1) Each general ledger control account balance must equal the composite balance of the
individual accounts in the related subsidiary ledger at the end of an accounting period.
2) Unit material cost is computed by taking total material costs charged to the
department for the period and dividing by the physical units in the process during the
period.
3) Simple interest is computed on the principal and any interest earned that has not been
paid or received.
4) The income earned by a partnership will always be greater than the income earned by
a proprietorship because in a partnership there is more than one owner contributing to
the success of the business.
5) A cost reconciliation schedule is prepared to assign total costs to units transferred out
and in ending work in process.
6) Transactions are entered in the ledger first and then they are analyzed in terms of
their effect on the accounts.
7) Using the indirect method, an increase in accounts payable during a period is
deducted from net income in calculating cash provided by operations.
8) When a company has limited resources to manufacture products, it should
manufacture those products which have the highest contribution margin per unit of
limited resource.
9) If a worksheet is used, financial statements can be prepared before adjusting entries
are journalized.
10) Under the FIFO method, the costs of the earliest units purchased are the first
charged to cost of goods sold.
11) In a multiple-step income statement, income from operations excludes other
revenues and gains and other expenses and losses.
12) Current assets are customarily the first items listed on a classified balance sheet.
13) Total partners’ equity of a partnership is equal to the sum of all partners’ capital
account balances.
14) The market value of a corporation’s stock is determined by the number of shares
that the corporation has been authorized to issue.
15) The carrying value of bonds at maturity should be equal to the face value of the
bonds.
16) In a corporation, Retained Earnings is a part of owners’ equity.
17) Available-for-sale securities are securities bought and held primarily for sale in the
near term to generate income on short-term price differences.
18) A special one-time order should never be accepted if the unit sales price is less than
the unit variable cost.
19) If net sales are $800,000 and cost of goods sold is $600,000, the gross profit rate is
25%.
20) Peyton Company produces one product, a putter called PAR-putter. Peyton uses a
standard cost system and determines that it should take one hour of direct labor to
produce one PAR-putter. The normal production capacity for this putter is 100,000 units
per year. The total budgeted overhead at normal capacity is $500,000 comprised of
$200,000 of variable costs and $300,000 of fixed costs. Peyton applies overhead on the
basis of direct labor hours.
During the current year, Peyton produced 86,000 putters, worked 89,000 direct labor
hours, and incurred variable overhead costs of $160,000 and fixed overhead costs of
$300,000.
Instructions
(a)Compute the predetermined variable overhead rate and the predetermined fixed
overhead rate.
(b)Compute the applied overhead for Peyton for the year.
(c)Compute the total overhead variance.
21) On June 1, 2014, Portugal Inc. reported a cash balance of $12,000. During June,
Portugal made deposits of $5,000 and made disbursements totalling $14,000. What is
the cash balance at the end of June?
a.$3,000 debit balance
b.$17,000 debit balance
c.$3,000 credit balance
d.$2,000 credit balance
22) At October 1, Arcade Fire Enterprises reported owners equity of $70,000. During
October, no additional investments were made and the company earned net income of
$18,000. If owners equity at October 31 totals $78,000, what amount of owner
drawings were made during the month?
a.$0
b.$8,000
c.$10,000
d.$26,000
23) Mississippi Forest Corporation operates two divisions, the Commercial Division
and the Consumer Division. The Commercial Division manufactures and sells logs to
paper manufacturers. The Consumer Division operates retail lumber mills which sell a
variety of products in the do-it-yourself homeowner market. The company is
considering disposing of the Consumer Division since it has been consistently
unprofitable for a number of years. The income statements for the two divisions for the
year ended December 31, 2014 are presented below:
Commercial Consumer Total
Sales revenue$1,500,000$500,000$2,000,000
Cost of goods sold 900,000 350,000 1,250,000
Gross profit600,000150,000750,000
Selling & administrative expenses 250,000 180,000 430,000
Net income$ 350,000 $ (30,000)$ 320,000
In the Consumer Division, 70% of cost of goods sold are variable costs and 35% of
selling and administrative expenses are variable costs. The management of the company
feels it can save $45,000 of fixed cost of goods sold and $42,000 of fixed selling
expenses if it discontinues operation of the Consumer Division.
Instructions
(a)Determine whether the company should discontinue operating the Consumer
Division.
(b)If the company had discontinued the division for 2014, determine what net income
would have been.
