1) When analyzing the changes on a spreadsheet used to prepare a statement of cash
flows, the cash flows from financing activities generally affect:
A.Net income, current assets, and current liabilities.
B.Noncurrent assets.
C.Noncurrent liability and equity accounts.
D.Both noncurrent assets and noncurrent liabilities.
E.Equity accounts only.
2) On April 12, Hong Company agrees to accept a 60-day, 10%, $4,500 note from
Indigo Company to extend the due date on an overdue account. What is the journal
entry needed to record the transaction by Indigo Company?
A.Debit Notes Payable $4,500; credit Accounts Payable $4,500.
B.Debit Accounts Payable $4,500; credit Notes Payable $4,500.
C.Debit Accounts Receivable $4,500; credit Notes Payable $4,500.
D.Debit Cash $4,500; credit Notes Payable $4,500.
E.Debit Sales $4,500; credit Notes Payable $4,500.
3) Fortune Drilling Company acquires a mineral deposit at a cost of $5,900,000. It
incurs additional costs of $600,000 to access the deposit, which is estimated to contain
2,000,000 tons and is expected to take 5 years to extract. What journal entry would be
needed to record the expense for the first year assuming 418,000 tons were mined?
A.Debit Depletion Expense $1,233,100; credit Accumulated Depletion $1,233,100.
B.Debit Amortization Expense $1,358,500; credit Accumulated Amortization
$1,358,500.
C.Debit Depreciation Expense $1,358,500; credit Accumulated Depreciation
$1,358,500.
D.Debit Depletion Expense $1,358,500; credit Accumulated Depletion $1,358,500.
E.Debit Depreciation Expense $1,233,100; credit Accumulated Depreciation
$1,233,100.
4) Plant assets are defined as:
A.Tangible assets that have a useful life of more than one accounting period and are
used in the operation of a business.
B.Current assets.
C.Held for sale.
D.Intangible assets used in the operations of a business that have a useful life of more
than one accounting period.
E.Tangible assets used in the operation of business that have a useful life of less than
one accounting period.
5) Division A produces a part with the following characteristics:
Division B, another division in the company, would like to buy this part from Division
A. Division B is presently purchasing the part from an outside source at $28 per unit. If
Division A sells to Division B, $1 in variable costs can be avoided. Suppose Division A
is currently operating at capacity and can sell all of the units it produces on the outside
market for its usual selling price. From the point of view of Division A, any sales to
Division B should be priced no lower than:
A.$27
B.$29
C.$20
D.$28
E.$21
6) The board of directors of a corporation:
A.Are elected by the corporate registrar.
B.Are responsible for day-to-day operations of the business.
C.Do not have the power to bind the corporation to contracts, due to lack of mutual
agency.
D.May not also be executive officers of the corporation, due to the separate entity
principle.
E.Are responsible for and have final authority for managing corporate activities.
7) Chang Industries has 2,000 defective units of product that have already cost $14 each
to produce. A salvage company will purchase the defective units as they are for $5 each.
Chang’s production manager reports that the defects can be corrected for $6 per unit,
enabling them to be sold at their regular market price of $21. Chang should:
A.Throw the units away.
B.Sell the units to the salvage company for $5 per unit.
C.Sell the units as they are because repairing them will cause their total cost to exceed
their selling price.
D.Sell 1,000 units to the salvage company and repair the remainder.
E.Correct the defects and sell the units at the regular price.
8) Frederick Co. is thinking about having one of its products manufactured by a
subcontractor.
Currently, the cost of manufacturing 5,000 units follows:
If Frederick can buy 5,000 units from a subcontractor for $130,000, it should:
A.Make the product because current factory overhead is less than $130,000.
B.Make the product because the cost of direct material plus direct labor of
manufacturing is less than $130,000.
C.Make the product because factory overhead is a sunk cost.
D.Buy the product because total fixed and variable manufacturing costs are greater than
$130,000.
E.Buy the product because the total incremental costs of manufacturing are greater than
$130,000.
9) After preparing and posting the closing entries for revenues and expenses, the
income summary account has a debit balance of $33,000. The entry to close the income
summary account will be:
A.Debit Owner Withdrawals $33,000; credit Income Summary$33,000.
B.Debit Income Summary $33,000; credit Owner Withdrawals $33,000.
C.Debit Income Summary$33,000; credit Owner Capital $33,000.
D.Debit Owner Capital $33,000; credit Income Summary $33,000.
E.Credit Owner Capital $33,000; debit Owner Withdrawals $33,000.
10) All of the following statements regarding FICA taxes are true except:
A.FICA taxes are deducted from the employee.
B.Employers must pay withheld FICA taxes to the IRS.
C.The amount of FICA deducted from the employee is credited to a liability account.
D.A self-employed person is exempt from FICA taxes.
E.An employer must pay FICA taxes equal to the amount withheld from the employee.
11) A company uses the following standard costs to produce a single unit of output.
