1) Classify each of the following as a(n):
A.Operating Activity
B.Investing Activity
C.Financing Activity
_____1>Issuance of bonds.
_____2>Sale of equipment.
_____3>Amortization expense.
_____4>Purchase of treasury stock.
_____5>Receipt of dividends on investment.
_____6>Purchase of land.
2) An asset was purchased for $250,000. It had an estimated salvage value of $50,000
and an estimated useful life of 10 years. After 5 years of use, the estimated salvage
value is revised to $40,000 but the estimated useful life is unchanged. Assuming
straight-line depreciation, depreciation expense in year 6 would be
a.$30,000
b.$22,000
c.$15,000
d.$21,000
3) If a company has overdrawn its bank balance, then
a.its cash account will show a debit balance
b.its cash account will show a credit balance
c.the cash account debits will exceed the cash account credits
d.it cannot be detected by observing the balance of the cash account
4) Rosco Company purchased 35,000 shares of common stock of Paxton Corporation as
a long-term investment for $900,000. During the year, Paxton Corporation reported net
income of $300,000 and paid dividends of $100,000.
Instructions
(a)Assuming that the 35,000 shares represent a 10% interest in Paxton Corporation:
1>Prepare the journal entry to record the investment in Paxton stock.
2>Prepare any entries that Rosco Company should make in accounting for its
investment in Paxton stock during the year.
3>What is the balance of the Stock Investments account on Rosco Company’s books at
the end of the year?
(b)Repeat requirement (a) above except assume that the 35,000 shares represent a 20%
interest in Paxton Corporation.
5) The income statement approach to estimating uncollectible accounts expense is used
by Kerley Company. On February 28, the firm had accounts receivable in the amount of
$437,000 and Allowance for Doubtful Accounts had a credit balance of $2,140 before
adjustment. Net credit sales for February amounted to $3,000,000. The credit manager
estimated that uncollectible accounts expense would amount to 1% of net credit sales
made during February. On March 10, an accounts receivable from Kathy Black for
$6,100 was determined to be uncollectible and written off. However, on March 31,
Black received an inheritance and immediately paid her past due account in full.
Instructions
(a)Prepare the journal entries made by Kerley Company on the following dates:
1>February 28
2>March 10
3>March 31
(b)Assume no other transactions occurred that affected the allowance account during
March. Determine the balance of Allowance for Doubtful Accounts at March 31 .
6) The current assets of Myers Company are $250,000. The current liabilities are
$100,000. The current ratio expressed as a proportion is
a.250%
b.2.5 : 1
c..25 : 1
d.$250,000 $100,000
7) Brother Bob Corporations unadjusted trial balance includes the following balances
(assume normal balances):
Accounts Receivable$204,000
Allowance for Doubtful Accounts3,200
Bad debts are estimated to be 4% of outstanding receivables. What amount of bad debt
expense will the company record?
a.$4,960
b.$8,288
c.$8,160
d.$4,832
8) Financial information is presented below:
Operating Expenses$ 90,000
Sales Returns and Allowances26,000
Sales Discounts12,000
Sales300,000
Cost of Goods Sold158,000
Gross profit would be
a.$104,000
b.$116,000
c.$130,000
d.$142,000
9) On May 1, 2014, Pinkley Company sells office furniture for $300,000 cash. The
office furniture originally cost $750,000 when purchased on January 1, 2007 .
Depreciation is recorded by the straight-line method over 10 years with a salvage value
of $75,000. What depreciation expense should be recorded on this asset in 2014?
a.$22,500
b.$25,000
c.$33,750
d.$67,500
10) All of the following are characteristics of accounting information except
a.faithful representation
b.comparability
c.relevance
d.flexibility
11) Goodman Company’s inventory records show the following data:
UnitsUnit Cost
Inventory, January 110,000$9.00
Purchases:June 189,0008.20
November 86,0007.00
A physical inventory on December 31 shows 6,000 units on hand. Under the FIFO
method, the December 31 inventory is
a.$42,000
b.$49,200
c.$49,392
d.$54,000
12) Ralphe Manufacturing Company has the following data at June 30, 2014:
Raw materials inventory, June 1$ 14,700
Work in process inventory, June 117,300
Finished goods inventory, June 144,600
Total manufacturing costs450,000
Sales690,000
Work in process inventory, June 3034,000
Finished goods inventory, June 3062,500
Raw materials inventory, June 3019,000
Instructions
(a)Prepare an income statement through gross profit for the month of June.
