1) A lower discount rate produces a higher present value.
2) The more inventory a company has in stock, the greater the company’s profit.
3) A merchandiser has a merchandise purchases budget rather than a production budget.
4) The Sales Returns and Allowances account and the Sales Discount account are both
classified as expense accounts.
5) The adjusting entry at the end of the period to record an expired cost may be different
depending on whether the cost was initially recorded as an asset or an expense.
6) Short-term receivables are reported in the current assets section before temporary
investments.
7) Sales minus operating expenses equals gross profit.
8) Rework costs typically increase in just-in-time processing.
9) Accounts receivable are the result of cash and credit sales.
10) A stockholder has the right to vote in the election of the board of directors.
11) The rate of interest is generally stated at an annual rate.
12) When raw materials are purchased, the Work in Process Inventory account is
debited.
13) Notes payable usually require the borrower to pay interest.
14) A reason some companies purchase investments is because they generate a
significant portion of their earnings from investment income.
15) A target net income is calculated by taking actual sales minus the margin of safety.
16) The time period assumption states that
a.a transaction can only affect one period of time
b.estimates should not be made if a transaction affects more than one time period
c.adjustments to the company’s accounts can only be made in the time period when the
business terminates its operations
d.the economic life of a business can be divided into artificial time periods
17) Each of the following is used in preparing the partners capital statement except the
a.balance sheet
b.income statement
c.partners capital accounts
d.partners drawing accounts
18) Mary Chain Investments purchased an 18-month insurance policy on May 31, 2014
for $3,600. The December 31, 2014 balance sheet would report Prepaid Insurance of
a.$0 because Prepaid Insurance is reported on the Income Statement
b.$1,400
c.$2,200
d.$3,600
19) In the Augie Company, sales were $750,000, sales returns and allowances were
$30,000, and cost of goods sold was $450,000. The gross profit rate was
a.36%
b.37.5%
c.40%
d.41.7%
20) Claims for which formal instruments of credit are issued as proof of the debt are
a.accounts receivable
b.interest receivable
c.notes receivable
d.other receivables
21) Sources of increases to owner’s equity are
a.additional investments by owners
b.purchases of merchandise
c.withdrawals by the owner
d.expenses
22) On May 1, 2014, Pinkley Company sells office furniture for $300,000 cash. The
office furniture originally cost $750,000 when purchased on January 1, 2007 .
Depreciation is recorded by the straight-line method over 10 years with a salvage value
of $75,000. What gain should be recognized on the sale?
a.$22,500
b.$45,000
c.$47,500
d.$90,000
23) Mofros Computer Repair Shop started the year with total assets of $300,000 and
total liabilities of $200,000. During the year, the business recorded $500,000 in
computer repair revenues, $300,000 in expenses, and Mofro withdrew $50,000. Mofro’s
Owners Capital balance changed by what amount from the beginning of the year to the
end of the year?
a.$100,000
b.$150,000
c.$200,000
d.$250,000
24) An item is considered material if
a.it doesn’t cost a lot of money
b.it is of a tangible good
c.it is likely to influence the decision of an investor or creditor
d.the cost of reporting the item is greater than its benefits
25) Post-retirement benefits consist of payments by employers to retired employees for
a.health care and life insurance only
b.health care and pensions only
c.life insurance and pensions only
d.health care, life insurance, and pensions
26) Budgeting is usually most closely associated with which management function?
a.Planning
b.Directing
c.Motivating
d.Controlling
27) All of the following would involve a debit memorandum except
a.a bank service charge
b.an NSF check
c.the cost of printing checks
d.interest earned
28) An error in the physical count of goods on hand at the end of the current period
resulted in a $2,500 understatement of the ending inventory. The effect of this error in
the current period is to:
a.overstate gross profit
b.overstate net income
c.understate cost of goods available for sale
d.overstate cost of goods sold
29) Job cost sheets for Bissell Manufacturing are as follows:
Job No 210Quantity1,600
Manufacturing
DateDirect MaterialsDirect Labor Overhead
July17,5008,00012,800
88,500
1012,000
156,000
2516,000
Job No 211Quantity1,200
Manufacturing
DateDirect MaterialsDirect Labor Overhead
July14,8006,0009,600
109,000
159,600
207,200
2712,400
Instructions
(a)Answer the following questions.
1>What was the balance in Work in Process Inventory on July 1 if these were the only
unfinished jobs?
