patrick’s production manager reports that the defects can be
corrected for $5 per unit, enabling them to be sold at their regular market price of
$12.50. Patrick should:
A.Sell the radios for $3 per unit
B.Correct the defects and sell the radios at the regular price
C.Sell the radios as they are because repairing them will cause their total cost to exceed
their selling price
D.Sell 5,000 radios to the salvage company and repair the remainder
E.Throw the radios away
30) A company that applies process costing is most frequently characterized by:
A.Low standardization and high production volume
B.Custom orders and homogeneous products
C.Repetitive production and heterogeneous products
D.Repetitive production and low production volume
E.Homogeneous product and high production volume
31) On February 15, Seacroft buys 7,000 shares of Kebo common stock at $28.53 per
share plus a brokerage fee of $400. The stock is classified as available-for-sale
securities. On March 15, Kebo declares a dividend of $1.15 per share payable to
stockholders of record on April 15. Seacroft received the dividend on April 15 and
ultimately sells half of the Kebo stock on November 17 of the current year for $29.30
per share less a brokerage fee of $250. The fair value of the remaining shares is $29.50
per share. The amount that Seacroft should report on its year-end December 31 income
statement related to the investment in Kebo is:
A.$10,295
B.$8,050
C.$2,245
D.$3,195
E.$5,440
32) A company’s fixed interest expense is $8,000, its income before interest expense
and income taxes is $32,000. Its net income is $9,600. The company’s times interest
earned ratio equals:
A.0.25
B.0.30
C.0.83
D.3.33
E.4.0
33) A company has earnings per share of $9.60. Its dividend per share is $0.50, its
market price per share is $120, and its book value per share is $96. Its price-earnings
ratio equals:
A.9.6
B.19.2
C.12.5
D.10.0
E.8.5
34) A proxy is:
A.A document that gives a designated agent of a stockholder the right to vote the stock
B.A contractual commitment by an investor to purchase unissued shares of stock
C.An amount of assets defined by state law that stockholders must invest and leave
invested in a corporation
D.The right of common stockholders to protect their proportionate interests in a
corporation by having the first opportunity to purchase additional shares of common
stock issued by the corporation
E.An arbitrary amount assigned to no-par stock by the corporation’s board of directors
35) Internal controls that should be applied when a business takes a physical count of
inventory should include all of the following except:
A.Prenumbered inventory tickets
B.A manager does not confirm that all inventories are ticketed once, and only once
C.Counters must confirm the validity of inventory existence, amounts, and quality
D.Second counts by a different counter
E.Counters of inventory should not be those who are responsible for the inventory
36) Peg had net sales of $28,496 million, its cost of goods sold was $19,092 million,
and its net income was $997 million. Its gross margin ratio equals:
A.3.5%.
B.5.2%.
C.33%.
D.67%.
E.149.3%.
37) Axme uses a weighted average perpetual inventory system.
August 2, 10 units were purchased at $12 per unit.
August 18, 15 units were purchased at $15 per unit.
August 29, 20 units were sold.
August 31, 14 units were purchased at $16 per unit.
What is the per-unit value of ending inventory on August 31?
A.$12.00
B.$13.80
C.$15.42
D.$16.00
E.$17.74
38) A contingent liability:
A.Is always of a specific amount
B.Is a potential obligation that depends on a future event arising from a past transaction
or event
C.Is an obligation not requiring future payment
D.Is an obligation arising from the purchase of goods or services on credit
E.Is an obligation arising from a future event
39) Use the following information for Razor Company to compute days’ sales in
inventory for 2011.
A.73.0
B.80.3
C.43.8
D.70.0
E.49.8
40) Risk is:
A.Net income divided by average total assets
B.The reward for investment
C.The uncertainty about the expected return to be earned
D.Unrelated to expected return
E.Derived from the idea of getting something back from an investment
41) Outstanding checks refer to checks that have been:
A.Written, recorded, sent to payees, and received and paid by the bank
B.Written and not yet recorded in the company books
C.Held as blank checks
D.Written, recorded on the company books, sent to the payee, but have not yet been
paid by the bank
E.Issued by the bank
42) Phil Phoenix is paid monthly. For the month of January of the current year, he
earned a total of $8,288. The FICA tax for social security is 6.2% and the FICA tax rate
for Medicare is 1.45%. The FUTA tax rate is 0.8%, and the SUTA tax rate is 5.4%. Both
unemployment taxes are applied to the first $7,000 of an employee’s pay. The amount of
federal income tax withheld from his earnings was $1,375.17. His net pay for the month
is:
A.$5,190.83
B.$5,844.79
C.$6,278.79
D.$6,566.00
E.$6,792.64
43) A method of estimating bad debts expense that involves a detailed examination of
outstanding accounts and their length of time past due is the:
A.Direct write-off method
B.Aging of accounts receivable method
C.Percentage of sales method
D.Aging of investments method
E.Percent of accounts receivable method
44) Arena Company’s salaried employees earn two weeks vacation per year. It pays
$858,000 in total employee salaries for 52 weeks but its employees work only 50.