(b)Indicate the balance sheet presentation of the June 30 inventories.
13) When the physical count of Rosanna Company inventory had a cost of $4,350 at
year end and the unadjusted balance in Inventory was $4,500, Rosanna will have to
make the following entry:
a.Cost of Goods Sold150
Inventory150
b.Inventory150
Cost of Goods Sold150
c.Income Summary150
Inventory150
d.Cost of Goods Sold4,500
Inventory4,500
14) The Constantine Company had the following assets and liabilities on the dates
indicated.
December 31 Total Assets Total Liabilities
2013 $480,000 $250,000
2014 $460,000 $220,000
2015 $590,000 $300,000
Constantine began business on January 1, 2013, with an investment of $100,000.
Instructions
From an analysis of the change in owners equity during the year, compute the net
income (or
loss) for:
(a) 2013, assuming Constantines drawings were $45,000 for the year.
(b) 2014, assuming Constantine made an additional investment of $50,000 and had no
drawings in 2014 .
(c) 2015, assuming Constantine made an additional investment of $15,000 and had
drawings of $40,000 in 2015 .
15) An accumulated depreciation account
a.is a contra-liability account
b.increases on the debit side
c.is offset against total assets on the balance sheet
d.has a normal credit balance
16) In recognizing a decline in the fair value of short-term stock investments, an
unrealized loss account is debited because
a.management intends to realize this loss in the near future
b.the securities have not been sold
c.the stock market is volatile
d.management cannot determine the exact amount of the loss in value
17) Cost of goods sold
a.only appears on merchandising companies’ income statements
b.only appears on manufacturing companies’ income statements
c.appears on both manufacturing and merchandising companies’ income statements
d.is calculated exactly the same for merchandising and manufacturing companies
18) Indicate which one of the following would appear on the income statement of both
a merchandising company and a service company.
a.Gross profit
b.Operating expenses
c.Sales revenues
d.Cost of goods sold
19) Indicate (a) the type of adjustment (prepaid expense, unearned revenue, accrued
revenue, or accrued expense), and (b) the accounts before adjustment (overstated or
understated) for each of the following:
1>Supplies of $200 have been used.
2>Salaries of $600 are unpaid.
3>Rent received in advance totaling $300 has been earned.
4>Services provided but not recorded total $500.
20) The following ledger accounts are used by the Sebastopol Dog Track:
Accounts Receivable
Prepaid Advertising
Prepaid Rent
Unearned Ticket Revenue
Advertising Expense
Rent Expense
Ticket Revenue
Sales Revenue
Instructions
For each of the following transactions below, prepare the journal entry (if one is
required) to record the initial transaction and then prepare the adjusting entry, if any,
required on September 30, the end of the fiscal year.
(a)On September 1, paid rent on the track facility for three months, $210,000.
(b)On September 1, sold season tickets for admission to the racetrack. The racing
season is year-round with 25 racing days each month. Season ticket sales totaled
$900,000.
(c)On September 1, borrowed $350,000 from First National Bank by issuing a 9% note
payable due in three months.
(d)On September 5, programs for 20 racing days in September, 25 racing days in
October, and 15 racing days in November were printed for $3,600.
(e)The accountant for the concessions company reported that gross receipts for
September were $150,000. Ten percent is due to the track and will be remitted by
October 10 .
21) Lake Norman Company has twenty employees who each earn $120 per day. If they
accumulate vacation time at the rate of 1.5 vacation days for each month worked, the
amount of vacation benefits that should be accrued at the end of the month is
a.$240
b.$2,400
c.$3,600
d.$360
22) The classified balance sheet is
a.required under GAAP but not under IFRS
b.required under IFRS in the same format as under GAAP
c.required under IFRS but not under GAAP
d.required under IFRS with certain variations in format as compared to GAAP
IFRS.
