1) It is acceptable to record cash received in advance of providing products or services
to revenue accounts.
2) Retained earnings are not part of the stockholders’ claims on the company’s net
assets.
3) Under the cash basis of accounting, no adjustments are made for prepaid, unearned,
and accrued items.
4) A company’s history indicates that 20% of its sales are for cash and the rest are on
credit. Collections on credit sales are 20% in the month of the sale, 50% in the next
month, and 30% the following month. Projected sales for January, February, and March
are $75,000, $92,000 and $60,000, respectively. The March expected cash receipts from
all current and prior credit sales are $80,500.
5) Equivalent units of production is an engineering term used to describe the process by
which one company attempts to manufacture units of a product that are equivalent to
the product manufactured by a competitor.
6) Liquidity refers to the availability of resources to meet short-term cash requirements.
7) The accounts payable ledger is used for storing transactions data regarding individual
customers.
8) Depreciation is the process of allocating the cost of a plant asset to expense in the
accounting periods benefiting from its use.
9) A merchandiser’s ability to pay its short-term obligations depends on many factors
including how quickly it sells its merchandise inventory.
10) A transaction that increases an asset and decreases a liability must also affect one or
more other accounts.
11) Factors that cause the bank statement balance for a checking account to be different
from the company’s checking account balance include: outstanding checks, deposits in
transit, deductions for bank fees, additions for interest, and errors.
12) In process cost accounting, all labor that is applied exclusively in a single
production department is considered to be direct labor.
13) Whether purchase costs are rising or falling, FIFO always will yield the highest
gross profit and net income.
14) Held-to-maturity securities are equity securities a company intends and is able to
hold until maturity.
15) The current ratio is calculated as current liabilities divided by current assets.
16) Stated value stock is par stock that is assigned a value per share by the corporation’s
board of directors.
17) An account used in the periodic inventory system that is not used in the perpetual
inventory system is
A.Merchandise Inventory
B.Sales
C.Sales Returns and Allowances
D.Accounts Payable
E.Purchases
18) The difference between a profit center and an investment center is
A.an investment center incurs costs, but does not directly generate revenues
B.an investment center incurs no costs but does generate revenues
C.an investment center is responsible for effectively using center assets
D.an investment center provides services to profit centers
E.There is no difference; investment center and profit center are synonymous
19) An asset’s book value is $36,000 on January 1, Year 6. The asset is being
depreciated $500 per month using the straight-line method. Assuming the asset is sold
on July 1, Year 7 for $25,000, the company should record:
A.Neither a gain or loss is recognized on this type of transaction
B.A gain on sale of $2,000
C.A loss on sale of $1,000
D.A gain on sale of $1,000
E.A loss on sale of $2,000
20) Which of the following factors is least likely to be considered in preparing a sales
budget?
A.Plant capacity
B.General economic and industry conditions
C.Past sales volume
D.The capital expenditures budget
E.Proposed selling expenses, such as advertising
21) Multiple-step income statements:
A.Are required by the FASB.
B.Contain more detail than a simple listing of revenues and expenses.
C.Are required for the perpetual inventory system.
D.List cost of goods sold as an operating expense.
22) An example of a transaction that must be disclosed as a noncash investing and
financing activity includes:
A.The retirement of debt by issuance of equity
B.The purchase of long-term assets financed by a cash down payment and a note
payable to the seller for the balance
C.The leasing of assets in a transaction that qualifies as a capital lease
D.The purchase of noncash assets in exchange for equity or debt securities
E.All of these
23) Baines Brothers manufactures and sells two products, A and Z in the ratio of 4:2.
Product A sells for $75; Z sells for $95. Variable costs for product A are $35; for Z $40.
Fixed costs are $418,500. Compute the break-even point in composite units.
A.1,748
B.1,468
C.1,550
D.1,395
E.1,270
24) On July 31, Beatrice Co. purchased 2,000 shares of SimmTech stock for $16,000.
The investment is classified as available-for-sale securities. On October 31, which is
Beatrice’s year-end, the stock had a fair value of $20,000. Beatrice should record a:
A.Credit to Unrealized Gain-Equity for $4,000
B.Credit to Market Adjustment – Available-for-Sale for $4,000
C.Credit to Investment Revenue for $4,000
D.Debit to Investment Revenue for $4,000
E.Debit to Unrealized Gain-Equity for $4,000
25) Based on the following information from Raptor Company’s balance sheet,
calculate the current ratio.
A..44
B.3.51
C.3.33
D.1.06
E.2.23
26) The unadjusted trial balance and the adjustment data for Harris Training Institute
are given below along with adjusting entry information. What is the impact of the
adjusting entries on the balance sheet? Show calculation for total assets, total liabilities,
and owner’s equity without the adjustments; show calculation for total assets, total
liabilities, and owner’s equity with the adjustments. Which one gives the most accurate
presentation of the balance sheet?
Additional information items:
a. The Prepaid Insurance account consists of a payment for a 1 year policy. An analysis
of the insurance invoice indicates that one half of the policy has expired by the end of
the December 31 year-end.
b. A cash payment for space sublet for 8 months was received on July 1 and was
credited to Unearned Rent.
c. Accrued interest expense on the note payable of $1,000 has been incurred but not
paid.