2>What was the predetermined overhead rate in June if overhead was applied on the
basis of direct labor cost?
3>If July is the start of a new fiscal year and the overhead rate is 25% higher than in the
preceding year, how much overhead should be applied to Job 210 in July?
4>Assuming Job 210 is complete, what is the total and unit cost of the job?
5>Assuming Job 211 is the only unfinished job at July 31, what is the balance in Work
in Process Inventory on this date?
(b)Journalize the summary entries to record the assignment of costs to the jobs in July.
(Note: Make one entry in total for each manufacturing cost element.)
30) Units-of-activity is an appropriate depreciation method to use when
a.it is impossible to determine the productivity of the asset
b.the asset’s use will be constant over its useful life
c.the productivity of the asset varies significantly from one period to another
d.the company is a manufacturing company
31) Which of the following is not considered a benefit of JIT processing?
a.More efficient production because all raw materials are delivered to one central
receiving warehouse
b.Product quality is enhanced through a total quality control system
c.Rework costs and inventory storage costs should be reduced or eliminated
d.Manufacturing inventories are significantly reduced
32) Which of the following is true with regard to budgeting vs. long-range planning?
a.Budgeting is oriented more toward short-term goals; long-range planning toward
long-term goals
b.Both tend to be very detailed
c.The maximum length for both usually is a year, with shorter periods of time also
common
d.They are the same in all significant aspects
33) Bonds that may be exchanged for common stock at the option of the bondholders
are called
a.options
b.stock bonds
c.convertible bonds
d.callable bonds
34) The Sales Returns and Allowances account does not provide information to
management about
a.possible inferior merchandise
b.the percentage of credit sales versus cash sales
c.inefficiencies in filling orders
d.errors in overbilling customers
35) Ethics are the standards of conduct by which one’s actions are judged as
a.right or wrong
b.honest or dishonest
c.fair or unfair
d.all of these answer choices are correct
36) Geneva Supply bought equipment at a cost of $94,000 on January 1, 2012 . It
originally had an estimated life of five years and a salvage value of $8,000. Carson uses
the straight-line depreciation method. On January 1, 2016, Carson decided the useful
life likely would end on December 31, 2019, with a salvage value of $6,000. The
depreciation expense recorded in 2016 should be:
a.$9,100
b.$8,400
c.$4,800
d.$6,300
37) All of the following items would be reported as other expenses and losses except
a.freight-out
b.casualty losses
c.interest expense
d.loss from employees’ strikes
38) A credit to a liability account
a.indicates an increase in the amount owed to creditors
b.indicates a decrease in the amount owed to creditors
c.is an error
d.must be accompanied by a debit to an asset account
39) Hal Corp. prepared the following income statement using the cash basis of
accounting:
HAL CORP.
Income Statement, Cash Basis
For the Year Ended December 31, 2014
Service revenue (does not include $25,000 of services rendered on account
because the collection will not be until 2015)$370,000
Expenses (does not include $15,000 of expenses on account because
payment will not be made until 2015) 220,000
Net income$150,000
Additional data:
1>Depreciation on a company automobile for the year amounted to $6,000. This
amount is not included in the expenses above.
2>On January 1, 2014, paid for a two-year insurance policy on the automobile
amounting to $1,800. This amount is included in the expenses above.
Instructions
(a)Recast the above income statement on the accrual basis in conformity with generally
accepted accounting principles. Show computations and explain each change.
(b)Explain which basis (cash or accrual) provides a better measure of income.
40) The per-unit standards for direct labor are 1.5 direct labor hours at $15 per hour. If
in producing 2,300 units, the actual direct labor cost was $46,000 for 3,000 direct labor
hours worked, the total direct labor variance is
a.$2,300 unfavorable
b.$5,750 favorable
c.$6,750 unfavorable
d.$5,750 unfavorable
41) A weakness of the current ratio is
a.the difficulty of the calculation
b.that it doesn’t take into account the composition of the current assets
c.that it is rarely used by sophisticated analysts
d.that it can be expressed as a percentage, as a rate, or as a proportion
42) Leno joins the partnership of Kingsley and Mccaffrey by paying $95,000 in cash. If
the net assets of the partnership are still the same amount after Leno has been admitted
as a partner, then Leno
a.must have been admitted by investment of assets
b.must have been admitted by purchase of a partner’s interest
c.must have received a bonus upon being admitted
d.could have been admitted by an investment of assets or by a purchase of a partner’s
interest
43) The ledger of Kegan Company has the following work in process account.
