2) Lucia Company reported cost of goods sold for Year 1 and Year 2 as follows:
Lucia Company made two errors: 1) ending inventory at the end of Year 1 was
understated by $15,000 and 2) ending inventory at the end of Year 2 was overstated by
$6,000. Given this information, the correct cost of goods sold figure for Year 2 would
be:
A.$291,000
B.$276,000
C.$264,000
D.$285,000
E.$249,000
3) Barber and Atkins are partners in an accounting firm and share net income and loss
equally. Barber’s beginning partnership capital balance for the current year is $285,000,
and Atkins’ beginning partnership capital balance for the current year is $370,000. The
partnership had net income of $250,000 for the year. Barber withdrew $90,000 during
the year and Atkins withdrew $100,000. What is Atkins’s return on equity?
A.41.3%
B.43.9%
C.32.7%
D.33.8%
E.36.5%
4) Marks Corporation has two operating departments, Drilling and Grinding, and an
office. The three categories of office expenses are allocated to the two departments
using different allocation bases. The following information is available for the current
period:
The amount of the total office expenses that should be allocated to Grinding for the
current period is:
A.$35,750.
B.$45,000.
C.$54,250.
D.$90,000.
E.$600,000.
5) An approach that enters and processes data into the accounting system as soon as
source documents are available is called:
A.Date storage.
B.Batch processing.
C.Online processing.
D.Computer programming.
E.Web communications.
6) Budgets that are periodically revised and have new periods added to replace those
that have lapsed are called:
A.Production budgets.
B.Sales budgets.
C.Cash budgets.
D.Rolling budgets.
E.Capital expenditures budgets.
7) An employee earned $4,600 in February working for an employer. Cumulative
earnings of the previous pay periods are $4,800. The FICA tax rate for Social Security
is 6.2% and the FICA tax rate for Medicare is 1.45%. The current FUTA tax rate is
0.6%, and the SUTA tax rate is 4.4%. Both unemployment taxes are applied to the first
$7,000 of an employee’s pay. What is the amount the employer should record as payroll
taxes expense for the month of February?
A.$581.90
B.$110.00
C.$351.90
D.$461.90
E.$230.00
8) Markson Company had the following results of operations for the past year:
A foreign company whose sales will not affect Markson’s market offers to buy 2,000
units at $14 per unit. In addition to variable manufacturing costs, selling these units
would increase fixed overhead by $1,600 for the purchase of special tools. If Markson
accepts this additional business, its profits will:
A.Increase by $3,500.
B.Decrease by $5,650.
C.Decrease by $1,600.
D.Increase by $1,900.
E.Decrease by $5,100.
9) Ultimo Co. operates three production departments as profit centers. The following
information is available for its most recent year. Which department has the greatest
departmental contribution to overhead and what is the amount contributed?
A.Dept. 3; $400,000.
B.Dept. 1; $1,000,000.
C.Dept. 2; $100,000.
D.Dept. 3; $250,000.
E.Dept. 2; $150,000.
10) Beckman Enterprises purchased a depreciable asset on October 1, Year 1 at a cost of
$100,000. The asset is expected to have a salvage value of $20,000 at the end of its
five-year useful life. If the asset is depreciated on the double-declining-balance method,
the asset’s book value on December 31, Year 2 will be:
A.$36,000
B.$42,000
C.$54,000
D.$16,000
E.$90,000
11) Gracey’s Department Stores has $200,000 of 6% noncumulative, nonparticipating,
preferred stock outstanding. Gracey’s also has $600,000 of common stock outstanding.
During its first year, the company paid cash dividends of $30,000. This dividend should
be distributed as follows:
A.$15,000 preferred; $15,000 common.
B.$6,000 preferred; $24,000 common.
C.$30,000 preferred; $0 common.
D.$12,000 preferred; $18,000 common.
E.$0 preferred; $30,000 common.
12) A corporation issued 100 shares of its $5 par value common stock in payment of a
$1,800 charge from its accountant for assistance in filing its charter with the state. The
entry to record this transaction will include:
A.A $1,800 credit to Common Stock.
B.A $300 debit to Organization Expenses.
C.A $1,300 credit to Paid-in Capital in Excess of Par Value, Common Stock.
D.A $1,800 debit to Legal Expenses.
E.A $1,800 credit to Cash.
13) Briefly describe the procedure of management by exception.
14) Patrick Randall of Sports Supplies finds that maintaining appropriate levels of
inventories while controlling costs is a major challenge. What are the challenges Patrick
refers to?
15) _____________________ are the part of the accounting information system that
interprets, transforms, and summarizes information for use in analysis and reporting.
16) Prepare journal entries to record the following merchandising transactions of
Margin Company, which applies the perpetual inventory system. Margin Company
offers all of its credit customers credit terms of 2/10, n/30.
17) Explain the steps involved in the liquidation of a partnership.
18) A main purpose of the statement of cash flows is to report all the major cash
________ and cash _______________.
19) A company’s income before interest expense and income taxes in 2014 and 2015 is
$487,500 and $427,000, respectively. Its fixed interest expense was $125,000 for both
years. Calculate the company’s times interest earned ratio, and comment on its level of
risk.
20) For each of the following items, indicate whether it would be classified as an (O)
operating activity, an (I) investing activity, a (F) financing activity, or a significant (N)
noncash financing and investing activity.
__________ (1) Received cash dividends from investments in trading securities.
__________ (2) Collected accounts receivable from customers.
__________ (3) Issued bonds payable for cash.
__________ (4) Paid wages to employees.
__________ (5) Issued stock for cash.
__________ (6) Sold equipment for cash.
__________ (7) Purchased land in exchange for a note payable.
__________ (8) Paid cash dividends.
__________ (9) Received interest from investments in trading securities.
_________ (10) Purchases of land for cash.