27) All of the following statements regarding manufacturing costs are True except:
A.Direct material costs that increase with production are called variable costs
B.The reporting of fixed and variable costs separately is not helpful to managers in
analyzing cost behavior
C.When overhead costs vary with production, they are called variable costs
D.When overhead costs don’t vary with production, they are called fixed overhead
E.Overhead can be both variable and fixed
28) Based on the adjusted trial balance shown below, prepare a classified balance sheet
for Focus Package Delivery.
$2,000 of the long-term note payable is due during the next year.
29) The Maxim Company acquired a building for $500,000. Maxim had the building
appraised, and found that the building was easily worth $575,000. The seller had paid
$300,000 for the building 6 years ago. Which accounting principle would require
Maxim to record the building on its records at $500,000?
A.Monetary unit assumption
B.Going-concern assumption
C.Cost principle
D.Business entity assumption
E.Revenue recognition principle
30) Which of the following is the usual final step in the accounting cycle?
A.Journalizing transactions
B.Preparing an adjusted trial balance
C.Preparing a post-closing trial balance
D.Preparing the financial statements
E.Preparing a work sheet
31) The document, also known as the check authorization, that is a checklist of steps
necessary for approving an invoice for recording and payment is the
A.Purchase requisition
B.Purchase order
C.Invoice
D.Receiving report
E.Invoice approval
32) Companies report the cost of stock options in the:
A.Statement of cash flows
B.Balance sheet
C.Statement of retained earnings
D.Income statement
E.No disclosure is required
33) Brewer Company specializes in selling used cars. During the month, the dealership
sold 22 cars at an average price of $15,000 each. The budget for the month was to sell
20 cars at an average price of $16,000. Compute the dealership’s sales volume variance
for the month.
A.$22,000 unfavorable
B.$10,000 favorable
C.$22,000 favorable
D.$32,000 unfavorable
E.$32,000 favorable
34) On June 30 Apricot Co. paid $7,500 cash for management services to be performed
over a two-year period. Apricot follows a policy of recording all prepaid expenses to
asset accounts at the time of cash payment. On June 30 Apricot should record:
A.A credit to an expense for $7,500
B.A debit to an expense for $7,500
C.A debit to a prepaid expense for $7,500
D.A credit to a prepaid expense for $7,500
E.A debit to Cash for $7,500
35) Treasury stock is classified as:
A.An asset account
B.A contra asset account
C.A revenue account
D.A contra equity account
E.A liability account
36) A merit rating:
A.Is assigned by the state
B.Reflects a company’s stability or instability in employing workers
C.Adjusts the employer’s SUTA tax rate
D.Affects state unemployment taxes paid by an employer
E.All of these
37) The salaries of employees who spend all their time working in one department are:
A.Variable expenses
B.Indirect expenses
C.Direct expenses
D.Responsibility expenses
E.Unavoidable expenses
38) Cabot Company collected the following data regarding production of one of its
products. Compute the variable overhead spending variance.
A.$18,300 favorable
B.$18,000 favorable
C.$18,000 unfavorable
D.$18,300 unfavorable
E.$14,300 unfavorable
39) A financial statement providing information that helps users understand a
company’s financial status, and which lists the types and amounts of assets, liabilities,
and equity as of a specific date, is called a(n):
A.Balance sheet
B.Income statement
C.Statement of cash flows
D.Statement of owner’s equity
E.Financial Status Statement
40) Kyle, Inc. has collected the following data on one of its products. The direct
materials price variance is:
A.$13,750 unfavorable
B.$16,250 unfavorable
C.$16,250 favorable
D.$30,000 unfavorable
E.$33,000 favorable
41) A perpetual record of a raw materials item that records data on the quantity and cost
of units purchased, units issued for use in production, and units that remain in the raw
materials inventory, is called a(n):
A.Materials ledger card
B.Materials requisition
C.Purchase order
D.Materials voucher
E.Purchase ledger
42) A job order production system would be appropriate for a company that produces
which one of the following items?
A.A landscaping design for a new hospital
B.Seedlings for sale in a nursery
C.Sacks of yard fertilizer
D.Packets of flower seeds
E.Small gardening tools, including rakes, shovels, and hoes
43) When factory payroll is assigned to specific jobs, ______________________ is
debited.
44) Josephine’s Bakery had the following assets and liabilities at the beginning and end
of the current year:
If Josephine invested an additional $12,000 in the business and withdrew $5,000 during
the year, what was the amount of net income earned by Josephine’s Bakery?
45) An _______________________ is a listing of all of the accounts in the ledger with
their account balances after adjustments are made.
46) Identify the items that are included in merchandise inventory. (In your answer
address the special situations of goods in transit, consigned goods, and damaged goods.)
47) An ________________________________ is an obligation requiring a series of
payments to the lender.
48) _______________ bonds have specific assets of the issuing company pledged as
collateral.
49) _____________________ depreciation uses a depreciation rate that is a multiple of
the straight-line rate and applies it to an asset’s beginning-of-period book value.
50) Legacy Company is considering the production and sale of a new product with the
following sales and cost data: unit sales price $18; unit variable costs $8.10; and total
fixed costs of $8,250. Legacy is subject to a 25% tax rate. Determine the dollar sales
needed to generate an after-tax income of $33,000.