1) The ratio of fixed assets to long-term liabilities provides a measure of a firms ability
to pay dividends.
2) Labor costs that are directly traceable to the product are part of factory overhead.
3) Paying an account payable increases liabilities and decreases assets.
4) When using the estimate based on sales method, the entry to record uncollectible
accounts expense includes a credit to the Accounts Receivable account.
5) Prevention costs and appraisal costs are considered costs of controlling quality.
6) A 15% change in sales will result in a 15% change in net income.
7) When a company establishes an outstanding reputation and has a competitive
advantage because of it, the company should record goodwill on its financial
statements.
8) The dollars available from each unit of sales to cover fixed cost and profit is the unit
variable cost.
9) Expenditures that increase operating efficiency or capacity for the remaining useful
life of a fixed asset are betterments.
10) The statement of cash flows reports a firm’s major sources of cash receipts and
major uses of cash payments for a period.
11) Standard costs can be used with both the process cost and job order cost systems.
12) Retained earnings will be reduced by the amount in the dividends account.
13) Comparative information taken from the Koda Company financial statements is
shown below:
2012 _ 2011
(a) Notes receivable $ 10,000 $ -0-
(b) Accounts receivable 106,200 90,000
(c) Retained earnings 30,000 (40,000)
(d) Sales 654,000 600,000
(e) Operating expenses 160,000 200,000
(f) Income taxes payable 28,000 20,000
Instructions
Using horizontal analysis, show the percentage change from 2011 to 2012 with 2011 as
the base year.
14) Computer equipment was acquired at the beginning of the year at a cost of $57,000
that has an estimated residual value of $9,000 and an estimated useful life of 5 years.
Determine the 2nd years depreciation using straight-line depreciation.
A.$13,200
B.$19,200
C.$ 9,600
D.$ 9,000
15) On December 15th, Great Designs Company hired an independent contractor for a
project. The contractor completed the project on December 29th and submitted an
invoice for $2,425 which was due on January 15th. This was duly paid on January 15th.
(a) Prepare the journal entries necessary to record these transactions.
(b) Explain why you prepared this/these journal entries.
16) The type of account and normal balance of Unearned Rent is
A.revenue, credit
B.expense, debit
C.liability, credit
D.liability, debit
17) Who are the individuals charged with the responsibility for directing the day-to-day
operations of a business?
A.Investors
B.Managers
C.Shareholders
D.Customers
18) At the beginning of the period, the Cutting Department budgeted direct labor of
$155,000, direct material of $165,000 and fixed factory overhead of $15,000 for 9,000
hours of production. The department actually completed 10,000 hours of production.
What is the appropriate total budget for the department, assuming it uses flexible
budgeting?
A.$416,000
B.$370,556
C.$368,889
D.$335,000
19) Nuthatch Corporation began its operations on September 1 of the current year.
Budgeted sales for the first three months of business are $260,000, $375,000, and
$400,000, respectively, for September, October, and November. The company expects
to sell 30% of its merchandise for cash. Of sales on account, 80% are expected to be
collected in the month of the sale and 20% in the month following the sale.
The cash collections in September from accounts receivable are:
A.$223,600
B.$145,600
C.$182,000
D.$168,000
20) All of the following qualitative considerations may impact upon capital investment
analysis except:
A.manufacturing productivity
B.manufacturing sunk cost
C.manufacturing flexibility
D.market opportunities
21) Solare Company acquired mineral rights for $60,000,000. The diamond deposit is
estimated at 6,000,000 tons. During the current year, 2,300,000 tons were mined and
sold.
a. Determine the depletion rate.
b. Determine the amount of depletion expense for the current year.
c. Journalize the adjusting entry to recognize the depletion expense.
22) Receipts from cash sales of $3,200 were recorded incorrectly in the cash receipts
journal as $2,300. This item would be included on the bank reconciliation as a(n)
A.deduction from the balance per company’s records
B.addition to the balance per bank statement
C.deduction from the balance per bank statement
D.addition to the balance per company’s records
23) What is the normal balance of the following accounts?
a. Sales Tax Payable
b. Merchandise Inventory
c. Delivery Expense
d. Cost of Merchandise Sold
e. Sales Returns and Allowance
f. Sales Discounts
g. Sales
24) The debit recorded in the journal to reimburse the petty cash fund is to
A.Petty Cash
B.Accounts Receivable
C.Cash
D.various accounts for which the petty cash was disbursed
25) The Lowery Co. uses the direct write-off method of accounting for uncollectible
accounts receivable. Lowery has a customer whose accounts receivable balance has
been determined to likely be uncollectible. The entry to write off this account would be
which of the following?:
A.debit Allowance for Doubtful Accounts; credit Accounts Receivable
B.debit Sales Returns and Allowance, credit Accounts Receivable
C.debit Bad Debt Expense; credit Allowance for Doubtful Accounts
D.debit Bad Debt Expense; credit Accounts Receivable
26) Materials must have which two qualities in order to be classified as direct
materials?
