1) A corporation that issues bonds at a discount will recognize interest expense at a rate
which is greater than the market interest rate.
2) The expense recognition principle requires that efforts be matched with
accomplishments.
3) During a period, cost of goods sold + an increase in inventory + an increase in
accounts payable = cash paid to suppliers.
4) Accumulating and assigning manufacturing costs are two important activities in a job
order cost system.
5) Correcting entries are made any time an error is discovered even though it may not
be at the end of an accounting period.
6) One similarity of process cost accounting with job order cost accounting is that both
determine total manufacturing costs after each job.
7) A 10% stock dividend is the equivalent of a $1,000 par value bond paying annual
interest of 10%.
8) The Securities and Exchange Commission oversees U.S. financial markets and
accounting standard-setting bodies.
9) In a process cost system, labor costs incurred may be captured on time tickets.
10) If $500,000 par value bonds with a carrying value of $476,000 are redeemed at 97,
a loss on redemption will be recorded.
11) Requiring employees to take vacations is a weakness in the system of internal
controls because it does not promote operational efficiency.
12) The discounted cash flow technique considers estimated total cash inflows from the
investment but not the time value of money.
13) Discounting can not be done on an annual basis or over shorter periods of time such
as semiannually.
14) The receipt of dividends from long-term investments in stock is classified as a cash
inflow from investing activities.
15) The par value of common stock must always be equal to its market value on the
date the stock is issued.
16) The time period assumption states that the economic life of a business entity can be
divided into artificial time periods.
17) Treasury stock should not be classified as a current asset.
18) The cost of a patent must be amortized over a 20-year period.
19) Variance analysis facilitates the principle of “management by exception”
20) McKendrick Shoe Store has a beginning inventory of $45,000. During the period,
purchases were $195,000; purchase returns, $6,000; and freight-in $15,000. A physical
count of inventory at the end of the period revealed that $30,000 was still on hand. The
cost of goods available for sale was
a.$189,000
b.$204,000
c.$219,000
d.$249,000
21) Preferred stockholders have a priority over common stockholders as to
a.dividends only
b.assets in the event of liquidation only
c.voting rights
d.both dividends and assets in the event of liquidation
22) The time period assumption is used under
a.GAAP but not IFRS
b.IFRS but not GAAP
c.both IFRS and GAAP
d.neither IFRS nor GAAP
23) A $100 petty cash fund has cash of $12 and receipts of $85. The journal entry to
replenish the account would include a credit to
a.Cash for $88
b.Petty Cash for $88
c.Cash Over and Short for $2
d.Cash for $85
24) It costs Maker Company $22 of variable and $15 of fixed costs to produce one
Panini press which normally sells for $57. A foreign wholesaler offers to purchase
1,000 Panini presses at $40 each. Maker would incur special shipping costs of $5 per
press if the order were accepted. Maker has sufficient unused capacity to produce the
1,000 Panini presses. If the special order is accepted, what will be the effect on net
income?
a.$13,000 decrease
b.$13,000 increase
c.$22,000 decrease
d.$7,000 increase
25) The following items are taken from the financial statements of the Postal Service
for the year ending December 31, 2014:
Accounts payable$ 18,000
Accounts receivable11,000
Accumulated depreciation equipment28,000
Advertising expense21,000
Cash15,000
Owners capital (1/1/14)102,000
Owners drawings14,000
Depreciation expense12,000
Insurance expense3,000
Note payable, due 6/30/1570,000
Prepaid insurance (12-month policy)6,000
Rent expense17,000
Salaries and wages expense32,000
Service revenue133,000
Supplies4,000
Supplies expense6,000
Equipment210,000
What are total current assets at December 31, 2014?