Production records show that there were 800 units in the beginning inventory, 30%
complete, 2,800 units started, and 3,100 units transferred. The beginning work in
process had materials cost of $3,060 and conversion costs of $2,330. The units in
ending inventory were 40% complete. Materials are entered at the beginning of the
painting process.
Instructions
(a)How many units are in process at May 31?
(b)What is the unit materials cost for May?
(c)What is the unit conversion cost for May?
(d)What is the total cost of units transferred out in May?
(e)What is the cost of the May 31 inventory?
44) Under IFRS, income statement items are generally described as
a.administration, distribution, manufacturing, etc
b.salaries, depreciation, utilities, etc
c.administration, depreciation, manufacturing, etc
d.salaries, distribution, utilities, etc
45) If Donna Bradford invests $21,029.40 now and she will receive $60,000 at the end
of 11 years, what annual rate of compound interest will she be earning on her
investment?
a.8%
b.8.5%
c.9%
d.10%
46) To which function of management is CVP analysis most applicable?
a.Planning
b.Motivating
c.Directing
d.Controlling
47) Assume the following cost of goods sold data for a company:
2014$1,704,000
20131,400,000
20121,200,000
If 2012 is the base year, what is the percentage increase in cost of goods sold from 2012
to 2014?
a.70.4%
b.42%
c.85.7%
d.117%
48) The following items are taken from the financial statements of the Postal Service
for the year ending December 31, 2014:
Accounts payable$ 18,000
Accounts receivable11,000
Accumulated depreciation equipment28,000
Advertising expense21,000
Cash15,000
Owners capital (1/1/14)102,000
Owners drawings14,000
Depreciation expense12,000
Insurance expense3,000
Note payable, due 6/30/1570,000
Prepaid insurance (12-month policy)6,000
Rent expense17,000
Salaries and wages expense32,000
Service revenue133,000
Supplies4,000
Supplies expense6,000
Equipment210,000
What are total current liabilities at December 31, 2014?
a.$18,000
b.$70,000
c.$88,000
d.$120,000
49) A credit sale of $4,000 is made on April 25, terms 2/10, n/30, on which a return of
$250 is granted on April 28. What amount is received as payment in full on May 4?
a.$3,675
b.$3,750
c.$3,920
d$4,000
50) Which of the following statements related to the adjusted trial balance is incorrect?
a.Financial statements can be prepared directly from the adjusted trial balance
b.It shows the balances of all accounts at the end of the accounting period
c.It proves the equality of the total debit balances and the total credit balances in the
ledger
d.It is prepared before adjusting entries have been made
51) The recording process occurs
a.once a year
b.once a month
c.repeatedly during the accounting period
d.infrequently in a manual accounting system
52) What is work in process inventory generally described as?
a.Costs applicable to units that have been started in production but are only partially
completed
b.Costs associated with the end stage of manufacturing that are almost always complete
and ready for customers
c.Costs strictly associated with direct labor
d.Beginning stage production costs associated with labor costs dealing with bringing in
raw materials from the shipping docks
53) The income statement and balance sheet columns of Iron and Wine Company’s
worksheet reflect the following totals:
Income Statement Balance Sheet
Dr. Cr. Dr. Cr.
Totals$72,000$48,000$60,000$84,000
To enter the net income (or loss) for the period into the above worksheet requires an
entry to the
a.income statement debit column and the balance sheet credit column
b.income statement credit column and the balance sheet debit column
c.income statement debit column and the income statement credit column
d.balance sheet debit column and the balance sheet credit column
54) Bird Manufacturing decided to analyze certain costs for June of the current year.
Units started into production equaled 14,000 and ending work in process equaled 2,000
units. With no beginning work in process inventory, how much is the conversion cost
per unit if ending work in process was 25% complete and total conversion costs equaled
$35,000?
a.$2.19
b.$8.75
c.$2.80
d.$1.40
55) The standard unit cost is used in the calculation of which of the following
variances?
Materials Price VarianceMaterials Quantity Variance
a.NoNo
b.NoYes
c.YesNo
d.YesYes
56) The ______________ assumption divides the economic life of a business into
artificial time periods.
57) Southern Skies Co. had beginning capital balances on January 1, 2014, as follows:
Patty Sharp $30,000 and Jim OConnor $25,000. During the year, drawings were Sharp
$15,000 and OConnor $8,000. Net income was $40,000, and the partners share income
equally.
Instructions
Prepare the partners capital statement for the year.
58) Rowdy Manufacturing Company incurs the following manufacturing costs and
expenses during the month of May.
1>Assembly line wages
2>Raw materials used directly in product
3>Depreciation on office equipment
4>Property taxes on factory building
5>Rent on factory building
6>Sales commissions
7>Depreciation on factory equipment
8>Factory utilities
9>Wages for factory maintenance workers
10>Advertising
11>Indirect materials used in production
12>Factory manager’s salary
Instructions
Complete the following matrix by placing an X mark under the appropriate headings.
Direct DirectManufacturingPeriod
Cost ItemMaterialsLabor OverheadCosts
1>
2>
3>
4>
5>
6>
7>
8>
9>
10>
11>
12>
59) On July 1, 2014, Jeffrey Underwriters Associates received $8,000 from a client for
a 2-year insurance policy.
Instructions
Prepare the necessary journal entries for Jeffrey Underwriters Associates on July 1 and
December 31 .
60) Below is a list of important abbreviations widely used in business. For each
abbreviation give the full designation.
1>CPA
2>IRS
3>FBI
4>FASB
5>GAAP
6>SEC
61) Delta Manufacturing has budgeted the following unit sales:
2012 Units
April25,000
May40,000
June60,000
July45,000
Of the units budgeted, 40% are sold by the Coastal Division at an average price of $15
per unit and the remainder are sold by the Central Division at an average price of $12
per unit.
Instructions
Prepare separate sales budgets for each division and for the company in total for the
second quarter of 2013 .
62) Destino Manufacturing Company manufactures two products, (1) Regular and (2)
Deluxe. The budgeted units to be produced are as follows:
Units of Product
2014Regular Deluxe Total
July10,00015,00025,000
August6,00010,00016,000
September9,00014,00023,000
October8,00012,00020,000
It takes 3 pounds of direct materials to produce the Regular product and 5 pounds of
direct materials to produce the Deluxe product. It is the company’s policy to maintain an
inventory of direct materials on hand at the end of each month equal to 30% of the next
month’s production needs for the Regular product and 20% of the next month’s
production needs for the Deluxe product. Direct materials inventory on hand at June 30
were 8,000 pounds for the Regular product and 15,000 pounds for the Deluxe product.
The cost per pound of materials is $5 Regular and $8 Deluxe.
Instructions
Prepare separate direct materials budgets for each product for the third quarter of 2014 .
63) If the unit cost of inventory has continuously increased, the ______________,
first-out inventory valuation method will result in a higher valued ending inventory than
if the ______________, first-out method had been used.
64) Instructions: Nectarine Company uses the chart of accounts shown below. Use the
numbers preceding each account title to create journal entries for each situation.
Account titles may be used more than once, or not at all, and journal entries may have
two, three, or more lines.
Account Titles
1>Cash
2>Accounts Payable
3>Cash Dividends
4>Interest Revenue
5>Interest Payable
6>Bonds Payable
7>Interest Expense
8>Accounts Receivable
9>Common Stock
10>Premium on Bonds Payable
11>Gain on Bond Redemption
12>Loss on Bond Redemption
13>Paid-in Capital in Excess of Par Common Stock
14>Discount on Bonds Payable
SituationDebitCreditAmount
0>Nectarine sold merchandise for $1,500, receiving1$ 300
$300 in cash with the balance on account.81,200
31,500
1>Nectarine issued $400,000 face amount of 12% bonds payable on January 1, 2014 at
104 . The bonds were dated January 1, 2014, pay interest on July 1 and January 1, and
mature in five years.
2>Nectarine paid interest on the bonds described in #1 above on July 1, 2014 . The
premium on the bonds is amortized using the straight-line method.
3>Nectarine issued $200,000 face amount of six-year, 10% bonds payable on January
1, 2012, at 94 . Interest is payable annually on January 1 . Record the accrual of interest
on these bonds at December 31, 2014 using the straight-line method of amortization.
4>Nectarine redeemed the bonds described in #1 above at book value when the book
value was $409,600.
65) A finance company or bank that purchases receivables from businesses is known as
a ______________.