A.They must be classified as both prime costs and conversion costs
B.They must be introduced into the process in both work-in-process inventories and
finished goods inventories
C.They must be an integral part of the finished product, but can be an insignificant
portion of the total product cost
D.They must be an integral part of the finished product and be a significant portion of
the total product cost
27) Investing activities include
A.collecting cash on loans made
B.obtaining cash from customers
C.obtaining capital from stockholders
D.repaying money previously borrowed
28) Edison Corporation paid a dividend of $10 per share on its $100 par preferred stock
and $4 per share on its $20 par common stock. The market value of the common stock
is $80 per share. Edisons dividend yield is:
A.5%
B.10%
C.25%
D.20%
29) When the effective-interest method is used, the amortization of the bond premium
A.increases interest expense each period
B.decreases interest expense each period
C.increases interest expense in some periods and decreases interest expense in other
periods
D.has no effect on the interest expense in any period
30) An extraordinary item results from
A.a segment of the business being sold
B.corporate income tax being paid
C.a change from one accounting method to another acceptable accounting method
D.a transaction or event that is unusual and occurs infrequently
31) The Winston Company estimates that the factory overhead for the following year
will be $1,250,000. The company has decided that the basis for applying factory
overhead should be machine hours, which is estimated to be 50,000 hours. The total
machine hours for the year was 54,300. The actual factory overhead for the year was
$1,375,000.
a) Determine the total factory overhead amount applied.
b) Calculate the over or under applied amount for the year.
c) Prepare the journal entry to close factory overhead into Cost of Goods Sold.
32) The current ratio is
A.used to evaluate a company’s liquidity and short-term debt paying ability
B.is a solvency measure that indicated the margin of safety of a noteholder or
bondholder
C.calculated by dividing current liabilities by current assets
D.calculated by subtracting current liabilities from current assets
33) Materials used by Square Yard Products Inc. in producing Division 3’s product are
currently purchased from outside suppliers at a cost of $5 per unit. However, the same
materials are available from Division 6. Division 6 has unused capacity and can
produce the materials needed by Division 3 at a variable cost of $3 per unit. A transfer
price of $3.20 per unit is established, and 40,000 units of material are transferred, with
no reduction in Division 6’s current sales.
How much would Division 3’s income from operations increase?
A.$150,000
B.$50,000
C.$32,000
D.$72,000
34) Determine the missing amount X for each of the following:
Assets Liabilities Stockholders Equity
a. $78,500 $37,600 X
b. X $53,280 $145,000
c. $49,500 X $34,000
35) Which of the following is not a characteristic of accrual basis of accounting?
A.Revenues and expenses are reported in the period in which cash is received or paid
B.Revenues are reported in the income statement in the period in which they are earned
C.Supports the matching concept
D.All are correct
36) The journal entry a company records for the issuance of bonds when the contract
rate is greater than the market rate would be
A.debit Bonds Payable, credit Cash
B.debit Cash and Discount on Bonds Payable, credit Bonds Payable
C.debit Cash, credit Premium on Bonds Payable and Bonds Payable
D.debit Cash, credit Bonds Payable
37) Prepare the journal entries for the following transactions for Morgan Co.
(a) Morgan Co. purchased 32,000 shares of the total of 100,000 outstanding shares of
Gordon Corp. stock for $10 per share plus a $400 commission.
(b) Gordon Corp.’s total earnings for the period are $80,000.
(c) Gordon Corp. paid a total of $45,000 in cash dividends.
38) On November 15th, Great Designs Company purchased an advertising campaign
for the month of December. Great Designs paid cash of $2,700 in advance. The
advertising campaign ran in December.
(a) Prepare all necessary journal entries for the advertising campaign for November and
December.
(b) Explain why you prepared this/these journal entries.
39) Journalize each of the following transactions:
(a) A wing costing $2,345,000 was added to the building. A new mortgage was issued
for the cost.
(b) Equipment was upgraded to increase its capacity to produce widgets. The upgrade
cost of $11,500 was paid in cash.
(c) A major overhaul costing $8,000 on a machine increased the useful life by 4 years.
The payment was made in cash.
