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1) Activity-based costing (ABC) eliminates arbitrary assignments of overhead.
2) The starting point for determining the causes of an unfavorable materials price
variance is the purchasing department.
3) A static budget is most useful for evaluating a manager's performance in controlling
variable costs.
4) Closing the drawings account to Owners Capital is not necessary if net income is
greater than owner's drawings during the period.
5) Budgets are statements of management's plans stated in financial terms.
6) The activity level is represented by an activity index such as direct labor hours, units
of output, or sales dollars.
7) A privately held corporation does not offer its stock for sale to the general public.
8) Accountants rely on a fundamental business conceptethical behaviorin reporting
financial information.
9) A production budget should be prepared before the sales budget.
10) Recognition of depreciation permits the accumulation of cash for the replacement
of the asset.
11) The Accumulated Depletion account is deducted from the cost of the natural
resource in the balance sheet.
12) When the volume of transactions is large, recording them in tabular form is more
efficient than using journals and ledgers.
13) Ted Leo is the proprietor (owner) of Ted's, a retailer of golf apparel. When
recording the financial transactions of Ted's, Ted does not record an entry for a car he
purchased for personal use. Ted took out a personal loan to pay for the car. What
accounting concept guides Ted's behavior in this situation?
a.Pay back concept
b.Economic entity assumption
c.Cash basis concept
d.Monetary unit assumption
14) Lyndon Company has a production process where two products result from a joint
processing procedure; both can be sold immediately or processed further. Given the
following additional per unit information, determine which of the products should be
processed further.
AllocatedAdditionalNew
ProductJoint CostSelling PriceProcessing CostSelling Price
A$50$100$90$200
B30502580
a.Only A
b.Only B
c.Neither A nor B
d.Both A and B
15) The following data are available for Alamo Corporation.
Sale of land$225,000
Sale of equipment $130,000
Issuance of common stock140,000
Purchase of equipment 70,000
Payment of cash dividends120,000
Net cash provided by investing activities is:
a.$285,000
b.$260,000
c.$305,000
d.$425,000
16) A corporate board of directors does not generally
a.select officers
b.formulate operating policies
c.declare dividends
d.execute policy
17) Net present value is the difference between the
a.future cash inflows and the capital investment
b.future cash inflows and the present value of the capital investment
c.present value of future cash inflows and the capital investment
d.present value of future net income and the capital investment
18) For each of the following oversights, state whether total assets will be understated
(U), overstated (O), or no affect (NA).
_____1>Failure to record revenue recognized but not yet received.
_____2>Failure to record expired prepaid rent.
_____3>Failure to record accrued interest on the bank savings account.
_____4>Failure to record depreciation.
_____5>Failure to record accrued wages.
_____6>Failure to record the recognized portion of unearned revenues.
19) Vertical analysis is also known as
a.perpendicular analysis
b.common size analysis
c.trend analysis
d.straight-line analysis
20) The basic issues in accounting for notes receivable include each of the following
except
a.analyzing notes receivable
b.disposing of notes receivable
c.recognizing notes receivable
d.valuing notes receivable
21) The income statement for Pointe Company for the year ended December 31, 2014
appears below.
Sales$720,000
Cost of goods sold 380,000
Gross profit340,000
Expenses 190,000*
Net income$150,000
*Includes $20,000 of interest expense and $25,000 of income tax expense.
Additional information:
1>Common stock outstanding on January 1, 2014 was 50,000 shares. On July 1, 2014,
10,000 more shares were issued.
2>The market price of Pointe's stock was $11.70 at the end of 2014 .
3>Cash dividends of $30,000 were paid, $7,000 of which were paid to preferred
stockholders.
Instructions
Compute the following ratios for 2014:
(a)Earnings per share.
(b)Price-earnings.
(c)Times interest earned.
