1) Normal standards incorporate normal contingencies of production into the standards.
2) If a company is operating at full capacity, the incremental costs of a special order
will likely include fixed manufacturing costs.
3) The gross profit method is based on the assumption that the rate of gross profit
remains constant from one year to the next.
4) The timekeeping function includes supervisors monitoring hours worked through
time cards and time reports.
5) Contribution margin is the amount of revenue left over to cover selling and
administrative costs after manufacturing costs have been deducted.
6) If a retailer assesses a finance charge on the amount owed by a customer, Accounts
Receivable is debited for the amount of the interest.
7) Adjusting entries are often made because some business events are not recorded as
they occur.
8) The cost of raw materials purchased is credited to Raw Materials Inventory when
materials are received.
9) A voucher system is used by many large companies as a means of controlling cash
receipts.
10) In making decisions, management ordinarily considers both financial and
nonfinancial information.
11) The balances of the major classes of plant assets and accumulated depreciation by
major classes should be disclosed in the balance sheet or notes.
12) Using the following information, compute the direct materials used.
Raw materials inventory, January 1$ 40,000
Raw materials inventory, December 3120,000
Work in process, January 118,000
Work in process, December 3112,000
Finished goods, January 140,000
Finished goods, December 3132,000
Raw materials purchases1,200,000
Direct labor560,000
Factory utilities150,000
Indirect labor50,000
Factory depreciation400,000
Operating expenses420,000
a.$1,240,000
b.$1,220,000
c.$1,200,000
d.$1,180,000
13) Standard costs may be used with:
a.process, but not job order, costing
b.job order, but not process, costing
c.both job order and process costing
d.neither job order nor process costing
14) Devotchka Co. uses special journals and a general journal. The following
transactions occurred during May 2014 .
May1Z. Devotchka invested $25,000 cash in the business.
2Sold merchandise to A. A. Bondy for $5,600 cash. The cost of the merchandise sold
was $3,500.
3Purchased merchandise for $4,300 from Y. Vandyver using check no. 101 .
14Paid salary to D. Dilego $1,200 by issuing check no. 102 .
16Sold merchandise on account to S. Stevens for $840, terms n/30. The cost of the
merchandise sold was $500.
22A check of $7,200 is received from S. Sufjan in full for invoice 101; no discount
given.
Instructions
(a)Prepare a multiple-column cash receipts journal and a multiple-column cash
payments journal. (Use page 1 for each journal.)
(b)Record the transaction(s) for May that should be journalized in the cash receipts
journal and cash payments journal.
15) The cost of a patent should be amortized over
a.20 years
b.its useful life
c.the longer of its legal life or its useful life
d.the shorter of its legal life or its useful life
16) Lulzbot.com sells 6,000 units of its product for $500 each. The selling price
includes a one-year warranty on parts. It is expected that 3% of the units will be
defective and that repair costs will average $50 per unit. In the year of sale, warranty
contracts are honored on 120 units for a total cost of $6,000. What amount should
Lulzbot.com accrue on December 31 for estimated warranty costs?
a.$9,000
b.$6,000
c.$3,000
d.$45,000
17) Which of the following are period costs?
a.Raw materials
b.Direct materials and direct labor
c.Direct labor and manufacturing overhead
d.Selling expenses
18) Depletion expense is computed by multiplying the depletion cost per unit by the
a.total estimated units
b.total actual units
c.number of units extracted
d.number of units sold
19) Match each of the following principles of internal control with the appropriate
description below.
A.Establishment of responsibility
B.Segregation of duties
C.Documentation procedures
D.Physical controls
E.Independent internal verification
F.Human resource controls
_____ 1>Involves the review, comparison, and reconciliation of data prepared by other
employees.
