1) Division A makes a part that it sells to customers outside of the company. Data
concerning this part appear below:
Division B of the same company would like to use the part manufactured by Division A
in one of its products. Division B currently purchases a similar part made by an outside
company for $38 per unit and would substitute the part made by Division A. Division B
requires 5,000 units of the part each period. Division A has ample capacity to produce
the units for Division B without any increase in fixed costs and without cutting into
sales to outside customers. If Division A sells to Division B rather than to outside
customers, the variable cost be unit would be $1 lower. What should be the lowest
acceptable transfer price from the perspective of Division A?
A.$40
B.$38
C.$30
D.$29
E.$10
2) On January 4, Year 1, Barber Company purchased 5,000 shares of Convell Company
for $59,500 plus a broker’s fee of $1,000. Convell Company has a total of 25,000 shares
of common stock outstanding and it is presumed the Barber Company will have a
significant influence over Convell. During each of the next two years, Convell declared
and paid cash dividends of $0.85 per share, and its net income was $72,000 and
$67,000 for Year 1 and Year 2, respectively. What is the book value of Barber’s
investment in Convell at the end of Year 2?
A.$60,500.
B.$79,800.
C.$52,000.
D.$88,300.
E.$87,300.
3) The materiality constraint, as applied to bad debts:
A.Permits the use of the direct write-off method when bad debts expenses are relatively
small.
B.Requires use of the allowance method for bad debts.
C.Requires use of the direct write-off method.
D.Requires that bad debts not be written off.
E.Requires that expenses be reported in the same period as the sales they helped
produce.
4) The current year-end balance sheet data for a company are shown below. Calculate
the company’s:
(a) working capital
(b) current ratio
(c) acid-test ratio.
5) An accounting system that accumulates and reports costs incurred by each service
department for management to evaluate the performance of a department is a:
A.Departmental accounting system.
B.Cost accounting system.
C.Service accounting system.
D.Revenue accounting system.
E.Standard accounting system.
6) A company borrowed $40,000 cash from the bank and signed a 6-year note at 7%
annual interest. The present value of an annuity factor for 6 years at 7% is 4.7665. The
annual annuity payments equal:
A.$10,489.88.
B.$8,391.91.
C.$40,000.00.
D.$52,450.00.
E.$190,660.00.
7) Mullis Company sold merchandise on account to a customer for $625, terms n/30.
The journal entry to record the collection on account would be:
A.Debit Cash of $625 and credit Sales $625.
B.Debit Cash of $625 and credit Accounts Receivable $625.
C.Debit Accounts Receivable $625 and credit Sales $625.
D.Debit Accounts Receivable $625 and credit Cash $625.
E.Debit Sales $625 and credit Accounts Receivable $625.
8) Minstrel Manufacturing uses a job order costing system. During one month Minstrel
purchased $198,000 of raw materials on credit; issued materials to production of
$195,000 of which $30,000 were indirect. Minstrel incurred a factory payroll of
$150,000, paid in cash, of which $40,000 was indirect labor. Minstrel uses a
predetermined overhead rate of 150% of direct labor cost. The total manufacturing costs
added during the period are:
A.$440,000.
B.$470,000.
C.$500,000.
D.$570,000.
E.$540,000.
9) Information from a manufacturing company’s current year income statement follows.
Calculate the company’s (a) profit margin ratio, (b) gross margin ratio, and (c) times
interest earned.
10) Which of the following prescribes the use of the less optimistic amount when more
than one estimate of an amount to be received or paid exists and the estimates are about
equally likely?
A.Full disclosure principle.
B.Consistency concept.
C.FIFO inventory valuation method.
D.Conservatism constraint.
E.Matching principle.
11) Zhang Industries sells a product for $700. Unit sales for May were 400 and each
month’s sales are expected to exceed the prior month’s results by 3%. Zhang pays a
sales manager a monthly salary of $3,000 and a commission of 2% of sales. Compute
the projected selling expense to be reported on the selling expense budget for the
manager for month ended June 30.
A.$8,600.
B.$11,652.
C.$8,652.
D.$5,768.
E.$8,768.
12) On July 1, Shady Creek Resort borrowed $250,000 cash by signing a 10-year, 8%
installment note requiring equal payments each June 30 of $37,258. What is the
appropriate journal entry to record the issuance of the note?
A.Debit Cash $250,000; debit Interest Expense $37,258; credit Notes Payable
$287,258.
B.Debit Notes Payable $250,000; credit Cash $250,000.
C.Debit Cash $37,258; credit Notes Payable $37,258.
D.Debit Cash $250,000; credit Notes Payable $250,000.
E.Debit Cash $287,258; credit Interest Payable $37,258; credit Notes Payable
$250,000.
13) On November 1, Alan Company signed a 120-day, 8% note payable, with a face
value of $9,000. Alan made the appropriate year-end accrual. What is the journal entry
as of March 1 to record the payment of the note assuming no reversing entry was made?
A.Debit Notes Payable $9,000; debit Interest Payable $120; credit Cash $9,120.
B.Debit Cash $9,240; credit Notes Payable $9,240.
C.Debit Notes Payable $9,240; credit Interest Payable $120; credit Interest Expense
$120; credit Cash $9,000.
D.Debit Notes Payable $9,000; debit Interest Payable $120; debit Interest Expense
$120; credit Cash $9,240.
E.Debit Notes Payable $9,000; debit Interest Expense $240; credit Cash $9,240.
14) Use the following information for Davis Company to compute inventory turnover
for 2015.
A.5.86
B.5.76
C.5.67
D.11.77
E.5.89
15) What are some of the variables that make a plant asset’s useful life difficult to
predict?
16) HH Consulting & Design provided $800 of consulting work and $100 of design
work to the same client. It billed the client for the total amount and is expecting to
collect from the customer next month. Which of the following general journal entries
will HH Consulting & Design make to record this transaction?
17) A department store has budgeted cost of goods sold for March of $60,000 for its
women’s shorts. Management wants to have $12,000 of shorts in inventory at the end of
the month to prepare for the summer season. Beginning inventory in March was $8,000.
What dollar amount of shorts should be purchased to meet the above plans?
18) On July 1, Ferguson Company sold merchandise in the amount of $5,800 to Tracey
Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000.
Ferguson uses the perpetual inventory system. On July 5, Tracey returns some of the
merchandise. The selling price of the merchandise is $500 and the cost of the
merchandise returned is $350. The entry or entries that Ferguson must make on July 5
is:
19) A machine costing $450,000 with a 4-year life and an estimated salvage value of
$30,000 is installed by Peters Company on January 1. The company estimates the
machine will produce 1,050,000 units of product during its life. It actually produces the
following units for the first 2 years: Year 1, 260,000; Year 2, 275,000. Enter the
depreciation amounts for years 1 and 2 in the table below for each depreciation method.
Show calculation of amounts below the table.
20) A _________________ cost changes in total in proportion to changes in the volume
of activity.
21) Calculate the ending inventory using FIFO for a company that uses a perpetual
inventory system, using the information given below.