a.$26,000
b.$32,000
c.$36,000
d.$42,000
26) If actual overhead is less than applied manufacturing overhead, then manufacturing
overhead is:
a.underapplied
b.overapplied
c.a loss on the income statement under “Other Expenses and Losses”
d.considered a miscellaneous expense
27) Schwartzman Co., makes a credit card sale to a customer for $800. The credit card
sale has a grace period of 30 days and then an interest charge of 1.5% per month is
added to the balance. If the unpaid balance on the above sale is $640 at the end of the
grace period, the interest charge is
a.$6.40
b.$9.60
c.$11.00
d.$16.00
28) Bonds that are subject to retirement at a stated dollar amount prior to maturity at the
option of the issuer are called
a.callable bonds
b.early retirement bonds
c.options
d.debentures
29) JK Company has a process that results in 15,000 pounds of Product A that can be
sold for $8 per pound. An alternative would be to process Product A further at a cost of
$100,000 and then sell it for $14 per pound. Should management sell Product A now or
should Product A be processed further and then sold? What is the effect of the action?
a.Process further, the company will be better off by $10,000
b.Sell now, the company will be better off by $10,000
c.Process further, the company will be better off by $90,000
d.Sell now, the company will be better off by $100,000
30) Bodkin Beverage Company is authorized to issue 20,000 shares of 8%, $100 par
value preferred stock and 500,000 shares of no-par common stock with a stated value of
$1 per share. If Bodkin issues 12,000 shares of common stock to pay its recent
attorneys bill of $50,000 for legal services on a land access dispute, which of the
following would be the journal entry for Bodkin to record?
a.Legal Expense12,000
Common Stock12,000
b.Legal Expense50,000
Common Stock50,000
c.Legal Expense 50,000
Common Stock12,000
Paid-in Capital in Excess of Stated Value Common38,000
d.Legal Expense 50,000
Common Stock12,000
Paid-in Capital in Excess of Par Preferred38,000
31) On a classified balance sheet, current assets are customarily listed
a.in alphabetical order
b.with the largest dollar amounts first
c.in the order of liquidity
d.in the order of acquisition
32) Each of the following statements is correct except that earnings per share is
reported
a.below net income
b.for both common and preferred stock
c.on the face of the income statement
d.based on the weighted-average number of common shares outstanding
33) The Inventory account is used in each of the following except the entry to record
a.goods purchased on account
b.the return of goods purchased
c.payment of freight on goods sold
d.payment within the discount period
34) Bank errors
a.occur because of time lags
b.must be corrected by debits
c.are infrequent in occurrence
d.are corrected by making an adjusting entry on the depositor’s books
35) The production budget shows expected unit sales are 100,000. The required
production units are 104,000. What are the beginning and desired ending finished goods
units, respectively?
Beginning UnitsEnding Units
a.10,0006,000
b.6,00010,000
c.4,00010,000
d.10,0004,000
36) The income statement for the month of June, 2014 of Camera Obscura Enterprises
contains the following information:
Revenues$7,000
Expenses:
Salaries and Wages Expense$3,000
Rent Expense1,500
Advertising Expense800
Supplies Expense300
Insurance Expense 100
Total expenses 5,700
Net income$1,300
After the revenue and expense accounts have been closed, the balance in Income
Summary will be
a.$0.