_____ 2>Provide evidence that transactions and events have occurred.
_____ 3>Includes the authorization and approval of transactions.
_____ 4>Rotating employees’ duties and requiring employees to take vacations.
_____ 5>Related activities should be assigned to different individuals.
_____ 6>Using garment sensors to deter theft.
20) Beane Corporation shows income tax expense of $82,000. There has been a $6,000
decrease in federal income taxes payable and a $7,000 increase in state income taxes
payable during the year. What was Beane’s cash payment for income taxes?
a.$82,000
b.$81,000
c.$76,000
d.$95,000
21) The following financial statement information is available for Long Corporation:
2014 2013
Net income$115,000$ 80,000
Income tax expense30,00029,000
Interest expense18,00014,000
Dividends paid to preferred
stockholders22,00020,000
Dividends paid to preferred
stockholders15,00010,000
The times interest earned for 2014 is
a.7.4 times
b.6.4 times
c.9.1 times
d.7.8 times
22) Bernard Company produces flash drives for computers, which it sells for $20 each.
Variable costs are $8 per flash drive. During March, 1,000 drives were sold. Fixed costs
for March were $4.90 per unit for a total of $4,900 for the month. If variable costs
decrease by 10%, what happens to the break-even level of units per month for Bernard
Company?
a.It is 10% higher than the original break-even point
b.It decreases about 14 units
c.It decreases about 35 units
d.It depends on the number of units the company expects to produce and sell
23) If a partner with a capital deficiency is unable to pay the amount owed to the
partnership, the deficiency is allocated to the partners with credit balances
a.equally
b.on the basis of their income ratios
c.on the basis of their capital balances
d.on the basis of their original investments
24) At October 1, Arcade Fire Enterprises reported owners equity of $70,000. During
October, the owner made additional investments of $4,000 and the company earned net
income of $14,000. If owners equity at October 31 totals $80,000, what amount of
owner drawings were made during the month?
a.$0
b.$4,000
c.$8,000
d.$10,000
25) Circle the correct answer to each situation.
(a)A sales journal will be used for:
Credit SalesCash SalesSales Discounts
YesNoYesNoYesNo
(b)A single-column purchases journal will be used for:
Purchase Returns
Cash PurchasesPurchases on Accountand Allowances
YesNoYesNoYesNo
(c)A multi-column purchases journal will be used for:
Supplies PurchasedEquipment Purchased
Cash Purchaseson Accounton Account
YesNoYesNoYesNo
(d)A cash payments journal will be used for:
Payments toPurchasesOwner Cash
CreditorsDiscountsInvestment
YesNoYesNoYesNo
(e)A cash receipts journal will be used for:
Owner Cash
WithdrawalsPurchases DiscountsCash Sales
YesNoYesNoYesNo
26) aPreparing tax returns and engaging in tax planning is performed by
a.public accountants only
b.private accountants only
c.both public and private accountants
d.IRS accountants only
27) Management could determine the amounts due from customers by examining which
ledger account?
a.Service Revenue
b.Accounts Payable
c.Accounts Receivable
d.Supplies
28) JP Company is considering two capital investment proposals. Estimates regarding
each project are provided below:
Project EchoProject Charlie
Initial investment$400,000$600,000
Annual net income20,00042,000
Net annual cash inflow100,000142,000
Estimated useful life5 years6 years
Salvage value00
The company requires an 11% rate of return on all new investments.
Present Value of an Annuity of 1
Periods 9% 10% 11% 12%
53.8903.7913.6963.605
64.4864.3554.2314.111
The cash payback period for Project Echo is
a.20 years
b.10 years
c.5 years
d.4 years
29) Bento, Inc. had 500,000 shares of common stock outstanding before a stock split
occurred, and 1,500,000 shares outstanding after the stock split. The stock split was
a.2-for-5
b.5-for-1
c.1-for-5
d.3-for-1
30) Retained earnings is
a.always equal to the amount of cash that the corporation has generated from operations
b.a part of the paid-in capital of the corporation
c.a part of the stockholders’ claim on the total assets of the corporation
d.closed at the end of each accounting period
31) ANC Company has the following information available for September 2014 .
Unit selling price of video game consoles$ 400
Unit variable costs$ 280
Total fixed costs$54,000
Units sold500
Instructions
(a)Prepare a CVP income statement that shows both total and per unit amounts.
(b)Compute ANC’s breakeven in units.