Record Arena Company’s weekly journal entry to record the vacation expense:
A.Debit Vacation Benefits Expense $16,500; credit Vacation Benefits Payable $16,500
B.Debit Vacation Benefits Expense $17,160; credit Vacation Benefits Payable $17,160
C.Debit Vacation Benefits Expense $17,875; credit Vacation Benefits Payable $17,875
D.Debit Vacation Benefits Payable $17,160; credit Vacation Benefits Expense $17,160
E.Debit Vacation Benefits Payable $16,500; credit Vacation Benefits Expense $16,500
45) All of the following are asset accounts except:
A.Accounts Receivable
B.Buildings
C.Supplies expense
D.Cash
E.Prepaid insurance
46) All of the following statements regarding uncertainty in liabilities are true except:
A.Liabilities can involve uncertainty in whom to pay
B.A company can create a known amount when issuing a note even though the holder
of the note may not be known until the maturity date
C.A company can have an obligation of a known amount to a known creditor but not
know when it must be paid
D.A company only records liabilities when it knows whom to pay, when to pay, and
how much to pay
E.A company can be aware of an obligation but not know how much will be required to
settle it
47) Newton Company uses the allowance method of accounting for uncollectible
accounts. On May 3, the Newton Company wrote off the $3,000 uncollectible account
of its customer, P. Best. On July 10, Newton received a check for the full amount of
$3,000 from Best. On July 10, the entry or entries Newton makes to record the recovery
of the bad debt is:
A.Option A
B.Option B
C.Option C
D.Option D
48) On February 15, Seacroft buys 7,000 shares of Kebo common at $28.53 per share
plus a brokerage fee of $400. The stock is classified as available-for-sale securities. On
March 15, Kebo declares a dividend of $1.15 per share payable to stockholders of
record on April 15. Seacroft received the dividend on April 15 and ultimately sells half
of the Kebo stock on November 17 of the current year for $29.30 per share less a
brokerage fee of $250. The fair value of the remaining shares if $29.50 per share. The
amount that Seacroft should report in the asset section of its year-end December 31
balance sheet for its investment in Kebo is:
A.$200,110
B.$103,250
C.$2,245
D.$3,195
E.$5,440
49) The process of planning future business actions and expressing them as a formal
plan is called:
A.Budgeting
B.Cost accounting
C.Managerial accounting
D.Variance analysis
E.Standard cost analysis
50) The following information is available for AllBev, Inc. (all amounts are in
millions):
a. Determine the segment return on assets for each geographic segment.
b. Comment on the results. How do the segments compare with respect to profitability?
c. What measures could be taken to improve segment return?
51) A report based on predicted amounts of revenues and expenses corresponding to the
actual level of output is called a:
A.Rolling budget
B.Production budget
C.Flexible budget
D.Merchandise purchases budget
E.Fixed budget
52) Physical counts of inventory:
A.Are not necessary under the perpetual system
B.Are necessary to adjust the Inventory account to the actual inventory available
C.Must be taken at least once a month
D.Requires the use of hand-held portable computers
E.Are not necessary under the cost-to benefit constraint
53) Use the following information and the indirect method to calculate the net cash
provided or used by operating activities:
A.$12,700
B.$13,900
C.$20,900
D.$28,400
E.$35,900
54) On October 29 of the current year, a company concluded that a customer’s $4,400
account receivable was uncollectible and that the account should be written off. What
effect will this write-off have on this company’s net income and total assets assuming
the allowance method is used to account for bad debts?
A.Decrease in net income; no effect on total assets
B.No effect on net income; no effect on total assets
C.Decrease in net income; decrease in total assets
D.Increase in net income; no effect on total assets
E.No effect on net income; decrease in total assets
55) In reimbursing the petty cash fund:
A.Cash is debited
B.Petty Cash is credited
C.Petty Cash is debited
D.Appropriate expense accounts are debited
E.No expenses are recorded
56) Information processors:
A.Include information storage
B.Interpret, transform, and summarize information for use in analysis and reporting
C.Are components of an accounting system that keep data in accessible form
D.Are the means to take information out of an accounting system and make it available
to users
E.Include scanners
57) A company’s post-closing trial balance has a debit total of $475,000 and a credit
total of $457,000. This indicates that _________________________.
58) __________________ processing accumulates source documents for a period of
time and then processes them all at once such as daily, weekly, or monthly.
59) A _______________________ is a document the buyer issues to inform the seller
of a debit made to the seller’s account in the buyer’s records.
60) An account format that is similar to a T-account in that it has columns for debits and
credits, but that is different in that it has columns for transaction date, explanation, and
the account balance is the __________________________________.
61) Acadia had no investments prior to the current year. It had the following
transactions involving available-for-sale and held-to-maturity securities during the year.
The stock purchases are considered short-term available-for-sale securities. Prepare
journal entries to record the transactions and events associated with the investment
purchases.
62) __________________________ is the process of allocating the cost of plant assets
to their expected useful lives.
63) The third step in the analyzing and recording process is to post the information to
________________________.