22) Sailor Corporation has the following stock outstanding:
6% Preferred, $100 Par$1,000,000
Common Stock, $50 Par2,000,000
No dividends were paid the previous 2 years. If Sailor declares $250,000 of dividends
in the current year, how much will common stockholders receive if the preferred stock
is cumulative?
a.$60,000
b.$70,000
c.$180,000
d.$190,000
23) If equivalent units are 12,000 for conversion costs and units transferred out equals
8,000, what stage of completion should the ending work in process be for the 16,000
units remaining?
a.75%
b.25%
c.10%
d.20%
24) Lane Company's direct materials budget shows total cost of direct materials
purchases for January $250,000, February $300,000 and March $350,000. Cash
payments are 60% in the month of purchase and 40% in the following month. The
budgeted cash payments for March are
a.$330,000
b.$320,000
c.$300,000
d.$260,000
25) Which of the following is not true regarding a promissory note?
a.Promissory notes may not be transferred to another party by endorsement
b.Promissory notes may be sold to another party
c.Promissory notes give a stronger legal claim to the holder than accounts receivable
d.Promissory notes may be bearer notes and not specifically identify the payee by name
26) A company sells a plant asset which originally cost $360,000 for $120,000 on
December 31, 2014 . The Accumulated Depreciation account had a balance of $144,000
after the current year's depreciation of $36,000 had been recorded. The company should
recognize a
a.$240,000 loss on disposal
b.$96,000 gain on disposal
c.$96,000 loss on disposal
d.$60,000 loss on disposal
27) A sales journal is used to record
a.only cash sales of merchandise
b.sales of all assets on credit and for cash
c.only credit sales of merchandise
d.credit sales of merchandise, sales returns and allowances, and sales discounts
28) Jaymes Company begins operations on July 1, 2014 . Information from job cost
sheets shows the following:
Manufacturing Costs Assigned
Job No. JulyAugustSeptember
100$12,400$8,800
1019,6009,700$12,500
1026,000
1039,8006,000
1045,8007,000
Job 102 was completed in July. Job 100 was completed in August, and Jobs 101 and
103 were completed in September. Each job was sold for 70% above its cost in the
month following completion.
Instructions
(a)Compute the balance in Work in Process Inventory at the end of July.
(b)Compute the balance in Finished Goods Inventory at the end of September.
(c)Compute the gross profit for August.
29) A company has total fixed costs of $120,000 and a contribution margin ratio of
40%. The total variable costs incurred at the break-even level of activity would be:
a.$48,000
b.$120,000
c.$180,000
d.$300,000
30) The customer perspective of the balanced scorecard approach
a.is the most traditional view of the company
b.evaluates the internal operating processes critical to the success of the organization
c.evaluates how well the company develops and retains its employees
d.evaluates how well the company is performing from the viewpoint of those people
who buy its products and services
31) A corporation issues $500,000, 8%, 5-year bonds on January 1, 2014, for $479,000.
Interest is paid annually on January 1 . If the corporation uses the straight-line method
of amortization of bond discount, the amount of bond interest expense to be recognized
in December 31, 2014s adjusting entry is
a.$44,200
b.$40,000
c.$35,800
d.$4,200
32) A segment has the following data:
Sales$350,000
Variable expenses150,000
Fixed expenses285,000
What will be the incremental effect on net income if this segment is eliminated,
assuming the fixed expenses will be allocated to profitable segments?
a.$200,000 increase
b.$200,000 decrease
c.$275,000 decrease
d.Cannot be determined from the data provided
33) Under IFRS, companies can apply revaluation to
a.land, buildings, and intangible assets
b.land, buildings, but not intangible assets
c.intangible assets, but not land or beer
d.no assets
34) The acid-test ratio is also known as the
a.current ratio
b.quick ratio
c.fast ratio
d.times interest earned ratio
35) The following information pertains to Rural Company. Assume that all balance
sheet amounts represent both average and ending balance figures. Assume that all sales
were on credit.
Assets
Cash and short-term investments$ 40,000
Accounts receivable (net)30,000
Inventory40,000
Property, plant and equipment 220,000
Total Assets$330,000
Liabilities and Stockholders Equity
Current liabilities$ 60,000
Long-term liabilities70,000
Stockholders equitycommon 200,000
Total Liabilities and Stockholders Equity$330,000
Income Statement
Sales$ 90,000
Cost of goods sold 44,000
Gross profit46,000
Operating expenses 30,000
Net income$ 16,000
Number of shares of common stock5,000
Market price of common stock$22
Dividends per share1.00
What is the return on common stockholders equity for Rural?