During the latest month, the company purchased and used 58,000 pounds of direct
materials at a price of $1.00 per pound to produce 10,000 units of output. Direct labor
costs for the month totaled $56,350 based on 4,900 direct labor hours worked. Variable
manufacturing overhead costs incurred totaled $15,000 and fixed manufacturing
overhead incurred was $10,400. Based on this information, the direct materials price
variance for the month was:
A.$6,000 unfavorable
B.$1,800 favorable
C.$1,000 favorable
D.$5,800 unfavorable
E.$1,800 unfavorable
12) On July 1 of the current year, Glover Mining Co. pays $5,400,000 for land
estimated to contain 7,200,000 tons of recoverable ore. It installs machinery on July 3
costing $864,000 that has an 8 year life and no salvage value and is capable of mining
the ore deposit in six years. The company removes and sells 745,000 tons of ore during
its first six months of operations ending on December 31. Depreciation of the
machinery is in proportion to the mine’s depletion as the machinery will be abandoned
after the ore is mined. Prepare the entries Glover must record for (a) the purchase of the
ore deposit, (b) the costs and installation of the machinery, (c) the depletion assuming
the land has a zero salvage value, and (d) the depreciation on the machinery.
13) A dividend payment to shareholders during the year should be reported on the
statement of cash flows as:
A.An increase in cash flows from financing activities
B.An increase in cash flows from investing activities
C.A decrease in cash flows from operating activities
D.A decrease in cash flows from investing activities
E.An decrease in cash flows from financing activities
14) A company has a selling price of $1,800 each for its printers. Each printer has a 2
year warranty that covers replacement of defective parts. It is estimated that 2% of all
printers sold will be returned under the warranty at an average cost of $150 each.
During November, the company sold 30,000 printers, and 400 printers were serviced
under the warranty at a total cost of $55,000. The balance in the Estimated Warranty
Liability account at November 1 was $29,000. What is the company’s warranty expense
for the month of November?
A.$26,000
B.$45,000
C.$55,000
D.$60,000
E.$90,000
15) The Lavender Company completed the following sales and cash receipts
transactions during the first week of December. The Lavender Company uses the
periodic inventory system.
a. Use the sales journal and the cash receipts journal to record these transactions.
b. Prepare a schedule of accounts receivable. There was no accounts receivable balance
at December 1
16) Marlow Company purchased a point of sale system on January 1 for $3,400. This
system has a useful life of 10 years and a salvage value of $400. What would be the
accumulated depreciation at the end of the second year of its useful life using the
double-declining-balance method?
A.$2,176.
B.$544.
C.$1,200.
D.$600.
E.$1,224.
17) Activity rates from Hilliard Corporation’s activity-based costing system are listed
below. The company uses the activity rates to assign overhead costs to products:
Last year, Product XL91 involved 2 customer orders, 434 assembly hours, and 20
batches. How much overhead cost would be assigned to Product XL91 using the
activity-based costing system?
A.$1,041.80
B.$2,000.04
C.$66,908.88
D.$146.73
E.$772.52
18) If a check correctly written and paid by the bank for $272 is incorrectly recorded in
the company’s books for $227, how should this error be treated on the bank
reconciliation?
A.Subtract $45 from the bank’s balance.
B.Add $45 to the bank’s balance.
C.Subtract $45 from the book balance.
D.Add $45 to the book balance.
E.Subtract $45 from the bank’s balance and add $45 to the book’s balance.
19) Contingent liabilities must be recorded if:
A.The future event is probable and the amount owed can be reasonably estimated.
B.The future event is remote.
C.The future event is reasonably possible but not estimable.
D.The amount owed cannot be reasonably estimated.
E.The future event is probable but not estimable.
20) Prepare general journal entries on December 31 to record the following unrelated
year-end adjustments.
a. Estimated depreciation on equipment for the year, $4,500.
b. The Prepaid Insurance account has a $3,680 debit balance before adjustment. An
examination of insurance policies shows $600 of insurance expired.
c. The Prepaid Insurance account has a $2,400 debit balance before adjustment. An
examination of insurance policies shows $950 of unexpired insurance.
d. The company has three office employees who each earn $100 per day for a five-day
workweek that ends on Friday. The employees were paid on Friday, December 26, and
have worked full days on Monday, Tuesday, and Wednesday, December 29, 30, and 31.
e. On November 1, the company received 6 months’ rent in advance from a tenant
whose rent is $700 per month. The $4,200 was credited to the Unearned Rent account.
f. The company collects rent monthly from its tenants. One tenant whose rent is $1,000
per month has not paid his rent for December.
21) A company had the following transactions during January:
Using the net method of recording purchases, prepare the journal entries to record these
January transactions.
22) On September 12, Vander Company sold merchandise in the amount of $5,800 to
Jepson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000.
Vander uses the periodic inventory system. The journal entry or entries that Vander will
make on September 12 is:
23) For each of the following (1) identify the type of account as an asset, liability,
equity, revenue, or expense, and (2) identify the normal balance of the account.
24) A company recorded 2 days of accrued salaries of $1,400 for its employees on
January 31. On February 9, it paid its employees $7,000 for these accrued salaries and
for other salaries earned through February 9. The January 31 and February 9 journal
entries are:
25) What are the accounting basics for debt securities, including recording their
acquisition, interest earned, and their disposal?
26) A good financial statement analysis report usually includes the following six
sections: (1) ________________________, (2) ______________________, (3)
_________________, (4) __________________, (5) ____________________, and (6)
______________________.
27) The calendar year-end adjusted trial balance for Blessinger Co. follows:
