1) Enterprise resource planning software packages include the programs that manage a
company’s vital operations such as accounting, order taking, and manufacturing.
2) If an owner’s capital account had a $10,000 credit balance at the beginning of the
period, and during the period, the owner invests an additional $5,000, the balance in the
capital account listed on the trial balance will be equal to a debit balance of $5,000.
3) A company with a low level of liabilities in relation to stockholders’ equity is likely
to have a very high debt-to-equity ratio.
4) Kim Manufacturing purchased on credit £20,000 worth of parts from a British
company when the exchange rate was $1.66 per British pound. At the year-end balance
sheet date the exchange rate increased to $1.69. Kim must record a gain of $600.
5) When direct labor and overhead enter the production process at different rates, it is
appropriate to use a conversion cost per equivalent unit.
6) Revenue expenditures are additional costs of plant assets that do not materially
increase the assets’ life or productive capabilities.
7) External users of accounting information make the strategic and operating decisions
of a company.
8) Internal users of the statement of cash flows often use cash flow information to plan
day-to-day operating activities and make long-term investment and financing decisions.
9) The effective interest method assigns a bond interest expense amount that increases
over the life of a premium bond.
10) In activity-based costing, costs are traced to individual activities and then allocated
to cost objects.
11) A company has net income of $130,500. Its net sales were $1,740,000 and its
average total assets were $2,750,000. Its profit margin equals 7.5%.
12) Partners’ withdrawals are debited to their separate withdrawals accounts.
13) The main limitation in using book value per share for stock valuation models is the
potential difference between recorded value and market value for both assets and
liabilities.
14) Money orders, cashier’s checks, and certified checks are all examples of cash.
15) The contract rate of interest is the rate that borrowers are willing to pay and lenders
are willing to accept for a particular bond and its risk level.
16) Smiles Entertainment had the following accounts and balances at December 31:
Using the information in the table, calculate the company’s reported net income for the
period.
A.$1,100.
B.$4,000.
C.$4,500.
D.$10,400.
E.$5,500.
17) Oddley Corp. uses a job order costing system. The following is selected information
pertaining to costs applied to jobs during the year:
Oddley Corp.’s predetermined overhead rate is 60% of direct labor cost. At the end of
the year, the company’s records show that $189,000 of factory overhead has been
incurred.
(a) Determine the amount of overapplied or underapplied overhead.
(b) Prepare the necessary journal entry to close the Factory Overhead account assuming
that any remaining balance is not material.
18) A department store has budgeted sales of 12,000 men’s suits in September.
Management wants to have 6,000 suits in inventory at the end of the month to prepare
for the winter season. Beginning inventory for September is expected to be 4,000 suits.
What is the dollar amount of the purchase of suits if each suit has a cost of $75.
A.$750,000.
B.$900,000.
C.$1,050,000.
D.$1,200,000.
E.$1,350,000.
19) Forman and Berry are forming a partnership. Forman will invest a building that
currently is being used by another business owned by Forman. The building has a
market value of $80,000. Also, the partnership will assume responsibility for a $20,000
note secured by a mortgage on that building. Berry will invest $50,000 cash. For the
partnership, the amounts to be recorded for the building and for Forman’s Capital
account are:
A.Building, $80,000 and Forman, Capital, $80,000.
B.Building, $60,000 and Forman, Capital, $60,000.
C.Building, $60,000 and Forman, Capital, $50,000.
D.Building, $80,000 and Forman, Capital, $60,000.
E.Building, $60,000 and Forman, Capital, $80,000.
20) A partially completed work sheet is shown below. The unadjusted trial balance
columns are complete. Complete the adjustments, adjusted trial balance, income
statement, and balance sheet and statement of owner’s equity columns.
Dustin CompanyWork Sheet For the year ended December 31
Account Unadjusted Trial Balance Adjustments Adjusted Trial Balance Income
Statement Balance Sheet and Statement of Owner’s Equity
Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit
Cash 40 40 40
Accounts receivable (a) 80 80 80
Prepaid insurance 25 (b) 10 15 15
Supplies 14 (c) 6 8 8
Office equipment 340 340 340
Accum. Depr., Office equipment 45 (d) 45 90 90
Accounts payable 57 57 57
Rent payable (e)30 30 30
21) Identify the accounts that would normally have balances in the credit column of a
business’s trial balance
A.Liabilities and expenses.
B.Assets and revenues.
C.Revenues and expenses.
D.Revenues and liabilities.
E.Withdrawals and liabilities.
22) Arkansana Inc. imports inventory from Costa Rica. Prepare the journal entries for
Arkansana to record the following transactions. Include any year-end adjustments.
23) On January 31, Ransom Company’s payroll register showed that its employers
earned $30,320 of office salaries and $82,750 of sales salaries. Withholdings from the
employees’ salaries include FICA Social Security taxes as the rate of 6.2%, FICA
Medicare taxes at the rate of 1.45%, $16,960 of federal income taxes, $3,350 of medical
insurance deductions (which represents 50% of the total cost of the employee medical
insurance), and $4,210 of 401(k) retirement contribution deductions. Ransom Company
pays the other 50% of the employee insurance cost and matches the employee 401(k)
contributions. Several employees earned more than $7,000 for the period which reduced
salaries subject to unemployment to $104,000. No employees exceeded the
FICA-Social Security taxable wage base.
1> Prepare the journal entry to record Ransom Company’s January 31 payroll expenses
and liabilities.
2> Prepare the journal entry to record Ransom Company’s employer payroll taxes
resulting from the January 31 payroll. Ransom’s merit rating reduces its state
unemployment (SUTA) to 4% of the first $7,000 paid each employee. The federal
unemployment tax (FUTA) rate is 0.6%.
3> Prepare the journal entry to record Ransom’s additional employee expenses.
24) Athena Company provides employee health insurance that costs $5,000 per month.
In addition, the company contributes an amount equal to 5% of the employees’
$120,000 gross salary to a retirement program. The entry to record the accrued benefits
for the month would include a:
A.Debit to Medical Insurance Payable $5,000.
B.Debit to Employee Retirement Program Payable $6,000.
C.Debit to Employee Benefits Expense $11,000.
D.Credit to Employee Benefits Expense $11,000.
E.Debit to Payroll Taxes Expense $11,000.
25) Nestor Company is considering the purchase of an asset for $100,000. It is expected
to produce the following net cash flows. The cash flows occur evenly throughout each
year.
Compute the payback period for this investment. (Round to two decimal places.)
A.2.85 years.
B.2.57 years.
C.3.00 years.
D.2.50 years.
E.3.62 years.
26) Hasham purchases inventory from overseas and incurs the following costs: the
merchandise cost is $80,000, credit terms 1/10, n/30, applicable only to the $80,000;
FOB shipping point freight charges are $2,500; insurance during transit is $300; and
import duties are $1,500. Hasham paid within the discount period. Compute the cost
that should be assigned to the inventory.
A.$83,500
B.$79,200
C.$81,700
D.$84,300
E.$81,000
27) A company paid $320,000 for equipment that was expected to last five years and to
have a salvage value of $40,000. During the third year of the equipment’s life, $39,000
cash was paid for replacement parts that were expected to increase productivity by 10%
each year. Prepare the journal entry to record the $39,000 cost incurred in the third year.
28) Vacation benefits are a type of _______________ liability.
29) When the maker of a note is unable or refuses to pay at maturity, the note is said to
be ___________________.
30) A company allows its customers to use bank credit cards to charge purchases. When
customers use the credit cards, the net amount is deposited in the company’s checking
account, less a 2.5% service charge. Assume that on April 13, the company sold
$20,000 worth of merchandise to customers who used credit cards. Prepare the
company’s journal entry to record the credit card sales for April 13 assuming the
company deposited the receipts that same day.
31) Marv’s Furniture and Fixtures produces seats for movie theaters. Listed below are
selected cost items for the seat production. Classify each cost as either fixed or variable,
and either a product or a period cost by placing an x in the appropriate boxes.
32) During the current year, a company exchanged an old truck costing $58,000 with
accumulated depreciation of $52,000 for a new truck. The new truck had a cash price of
$80,000 and the company received a $16,000 trade-in allowance on the old truck with
the balance of $64,000 paid in cash. Prepare the journal entry to record the exchange,
assuming the transaction lacked commercial substance.
33) A favorable variance for a cost means that when compared to the budget, the actual
cost is ____________________ than the budgeted cost.