32) The managerial function of controlling
a.is performed only by the controller of a company
b.is only applicable when the company sustains a loss
c.is concerned mainly with operating a manufacturing segment
d.includes performance evaluation by management
33) Auditing is
a.the examination of financial statements by a CPA in order to express an opinion on
their fairness
b.a part of accounting that involves only recording of economic events
c.an area of accounting that involves such activities as cost accounting, budgeting, and
accounting information systems
d.conducted by the Securities and Exchange Commission to ensure that registered
financial statements are presented fairly
34) Wayne Company spent $13,000 to produce Product 612, which can be sold as is for
$15,000, or processed further incurring additional costs of $11,500 and then be sold for
$17,000. Which amounts are relevant to the decision about Product 612?
a.$13,000, $15,000, and $17,000
b.$13,000, $11,500, and $17,000
c.$15,000, $11,500, and $17,000
d.$13,000, $15,000, $11,500 and $17,000
35) If a short-term debt investment is sold, the Investment account is
a.credited for the book value of the bonds at the sale date
b.credited for the cost of the bonds at the sale date
c.credited for the fair value of the bonds at the sale date
d.debited for the cost of the bonds at the sale date
36) Treasury Stock is a(n)
a.contra asset account
b.retained earnings account
c.asset account
d.contra stockholders equity account
37) An application of good internal control over cash disbursements is
a.following payment, the approved invoice should be stamped PAID
b.blank checks should be stored in the treasurer’s desk
c.each check should be compared with the approved invoice after the check is issued
d.check signers should record the cash disbursements
38) Foote Company is considering purchasing equipment. The equipment will produce
the following cash flows: Year 1, $100,000; Year 2, $180,000; Year 3, $240,000. Below
is some of the time value of money information that Foote has compiled that might help
them in their planning and compound interest decisions.
Foote requires a minimum rate of return of 11%. To the closest dollar, what is the
maximum price Foote should pay for the equipment?
a.$1,270,728
b.$411,668
c.$661,012
d.$984,836
39) Prepare the necessary adjusting entry for each of the following:
1>Services provided but unrecorded totaled $700.
2>Accrued salaries at year-end are $1,000.
3>Depreciation on equipment for the year is $600.
40) A contingent liability should be recorded in the accounts if it is ______________
that the contingency will occur and the amount is ______________.
41) Compute the maturity value for each of the following notes receivable.
1>A $5,000, 6%, 3-month note dated July 20 .
Maturity value $____________.
2>A $12,000, 9%, 150-day note dated August 5 .
Maturity value $____________.
42) Wakefield Company discovered the following errors made in January 2014 .
1>A payment of salaries expense of $900 was debited to Equipment and credited to
Cash, both for $900.
2>A collection of $2,000 from a client on account was debited to Cash $200 and
credited to Service Revenue $200.
3>The purchase of equipment on account for $680 was debited to Equipment $860 and
credited to Accounts Payable $860.
Instructions
Correct the errors by reversing the incorrect entry and preparing the correct entry.
43) Prepare journal entries for each of the following transactions.
1>Performed services for customers on account $8,000.
2>Purchased $20,000 of equipment on account.
3>Received $3,000 from customers in transaction 1 .
4>The owner, R. Orbison, withdrew $2,000 cash for personal use.
44) Ishee Company does not segregate sales and sales taxes on its cash register. Its
register total for the month is $291,500, which includes a 6% sales tax.
Instructions
Compute sales taxes payable, and make the entry to record sales and sales taxes
payable.
45) The ________________ reports the assets, liabilities, and owner’s equity of a
business enterprise at a specific date.
46) Presented below are balance sheet items for Black Angel Company at December 31,
2014 .
Accounts payable$35,000
Accounts receivable36,000
Cash17,000
Equipment77,000
Owners capital45,000
Notes payable50,000
Compute each of the following:
1>Total assets.
2>Total liabilities.
47) Manufacturing overhead is applied to jobs by means of a ___________________
rate.
48) Zohan Health is considering two alternatives for the financing of some high
technology medical equipment. These two alternatives are:
1>Issue 60,000 shares of $10 par value common stock at $50 per share.
2>Issue $3,000,000, 8%, 10-year bonds at par.
It is estimated that the company will earn $900,000 before interest and taxes as a result
of acquiring the medical equipment. The company has an estimated tax rate of 40% and
has 80,000 shares of common stock outstanding prior to the new financing.
Instructions
Determine the effect on net income and earnings per share for these two methods of
financing.