b.a debit balance of $1,300
c.a credit balance of $1,300
d.a credit balance of $7,000
37) In performing a vertical analysis, the base for prepaid expenses is
a.total current assets
b.total assets
c.total liabilities and stockholders’ equity
d.prepaid expenses
38) If a petty cash fund is established in the amount of $200, and contains $119 in cash
and $84 in receipts for disbursements when it is replenished, the journal entry to record
replenishment should include credits to the following accounts
a.Petty Cash, $84
b.Petty Cash, $81
c.Cash, $81; Cash Over and Short, $3
d.Cash, $81
39) Bingham and Ecuyer sell 1/4 of their partnership interest to Ives receiving $600,000
each. At the time of admission, Bingham and Ecuyer each had a $1,050,000 capital
balance. The admission of Ives will cause the net partnership assets to
a.increase by $1,200,000
b.remain at $2,100,000
c.decrease by $1,200,000
d.remain at $3,300,000
40) The management function that requires managers to look ahead and establish
objectives is
a.controlling
b.directing
c.planning
d.constraining
41) When the allowance method is used to account for uncollectible accounts, Bad Debt
Expense is debited when
a.a sale is made
b.an account becomes bad and is written off
c.management estimates the amount of uncollectibles
d.a customer’s account becomes past-due
42) When an owner withdraws cash or other assets from a business for personal use,
these withdrawals are termed
a.depletions
b.consumptions
c.drawings
d.a credit line
43) GAAP defines market for lower-of-cost-or market essentially as
a.net realizable value
b.estimated selling price in the ordinary course of business
c.replacement cost
d.replacement cost less costs of disposal
44) A company’s planned activity level for next year is expected to be 200,000 machine
hours. At this level of activity, the company budgeted the following manufacturing
overhead costs:
VariableFixed
Indirect materials$240,000Depreciation$100,000
Indirect labor320,000Taxes20,000
Factory supplies40,000Supervision80,000
A flexible budget prepared at the 190,000 machine hours level of activity would show
total manufacturing overhead costs of
a.$570,000
b.$760,000
c.$600,000
d.$770,000
45) Wendy Company issued $600,000 of 8%, 5-year bonds at 105 . Assuming
straight-line amortization and annual interest payments, how much bond interest
expense is recorded on the next interest date?
a.$48,000
b.$54,000
c.$42,000
d.$6,000
46) An increase in an expense:
a.increases revenues
b.increases assets
c.decreases liabilities
d.decreases owner’s equity
47) The managers of Constantine Company receive performance bonuses based on the
net income of the firm. Which inventory costing method are they likely to favor in
periods of declining prices?
a.LIFO
b.Average Cost
c.FIFO
d.Physical inventory method
48) The following information is available for Oakland Company:
2014 2013
Accounts receivable$ 430,000$ 460,000
Inventory 280,000320,000
Net credit sales2,670,0001,600,000
Cost of goods sold1,860,0001,060,000
Net income300,000170,000
The accounts receivable turnover ratio for 2014 is
a.1.4 times
b.6.2 times
c.6.0 times
d.5.8 times
49) The Asphalt Division of Sierra Industries is operated as a profit center. Sales for the
division were budgeted for 2014 at $1,200,000. The only variable costs budgeted for the
division were cost of goods sold ($590,000) and selling and administrative ($80,000).
Fixed costs were budgeted at $130,000 for cost of goods sold, $120,000 for selling and
administrative and $95,000 for noncontrollable fixed costs. Actual results for these
items were:
Sales revenue$1,185,000
Cost of goods sold
Variable545,000
Fixed140,000
Selling and administrative
Variable82,000
Fixed90,000
Noncontrollable fixed105,000
Instructions
(a)Prepare a responsibility report for the Asphalt Division for 2014 .
(b)Assume the division is an investment center, and average operating assets were
$1,200,000. Compute ROI.
50) Springfield Company produces golf discs which it normally sells to retailers for $6
each. The cost of manufacturing 25,000 golf discs is:
Materials$ 10,000
Labor30,000
Variable overhead20,000
Fixed overhead 40,000
Total$100,000
Springfield also incurs 5% sales commission ($0.30) on each disc sold.
Lundy Corporation offers Springfield $5.25 per disc for 5,000 discs. Lundy would sell
the discs under its own brand name in foreign markets not yet served by Springfield. If
Charleston accepts the offer, its fixed overhead will increase from $40,000 to $45,000
due to the purchase of a new imprinting machine. No sales commission will result from
the special order.
Instructions
(a)Prepare an incremental analysis for the special order.
(b)Should Springfield accept the special order? Why or why not?
51) The flow of costs in a job order cost system
a.involves accumulating manufacturing costs incurred and assigning the accumulated
costs to work done
b.cannot be measured until all jobs are complete
c.measures product costs for a set time period
d.generally follows a LIFO cost flow assumption
52) Sandor Manufacturing Inc.’s accounting records reflect the following inventories:
Dec. 31, 2013Dec. 31, 2014
Raw materials inventory$110,000$ 90,000
Work in process inventory156,000174,000
Finished goods inventory138,000150,000
During 2014, Sandor purchased $1,440,000 of raw materials, incurred direct labor costs
of $300,000, and incurred manufacturing overhead totaling $184,000.