24) A department adds raw materials to a process at the beginning of the process and
incurs conversion costs uniformly throughout the process. For the month of January,
there were no units in the beginning work in process inventory; 80,000 units were
started into production in January; and there were 20,000 units that were 40% complete
in the ending work in process inventory at the end of January. What were the equivalent
units of production for conversion costs for the month of January?
a.60,000 equivalent units
b.72,000 equivalent units
c.68,000 equivalent units
d.80,000 equivalent units
25) The concept of ‘significant influence” must be satisfied before which accounting
method can be used by an investor?
a.Equity
b.Cost
c.Consolidated financial statements
d.All of the above
26) A perpetual inventory system would likely be used by a(n)
a.automobile dealership
b.hardware store
c.drugstore
d.convenience store
27) Prepare the necessary correcting entry for each of the following.
a.A payment on account of $840 was debited to Accounts Payable $480 and credited to
Cash $480.
b.The collection of Accounts Receivable of $680 was recorded as a debit to Cash $680
and a credit to Service Revenue $680.
28) In the month of April, a department had 500 units in the beginning work in process
inventory that were 60% complete. These units had $1,000 of materials costs and $900
of conversion costs. Materials are added at the beginning of the process and conversion
costs are added uniformly throughout the process. During April, 10,000 units were
completed and transferred to the finished goods inventory and there were 2,000 units
that were 25% complete in the ending work in process inventory on April 30 . During
April, manufacturing costs charged to the department were: Materials $25,400;
Conversion costs $32,700. The cost assigned to the units transferred to finished goods
during April was:
a.$54,000
b.$56,700
c.$58,100
d.$64,800
29) On January 2, 2011, Valente Corporation issued 60,000 shares of 6% cumulative
preferred stock at $100 par value. On December 31, 2014, Valente Corporation declared
and paid its first dividend. What dividends are the preferred stockholders entitled to
receive in the current year before any distribution is made to common stockholders?
a.$0
b.$360,000
c.$1,080,000
d.$1,440,000
30) Myles Manufacturing Company’s accounting records reflect the following
inventories:
Dec. 31, 2014Dec. 31, 2013
Raw materials inventory$620,000$520,000
Work in process inventory600,000320,000
Finished goods inventory380,000300,000
During 2014, $900,000 of raw materials were purchased, direct labor costs amounted to
$1,000,000, and manufacturing overhead incurred was $960,000.
Myles Manufacturing Company’s total manufacturing costs incurred in 2014 amounted
to
a.$2,860,000
b.$2,680,000
c.$2,480,000
d.$2,760,000
31) Romesco Corporations December 31, 2014 balance sheet showed the following:
8% preferred stock, $10 par value, cumulative, 40,000 shares
authorized; 30,000 shares issued$ 300,000
Common stock, $10 par value, 4,000,000 shares authorized;
3,900,000 shares issued, 3,860,000 shares outstanding39,000,000
Paid-in capital in excess of parpreferred stock120,000
Paid-in capital in excess of parcommon stock54,000,000
Retained earnings15,300,000
Treasury stock (40,000 shares)1,260,000
Romescos total stockholders equity was
a.$109,980,000
b.$93,420,000
c.$108,720,000
d.$107,460,000
32) Macrinez Company assembled the following information in completing its July
bank reconciliation: balance per bank $22,920; outstanding checks $4,650; deposits in
transit $7,500; NSF check $480; bank service charge $150; cash balance per books
$26,400. As a result of this reconciliation, Macrinez will
a.reduce its cash account by $150
b.reduce its cash account by $630
c.reduce its cash account by $2,850
d.increase its cash account by $330
33) If ending inventory is understated, net income and assets will be:
Net Income Assets
a.UnderstatedUnderstated
b.OverstatedOverstated
c.UnderstatedUnaffected
d.None of the above
34) Which one of the following is not an application of revenue recognition?
a.Recording revenue as an adjusting entry on the last day of the accounting period
b.Accepting cash from an established customer for services to be performed over the
next three months
c.Billing customers on June 30 for services completed during June
d.Receiving cash for services performed
35) On January 1, Pacer Corporation issued $2,000,000, 13%, 5-year bonds with
interest payable on July 1 and January 1 . The bonds sold for $2,197,080. The market
rate of interest for these bonds was 11%. On the first interest date, using the
effective-interest method, the debit entry to Interest Expense is for:
a.$130,000
b.$142,810
c.$120,839
d.$241,679
36) Which of the following would require a compound journal entry?
a.To record merchandise returned that was previously purchased on account
b.To record sales on account
c.To record purchases of inventory when a discount is offered for prompt payment
d.To record collection of accounts receivable when a cash discount is taken
37) In present value calculations, the process of determining the present value is called
a.allocating
b.pricing
c.negotiating
d.discounting
38) Under IFRS, companies can choose which inventory system?
