1) The normal balance of an expense account is a credit.
2) If, prior to the last weekly payroll period of the calendar year, the cumulative
earnings for an employee are $98,800, earnings subject to social security tax are
$100,000, and the tax rate is 6.0%, the employer’s social security tax on the $2,000
gross earnings paid on the last day of the year is $120.
3) While some businesses have been granted charters under state laws, most businesses
receive their charters under federal laws.
4) A fiscal year that ends when business activities have reached their lowest point is
called the natural business year.
5) In a computerized accounting system, a work sheet may not be necessary because the
software program automatically posts entries to the accounts and prepares financial
statements.
6) A company pays $6,500 for two season tickets on September 1. If $2,500 is earned
by December 31, the adjusting entry made at that time is debit Cash, $2,500 and credit
Ticket Revenue, $2,500.
7) In a process costing system, indirect materials are charged to Work in Process.
8) Most companies will not take a purchases discount, because 1% or 2% discounts are
insignificant.
9) A company is considering the purchase of a new piece of equipment for $90,000.
Predicted annual cash inflows from the investment are $36,000 (year 1), $30,000 (year
2), $18,000 (year 3), $12,000 (year 4), and $6,000 (year 5). The average income from
operations over the 5-year life is $20,400. The payback period is 3.5 years.
10) A clean audit opinion is the same as a qualified audit opinion.
11) A company is considering the purchase of a new machine for $48,000. Management
expects that the machine can produce sales of $16,000 each year for the next 10 years.
Expenses are expected to include direct materials, direct labor, and factory overhead
totaling $8,000 per year plus depreciation of $4,000 per year. All revenues and expenses
except depreciation are on a cash basis. The payback period for the machine is 6 years.
12) In a perpetual inventory system, when merchandise is returned to the seller, Cost of
Merchandise Sold is debited as part of the transaction.
13) A sale of treasury stock may result in a decrease in paid-in-capital. All decreases
should be charged to the Paid-In-Capital from Sale of Treasury account.
14) The book value of a fixed asset reported on the balance sheet represents its market
value on that date.
15) By using the rate of return on investment as a divisional performance measure,
divisional managers will always be motivated to invest in proposals which will increase
the overall rate of return for the company.
16) Based on the following data and using a 365-day year, compute (a) the accounts
receivable turnover and (b) the number of days’ sales in receivables. The industry
average is a collection period of once every 20 days, and the number of days’ sales in
receivables averages 25. (c) Comment on this situation.
17) Chicks Corporation had $1,100,000 in invested assets, sales of $1,210,000, income
from operations amounting to $302,500, and a desired minimum rate of return of 15%.
The investment turnover for Chicks is:
A.1.3
B.1.5
C.1.0
D.1.1
18) The entry to record the issuance of common stock at a price above par includes a
debit to
A.Organizational Expenses
B.Common Stock
C.Cash
D.Paid-In Capital in Excess of Par-Common Stock
19) Ralston Company has income from operations of $75,000, invested assets of
$360,000, and sales of $790,000.
Required:
Use the DuPont formula to calculate the rate of return on investment, and show (a) the
profit margin, (b) the investment turnover, and (c) rate of return on investment.
Round profit margin percentage to two decimal places and investment turnover to three
decimal places.
20) On June 1, $50,000 of treasury bonds were purchased between interest dates. The
broker commission was $500. The bonds pay interest at 12%, which is paid
semiannually on January 1 and July 1. What is the total cost to be debited to the
Investment – Treasury Bonds account?
A.$50,000
B.$50,500
C.$49,500
D.$53,000
21) A company will most likely use an estimated method of determining inventory
when
A.the company decides not to do a physical inventory
B.a natural disaster has destroyed most of their inventory
C.the company has not kept up with their inventory records
D.the company is preparing annual financial statements
22) Which of the following concepts of cash is not appropriate to use in preparing the
statement of cash flows?
A.cash
B.cash and money market funds
C.cash and cash equivalents
D.cash and U.S. treasury bonds
23) All of the following are reasons to use an estimated method of costing inventory
except:
A.Perpetual inventory records are not maintained
B.Purchase records are not maintained
C.A disaster has destroyed the inventory records and the inventory
D.Interim financial statements are required but physical inventory is only taken at the
end of the financial accounting period
24) When callable bonds are redeemed below carrying value
A.Gain on Redemption of Bonds is credited
B.Loss on Redemption of Bonds is debited
C.Retained Earnings is credited
D.Retained Earnings is debited
25) The classification and normal balance of the supplies expense account is a(n)
A.asset with a debit balance
B.asset with a credit balance
C.expense with a debit balance
D.liability with a credit balance
26) Next years sales forecast shows that 20,000 units of Product A and 22,000 units of
Product B are going to be sold for prices of $10 and $12 per unit, respectively. The
desired ending inventory of Product A is 20% higher than its beginning inventory of
2,000 units. The beginning inventory of Product B is 2,500 units. The desired ending
inventory of B is 3,000 units.
