1) An unfavorable materials quantity variance would occur if
a.more materials were purchased than were used
b.actual pounds of materials used were less than the standard pounds allowed
c.actual labor hours used were greater than the standard labor hours allowed
d.actual pounds of materials used were greater than the standard pounds allowed
2) All revenue and expense items are considered ordinary in nature under
a.both IFRS and GAAP
b.GAAP
c.IFRS
d.neither IFRS or GAAP
3) Selected data from a February payroll register for Ginn Company are presented
below. Some amounts are intentionally omitted.
Gross earnings:
Regular$22,200State income taxes $(3)
Overtime (1) Union dues 200
Total (2) Total deductions (4)
Deductions:Net pay$19,931
FICA taxes$1,989Accounts debited:
Federal income taxes 2,840Salaries/wages expense (5)
FICA taxes are 7.65%. State income taxes are 4% of gross earnings.
Instructions
(a)Fill in the missing amounts.
(b)Journalize the February payroll and the payment of the payroll.
4) At the break-even point,
a.sales equal total variable costs
b.contribution margin equals total variable costs
c.contribution margin equals total fixed costs
d.sales equal total fixed costs
5) Dailey Company does not ring up sales taxes separately on the cash register. Total
receipts for February amounted to $48,150. If the sales tax rate is 7%, what amount
must be remitted to the state for February’s sales taxes?
a.$3,371
b.$3,150
c.$4,815
d.It cannot be determined
6) Watson Industries uses flexible budgets. At normal capacity of 18,000 units,
budgeted manufacturing overhead is $128,000 variable and $360,000 fixed. If Watson
had actual overhead costs of $498,000 for 18,000 units produced, what is the difference
between actual and budgeted costs?
a.$4,000 unfavorable
b.$4,000 favorable
c.$10,000 unfavorable
d.$16,000 favorable
7) GAAP, compared to IFRS, tends to be more
a.simple in accounting requirements
b.rules-based
c.principles-based
d.simple in disclosure requirements
8) Bay Company acquires 60, 8%, 5 year, $1,000 Community bonds on January 1, 2014
for $60,000.
If Bay sells all of its Community bonds for $64,500, what gain or loss is recognized?
a.Loss of $9,300
b.Loss of $4,500
c.Gain of $9,300
d.Gain of $4,500
9) A service proprietorship shows five transactions summarized below. The effect of
each transaction on the accounting equation is shown, and also the new balance of each
item in the equation. For each transaction (a) to (e) write an explanation of the nature of
the transaction.
AccountsEquip-AccountsOwners
Cash+Rec.+ment+Land+Building=Payable+Capital
$5,000$6,500$10,000$7,500$50,000$3,000$76,000
a)2,0002,000
3,0006,50010,0007,50050,0001,00076,000
b)+1,000 1,000
4,0005,50010,0007,50050,0001,00076,000
c)+ 5,000+5,000
4,0005,50015,0007,50050,0006,00076,000
d)+2,500+ 2,500
6,5005,50015,0007,50050,0006,00078,500
e)+3,000+ 3,000
$6,500$8,500$15,000$7,500$50,000$6,000$81,500
10) Which of the following does not appear as a separate section on the cash budget?
a.Cash receipts
b.Cash disbursements
c.Capital expenditures
d.Financing
11) Which one of the following is shown first under current liabilities by many
companies as a matter of custom?
a.Accrued expenses
b.Current maturities of long-term debt
c.Sales taxes payable
d.Notes payable
12) The starting point in preparing a master budget is the preparation of the
a.production budget
b.sales budget
c.purchasing budget
d.personnel budget
13) In the month of June, Nadine’s Beauty Salon gave 2,500 haircuts, shampoos, and
permanents at an average price of $40. During the month, fixed costs were $18,000 and
variable costs were 70% of sales.
Instructions
(a)Determine the contribution margin in dollars, per unit, and as a ratio.
(b)Using the contribution margin technique, compute the break-even point in dollars
and in units.
(c)Compute the margin of safety dollars and as a ratio.
14) The concept of an “artificial being” refers to which form of business organization?
a.Partnership
b.Sole proprietorship
c.Corporation
d.Limited partnership
15) In calculating cash flows from operating activities using the indirect method, a gain
on the sale of equipment is
a.added to net income
b.deducted from net income
c.ignored because it does not affect cash
d.not reported on a statement of cash flows
16) Which of the following statements is false?
a.The overhead volume variance indicates whether plant facilities were used efficiently
during the period
b.The costs that cause the overhead volume variance are usually controllable costs
c.The overhead volume variance relates solely to fixed costs
d.The overhead volume variance is favorable if standard hours allowed for output are
greater than the standard hours at normal capacity
17) In a process cost system, product costs are summarized:
a.on job cost sheets
b.on production cost reports
c.after each unit is produced
d.when the products are sold
18) In liquidation, balances prior to the distribution of cash to the partners are: Cash
$765,000; Peterson, Capital $420,000; Laney, Capital $390,000, and Howell, Capital
$45,000 deficiency. The income ratio is 6:2:2, respectively. How much cash should be
distributed to Laney if Howell does not pay his deficiency?
a.$367,000
b.$378,750
c.$356,250
d.$390,000
19) Lewis Corporation experienced a fire on December 31, 2015, in which its financial
records were partially destroyed. It has been able to salvage some of the records and has
ascertained the following balances.