40) Christmas Express makes wreaths in batch sizes of 12. The cutting & assembly
process takes 7 minutes per wreath and the decorating process time is 10 minutes per
wreath. It takes 12 minutes to move the wreaths from the cutting & assembly process to
the decorating process.
(a) Compute the value-added, non-value-added, and the total lead time of the wreath
process.
(b) Compute the value-added ratio. Round to the nearest decimal.
41) Department E had 4,000 units in Work in Process that were 40% completed at the
beginning of the period at a cost of $12,500. Of the $12,500, $8,000 was for material
and $4,500 was for conversion costs. 14,000 units of direct materials were added during
the period at a cost of $28,700. 15,000 units were completed during the period, and
3,000 units were 75% completed at the end of the period. All materials are added at the
beginning of the process. Direct labor was $32,450 and factory overhead was $18,710.
If the average cost method is used the material cost per unit (to the nearest cent) would
be:
A.$2.04
B.$1.59
C.$1.91
D.$2.00
42) Merchandise inventory is classified on the balance sheet as a
A.Current Liability
B.Current Asset
C.Long-Term Asset
D.Long-Term Liability
43) Widgeon Co. manufactures three products: Bales; Tales; and Wales. The selling
prices are: $55; $78; and $32, respectively. The variable costs for each product are: $20;
$50; and $15, respectively. Each product must go through the same processing in a
machine that is limited to 2,000 hours per month. Bales take 5 hours to process, Tales
take 7 hours, and Wales take 1 hour.
What is the contribution per machine hour for Wales?
A.$35
B.$28
C.$17
D.$7
44) On April 2nd a corporation purchased for cash 5,000 shares of its own $10 par
common stock at $16 a share. They sold 3,000 of the treasury shares at $19 a share on
June 15th. The remaining 2,000 shares were sold on November 10th for $12 a share.
45) A business pays weekly salaries of $25,000 on Friday for a five-day week ending on
that day. The adjusting entry necessary at the end of the fiscal period ending on Tuesday
is
A.debit Salaries Payable, $10,000; credit Cash, $10,000
B.debit Salary Expense, $10,000; credit Dividends, $10,000
C.debit Salary Expense, $10,000; credit Salaries Payable, $10,000
D.debit Dividends, $10,000; credit Cash, $10,000
46) The balanced scorecard measures financial and nonfinancial performance of a
business. The balanced scorecard measures four areas. Identify one of the following that
is not included as a performance measurement.
A.Internal Process
B.Financial
C.Innovation and Learning
D.Employees
47) On February 12, Addison, Inc. purchased 6,000 shares of Lucas Company at $22
per share plus a $240 brokerage fee. On August 22, Lucas paid a $0.42 dividend per
share. On November 10, 4,000 shares of Lucas stock were sold for $28 per share less a
$160 brokerage fee. The journal entry for the sale would include:
A.a debit to Cash for $111,840
B.a credit to Investments for $112,000
C.a credit to Loss on Sale for $23,680
D.a debit to Cash for $112,000
48) Forde Co. has an operating leverage of 4. Sales are expected to increase by 12%
next year. Operating income is:
A.unaffected
B.expected to increase by 3%
C.expected to increase by 48%
D.expected to increase by 4 %
49) The payroll summary for December 31 for Waters Co. revealed total earnings of
$80,000. Earnings subject to 6% social security tax were $60,000; earnings subject to
1.5% Medicare tax were $80,000; and earnings of $3,000 were subject to 4.3% state
and 0.8% federal unemployment compensation tax. Journalize the entry to record the
accrual of payroll taxes.
50) You evaluate loan requests as part of your job at Beach Front National Bank. One
loan request you received is from Surfer Dude Supplies, a small company. Tracy
Roberts, the manager, is requesting $75,000 and brings you a trial balance (or Statement
of Accounts) of the first year of operations ended December 31, 2010.
REQUIRED: While you are willing to work with Tracy, how would you explain to him
that a complete set of financial statements from his accountant would be more useful
for evaluating the loan request?
51) Income statement information for Lucy Company is provided below:
Prepare a vertical analysis of the income statement for Lucy Company.
52) Using the following data taken from Hsus Imports Inc., prepare the cost of
merchandise sold section of the income statement for the year ended March 31, 2011.
53) On December 31, Bowman Company estimated that goodwill of $80,000 was
impaired. In addition, a patent with an estimated useful economic life of 10 years was
acquired for $252,000 on June 1.
Required:
(1) Journalize the adjusting entry on December 31 for the impaired goodwill.
(2) Journalize the adjusting entry on December 31 for the amortization of the patent
rights.