Budgeted purchases of Product B for the year would be:
A.24,500 units
B.22,500 units
C.26,500 units
D.23,200 units
27) The Victor Corporation issues 1,000, 10-year, 8%, $1,000 bonds dated January 1,
2011, at 96. The journal entry to record the issuance will show a
A.debit to Cash of $1,000,000
B.credit to Discount on Bonds Payable for $40,000
C.credit to Bonds Payable for $960,000
D.debit to Cash for $960,000
28) Which of the following costs would be included in merchandise inventory?
(a) Purchase price
(b) Insurance in transit FOB shipping point
(c) Freight for delivery FOB shipping point
(d) Repair due to negligence of receiving clerk
(e) Receiving Department employee salary
(f) Cost of processing purchase orders
29) The accounting cycle requires three trial balances be done. In what order should
they be prepared?
A.Post-closing, unadjusted, adjusted
B.Unadjusted, post-closing, adjusted
C.Unadjusted, adjusted, post-closing
D.Post-closing, adjusted, unadjusted
30) All of the following are typically included in the Managements Discussion and
Analysis in annual reports except:
A.explanations of any significant changes between the current and prior years financial
statements
B.managements assessment of liquidity
C.journal entries
D.off-balance-sheet arrangements
31) Each account in the cost ledger is called a:
A.finished goods sheet
B.stock record
C.materials requisition
D.job cost sheet
32) If Everly Company issues 1,000 shares of $5 par value common stock for $75,000,
the account
A.Common Stock will be credited for $75,000
B.Paid-in Capital in excess of Par Value will be credited for $5,000
C.Paid-in Capital in excess of Par Value will be credited for $70,000
D.Cash will be debited for $70,000
33) The Kaumajet Factory produces two products – table lamps and desk lamps. It has
two separate departments – finishing and production. The overhead budget for the
finishing department is $550,000, using 500,000 direct labor hours. The overhead
budget for the production department is $400,000 using 80,000 direct labor hours.
If the budget estimates that a desk lamp will require 1 hours of finishing and 2 hours of
production, how much factory overhead will be allocated to each unit of desk lamps
using the multiple production department factory overhead rate method with an
allocation base of direct labor hours?
A.$11.10
B.$4.91
C.$5.00
D.$7.20
34) Amir Designs purchased a one-year liability insurance policy on March 1st of this
year for $7,200 and recorded it as a prepaid expense. Which of the following amounts
would be recorded for insurance expense during the adjusting process at the end of
Amirs first month of operations on March 31st?
A.$7,200
B.$720
C.$600
D.$6,600
35) Period costs are
A.found on the balance sheet
B.not involved in the production process
C.classified as direct labor, direct material, or factory overhead
D.found on the job order cost sheets
36) The three most common cost behavior classifications are:
A.variable costs, product costs, and sunk costs
B.fixed costs, variable costs, and mixed costs
C.variable costs, period costs, and differential costs
D.variable costs, sunk costs, and opportunity costs
37) The natural business year
A.is a fiscal year that ends when business activities are at its lowest point
B.is a calendar year that ends when business activities are at its lowest point
C.is a fiscal year that ends when business activities are at its highest point
D.is a calendar year that ends when business activities are at its highest point
38) Conversion costs are
A.direct materials and direct labor
B.direct materials and factory overhead
C.factory overhead and direct labor
D.direct materials and indirect labor
39) An alternative name for Bad Debt Expense is
A.Collection Expense
B.Credit Loss Expense
C.Uncollectible Accounts Expense
D.Deadbeat Expense
40) A plant managers salary may be referred to as:
A.either a direct cost or an indirect cost since managerial accounting is not restricted by
GAAP
B.a direct cost
C.an indirect cost
D.a period cost
41) During June, the receipts and issuances of Material No. A2FO are as follows:
42) Dorman Co. sold merchandise to Smith Co. on account, $23,500, terms 2/15, net
45. The cost of the merchandise sold is $16,000. Dorman Co. issued a credit memo for
$1,750 for merchandise returned that originally cost $1,400. The Smith Co. paid the
invoice within the discount period. What is amount of net sales from the above
transactions?
A.$23,030
B.$21,750
C.$21,315
D.$13,808
43) Listed below are accounts to use for transactions (a) through (d), each identified by
a number. Following this list are the transactions. You are to indicate for each
transaction the accounts that should be debited and credited by placing the account
number(s) in the appropriate box.