December 31, 2015December 31, 2014
Cash$ 30,000$ 10,000
Receivables (net)85,000125,000
Inventory200,000180,000
Accounts payable50,00090,000
Notes payable30,00060,000
Common stock, $100 par400,000400,000
Retained earnings130,000101,000
Additional information:
1>The inventory turnover is 4 times
2>The return on common stockholders’ equity is 20%. The company had no additional
paid-in capital.
3>The accounts receivable turnover is 8.6 times.
4>The return on assets is 16%.
5>Total assets at December 31, 2014, were $685,000.
Instructions
Compute the following for Lewis Corporation.
(a)Cost of goods sold for 2015 .
(b)Net sales (credit) for 2015 .
(c)Net income for 2015 .
(d)Total assets at December 31, 2015 .
20) The net income (or loss) for the period
a.is found by computing the difference between the income statement credit column and
the balance sheet credit column on the worksheet
b.cannot be found on the worksheet
c.is found by computing the difference between the income statement columns of the
worksheet
d.is found by computing the difference between the trial balance totals and the adjusted
trial balance totals
21) Colton Company has the following equivalent units for July: materials 20,000 and
conversion 18,000. Production cost data are:
MaterialsConversion
Work in process, July 1$ 4,800$ 900
Costs added in July37,80031,500
The unit production costs for July are:
MaterialsConversion Costs
a.$1.89$1.80
b.2.131.75
c.1.891.75
d.2.13$1.80
22) Troy Company is considering a capital investment of $800,000 in new equipment. It
is expected to have a useful life of 10 years with no salvage value. Depreciation is by
the straight-line method. During the life of the investment, annual net income and cash
inflows are expected to be $45,000 and $125,000, respectively. Troy requires either a
12% cost of capital “hurdle” rate, or a payback period of 6 years.
Instructions: Compute the (a) annual rate of return, (b) cash payback period, (c) net
present value, and (d) internal rate of return. Show all computations. State whether the
project should be accepted or rejected for each of the four capital budgeting techniques.
Present Value of a Series of Future Payments
(n)
Periods5%6%8%9%10%11%12%15%
107.721737.360096.710086.417666.144575.889235.650225.01877
1>Annual Rate of Return = _____________________.
2>Payback = _____________________.
3>Net Present Value = _____________________.
4>Internal Rate of Return = _______________________.
(to the nearest %)
23) Financial information is presented below:
Operating Expenses$ 90,000
Sales Returns and Allowances18,000
Sales Discounts12,000
Sales Revenue320,000
Cost of Goods Sold174,000
The gross profit rate would be
a..363
b..400
c..456
d..503
24) Using the net present value method, the total present value of cash inflows for
Project A is $30,000 and the total present value of cash inflows of Project B is $35,000.
If Project A and Project B both require an initial investment of $30,000 and have the
same economic life, the project that should be accepted is
a.Project A
b.Project B
c.neither; they are both the same
d.not capable of being calculated
25) Valerta Company used the net present value method and determined that project 34
had a zero net present value. What does this tell management about the project?
a.The return from this project is equal to the cost of capital
b.The project guarantees company profitability
c.The project’s cash inflows will equal its cash outflows
d.The project earns the company’s desired minimum rate of return
26) Using $2,380,000 as the cost of goods manufactured, compute the cost of goods
sold using the following information.
Raw materials inventory, January 1$ 20,000
Raw materials inventory, December 3140,000
Work in process, January 122,000
Work in process, December 3128,000
Finished goods, January 142,000
Finished goods, December 3130,000
Raw materials purchases1,200,000
Direct labor560,000
Factory utilities160,000
Indirect labor90,000
Factory depreciation400,000
Operating expenses420,000
a.$2,422,000
b.$2,368,000
c.$2,392,000
d.$2,350,000
27) Revenues are
a.the cost of assets consumed during the period
b.gross increases in owner’s equity resulting from business activities
c.the cost of services used during the period
d.actual or expected cash outflows
28) The indirect and direct methods of preparing the statement of cash flows are
identical except for the
a.significant noncash activity section
b.operating activities section
c.investing activities section
d.financing activities section
29) The adjusted trial balance for Otam Corp. at the end of the current year, 2014,
contained the following accounts.