23) If a partner has a capital deficiency and does not have the personal resources to
eliminate it,
a.the creditors will have to absorb the capital deficiency
b.the other partners will absorb the capital deficiency on the basis of their respective
capital balances
c.the other partners will have to absorb the capital deficiency on the basis of their
respective income sharing ratios
d.neither the creditors nor the other partners will have to absorb the capital deficiency
24) A process cost system would be used for all of the following except the
a.manufacture of cereal
b.refining of petroleum
c.printing of wedding invitations
d.production of automobiles
25) Freight costs paid by a seller on merchandise sold to customers will cause an
increase
a.in the selling expense of the buyer
b.in operating expenses for the seller
c.to the cost of goods sold of the seller
d.to a contra-revenue account of the seller
26) Trooper Corporation reports the following amounts in their 2014 financial
statements:
At December 31, 2014For the Year 2014
Total assets$2,000,000
Total liabilities 1,310,000
Total stockholders equity ?
Interest expense$25,000
Income tax expense130,000
Net income150,000
Instructions
(a)Compute the December 31, 2014, balance in stockholders equity.
(b)Compute the debt to assets ratio at December 31, 2014 .
(c)Compute times interest earned for 2014 .
27) A reversing entry
a.reverses entries that were made in error
b.is the exact opposite of an adjusting entry made in a previous period
c.is made when a business disposes of an asset it previously purchased
d.is made when a company sustains a loss in one period and reverses the effect with a
profit in the next period
28) A company uses 8,400 pounds of materials and exceeds the standard by 300
pounds. The quantity variance is $1,800 unfavorable. What is the standard price?
a.$2
b.$4
c.$6
d.Cannot be determined from the data provided
29) The following totals for the month of June were taken from the payroll register of
Parks Company.
Salaries and wages$80,000
FICA taxes withheld6,132
Income taxes withheld17,600
Medical insurance deductions3,200
Federal unemployment taxes640
State unemployment taxes4,000
The entry to record the payment of net payroll would include a
a.debit to Salaries and Wages Payable for $48,428
b.debit to Salaries and Wages Payable for $53,068
c.debit to Salaries and Wages Payable for $49,068
d.credit to Cash for $49,068
30) Skye Company has the following data:
Variable costs are 60% of the unit selling price.
The contribution margin ratio is 40%.
The contribution margin per unit is $500.
The fixed costs are $325,000.
Which of the following does not express the break-even point?
a.$325,000 + .60X = X
b.$325,000 + .40X = X
c.$325,000 $500 = X
d.$325,000 .40 = X
31) Which of the following is not a true statement?
a.All costs are controllable at some level within a company
b.Responsibility accounting applies to both profit and not-for-profit entities
c.Fewer costs are controllable as one moves up to each higher level of managerial
responsibility
d.The term segment is sometimes used to identify areas of responsibility in
decentralized operations
32) Bernard Company had the following department information for the month:
Total materials costs$48,000
Equivalent units of materials5,000
Total conversion costs$80,000
Equivalent units of conversion costs10,000
What is the total manufacturing cost per unit?
a.$8.53
b.$8.00
c.$9.60
d.$17.60
33) Which one of the following would not be considered a disadvantage of the
partnership form of organization?
a.Limited life
b.Unlimited liability
c.Mutual agency
d.Ease of formation
34) The adjusted trial balance of Dailey Music Company appears below. Dailey Music
Company prepares monthly financial statements and uses the perpetual inventory
method.
Instructions
Complete the worksheet below.