Transactions Account(s) Debited Account(s) Credited
a. Utility bill is received; payment will be made in 10 days.
b. Paid the utility bill previously recorded in transaction (a).
c. Bought a three-year insurance policy and paid in full.
d. Received $7,000 from a contract to perform accounting services over the next two
years.
44) The journal entry a company uses to record fully funded pension rights for its
salaried employees at the end of the year is
A.debit Salary Expense; credit Cash
B.debit Pension Expense; credit Unfunded Pension Liability
C.debit Pension Expense; credit Unfunded Pension Liability and Cash
D.debit Pension Expense; credit Cash
45) Damaged merchandise that can be sold only at prices below cost should be valued
at
A.net realizable value
B.LIFO
C.FIFO
D.average
46) Accompanying the bank statement was a debit memo for bank service charges.
What entry is required in the company’s accounts?
A.debit Miscellaneous Administrative Expense; credit Cash
B.debit Cash; credit Other Income
C.debit Cash; credit Accounts Payable
D.debit Accounts Payable; credit Cash
47) Mighty Safe Fire Alarm is currently buying 50,000 motherboard from
MotherBoard, Inc. at a price of $65 per board. Mighty Safe is considering making its
own boards. The costs to make the board are as follows: Direct Materials $32 per unit,
Direct labor $10 per unit, Variable Factory Overhead $16.00, Fixed Costs for the plant
would increase by $75,000. Which option should be selected and why?
A.Buy – $75,000 more in profits
B.Make – $275,000 increase in profits
C.Buy – $275,000 more in profits
D.Make – $350,000 increase in profits
48) An employee receives an hourly rate of $15, with time and a half for all hours
worked in excess of 40 during the week. Payroll data for the current week are as
follows: hours worked, 46; federal income tax withheld, $110; cumulative earnings for
the year prior to this week, $24,500; Social security tax rate, 6% on maximum of
$100,000; and Medicare tax rate, 1.5% on all earnings; state unemployment
compensation tax, 3.4% on the first $7,000; federal unemployment compensation tax, .
8% on the first $7,000. What is the net amount to be paid to the employee?
A.$569.87
B.$539.00
C.$625.00
D.$544.88
49) Under the allowance method, when a year-end adjustment is made for estimated
uncollectible accounts
A.Liabilities decrease
B.Net Income is unchanged
C.Total Assets are unchanged
D.Total Assets decrease
50) A corporation issues for cash $10,000,000 of 8%, 30-year bonds, interest payable
annually, at a time when the market rate of interest is 9%. The straight-line method is
adopted for the amortization of bond discount or premium. Which of the following
statements is true?
A.The amount of annual interest paid to bondholders remains the same over the life of
the bonds
B.The amount of annual interest expense decreases as the bonds approach maturity
C.The amount of annual interest paid to bondholders increases over the 30-year life of
the bonds
D.The carrying amount decreases from its amount at issuance date to $10,000,000 at
maturity
51) Journalize the five transactions for Mirmax Rentals described below.
52) The following revenue and expense account balances were taken from the Income
Statement columns of the work sheet for Fraser Services Co. for the year ended
December 31, 2011:
Prepare an income statement.
53) On the basis of the following data, estimate the cost of the merchandise inventory at
March 31 by the retail method:
54) Lark Art Company sells unfinished wooden decorations at a price of $15.00. The
current profit margin is $5.00 per decoration. The company is considering taking
individual orders and customizing them for sale. To finish the decoration the company
would have to pay additional labor of $3.00, additional materials costing an average of
$4.00 per unit and fixed costs would increase by $1,500. If the company estimates that
it can sell 600 units for $25.00 each month, should they start taking the orders?
55) Selected transactions completed by Breezeway Construction during the current
fiscal year are as follows:
Required: Journalize the transactions.
56) Reconstruct adjusting and closing entries for the month ended September 30, 2011
from the T accounts below.
57) Discuss and describe how errors in accounts can be found.
1) through audit procedures
2) by looking at the trial balance
3) by chance
58) Door & Window Co. was organized on August 1 of the current year. Projected sales
for the next three months are as follows:
The company expects to sell 40% of its merchandise for cash. Of the sales on account,
25% are expected to be collected in the month of the sale and the remainder in the
following month.
Prepare a schedule indicating total cash collections for August, September, and October.
59) Douglas Company has a contribution margin ratio of 30%. If Douglas has $336,420
in fixed costs, what amount of sales will need to be generated in order for the company
to break even?
60) On May 10, a company issued for cash 1,500 shares of no-par common stock (with
a stated value of $2) at $14, and on May 15, it issued for cash 2,000 shares of $15 par
preferred stock at $58.
Journalize the entries for May 10 and 15, assuming that the common stock is to be
credited with the stated value.