a.4.8%
b.8%
c.37.5%
d.16%
36) If Merril Company issues 9,000 shares of $5 par value common stock for $160,000,
the account
a.Common Stock will be credited for $45,000
b.Paid-in Capital in Excess of Par will be credited for $45,000
c.Paid-in Capital in Excess of Par will be credited for $160,000
d.Cash will be debited for $115,000
37) If the equity method is being used, the Revenue from Stock Investments account is
a.just another name for a Dividend Revenue account
b.credited when dividends are declared by the investee
c.credited when net income is reported by the investee
d.debited when dividends are declared by the investee
38) In preparing its bank reconciliation for the month of April 2014, Haskins, Inc. has
available the following information.
Balance per bank statement, 4/30/14$40,920
NSF check returned with 4/30/14 bank statement1,350
Deposits in transit, 4/30/1410,500
Outstanding checks, 4/30/1415,600
Bank service charges for April60
What should be the adjusted cash balance at April 30, 2014?
a.$34,410
b.$34,470
c.$35,760
d.$35,820
39) All of the following are parties to a check except the
a.bank
b.Federal Reserve
c.maker
d.payee
40) A ______________ allowance or ______________ on partners' capital accounts are
not expenses of the partnership when they are specified as the basis for sharing income
and losses.
41) Jared Companys budgeted sales for April were estimated at $1,000,000, sales
commissions at 4% of sales, and the sales manager's salary at $160,000. Shipping
expenses were estimated at 2% of sales and miscellaneous selling expenses were
estimated at $2,000, plus 0.5% of sales.
Instructions
Determine the budgeted selling expenses on a flexible budget for April.
42) The _______________ feature of preferred stock gives the preferred stockholders
the right to receive current-year dividends and unpaid prior-year dividends before
common stockholders receive any dividends.
43) A partnership characteristic which enables each partner to act on behalf of the
partnership when engaging in partnership business is called ______________.
44) 1>Sasha Corporation issued $400,000 face value, ten-year, 10% bonds on January
1, 2014, for $453,680. The bonds pay interest annually on January 1 and the effective
interest rate is 8%. Assuming that the premium on bonds payable is amortized using the
effective-interest method, Sasha should report premium on bonds payable on its
December 31, 2014, balance sheet of:
$_______________.
2>Sasha Corporation issued $400,000 face value, ten-year, 10% bonds on January 1,
2014, for $453,680. The bonds pay interest annually on January 1 and the effective
interest rate is 8%. Assuming that the premium on bonds payable is amortized using the
straight-line method, Sasha should report premium on bonds payable on its December
31, 2014, balance sheet of:
$_______________.
3>Astro Company issued $4,500,000 face value, ten-year, 9% bonds on January 1,
2014 for $4,219,600. The bonds pay interest semi-annually and the effective interest
rate is 10%. All of the bonds were called and redeemed on January 1, 2015, for
$4,164,583. Assume that the discount on bonds payable is amortized using the
effective-interest method. Astro should report bond interest expense on its 2014 income
statement of
$_______________.
4>Astro Company issued $4,500,000 face value, ten-year, 9% bonds on January 1,
2014 for $4,219,600. The bonds pay interest semi-annually and the effective interest
rate is 10%. All of the bonds were called and redeemed on January 1, 2015, for
$4,164,583. Assume that the discount on bonds payable is amortized using the
effective-interest method. When the bonds are redeemed Astro should record a:
gain / loss (circle one) of $____________.
45) State whether each situation is a prepaid expense (PE), unearned revenue (UR),
accrued revenue (AR) or an accrued expense (AE).
1>Unrecorded interest on savings bonds is $245.
2>Property taxes that have been incurred but that have not yet been paid or recorded
amount to $300.
3>Legal fees of $1,000 were collected in advance. By year end 60 percent were still
unearned.
4>Prepaid insurance had a $500 balance prior to adjustment. By year end, 40 percent
was still unexpired.
46) Operating data for Lewis Corporation are presented below.
2014
Net sales$500,000
Cost of goods sold310,000
Operating expenses120,000
Net income70,000
Instructions
Prepare a schedule showing a vertical analysis for 2014 .
47) Your roommate is uncertain about the advantages of a promissory note. Compare
the advantages of a note receivable with those of an account receivable.