DAILEY MUSIC COMPANY
Worksheet
For the Month Ended April 30, 2014
Adjusted
Trial Balance Income Statement Balance Sheet
DebitCreditDebitCreditDebitCredit
Cash11,000
Inventory19,000
Supplies3,500
Equipment80,000
Accum. Depreciation
Equipment15,000
Accounts Payable20,000
Owners Capital92,000
Owners Drawings8,000
Sales Revenue39,000
Sales Discounts2,000
Cost of Goods Sold23,000
Advertising Expense7,000
Supplies Expense6,000
Depreciation Expense1,000
Rent Expense2,500
Utilities Expense 1,000
166,000 166,000
35) Jent Company reported the following information for 2013:
OctoberNovemberDecember
Budgeted sales$320,000$340,000$360,000
Budgeted purchases$120,000$128,000$144,000
All sales are on credit.
Customer amounts on account are collected 40% in the month of sale and 60% in the
following month.
Instructions
Compute the amount of cash Jent will receive during November.
36) As part of a Careers in Accounting program sponsored by accounting organizations
and supported by your company, you will be taking a group of high-school students
through the accounting department in your company. You will also provide them with
various materials to explain the work of an accountant. One of the materials you will
provide is the Stockholders Equity section of a recent balance sheet.
Required:
Prepare a sentence or two explaining each major section: Common Stock, Additional
Paid-in Capital, and Retained Earnings. You should try to be brief but clear.
37) Why must a corporation have sufficient retained earnings before it may declare cash
dividends?
38) At the beginning of the year, Price Corporation acquired 15% of Cooper Company
common stock for $400,000. Cooper Company reported net income for the year of
$85,000 and paid $25,000 cash dividends during the year. The balance of the Stock
Investments account on the books of Price Corporation at the end of the year should be
$___________.
39) Anderson Manufacturing begins operations on March 1 . Information from job cost
sheets shows the following:
Manufacturing Costs Assigned (non-cumulative)
Job March April May
A$10,500
B$ 4,900$9,300
C$ 2,400$6,200$4,200
D$7,100$6,300
E$3,400
Job A was completed in March. Job B was completed in April. Job C was completed in
May. Each job was sold in the month following completion.
Instructions: Determine the following amounts:
1>Work in process inventory, March 31$_______________
2>Finished goods inventory, March 31$_______________
3>Work in process inventory, April 30$_______________
4>Finished goods inventory, April 30$_______________
5>Work in process inventory, May 31$_______________
6>Finished goods inventory, May 31$_______________
40) NoLand Company reported the following amounts for 2014:
Raw materials purchased$83,000Ending work in process inventory$ 6,300
Beginning raw materials inventory6,500Manufacturing overhead costs applied36,000
Ending raw materials inventory5,400Beginning work in process inventory6,100
Instructions
Calculate the cost of materials used in production
41) The following ratios have been computed for Mason Company for 2015 .
Profit margin12.5%
Times interest earned8 times
Receivables turnover4 times
Acid-test ratio2 : 1
Current ratio3 : 1
Debt to total assets ratio20%
Mason Companys 2015 financial statements with missing information follow:
MASON COMPANY
Comparative Balance Sheet
December 31,
Assets 2015 2014
Cash$ 30,000$ 45,000
Short-term Investments10,00025,000
Accounts receivable (net)?(6)40,000
Inventory?(8)50,000
Property, plant, and equipment (net) 200,000 160,000
Total assets$ ?(9)$320,000
Liabilities and stockholders’ equity
Accounts payable$ ?(7)$ 30,000
Short-term notes payable40,00035,000
Bonds payable?(10)20,000
Common stock220,000200,000
Retained earnings 60,000 35,000
Total liabilities and stockholders’ equity$ ?(11)$320,000
MASON COMPANY
Income Statement
For the Year Ended December 31, 2015
Net sales$200,000
Cost of goods sold 75,000
Gross profit125,000
Expenses:
Depreciation expense$ ?(5)
Interest expense5,000
Selling expenses8,000
Administrative expenses 12,000
Total expenses? (4)
Income before income taxes?(2)
Income tax expense? (3)
Net income$ ? (1)
Instructions
Use the above ratios and information from the Mason Company financial statements to
fill in the missing information on the financial statements. Follow the sequence
indicated. Show computations that support your answers.
42) Are the financial statements of a partnership similar to those of a proprietorship?
Discuss.