How much is total manufacturing costs incurred during 2014 for Sandor?
a.$1,944,000
b.$1,904,000
c.$1,924,000
d.$1,936,000
53) Partners Ana, Beth, and Cathy have capital account balances of $90,000 each. The
income and loss ratio is 5:2:3, respectively. In the process of liquidating the partnership,
noncash assets with a book value of $75,000 are sold for $30,000. The balance of Beths
Capital account after the sale is
a.$67,500
b.$76,500
c.$81,000
d.$99,000
54) In preparing closing entries for a merchandising company, the Income Summary
account will be credited for the balance of
a.sales revenue
b.inventory
c.sales discounts
d.freight-out
55) A company would not acquire treasury stock
a.in order to reissue shares to officers
b.as an asset investment
c.in order to increase trading of the company’s stock
d.to have additional shares available to use in acquisitions of other companies
56) Lulu Luxuries Company issued a four-year interest-bearing note payable for
$200,000 on January 1, 2013 . Each January the company is required to pay $50,000 on
the note. How will this note be reported on the December 31, 2014 balance sheet?
a.Long-term debt, $200,000
b.Long-term debt, $150,000
c.Long-term debt, $100,000; Long-term debt due within one year, $50,000
d.Long-term debt, $150,000; Long-term debt due within one year, $50,000
57) NWA Air Charter signed a four-month note payable in the amount of $20,000 on
September 1 . The note requires interest at an annual rate of 9%. The amount of interest
to be accrued at the end of September is
a.$150
b.$200
c.$600
d.$1,800
58) Ermler Company purchased a machine at a cost of $80,000. The machine is
expected to have a $5,000 salvage value at the end of its 5-year useful life.
Instructions
Compute annual depreciation for the first and second years using the
(a)straight-line method.
(b)double-declining-balance method.
59) On June 1, 2014 Ted Leo Le buys a copier machine for his business and finances
this purchase with cash and a note. When journalizing this transaction, he will
a.use two journal entries
b.make a compound entry
c.make a simple entry
d.list the credit entries first, which is proper form for this type of transaction
60) Ace Distributors has the following transactions related to notes receivable during
the last month of the year.
Dec.1Loaned $15,000 cash to K. Hogan on a 1-year, 6% note.
16Sold goods to F. Manning, receiving a $4,800, 60-day, 7% note.
31Accrued interest revenue on all notes receivable.
Instructions
Journalize the transactions for Ace Distributors.
61) The balance sheet of the Tri Brothers Partnership just prior to liquidation appears
below:
Tri Brothers Partnership
Balance Sheet
December 31, 2014
AssetsLiabilities and Owners’ Equity
Cash$ 140,000Liabilities$240,000
Noncash assets380,000Grayson, Capital40,000
Lawson, Capital160,000
Myers, Capital 80,000
$520,000$520,000
Other information:
1>The partners Grayson, Lawson, and Myers share profits and losses in the ratio of
6:3:1 .
2>The noncash assets are sold for $280,000.
3>The liabilities are paid in full.
4>The remaining assets are distributed to the partners. Assume that if any partner has a
capital deficiency, he will not be able to pay the amount owed to the partnership.
Instructions: Prepare the five entries to record the liquidation of the Tri Brothers
Partnership.
62) Manufacturing overhead items are indirect product costs that cannot be traced to
individual products. Explain how manufacturing overhead costs are accumulated and
how they are assigned to products in a job order cost system.
63) The use of special journals often saves time in the _______________ process.
64) Allied Company allocates overhead at $8 per direct labor hour. Job A45 required 4
boxes of direct materials at a cost of $35 per box and took employees 15 hours to
complete. Employees earn $18 per hour.
Instructions
Compute the total cost of Job A45 .
65) Three major sections of a cash budget are (1) ___________________, (2)
____________________, and (3) ______________________.