1) Another name for a static budget is a variable budget.
2) A corporation is a legal entity separate from its owners.
3) It is acceptable to record prepayment of expenses as debits to expense accounts if an
adjusting entry is made at the end of the period to bring the asset account balance to the
correct unused or unexpired amount.
4) Raw materials inventory should not include indirect materials.
5) Assigning purchasing, receiving, and paying for merchandise to one department or
individual is a way to streamline a voucher system.
6) Enter the letter of the following terms on the line next to the appropriate definition of
each.
7) Continuous improvement:
A.Encourages employees to maintain established business practices.
B.Strives to preserve acceptable levels of performance.
C.Rejects the notion of “good enough.”
D.Is not applicable to most businesses.
E.Is possible only in service businesses.
8) Use the following data to compute total manufacturing costs for the month.
A.$141,100.
B.$125,300.
C.$45,200.
D.$84,800.
E.$58,300.
9) All of the following are true of known liabilities except:
A.Include accounts payable, notes payable, and payroll.
B.Are obligations set by agreements, contracts, or laws.
C.Are measurable.
D.Are definitely determinable.
E.May depend on some future event occurring.
10) A company is considering the purchase of a new piece of equipment for $90,000.
Predicted annual cash inflows from this investment are $36,000 (year 1), $30,000 (year
2), $18,000 (year 3), $12,000 (year 4) and $6,000 (year 5). The payback period is:
A.4.50 years.
B.4.25 years.
C.3.50 years.
D.3.00 years.
E.2.50 years.
11) Martinez Company makes leather cowboy hats. Each hat requires ½ yard of leather
to produce. On December 31, 2014, the company had (a) 75 hats in Finished Goods
Inventory and (b) 60 yards of leather at a cost of $12 per yard in Raw Materials
Inventory. During 2015, the company purchased 850 more yards of leather at $12 per
yard and manufactured 1,600 hats. Determine the unit and dollar amounts of Raw
Materials Inventory in leather at December 31, 2015.
12) The unadjusted trial balance of R. Tryon, Consultant is entered on the partial work
sheet below. Complete the work sheet using the following information:
(a) Salaries earned by employees that are unpaid and unrecorded, $500.
(b) An inventory of supplies showed $800 of unused supplies still on hand.
(c) Depreciation on equipment, $1,300.
13) Financing activities include (a) the purchase and sale of long-term assets, (b) the
purchase and sale of short-term investments, and (c) lending and collecting on loans.
14) Ship Co. produces storage crates that require 1.2 meters of material at $.85 per
meter and 0.1 direct labor hours at $15.00 per hour. Overhead is assigned at the rate of
$9 per direct labor hour. What is the total standard cost for one unit of product that
would appear on a standard cost card?
A.$25.02.
B.$11.52.
C.$2.40.
D.$2.52.
E.$3.42.
15) Refer to the following selected financial information from McCormik, LLC.
Compute the company’s inventory turnover for Year 2.
A.4.72.
B.4.33.
C.3.28.
D.5.78.
E.3.86.
16) In a business decision where there are ethical concerns, the preferred course of
action should be one that:
A.Is agreed upon by the most managers.
B.Maximizes the company’s profits.
C.Results in maintaining operations at the current level.
D.Costs the least to implement.
E.Avoids casting doubt on the decision maker and upholds trust.
17) Ferguson Co. decides to establish a petty cash fund with a beginning balance of
$200. The company decides that any purchase under $25 can be processed through
petty cash instead of the voucher system. The journal entry to record establishing the
account is:
A.Debit Cash $200 and credit Petty Cash $200.
B.Debit Cash $200 and credit Cash Over and Short $200.
C.Debit Petty Cash $200 and credit Cash $200.
D.Debit Petty Cash $200; credit Cash $175; and credit Cash Over and Short $25.
E.Debit Cash $200 and credit Petty Cash Over and Short $200.
18) Last year, Gordon Company sold 20,000 units of its only product. If sales increase
by 20% in the current year, how will unit variable cost and total fixed cost be affected?
A.Choice A
B.Choice B
C.Choice C
D.Choice D
E.Choice E
19) Doughton Furniture Company purchased merchandise on credit from Furniture
Supply for $8,000. Two days later Doughton returned $2,000 of the merchandise due to
damage. When Doughton pays for the merchandise minus the return, it would record
the payment in the:
A.General journal.
B.Cash receipts journal.
C.Cash disbursements journal.
D.Purchases journal.
E.Accounts Payable controlling account.
20) Wheadon, Davis, and Singer formed a partnership with Wheadon contributing
$60,000, Davis contributing $50,000 and Singer contributing $40,000. Their partnership
agreement called for the income (loss) division to be based on the ratio of capital
investments. If the partnership had income of $75,000 for its first year of operation,
what amount of income (rounded to the nearest thousand) would be credited to
Wheadon’s capital account?
A.$20,000.
B.$25,000.
C.$30,000.
D.$40,000.
E.$75,000.
21) Analysis reveals that a company had a net increase in cash of $20,000 for the
current year. Net cash provided by operating activities was $18,000; net cash used in
investing activities was $10,000 and net cash provided by financing activities was
$12,000. If the year-end cash balance is $24,000, the beginning cash balance was:
A.$4,000.
B.$16,000.
C.$44,000.
D.$40,000.
E.$39,000.
22) The current FUTA tax rate is 0.6%, and the SUTA tax rate is 5.4%. Both taxes are
applied to the first $7,000 of an employee’s pay. Assume that an employee earned total
wages of $9,900. What is the amount of total unemployment taxes the employer must
pay on this employee’s wages?
A.$336.00.
B.$420.00.
C.$534.60.
D.$594.00.
E.$0.00.
23) Martinez Corporation reported Net sales of $765,000 and Net income of $142,000.
The Profit margin is:
A.539.0%.
B.5.39%.
C.81.4%.
D.1.86%.
E.18.56%.
24) The Premium on Bonds Payable account is a(n):
A.Revenue account.
B.Adjunct or accretion liability account.
C.Contra revenue account.
D.Contra asset account.
E.Equity account.
25) Multiple-step income statements:
A.Are required by the FASB and IASB.
B.Contain more detail than a simple listing of revenues and expenses.
C.Are required for the periodic inventory system.
D.List cost of goods sold as an operating expense.
E.Are only used in perpetual inventory systems.
26) Explain how to compute dividend yield and discuss how it is used in analysis of a
company’s financial condition.
27) On August 1, a company issues 6%, 10 year, $600,000 par value bonds that pay
interest semiannually each February 1 and August 1. The bonds sold at $632,000. The
company uses the straight-line method of amortizing bond premiums. The company’s
year-end is December 31. Prepare the general journal entry to record the interest
accrued at December 31.
28) On January 1, Year 1, Naples purchased a computer system that cost $1,480,000.
The estimated useful life of the computer is 3 years and salvage value is $40,000.
Straight-line depreciation is to be used. On January 1, Year 2, Naples determined that
the estimated useful life of the computer would be 4 years instead of 3 years. The
estimated salvage value will only be $10,000.
Prepare the journal entry to record depreciation expense for Year 1.
Prepare the journal entry to record depreciation expense for Year 2.
29) Use the following partial work sheet from Carmelo Bowl to prepare its income
statement, statement of owner’s equity and a classified balance sheet (Assume the
owner did not make any investments in the business this year.)
31) Products that a company owns and intends to sell are called
_____________________.