5-year Bonds Payable 8%$1,500,000
Interest Payable50,000
Premium on Bonds Payable150,000
Notes Payable (3 mo.)40,000
Notes Payable (5 yr.)145,000
Mortgage Payable ($10,000 due currently)300,000
Salaries and Wages Payable18,000
Taxes Payable (due 3/15 of 2015)25,000
The total long-term liabilities reported on the balance sheet are
a.$1,945,000
b.$1,935,000
c.$2,095,000
d.$2,085,000
30) Which of the following is the correct sequence of steps in the recording process?
a.Posting, journalizing, analyzing
b.Journalizing, analyzing, posting
c.Analyzing, posting, journalizing
d.Analyzing, journalizing, posting
31) If a company records merchandise it returns to suppliers in the general journal, then
a.a posting must be made only to the accounts payable control account
b.a posting must be made only to the accounts payable subsidiary ledger account
c.a dual posting must be made
d.there will be a debit to Inventory
32) A company just starting business purchased three inventory items at the following
prices: first purchase $780; second purchase $750; third purchase $710. If two items
were sold during the period and the company used the LIFO costing method, the gross
profit for the period would be how much greater or less than if the FIFO costing method
had been used?
a.Gross profit would be $30 greater
b.Gross profit would be $70 greater
c.Gross profit would be the same
d.Gross profit would be $70 less
33) Ryden Company’s activity for the first three months of 2014 are as follows:
Machine HoursElectrical Cost
January2,100$3,600
February2,600$4,350
March2,900$5,000
Using the high-low method, how much is the cost per machine hour?
a.$1.75
b.$2.17
c.$1.72
d.$1.50
34) The sale of bonds above face value
a.is a rare occurrence
b.will cause the total cost of borrowing to be less than the bond interest paid
c.will cause the total cost of borrowing to be more than the bond interest paid
d.will have no net effect on Interest Expense by the time the bonds mature
35) Limited liability is a characteristic of
a.a proprietorship
b.a partnership
c.a corporation
d.both partnerships and corporations
36) In an exchange of plant assets that has commercial substance, any difference
between the fair value and the book value of the old plant asset is
a.recorded as a gain or loss
b.recorded if a gain but is deferred if a loss
c.recorded if a loss but is deferred if a gain
d.deferred if either a gain or loss
37) Which of the following would not be classified a long-term liability?
a.Current maturities of long-term debt
b.Bonds payable
c.Mortgage payable
d.Lease liabilities
38) On January 1, 2014, Gene Corp. paid $800,000 for 100,000 shares of Onofine
Company’s common stock, which represents 30% of Onofines outstanding common
stock. Onofine reported net income of $200,000 and paid cash dividends of $60,000
during 2014 . Gene should report the investment in Onofine Company on its December
31, 2014, balance sheet at:
a.$800,000
b.$758,000
c.$818,000
d.$842,000
39) Hogan Enterprises reported cash flow from operations of $275,000. The company
made capital expenditures of $110,000 and paid dividends of $35,000.
Instructions
Compute free cash flow.
40) A _________________ is a formal written statement of management’s plans
expressed in financial terms.
41) Identify the factors that are considered in classifying an expenditure as a capital or a
revenue expenditure. Are there instances where it may be difficult to classify an
expenditure as one or the other (e.g., the purchase of a wastebasket that has a useful life
of 5 years and cost $10)? What basis would be used in a decision?
42) Prepare the required end-of-period adjusting entries for each independent case listed
below.
Case 1
Sleater-Kinney Company began the year with a $3,000 balance in the Supplies account.
During the year, $8,500 worth of additional supplies were purchased. A physical count
of supplies on hand at the end of the year revealed that $7,400 worth of supplies had
been used during the year. No adjusting entry has been made until year end.
Case 2
Western Company has a calendar year-end accounting period. On July 1, the company
purchased equipment for $30,000. It is estimated that the equipment will depreciate
$300 each month. No adjusting entry has been made until year end.
Case 3
Ranch Realty is in the business of renting several apartment buildings and prepares
monthly financial statements. It has been determined that 3 tenants in $900 per month
apartments and one tenant in the $1,200 per month apartment had not paid their August
rent as of August 31st.
43) Compute the maturity date and the maturity value associated with each of the
following notes receivables.
1>A $15,000, 6%, 3-month note dated April 20.
Maturity date ___________, Maturity value $____________.
2>A $25,000, 8%, 72-day note dated June 10.
Maturity date ___________, Maturity value $____________.
3>An $8,000, 9%, 30-day note dated September 20.
Maturity date ___________, Maturity value $____________.
44) Accounts receivable arising from sales to customers amounted to $40,000 and
$55,000 at the beginning and end of the year, respectively. Income reported on the
income statement for the year was $180,000. Exclusive of the effect of other
adjustments, the cash flows from operating activities to be reported on the statement of
cash flows is
$180,000
$195,000
$220,000
$165,000
45) One part of eight adjusting entries is given below.
Instructions
Indicate the account title for the other part of each entry.
1>Unearned Service Revenue is debited.
2>Prepaid Rent is credited.
3>Accounts Receivable is debited.
4>Depreciation Expense is debited.
5>Salaries and Wages Expense is debited.
6>Interest Payable is credited.
7>Service Revenue is credited (give two possible debit accounts).
8>Supplies Expense is debited.