PerpetualPeriodic
a.YesNo
b.YesYes
c.NoYes
d.YesNo
39) A manufacturing company would include setup and downtime in their direct
a.materials price standard
b.materials quantity standard
c.labor price standard
d.labor quantity standard
40) On November 1, Gentle Company received a $3,000, 6%, three-month note
receivable. The cash to be received by Gentle Company when the note becomes due is:
a.$3,000
b.$3,030
c.$3,045
d.$3,180
41) Proving the postings of a one-column purchases journal would involve comparing
the
a.general ledger posting to Accounts Payable to the debit postings of the accounts
receivable subsidiary ledger
b.general ledger debit posting to Accounts Payable to the general ledger credit posting
to Inventory
c.general ledger credit posting to Accounts Payable to the general ledger debit posting
to Inventory
d.debit postings to the accounts payable subsidiary ledger to the credit postings to the
accounts payable subsidiary ledger
42) Disclosure of a contingent liability is usually made
a.parenthetically, in the body of the balance sheet
b.parenthetically, in the body of the income statement
c.in a note to the financial statements
d.in the management discussion section of the financial statement
43) Use the following table,
Present Value of an Annuity of 1
Period 8% 9% 10%
1.926.917.909
21.7831.7591.736
32.5772.5312.487
A company has a minimum required rate of return of 10% and is considering investing
in a project that requires an investment of $99,000 and is expected to generate cash
inflows of $42,000 at the end of each year for three years. The present value of future
cash inflows for this project is
a.$99,000
b.$104,454
c.$114,898
d.$5,454
44) In preparing closing entries
a.each revenue account will be credited
b.each expense account will be credited
c.the owner’s capital account will be debited if there is net income for the period
d.the owner’s drawings account will be debited
45) Presto Company purchased equipment and these costs were incurred:
Cash price$65,000
Sales taxes3,600
Insurance during transit640
Installation and testing860
Total costs$70,100
Presto will record the acquisition cost of the equipment as
a.$65,000
b.$68,600
c.$69,240
d.$70,100
46) Discount on Bonds Payable is ________________ (from)(to) bonds payable on the
balance sheet. Premium on Bonds Payable is ________________ (from)(to) bonds
payable on the balance sheet.
47) Chetola Corporation has 120,000 shares of $5 par value common stock outstanding.
It declared a 15% stock dividend on June 1 when the market price per share was $13.
The shares were issued on June 30 .
Instructions
Prepare the necessary entries for the declaration and payment of the stock dividend.
48) On November 1, 2014, Taxton Corporation’s stockholders’ equity section is as
follows:
Common stock, $10 par value$ 600,000
Paid-in capital in excess of par205,000
Retained earnings 240,000
Total stockholders’ equity$1,045,000
On November 1, Taxton declares and distributes a 15% stock dividend when the market
value of the stock is $13 per share.
Instructions
Indicate the balances in the stockholders’ equity accounts after the stock dividend has
been distributed.
49) Michelle Hamilton and Bill Rossi decide to form a partnership. Hamilton invests
$35,000 cash and accounts receivable of $30,000 less allowance for doubtful accounts
of $2,000. Rossi contributes $25,000 cash and equipment having a $6,000 book value.
It is agreed that the allowance account should be $3,000 and the fair value of the
equipment is $10,000.
Instructions
Prepare the necessary journal entry to record the formation of the partnership.
50) Equipment was acquired on January 1, 2011, at a cost of $90,000. The equipment
was originally estimated to have a salvage value of $5,000 and an estimated life of 10
years. Depreciation has been recorded through December 31, 2014, using the
straight-line method. On January 1, 2015, the estimated salvage value was revised to
$6,000 and the useful life was revised to a total of 8 years.
Instructions
Determine the depreciation expense for 2015 .
51) Bonds may be redeemed (retired) before maturity by the issuing corporation.
Explain why a company would decide to retire bonds before maturity and the necessary
steps to record the redemption.
52) At June 1, 2014, Coquehcot Industries had an accounts receivable balance of
$12,000. During the month, the company performed credit services of $30,000 and
collected accounts receivable of $22,000. What is the balance in accounts receivable at
June 30, 2014?